Retailers Offer Discounts on Gift Cards or Added Bonus Cards

by Mercator Advisory Group 0

Retailers are offering discounts on gift cards or pairing them with bonus cards over certain amounts, but popular conception that retailer prefer that gift cards go unredeemed still persists. An article in the StarTribune repeats this old saw even as it identifies reasons why merchants want increased redemption.

Retailers such as Haskell’s, DSW Designer Shoe Warehouse, Children’s Place, and REI are joining local and national restaurants such as Olive Garden, Ruby Tuesday, Manny’s, Salut and Punch Pizza in offering customers a freebie. Customers spend $25 to $100 on gift cards and get a free bonus gift card for $5 to $25. Some retailers, such as Haskell’s, discount their gift cards instead, offering a $100 card for $80.

Retailers have gotten more sophisticated in the wake of the card act in how they market their cards. Bonus cards are designated as such because they are funded by the retailer and not the customer. Part of the issuers’ over gift card strategy is to drive redemption, and despite conventional wisdom, retailers do not hope that the cards are never used.

Although consumers love pocketing the savings, the bonus promotions are especially attractive to merchants. Twenty percent of all gift cards are not fully redeemed, according to American Express. While cards with a value of $100 or more have a high redemption rate, many cards for $10 to $50 never get spent, giving merchants a free ride.

Escheatment laws in many states require that merchants turn the funds from unused gift cards over to the states. In addition, bonus cards are funded by the merchants, so that money is not new revenue to them, but rather unused marketing dollars. Finally, merchants lose out on the additional money that customers with gift cards typically spend, leaving them with additional inventory that would have otherwise wanted to move.

Click here to read more from the Minneapolis StarTribune. Download Mercator Advisory Group’s 2012 Holiday Gift Card Forecast.

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