Loyalty glossary · 12. Commercial and partner (15)
Points Sale To Partner
Points sale to partner is the transaction where a loyalty programme sells points to a partner company at a fixed price per point. The programme receives immediate cash and records a redemption liability for the points sold. The partner uses those points as rewards or incentives for its own customers.
Point sale to partner is a wholesale transaction with a liability attached, not a marketing favour. The programme receives cash today and creates an obligation to redeem those points later, usually at a higher unit cost than the sale price.
Partners buy points because they are an instantly deliverable incentive with no warehousing or expiry risk of their own. That convenience is real, but it does not justify a sale price below the programme's expected redemption cost. Pricing below that line is a subsidy from the programme's future liability to the partner's current promotion.
Work the arithmetic. A programme sells 10 million points to a hotel chain at 0.9 cents per point, booking 90,000 dollars in revenue. If those points cost 1.1 cents each to redeem, the programme creates a 110,000 dollar liability. A 20 per cent breakage assumption reduces the expected cost to 88,000 dollars, leaving a paper margin of 2,000 dollars. Move the breakage assumption to 15 per cent and the expected cost becomes 93,500 dollars, turning the sale into a 3,500 dollar loss.
A partner that buys points and then awards them to its own customers is taking on a different risk. If those customers redeem heavily, the partner may have to buy more points or face a shortfall. The partner should treat the purchase as a cost of acquisition with a known upper bound, not as a discount currency.
Breakage is the silent variable in every point sale. The programme's pricing model often includes a breakage assumption that makes low sale prices look profitable. But breakage is a forecast, and if the partner's promotion drives redemption above that assumption, the programme eats the difference. A sale priced on optimistic breakage is a loss waiting to be discovered.
The only defensible price is one that covers expected redemption cost without relying on breakage. Any breakage that materialises is then upside, not a hidden subsidy to the partner. Programmes that price below that are borrowing from future redemptions to buy today's partnership, and that debt is never disclosed to members.