Loyalty Programs · The economics · Component
The liability
Points earned and not yet redeemed, valued — an obligation that grows with the programme and appears long after the decision.
The deliverable
What it is
Earned and unredeemed points are an obligation. Accounting standards require them to be recognised, and the number grows with the programme’s success.
The valuation rests on a breakage assumption — how much will never be redeemed — and that assumption is where the number is most sensitive.
One level in
What it is made of
Each element is a constituent part of the component. Follow one to see the attributes it carries.
The outstanding
How much has been earned and not redeemed.
3 attributes: Points outstanding · Valued at · Trend
LearnThe breakage
How much is assumed never to be redeemed.
3 attributes: Breakage rate · Source · Programme viable without it
LearnThe recognition
How the liability appears in the accounts.
3 attributes: Treatment · Standard · Agreed with
Learn
A programme that only works at high breakage is fragile. Expiry rules and consumer protection have both been tightening.
The other components in the economics
The cost
Redemption cost plus running cost per period — the second of which is consistently forgotten.
LearnThe return
What the programme produces, against what it costs — measured incrementally rather than by comparing members with non-members.
Learn