What Are the Benefits of Blockchain Loyalty Systems?
Blockchains are transforming the way business is done across a huge range of industries. They also have the capacity to enhance the customer experience and lift some obstacles which prevent loyalty programs from achieving their full potential.
In today’s highly competitive business world, customer loyalty and customer engagement are among the top priorities for many companies. Most marketing and sales efforts nowadays are directed towards retaining existing customers. Among many tools that companies utilize, loyalty programs – when done right – can have long-lasting effects. That’s why loyalty programs are considered strategic investments in a brand’s life-cycle.
Loyalty programs have been adopted across many industries, including retail, travel, and financial services. However, while loyalty programs are desirable, acquiring and trading reward points is something customers are starting to dislike. Blockchain technology can improve this situation by solving some of the fundamental issues of traditional loyalty programs, including low redemption rates, high account inactivity, and low customer retention. Instead of becoming members of many loyalty programs, customers can join a network where points can be earned and spent better and more efficiently.
Read on to learn more about blockchain in loyalty programs, blockchain-specific benefits and limitations, the loyalty program journey, and the most successful use cases.
The importance of loyalty programs
A well-designed loyalty program can help retain current customers, attract new ones, and drive profits. Loyalty programs in the form of reward points, cashback, discounts, and gift cards encourage customers to stay loyal to a particular brand. According to a study done by iVendRetail, 91.9% of global shoppers make purchases to earn loyalty rewards, and a third of those base their purchase decisions on loyalty rewards at least half of the time. Furthermore, according to the same study, around 58.7% of internet users cite earning rewards (loyalty points) as one of the most valued aspects of online shopping.
A successful loyalty program can provide a stable foundation for a fruitful customer retention and engagement strategy. Customers love good discounts and offers that are tailored to their preferences and needs. At the same time, brands enjoy lower attrition rates and more of the organic relationships that eventually lead to higher profits. What comes first is the emotional connection between the brand and the customer. This kind of connection is built through repetitive behaviors. A proven fact is that repeat customers have a higher ROI. That’s why acquiring a new customer can be five times more expensive than retaining an existing one.
By 2025, the loyalty management market is expected to grow to a staggering 15.5 billion USD. The loyalty program space is getting more saturated by the day, and companies are continually seeking new ways to differentiate themselves. As a result, more companies are starting to recognize blockchain as a tool that can help them re-imagine loyalty programs and meet their customers’ expectations. Blockchain technology also has the potential to remedy the problems that we know exist with loyalty programs. Let us see how.
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Blockchain-based loyalty programs are on the rise
Loyalty programs can be efficient marketing tools and they are certainly growing in popularity. However, their full potential must be exploited to gain all the benefits. The current state of loyalty programs is characterized by low redemption rates, high account inactivity, high transaction costs, and low customer retention. Therefore, loyalty programs need the kind of technological innovation that will make them easier to use and alleviate other associated issues. And this is where blockchain steps in.
Customers are often signed up with several different loyalty programs. According to the Colloquy Loyalty Census, the average US household participates in around 30 different programs. However, one of the main disadvantages of separate programs is that loyalty points are not interchangeable and transferable, leading to low redemption rates of earned rewards. A blockchain loyalty program can help in bringing different loyalty programs under the same hood. With blockchain, customers could use a single wallet that holds all of their loyalty blockchain points across various programs.
Because customers can’t use points in the way they want, many customer loyalty accounts are inactive for prolonged periods of time. Blockchain-based solutions implement smart contracts that can automatically improve loyalty offerings and prompt customers for action. Such blockchain loyalty use cases could improve customer account activity.
Blockchain loyalty programs offer a high level of automation that could eliminate the need for customer service interaction with customers wishing to spend their loyalty points. Plus, blockchains could eliminate a lot of the manual labor that is typically associated with the loyalty system nowadays, naturally bringing down transactional costs.
Benefits of blockchain in reward systems
Blockchain can introduce innovative ways of maintaining loyalty programs without introducing additional complexity. A more frictionless loyalty network where reward points could be utilized freely across the ecosystem would lead to more robust partnerships and customer programs.
Blockchain loyalty programs have many advantages over traditional loyalty programs. They can reduce the cost of operations, improve security, increase flexibility, and open doors to business innovation.
Implementing a blockchain loyalty program will incur upfront infrastructural and development costs. However, these can easily be justified through long-term cost savings. Blockchain loyalty platforms help enterprises reduce management, acquisition, and transactional costs.
Blockchains can help loyalty program managers reduce system management costs (of administration and personnel) through the execution of smart contracts. In essence, smart contracts are a programmable part of the agreement between the company and customers that are executed when both parties fulfill certain conditions. In addition, automated smart contracts between two businesses and a customer, a so-called B2B2C loyalty token, can help reduce the administrative costs of processing and verifying transactions.
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Blockchain has become a modern synonym for security. The transaction data on the blockchain is immutable and cryptographically secured. At the same time, public blockchains also increase transparency so that transactions are easily traceable and verifiable by all participants. Blockchains also prevent double-spending, abuse, and fraud. As well as the transactional data, customer data is also protected, and only tokens for blockchain loyalty rewards are exchanged.
The basis of flexibility in loyalty blockchains is the ability to exchange the reward points with a much larger ecosystem of businesses. The provider of loyalty points is still the one who decides how customers can spend their loyalty points. Nevertheless, customers are given more transaction flexibility through simplified access and management of points.
One of the significant issues with the current loyalty programs is the reward points’ short expiration dates. Blockchain loyalty programs can alleviate this issue by operating as cashback programs, allowing customers to store their benefits as tokens and redeem them whenever they wish.
One of the most prominent benefits of an extensive and interconnected blockchain loyalty network is the business opportunities. Loyalty program providers can offer unique, value-added services to other companies, increasing the reward points’ value.
Blockchains also lower entry barriers, enabling smaller businesses to start offering loyalty programs quickly, and to develop innovative services for utilizing reward points.
Shortcomings of blockchain loyalty programs
The many benefits of blockchain-based loyalty programs definitely outweigh the downsides. However, as a business interested in launching such a program, you should also be aware of these disadvantages.
Investment costs are one of the most cited limitations. These costs are associated with a breakdown of siloed systems, maintenance of data security, and coordination of multiple intermediaries.
Loyalty programs that involve multiple brands have to deal with reluctance amongst enterprises to share data and fear of losing control over their customer records. At the same time, multi-layered loyalty platforms tend to include transaction layer costs (small per-transaction costs) that sit between customers and program operators. If these transactional costs started to grow over time, this could become a more serious drawback.
These limitations have to be considered when implementing a blockchain-based solution. All blockchain participants should have a say on how currency is exchanged between programs, especially those related to exchange rates. At the same time, companies should maintain control over their customer data and ensure that only transaction data enters the loop. Finally, blockchain participants should make sure that the platform remains unbiased. With these simple steps, the limitations of blockchain-based loyalty programs can be overcome and greater success achieved.
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Partner journey in a blockchain-based loyalty program
Blockchain-based loyalty programs are relatively new and do not have full traction. Despite the many boons they offer to early adopters and the already successful use cases, the reach of blockchain loyalty platforms is still tiny compared to their potential. Furthermore, due to their limited popularity, the journey of a participant on a blockchain-based loyalty network is still relatively unknown, but some best practices have proved to generate positive results. A partner’s journey on a loyalty network consists of four distinct phases. Let’s take a look at them.
- 1. Onboarding phase
In the onboarding phase, partners initially negotiate the partnership terms with the loyalty program providers. The next step is to join the blockchain-based loyalty network. Upon entering, partners start to participate in joint marketing campaigns and explore the potential of co-branding with other partners on the web.
- 2. Use phase
During this phase, the credit and loyalty point redemption is enabled across the network. Partners then start to promote products and services in exchange for customers’ loyalty points. In addition, partners may choose to create a perpetual loyalty point machine by giving additional points to customers based on their marketing campaigns.
- 3. Management phase
The management phase, where partners manage customer inquiries about the status of their points, wallet usage, and point redemption, happens in parallel. At the same time, partners are actively managing their loyalty programs and marketing campaigns.
- 4. Evaluation phase
This phase fuels the continuous delivery of improved loyalty services and benefits. Based on customer surveys and transaction data collected from the blockchain, partners can analyze customer behavior and opinions. The analytical insights obtained from the data can be used to offer better loyalty programs. However, the real power lies in the ability to personalize marketing campaigns based on customer preferences. The resulting positive customer feedback can be used to enhance sales.
The main advantage of a blockchain-based loyalty program is that all participants maintain the ledger of transactions and can track how points are earned, spent, and transferred across the network. Participants can make innovative use of this data to improve existing customers’ sales and quickly acquire new customers.
The success of blockchain loyalty programs
Many companies around the world are starting to implement blockchain customer loyalty programs. Most of the interest in these technological solutions is coming from travel and accommodation companies. Nevertheless, companies from other industries are starting to appreciate the benefits of blockchain to loyalty programs. Let’s take a close look at some of the most successful examples.
FootballNet — blockchain loyalty platform for football club owners
FootballNet maximizes revenue opportunities and enhances the fan experience through tailored loyalty-building experiences. The platform uses gamification techniques and motivates fans to participate in various challenges in order to receive rewards in the form of blockchain tokens. Some of the platform’s activities include completed quests and quizzes, stakes on half-time or full-time scores, watching live streams, and club merchandise purchases.
Afterwards, tokens and reward points are accumulated and determine the fan’s profile level. When a new level has been achieved, the user gets an account upgrade which unlocks new challenge sets and also brings more rewards such as discounts for game tickets and merchandise, free snacks and beverages, signed posters, VIP lounge entrance, and season passes.
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In 2018, Singapore Airlines (SIA) released KrisPay — the world’s first blockchain-based airline loyalty wallet. KrisPay is a blockchain version of KrisFlyer, the airline frequent flyer program. This program is based on a digital wallet to which sums are added in proportion to miles flown. The digital currency can then be utilized with a network of merchants from various categories, ranging from beauty to retail services.
In 2020 SIA announced Kris+ as “a comprehensive and updated lifestyle and payments system.” The updated blockchain-based loyalty program offers even more and better benefits and brings additional value to the ecosystem partners.
SIA is not the only airline that has done this. For example, Loyyal has announced an enterprise blockchain solution for Emirates Skywards as a three-year deal. In addition, Russian Airline S7 is running a similar blockchain reward program, generating ticket traffic worth millions of USD.
Chanticleer Holdings is another pioneer of blockchain-based loyalty programs. The company is an investor in burger chain restaurants such as Little Big Burger, American Burger Co., and BGR. In 2018 the company partnered up with MobivityMind to design a blockchain loyalty program. As a part of this program, customers that make purchases at any of their restaurants can receive cryptocurrency called Mobivity Merit that can be redeemed across the restaurant chain.
American Express partners with US online wholesaler Boxed to make offers that Boxed merchant customers can use in their loyalty programs. After purchasing an item on Boxed, the blockchain saves the transaction data, and a smart contract is triggered to create award points in the loyalty system. AmEx developed the blockchain loyalty solution in-house using Hyperledger Fabric.
KornChain created LoyalT, a global marketplace for the exchange of blockchain-based loyalty points. The company uses smart contracts to define, automate and expedite the complete rewards process. The company primarily aims to provide network partner services that reduce their loyalty programs’ administration and people costs. As well as working with large organizations such as the International Airlines Group (IAG), KornChain is working to include small and medium-sized enterprises. For example, customers of local coffee shops can use their rewards on a British Airways flight.
Qiibee offers a plug-and-play solution for running blockchain-based loyalty programs. Enterprises can create tokens that function as loyalty points and use them as exchange mediums on the loyalty network. Using the Qiibee blockchain wallet, customers can store, send and trade tokens. To date, Qiibee serves more than 900 brands and 100k+ users.
Loyyal is a leading blockchain loyalty and rewards company. As one of the most prominent players in the industry, Loyyal uses proprietary blockchain and smart contract technology to offer its customers an interoperable loyalty and rewards platform. Loyyal aims to bring blockchain benefits to a highly fragmented industry and offer brands innovative ways to unlock loyalty program potential. As one of its most successful milestones, in 2020 the company signed a three-year commercial vendor agreement with The Emirates Group to serve more than 25 million members of Emirates and flydubai.
Carry is a new blockchain project that rewards customers for sharing their offline data and for viewing advertisements. The team recently joined forces with Dodo Point, a major South Korean loyalty program with 23 million users. Customers who purchase with a Dodo network retailer can rate their shopping experience and earn prizes. The Carry protocol aims to collect statistics and use them to enhance the blockchain-based loyalty program experience.
Blockchain loyalty programs have many advantages over traditional loyalty programs. They reduce operational costs, improve security, increase flexibility, and open doors to business innovations. The main limitation in the adoption of blockchain loyalty programs is the upfront costs associated with their infrastructure and development. Nevertheless, these limitations can be overcome by implementing solutions that bring long-term cost savings.
The blockchain loyalty program journey for network partners consists of several distinct phases where they are onboarded and begin to use, manage and evaluate loyalty programs. Current blockchain loyalty use cases indicate a bright future. While the space is still dominated by travel and hotel companies, due to the lower entry barriers it is becoming a home for many startups and medium-sized companies.
Understanding, developing, and fostering blockchain-based networks is complex and requires tight collaboration between the technology companies and the enterprises that want to implement loyalty programs. PixelPlex can help you build your own blockchain-powered loyalty solution that will meet your business needs and contribute to the growth of your customer base.
Contact us today to chat with us about your next loyalty program.