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Why longer gift card expirations are bad for consumers

Category: Blog & News

Following the lead of the NSW government, there's now a push to extend gift card expiration dates across Australia from one to three years.  On paper that seems like sensible policy, protecting the rights of consumers who waste over $2 million a year in unused gift cards. But what seems like a win for consumers may not actually be.

Are longer expirations good for consumers?

In theory, yes, a longer timeframe for redemption should mean fewer cards go unredeemed. But that’s not what the behavioural science suggests.

Researchers Shu and Gneezy from the University of California(2010) ran a series of experiments on why we procrastinate when it comes to enjoyable experiences. While it’s understandable that people defer unpleasant tasks, the researchers were curious about whether and why we also put off things we want to do. In this case, putting off redeeming a gift.

In one experiment, participants were given a voucher for a pastry and coffee. Some had a voucher with a 2 month expiration, others had only 3 weeks to redeem their treat. Those with the longer period should be more likely to redeem, right?

Well, that's what the participants certainly believed. When first given the voucher, those with the 2 month expiration preferred the longer period, believed they would be more likely to use it and couldn’t imagine any difficulty in doing so.

But that’s not what actually happened. When it came to rates of redemption, the researchers found the following:

  • 2 month expiration, 6% redemption
  • 3 weeks expiration, 31% redemption

According to the researchers “people given a longer timeframe are more positive about and expect to be more likely to complete the enjoyable task, but are actually less likely to do so.”

In another experiment, 49% of people given movie tickets with a 2 week expiration used them, whereas only 35% of those with a 6 week expiration did so.

What’s going on here? It seems we always think we’ll have more time in the future to do something, and we think the benefits will hold true (so it will be equally good whether I do it today or next week).  We have only a fuzzy idea of what the future looks like so we underestimate how tired or busy we will feel by the time it rolls around. In short, we think we’ll be more ready to enjoy the experience down the track, but that never happens.

For gift cards, that suggests that people will love the idea of 3 years to use their voucher, but will be less likely to actually do so. Uh oh.

Are longer expirations good for retailers?

So the intended benefits of longer expiration periods for consumers may not actually eventuate. Are they good for retailers? Yes and no.  No because retailers have to carry the liability for a longer period, but yes because:

  • More people will be attracted to buying them (after all, people think they’ll be more likely to use them) and
  • Fewer people will likely redeem them  Oops.

Are longer expirations good for politicians?

You betcha! What’s not to love? Pollies look like they are getting tough on business and protecting the rights of consumers. But are they really?  This is an example of policy that looks perfectly logical on paper but may have unintended consequences. I’m not saying politicians are deliberately creating policy that makes them look like heroes and ends up penalising consumers, but I am suggesting there is a gap between how most policy makers (and businesses) think people behave and how they actually do.  

Tips for you

  • As a business and if you want people to redeem their gift cards, send reminders and create early bird bonuses. If you are not keen that people redeem their cards, extend the expiry period with the blessing of the government.
  • As a consumer, give yourself a short deadline to use your vouchers and keep them handy. Filing away in a drawer will reduce your propensity to use them.

This article also appeared in Smartcompany.

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