#4 The Point Market’s Scale and Issues
The Point Market’s real size and its pervasive problems
ASSEMBLE protocol is a blockchain-based global point integration platform that exploits ASM utility tokens, whilst establishing a business ecosystem that can integrate, utilize existing points and miles with point providers, consumers and retailers.
Yesterday we announced very thrilling news about the ICO process of the ASSEMBLE Protocol’s ASM token. From now on, ASSEMBLE’s ASM token will be listed on Coinone. Today we will continue the series of introductory posts about ASSEMBLE. In today’s post, we will be looking at the point market itself, specifically at its pervasive issues from the perspective of both point consumers and providers. We will also take a look at the real size of this promising market.
1. The Point Market Size
Compared to the very start of the points system in Korea, the current Korean Points System has now been applied to a variety of industries. The airline mileage points system was first introduced by Korean Air in 1984. As of 2017, the largest accumulation of points has been attributed to credit card companies with a total sum of 2.9 trillion KRW, followed by airline companies with a total accumulation of 2.6 trillion KRW.
As of 2019, according to data released by the National Statistical Office and the Korean Consumer Agency, the Korean Point Market is currently estimated to be worth around 20 trillion KRW, with a CAGR trend of more than 10%. According to Japanese Yano Research Group, as of 2018, the Global Point Market was estimated to be worth about 200 trillion KRW, and it is continuing to exhibit aggressive and rigorous growth. Thanks to the consistent development of the IoT, and with the recent revitalization of the e-commerce industry this trend will continue.
2. Point Market Problems
2.1 Point Providers’ Perspective
▶ Accounting Liability
In fact, there is a huge gap between the providers’ and consumers’ perspectives about the existing points system. For point providers, points, which are given to customers through their loyalty programs, are regarded as part of their preferential treatment policy. They are also recorded as a liability on the company’s account. When the point provider sells a product, he records the percentage of the point that has been earned by the customer as a liability on his financial statement.
Although it is not a debt that the company has to repay in cash, it is still treated as an accounting liability during the period of validity of the point. Thus, if the consumer uses some of his accumulated points, the company’s financial statement will be affected. To be precise, the company will extinguish their liability. Nowadays, the profitability of retailers has worsened due to their liability difficulties. There is a correlation between the sharp rise in the debt ratio, which greatly increases interest expenses, and the companies that are being eliminated from the list of potential recipients of government funds due to their financial distress. Therefore, point providers are trying to reduce the benefits that are associated with loyalty points since those mileages and reward points are classified as liabilities on the company’s balance sheet.
▶ Monetary Loss Due To Maintenance Costs
As a matter of fact, point providers are currently expanding their franchise stores, focusing on the places where customers can easily use their accumulated points, such as movie theaters and wholesale stores. As the franchise expands, the cost of building and maintaining a point system increases correspondingly on an annual basis.
However, the value that is being captured by those loyalty programs is way lower than the cost of their building and maintenance. The cost is, in fact, an NPV negative and points systems are therefore ineffective projects for a company to engage in. Nevertheless, point providers must maintain their loyalty programs and any other points systems to stimulate the inflow of new customers and to prevent the outflow of existing customers. However, this practice results in huge investment losses every year.
2.2 Consumer’s Perspective
▶ Complexity of Points
It is no secret that consumers want to use their accumulated points the same way they use cash. However, there are currently too many limitations pertaining to where and how you can use your points according to the points providers. Therefore, the majority of customers do not recognize points as valuable goods due to the inability to use them in an integrated manner. Also, there are not many places where consumers can use their earned points. Thus, given the above mentioned limitations, the customers’ complaints continue to surge day by day.
▶ Constraints on Point Usage
This is a huge constraint found within reward programs. In fact, consumers can only cash out their points in small amounts or in certain cases not at all. Furthermore, according to point extinguishment policies, many reward points that were earlier granted to customers will reach the end of their expiration date. Recently, consumers erupted in complaints when there was a scandal about airport mileage points. According to the point provider’s policy, there was a 10-year validity period for the points. Due to the application of that rule, a lot of consumers lost their accumulated points in 2019.
In fact, according to a survey that was conducted by the Korean Consumer Agency in 2017, 36.6% of consumers stated that the percentage of goods that could be paid for using only one’s points was relatively low. Around 22.2% said that there were not enough places to use one’s points, and around 20.5% also said that their remaining points were simply going to disappear by the end of the year.
ASSEMBLE Team’s Mission
The ASSEMBLE Team is striving and aspiring to solve the aforementioned issues with reward points using a blockchain global point integration platform. The solutions that our team has presented will be as follows:
▶ Point Providers (Enterprises)
In order to extinguish the accumulated liability under point systems and to also secure a new channel for customer inflow, enterprises should increase the point usage places so that customers will have more options.
▶ Point Consumers (Customers)
For the revitalization of points usage, restrictions on the validity period of points should be abolished, and also new point utilization methods should be introduced.
▶ Franchises (Individual or Enterprise)
The ASSEMBLE platform will provide new sales channels and efficient advertising tools to both individuals and enterprises.
