Advantages and Disadvantages of Gift Cards

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In the United States gift cards credited for $ 19 billion in sales during the 2005 Christmas holiday season and $ 25 billion during the same season the following year. Analyzes agreed that the tremendous popularity of gift cards was attributable to their convenience (in terms of both purchasing and mailing) and appropriate respectability. Gift cards somehow managed to convey a certain amount of thoughtfulness on the part of the giver, unlike a check or an envelope of cash.

Still, however, gift cards carried certain drawbacks for the consumer. In 2006 many cards still carried a range of restrictions, including expiration dates, dormancy charges (for instance, the value of a card might diminish by $ 2 if it was not used for six months), and the inability to combine the balance on the card with another payment form (say, for example, you have a $ 30 gift card and want to use it as partial payment for a $ 50 set of towels; in some cases the card is returned for "insufficient funds," so you can only use it for a purchase of $ 30 or under).
Advantages and Disadvantages for the Retailer

However popular gift cards may be with consumers, retailers love the cards even more. Retailers benefit from selling gift cards in several ways. First, they receive money up front for the purchase; If the gift card is lost, destroyed, or for any reason goes unredeemed, the retailer has effectively received "free money" for the original purchase of the card. Second, the gift card draws new customers (the card recipients) into their stores. Third, the person redeeming the gift card often spells more than the amount of the card. Lastly, it often happens that when the gift card is redeemed, a small balance remains unspent on the card. If this balance is not sent at a later date, the retailer makes an extra profit. In 2006 JC Williams Group, a global retail-consulting firm, estimated that about 10 percent of the prepaid value of gift cards is never spent.

The main disadvantage for retailers is that gift cards are reliably expensive to manufacture. Depending on the volume of cards a buyer orders, the cards can cost up to $ 3 each. The retailer also must pay fees to the outside firm that handles the electronic network used to process the cards.

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