If we take a focus on gift cards for a moment, there really is something to learn.
For one, gift cards have grown faster than Apple stock since they were invented by Neiman Marcus retailer in 1994. However Blockbuster in 1995 advertised them in the front of the store, and in 2001 Starbucks created the first re-useable gift card, which lead to explosive growth of the gift card over the next 20 years. Today, one of every seven purchases made with a gift card is at Starbucks.
Now the U.S. gift card market is $80B per year.
3 Lessons from the explosive gift card growth
Well for one it's worth our attention because gift cards have grown in scale faster than about any company during that time period.
1. People don't enjoy shopping for presents.
- Gift cards solve a problem for many people, specifically that gift giving is an annoying last minute expensive stress most people experience around holidays and birthdays. The convenience of a gift card shows that you care enough to choose the right retailer for the recipient, buy also gives enough freedom for the person to choose exactly what they want. Also don't underestimate the value of not having to wrap a gift card, and consider they are perfect for company grab bag events.
2. Companies love gift cards, and thus market them.
Gift cards can only be spent at one retailer, so gift cards allow merchants to get paid upfront for future purchases, presenting a valuable cash flow advantage.
In addition to upfront cash, gift cards are valuable for retailers because 2-4% of gift cards go unused, which is free cash for the retailer.
Since the inception of the gift card market, many other sub-markets have risen up. There are companies (Blackhawk, Incomm and others) that provide the technical and operational infrastructure to supply and manage the gift cards for retailers. This is a big task, especially internationally as fulfilment, fraud prevention, and software infrastructure provide tough challenges at scale.
Another large and growing market is the second hand gift card market, companies (Redeeem, Raise.com, Paxful, and many others) allow people to trade unused gift cards for cash, bitcoin, or other gift cards.
I hope this was helpful and you took away a few lessons from the gift card market!
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