Gift cards represent an additional source of income for many companies. They are cheap to produce, especially when manufactured in large quantities.
First, selling gift cards to customers represents an immediate source of income, without even having to sell a real product or service. The real sale happens when the buyer redeems the card.
Retailers make money by selling gift cards, even if the card is never used. Which happens more often than you think!
Gift Card Breakage
Effectively, many people do not use their gift cards in full. Some gift cards never even get used. Did you know that every year, according to CEB TowerGroup, 10% of gift card balances go unused?
Here are a few reasons why:
- The customer isn’t interested in getting any of the store’s products or services.
- The gift card gets lost.
- The card expires before the customer uses it.
- The customer spends part of the card balance and the remaining balance remains unused.
- The customer forgets its existence.
The majority of the profit generated from gift cards for stores comes from unused cards.
Expired Gift Cards
Expiry is the main reason why gift cards remain unused or partially unused. In 2018, 50% of Americans let a gift card expire! However, expiration dates on gift cards are generally illegal in Canada. There are also laws regarding expiration dates on gift cards in the United States.
Unused cards are very profitable for businesses because the value of the remaining balance on unused gift cards is 100% profit for the company.
When people have a gift card, they often buy a product whose price is higher than the balance on their card. This brings additional revenue to the business. 61% of consumers spend more than the amount of their gift card when they redeem it.
Gift cards, when people redeem them, are ideal for cross-selling opportunities. If they buy several products whose total amount exceeds the balance of the gift card, you will have additional income.
Customers are also more likely to buy a high-value product with a gift card. For example, if a customer has a $50 gift card, but the product they’re really interested in is $60, they’re more likely to buy that product.
Customers often see gift cards as “free money” or as a discount. It’s a mindset that motivates them to spend a little extra out of their pockets in your store. It’s another way businesses profit from gift cards.