For many loyalty program providers, program financial liability is a serious concern. Since members can redeem their points for rewards anytime, the business carries liabilities toward these potential future obligations. Such liabilities can be quite large. For example, American Airlines’ 2017 10-K filing reports $420 million worth of loyalty program liability. For Hilton Hotels, the guest loyalty program liabilities are valued at $889 million, according to the company’s form 10-K. With new accounting guidelines for loyalty programs about to take effect, liabilities will become an even more salient issue for loyalty program providers.
One common way of limiting liabilities is to set a point expiration policy so that points automatically expire after a set period of time (or a set period of inactivity). If your program points do not expire or expire after a longer period of time than you’d like, you may want to consider tightening up the expiration policy. But how will that affect your customers? Should you make the switch? Let’s look at the pros and cons for such a policy shift.
Pros of a Shorter Loyalty Program Expiration Policy
- A shorter expiration time reduces the number of redeemable points in the long run and decreases program liabilities.
- Because of the time pressure, a shorter expiration policy discourages your customers from shopping elsewhere. If they want to earn enough points for rewards before the points expire, they may need to put all their eggs in one basket.
- According to motivation research, cutting the expiration time may motivate members to work harder, either because of the increased challenge level or because of their desire to regain control.
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