Is gifting worth it?: The endowment effect and how it can increase your ROI by 40%

By Jim James, Founder EASTWEST PR and Host of The UnNoticed Entrepreneur. 

Do you or do you not give physical products to your partners, staff, and clients (including prospective ones)? If you don’t, you might want to listen to my latest podcast episode where I talked about the endowment effect.

On the show, I shared about sending physical things, gifts, and products. In my case, I’ve recently sent copies of The UnNoticed Entrepreneur book to half a dozen people who have impacted me. It’s my way of saying thanks for all that they’ve given me.

What the Figures Tell

The internet has been decimating physical mail. When we look at the statistics that recently came out, the Gift Card & Voucher Association (GCVA) said that gift card and voucher sales in the UK have dropped by 5.4% on a like-for-like (LFL) basis in the first half of 2020. It shows how leisure sales have been significantly impacted. However, business-to-business (B2B) sales of gift cards have increased 9.3%, LFL. 

This shows that consumers are not buying as many as before; they’re not going to the retail outlets to purchase gift cards and the like. Businesses, on the other hand, are giving nearly 10% more vouchers than they did in the past.

But why is this? 

It’s largely a function of employers trying to reward their staff. I recently talked to an American entrepreneur and he shared how they have hired a magician for a company Zoom meeting. That’s one kind of reward. But now, people are trying to bind their teams with tangible, non-taxable benefits. 

At the moment, gift vouchers worth £100 are tax-free. And GCVA is trying to lobby and get that increased to £500. 

If you’re not aware, the gift card and gifting industry is worth some £7 billion (I, personally, had no idea that the industry is big). The statistics further show that the B2B growth sector is now 75.8% of that market. It has actually grown as a percentage of the overall market. B2B gifting — whether it’s about a company gifting their staff, partners, or customers — has increased.

The Endowment Effect

One of the reasons for this growth is the endowment effect. It is a sense of ownership that an item gives to the person on the receiving end. 

Image from Unsplash

In other words, if we give something to someone else (for example, a book or a soft toy), we’d be endowing them with something. And even culturally speaking, there’s this sense of how recipients are owing us something back. There’s also a sense of reciprocity and trust; a sense that the person who first gave the gift has taken the first step to initiate and invest in a relationship.

I lived in China for 13 years and before that, in Singapore for 12 years. There, one would always go to an event with a gift in hand. For example, if you’re going to a wedding, you’d give a gift, similar to what we do here in Europe. If you’re going to a business event, you’d also give a gift of some kind.

In the UK, of course, there are rules and regulations about the size of the gift to govern when it goes from being a sign of wanting to build a relationship to a sign of trying to influence an outcome. To some degree, the truth is that gifting is trying to influence outcomes — both in social and professional circumstances. Still, statistics show that gifting makes a difference.

However, it’s not just about gifts.

In another report, it showed that 57% of people claim that receiving mail — not email, but hardcopy mail — makes them feel more valued. If they would get mail from somebody, it would make them feel more valued, especially in an era where more and more people are sending e-cards, emails, and videos.

I talked about gifting on my podcast because I’ve started sending people physical goods again. I recently went to a wedding and I received a lovely card back from my niece, thanking us for the gifts we gave. 

When we were younger, we grew up writing cards, sending Christmas, thank you, and birthday cards as a sign of being respectful and well-brought-up. But culturally, whether it’s in China, Asia, or anywhere in the world, people feel that if they’re sent something, they’re more highly valued. The endowment effect also kicks in and they’d feel as though they have some sense of reciprocity and trust, and even the desire to engage with the sender.

How I’m Using the Culture of Gifting

A chap named Michel André Maréchal together with Christian Thöni wrote a paper in 2018. It’s called “Hidden Persuaders: Do Small Gifts Lubricate Business Negotiations?” 

The answer is, basically, yes. But the question is: How much should the gift be?

I sent copies of my The UnNoticed Entrepreneur book to people who have influenced me. And the book costs only around $14-15. However, it’s not the value but the thought that counts. They’ve written their own books and these are books that have influenced me. If I could send them a book, I’m reciprocating with an equal gift. 

Image from LinkedIn

Through Ocado, I also recently sent meal ingredients to my stepmother who just came out of the hospital. The package included some arnica cream, salmon, fish oil, and fresh, organic vegetables — which I found to be good for recovery. 

There’s an article in Forbes prompting us to think about the value that a client brings to us. If you attribute even 1 to 5% of that value to a gift, that might be appropriate. But you could also do your own measurements.

Philosophically, the idea is that gifting with physical products, goods, services, or money-in-kind (e.g. theater tickets, meals, a discount somewhere, or a book token) makes a difference that people could feel. And it could be that you’re making the first move in contributing to the relationship or you’re repaying them for that relationship.

Increasing Your Return on Investment

As I mentioned, in Asia, people would bring bottles of rice wine and other gifts to certain events like weddings (In China, however, it’s not a practice to give knives and clocks during business events).

The Forbes article suggests that the return on investment or ROI of giving gifts to clients is a staggering 40%. It means that if you have a recipient who will consider your business gift as something memorable, your ROI will increase by 40%.

However, the question remains: When did you last say thank you to a client, a staff member, or a partner for what they’ve done for you?

At my PR firm EastWest Public Relations, we used to send media cinema tickets in Singapore. In the country, the tickets can already be an experience because through them, you can buy dual seats with popcorn and drinks. We couldn’t be seen bribing the media but saying thank you and recognising them. If they could go to a movie — even if they don’t buy the full package — they could still find it enjoyable by going with a friend or a partner and having all the trimmings.

Recently, I wrote to people who have influenced me in my journey to say thanks to them. I also sent copies of my book because I want to share a token showing how they’ve contributed to me. I’ve pointedly said that I’m not asking for anything in return. However, I know that the endowment effect will kick in regardless of what I say as long as I do the right thing.

Can this be considered public relations?

For me, all activities that impact how people feel about how our company or how we, as individuals, look and behave — activities that impact other people’s impression of us — are absolutely public relations.

Wrapping Up

For my recent podcast episode, I shared a thought for the day: Is gifting worth it? Can you make use of the endowment effect?

Image from Unsplash

As we get close to the October holiday in China, Halloween, and Christmas, there are many different opportunities to give gifts. We’ve just been through Hari Raya in Singapore, which involved our Muslim friends. These are all public calendar events. But there are also other opportunities to give gifts, say thank you, and send something physical. These include anniversaries, weddings, birthdays, and celebrations of other accomplishments.

In related news, Austria Post shared that they’ve got parcel volumes increasing by 20%. Around the world, businesses are also sending physical goods to their partners — some by way of a vendor; some by way of expressing gratitude. 

With all this information, you should consider if gift-giving could be part of your strategy to build evangelists for you and your company.

If you have queries, reach out to me at jim@eastwestpr.com. You can also check out The UnNoticed Entrepreneur book, out now on Amazon and Barnes and Noble. It’s available for reading on Kindle or as a paperback. You can also leave a review or send any questions that you have. 

This article is based on a transcript from my podcast The UnNoticed Entrepreneur, you can listen here.

 

Cover image by Ekaterina Shevchenko on Unsplash.