A Short History on the Brilliance of Gift Cards

Consumers in the United States will buy over 150 billion dollars worth of prepaid gift cards in 2020. Over a billion dollars of that will never be spent. For the cards that are completely used, almost 60% of consumers will spend more than the value of the gift card. From a marketing perspective, gift cards are one of greatest successes of all time.

Unless the consumer spends the exact amount, the company makes more off the sale of a gift card than on a regular purchase. This concept is brilliant. Consumers buy credit to a company. That credit either never gets fully redeemed or results in more money being spent. And the risk of selling a gift card? Exactly zero.

For the 14th year straight, gift cards will be the most popular and most requested gift in the world. This seemingly overwhelming amount of data begs the question, who do we have to thank for this? As it turns out, it was a video rental store you just might be familiar with…

In 1995, Blockbuster put gift cards on display in all of their video rental stores. The same Blockbuster that is now known for going bankrupt due to idiotically ignoring the rise of Netflix, mainstreamed one of the most creative and profitable marketing campaigns the world has ever seen. They were the first major retailer to advertise and display gift cards.

Ironically, it was not a stroke of marketing genius that brought gift cards into the limelight. Gift cards were originally produced in response to the mass counterfeiting of Blockbuster’s current ‘gift certificates’. These paper certificates had been a stain on the retail industry’s bottom line for the last 40 years.

Paper ‘gift certificates’ had actually been around since the 1940s. Due to how easy they were to counterfeit however, they were never marketed or encouraged to be sold. Gift certificates also took precious time from management, as they were required to be individually verified for legitimacy. This caused stores to only sell gift cards on rare occasions to select customers. Gift cards were the obvious fix to this problem.

In the next five years, just about every major retailer was proudly displaying gift cards to their customers. Gift cards exploded and soon became a staple stocking stuffer, reaching over 30 billion dollars in sales in 2005. A new gift giving industry had been born, but the innovation didn’t stop. The massive coffee company Starbucks took the reins in 2001 when they released their reloadable version of the gift card. This did exactly what it sounds like, it allowed Starbucks customers to put money back on the card after emptied it.

This concept honestly sounds pretty stupid at first glance. Why would anyone ever reload a gift card? As it turns out, most consumers that reloaded gift cards in the early 2000s did it out of convenience. They wanted to segment their spending and create an easy and obvious payment method for a company they used on a daily basis.

While consumers happily swiped their newly reloaded gift cards, Starbucks business exploded. The coffee conglomerate’s stock price tripled in three years as they used their reloaded card to create customer loyalty. The consumer had intentionally entered into a relationship with Starbucks and the company thrived as customers got into the daily habit of getting their morning coffee fix. This created a wave of brand loyalty that the company still benefits from today.

Over the next ten years, loyalty programs reached new heights as consumers could now create profiles, earn rewards and communicate directly with their favorite retailers. The programs, points, birthday rewards and personal relationships that we now share with retailers can arguably be traced back to our friend the gift card. Thanks Blockbuster.

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