Wednesday, January 12, 2011

Gift Card Exchange

If you have ever gotten a gift card that you felt you couldn't use or just plain didn't want, well now there's an easy solution. Instead of having to pawn off the gift card to a friend or relative you can now sell it online to get credit for another store or even cash.

So how does it work? It's simple really, if you are willing to give up a few dollars then a company, such as Plastic Jungle, will buy the gift card from you. After checking online to see how much your card is worth you can request a prepaid envelope be sent to your address. Once you get your prepaid envelope, you place your gift cards inside and mail them in. After the company verifies the cards they will give you a credit so that you can buy different gift cards off of their site or send you cash if you so choose. Because of the simplicity of the process, it has been very easy for the company to make money seeing as they sold over $10 million in gift cards within the last year.

As the popularity of these sites have grown more and more competition has started to emerge. Since Plastic Jungle was first created in 2006 several other sites have popped up like GiftCards.com and CardWoo. With this competition and the possibility of crooks using the site to spend money that isn't theirs it has become a little harder for these businesses to make money, but I don't think they are hurting too much as of right now. I think that this area of the market isn't very big and if new businesses keep showing up it will put a lot of strain on all of them, because there just won't be enough demand for their services.

6 comments:

kern said...

Why does increased competition make it harder for the businesses to make money? Do you think Adam Smith's invisible hand theory will lead to more of these businesses to be created or less?

James said...

What do you predict will happen for the consumer as more companies enter the market? What are some ways that the various gift card resale companies can differentiate themselves from their competition?

Matthew said...

With this ability to sell gift cards to by others is a great store idea. With this you are hitting part of the market that has had a hole for a while, with stores not allowing you to use gift cards to buy gift cards this services is in effect skipping the middle man and giving the consumer another way to prevent the loss of money on those cards that have time limits.

As regards to the ability for thief to sell cards that are not actually theirs, I find this is actually harder then it seems. In order for them to do this they will either have to steal the card, or in a store write down the card number, the hidden security number and hope someone buys the card. If they steal the card, the actual owner can just report the card stolen to the company and most will return you the funds and cancel the old card being they are activated using your phone number or some other type of registration. Then with copying down these numbers, in order to use the cards without actually owning them you have to have the security codes which are hidden behind that special scratch off shield. If this is missing the card will not be sold. So using this for theft is almost improbable and unlikely.

Ethan said...

Mr. Kern: It is harder for each individual business to make money as more competition comes in because the businesses are taking customers away from each other. This helps the consumer though, because is causes the companies to lower their prices as an incentive for you to shop with them instead of someone else. I believe that for a while the idea of selling gift cards online will get popular and sites will start popping up all over the place. Eventually, however, everyone will start to lose money and only the sites that can manage to grab the most consumers, whether it be loyal customers or new ones, will stay alive.

Ethan said...

James: I think the easiest way for one of these businesses to stay afloat is to rope people in early. As long as you give the consumer an easy pleasurable experience then they will continue to come back. For the newer companies I would start out by having a sale every month or every few months that way you could pull some people away from one site, directing them toward yours. If you manage to provide the same sense of satisfaction as the company you pulled them away from you will most likely get to keep them as a customer because they will be looking out for your next sale. I believe another way one business could differentiate themselves from the rest of the competition would be to have some sort of points or rewards system giving returning customers additional incentive to shop with them.

Connor said...

I am suprised that these types of businesses aren't being used all the time. It seems like it could be a very profitable organization. But, I've never heard of any of these sites, so possibly they just don't advertise enough. I have had gift cards that i didn't want and I would have loved to use one of these sites.