Some noticeable trends have emerged this holiday season, including never-ending Black Friday sales, an increase in self-gifting, and a decrease in credit card usage. Another trend popping up left and right among retailers and restaurants is the gift card bonus, a seemingly fantastic deal in which you might pay, say, $50 and get $60 worth of value in return.
While retailers occasionally offer such promotions, restaurants have heartily embraced the practice during the busy shopping season, heralding gift cards as ideal stocking stuffers — with freebies to boot. The current gift card bonus promos include national chains such as:
Applebees: $10 bonus gift card with the purchase of $50 in gift cards
The Cheesecake Factory: Free piece of cheesecake with every $25 worth of gift cards purchased
Denny’s: $5 bonus gift card with purchase of $25 in gift cards
Fuddruckers: $5 bonus gift card with purchase of $25 in gift cards
Outback Steakhouse: $20 bonus gift card with purchase of $100 in gift cards
The big selling point for gift cards is that they can be used like cash. So on the surface, it would seem like these bonus promos are the equivalent of getting free money. Here are three reasons why this is not the case:
The cards can’t be used right away, and probably won’t be used in a single visit. These cards generally can be used only as of January 1, so it’s not like you can buy one to cover your bill on the spot to snag an immediate 20% or 25% discount. What’s more, rather than selling a single $60 card for $50, take note that the bonuses come in the form of an extra card—which presumably would be used by the giver himself. This concept, of feeling the need to reward oneself in the course of being generous with others, is called the “licensing effect” by psychologists. Because of the ways these promotions are structured, consumers are more likely to buy gift cards—because by doing so, they’re also buying themselves a gift. In this case, whether the gift card purchaser is entirely aware of this or not, there’s some self-interest at play, mixed in with the traditional spirit of giving.
Another reason that these bonuses come on separate cards is to increase the likelihood that the cards wind up in at least two different hands—and that they’ll be used on multiple visits to the restaurant, not all at the same time. More restaurant visits, more money for the restaurant. Simple as that.
People using gift cards spend foolishly. Studies have shown that people shopping with gift cards are 2.5 times more likely to pay full price than consumers shopping sans gift cards. So how do you think a restaurant diner behaves when the visit is prompted by a gift card burning a hole in his wallet? Because the diner feels like he’s been handed free money, he’s more likely to spend lavishly by ordering appetizers, drinks, and the works no matter if the goods are truly worth the money or not. Even if the diner doesn’t have to pay much or anything out of pocket, the bill grows bigger and bigger, and the restaurant wins again.
People with gift cards forget to use gift cards. Of course, the biggest win of all for restaurants and retailers is when gift cards simply go unused. This is truly found money—for the business, not the consumer. And it happens pretty regularly: According to one study from not that long ago, some $6.8 billion worth of gift cards goes unused annually. In another survey, 27% of Americans said they still had gift cards they’d received last year but hadn’t yet used.
A business dreaming up the perfect customer couldn’t do better than one who spends money and never gets anything in return. That’s what you are if you purchase gift cards that are never used.