Gift Card Economics

Welcome to Travel Buddy

In this episode of the Travel Buddy podcast, James and Ian discuss the optimistic state of travel post-pandemic, emphasizing the importance of gift cards in the industry. They acknowledge the limitations of gift cards, such as high rates of unused funds, and advocate for more experiential rewards to enhance customer satisfaction and loyalty. The podcast concludes with a focus on personal travel anecdotes and future discussions on automation in travel.

Transcript

Welcome to Travel Buddy, presented by Switchfly. In this podcast, we talk about all things travel, rewards, and loyalty. Let’s get to it. 

James and Ian, thank you so much for joining me again for another episode of The Travel Buddy podcast. Today is episode two, and we are talking about the economics of gift cards. So before we get there, there’s a lot to cover there, but before we get there, I wanna hear a little bit about what’s your take on travel right now? Travel news. You guys are always scanning the latest research, scanning the latest stats, and I hear things are good in the backdrop of some bad news around the world. We have good news in travel, right? Please tell me. 

Yeah. Ian, do you wanna jump in?

Going back to last year, this is, the, whole pandemic recovery has just been, gangbusters for, all things travel. Recreational and leisure travel is, going through the roof. And basically all signs are projected to just keep on growing throughout this year and into next, 

the even better news for our customers is we’re seeing the data in real time. Last month was another month where we beat projections. All signs are travel is bigger than ever and people aren’t willing to cut corners on it. 

We’re all going, do I really need that? Boujee brand, do you go with a house brand in the grocery store? People aren’t willing to do that with travel. 

So great for experiences, great for customers great for travelers and there’s still some deals to be had 

I saw, I think in the report that stat was that people would give up. It was Netflix, pizza and social media before they would give up travel. So yeah, I just think that’s fascinating. Okay. So good to hear. Very glad that’s the case because I’m excited to travel this year. Let’s switch gears a little bit and talk about gift cards and the economics of gift cards, the economics of travel,   it’s like a three-legged stool. What are those components and why is, gift cards so important to that stool? 

So the stool, you got gift cards, you have physical goods, merchandise, whatever you wanna call that bucket of it’s something that ships to your door.

Then the third bucket is experiences. And that can be anything from a local activity to a trip around the world. Why that matters is there’s different levels and complexities to set some of these things up. Obviously gift cards, especially digital ones, are very light lift in terms of overall complexity.

We won’t get into the backend of how do I set up my gift card reward platform today? But just real simple. It’s really kinda that first entry point brands associate with. It’s a large percentage of organizations and platforms in terms of rewards and how brands may offer customer loyalty. 

That’s great. Yeah I was looking at some stats before we recorded. So on average, people have about $200 on gift cards. So it’s, kind, it’s a way that people spend on a lot of different kinds of, all kinds of activities. But then there’s a collective $21 billion in unspent gift cards. Which means people have a lot more, almost more money unspent than they have spent in some cases. And then almost half of all US adults have at least one unused gift card. And then the value of that unused gift card is $187 per person. Which has gone up over the years, so yeah. So they’re spending $213 and unspent $187.

That’s amazing. That’s so much money.

Right and. Unfortunately, it’s easy to set something down, especially in physical form and lose it or just like our, the same as like a cluttered desk, your inbox you get it, you think, oh, I’m gonna use this next week and fast forward from January, it’s now December and, oh shoot, I didn’t even remember I had that. 

They fit a lot of good useful reasons. There’s some people, I don’t shop for them. I send them a gift card and a nice greeting card. I. Saying happy holidays, birthday, whatever. Here you go. You pick what you do with it. But yeah, like you mentioned, Brandon, the actual stat is 47% of US adults.

That’s a crazy number. And if that’s the only lever you have to delight and engage your customers, that means basically half the time you’re giving them something that they’re not gonna use or redeem. Which isn’t a customer experience, I think anyone wants, knowing that half your customer base isn’t engaging with you. 

Yeah,

Oh, go ahead, Ian.

Now with our options expanding exponentially as well as the tools to find those options gift cards I think can be seen as a little limiting. Just anecdotally, I had a old, employer that would hand out the occasional gift cards, and they were usually for, little restaurants around town or coffee shops or things like that. That. I think I had five or six of those for years in my wallet just because I was never on that side of town or, I didn’t I had the coffee shop I that. It almost became limiting for me. So I think especially the last few years we’ve seen such a rise in gift cards for things like Amazon or the, or even like big credit card companies offering their own sort of blanket gift cards like Visa or American Express. So to James’ point of you need to be offering multiple things is gift cards can be limiting depending on how you’re, doing it. And that’s where those other two legs of. 

Yeah, I think what’s important here is what you guys are talking about on the consumer side. You know how gift cards are can be a poor experience. They go unused. There’s a lot of money involved here. But it’s money involved on the, balance sheet of the business. There’s a lot of economics that are in play on the business side of things. So I want so, James, walk me through a little bit more about that. Tell me a little bit about take rates, redemption rates. How does this work on the business side of things? And then how does that impact the customer relationship with a business? And then, I want to get into some of the more mechanics of, the travel gift card economics that we talked about before.

Yeah, so something people might experience in their everyday life. If you think about a car dealership is probably one of the easier ways to equate the gift card business, where at the end of the day you have the, you know. The manufacturer of the vehicle or the provider of the card. And that might be a brand that you bought it directly from, or it might be one of these intermediaries, like your local card dealership that is the one selling it.

In our business as it relates to travel, customer loyalty, rewards and recognition, usually that’s the intermediary that’s selling it. And there’s some organizations where their entire business is. Essentially gift card reselling where they’ll get a small percentage transaction. Usually it’s in the single digits for selling the card.

And then I, as the purchaser of sub card, am able to go back to the brand, whether it’s, Kohl’s or United Airlines to redeem it. On the business side, that’s what you’re doing is you’re getting. Fractions of the total cart value versus the total purchase. And yes, there’s plenty of people where you get a $200 gift card, you go across the street, spend $200, but there’s also a large percentage if it, if they’re one of the 53% of people.

If I think my math’s right, that is actually gonna re redeem the gift cards itself. Assuming that’s the case, to go spend it. There’s also a large percentage of those people though, of that 53% where they’re gonna go and add on additional spend. It’s basically free money. Who cares?

They’ll throw an extra 50 bucks buy the nicer version of something or et cetera. On the travel end, though the Gen Z are the most budget conscious travelers out there right now, and on average, their trips are at least $1,500 in value. $300 airline gift card is now a fraction of a fraction compared to the overall cart value.

And that’s where we start getting into direct to book experiences where instead of getting a fraction of 200, the, checkout value goes up to 1500 plus dollars and the margins are considerably more in your favor. When you start selling things like hotel car activity, then you know the single digit on average, I think you said Brandon, $200, two 20 for the average US gift card.

So we’re getting into different economics. The back end of the business is considerably, more rewarding in some circumstances. And really, we’re not talking about one over the other here. What we’re talking about is growing the pie. To offer that, those three full legs, for just a better overall experience across the board. 

I got you. So, if I’m understanding instead of relying only on gift cards to provide rewards to folks, whether employees, customers, whatever that looks like, maybe take a look at another offering, which would be creating these experiences, but you get the same the end user gets the same experience or outcome, except it’s better business case.

There’s a lot more added bonuses that the business gets that the, customer gets. Is that what I’m tracking? Like, really build in that experience component of that three-legged stool.

A hundred percent. And then there’s one more add-on, I’ll throw in too. The customer experience out of it. There is an Expedia study from a couple years ago that said the average trip takes 37 different website visits. Trying to price shop everything else before the trip is booked. 

Offering the full experience or the ability to complete the full experience on your rewards and recognition brand, on your customer loyalty platform, et cetera, provides a significantly better experience because I’m now not having to swipe, a variety of different gift cards, trying to mix and match, et cetera.

I can just if I want to go on a trip, this is a way to go on a trip. It’s associated with the brand. There should be some potential or could be some potential savings, et cetera. I think the worst story I’ve heard is someone had so many gift cards that they couldn’t redeem it for the flight on the website.

They actually had to call in and spend several hours on the phone through all these gift cards, creating its own horrible brand experience. 

It sounds like my nightmare. So I love that. So this is really important because something you mentioned before is that this is an on demand product or, I’m sorry, in demand product. So Ian, I know you’ve got some stats on what incentive travel is looking like an incentive travel.

Is this kind of this, the economics that we’re talking about here, this kind of offering. Me what’s, going on? What are you seeing in your data?

Yeah. As you mentioned, incentive travel is, a bit of a broad term. It can be kind of employee or customer focused, depending. But what they’re showing really across the board is just how drastically people are wanting travel as offering. 

Considerably in 2024 than it was in 2020, sorry, 2020. So it just shows that dramatic rise over the last couple years, especially post pandemic. The rise of Gen Z and millennials are by far the two generations that want travel and experiences more than any other generation and, at a much higher rate than traditional rewards like cash or, gift cards. 

I really think it’s as simple as if gift cards are one third of that whole pie experiences are right there beside it. And when we say experiences, maybe it’s helpful to clarify that too. 

We’re talking about anything from a local activity with families, with young families, to an international trip that could even evolve, involve flight, car, hotel, and activity. 

Really the world’s your oyster as it revolves around that. And last little bit there is, there’s a lot of options that you unlock by having direct the book. In the hundreds of thousands of providers globally for any of those versus a much narrower set of options or opportunities as it revolves around gift cards or physical merchandise. 

I like that. That, that idea that it’s the experience is the point of it, and gift cards are a means to that end. And why not just in some ways cut out that middleman? Just give them the experience and give them a better experience, but also get them where they want to actually get, 

a hundred percent. There’s 

always gonna be those people that you never know what to get ’em. And a gift card is the safest option by far. Please do that. Not I do it myself. No shade. But on the other side of the coin. Sometimes that just direct to book, it’s such a psychological relief to just, do X, Y, z, I’m just gonna go do it all.

Book it done, 

And 

I think I. Where people perceive value, right? And it’s so personal on, where you perceive value. So just offering a wider variety of options as much as possible can only help. The, thing about gift card, the thing about cash. You, if you are a employee and you’re getting a hundred bucks from your employer who the first thing you’re probably gonna want to go do is pay off some bills, maybe go get your oil changed, stuff like that. Whereas if you get a hundred dollars of a gift card to Amazon or. Walmart or you get a hundred dollars in some sort of like experiential offering, like movie tickets or, a hundred dollars credit hotel credit, things like that are perceived much more valuable in most cases than just straight cash. It’s, really about finding where your, market where they’re perceiving value and then, offering that and, just making it as easy as possible for them to get what they find most valuable. 

Yeah.

percent. I think the short encapsulation I’ve heard best. To piggyback on that, Ian is. We all know what bills the last bonus, tax refund, whatever went to, but we all brag about the last trip we had. And 

Hmm. 

would you rather have your brand, whether that’s consumer side or employer associated with your a transactional kind the bills, go into savings or something that has more of a viral positive connotation. 

That’s a great summary of that. So there’s a, third leg of this stool, physical goods. So what I’m expecting next is maybe a croissant from Paris, along with your rewarding travel booking experience. I’m excited about. That sounds great. 

If I can charge that to you I’ll happily go. 

That’s great. Put. 

Yeah, to Paris. I cro. 

Okay. That’s a fair trade. That’s a fair trade. That’s great. Okay, last question. Pop quiz. What is your favorite airport? 

This, I’ve only been there once, but I have to say the UIE is the most bananas airport I’ve ever been to.

Wow. Okay. 

That.

like the quality, the furnishings, the size, it’s, one of those things you have to go to, to really just appreciate how next level that airport can be. 

Okay. I’ve never been there. I’ll have to check this out. Okay. what about you? What’s your favorite? 

Domestically, I think probably among like major airports. Detroit, surprisingly, has a really nice airport. It’s 

surprising. 

Size of not Atlanta or O’Hare, or Houston traffic. But, it’s big enough to have all the amenities you want as well as plenty of staff to get through security quickly and stuff.

So every time I’ve had to go through or in and out of Detroit it’s always been better than most of the bigger ones that I’ve had to deal with. 

Huh. Okay. I’ve also never been to Detroit. I did not know they had a good airport. People people make fun of me for this, but one of my favorite airports I love flying to is Atlanta. I. It’s just so efficient and people will think I’m crazy, but I love the Atlanta 

Airport. 

you have many people, every day, you better figure out how get good. 

Yeah, they do great. ’cause the airport that’s closest to me, DFW is not that efficient. It is. I hate flying in and outta the airport. No offense to, I love DFW, but it’s, anyway, Atlanta’s up there for me. Okay guys, this is so great. Thank you so much for all this insight. I know it’s a super complicated topic, but it’s one of those things that, this is what drives the travel industry is some of these components that you’re discussing.

So it’s super important for the next episode. We you, sent a report earlier about automation and travel of the future. I’m hoping we get to that in our next episode, but more to come. 

Yeah, it’s I think that’s gonna be an interesting one, so people have to stay tuned. 

Yeah. That’s awesome. That’s great, gentlemen. Thank you so much. We will see you next time on the Travel Buddy.