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.
Blog posts about this pattern
- Read more about Breakage on the Amazon Tech Book blogI recently wrote a piece on Amazon’s tech book store blog to promote the book. It turns out that Amazon use many of the design patterns in the book, and mostly for good (or at least commercial) purposes rather than with evil intent. Breakage is the industry term for the dollar value of unredeemed prepaid items. ...
- Amazon Coins – new token currency, same old issuesAmazon announced today that it has introduced Amazon Coins, a token-based economy for use in their Kindle Fire app store. Although customers get up to a 10% discount for buying Amazon Coins in bulk, that discount is actually likely to lead to them spending more money, not less, on Amazon’s app store. You must buy Amazon Coins in ...