Overpriced Gift Baskets

It’s gift giving time in much of the western world.  Whether Hanukkah or Christmas, people are out shopping for the appropriate gift. Yet what do we get for people who we will not visit?  Enter the infamous gift baskets.

Gift baskets of wine, of fruit or nuts, maybe cookies, chocolate, or even pasta. Fruit of the month clubs.  Omaha steaks (ok, not a basket but it is a gift). Floral bouquets. You name it, and someone will stick it in a wicker basket, put a ribbon on it, wrap it in colored cellophane, box it up, and ship it to your special friend.

But are they overpriced?

Price Check

Harry and David will send a Jolly Ginger Bouquet for $84.99 plus shipping and handling.  Wine Country will send a Callister Cellars Pinot Noir Wine Basket with one bottle of wine plus random treats for $64.96 plus shipping and handling.  Nuts.com will send a Bucket of Mixed Nuts for $29.99 plus shipping and handling.

By contrast, a box of ginger cookies and a few oranges would cost less than $10 at a grocery store. Similarly, for $60 one could buy three bottles of decent wine. And Planters sells mixed nuts for $5.99 at my local Jewel-Osco.

If we are just comparing the contents, the prices of the actual items in a gift basket are extraordinarily overpriced. But gift baskets sell at these prices. Why?

Context Dictates Value

Back in 1973, Kent Monroe explored a pricing paradigm known as the “four funds of money.” The four funds relate price and benefit sensitivity to the source of the funds and the purpose of the funds.

To take the simple cases, Monroe argues that a person spending their own money on themselves tends to exhibit both high price and high benefit sensitivity. In contrast, a person spending someone else’s money on someone else tends to exhibit both low price and low benefit sensitivity. In a broader context, this latter challenge is exactly the source of business-to-business transactions and relates to the common practice of providing procurement officers with incentives and oversight to drive better purchasing decisions.

It gets more interesting in the mixed cases.

Gift Cards

Monroe argued that a person spending someone else’s money on themselves often demonstrates a tendency towards lower price sensitivity but greater benefit sensitivity. This has implications for gift cards.

Someone who does not internalize the value of the gift card as their own money is more likely to splurge and purchase something that they would usually do without. In contrast, someone who treats a gift card as cash will use it to buy necessities, which is probably economically more efficient, but economic efficiency is famously not the motivator of gift giving.

Because many people do not consider the face value of a gift card as cash, gift cards are useful for encouraging the receiver to purchase more luxury items over necessities. This confers the giver as both delivering a kind and luxurious gift. A win for the giver and receiver.

And for those that do treat gift cards as cash, economic efficiency is also good.

Gift Baskets

Monroe also argued that spending our own money on someone else is also associated with a tendency towards exhibiting some price sensitivity but greater benefit sensitivity. However, the definition of benefits changes from economic benefits to those associated with making and leaving a positive impression.

Consider the implications for gift baskets. Gift baskets are prized for their “wow” factor, not the actual items in the basket. Givers want the receiver to feel special, to have an enjoyable experience, and to be impressed.

For some reason, wicker baskets that have a bow on them and are wrapped in cellophane make us happy. Better yet, add some unique graphic designs and arrangements to augment the experience of receiving, opening, and consuming the gift items, and we may be even happier. And if it is flowers for a lover and the love can be made public, it is even better to present the flowers at the office or in a public setting where his/her friends will see them.

By this logic, the “overpriced” gift basket is actually appropriately price. And the more “overpriced” the gift basket is, the greater the “wow” power delivered, and thus the stronger positive impression is made on the receiver about the giver.

So, if you have the wealth to spend on gift baskets, don’t fret too much over their high prices. You’re sending a social signal.  But if you aren’t in that wealth/income bracket, please remember that cards also make great gifts.

Reference

1. Advertisers would want to encourage us to find the “perfect gift”, yet that creates unnecessary mental distress. Please, for the sake of your own inner peace and sanity, settle for appropriate gifts and leave perfection up to Mother Nature.
2. Kent B. Monroe, “Buyers’ Subjective Perceptions of Price,” Journal of Marketing Research 10, No 1. (February 1973): 70-80.