The National Retail Federation has estimated that the total sales of gift cards during the past holiday season would exceed $18 billion, but many people just want cash. While some issuers of gift cards redeem them for cash, most issuers do not pay cash for gift cards. (See for example, Amazon: "Gift certificates are not redeemable for cash and cannot be returned for a cash refund.") So what is the best way to turn your card into cash?
Take a look at the current gift card auctions at eBay, where most cards are selling at a 5-10% discount. SwapAGift.com was launched in 2003 as a forum for buying, selling, and trading unwanted and unused merchant gift cards. Although many of the listings express a willingness to swap for other cards, people are also selling at a discount, usually in the 5-10% range.
Wouldn't it make more sense if we just gave cash in the first place? Of course, you would never catch me giving cash, at least not to someone I cared about deeply. The shame would be too great. Remember Seinfeld?
Jerry and Elaine sitting on his couch. Elaine holding a present.
Jerry: Maybe you won't like it.
Elaine: Oh, how could I not like it? Of course I'll like it.
Jerry: You could not like it.
Elaine: Just the fact that you remembered means everything.
Jerry: Of course I remembered. You reminded me everyday for two months. Oh, the card. (She opens)
Elaine: Cash?
Jerry: Would do you think?
Elaine: You got me cash?
Jerry: Well this way I figure you can go out and get yourself whatever you want. No good?
Elaine: Who are you, my uncle?
Jerry: Well come on. That's $182 right there. I don't think that's anything to sneeze at.
Perhaps a $200 gift certificate would have been more appropriate.
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1. Posted by Jared on January 3, 2006 @ 10:40 | Permalink
This christmas I found that gift certificates to (1) restaurants that the recipients like, and (2) beauty salons, went over quite well.
The gift certificates are a method by which the recipient becomes entitled to an enjoyable experience, which cannot in any more effective manner be wrapped up and presented as a gift.
2. Posted by Justin Wallace on January 5, 2006 @ 12:15 | Permalink
It's interesting that cash-as-a-gift is a social faux pas (as the Seinfeld reference indicates) but that gift cards are more socially accepted. The retailers are laughing all the way to the bank: as soon as you purchase a gift card at face value, it loses value, as the 5-10% discount rate shows. Simply put, there is a non-trivial probability that the card will never be used, be it lost, forgotten, or discarded. If the card costs C and the probability it will be used is p, then the card's value becomes C*p. Since p < 1, C*p < C, and the consumer loses a piece of the pie.
The way to reduce the magnitude of the loss, as Jared pointed out, is to buy gift cards with a high p value, so that C*p will converge to C. If you get someone a gift certificate to their favorite restaurant, or their grocery store, there's a high probability that they will at least have the potential to use the card. The probability of use goes down, I would imagine, as the value of the card goes down and the burden of using the card goes up. If you get someone a $20 gift card to a restaurant that's 50 miles from their house, it may not be worth the value of the card to bear the burden of using it.
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