How gift cards are becoming a trillion dollar feature? 🎁
A feature that changed the product distribution game from ground up.
Welcome to the 89th edition of the GrowthX Newsletter. Every Tuesday & Thursday I write a piece on startups & business growth. Today’s piece is going to 94,400+ operators & leaders from startups like Google, Stripe, Swiggy, Razorpay, CRED & more
30 years ago, there were no apps, no websites (well almost). Retail businesses at the receiving end, struggling to solve for acquisition, activation, & retention wanted something to solve for all of this. And boom, someone launched gift cards.
It was in the late 1994 🗓
Neiman Marcus introduced the first gift card using a payments infrastructure, though Blockbuster Entertainment was the first company to do so on a wide scale, test-marketing them in 1995 and launching them around the country the next year.
Gift cards are big in India too 🇮🇳
The Indian gift card market is estimated to be USD $39 Billion in 2022. It’s expected to reach USD $94 Billion by 2027 (CAGR of 19%).
Why do “gift cards” work, really? 🤔
First, it works for commerce companies 💸
Most website visitors who come to look for a gift online / offline experiences don’t know what to gift / fail to decide what to gift and drop off. By using gift cards, these commerce companies solve for funnel drop off. Another interesting fact - Gift cards helps these companies get upfront cash before the gift card is claimed.
Starbucks said in may’22 that “Over $1 Billion Is Sitting on Gift Cards, unused”. How cool is having a billion dollar of float money where Starbucks has no obligation to pay interest.
Second, it works for the gifting customer / corporates ⏱
Most customers don’t know what to gift - it’s true. Gift cards eliminate the need to decide what to gift, making it the laziest form of gifting. Second, for large scale gifting such as Diwali gifts to employees, it becomes cumbersome for organisations to gift something to hundreds of employees and handle the madness of selection & logistics.
"We are selling cards to about 2,000 corporates. This is an increase of 30 percent year- on-year. We have grown the enterprise segment as well as the small and medium business segment. SME as a segment has grown pretty aggressively for us," said Director of Payments for Amazon India way back in 2017. Imagine what must be their volume in 2022.
Third, it works for someone claiming the card value ✨
Consumers get the flexibility to choose what to do with the gift card value. They consider it as free money & claim it without any terms & conditions.
Over 38% of gift card sales bring additional revenue when someone is claiming the card. That’s just crazy!
But, not every gift card works.
Gift cards fundamentally work only when the are easier to buy (think quick payment on Amazon store), even easier to claim (think Jet miles like claim experience) & build insane perceived value (special rates when you have a StarBucks gift card).
Are you thinking of building gift cards like product features?
Gift cards are the upfront revenue drivers for so many products. We discuss the structure of building the right upfront revenues in a structured manner at the GrowthX experience.
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