Accounting for Customer Loyalty Programs

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Topics: Loyalty program
Accounting and GAAP recognition of revenue under SAB 101 and SAB 104 for supermarket customer loyalty cards and points issued on airlines frequent flyer programs.
Customer loyalty programs and rewards programs are structured marketing efforts that reward customers who are loyal and regularly buy products and services from the same company. Customer loyalty programs and rewards programs are used to incentivize customers, build customers’ allegiance to the company’s brand and increase sales of the company’s products and services by providing incentives for further purchases.
Another use of customer loyalty programs is to acquire information relating to customers' spending habits which will in turn help to improve the company’s products and services. Customer loyalty programs and rewards programs are used extensively in the retail, hotel, hospitality and airline sectors.
Types of Customer Loyalty Programs
• Under customer loyalty programs and rewards programs, customers receive cards with a sustained discount (such as 5% on net sales) for a period of time. Many supermarket chains such as Safeway and Tesco offer loyalty cards through customer loyalty programs.
• Customers earn points when they purchase goods or services from the company with their loyalty cards and points earned on these cards can be used to obtain free or discounted goods or services.
In the latter type of customer loyalty program, customers may be able to redeem the points as they are granted or may be required to accumulate a minimum number of points before the points can be redeemed. Examples of customer loyalty programs include frequent flyer miles programs offered by airlines where customers earn frequent flyer miles by flying on the airlines and then redeeming the miles in exchange for tickets, upgrades, or third-party benefits. These include the American Airlines AAdvantage frequent flyer program and the Singapore Airlines Krisflyer frequent flyer program. Pop culture and movies such as

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