Gift card program incrementality and cannibalization: The effect on revenue and profit

Many retailers have not measured the magnitude of cannibalization or its impact on revenue and profit when existing customers use a gift card for purchases they would have made without it, particularly when the card was purchased through a 3rd party at a discount up to 15%. We conducted a survey among gift card redeemers of a national casual dining restaurant chain to determine how the gift card affected their purchase behavior. We used this information, combined with operating margin, to model the impact of three different gift card discount scenarios on firm revenue and profit. Although the revenue effect was positive under all scenarios, the same was not true for profit. The profit was much lower than anticipated, even in the best case scenario, and was negative in the worst case scenario.