Perfect Gift: Cash or a Gift Card? S U M N CASE of value unlt of a nount of cash

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Perfect Gift: Cash or a Gift Card? S U M N CASE of value unlt of a nount of cash offered to sellers of cards will var er Cardcash offers cash equal to only 6% l 2 Over tims goods po rd's face value, for example consumers will sell at a sirable discouna to ift cards into cash. But retailers promote the uw cards over cash because much of the value of gify ssued never gets used, a phenomenon known as whose v ow does breakage occur? People lose cards. o they spend only $47 of a $50 gift card, and never return k The Fed the moe to the store to spend that last $3. Also, retailers imposed fees on the use of cards or made them sulbjesct to expiration dates, which customers forget about. And if a retailer goes out of business, the value of outstand include mainly ing gift cards disappears with it. In addition to breakage, retailers benefit when cu tomers intent on using up the value of their gift cand find that it is too difficult to spend exactly the amount of Banks omeonc shows his or her appreci the card. Instead, they end up spending even more Over the past few years, mote the card's face value, sometimes even s their appreciation by giving would have without the gift card deposi maint held ir s always nice whee the ation by giving you a gift. people huve been showing ards prepaid plastic cards issued by a retailer Gift cards are so beneficial to retailers that inastead or merchandise. The best-selling of rewarding customer loyalty with rebate checks fonse the cabe rose can be redoemed mone bar 80% of the top 100 American be more simple and uscful than allowing Tet a sumber of firms are now making a profit sirable discount-60 turn them into cold, impersonal single item for retailers, s a connnon practice, they have switched to dispersag positic depos 5. Banks most ger, d is GiftCandUSA.com, is their gift cards. gift cards, As one commentator noted in explaining wh retailers prefer gift cards to rebate checks, "Nobody Whur could pift card more personal than cash or a check? froim the fact that gift card recipients are often willingQUESTIONS FOR THOUGHT the rasipient o chsose what he or she wants? And isn'ta neglects to spend cash.- to sell dheir cards at a discount-sometimes at a fairly reduc depo requ 1. Why are gift card owners willing to sell their cards for cash amount less than their face value? dollars and cents. Mcanwhile, other people are will ing to buy those cards, and turn them into goods they 2. Why do gift cards for Walmart sell for a smaller discous than those for the Gap? never "sells" at a discount with gift cards instead of rebate checks Cardash.com is one such site. At the time of writing mult a. Use your answer from Question 2 to explain why cash it offers to pary cash to a selker of a Walmart gift card 4. Explain why retailers prefer to reward loyal customers equivalent to 99% of the card's face value. For example, the seller of a Walmart card with a value of S 100 would receive $8%. Candeash.com profits by reselling the card at a premium over what it paid. So it would sell Walmart gift card for more than 89% of its face value. bank ol c S. There are now laws restricting retailers' ability to impest fees and expiration dates on their gift cards and manda a g greater disclosure of their terms. Why do you think Congress enacted this legislation? 442

Explanation / Answer

People with gift cards want to sell their gift cards for dollars in cash. In order to do so, they need to attract buyers. This will only happen if the price is less than its face value. If it's equal to the face value, then people will simply go to the retail shop and buy gift card (or the product) on their own. Also, Gift card owners value cash more than the gift card, therefore they are willing to sell it for less. There could be several reasons why gift cards for walmart sell for a smaller discount than those for Gap. Firstly, the Walmart could be influencing firms such as cardcash.com or other website faclitating exchange of gift cards to keep the discount of their cards low. This is because as mentioned in the paragraph above, its in their best interest that people keep the gift card and not use it or spend a lower value. People who want to sell their gift cards already don't have a lot of interest in shopping from Walmart or in using it. They would rather exchange it for lesser money. Therefore they are more likely to forget about the card or the expiry date and neglect to use it. And this would benefit Walmart due to concept of breakage. People who want to buy these gift shops actually want to use it. Therefore its in best interest of Walmart if people who want to sell it are dissuaded from doing so (by being offered a low discount), so that it can benefit from breakage. Secondly, its possible that there are lots of sellers for Walmart gift cards but not many buyers. Therefore cardcash.com will have several unsold gift cards and which is a loss. There to dissuade people from selling their walmart gift cards or to sell unsold gift cards (by selling it at lower price), Cardcash offers a lower discount for these cards as compared to Gap cards which has a higher demand. Gift cards is a kind of restrictive spending. People can only spend on that particular retail shop from where the gift card has been purchased. This restricts their spending to that shop only. Therefore, cash is much prefered because cash can be used anywhere to buy anything. This preference creates a window where people will take lesser cash than a gift card's face value. In other words, people are willing to bear some cost to exchange their restrictive spending for a much free one. That's why cash never 'sells' at a discount because people are no longer under the restriction. They can use the cash on hand to spend anywhere. They don't have to exchnage it into another medium to use it. Therefore it makes no sense to exchange cash into lesser cash since there is no cost to bear. By offering gift card instead of a rebate check, the retail shop is making sure that the recievers purchase goods from their shop only. Since gift cards are useless everywhere else, loyal customers will only use the card where it was issued from. Therefore retailers can increase their sales as well as keep their customers. Instead if they issue rebate cheques, that means the customers are free to buy goods from anyplace and not just this particular retail shop from where the rebate cheque was issued. Therefore these customers can instead buy from other shops and increase other's sales instead which harms the sales of this retail shop. As we have seen above, retail shop owners benefit when gift cards are either not used or not used to their full capacity. Therefore, putting really close expiration dates, higher fees or other obscure terms and conditions will make the customer less likely to want to use the gift card. High fees means that the customer can buy less than the face value of the card. Hence, this kind of practice would be very common and really unfair to customer. By enacting a law restricting this, the congress wants to level the playing field. The customer will be better informed of the gift card's policy and will have fairer shopping conditions.

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