Retailers' optimal strategy of free gift card with expiry date

Offering “free” gift cards with expiry date is very popular among retailers. In this paper, we formulated and solved a model for jointly determining the optimal purchase amount threshold, gift card value and expiry date. The model shows that retailers' profit margin and consumers' valuation for additional purchase are the critical factors in determining the profitability of retailers adopting gift card. Gift card can be very profitable for high-margin retailers and high-utility of consumers' additional purchase. Moreover, we find that retailers' profits increase with the expiry date of the gift card. That is to say, setting expiry date to gift card can't help retailers' got more profits.