If unredeemed tokens have a value in your jurisdiction, profit by requiring purchase of more tokens than are necessary for immediate redemption, but not sufficient to purchase more items.
- Gift cards are a win-win proposition for retailers. Customers tend to either never redeem gift cards they have been given, redeem only part of the card, or spend an additional 15-40% in the process of redeeming the card.
The industry term for the dollar value of unredeemed pre-paid items is breakage. Breakage is big business for retailers who offer gift cards. In 2011 alone, the electronics retailer BestBuy reported $53 million in income on the value of unredeemed gift cards. Estimates suggest that anywhere from 10% to 19% of card balances go unredeemed, for a total of around $41 billion dollars in the period from 2005 to 2011.
The currency doesn’t have to be dollars for this tactic to work. Any pre-paid gift card, be it x-Box points or Facebook credits, can suffer from breakage.
How to design for breakage
- Ensure the smallest denomination of points card is at least 10-15 times the cost of the cheapest available item
- Make sure that points cards and refills are offered in denominations that leave remainders – for instance, if individual items cost 79 points, then a 1000 point card will leave 52 points – insufficient to purchase another item, thus requiring purchase of a new card or forfeiture of the remaining points.
- Make points expire after a set period, or start charging administration fees.
Comments are closed.