Cost of redemption is what a program pays when value leaves it. For a reward flight, it is the marginal cost of carrying the passenger plus taxes the program absorbs. For a merchandise reward, it is the wholesale cost plus shipping. For a partner reward, it is whatever the program pays the partner to fulfill. The figure is realized, recorded as members actually redeem, not estimated in advance.
Consider a program whose members redeem heavily against a partner gift-card catalog. Each redemption costs the program the discounted rate it negotiated with the partner. If members shift toward premium travel rewards with higher underlying value, average cost of redemption rises even if the number of redemptions holds steady, because the mix changed.
For an enterprise operator, cost of redemption is the real economics behind the currency, and it validates or corrects the liability estimate. Watching it by reward type shows which redemptions are cheap engagement and which are expensive, and it tells the operator whether catalog and pricing decisions are steering members toward affordable value or away from it.
