Monday, November 12, 2007

Say No to Gift Cards. Just Give ‘em the Cash!

For the past five years or so, purchasing gift cards have been a convenient method of gift giving over the holidays. Especially when children reach that “hard to buy for” stage (otherwise known as the teenage years.) Why screw up? Just purchase a gift card and it’s up to the recipient to spend as he or she wishes. Here’s the problem: what if he or she forgets about or loses the card? The purchase was a total waste and it becomes a donation that isn’t tax deductible. The solution: just give ‘em the cash!

Now, every story has two sides. Before I begin ripping on gift cards, let’s look at the bright side. From a business standpoint, owners would be foolish to not implement a gift card program. Gift cards are cheap to produce, and offering gift cards has been shown to increase sales (people tend to spend more than the value of the cards), increase customer loyalty and perceived customer value. Have you ever purchased a particular item and received a five-dollar gift card as a bonus? It’s obvious that gift cards used as marketing tools can have positive effects on a company’s image and relationship with customers. Financially, getting the money ahead of the purchase improves cash flow. And the cards that go unredeemed? Bonus in the bank! And although the accounting department still views the unused card value as a “liability” and delays the reporting of revenue, the fact remains that after a year has passed, the possibility of redemption is very unlikely and it’s money in the bank.

But we're talking about gift giving here. From a consumer’s point of view, the thought of unredeemed gift cards is bothersome. There’s nothing worse than losing money, in my opinion. And that’s exactly what happens when a gift card recipient forgets or loses his gift card. Even if a recipient doesn’t necessarily lose a card, but simply holds on to it too long, he could face fees or expiration dates that devalue the gift amount, ultimately causing frustration. Although gift card losers (don’t take that personally) remain to be a small percentage of total recipients, it’s still a lot of ching that’s being tossed away. Financial services consultancy, TowerGroup reported that in 2006, gift card volume was at $80 billion and it predicts that amount to exceed $100 billion in 2008. According to experts, about 10% of gift cards are never spent. Let’s do the math; that’s about $8 billion dollars! EIGHT BILLION DOLLARS! (In 2006, Best Buy had about $46 million in unused gift card revenue.)

Cold hard cash, people, always gets redeemed. If you’re not a great shopper (or just hate it) or just don’t know what to get someone, slap a few green backs inside a thoughtful card and I promise you this: ain’t no one gonna complain about gettin’ some dollars.

A Gift from Me to You: Cross-Channel Gift Cards, Multichannel Merchant
Accounting for Gift Cards, Journal of Accountancy

Additional Reading:
Billions in Unredeemed Gift Cards!
Roboshop Gift Cards
Marginal Revolution: Seigniorage fact of the day
$25 Billion in Christmas Gift Cards, But Spend it Promptly
The Conglomerate: Abandoned Gift Cards


Rybu said...

On the positive side, it does provide for a happier giftee or whatever word it is I am looking for. It gives that person choice! The flip side of an unused gift card is an unused present. Won't be long, I suppose, until re-gifting gift cards will be the craze!

RonMexico said...

These cards can also be a major pain in the ass for retailer's as well, because once you spend part of what is on that card, you need to remember what is exactly on it, or else the card will not process.

Example: you are purchasing something for 20.00. If the card you have only has ten dollars on it, you need to first pay via cash/check/credit/debit the amount above what is left on the card (10.00) and then run the remaining purchase on the gift card. It does not seem tough with nice even numbers, but if you are using the card for multiple purchases, at multiple places, and over an extended period of time, this can become a major hassle.

If the consumer does not remember how much is on that card, it can take a large amount of time to get it all figured out, as well as backing up lines and irritating other customers.