- Interest-free loans are valuable. Small businesses that want to borrow would normally have to pay relatively high interest rates to do so.
- A $20 gift card only results in a $20 reduction in revenue if that customer was definitely going to buy something from you even if they didn't have a gift card. This isn't true 100% of the time: X% of gift cards will be given to people who wouldn't otherwise have been customers, X% will be bought by people who aren't regulars, but would like to support a local business, X% will be bought by people who have always thought about going to that business, but wouldn't have checked it out without this push, etc. For gift card holders who wouldn't have been customers without a gift card, your loss is just the marginal cost of serving that customer. Maybe for they buy $20 worth of stuff from you, but your marginal cost to serve them is only $8. That's still $12 you otherwise wouldn't have had.
- In the right circumstances, gift cards can be a cheap way to acquire customers. Some number of customers are going to discover businesses through this and other similar efforts. If this brings in customers at a lower customer acquisition cost than typical channels, then that's a benefit, particularly if the customer sticks around even after they've used up the gift card balance.
- A substantial portion of gift card balances never get used. People forget, they move, they use part of the card and end up with an inconveniently small balance, etc. That ends up being free money (admittedly free money that's difficult to account for).
- Interest-free loans are valuable. Small businesses that want to borrow would normally have to pay relatively high interest rates to do so.
- A $20 gift card only results in a $20 reduction in revenue if that customer was definitely going to buy something from you even if they didn't have a gift card. This isn't true 100% of the time: X% of gift cards will be given to people who wouldn't otherwise have been customers, X% will be bought by people who aren't regulars, but would like to support a local business, X% will be bought by people who have always thought about going to that business, but wouldn't have checked it out without this push, etc. For gift card holders who wouldn't have been customers without a gift card, your loss is just the marginal cost of serving that customer. Maybe for they buy $20 worth of stuff from you, but your marginal cost to serve them is only $8. That's still $12 you otherwise wouldn't have had.
- In the right circumstances, gift cards can be a cheap way to acquire customers. Some number of customers are going to discover businesses through this and other similar efforts. If this brings in customers at a lower customer acquisition cost than typical channels, then that's a benefit, particularly if the customer sticks around even after they've used up the gift card balance.
- A substantial portion of gift card balances never get used. People forget, they move, they use part of the card and end up with an inconveniently small balance, etc. That ends up being free money (admittedly free money that's difficult to account for).