One of the challenges loyalty programs face is guessing the percentage of points that members will ultimately redeem and estimating the value of those points. American Express Membership Rewards is betting that the number of points members redeem will be a percentage point higher than they previously estimated. The company reports that, “Following a previously announced review, the company enhanced the ultimate redemption rate (URR) estimation process, refining the predictive model it uses for the U.S. program. These changes increased the global URR assumption to 94 percent from 93 percent and translated to an additional $342 million in the balance sheet reserve for Membership Rewards and a corresponding change in the fourth quarter.”
The New York Times reports that the percentage of points being redeemed has increased over time. In 2008, members redeemed 90 percent of points.