Economics of Amazon.com’s $20 Gift Card for $10 on LivingSocial.com Makes Sense

Amazon sold 1.3M $20 vouchers for $10 on Living Social.  Living Social splits that $10 50/50 typically, so Amazon will have “lost” $15 on every gift card, except they won’t herunterladen.

Gift Card economics work like this:

20-30% of Gift Cards are never redeemed.

The average spend of a customers using a Gift Card is 40% greater than the value of the gift card mobdro herunterladen.

The average mark up of merchandise sold with a gift card is 20%Economics of Amazon.com’s $20 Gift Card for $10 on LivingSocial.com Makes Sense

If you multiply this out, you see that on a $20 Gift card, with 25% of them lost, you are at $16, a 40% larger purchase at 20% mark up means that a $20 card is used on a $28 purchase that has $6 worth of mark up, and all of a sudden that $20 gift card is only costing Amazon $10.  Assuming they capped the split with LivingSocial, knowing that they would be doing LivingSocial a service by getting all those new signups, I expect that Amazon broke even on this deal unity.

This wouldn’t have made as much sense for a local business.  They would have lost $5 on every one of the cards sold.  Which might be worth while if they were selling $20 gift certificates knowing that they only had products $50 and up, but doesn’t make as much sense when the gift cards are closer to the price of the typical purchase herunterladen.