The Economics of Loyalty Programmes
Points as a Liability and Accounting
Unredeemed points are a debt for the company, and firms must estimate how many will be redeemed, influencing profits.
Rewards on the balance sheet.
Liability
Points owed to customers are recorded as a liability.
Breakage
Points never redeemed are profit for the firm.
Expiry
Programmes may set expiry dates to reduce liabilities.
Consumer tip
Use points before they expire or lose value.
An expiry
Points that vanish after a year are a hidden cost for casual users.
Hoarding points without using them
Value may erode.
Key takeaways
- Points are liabilities.
- Unredeemed points benefit firms.
- Expiry rules apply.
- Use points wisely.
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