It’s that time of year again. To drum up holiday sales, retailers are once again taking creative license with the term “Black Friday”, and national chains are dishing out bonuses to fuel gift card purchases (think $5 bonus card when you buy a $25 card) that’ll wind up in stockings and awkward Secret Santa office parties. Why is putting what amounts to free money in consumers‘ hands such a smart move for retailers and restaurants?
It’s less painful—and more lucrative in both the short- and long-term—for businesses to give away gift cards rather than offer a cash discount or cold hard cash back. When Walmart announced its new price guarantee for this holiday season, it was notable that the retail giant said shoppers who purchased merchandise at Walmart and later found a cheaper price elsewhere would be “paid” the difference in a gift card, not cash.
Likewise, IKEA has a new promotion, in which shoppers who buy a sofa receive 15% back—as an IKEA gift card, not cash back on the spot.
It’s not hard to understand why retailers prefer to hand over gift cards rather than cash. Typically, bonus gift cards like the one from IKEA cannot be used on the spot, thus guaranteeing the customer must make a repeat visit to buy something else. That alone is a win: repeat business. More bodies in the store, more eyeballs on the merchandise, more chances to connect to people with money to spend. Increasingly, retailers are shaping promotions to ensure customers come back, rather than simply attempting to draw them in for one-time sales.
When customers show up with gift cards in hand, they’re very likely to spend much more than merely the gift card balance. This is especially the case because the bonus gift card promotion values tend to be small (often $5 or $10), so it’s nearly impossible for the shopper to avoid spending out of pocket. Another win for the retailer or restaurant.
And what about if the customer doesn’t return, and the gift card is never used? This happens pretty regularly: In a recent survey, one-quarter of consumers who received gift cards during last winter holiday season still haven’t used them. When that happens, a gift card amounts to pure profit for the business.
Even so, for consumers who like the national chains hosting such promotions and know for sure they’ll make use of the bonus cards, these offers have obvious appeal. Here are six examples available this holiday season:
Carrabba’s Italian Grill: $20 bonus when purchasing a $100 gift card; the bonus card can be used only from January 1 to February 10, 2012.
Container Store: Spend $100 or more at a brick-and-mortar location (not online) by November 27, and you’ll receive a $15 certificate that can be used December 1 to 23.
IHOP: Purchase a $25 gift card, get a $5 bonus card; bonus cannot be used on the spot, and expires January 31, 2012. Interesting sidenote: Gift cards are sold online only in denominations of 10 ($10, $20, $30, $40, $50), so a $25 card is not an option except at one of the chain’s physical locations.
L.L. Bean: Make a purchase of $50 or more by December 24, get a $10 gift card in return—which must be used by February 14, 2012.
Outback Steakhouse: A $20 bonus for each $100 purchased in gift cards; bonuses are valid from January 1 to February 10, 2012.