How Blockchain is Helping Rethink Loyalty Programs

Loyalty programs are among the most important factors for customer retention with 40 percent of revenue coming from loyal customers. The role of loyalty programs in helping marketing in future is clear because loyalty management market will be worth $6.2 billion by 2023.

However, the cost of acquiring a new customer is now 5-10 times and most loyalty programs are still hitting low client retention rates, low redemption rates, record delays, among other difficulties.

For instance, by 2017, around 6.7 trillion points worth $51 billion were issued in U.S. and these programs had 3.3 billion members with membership growing at 13 percent per year. Basically, there were 29 loyalty programs on average per each U.S. household. However, more than half of loyalty memberships in the U.S. are inactive according to the 2017 Colloquy Loyalty Census, based in part on a survey of about 4,500 American and Canadian consumers. It says about 30 percent of consumers have abandoned a program without redeeming a point or a mile.

Loyalty programs used traditionally by firms are hard to set up. They, for instance, require a customer to have a separate card at the point of sale. Even those that use mobile apps suffer from low user base. In addition, these programs have been very hard to maintain for small retailers and online stores.

Many of companies that have attempted to run these programs have already abandoned them.    

Blockchain can help improve on these aspects including reducing of the inefficiencies. Blockchain can be used on any loyalty program regardless of the type of organization. Regular loyalty more can also be used to open new economic models in business.

Why loyalty programs are still important

A loyalty program is important because generating income from existing customers is cheaper than attempting to get revenue from new ones. In fact, it is more costly to acquire a new user than to maintain an existing one. Therefore, if you are in a business that relies on generating revenues from repeat customers, a loyalty program may be very critical for the business success.

Basically, a loyalty program works by way of awarding and accumulating points for a customer for every purchase. These points can then be redeemed in a real money format at a later date and when accumulated to a redeemable level. Customers would basically like them in order to reduce price of large purchases or get discounts on something they will be buying in future. Since these programs encourage customers to accumulate the points, they encourage loyalty of customers for a given service.

Loyalty programs are also tailored with the motive of improving customer experience.

How a blockchain loyalty reward system works and its benefits

Most blockchain-based loyalty programs work by way of incentivizing holders with tokens or cryptocurrency instead of points, platform owners and customers/users. So for instance, instead of earning and accumulating points, users earn and accumulate coins which will definitely have more value and usability compared to points.

First of all, blockchain can facilitate redeeming of the value of these tokens can grow over time in addition to being redeemed for fiat. Unlike reward points, crypto tokens will not expire and that's a huge advantage right there. 

Blockchain will provide instant redemption of reward points across platforms: This can be very helpful in fields like travel and tourism where loyalty programs tend to be complex and multi-currency, and the program points can differ by trip component (flight, car rental, hotel, dining), and which leads to fragmented point collections and some points never being redeemed, because the model makes it hard for a customer to accumulate enough points to earn a meaningful reward.

Blockchain would enable industrial collaboration along (together with other) benefits of easier tracking and free transfer and redemption of any points in different platforms.

Fees reduction for merchants: Merchants pay about $35 billion a year to third-party processors for servicing prepaid or private-label credit cards that are tied to loyalty points. Using blockchain and cryptocurrencies will see them reduce the amount of fees to 80 percent because they can issue tokens of their own. They will also have ability to track transactions and balances and usability of these points and therefore can adjust when needed in order to save more costs.

When blockchain is used in loyalty programs, cost savings manifest in the three major levels–system management, transactional, and customer acquisition. The smart contracts will help reduce management costs by way of reporting secure, tracked, transparent transactions compared to legacy systems. It can also help reduce costs related to system errors and fraud.

Enabling frictionless system: For instance, a customer who joins one loyalty program can redeem tokens meant for loyalty program for different things, such as redeeming these tokens from the same digital wallet for airline and hotel accommodation.

While traditionally the loyalty programs have been deciding aspects such as how and with whom the customer uses the rewards, blockchain provides the user the ability to access and manage them fractionlessly.

Making the process near real-time: The fact that blockchain and decentralized ledgers are accessible to multiple parties on the network in near real-time and can be cross-platform, it is possible for providers to credit points faster and enable faster redemption by users.

More secure environment: Blockchain facilitates an immutable and time-stamped distributed database entry of transactions. The record is easily traceable but is irreversible, and blockchain prevents double spending, fraud, abuse or transaction manipulation as may happen with traditional loyalty programs.

Creates a unique business opportunity: Blockchain can help provide an interlinked loyalty network, large loyalty rewards program providers.

Understanding other attempts helping solve problems in loyalty programs

The first attempt to solve issues with loyalty programs include coalition loyalty programs (not based on blockchain) that let customers purchase from multiple partners and redeem these points from multiple redeem partners. Thus they widen network of merchants where customers can earn and redeem points.

Examples include Payback which operates in India and Germany and Nectar which operates in U.K.

Most coalition loyalty programs can accept one earn or burn partner per product and so suffer from liquidity.

Another attempt has been reward exchanges which basically are programs to help customers exchange reward points for points from another type of loyalty program. So airline points could be exchanged for grocery points if you are relocating to another city. These can help when the points are not yet expired.

The problem with these could be the fact that customers would obviously get a lower value of rewards when exchanging with points in another program.

Still another attempt has been loyalty consolidators that help consumers to manage multiple loyalty programs from a single portal or app but they do not support exchange or trading.   

Use cases of blockchain for or in loyalty programs

Rakuten, which is Japanese largest retailer this year announced an altcoin called Rakuten Coin which will be part of the points-based loyalty rewards system. It will be launched next year in Russia. The company has already moved US$ 9 billion worth of existing Super Points into the blockchain to give a fillip to Rakuten Coin.

With Rakuten, customers will be able to redeem reward points for gifts at all Rakuten Group companies. It is clear what massive benefits can accrue if the coin can later be traded on crypto exchanges. That means people will be able to redeem the tokens for other cryptocurrencies as well.

The coin will be native coin for Viber and Rakuten hopes this will give Viber a competitive edge over Whatsapp. Rakuten bought Viber in 2014. With the coin, admins of Viber’s ‘supergroups’ will be able to monetize the streams. The coin will also be used into Rakuten’s partner network, media business and e-commerce firms. Users will be able to trade the coin for Euros, Dollars and Rubles.

Incent digital currency enables the sharing, saving or exchanging of Incent rewards. Incent, which is built on Waves and had an ICO in 2016, works as a reward scheme with rewards redeemable anywhere. 

The loyalty program enables earning of points in the Incent tokens when using internet or when shopping from a variety of stores including Qatar airways, Adairs, Hype, Adrenaline, Catch.com.au, Pumpkin Patch, Samsung and UGG. Therefore, ideally, the token is itself a reward token. The token is also tradable from a variety of crypto exchanges. Customers can track their earned rewards or tokens using mobile application.

LoyalCoin is a blockchain-based rewards and loyalty program that is based on NEM platform and the application is available for Android and iPhone. The application enables users to earn LoyalCoins as rewards from a variety of stores and they can also redeem the rewards anytime everywhere (meaning it is inter-brand). The loyal coin can be redeemed for Eth, Bitcoin or any other cryptocurrency and you can withdraw fiat.

It is used on the appsolutely platform, which lets business to set digital strategies and creating rewards programs, websites and apps that makes customer loyal, engaged, and valuable. The coins are stored on LoyalWallet or in label apps the company is developing for participating merchants. 

Loyyal blockchain platform facilitates earning and redeeming of incentives; traditional loyalty programs, employee incentives, credit card rewards, and many, many more across platforms.

Clients can use the Loyyal’s Blockchain-as-a-Service (BaaS) which includes hosting services, development tools, support services and access to network of partners for as low as $5K per month or according to custom needs. It helps companies to track loyalty points in real time whether earned or redeemed and they can thus know the balances and liability. Program partners can also share data in real time with near zero efforts so that partners can see who shops with them and develop real-time incentives targeted at them.

The platform records loyalty program earning and redemption events alongside additional customer engagement behaviors such as geo-check-in’s, social media posts, and more.

Elements cryptocurrency uses X11 platform and works as a loyalty cryptocurrency and is earned and accepted by multiple merchants. X11 uses chained hashing algorithm based on proof of Work and so can be mined by anyone with a computer. These mined coins can be used for everyday shopping and even buy, say, airline and movie tickets.

Miners earn 50 Element coins per block solved and the network allows them to mine up to 144,000 coins per day.

Qiibee which has worked with about 900 brands including Subway and Burger King already added blockchain to see it reward users with tokens and not points according to Qiibee CEO Gabriele Giancola. With Qiibee, you can even combine these loyalty tokens. 

DigitalBits Project, which offers Canadians cash-back rebates from companies like PepsiCo and Mars, also issues tokens for the Caddle app and they will eventually be convertable to Ether or Bitcoin.

American Express is also partnering with digital retailer Boxed to launch a platform based on Hyperledger and which merchants can use to create custom Membership Rewards programs for American Express cardholders. Members on the platform can earn five times normal number of points as per earlier announcement and merchants can create smart contracts that automatically fulfill rewards program offers. The merchants can control the offers they are making and customize its Membership Rewards structure.

Moving forward, it is likely that blockchain-based loyalty programs will evolve further beyond tradeable tokens. Hewlett Packard, for instance, is working with Streamr to test a blockchain solution that rewards motorists and cars will be able to collect their own acceleration data, fuel usage and location information, and let nearby gas companies offer drivers incentives through coupons or loyalty points.