If you’ve ever received a gift card, you’ll know that when it comes to spending it, the experience feels different to spending cash, and that’s largely down to psychology.
Whether a tangible or a digital gift card, studies have shown that the brain treats gift cards and money differently, resulting in a different user experience and even a change in spending behaviours.
Gift cards and Mental Accounting
When it comes to employee recognition and incentives, cash bonuses and gift cards are two of the most common rewards, but they may not have the same impact on the recipient, and that’s all down to something known as Mental Accounting.
Mental Accounting is a psychological phenomenon that explains how and why we tend to assign a subjective value to our money depending on how we earned it, the form it's in and how it makes us feel.
Studies on Mental Accounting concerning cash and gift cards show that when an employee receives a cash bonus, they label it in the same way as their salary, and ultimately it tends to be allocated to everyday essentials like utility bills, rent or debt repayments.
On the other hand, gift cards don’t get labelled as salary, meaning they don’t disappear into everyday payments and are much more likely to be spent on hedonic items.
The power of gift cards over a cash bonus
If the mental filing and catagorization of gift cards as different from cash wasn’t interesting enough, studies also prove that gift cards can be a more powerful motivator.
There are a couple of different explanations for this; the first is that because gift cards sit separately from salary, they feel like more of a bonus. The second is that using gift cards for hedonic items has resulted in a positive association, making them more desirable to employees. Together, these factors have resulted in gift cards becoming a more efficient motivator than cash alone.
How gift cards can affect spending habits
The psychology of gift cards doesn’t end there, and studies have also shown that gift cards can directly influence spending habits.
When shopping with a retailer-specific gift card, these studies show that the gift card holder is more likely to choose products that are typical of the brand - such as jeans when shopping at Levi’s or trainers from Nike.
Data from the UK Gift Card & Voucher Association (GCVA) also shows that consumers spend more when they redeem a gift card than they would if they spent cash alone.
67% of gift card users spend £18.55 more than the value of their gift card.
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Even gift cards acquired for personal spending can affect spending habits. Figures show that 64% of dining decisions and 42% of clothing purchases are driven by which restaurants and retailers offer discounted or promotional gift cards.
Cash vs Gift Cards - Which is better?
Both cash and gift cards are well received; in fact, they’re often the two most highly rated options by employees, but as this article has shown, as far as psychology is concerned, they’re not created equal.
While no one is likely to complain about a cash bonus or incentive, offering your employees a flexible digital gift card, such as a Tillo Choice Link, or a versatile prepaid Mastercard like a Reward Pass, may turn out to be a more thoughtful choice.
Get in touch with us to learn more about Tillo’s digital gift card solutions.
