Business Life: Gift Cards
This Christmas, will you buy your loved ones presents that they may not like? Or will you slip them some cash instead? Neither option has much appeal. A gift of money, unless to a much younger relative, looks lazy and even patronising. Yet many people are incompetent present-buyers: I wrote on this page last year about economist Joel Waldfogel’s famous discovery that the typical recipient of a gift costing £25 would not have paid £20 for it himself.
Perhaps it’s not surprising, then, that gift cards have taken the western world by storm. (According to the economist Jennifer Pate Offenberg, gift cards are now the most popular type of gift in the United States.) These electronic versions of the traditional gift voucher might appear to offer the best of both worlds – the flexibility of cash coupled with the thoughtfulness of a proper present.
I can’t agree. Gift cards are neither flexible nor thoughtful, and what is more, research from economists and business consultants seems to back me up.
The first thing to understand about gift cards is that many of them are never used. I once gave a gift card to a teenage niece so that she could buy books, DVDs or music in what struck me as a ubiquitous chain. I was wrong: she lived almost two hours from the nearest branch. My experience seems to be fairly typical: TowerGroup, a market research firm, estimates that about 10 per cent of the money spent on gift cards is never redeemed.
That sounds bad enough, but it’s an underestimate of the true waste involved, because of the 90 per cent of redeemed cards, many have been sold on through eBay. (How romantic!) Jennifer Pate Offenberg has made a study of the “shadow” gift card market on eBay, and the story isn’t pretty. The typical seller accepts a loss of 15 per cent on the face value of the card. That doesn’t include the costs and the inconveniences of selling it in the first place.
If you must buy a gift card, Offenberg’s research does offer a few pointers as to how to do it. The most romantic gift cards – those redeemable at lingerie or jewellery shops – are in fact the worst choices, selling at a discount of about 20 per cent. More prosaic choices, redeemable at Starbucks or Wal-Mart, sell for much closer to their face value.
But a gift of cash doesn’t need to be re-sold at all, which raises the question of why more people don’t just send cash with a note attached: “I intended for you to spend this money at Tiffany’s, but please don’t feel obliged.”
First published in Business Life Magazine, December 2008