Shoppers love plastic gift cards. They are convenient to buy, easy to use and allow the recipient to purchase something they truly want. But retailers also love gift cards and for good reason. Yes, retailers have to pay to design and produce plastic gift cards for their stores, but they are well worth the effort. In the retail industry, gift cards are known as a stored-value product because they store their value extremely well and often permanently.
For retailers, plastic gift cards are wonderful because people buy the cards to give to their family, friends, and colleagues but the recipients don’t always redeem the cards. This is a great advantage for retailers because there is no downside for them, and they are generating cash flow. Until the recipient redeems the gift card, the retailer has been paid but has not actually given the purchaser anything other than a plastic I.O.U that may never be used. The retailer has basically been paid upfront, regardless of whether the card gets used or not, without handing over any stock and unlike cash, gift cards can expire. This means that the revenue generated by plastic gift cards is not calculated by simply multiplying quantity and price, there is an additional expected return due to the positive balances that remain on expired cards or on cards that are lost or never redeemed. Whether it is $1 or $2 that remain or the full amount, the money left behind on gift cards adds up and has a positive effect on the retailers cashflow and bottom line.
To add to the advantages for the retailer, plastic gift cards often lead to what is referred to as “upspending” in the retailer industry. This is when a customer who has a gift card spends more than the value of the card and adds their own cash to cover the cost of the purchase. It’s clear to see why gift cards are seen as a win-win situation for retailers.
Gift Card Hold Value, But the Money is No Longer Fungible
In economics, fungibility is the ability of goods or assets to be interchanged with other individual goods or assets of a similar type. An example of fungibility is a currency. This means that every $20 bill is worth $20 dollars regardless of how old it is or where you got it. If you loan someone $20 it does not matter if they repay you with a different $20 bill, or even two $10 bills, the value of the currency has not changed because it is mutually substitutable. Money can be interchanged endlessly because like amounts hold the same value. Plastic gift cards are not fungible. A $20 bill has value anywhere, but a $20 gift card only has value in the store where it was purchased.
The economics of gift cards is complex and technical and even though a gift card may state “treat this card like cash”, there are fundamental differences between cash and plastic gift cards and in economic terms, a gift card is not necessarily worth the cash equivalent. This, however, does not mean that plastic gift cards are not great gifts. Yes, they have many advantages for retailers, but they also have advantages for shoppers, and the appeal of gift cards lies in their convenience and flexibility and the fact that they allow the recipient to buy something they really want or need.
QuickCards can help you with all your gift card printing needs and design the perfect plastic gift card for your business.