Loyalty Programs Financial Structure

•  Xbox Live Rewards is now referred to as Microsoft Rewards.
• The program will grant rewards to their loyal customers who will purchase games, movies, and other items.
• Microsoft is aiming to increase their engagement with Xbox Live member network.
• The company placed this category under their personal computing division.
• The company is expecting that the growth of its gaming business will be dictated by the strength of the games'user base.
• Given this, conclusions can be made that the company is relying on the engagement of the users to grow the business.
• Typically, rewards are used by companies to increase their customer engagement level.

General Insights on the Reward Model

• Existing customers typically "spend 67% more than new customers.
• Given this, customer loyalty "really pays off" and these rewards programs can be considered as an endeavor that can eventually pay for themselves.
• Some loyalty programs are fee-based and paid for by the customers to avail of premium benefits.
• Some businesses also typically provide non-monetary benefits to their loyal customers.
• Companies also partner with other firms to provide customer loyalty programs that can help increase customer engagement and grow their business metrics.
• In the case of credit card companies, merchants are mandated to pay a certain portion of the purchase amount to credit card companies.
• In this case, incentives for cash back rewards are shared by the credit card company and the merchant.
• Some of the best loyalty programs come from Sephora, Virgin, Amazon Prime, TOMS, American Express, Swarm Perks, REI Co-op, and Apple.
•  Rewards programs typically bring in more sales but the loyalty program liability also needs to be considered.
• This liability translates to the eventual cost to a company once customers claim their rewards.
• However, careful analysis and factoring the financial impact of these loyalty programs into the balance sheet can turn them into investments.
• If this is followed, the expected return should be greater than the implementation cost.

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