Gift Cards as a Premium Good?

Wednesday, December 3, 2014

I don't understand coffee. Many people are addicted to caffeine and refuse to function unless they've consumed their daily dose. Actually, that's the part that I understand.

What confuses me is how people have moved from treating coffee as a "thing" to a near-religious experience. They buy thousand dollar machines to prepare it, spend enormous amounts of cash to acquire it and take significant portions of their days to consume it. But, ladies and gentlemen, the bar has just been raised.

cup of coffee
Image courtesy of Julius Schorzman

Now people are not just willing to pay a premium for coffee, they're willing to pay a premium for paying for coffee. That's right. Whereas once we would expect a gift card to be sold at face-value, Starbucks is now selling $50 gift cards for $200 (plus tax).

As soon as this fact came to my attention, I just had to learn more.

I discovered that these gift cards were not the typical plastic items that one would normally expect. Instead, they were composed of "premium 925 Sterling Silver" and delivered inside "a beautiful red snap pouch."

Although a quick search did not reveal the manufacturing cost basis for these cards, I assume that they are still being sold for a profit. The 300% markup on the face-value of the gift cards is a stroke of genius - even if the company doesn't make a dime in profit from their sale.


That's all great for the company, but why on earth would someone pay the $150 premium being charged? Two points come to mind, and it's all about ego:

Let me be clear, I would never pay $50 for a $200 gift certificate for any reason. Would I potentially advise a company to offer such a thing? You better believe it!

Want to learn more? Take a look at my very exclusive book on how to price software. How exclusive is it? Only people who pay me money can get it. I also offer consulting services, but only to those who are worthy. Now who says subtlety is a dead art?