Does breakage hurt or help loyalty marketers?

As many of you know, breakage is often a core part of any loyalty marketing program. People don’t all define breakage the same way, however. For purposes of this blog post (and my own personal definition), breakage refers to all the unused points, airline miles or other non-cash rewards that are left unused by consumers. Many of you probably have unused rewards points from Citibank or Chase or airline miles from American Express. Each point or mile unused translates into approximately $0.01 for the loyalty / rewards provider. As you can see, that adds up quickly. I recently came across an interesting article on breakage over at r-Dialogue that discusses some ideas for why it is actually a bad thing for businesses (banks, retailers etc.) to focus on breakage as a core money-making strategy for their loyalty programs. Check out the blog here. This is a great post and very relevant. I’m a huge fan of loyalty programs that allow members to earn cash-back only for in-store merchandise. This keeps people coming back again and again because they see value in the cold hard cash and is way better and more cost effective for the retailer (Staples is my favorite) rather than give consumers indiscriminate 20% off coupons.

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