Loyalty glossary · 12. Commercial and partner (15)
Program Outsourcing
Program outsourcing is when a loyalty programme operator hires an external firm to run programme functions like accrual, rewards, or support. It offloads cost and labour, but the operator still owns the member relationship.
The first function to outsource is often the most dangerous: accrual. Accrual is the accounting of every point earned, and an external firm that runs accrual sees the full liability picture before the operator does. That information asymmetry is the foundation of every bad outsourcing deal.
Active member rate is another metric that changes hands. A provider paid per active member has every reason to inflate it, and the operator no longer has independent data to challenge the number. The result is a programme that looks healthier than it is while the supplier collects a higher fee.
Activity-based qualification is the worst function to outsource, because it decides who advances tier and who does not. A supplier paid per qualified action will loosen the rules to generate more qualifying events, and the operator is left with a tier structure full of members who did not earn their status.
The economics are easy to miss without an illustration. An in-house accrual team costs 300,000 dollars per year in salary and overhead. A supplier charging 0.2 cents per point on a programme that issues 1 billion points per year generates a fee of 2,000,000 dollars. That is a 567 percent increase before the operator loses audit access, and the percentage understates the damage because the supplier now owns the data that would expose the overcharge.
Outsourcing is not a binary choice between in-house and external. The correct split is between logic and labour. Labour can be contracted. Logic cannot, because a supplier that controls the rules controls the programme, and no contract can fully replace the operator's own view of the numbers.