Gift cards are ingenious, says Morgan Quinn over at CBS News. Not only do they allow recipients autonomy over their gifts, these little pieces of plastic are massive retail moneymakers. That’s because gift cards behave like cash rather than like product vouchers and very rarely does anybody spend the exact amount on their card.
Take this example. If you’ve got $50 to Best Buy and you purchase a $56 video game, that’s six bucks for the retailer on top of the initial $50 spent by whomever bought you the card. If you purchase a $46 video game and are left with a $4 balance, you can either walk away and let Best Buy pocket that amount (good for Best Buy) or choose to purchase something else that may carry you over the $50 precipice (also good for Best Buy). Now multiply this scenario by the n-thousand cards sold each year and you’re looking at millions of dollars in profit just by giving customers a different way to pay for goods. Factor in the fact that 1/3 of gift cards never even get used and you can see that this is a major win-win for retailers:
“The easiest way to make sure you don’t forget about your gift card is to use is as soon as possible. Gift cards also don’t protect against inflation, which means they will lose value over time. Brian Riley, senior analyst for bank cards with the Tower Group, told the E-Commerce Times, ‘Through dormancy fees and abandonment, unused funds will run about $8 billion.’ Use your cards right away to make sure you get every penny of credit you deserve.”
Read more at CBS
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