The Psychology of Gift Card Buying and Spending

In 2011 the National Retail Federation conducted a study showing gift cards to be the most popular holiday gift item — 57.7% of all Americans wanted one and 80% were planning to buy one. Gift cards are available today at every grocery store, drug store, restaurant, ice cream shop, spa and mom and pop operation in the country.

But why this abundance of plastic? Is overwhelming gift card availability a benefit for the gifter or the giftee? Who wins here?

The Stress of Gift Giving

According to MasterCard’s 2013 Consumer Holiday Survey, more than 50 percent of people identify shopping and holiday budgeting as their top source of stress, and 42 percent of Americans prefer to give gift cards over physical objects. Whether American are experiencing time limitations, tight budgets, or simply have no idea what somebody wants/needs, the shopping experience is ripe with stress and pressure. This inevitably leads to last-minute purchases or the alternative of avoiding the hassle and opting for a gift card.

Does how we give gift cards even make sense?

A First Data 2012 study shows that a whopping 85 percent of consumers prefer to receive a $25 gift card over a $30 gift. The same study reports that 87 percent of gift card givers delivered a closed loop gift card (a gift card limited to any one specific merchant like Best Buy or Walmart), while 40 percent have delivered an open loop gift card (a Visa or MasterCard gift card redeemable at virtually any store). A 2011 Holiday survey by TD Bank found that 51 percent of recipients prefer a Visa gift card over a closed loop one, compared with less than a third who prefer a store-specific closed loop gift card.

The unused Gift Card

In 2010 $91 billion was spent on gift cards and $2.5 billion went unspent. Why? 51% don’t have time, 41% forgot, and 8% fall into the Other category. That’s enough unspent money to create a secondary market to allow others to purchase these cards at less than face value.

So this begs the question, if we all want gift cards and we’re all giving gift cards, why is so much spending opportunity being left on the table? In our rush for convenient gift giving, are we giving the wrong gifts?

Introducing the “Open Loop” Gift Card

The national “buy local” trend has created a market for various open loop gift card companies that allow you to purchase one gift card for various local member businesses. For example, the start-up Buoy Local in Portland, Maine operates their business on the “passport to Portland” platform. One gift card acts as your debit card to all locally owned and operated member businesses in the Portland and Greater Portland market. From coffee shops to shoe stores to breweries and fish markets, over $90k has been spent at local businesses.

Why are Portlanders purchasing the Buoy Local Gift Card instead of a generic Visa Gift Card or even the company-specific option? There is a feel-good element. Buoy Local states that for every $100 spent locally, $73 stays within the local economy, as opposed to only $43 when the $100 is spent at a chain or online. While these gift cards still provide the flexibility for the giftee to redeem how and where is most useful for them, the gift giver feels a sense of pride knowing they have supported the local economy and spread that message on to a friend or family member. So essentially, it’s an open loop gift card with soul.

Buoy Local is not the first (or last) of its kind. Similar open loop gift card programs are currently operating in San Francisco, Oakland, Madison, Boulder, and Portland, Oregon. These programs run on the same platform as any open loop Visa Gift Card, so most mPOS systems will handle this new trend.

But what about my own business’ gift card program?

Still valuable as ever and growing. While the Buoy Local model is certainly trending, these programs run in tandem with the more personalized closed loop cards offered by individual businesses. In addition to low to zero fees, closed loop programs like Instore’s have the added benefit of serving as customer account tools to inspire and reward repeat business. Instore outlines all of the benefits of offering a gift card program here, and provides options for you to create your own personalized gift card program.

Image Credit: jayneandd. Licensed Under CC BY 2.0.