Analysis of gift cards effectiveness from a newsvendor's perspective

Gift card is more and more popular in market, the retailer gets profit from gift cards, customers give gift cards to replace gift products. In this paper, we develop a newsvendor model to analysis the retailer's optimal strategy in condition that without gift cards, unredeemed gift card balances become the retailer's property with gift cards and unredeemed gift card balances become the state's property with gift cards, respectively. Then we make a numerical example analysis to compare the solutions in three different conditions and analysis the effects of different parameters to the solutions. We find the optimal order quantities in different conditions and selling gift cards is benefit to the retailer.