Why Do Merchandise Award Companies Hate Gift Cards?

Why do those companies who sell merchandise awards hate gift cards so much? After all, isn’t a gift card just another way to acquire merchandise, or a service you really want, or entertainment, or travel to your favorite place, or a great meal at a restaurant you love? Hey maybe that’s it. Gift cards pretty much let you do what you want to do, shop where you want to shop, go where you want to go. And merchandise? Well that’s all you get….just the same types of merchandise that the incentive world has used for years and years. But why do they really hate them? I mean really, really hate them?


Simple answer, it they used gift cards as options in their program, they would lose their shirt and be out of business in a short time. You see, the profit margins on gift cards are around 10% on a good day, and the profit on merchandise historically approaches 90%! Do the math, if you have $100,000 program, your profit margin would be about $90,000 with merchandise and $10,000 with gift cards. What would you prefer?

This recent article found at insideArm.com graphically relates how this award company uses gift cards as an award option in their call center incentive programs to drive performance. The redemption ratio of cards to merchandise is about 98: 1. And this is not an unusual occurrence. We have been involved with gift card award systems for some time, and often analyze client programs. Here are four more examples of very large incentive or loyalty programs that use gift cards and merchandise.

One of the country’s top three airlines: They had a program that contained only merchandise awards for three years. When they added gift cards, the redemption immediately went to 95.5% cards and 4.5% merchandise.

A Leading US Bank: Their credit card Loyalty program annually included close to $50 million in non-travel awards. Of that, $48 million was gift cards and $2million in merchandise

One of the top financial lending institutions in the US: For three years their branches had a program called Merchandise Madness. In the program they had a complete catalog of merchandise priced “at cost” according to the supplier. When gift cards we added as options, the redemption went to 97% gift cards and 3% merchandise.

One of the largest trucking companies in the US: Had an employee recognition program where employees had the option of 3000 items of merchandise and fifty gift cards. 96.5% of the redemption was gift cards and 3.5% merchandise.

ENOUGH SAID?

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