How Starbucks Saves a Fortune Using Gift Cards
Meredith Weigelt ● January 2, 2023 ● 7 min read
Have you ever wondered why businesses like Starbucks push gift cards to their consumers? The obvious answer is that they are trying to upsell customers on a larger purchase. After all, no matter what kind of products you purchase, a gift card would go perfectly with it – right?
The truth is, there are many other reasons why gift cards are offered to consumers by successful businesses. Some of these reasons might surprise you, but more importantly, they may inspire you.
Check out all of these benefits of adding gift cards to your own company’s offerings and guiding consumers toward purchasing them:
Gift Cards Help Cut Down on Processing Fees
One of the least-known benefits of offering and accepting gift cards is reducing payment processing fees. However, if you are a business owner, this can also be one of the biggest benefits – and the one that you cannot afford to miss!
Every time your customer uses a credit card, there are credit card fees attached. If the average cost to transact is 2.9%, often referred to as the effective rate, it might not seem like a lot. However, large, repeated purchases can quickly rack up tremendous totals in cost for merchants. More importantly, every transaction has a per-item fee associated with it. Starbucks coffee ranges from $2.50 to $7.00. If you are like me and take a simple coffee with cream the average cost is $3.19. If I made that purchase with a debit card it would cost 0.05% and $0.22 in interchange fees. That $.22 is 6.89% of the revenue. However, Starbucks has trained me and millions of other loyal customers to load a stored value card for $20 at a time and to reuse that card. They now get more than 6 transactions for the price of one, also dropping that interchange cost down to 1.15% On their scale of business it adds up to millions and millions of dollars.
If your customer uses a gift card, however, these fees only apply to that initial purchase until the balance runs out. They are charged the fee during that initial purchase and then every swipe of the card will allow them to buy goods and services from you without leaving you on the hook for those costs every time.
Encouraging consumers to buy and reload gift cards – as retailers like Starbucks are famous for doing – cuts down on hundreds or even thousands of dollars in cost for businesses like yours every month!
Generate Cash Flow Upfront
When you sell a regular product, you typically create or purchase that product and then offer it for sale at a markup. This means that you must have some capital upfront to invest in the materials or products that you will eventually sell – and that can be difficult to come up with at times.
By selling gift cards, you keep the cash flow cycle moving. You can offer the ability to buy products or services at a later time while receiving the money for those goods or services upfront. This gives you the added benefit of capital you need to invest in top-quality materials and products to continually improve what you offer to customers. It is a simple solution that allows everyone to win!
Take Advantage of Sales Boosts All Year
There are a lot of retail holidays and big sales seasons that businesses look forward to. The most obvious is the winter holiday season, but depending on what your company sells your seasonality may differ. New Year’s resolutions, summer sales, or back-to-school are all great examples.
But what happens when these sales boosts are over? If you pushed gift cards during those boosts, you will continue to see the benefits for months to come.
First, you will see greater sales during those initial booms. Prepaid cards make great gifts, after all. But they also mean a promise of purchases later that can benefit your company as well.
Once consumers receive their gift cards, they can use them in the weeks and months after the sales season has passed. Marketing automation can also be used by businesses to remind consumers to use their cards. Use helpful emails to stay in touch, boost brand recognition, and keep your business top-of-mind. Reminders about the balance on your gift card are the most intuitive emails to send your gift recipient. If they don't make a purchase right away - or if they do but still have money on their card - you can remind them about the buying potential they have waiting for them on a regular basis. In this way, you get a two-pronged benefit that makes pushing prepaid cards the smartest move all year round.
Passive Advertising Right in Your Customer’s Wallet
Every time your customer opens their wallet and sees your branded gift card there, they are receiving an advertisement from you. Unlike traditional advertising, this does not require a new investment from your business every time. You simply invest upfront in the printing and creation of these cards and then enjoy the impact they have as a passive advertisement in the days to come.
Increasing Sales Naturally
When a person receives a gift card, 75% are more likely to spend more than they otherwise would have, and 59% of gift card recipients spend more than the cards original value. This has been shown time and again when customers use a gift card to cover a portion of their overall purchase, choosing merchandise or services that total more than they otherwise would have spent without the balance of the card. This makes prepaid cards an easy way to boost sales without a lot of upfront work from your business!
Clear Profit or Continued Sales – Big Benefits Either Way
Did you know that many people who purchase or receive gift cards do not use the entire balance? They may forget, misplace their cad, or simply lose interest in using them. On average, 10% to 19% of gift card balances remain unredeemed — and around 6% of gift cards are never even used. Regardless of why it happens, it is actually a good thing for the business that offers the cards.
That leftover money becomes pure profit for the company with no need to exchange goods or services for it!
Likewise, many are the people who have found a forgotten gift card in their purse or home and been inspired to return to a business they may have forgotten about. They may then make purchases they otherwise wouldn’t have.
Whether your gift cards sit in consumers’ wallets indefinitely or are used and reused frequently, your business benefits. Having the ability to easily process payment from a consumer without additional fees while already having the money in your account upfront? It truly is the best of both worlds for your business!
Beyond Gift Cards – More Ways to Build Your Business
As you have seen, payment processing has a lot more to do with success than many business owners realize. From changing the way consumers are charged for services to pushing gift cards as a way to balance customer service and reduce costs, there are so many ways to harness payment processing to give your bottom line a boost.
If you would like to learn more about how utilizing approaches like these can benefit your business, talk to the experienced team at Paystri. Our professionals can help you determine how to improve your profits and reduce your costs – all without sacrificing the service you provide to your consumers.
Paystri also helps you reduce fees and increase profits in other ways. Let us help you create a system of payment processing that will boost your business and keep your company growing for years to come.