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.