When I filled out my tax rebate this year, there was an offer for an Amazon gift card. If you selected to buy a gift card with your rebate, HR Block would add 10% to the total value. So, I figured that I spend a lot on Amazon every year, so I went ahead with that. The extra 10% more than paid for the cost of the tax software.
So, how is this profitable to anyone? Sure, I’ll eventually spend the money on Amazon, but I was probably going to do that anyway. And Amazon’s margins on e-commerce are something like 3%. So it seems as though they’re going 7% into the hole just to attract business they’d probably already get.
I do know that Amazon does do dynamic pricing where they subtly change prices depending on, I think, your buying habits and perceived tolerance for higher prices. So can I expect that all the prices I see on Amazon will be a few percent higher until I use up my tax rebate gift certificate?
Scenario 1) Your tax return is $100. I give you a $110 gift certificate for it and you use it to buy goods that cost me $70. Profit = $30.
Scenario 2) Your tax return is $100. I give you a $110 gift certificate for it. Monthly maintanence is $3 and you spent $104 of it and have to decide whether to write off the $6* or buy above and beyond the amount of the card.
*The monthly fee is so eventually I can wipe the card off my books.
Pretty sure monthly maintenance charges for gift cards are no longer allowed. In any case, it doesn’t matter for electronic gift cards since you can always apply the remaining pennies to your next purchase.
These types of offers are not generally being fronted by the company issuing the gift cert (Amazon in this case.) They are financed by the third-party (H&R Block) who buys the gift certs from Amazon at a substantial discount. If that $110 gift card only cost H&R $95, they still made a quick $5 turnaround on the deal.
All stores have promotions where they’ll effectively sell gift cards at below face value. They get guaranteed money now, in exchange for possibly having to pay it back later. If you take a while to redeem the card, they profit on the interest. If you buy something high-margin with the card, they profit off of the margin. If you lose the gift card, they profit big-time.
3% is the net margin. It is not amazon’s markup (or gross margin).
Amazon does not buy a widget from a distributor for $100 and then sell it for $103. That $3 is what is left over after subtracting all expenses including promotional expenses such as discounted gift cards. In other words, they have already taken into account the cost of selling gift cards at a discount to arrive at that 3% figure.
And while some people like you may wisely use the gift cards only for stuff they were already going to buy at amazon, a lot don’t. A lot of people get their tax refund checks and say “Hoo-boy! Free money! Let’s go spend it!” Really. They spend it on a fancy dinner, new clothes, some electronic toy, maybe even a vacation.
When they get their tax refund in the form of an amazon gift card, they are locked in to spend it at amazon. Instead of shopping around or going to Walmart or Best Buy to spend their refund, they have to spend it at amazon.
And there are people who will get a $100 amazon gift card, go there to spend it and end up with a $500 purchase.
And, of course, there’s breakage: People who don’t get around to spending their gift card or not spending the whole balance (although that’s kind of hard to do at amazon unless you stop shopping there altogether since your gift card balance is automatically retained in your account and automatically applied to future orders).
You can shop at amazon without logging in. Feel free to shop in a private browser window if you are worried about lingering cookies. You will be shown prices. You don’t have to log in or identify yourself until you check out. And if they raised prices on you when you check out, that would cause quite a PR nightmare.
And you don’t have to enter your gift card number until you get to check out.
I sincerely doubt that they are charging you more because you are using a gift card.
A Tax Return is the set of filled out forms (such as Form 1040) that you send to the government.
If your tax return shows that you paid too much tax, the government sends you money back. That money is called a Tax Refund. Not s “return.” Not a “rebate.”
Monthly charges on gift cards are allowed on a state-by-state basis. Hence, YMMV.
OTOH, this is irrelevant here since Amazon gift cards don’t expire.
It all comes down to the two main things already mentioned:
Some people won’t use any/all of it.
It drives business to Amazon which Amazon hopes will result in future repeat (profitable) business.
(One thing I do with rebate/refund Visa-type credit/debit cards is use them to buy myself an Amazon gift card. Don’t have to worry about expiration, small leftover amounts, split payments, etc.)
I have to think that unredeemed Amazon cards are rarer than gift cards from brick & mortar locations. If I received an Olive Garden gift card, I’d likely never use it because I’d have to go out of my way to find an Olive Garden. And if I use $20 of a $25 balance, I’ll probably lose the card before returning just to use up my $5. But once you redeem an Amazon gift card, the balance is right there and easy to use.
Of course, it’s still useful for Amazon to sell the cards for under face value just to lock in dollars and still make a profit on the purchases.
It’s funny that you mention Olive Garden gift cards, as I got one as a gift but was not a huge fan of the place. The back of the card mentioned that they were also good at a number of other restaurants, presumably owned by the same enterprise, and was able to find a place that I actually wanted to go to.
Similarly, Sears, KMart, and Lands End gift cards were all interchangeable. Once Sears Holdings spun off Lands End, Lands End now has its own gift cards, but still honors those issued before the spinoff. Lands End used to always offer Lands End branded gift cards at a 10% discount through various promotions and you could use the cards at Sears and KMart with no problem.
Behavioral economics research has shown that people put their money into different mental accounts. If your refund gets directly deposited into your bank account, you are far more likely to split it into food and rent accounts as opposed to getting a gift card which is probably going to be a fun account. I’m quite sure Amazon is well aware of this
And some people will go the opposite way. They’ll get the gift card now and set it aside for Christmas shopping. Amazon will be able to hold their money for over six months.
If it’s regular Amazon gift card credit, it will last indefinitely, not 6+ months. And you can put the code in right now and then toss the refund forms, and it will credit your next purchase, without worrying about remember to dig it out when you want to buy someting. And as far as I’m concerned, Amazon credit has an equal value to USD. You can buy anything there, and for cheap. So I will have forever to spend credit on groceries, clothing, electronics, whatever. Or I can make a small dent in that 55 gallon lube purchase I’ve always wanted.
The fact that the credit will last forever doesn’t hurt **Little Nemo’s ** point. He wasn’t talking about the credit expiring in six months- he was talking about someone getting the credit in April and not using it until Christmas shopping time in October or November. Some people will use the gift card to splurge right away and others will wait to spend it till Christmas. It has an equal value to cash- except that if I put cash into the bank and save it until Christmas shopping time, I will get the tiny bit of interest not Amazon.
^This, for sure. The ‘float’ (interest earned) on that gift card money is huge.
This is much more complicated. Escheat laws, and indeed gift card laws, vary by state. In the majority of cases the state mandates either non-expiring/replaceable/refundable gift cards or that unclaimed funds on the cards be remanded to the state after a set period of time. Just keeping up with the hodge podge of laws governing gift cards is a significant expense for a nationwide business.