Eli5: How do stores benefit from selling gift cards?
In: 2
The most obvious answer is that you’re paying $5/10/20/100+ for a piece of plastic and magnetic strip that probably cost a few cents to make. If that gift card never gets used, then you just made one hell of a profit.
But even if it does, they have a few useful functions:
* Loss Leader – this is a product that is sold for a loss but is meant to get you in the door to maybe buy other things. This is most often used to describe cheap “staple” foods, and things on sale in that category especially (if you have time, look at the bean wars in the UK for how silly this can get), but the basic idea is the same here: a lot of the use of gift cards is for, well, gifts. Gift-buying is a difficult business for some people. If you really enjoy a hobby I know nothing about, and I want to get you something nice, without gift cards I run the risk of getting you something you already have, or something that is bad. As a result, I’m not someone who will ever buy (for instance) yarn or knitting needles as I have no interest in knitting. But if I suddenly need to buy a gift for my sister who knits, well now I either need to know what she needs specifically, or give her a gift card to the local yarn barn (or whatever) – when she needs something from there, she has a gift card now.
But I only *think* that I don’t like knitting. if I go into the yarn barn to get the gift card, there’s a chance I might see some neat piece of knitting that I need to learn how to make, and spend money on myself in the process.
Similarly, if I give my sister a $20 gift card, she might get excited and buy $23 worth of yarn and yarn accessories, thus more profit for the yarn barn, while my sister feels good getting all this stuff for $3 on her end.
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