Revenue Solution

Loyalty Breakage And Actuarial Modeling


Customer loyalty programs include various member cohorts ranging from those who ‘earn and burn’ quickly and those who ‘hoard’ in order to redeem for aspirational rewards sometime in the future. Reliable forecasts and compliance with GAAP and IFRS accounting standards requires analysis that accounts for such diverse member behavior.

In our experience the use of simpler forecasting measures is not immediately responsive to changing circumstances and do not satisfactorily explain underlying dynamics. This in turn often leads to balance sheet surprises.

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Revenue Solution

Oliver Wyman has designed a member-centric approach to modeling loyalty cash flows and liabilities. This approach allows projections to be dynamic and responsive to changes in program composition, campaigns and other factors that influence member behavior. It also allows assessment of different scenarios such as changes to program rules, addition of a new partner, etc.

The model output allows assessment of various metrics including future accruals, types and number of redemptions, breakage and liability provisioning. Output can be split by selected parameters, such as by partner in the case of coalition programs.


Typical deployments of the model have supported companies in transitioning to IFRS accounting standards in regards to revenue recognition as well as to make more reliable forecasts.