Gift cards are a popular and convenient present for many occasions, but they also provide significant financial benefits for businesses. Companies earn millions from gift cards through various methods, including breakage, service fees, and increased spending. Understanding these revenue streams can help consumers make informed decisions about their gift card purchases.
1. Unused Balances
Let’s be honest. How many of us are walking around with gift cards we haven’t used in years? How many of us have a few? Chances are many of us fall into these categories and companies bank on it. Companies often rely on unused gift card balances, known as “breakage,” to boost profits. On average, Americans leave behind $3 billion on unredeemed cards each year. The gag is, that they get your money upfront. When you forget to redeem the gift card, they make a profit and get to keep their merch.
2. Fees and Expiration Dates
Not all gift cards come fee-free. Some cards have activation charges you must pay in addition to adding a balance to the card. Others carry inactivity fees or have expiration dates. This ultimately reduces the value of the gift card over time if you do not redeem it early on. Check the terms before making a purchase to avoid losing money.
3. Upselling and Additional Spending
Gift cards are like having access to free money. Most people don’t use them to save money on a single item. Instead, they often spend more than the card’s value and use it towards larger purchases. In essence, gift cards direct people to the store and encourage them to buy more. This additional spending directly benefits retailers.
4. Store-Specific Cards
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When selecting a gift, many individuals lean towards purchasing gift cards that are specific to a particular store or brand. While convenient for the giver, this choice can restrict the recipient’s options. They are essentially encouraged to limit their shopping to that specific store or brand’s ecosystem, even if they could find better prices or products elsewhere. This limitation can be frustrating for the recipient, as it can feel as though their choices are being dictated by the gift card, potentially leading to them spending more than they would have otherwise.
5. Resale and Exchange Markets
As stated, many consumers let their gift cards go unredeemed. To retain some value from the card, they may think about reselling them online. However, consumers should be advised that some gift card exchange platforms allow companies to buy cards at a discount and resell them for a profit. Always check for reputable platforms when selling or exchanging cards.
Gift cards are a popular present, but they also benefit businesses financially. To make informed choices and avoid common pitfalls, be mindful of how companies profit from these cards. Track balances, expiration dates, and your spending to get the most out of yours.
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