• Chart of the Week
  • December 21, 2016

Which gift cards do recipients like most?

lovleah/Bigstock

Business is booming in the gift card sector. Americans will spend more than $100 billion on them in 2016, according to projections from CEB Global, as they become more and more accepted as a thoughtful alternative to a straight cash gift.

Retailers are all too happy to go along with the trend, especially since the majority of purchases made with gift cards end up exceeding the value available on the card. Grinchy economists who worry about the value-destroying potential of poorly targeted gifts also have reason to cheer – recipients have more choice in how to spend their cards and are less likely to be saddled with a gift they really don’t like.

 

Figure 2 from Pate Offenberg (2007)

 

Still, not every gift card recipient is satisfied and some look to convert their cards back to cash. In a 2007 study published in the Journal of Economic Perspectives, author Jennifer Pate analyzes the gift card resale market on eBay where disappointed recipients can auction unused cards from various stores. She calculates “discounts” for each card by dividing the final sale price by the face value of the card – a rough measure of how valuable the buyer and seller view the card relative to an equivalent amount of cash.


The figure above plots the “best” and “worst” gift cards by this measure. Pate emphasizes that the people who transact in this market aren’t a representative sample of gift card users and that many of the cards sold on the site are much bigger than a typical $20 or $40 card. Still, some distinct patterns emerge. Cards good at stores with lots of variety like Wal-Mart were almost as good as cash; clothing and jewelry stores with more of a niche taste were less popular. Recipients were willing to part with the average card for a 15% discount from face value (when the cost of shipping is included, the discount for sellers was more like 20%).