The very descriptor of a gift card implies that it is given as a gift. However, a Retail Gift Card Association (RGCA) study conducted in 2019 found 33% of consumers purchased gift cards for self-use. When a gift card is obtained for self-use, the consumer has no intention to gift the gift card, but instead spend the gift card for personal purchases.
Brands should monitor the mix of gifting versus self-use behavior. Over time it can affect the economics of a gift card program including time from activation to redemption, change in mix of denominations sold, overspend above the value of the gift card, breakage and the use of gift cards in conjunction with other discounts and promotional offers. All of this combined can diminish the profitability of a gift card program.
There are potential positive tradeoffs. Self-use can drive customer acquisition/retention, loyalty to a brand, shift share from one brand to another and lock-in additional cash for the corporate treasury.
Below are some self-use channels. Any omissions are not intentional. Taken individually these may have positive or negative outcomes for gift card program economics. These channels are by no means exclusively self-use and consumers do use these same channels to purchase/obtain a gift card for a gift:
Credit card replacement
For the unbanked population (no credit/no debit), a gift card allows consumers to use cash to purchase a gift card to be used for online purchases. Alternatively, for those outside of a brand’s home-country, gift cards can be used to make purchases on ecommerce sites that do not accept credit cards issued from their home country.
– Savvy consumers will use a variety of offers from gift card programs to maximize the savings towards a particular brand. The RGCA study found 51% of gift cards were purchased for at least one of these reasons:
– Loyalty/credit card points earned
– Promotions – Discount off or extra value added to a gift card during a promotional period offered by a brand or one of its distributors
– Cashback – Cash earned on the purchase of a gift card through a cash back affiliate site
– Wallets/savings apps – Wallets and real-time activation apps are an emerging trend where consumers purchase the exact amount of a gift card at the time of checkout at a retailer. They are incentivized by cash back, loyalty points or fundraising to do so.
– Whether obtained through an employee reward/engagement program, loyalty scheme or otherwise, consumers will select everyday gift card brands (grocery, pharmacy, etc.) as a means to pay for everyday items, thus saving cash for alternate needs.
– Grocery stores associated with gas/fuel stations run promotions earning discounts on gas/fuel purchases based on the total spend at a grocery store. To drive up total purchases, consumers will buy gift cards for brands they already intend to purchase from.
– Redeeming loyalty points from a credit card, travel or general-purpose loyalty coalition for gift cards.
– Churches, schools, sports organizations and non-profits raise funds through gift cards. Parents associated with these organizations purchase gift cards for brands they intend to purchase from, and in turn, the organization receives a portion of the purchase back as a donation.
Insurance replacement payout
– When insurance claims pay out all or a portion of a claim using gift cards. This could be due to damage to a home/apartment and/or its contents. If a house burned down the consumer would receive a payout via a gift card for a furniture store, hardware store, etc. often receiving more value than if a cash payout were selected. They may also receive travel-related gift cards to book temporary accommodations.
Gaming earning cash out/rewards
– A payout of earnings associated with in-person or online gaming and betting. Gift cards are often used as a payout when it is unlawful for a cash payout.
– To either save towards a large purchase (furniture, travel, etc.) consumers may purchase gift cards on a regular basis to save towards that item. Parents, in order to limit the amount of money spent in a certain brand, may provide allowances in the form of gift cards.
– Some countries allow for a portion of an employee’s salary to be paid in gift cards instead of cash. The employee is incentivized by receiving a higher value than the cash equivalent while the employer purchases gift cards at a discount, saving money compared to the cash equivalent salary payout.
– Electing to receive a gift card as compensation for customer service issues or as a refund payment for goods returned.
If a brand participates in the above or is considering other channels that have high self-use behavior, it is recommended to run an analysis before and during distribution of gift cards within that channel to monitor its effects on overall gift card program performance.
Todd Tomlin is a global consultant and expert on gift cards, stored value, branded currency and pre-paid products. He assists individual gift card brands and the supporting companies of the industry to maximize opportunity of the brand, product or service through go-to-market strategy, business development, operations management, strategic partnerships and more. He previously managed Hyatt, Cinemark and Hotels.com gift card programs.