Gift cards may seem like the perfect solution for any occasion, but they’re even better for businesses. Companies benefit immensely from the gift card craze. They earn billions on gift card sales annually while you, the customer, foot the bill. Here are seven reasons why companies love customers buying gift cards. Maybe you will reconsider their appeal!
1. They Ensure Upfront Revenue
When you buy a gift card, companies get paid immediately. It’s not like opening a line of store credit, where they have to wait until you pay off the balance to recoup costs. No, they get their money as soon as you hand over the cash. Even if the card isn’t redeemed for months (or ever) they’ve already secured the money.
2. Breakage (Unredeemed Cards)
They bank on what users are going to do with their gift cards. Many company executives understand that many people forget to use their gift cards or lose them. This unredeemed money, known as “breakage,” goes straight into the company’s pockets. Essentially, they’ve been paid in advance without having to provide any goods or services. It’s a highly advantageous situation for businesses.
3. Increased Spending at Redemption
When it comes to knowing customers’ habits, stores have done the research. They understand that when recipients use gift cards, they often spend more than the card’s value. This “top-up” spending boosts sales.
4. Low Production Costs
Gift cards are the cheapest product a business can produce. They cost very little in production, but generate a virtually unlimited amount of revenue for the company. For digital gift cards, the costs are even lower and the profit margins are even wider.
5. Brand Loyalty and New Customers
Gift cards aren’t just for loyal shoppers. They are sometimes given to consumers who may not frequent an establishment. The gift of a gift card often encourages recipients to visit stores or websites they wouldn’t normally shop at. This creates a potential to create new loyal customers for businesses.
6. Predictable Sales During Holidays
Gift cards are popular holiday gifts. Even though I am partial to them, they can feel a bit disingenuous. Their popularity and use during the holidays provide businesses with predictable and substantial seasonal revenue. Because recipients are getting what they want, they are also less prone to returns or exchanges than traditional presents.
7. Reduced Return Hassles
Unlike physical gifts, gift cards don’t get returned. This means companies avoid the costs and logistics associated with processing returns, saving them time and money. When you get a gift card, you either redeem it or lose it. Customers may turn to sell it on a gift card exchange at a slight discount to recoup some of the value. This process cost the business nothing.
Businesses Profit From Gift Card Sales Big Time
While gift cards offer convenience for shoppers, they’re a goldmine for businesses. Businesses make billions on people buying gift cards and earn loyalty from new shoppers. Understanding why companies love them can help you make smarter gifting decisions and avoid common pitfalls.