Airline loyalty breakage is growing discussion point for many frequent flyer programs. Len Llaguno – Founder and CEO of SnapShotML, firm providing a financial measurement for loyalty programs, about the challenges that loyalty programs face when trying to optimize the tradeoff between breakage and engagement. Breakage rates for a loyalty program vary greatly by vertical. They can be as high as 85% within the travel vertical and as low as 5% for cash back programs. We believe 25% – 35% is a healthy benchmark for most programs to measure against. These metrics are only relevant for loyalty programs that have been running for a while. If you’ve just started a loyalty program, wait until your customers have had enough time to fully engage with your loyalty program before you make any decisions. Breakage Rate >40%. Breakage rate is the percent of points issued that do not get spent. Breakage Rate. A loyalty program’s breakage rate is the ratio of points that do not get spent to the total number of points earned. Put simply: what percent of points aren’t spent? Any retailer with a loyalty program can make use of this metric. But it can also be applied to other promotions as well.
A high loyalty program breakage rate is a tell tale sign that customers are not engaged with your program and are struggling to see value. The average breakage in loyalty programs is around 85%, use this as a benchmark to see where your program stands.
Consider the following example of a breakage: if a customer purchases a $50 gift card, the company received $50, as well as a future liability for $50 worth of goods or services. “Breakage” refers to the percentage of points issued or outstanding that will never be redeemed. I.e., broken points either expire or sit in an unredeemed state for the life of the program. The breakage rate is, by definition, the complement of the redemption rate. I.e. breakage = 1 – redemption. A high loyalty program breakage rate is a tell tale sign that customers are not engaged with your program and are struggling to see value. The average breakage in loyalty programs is around 85%, use this as a benchmark to see where your program stands. If your program is substantially higher you can look to implement some of the above remedies. Loyalty marketers can manage a healthy breakage rate by focusing on two key areas: 1. Time to Reward: Take a close look at how fast members earn rewards. The first question from new members is almost always, “How much do I have to spend and how long will it take to get the first reward?” Breakage is important to understand, as it’s a critical aspect of modeling the liability for your program. Changes in breakage have a direct impact on both the costs of redemption and also on revenue recognition. Loyalty program breakage rates vary widely. Many retail loyalty programs have breakage rates as high as 80% or more.
19 Sep 2019 How does participation rate relate to accounting? Higher participation rates can lead to higher reward liability. Breakage rates should be stable
29 Jan 2019 The result is an intelligent, responsive framework with which to examine your loyalty program's performance under different breakage rates,
Loyalty Program Breakage Rates Points/currency which expires before it is used is said to have broken.Broken points cost nothing in rewards expense, but also
Loyalty Program Breakage Rates Points/currency which expires before it is used is said to have broken.Broken points cost nothing in rewards expense, but also Since 2010, United's breakage rates have been decreasing, as you can see in this graph. What does a declining breakage rate tell us? If breakage is declining, it 18 Nov 2014 This gives you the percentage of your awarded points that are going unspent. From our data the average breakage rate of a loyalty program is A loyalty program's breakage rate refers to the percentage of points issued that members are not expected to redeem due to insufficient balances, expiration,
1 May 2017 An analysis of loyalty program costs and how to calculate loyalty costs as Factors such as adoption rates, redemption rates, breakage, expiry,
customer loyalty programmes, where award/loyalty points accrue to Consideration of breakage while evaluating stand-alone selling price of reward points. 15 Jun 2019 Breakage refers to revenue gained by retailers through prepaid services or who lost money, due to the inadequately disclosed gift card fees.