Gift cards have become a popular choice for shoppers looking for the perfect gift, while offering some flexibility to the recipients. Some wonder, however, whether the retailers and businesses also profit from gift cards.
The answer is yes, businesses profit from gift cards. They make money when retailers buy their gift cards. They also make profits with unused or expired gift cards and when people spend more than the amount on the card.
Gift cards also provide the following benefits to stores:
- Revenue growth
- Ideal tool to boost sales
- They are perfect gifts
- Increased brand awareness
- Customer acquisition
- Advantage over competitors
- Customer retention
- Easy to manage with a POS software
The retailers (e.g. Walmart, Target or grocery stores) that sell the gift cards also make money. They receive immediate income when a gift card is sold to the consumer. They even make some profit as the companies sell the gift cards to retailers for less than the original value of the cards.
Stores that provide gift cards redeemable within their shop reap many benefits. Here are 8 of those benefits:
1. Revenue Growth
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.
Additional Purchases
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.
The Impressive Case of Starbucks
Starbucks gift cards have been a popular holiday gift for many years. Starbucks is one of the most gifted brands in the world. In 2021 alone, 55 million Starbucks gift cards were sold in the United States and Canada. During the first quarter of 2023, $3.3 billion was loaded on Starbucks gift cards.
Starbucks has made its gift cards the gifts of choice for birthdays, Christmas and other special occasions. The fact that they are distributed everywhere (Walmart, grocery stores, Amazon, Starbucks website) is also a reason why they work so well.
Moreover, Starbucks makes huge profits on unused cards. In 2022, there were a total of $1 billion sitting in gift cards, waiting to be spent. Gift card breakage represents a high source of profit for the company.
2. Ideal Tool to Boost Sales
Gift cards are very popular during the holidays and on special occasions. They can therefore be very useful in boosting the sales of your store.
Offering gift cards during these times helps businesses capitalize on increased consumer spending and increase sales during the peak season. You can profit from gift cards especially during that time.
3. They Are Perfect Gifts
People love to give and receive gift cards, whether it’s for Christmas, their birthday or another special occasion. Gift cards are flexible: they give the recipient the freedom to choose when and how they spend it. They’re also easy to buy and spend, and they save hours of tedious shopping for a gift.
They make it possible to avoid giving a specific object or service that the person may not like. On the other hand, it is a more personalized gift than money. The best of both worlds!
Gift cards can be chosen based on the values, hobbies and tastes of the recipient. At the same time, they allow them to make their own choices.
They also act as an incentive to discover stores, restaurants and businesses that the recipient does not know. They introduce them to new experiences that allow them to spoil themselves without feeling bad about spending their money.
It is no wonder that gift cards remain the most requested gift. 51% of consumers prefer them over physical gifts!
4. Increased Brand Awareness
Gift cards are an ideal opportunity to raise brand awareness.
Gift cards help to improve brand awareness. When the gift card is laid out in a grocery store or other retail location, your business name or logo is displayed for all to see. It is an advertisem*nt for you in a store other than yours. This is very beneficial for your store, especially when your gift cards are displayed alongside those from big companies like Netflix or Amazon.
Also, when someone gives a gift card, they are promoting the brand to the recipient. By giving a gift card, your loyal customers convert their loved ones into customers. They may become regular customers too!
5. Customer Acquisition
Gift cards help attract new customers. People are more likely to go to a store or restaurant they’ve never been to if they received a gift card.
Additionally, gift cards give you two customers: the person giving it and the person receiving it. This increases traffic to your store when your gift cards are used as gifts from one person to another.
Gift cards are a form of word-of-mouth marketing. This kind of marketing is very effective, often even more than what you can do on your own.
Here are 127 powerful words to attract customers.
6. Advantage Over Competitors
Many large companies offer gift cards. You will not overtake them overnight, but you can still claim your rightful place by offering your own gift cards.
Gift cards also ensure a sale: if a person receives a gift card from McDonald’s, they will eat at McDonald’s the next time they want fast food, not at Burger King.
Gift cards offer a certain competitive advantage that should not be overlooked.
7. Customer Retention
When customers redeem a gift card, they become more engaged with the business, leading to repeat visits and purchases. Gift cards also encourage customers to return to the store to use their remaining card balance.
Learn what a good loyalty program looks like here.
To retain customers with gift cards, it is crucial to provide them with an unforgettable and pleasant customer experience. If their shopping experience or with the gift card is not pleasant and memorable, they will not come back.
Example: A customer comes with a gift card to your store. At the checkout, he is told that he cannot buy what he wants with the card because it has expired or because there are terms, fees or limitations. The customer may be frustrated and never come back.
If what the customer wanted to buy costs more than the amount on the card, you just lost a sale and revenues! Maybe they will even recommend their relatives not to buy from your store, which is not good for your business at all.
8. Easy to Manage With a POS Software
Managing active gift cards is very easy with a good point of sale software.
You can manage gift cards directly in some point of sale software, such as Alice POS. No need to install third-party apps that make your life difficult! In Alice POS it is very easy to sell gift cards, view remaining balance, delete cards, activate gift cards and accept gift cards as a payment method.
This type of software also generates reports and analysis regarding gift cards that can be very useful for decision-making for the future of the store. In these reports, you can see all the information about the gift cards issued, such as their initial value, the current balance of each of the cards and the period for which they were issued.
To learn more about the roles of a point of sale software, it’s here!
A point of sale software even allows you to manage subscriptions and a loyalty program. It’s a tool you can’t live without!
In conclusion, it is undeniable that gift cards offer a plethora of advantages to companies and allow them to generate substantial profits. Not only do they increase sales and brand visibility, but they also favor customer loyalty and encourage additional purchases.
Gift cards are proving to be an effective tool to drive revenue and support store growth. This is a must-have strategy for businesses looking for commercial success!
