You would think that the store would want people to know this trick considering how much revenue it would generate. For this example, you essentially get 25% off when buying the gift cards in bulk if I’m doing this correctly. So say you bought a 100 $50 gift cards ($6000 purchasing power) that had a non-expiration clause (must have a lot of friends):

That’s still $37.5 revenue per gift card x 100 cards = 3,750 in revenue from just one person as opposed to if 100 different people bought one each. They would make $5,000. The cards cost the company $6,000 to honor, so they lose a net $1,250 comparatively, but that cost is offset by three things:

1) Guaranteed money rather than potential money from people who may or may not buy cards. Same principle as buying from Costco or Sam’s Club.

2) Many people forget to use their gift cards. Even without expiration, the store just made money for nothing. I’m not sure how this works for everyone as I read somewhere that they may not count towards revenue until the card is used, but maybe you know/can find out.

3) When people go to buy something with a gift card, they may buy other items while there, buy an item of greater value than the card and use the card to offset the cost, or both. Example, I bought an item from Target that I wanted but didn’t buy it until I got a gift card to offset the price. It’s all the same to Target whether my friend or paid for it.

I guess the rules of this may change with online use of the gift card, or it could lead to more impulse purchases. I might buy an item with the gift card then bundle the shipping with something else that I had wanted or had impulsively purchased.

My head hurts. There’s too much game theory with something as seemingly simple as gift cards. Let me know if I made any errors. Great post.

Of course, you shouldn’t value them both equally. The store certainly doesn’t, which is why it is encouraging you to buy gift cards.

http://moneycentral.msn.com/content/savinganddebt/consumeractionguide/p66191.asp