Customer Loyalty Programs At The Rapid Changing Business World

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In the rapid changing business world, customer loyalty becomes very important (Dick & Basu, 1994). Thus, lots of company use customer loyalty programmes to increase their customers ' loyalty. Customer loyalty programmes are utilized by companies to offer clients with incentives to purchase their services or goods (Bolton & Kannan, 2000). When a client purchases services or goods, the entity provides the client with award credits or points. The client consequently redeems these points for rewards like discounted or free services or goods. The customer loyalty programmes are operational in different ways. Firstly, consumers must attain a minimum value or number of points prior to redeeming them. Secondly, the consumer might earn award…show more content…
In order to deal with this variance and to improve comparability and consistency, the AASB issued Interpretation 13, consumer loyalty programmes (Mackenzie et al, 2011). AASB 13 necessitates that income be deferred when the consideration offered to a client in association with a loyalty programme warrants the client to a discount on a purchase in the future. The consideration is usually allocated amongst the diverse constituents of an arrangement utilizing fair values. Liability for deferred revenues must be recorded on the basis of the fair value of award credits. Fair value is the amount of money that the award points could be traded for in an arm-length transactions (Leo, Hoggett & Sweeting, 2012). AASB 13 doesn’t mandate a particular scheme of the determination of fair values of the incentives, but it asserts that the quantity must be based upon the fair value to award credits holder, not the price of ward credits redemption to the issuer. Regularly, a reasonable approximate of fair values is based upon the discount that the clients will be given upon the redemption of the award credits. , Nevertheless, AASB 13 also concedes that in several instances, not all points will be redeemed by the clients. Consequently, deferral of revenue must as well be based upon the fraction of the incentives that are anticipated to be redeemed (Zack, 2009) Ernst and Young (2013) note that according to AASB 13, the award credits
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