Buying Jeans with That Levi’s Gift Card?

Is our preoccupation with finding the perfect gifts for family and friends a waste of time? Most recipients apparently prefer to make the choice themselves, in the form of prepaid cards: according to the National Retail Federation, gift cards have been the most popular holiday request for the past eight years.

Open-use, prepaid cards from payment networks such as American Express allow the recipient to shop from any retailer. But how does a retailer-specific gift card—from Levi’s or J. Crew, for example—influence the recipient’s purchases in the store? That depends on the “typical” Levi’s or J. Crew product, and how familiar the consumer is with the brand, according to Nicholas Reinholtz of the University of Colorado Boulder, Chicago Booth’s Daniel Bartels, and Jeffrey R. Parker of Georgia State University.

The researchers asked participants to imagine spending a $200 gift card from either American Express or a specific retailer. In a series of six experiments, they find that recipients of retailer-specific gift cards showed a strong preference for the retailer’s most-typical products—jeans were the top choice at Levi’s, for example. For retailers such as J. Crew, where consumer perception of the store’s typical products is more diffuse, the effect was not as strong. And among the participants who were making a shopping list with an American Express gift card, the effect disappeared altogether.

The results for retailer-specific cards held for other stores and their typical products, including Whole Foods, where more participants chose organic produce, and Fossil, where more participants chose watches. Whole Foods’ and Fossil’s counterparts in the experiment, Safeway and Target respectively, saw a lesser effect, similar to participants’ reactions to J. Crew, and for similar reasons: recipients had a broader understanding of the companies’ typical products, and so had less-specific shopping goals.

The work has important implications for retailers trying to stock their stores and train their employees for optimal sales. Particularly at times of the year when gift cards are in greater use, retailers may want to focus on higher-margin products that are typical of their brand.