Pricing of Gift Vouchers May 20, 2009
Posted by Anurag Gaggar in economics, marketing.trackback
Gift vouchers/cards is a concept that has become quite popular in the last few years and most retail chains that have a multi-city presence seem to have their own gift card options these days.
Gift cards come in handy when you want to buy someone a gift and are not sure of what to buy. Rather than buying someone a lampshade and wonder if it will go with the curtains in her living room, you might as well gift her a gift card for a home furnishing store and let her make the choice.
I understand the utility and selling proposition of gift cards, however I’ m not satisfied with the way these are priced. A gift card/voucher that entitles you to a purchase of Rs. 1,000 is typcially sold for Rs. 1,000. So, in effect you exchange cash for something that can be used to make a purchase of an equivalent amount at specific stores before a specific date. From the perspective of a store owner that is great value:
- You get the money upfront and can earn some additional interest on it
- The redemption rate on the gift cards won’t be 100%. A small percentage of them won’t be redeemed at all, some of them won’t be redeemed for the full value.
- A few customers might end up buying goods for value more than the gift card’s value to redeem it fully, thereby generating additional revenues.
If you are the owner of a retail chain, won’t you be interested in promoting gift cards and selling them at less than their face value (let’s say, a Rs. 1,000 gift card for Rs. 950)? One major problem that comes in the way of offering a discount on the gift cards is how to stop regular customers from paying off their purchases through a gift card (Rather than paying for an item for Rs 2,000 in cash, you could as well buy a gift cards for Rs. 1,900 and buy the item through it).
Can you think of a better way to price the gift cards to promote their sale? One suggestion that I had in mind was moving ahead the validity start date of the gift card by a few days. So, you can buy a gift card today for a face value of Rs. 1,000 at Rs. 950, but it can only be redeemed starting 3 days later (or, you can redeem it for Rs. 950 in the next 3 days). One can still pay for one’s purchases and get a discount by buying a gift card a few days in advance, but my guess is the proportion of people doing that would be quite low. Any better ideas?
how about dividing the customres into 2 categories. say the regular customers get an additional discount of 10% on the first day.
and rest go with the assorted price.
Price the gift voucher at their face value but add an additional discount to those who use it between say 15days to 6 months after purchase.
I’m more interested in why is their a gender bias in the blog….why can one only gift something to females
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On a more serious note, the idea to attract more customers to buy gift cards is only valid for those customers who use it much later (so that you earn interest)/who gift it to someone (so that some of it is not redeemed). My sense is that they would anyway buy it at their face value and by giving discounts the only customers you can convert are those who right now buy gifts but can be lured to buy gift cards given the discount. For such customers you may have a limit on the number of gift cards they can use any given month, so that regular customers cannot use the discount too often…