Gift Card

Definition

A gift card is a form of prepaid stored-value money card usually issued by a retailer or bank. It’s used as an alternative to cash for purchases within a specific store or related businesses. Gift cards are also commonly gifted to others to be used as flexible or discretionary funds.

Phonetic

The phonetic spelling of “Gift Card” is: /ɡɪft kɑrd/

Key Takeaways

1. Flexibility: Gift cards provide flexibility both for the giver and receiver. They can be presented for any occasion and the recipient has the liberty to buy anything they prefer within the limit of the gift card.
2. Prevent Overspending: Gift cards have a specific value, which helps to control and prevent overspending, making them a good option for budget-conscious individuals.
3. Convenience: For the gift giver, gift cards are convenient as they are easy to purchase, wrap, and mail. For the recipient, they’re convenient because they can be used in-store or online, depending on the gift card type

Importance

A gift card is significant in the world of business and finance for numerous reasons. Essentially, it represents an alternative method of payment, thereby offering customers a convenient and flexible option. Not only do they enhance overall customer experience by making purchases easier, but they also enable businesses to boost their sales and profitability given their ability to facilitate upfront cash flows. Furthermore, gift cards are a powerful customer acquisition and retention tool, as they can help attract new customers and keep existing ones engaged. They also provide a means of managing merchandise returns, replacing traditional cash refunds and providing an option that keeps the money within the business ecosystem. Lastly, unused or partially used gift cards contribute to breakage income, providing an additional revenue stream for businesses.

Explanation

Gift cards are primarily a tool for retailers, both online and brick-and-mortar stores, to boost sales, encourage customer loyalty and attract new customers. When businesses sell gift cards, they receive cash upfront without having to deliver goods or services immediately. Furthermore, gift cards can drive foot traffic to stores during promotional events or certain times of the year, such as holidays or birthdays, when gift-giving is common. This can result in increased sales as consumers often spend more than the card’s value when redeeming it. On the consumer side, gift cards act as a convenient and flexible gifting solution. They eliminate the dilemma of choosing the correct item or correctly guessing the preferences of the recipient, by essentially granting them a free shopping experience at the gift card issuer’s venue. This way, recipients get to select and purchase the products or services that fit their tastes and needs the best. This reduces the risk of unwanted or duplicate gifts, ultimately enhancing the overall gifting experience.

Examples

1. Amazon Gift Card: Amazon, the largest e-commerce platform, offers gift cards that can be purchased and used to buy any product available on their website. These gift cards often serve as a convenient gift option, especially during holidays or for birthdays. 2. Starbucks Gift Card: Starbucks, a global coffee chain, provides gift cards which customers can load with a certain amount of money to buy drinks, food, or any other product from Starbucks outlets worldwide. This allows for easy budgeting and spending at their stores without needing cash or card transactions every time. 3. Walmart Gift Card: Walmart is another example of a company that offers gift cards. These can be used in their physical stores or online. Walmart gift cards provide a flexible way of shopping and are commonly given as prizes in corporate events, or as presents for special occasions.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Prepaid Value
• Redemption
• Card Activation
• Physical or Electronic Format
• Gift Card Expiry or Validity

Sources for More Information

• Investopedia
• Wikipedia
• Bankrate
• NerdWallet