Sunday, January 17, 2010

Gift cards

A decent amount of my net worth at the moment is tied up in gift cards—about $600 at the moment.  That's a lot of money that can only be spent at specific stores!  Gift cards as a gift idea are great, but as an incentive or reward they are pretty obnoxious.  For one, gift cards are really about the only useful reward I can get from my credit card rewards program, so I've got some there.  And then I've got some from incentives, like a $100 Wal-Mart gift card I got during Black Friday.  And then there are all of those pretty good deals that I tried hard to resist, like "buy a $50 gift card at this restaurant that you go to frequently and get another $10 gift card free."  Those are the obnoxious ones, because I know that financially they make a lot of sense for me.  They're essentially just a discount since I'm guaranteed to spend money there anyway—in the previous example, it's a 17% discount ($10 off a purchase of $60).  But for that free $10 I'm paying a definite price in inconvenience.  To save ten bucks I have to carry around one or two more pieces of plastic or paper with me at all times, or even worse, remember to pick them up before eating there from some out-of-wallet storage location.

What I think is most annoying about the existence of these offers is that I don't feel like that inconvenience is the intent of the promotion.  The intent, as I see it, is twofold.  There's the actual gift-giving case, where someone gives a gift card to another person.  If the recipient is already a customer, no harm is done; the gift card has incentivized and reminded them to come to the restaurant and spend at least $50.  If they're not, then the restaurant just got new customers that they didn't have before, and possibly repeat customers.  And if the restaurant is really lucky, they'll just lose the gift card or forget to use it before it expires.  All of those are profitable—enough to make up that $10 that they gave the buyer if the buyer doesn't also forget to use their incentive gift card (which will likely expire in three months or some short period of time).

In none of those scenarios is the restaurant making profit on my inconvenience.  The closest thing is that they're making money on the fact that this gift card is "burning a hole in my pocket," making me want to eat there and spend money.  I'm good about using gift cards and sending in rebates and those sorts of things.  I'm going to use that card; I wouldn't have it if I didn't plan to.  It ends up being this weird system where I can choose to take on additional inconvenience for what is essentially a small cash payout of $10 or so.  So far I've decided that my precious wallet space is not worth that $10 of free money, but I'm tempted each time.  I feel like normally when marketing promotions are involved, one person's inconvenience benefits another, and I think it actually makes me more annoyed that in this situation my inconvenience doesn't help someone else (even the restaurant's investors) out.


Andy Misle said...

I personally feel that giftcards suck hard. They are a shitty gift that says someone doesn't care. Give me cash or nothing - both would be better gifts.

That said, you neglect to consider the administrative costs/overhead that a business must incur to have an electronic giftcard program. For your Targets, Best Buys, etc. this is minimal; for a small restaurant, it can be significant.

I have heard our customers pay around 50 cents for each blank gift card (the ones with magnetic stripes printed with their logo on the front). They pay our company several hundred dollars for the electronic giftcard add-on. They also pay a monthly service fee to a company who tracks each card's balance and handles such transactions. Restaurants can skip that last charge if they only have a single location.

Louise said...

Companies love gift cards, because they have discovered (or at least the place I used to work did) that on average - if a customer came in with a $100 gift card, they would end up buying $150 worth of stuff.

Also, in some states - just to see what your balance is on one of them costs a certain amount of money (that they take off the card) and if you didn't use it over a certain amount of time - that they would slowly decrees the value of the card. Luckily - Washington State has laws that say they can't do that. A $100 gift card is a $100 gift card. It doesn't matter how long they sit on it - you still have to honor it. I don't know if the promotional ones are treated the same way - since it isn't you paying for it.

Of course, if you need help using some gift cards (especially at restaurants, I can help :)