Breakage

Breakage is the term for when gift cards that have been previously sold remain unredeemed. Since the company is no longer required to provide the promised products and services for unredeemed cards, breakage produces revenue that may be considered profit.

Some companies make use of breakage estimates to manipulate information on their revenue, a practice that has been criticized. This concept is commonly used in accounting, sales, distribution, and multilevel marketing.

Many companies place certain restrictions on gift cards, such as expiration dates or fees that may reduce the actual value the customer may gain from the gift card after a certain deadline is past. This is illegal in certain territories. In the United States, some states do not allow the imposition of such conditions on gift cards.

Gift cards also fall under the wider term, scrip. Scrip refers to money substitutes usually come in the form of credit. Scrips were originally used as a method of paying employees, especially during times in which regular currency was not available. Some occupied territories during war time did not have access to money, so the creation of a substitute was necessary. Scrips have since evolved to include gift certificates and gift cards and the purpose of the scrips has changed, as well. Gift cards, for instance, are now used to provide customers with incentives. Gift cards may be used in conjunction with a credit card rewards system. In certain cases, they may also be traded and sold.

Comments
Leave a response

Leave a Response