Eli5: How do stores benefit from selling gift cards?
In: 2
Imagine you are running a lemonade stand. If I buy a 10 dollar gift card from you, you get 10 dollars right away. You eventually have to pay me back in lemonade, unless I forget about or lose the card.
Normally when I’m buying lemonade, I’m want the cheapest lemonade you have. When I buy your most basic lemonade, I spend 50 cents on something that cost you 25 cents to make. Now, I have a gift card, and don’t care about being lavish in my beverage spending. All 10 dollars are going to lemonade, so I might as well get those upgrades.
I end up leaving your stand with the 12 dollar super energy lemon power drink. Not only did I spend an additional 2 dollars, the upgrades only cost you about a dollar. You’ve now made 10.75 off me.
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