Friday, February 23, 2007

Breakage

A legislature in Maryland wants the state to take any breakage on unused gift cards. I agree with Cato At Liberty that the move is silly. In some industries (like the phone card business) the breakage is the profit margin. In some cases, gift certificates are sold at less than face value because they are figuring in the breakage (eg Restaurant.com).

Of course there is a sense of unfairness that businesses profit from lost gift certificates (just as the US benefits when people lose money).

If I were a business selling gift certificates. I would actually do the following. I would give the breakage to a charity. I may even let the gift certificate buyer select the charity to receive the breakage.

Giving the breakage to a charity makes the gift certificate more attractive to buyers, it helps give funds to charities and would pull the gift certificate breakage off the table as something for the state to take.

1 comment:

Reach Upward said...

Having the state take breakage is a very strange thing indeed. I think that most consumers are smart enough to consider breakage in their purchasing decisions. That being the case, there is a willing provider-willing consumer relationship. Consumers willingly pay the going rate. Breakage naturally goes to profits.

Consumers that don't like this -- they don't think the value derived is worth the price charged -- are not required to participate. They can take their money elsewhere.

You suggest that businesses may wish to donate breakage to charity as a marketing cost (a form of advertising). That's probably a worthwhile way to go.