The 75 Cent Dollar - Discount Gift Cards And Other Venture-Backed Giveaways

Buy Discounted Gift Cards For Things You Planned To Buy Anyway. Potential Savings: $50+. Difficulty Level: Low to Moderate

Welcome to Saving Money with Andrew!

In The Entire Economy Is MoviePass Now,[1] Kevin Roose described the concept of giving away a dollar for 75 cents.

Essentially, the model for many start-up companies, particularly those backed by venture capitalists (VCs), is to sell products (movie tickets, car rides, meal kits, etc) for less than cost, to grow rapidly and then attract additional investment. At some point, the business will achieve “scale” and have a plausible path to profitability, earning billions for the founders and backers through a sale or initial public offering.

This model has worked reasonably well for some:

But not others:

The common thread among many of these start-ups, however, is that for a long period (in some cases the entire history of the company), the start-up sells an initial group of consumers a “75 cent dollar” - something priced lower than it cost to buy or produce it in the first place.[2] As a consumer, if you see a 75 cent dollar, you might want to pick it up.

An interesting “75 cent dollar” opportunity I’ve noticed recently is in the secondary market for gift cards. Gift cards are a huge business,[3] and retailers love them, both because they are interest-free loans (the store is paid upfront for goods/services to be purchased in the future) and because a significant percentage of gift cards are never redeemed. Chipotle, for instance, estimated in a recent quarterly report that 4% of their gift cards are never redeemed.

Numerous gift card marketplaces have emerged in the past several years. On these sites, users can sell their unused gift cards, generally at a discount to face value. I’ve used these sites for years, buying cards as gifts for friends and family and for personal use.[4]

One such marketplace, Raise, has attracted significant attention, both for their significant venture capital funding (~$150 million) and the deep discounts they offer on gift cards from a broad range of retailers. They seem to be (at least temporarily) offering a “75 cent dollar”. How so?

  • Unlike most gift card marketplaces, Raise currently offers cash back on gift card purchases. We discussed cashback shopping in an earlier issue. Currently, you can earn up to 5% cash back on purchases on Raise, though the rates often fluctuate. So, for Step 1, make sure to click through a cashback website first before making your Raise purchase.

  • Raise itself periodically offers coupon codes for gift card purchases, often from 3% to 7% off a single purchase. So, for Step 2, wait until Raise offers a periodic promotion, or use their new customer offer.[5]

  • Gift cards on Raise are typically sold anywhere from face value to 15% off face value or more. For example, Gap gift cards are currently 7.5% off. So, for Step 3, pick out a discounted gift card for a retailer where you’d normally shop.[6]

  • Purchases from many online retailers are eligible for cashback (1-10% or more), even when using a gift card. Gap, for instance, currently has a top cashback rate of 6% as of this newsletter. So, for Step 4, when you are ready to use your gift card, make sure to use a cashback website to visit the retailer where you to make your purchase.[7]

  • Of course, if the retailer itself is running a promotion, you may also be able to use a coupon code for your purchase. For example, it is common for Gap to offer as much as 40% off with coupon codes, generally displayed on their homepage or sent via email promotion. So, for Step 5, make sure you are using any available coupon codes.

The ability to combine multiple discounts is what makes this opportunity such a great deal. For instance, purchasing a Gap gift card at 7.5% off with 5% cashback, a 7% Raise coupon code, and 6% cashback on the subsequent purchase at Gap.com yields an effective price of roughly 77 cents on the dollar, not counting 2% credit card rewards, or any coupon codes on the Gap website. In the case of Gap, which routinely offers 40% off promotions, the net effect is that you are able to buy Gap merchandise for effectively 46 cents on the dollar, or 54% off.

For now, it appears Raise is happy to subsidize these discounts while they are growing rapidly and financed by VC money. But it seems unlikely this will last. Like other companies, if this strategy works, they will presumably reach maturity and reduce discounts to reach profitability (or be acquired). But for now, consumers benefit.[8]

Have you seen any other “75 cent dollar” opportunities lately? If so, please let me know!

I hope this has been helpful. If you liked it, please press the “like” button and share it with your friends! Also, if there are any topics you’re interested in, please send me your requests. And finally, if one of these tips helps you, I’d love to hear about it - just send me an email and I may (anonymously, of course) mention your story in a future post.

[1] Remember MoviePass? It was great while it lasted. Today it is defunct and its parent company’s stock trades for less than one cent.

[2] In some cases the cost of the underlying good or service alone exceeds the price to consumers (like MoviePass), in some cases the startup was just loss-making for many years.

[3] Estimates vary widely, but sources generally agree that gift card sales in the US significantly exceed $100 billion annually.

[4] A note on online safety - in my experience it’s rare to be sold a gift card that has already been used, or one not accepted by the retailer, but it does happen. In the few times it has happened to me (probably twice out of well over 50 purchases), the gift card marketplace has always reimbursed me. But make sure to use gift cards soon after purchase - it is much harder to make a case for a refund if you bought a gift card and didn’t try to use it for months. Similarly, it’s important to be organized and keep track of your gift cards. If you don’t feel confident you can do this, it might make sense to skip this tip.

[5] They also offer first-time customers $10 off a first purchase.

[6] Make sure to check in the description whether the card is a printable voucher that can be used online or in-store, a physical card that must be mailed, or an e-gift card that can be only used online.

[7] Of course, if you purchased a card for a physical retailer (e.g., Starbucks) this step is not relevant.

[8] One final disclaimer, since I realized in writing this post that it came across as very pro-Raise. This post is not an advertisement! I don’t make money from this newsletter via ads, affiliate links, or anything else.