Omni Core · Loyalty Programs · Module
The economics
What the programme costs, including the liability that accumulates, and what it returns.
The idea
How it works
The cost has three parts: what redemption costs, what running the programme costs, and the liability of points earned and not yet used. The third grows quietly and appears in the accounts long after the decision.
Breakage — points that are never redeemed — is what makes many programmes viable, and depending on it is a position that regulators and accounting standards have both narrowed.
Working with it
In practice
- 01
Value the liability properly
Points outstanding times expected redemption cost. It grows with the programme and is rarely revisited after launch.
- 02
State the breakage assumption
What proportion is assumed never to be redeemed. A programme that only works at high breakage is fragile.
- 03
Include the running cost
Administration, communication, systems and the customer service the programme generates.
- 04
Recalculate annually
The economics at launch and the economics at scale differ, usually unfavourably.
One level in
The components of the economics
A component is something that exists afterwards which did not exist before — a deliverable or a mechanism, not an intention.
A programme that only works at high breakage is fragile, and breakage assumptions have been narrowing for years.
The other modules in loyalty programs
The mechanism
What the programme actually does — what earns, what is earned, and what it can be exchanged for.
LearnBehaviour change
Whether members actually behave differently because of the programme, established by comparison rather than by assumption.
LearnWinding down
How a programme ends or changes without the change being experienced as a betrayal.
Learn