Why do people buy gift cards over physical gifts?

Buying a gift can be a real challenge. And that’s true whether you’re buying one for a birthday, or several in the run up to the holiday season. 

You need to find the right products, research the alternatives, try to understand what you’re buying, and go through the process of ordering and waiting on the product. Then if say you’ve got the wrong size or the person you’re buying for already has it, and you need to go through the returns process and find a new gift. 

For a growing number of consumers, they’re opting to skip all that hassle. Instead, they’re sending gift cards. 

Gift cards have been around for a long time, but in recent years they’re gaining even more popularity. So why is this? And why would a customer decide to get a gift card instead of a physical product?

Gift cards are growing in popularity every year

In years past, there was a bit of a stereotype that gift cards were a thoughtless thing to buy for someone. They were seen as the gift giver couldn’t think of anything better, so they just bought a gift card. This would then be stored in a drawer or wallet, likely forgotten about for a while - data suggests there is as much as $21 billion in unspent gift cards floating around in the US. 

These days, between ecommerce and digital gifting, that perception has changed. This is reflected in the size of the gift card market and its growth over the last few years. The global gift card market was valued at around $835 billion in 2022, and is expected to be worth over $4.2 trillion by 2032. 

While that’s an impressive statistic, let’s dig a little deeper into the detail. During the holiday season in 2022, over 50% of consumers planned to buy gift cards and gift cards were the most desired gift for US consumers for the 13th year in a row. Around 80% said that they believe digital gift cards are appropriate holiday gifts, indicating that attitudes have changed. Outside of the holidays, customers are also buying gift cards for other occasions. People are spending more and more each year on gift cards for Mother’s Day, and for back-to-school gifts.

When would a customer actively choose a gift card over a product?

If you want to understand the growth in gift cards, you need to look into the reasons why a customer would choose to buy one over a physical gift. After all, a product feels like the more natural option for a gift, right? However, there are actually plenty of reasons why a customer may opt for a gift card. They all boil down to two things - convenience, and speed.

They don’t know what to buy 

We’ve all been in the situation where we have no idea what to buy someone as a gift. Gift cards provide customers with a super simple solution to their gifting troubles. They can give someone a great gift that they’re going to like without the stress of finding a product to gift. This is especially helpful if they’re torn between a couple of products, or they don’t know which product would be most suitable. For example, if they’re not sure what size of clothing to buy. 

They want to give the gift of choice 

Say you have a friend with a specific hobby, maybe they really like scotch. That’s a really wide category to choose something from, and you may not know very much about it. In these cases, it can actually be a better gift for the friend to give a gift card so they can choose a new bottle for their collection for themselves. Or new glassware, barware, or even a book about scotch. Giving a gift card is giving the gift of choice to a recipient. 

They want to stick to a specific budget

Many customers will have a budget they want to stick to when buying a gift. However at times, that might not allow them to buy that perfect gift they think their recipient will love. For example if their recipient likes a high-end clothing brand, or is interested in a hobby that requires expensive equipment. That might mean the customer wants to give some money towards something, but wants to do more than just gift cash. Gift cards bridge that gap, allowing customers to stick to their budget while giving a great gift. 

They want to send something digitally

We can’t always see the people we love in person to exchange gifts, but we still want to give them something on their special day. Digital gift cards can be delivered instantly, and in some cases can be scheduled for whichever date the customer chooses. This gives the customer the solution they need, and ensures the recipient gets a gift they’ll love.

They’re buying a gift last minute and need it fast

Did you know that 44% of last minute holiday shoppers buy gift cards? When you’re out of time, gift cards are a really great way to still give something meaningful that a recipient will love. Last minute gift options are valuable to have as part of your store, especially during key periods like the holiday season where shipping deadlines may be over a week before the holiday itself.  

They’re buying for multiple people at the same time 

A lot of what we’ve discussed focusses on individual customers, but what about corporate customers? Corporate gifting is a huge market, with the US market alone estimated to be worth over $312 billion by 2025. If a customer is looking to buy gifts in bulk, they may not want to go through the process of buying lots of products. Gift cards are a simple, effective corporate gift that can be easily purchased and distributed. 

Why gift cards are valuable to merchants

So, gift cards are great for customers. But do they make business sense? After all, you want customers to purchase your products. The more that purchase products, the better…or is it? 

It’s worth remembering that the customers buying gifts are usually very different from your typical customer base. They may have little to no product knowledge, and wouldn’t normally shop with your brand. They may only be looking at your site because they think their recipient will like it. In these cases, your products mean very little to the customer. They mean a lot to the recipient, but you’ll be banking on them loving your product so much they’ll go to your store to learn more. 

However, if the recipient is given a gift card, they have to visit your store. Essentially, the gift card acts as an acquisition tool - they get to experience your brand, go through the ordering process, and receive your products as any other customer would. This gives you a much better chance at acquiring a customer who is likely to place multiple orders, as opposed to a one-off gift card purchase. That being said, there will be customers who buy gift cards who are also interested in your brand or may already be customers. Give these customers a great experience with your gift card, and you’ll be likely to retain them also. 

Gift cards also have the potential to increase the value you see from gifts, both from the customer and their recipient. If we think back to the reasons for buying a gift card, often customers will have a budget in mind. Say they only plan to spend $20 on a gift - if they purchase a product for around $20 then that’s the end of the story. However if they instead buy a $20 gift card, there’s the potential for their recipient to spend more than that $20. Data has shown that 75% of consumers typically spend more than the value of a gift card to the tune of about $59 on average.

How to promote gift cards to customers

It isn’t enough to just have a gift card available. You need to make sure that customers know about your gift cards, can find it, and that they have a great buying experience. It doesn’t take much to promote gift cards either - just a few simple steps can take it from an extra product hidden at the back of your catalog to a front-and-center popular item.  

  • - Make it visible and accessible on your site
    There are a few ways you can do this. Either include your gift card in your primary navigation or as part of a “Gifts” category, and in your sitemap. This means that the option will follow customers as they navigate your store.

  • - Offer a gift card that can be personalized
    Tools like Govalo make it easy to offer a gift card that goes further for your customers. Using the app, you can design a gift card that customers can personalize with the recipient’s name and email, a gift note, and even choose the specific date they want it delivered. This brings the gift card experience closer to that of gifting a physical product, making it much more appealing.
  • - Create a gifting collection and add your gift card
    If gifting is a key focus for your business, then why not create gifting collections for your store? These make it easy for customers who may be less knowledgeable to find great gift ideas, including your gift card.

  • - Add gift cards to gift guides
    Typically, we only see physical products in gift guides however there’s nothing to say that you shouldn’t also include your gift cards. After all, they may be just what a potential customer is looking for - they may read the guide, still not know what to buy, and so a gift card is a ideal choice.

  • - Promote to customers during key gifting periods
    In the run up to different holidays, include gift cards in your marketing campaigns. This might include adding it to your homepage for maximum visibility, or to a site banner so that it can follow customers through your site. You might also consider including gift cards in email marketing campaigns, and giving them their own dedicated email as shipping deadlines get closer.

Gift cards aren’t just here to stay - they’re continuing to grow in popularity every year. It’s key then to understand why your customers would buy one instead of a product, and the value they add to your store. That way you can make the most of the opportunity gift cards offer, and enhance your gifting strategy.

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