Retail payday: Are merchants cashing in on gift card shoppers?

gift card displayIt's estimated that more than two-thirds of gift-giving Americans handed out gift cards this year. And although the final tallies are not completed, merchants are looking to gift cards to give their bottom lines one last 2009 boost. That's because gift cards typically double traffic in a store: Instead of going in and buying a gift, you go in and buy a gift card, which the recipient will then take back to the store to cash in. But experts say the "double traffic" theory only works if people actually use their gift card.
But one thing gift cards will do, experts say, is increase store sales.

To use or not to use
Matt Wallaert, a behavioral psychologist and a lead scientist at Churnless, a digital strategy firm, says when gift cards are used, shoppers tend to spend more than the value of the card itself. "They want to make sure they use up the card," Wallaert says, "because unlike cash, the remainder can't be transferred somewhere else, so shoppers don't want to feel they 'wasted' the extra 50 cents left on the card. So they'll buy an extra $5 of products, just to avoid that feeling of waste."

Then there's the "loss factor." Wallaert says using a gift card doesn't "feel" like you're spending money. "If you generally spend around $25 at a store, you become comfortable with that feeling of loss because that's what you expect to spend," he explains. So instead of spending just the $25 on the gift card, you spend $50 ($25 of your money), because that's the same feeling you usually have.

Wallaert also says there's evidence that gift card spenders are less likely to look for sales. "Studies suggest that more than twice as many people pay full price for items when using gift cards then when paying with their own money," he says.

But do shoppers actually use the cards they're given? Wallaert says, "Some studies have shown that up to 25% of the gift cards bought in 2007 still haven't been used today, which means massive money for retailers."

Sound off: When using a gift card in a store, do you stick to the value of the card? Or do you exceed the card's value?
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