Why is it worth it for companies to take your money for gift cards or virtual dollars for spending later? Sometimes they’ll even take $40 and give you $50. What’s the benefit to them?
In: Economics
A few things.
Gift cards are often gifts, strangely enough. A chance to reach a new customer.
The company usually won’t need to actually sell $50 of product to make a profit, they may still make profit or break even at $40. There worth the risk to them.
Not all cards are used. Free money.
Payment for gift cards is upfront. They can then use this money immediately to reinvest, or even as a kind of interest free borrowing I guess.
Almost all cards will have terms that can be quickly abused. Especially if the company goes in to administration. The first rule is obviously expiration date. But there have been companies recently that have refused to honour any cards since they went in to administration. Others have said they are immediately halving the value.
Now this doesn’t strictly benefit them, as being in administration is very bad news, but it does let them mitigate risk.
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