The Economics of Gifting

December is holiday season, and the best one for gifting! Especially, for children. And so, I thought this one deserves a deep dive.

The Indian gifting market is worth about $30 billion. Broadly, this is across three categories: festival gifting ($7.5 billion), personal gifting ($20 billion), and corporate gifting ($2.5 billion).

The average Indian spends approximately ₹5,000 (~$62) on gifts during festive celebrations each year. Globally, an average shopper plans to spend $902, with $641 allocated to gifts.

A study by Redseer indicated that e-commerce is likely to join the party and achieve a remarkable ~20% year-on-year (YoY) growth in the festive season this year. From beauty products to electronics and home decor items to the trendiest apparel, consumers get access to the best deals during the festive season. However, globally, cash and gift cards are most popular.

According to market research by GiftAFeeling, about 93% of Indians think digital gift cards are perfect for holiday gifts. About 46% of people say gift cards are easier to send than traditional gifts.

But gift cards aren’t always ideal. Oftentimes i.e. ~28% of the times, they go unused — whether we lose them, forget we have them, let them expire, or fail to spend the full amount that was gifted. And when that happens, there’s only one winner: The companies that sell the cards, such as Starbucks.

In a 1993 paper titled “The Deadweight Loss of Christmas,” economist Joel Waldfogel asked a bunch of Yale students to place a monetary value on the holiday gifts they’d received. His conclusion: Recipients valued their gifts at between 10% and 30% less than what the gift giver paid for them. The most economical and rational gift, suggests Waldfogel, is cash. However, most people would argue that cash in an envelope is against the intimate, personal, and symbolic spirit of gift-giving.

More recent studies indicate these trends in preference for personalisation. Personalized gifting market is experiencing the most growth trending at ~13% CAGR. Approximately, 65% of consumers purchased personalized gifts last year and 80% believe personalized gifts are more thoughtful than non-personalized gifts.