New accounting rules will improve your loyalty books

Share this content:
New accounting rules will improve your loyalty books
New accounting rules will improve your loyalty books

Reward certificates, rebates, points and miles are well- known marketing tactics that have become standard operating procedure in the competitive travel and 
hospitality field. So it's fitting that a set of standard practices governing how companies account for incentives is about to be adopted in the US. 

Until now, Generally Accepted Accounting Principles (GAAP) have not specifically outlined how points and rewards liability must be accounted for. However, recent activity by the Financial Accounting Standards Board (FASB) is expected to change that. Three changes will apply as soon as the third quarter of 2012.

Companies must account for the issuance of points as a separate component of the sale. As points are redeemed over time, the deferred revenue will be recognized as "performance of a service" that will have been completed. The process of 
calculating the amount of deferred revenue when issuing points will be clearer as well. Deferred revenue will be calculated based upon the fair market value of the rewards (for example, in retail, the face value of a gift certificate reward) less the difference between points issued and points redeemed. 

The standard applies to any promotion, campaign or program in which a customer transaction can be tied to a 
future obligation. Travel companies could face the most pain in adopting the standards.

According to a forecast published in April by Colloquy and Swift Exchange, travel and hospitality companies issue more than $17 billion in perceived value of points and miles to consumers every year. More to the point, the travel and hospitality industry has the widest spread between the 
perceived value and actual cost of rewards. 

That same forecast estimates that 43% of the points issued each year are sold to third parties. Airlines will typically sell a mile to a co-brand bank partner or a car rental company for between 1 cent and 2 cents.

But with 2 billion memberships of loyalty programs and $48 billion annually in fair-market value in the form of points and miles across a wide range of industries in the US, a consistent standard, more transparency and more uniformity in reporting are part of the maturation process.

Sign up to our newsletters

Company of the Week

We recently were named B2B Magazine's Direct Marketing Agency of the Year, and with good reason: We make real, measureable, positive change happen for our clients. A full-service agency founded in 1974, Bader Rutter expertly helps you get the right message to the right audience at the right time through the right channels. As we engage our clients' audiences along their journey, direct marketing (email, direct mail, phone, SMS) and behavioral marketing (SEM, retargeting, contextual) channels deliver information relevant to the needs of each stage. We are experts at implementing and leveraging marketing technologies such as CRM and marketing automation in order to synchronize sales and marketing communications. Our team of architects and activators plan, execute, measure and adjust in real time to ensure the strategy is working as needed and change things if it's not.

Find out more here »

Career Center

Check out hundreds of exciting professional opportunities available on DMN's Career Center.  
Explore careers in digital marketing, sales, eCommerce, marketing communications, IT, data strategies, and much more. And don't forget to update your resume so employers can contact you privately about job opportunities.

>>Click Here

Relive the 2017 Marketing Hall of Femme

Click the image above