Breakage

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Breakage is a term used in telecommunications and accounting to indicate any type of service which is unused by the customer. A good example would be gift cards or calling cards that have been sold but never redeemed. [1] Revenue from breakage is almost entirely profitable, since companies need not provide any goods or services for unredeemed gift cards. It should not be confused with Shrinkage (accounting) (items which are not used by the customer because they disappeared from inventory).

Accounting measurement, processing and communication of financial information about economic entities

Accounting or accountancy is the measurement, processing, and communication of financial information about economic entities such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494. Accounting, which has been called the "language of business", measures the results of an organization's economic activities and conveys this information to a variety of users, including investors, creditors, management, and regulators. Practitioners of accounting are known as accountants. The terms "accounting" and "financial reporting" are often used as synonyms.

Telephone card

A telephone card, calling card or phonecard for short, is a credit card size plastic or paper card, used to pay for telephone services. It is not necessary to have the physical card except with a stored-value system; knowledge of the access telephone number to dial and the PIN is sufficient. Standard cards which can be purchased and used without any sort of account facility give a fixed amount of credit and are discarded when used up; rechargeable cards can be topped up, or collect payment in arrears. The system for payment and the way in which the card is used to place a telephone call vary from card to card.

Shrinkage (accounting)

In accounting, inventory shrinkage is when a retailer has fewer items in stock than in the inventory list due to clerical error or goods being damaged, lost, or stolen between the point of manufacture and the point of sale. This affects profit: if shrinkage is large, profits decrease. This leads retailers to increase prices to make up for losses, passing the cost of shrinkage onto customers.

In 2006, a blog called "The Stalwart" criticized Best Buy for using estimated breakage to improve their revenue numbers. [2]

Best Buy Consumer electronics retailer

Best Buy Co., Inc. is an American multinational consumer electronics retailer headquartered in Richfield, Minnesota. It was originally founded by Richard M. Schulze and James Wheeler in 1966 as an audio specialty store called Sound of Music. In 1983, it was rebranded under its current name with more emphasis placed on consumer electronics.

In telecommunications

In telecommunications, breakage can occur in several ways. The key elements in maximizing revenue versus service via breakage are:

In marketing, product bundling is offering several products or services for sale as one combined product or service package. It is a common feature in many imperfectly competitive product and service markets. Industries engaged in the practice include telecommunications services, financial services, health care, information and consumer electronics. A software bundle might include a word processor, spreadsheet, and presentation program into a single office suite. The cable television industry often bundles many TV and movie channels into a single tier or package. The fast food industry combines separate food items into a "meal deal" or "value meal".

The following examples are given in terms of voice calling, although they may also apply to data, short message or other services.

Rounding replacing numerical value by another approximately equal

Rounding a number means replacing it with a different number that is approximately equal to the original, but has a shorter, simpler, or more explicit representation; for example, replacing $23.4476 with $23.45, or the fraction 312/937 with 1/3, or the expression √2 with 1.414.

Careful research and planning can maximise some forms of breakage. For example, if a high percentage of mobile voice calls on the network are less than one minute in duration, then a rating plan could use an initial quanta of 60 seconds, followed by 1 second quanta. The plan appears to use a low quanta, but in fact many calls will be hit by the initial 60 second quanta.

Similarly, if many users are shown to use 14 GB of data per month on a data plan, then offering data plans of 10 GB or 30 GB will force many users to pay for much more data than they need, which will expire at the end of each month.

See also

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Gift card

A gift card is a prepaid stored-value money card usually issued by a retailer or bank to be used as an alternative to cash for purchases within a particular store or related businesses. Gift cards are also given out by retailers and marketers as part of a promotion strategy, to entice the recipient to come in or return to the store, and at times such cards are called cash cards. Gift cards are generally redeemable only for purchases at the relevant retail premises and cannot be cashed out, and in some situations may be subject to an expiry date or fees. Visa and MasterCard credit cards produce generic gift cards which need not be redeemed at particular stores, and which are widely used for cashback marketing strategies. A feature of these cards is that they are generally anonymous and are disposed of when the stored value on a card is exhausted.

Fido Solutions Canadian telecommunication company

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Prepaid mobile phone

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TracFone Wireless, Inc. is a prepaid mobile virtual network operator in the United States, Puerto Rico, and the US Virgin Islands. TracFone Wireless is a subsidiary of Mexico's largest telecommunications company América Móvil, and offers products and services under several other brands. It operates as a mobile virtual network operator (MVNO), holding agreements with the United States' largest wireless network operators to provide service using their networks, including Verizon Wireless, AT&T Mobility, T-Mobile US, Sprint Corporation, and U.S. Cellular. TracFone Wireless had 25.668 million subscribers in 2015.

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BT Mobile

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Republic Wireless

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References

  1. ↑ http://www.servicelevel.net/rating_matters/newsletters/issue10.htm
  2. ↑ "The Stalwart" . Retrieved 2006-09-17.
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