When golf galaxy replaced its paper gift certificates with a plastic gift card program in late 2002, its marketing handicap improved considerably. Not only did the 29-store Minneapolis-based chain slash the administrative costs associated with gift certificates, it locked in scores of new customers by offering them store credit toward clubs, gear, even on-site lessons.

Now, Golf Galaxy plans to use the so-called "stored value" cards to boost its marketing efforts even more -- by mining the spending data embedded in the cards to target customers with information about sales and events, like Callaway Golf Night, which attracts Big Bertha fans with special discounts and clinics with PGA pros. "Our stored-value cards are a big part of our business because of the convenience factor for customers," says Mick McCormick, the company's chief marketing officer. But, he adds, the electronic tracking of information gleaned from the gift cards is "probably one of our most valuable tools."

The nation's large retailers, of course, have been aware of this for several years. Gift cards were a huge hit during last year's holiday shopping season, spurring sales at major retailers like Starbucks, where gift card users now account for about 14% of North American revenue, and Barnes & Noble. Now, with this year's crucial holiday sales season approaching, small and medium-size retailers are rushing to create stored-value programs of their own.

Not only do such cards provide companies with access to cash upfront, merchants get to keep the entire amount of a card's value whether or not it is fully redeemed. When it is redeemed, shoppers typically spend more than the card's value for their purchases -- and loyal ones often reload their cards with cash to buy more, according to Aaron Sorgman, CEO of TenderCard, a stored-value card supplier in East Falmouth, Mass. "Customers love them," says Diane Hays-Hoag, VP of marketing for Gloria Jean's Coffee, a coffee shop franchiser based in Irvine, Calif., that introduced stored-value cards for the holidays last year.

But the cards have plenty of hidden value, as well. Golf Galaxy's stored-value system, for example, tracks the card's balance and the frequency of use. By combing through a database of such information, the retailer can learn how much those customers spend and glean other insights into their purchasing habits. "If it was a paper-copy gift certificate, we wouldn't have any of that," McCormick notes.

Be warned: Implementing such a program is not cheap. Although a basic gift card program for a single store can cost as little as several hundred dollars, multistore systems with several terminals, custom-designed cards, and data-management technology may require upfront investments of $20,000 to $100,000. Plus, many suppliers charge monthly transaction and data-management fees that run about $35 per month per location; others charge a percentage-based fee that fluctuates with sales. For businesses that have existing customer-relationship management programs, integrating the two databases could add several thousand dollars to the final price.

What's more, such systems take time and effort before they pay off. At Golf Galaxy, for instance, one full-time marketing manager spends much of his week administering the loyalty program. The company also retains a customer-relationship management consultancy. Sorting through the additional gift card data means even more significant financial and time commitments. But McCormick expects the return on that investment to be considerable. "If we wanted to go back and find all our customers who purchased gift cards last year and remind them that we have new cards available, we could use it for direct marketing," McCormick says. "It's a great opportunity to obtain information we can track at any time."