Why do many of these programs have points expiration?
 

Why do many of these programs have points expiration? I would think the whole reason these corporations set up these marketing loyalty programs is to entice you to keep coming back, but nothing would upset a customer more than to have their hard earned points expire on them just because of inactivity. We don't like it, but probably expect that over time many programs are de-valued, but to have points vanish (expire) on you is shocking and likely upsetting. So why do these corporations have this in their policy? How does it make business sense? Is it very costly for them to maintain accounts on their servers?

I've had points/miles expire on me years ago, but I wasn't too bent of our shape as it was a small amount. Still I was shocked as I felt these points were sort of like money sitting in a bank, and then the "bank" decided to take my money simply because I wasn't active for 2 years.

So you have an "incentive" to add fresh points by spending money...
Might be come shocking, but this happens, too -- though the years are a bit more (3-5y "dormant", 10-15y to "claim"; search for 'unclaimed accounts').

What better way than to have your points expire! "Spend money with us or your points die!" :D

And if you find that upsetting check out the loyalty programs that have mileage expiring after a certain period irrespective of whether you had activity in your account or not. Miles of entry level members of miles & more (Lufthansa) expire after 36 months. Flying only once or 100 times doesn't change the outcome. Gaining status will save the miles though.
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As PAX_fips mentions, banks generally close inactive accounts after a certain period.

It also reduces their liabilities...

If someone don't generate enough activity to keep points active, then is that person really loyal? If someone isn't making the company any money in a reasonable amount of time, then they're not the company's target audience.

Some loyalty programs have a fixed (hard) expiry. 3 years is common
Some loyalty programs have no expiry if you have an eligible activity within a defined time period. 1.5 years is common
Very few loyalty programs have no expiry.

Look here Miles/Points that Do and Don't Expire

But that type of "incentive" is the 'stick' approach not the 'carrot' method.

In banking the money isn't gone, you just have to go through the hassle of claiming it.

I looked over the miles/points expiration wiki, the policy of many programs is just have some, even one activity to keep your points alive which sounds reasonable to me. The hard expiration policy seems draconian to me. Are these programs giving away too many points and need a method to reclaim some?? Overall, I think these marketing programs are ingenious on their part. Hotel programs have this game where they entice us to make status, but what does status cost the hotels? Almost nothing, elites get free upgrades on rooms that would have been empty anyway. It doesn't cost the hotel much more to clean a suite than a regular room. Free breakfast doesn't cost them much either, although they do give up the opportunity to gouge us by charging a high price for breakfast. Which brings up another issue with me. I never understood how it makes business strategy sense to antagonize your customers by charging $5-$10 for a bottle of water or the high cost of breakfast. We know we have to pay a premium for the convenience of having breakfast in the hotel or a bottle of water, but why have the price be so high that we the customers feel that we have been taken full maximum advantage of. I suppose if they all do this then they can sort of get away with it, but it also gives an entrepreneur an opportunity to figure out a way to enter the market. For example, if the taxi industry didn't have such a bad reputation for being rude and overcharging us, Uber/Lyft wouldn't have had as good of an opportunity to destroy their market.

I don't know what you mean by liabilities, in an accounting sense? If yes, aren't the cost of the points they give out built in to the price? Sort of like the price of most everything is increased by 3% to cover their costs of taking on credit cards.

But these low active customers can be their target audience in the future. Why "offend" them now, they don't know if a change in career would cause a person to be a big traveler later.

I see that some programs are advertising that their points don't expire as a feature of their program. For the vast majority of people who don't want to be knowledgable experts in this game, it's safer to be loyal to those 'no expiration' programs.

The bean counters that run these programs probably don't see it your way. Also, I don't think very many people see the expiration as a deterrent, nor would it be a major factor in which company they choose. If someone has a career change later on that suddenly necessitates frequent travel, they would be starting from square one regardless of program.

People who don't patronize these businesses often enough to maintain the points, are most likely to book on price anyway. Even then, the expiration on the points are fairly generous. Anyone that cares enough about program benefits are most likely going to participate often enough anyway. If not, they'll simply go with whoever is the cheapest.

You're based in the USA.

But did you look at which programs have hard expiration? There's a big pattern!

For whatever reason, the hard expiration policy programs are in places like Asia, while with the exception of Choice Privileges (hotels) in the recent past (but no longer) and WyndhamRewards (hotels), there are no hard expiration programs based in North America or the UK.

So I'm presuming is has something to do with the local business culture in places like Asia, but since you don't live anywhere near Asia, how can you understand local business culture there (unless you do a lot of business there)?

Keep in mind that in many parts of the world (outside of North America and the UK), hardly anyone who doesn't travel a lot for business even bothers to join frequent flyer or frequent guest programs, and the companies who run the local programs there regard those programs as designed solely for frequent business travelers based in their area.

You'd be amazed at how many millions of dollars in accounting liabilities there are in these programs. There are many reasons stated throughout this thread and they're pretty much all valid. Especially in the US for instance, pretty much ANY activity even if it's a tiny withdrawal to purchase an ebook or whatever, will keep your points alive. A co-branded credit card often helps with this. At the end of the day, if you can't even be bothered to do that, you're not very "loyal" in the first place, and the program isn't meant for people like you.

But at the end of the day, all expiration policies are tied to the bottom line, as in "the accounting sense". An actual accountant or finance person can correct me, but the way I understand it is that reducing "liabilities" by expiring points basically improves the balance sheet by making it look like you owe less money which improves credit, EBITDA, debt to revenue, stock prices, etc. etc. All things that are very important to investors and shareholders.

I will defer to an actual accountant, but I do have a Master's in Business Leadership. In that program, we took the same core classes as the MBA. Since I have a hospitality background, when given an option, I selected topics that related directly with hotels. I did research loyalty programs as they related to accounting for one project. Based on all of that, I do believe your quote to be correct.

Without expiration dates, all those accounts with a few thousand points/miles start to add up over the years. That's a bad thing because it introduces a level of uncertainty.

And that would probably lead to rampant devaluations if the non-expiration promoted excessive hoarding.