Senior marketers rarely worry about loyalty programme economics until margins tighten.
Then dormant balances, unredeemed points and accounting provisions suddenly become board-level concerns.
In the UK, where consumer protection scrutiny is increasing and data governance expectations are high, point breakage is no longer a passive financial artefact. It is a strategic lever — and a reputational risk.
This article examines point breakage in loyalty programs through a commercial, regulatory and behavioural lens. Rather than repeating generic “benefits of loyalty” advice, it explores governance, financial modelling, customer psychology and implementation strategy specifically relevant to UK-based CRM and loyalty leaders.
Definition
Point breakage in loyalty programs refers to the proportion of issued loyalty points that are never redeemed by customers. Breakage affects financial liability, programme economics, customer experience and regulatory risk. In the UK context, it must be managed carefully to balance profitability, fairness, transparency and consumer protection expectations.
Breakage exists because loyalty programmes create a future obligation.
Under IFRS 15, revenue linked to loyalty points is typically deferred until redemption or recognised proportionally based on expected breakage. UK-listed companies follow this framework under the oversight of the Financial Reporting Council.
This transforms breakage from a marketing metric into a financial forecasting variable.
Breakage improves short-term profitability.
Redemption drives engagement and repeat purchase.
Excessive breakage inflates margins artificially.
Excessive redemption increases liability and cost of fulfilment.
The objective is not to maximise breakage. It is to optimise sustainable economics.
Breakage rarely happens by accident.
It emerges from a combination of:
Behavioural economics suggests customers overestimate future usage of loyalty points. They accumulate aspirational balances but delay action.
Friction compounds inertia.
In a UK context, digital inclusion remains uneven. Ofcom data has consistently shown disparities in digital access and confidence across demographics. Where redemption requires app fluency, older segments may disproportionately contribute to breakage.
An important strategic insight: breakage is often a proxy for engagement failure.
Loyalty schemes operate within:
Expiry policies must be transparent and proportionate.
The CMA has previously scrutinised opaque pricing and promotional structures in other sectors. While loyalty schemes are legitimate commercial tools, aggressive expiry mechanics could attract scrutiny if perceived as unfair.
A contrarian but credible perspective: deliberately designing for high breakage may deliver short-term margin but undermines brand equity in a climate where consumer trust is fragile.
According to ONS data in recent years, cost-of-living pressures have materially influenced consumer spending patterns. In that context, customers may be more sensitive to perceived loss of value.
Strategically, breakage policy is part of trust architecture.
Below is a structured decision framework to evaluate your approach.
| Dimension | High Breakage Bias | Balanced Strategy | Redemption-Led Strategy |
|---|---|---|---|
| Financial Impact | Higher short-term margin | Predictable liability | Higher fulfilment cost |
| Customer Perception | Risk of unfairness | Transparent value | Strong perceived benefit |
| Regulatory Risk | Elevated | Controlled | Low |
| Engagement Levels | Lower | Moderate | High |
| Data Insight | Limited | Actionable | Rich behavioural data |
| Brand Equity | Vulnerable | Stable | Strengthened |
The optimal position for most UK enterprises sits in the “Balanced Strategy” column.
This means forecasting breakage accurately, designing reasonable expiry policies, and reducing unintentional friction — without eliminating economic discipline.
Breakage Rate = (Points Issued – Points Redeemed) ÷ Points Issued
However, enterprise-level forecasting requires more sophistication.
Predictive modelling can estimate expected redemption probability at issuance.
Under IFRS 15, expected breakage can be recognised proportionally if it is highly probable that a significant reversal will not occur. Finance and marketing alignment is therefore critical.
This is not simply a CRM report. It is an accounting judgement.
For UK senior marketers reviewing their breakage position:
Quantify outstanding points by age band, cohort and acquisition source.
Segment by dormant vs active members.
Review expiry windows against customer journey length.
Ensure communications meet transparency expectations under consumer law.
Simulate:
Assess margin and liability impact.
Audit UX across:
Identify structural barriers to redemption.
Document assumptions behind breakage forecasts.
Ensure accounting treatment aligns with IFRS 15.
Use reminder communications before expiry.
Simplify redemption journeys.
Offer micro-redemption options.
Track complaint volumes.
Review Trustpilot and social commentary for “points expired” narratives.
Rather than treating breakage as a margin enhancer, consider it an engagement health indicator.
Very high breakage may signal:
Very low breakage may signal:
The strategic sweet spot aligns:
Redemption velocity with repeat purchase uplift.
In other words: breakage should reflect genuine disengagement, not engineered friction.
For retail, grocery, telecom and financial services organisations operating in the UK:
Breakage is not just a marketing metric.
It is a governance issue.
Point breakage refers to loyalty points issued to customers that are never redeemed. It affects financial liability, revenue recognition and programme economics. In the UK, it must also be managed transparently to avoid consumer protection concerns.
In the short term, high breakage can improve margins by reducing redemption costs. However, excessive breakage may damage customer trust and reduce long-term engagement, offsetting any financial gain.
Under IFRS 15, companies estimate expected redemption and may recognise revenue proportionally based on anticipated breakage, provided it is highly probable that a significant reversal will not occur. This requires robust forecasting and documented assumptions.
Expiry policies are legally permissible but must be transparent and fair. Businesses should ensure customers receive clear communication and reasonable timeframes to redeem points.
Reduce friction in redemption journeys, simplify reward structures, introduce reminder communications and offer lower redemption thresholds. Data analysis of inactive cohorts is essential.
Point breakage in loyalty programs sits at the intersection of finance, marketing, compliance and customer psychology.
Handled carelessly, it becomes a reputational liability.
Handled intelligently, it becomes a controllable economic variable within a transparent and trusted loyalty ecosystem.
For UK senior marketers, the objective is not to drive breakage upwards or downwards.
It is to align breakage with sustainable engagement, regulatory defensibility and long-term customer value.
As cost pressures persist and scrutiny intensifies, loyalty economics will increasingly attract board attention.
The most resilient organisations will be those that treat breakage not as accounting residue — but as strategic infrastructure.
If your organisation has not recently stress-tested its loyalty liability, expiry policies and forecasting assumptions, now is the time to initiate that conversation.