Is Blockchain the Future of Loyalty Programs?
Blockchain and Decentralized Loyalty Programs
Blockchain is a hotly discussed topic for “nextgen”, decentralized, loyalty programs. One of the key mentioned benefits for the consumers is transparent handling of customer data and less risk of data manipulation. To make it more concrete: The basis of any good loyalty program is a CRM (Customer Relationship Management) system. Companies need to understand the customer and be able to provide targeted value-adding rewards and services. Today, there are two major problems: Customers have no transparency about how and for what their data is used. And secondly, customer data is trapped in centralized silos within companies — it is technically and legally impossible to generate insights out of cumulated data without getting active customer consent each time. Blockchain and DLT protocols can enable a secure generation of insights on a shared pool of anonymized data without the loss of ownership.
Each company in this ecosystem would profit from better intelligence enabling to target customers across the whole ecosystem with relevant offerings.
Another positive effect which comes along is the improved customer experience — instead of getting annoying irrelevant promotions, I would get valuable offers.
Let us look into some concrete examples of blockchain loyalty solutions on the market.
International Use Cases in Travel and Retail
For brands and retailers, providers of blockchain frameworks promise a more efficient partner onboarding process, faster settlement, easier cross-border agreements and more flexible redemption of rewards.
An example of a blockchain-based loyalty platform is the start-up Loyyal, founded in 2014, which offers a “blockchain as a service” loyalty platform for companies based on Hyperledger. The platform is designed to extend and improve existing CRM and loyalty platforms. Loyyal already has a major airline from the Middle East, Star Alliance and Bond Brand Loyalty in its customer portfolio.
In cooperation with Changi Airport, for example, Loyyal has implemented three interesting use cases. The first use case allows for vertical cross-collaboration between actors in the airport ecosystem, whereby e.g. Changi vouchers can be exchanged for other local loyalty points programs in a limited period of time. Airport retailers can also appeal to customers through partner programs and thus increase their frequency. The second application of Loyyal technology enables international cross-collaboration, whereby, for example, customers of the Rakuten Superpoints program traveling to Singapore exchange and use their “domestic” loyalty points for the Changi vouchers. Finally, Changi Airport, based on Loyyal, offers another feature for traders: Selected traders can generate so-called “branded tokens” to enable a new type of stream and analyze specific behavior by, for example, the value of the token depending on specific variables.
A Singapore based startup GATCoin has been working on an interesting concept taking up the idea of branded tokens. They aimed to launch a blockchain loyalty marketplace with a focus on small and local brands.
Gamification mechanisms should appeal to millennials and boost activity on the platform. Consumers could earn coins at purchase and exchange them or gift to friends.
The “currency rate” could also be designed dynamically, depending on the promotion or the product, which is why the mechanism is similar to that of a stock exchange. However, GATCoin is in an early phase, as the transparency of the “loyalty points exchange” makes the building of the ecosystem a challenge.
Way Forward: Do we really need blockchain?
No doubt, the idea of a decentralized transparent solution sounds very appealing in theory. But the question is: Do consumers really want a blockchain loyalty system — or do we just need better-designed loyalty programs — and are ok with a trusted partner?
Mastercard is proving the second hypothesis. Its new program “Mastercard Priceless” is an exclusive program for Mastercard owners which provides them access to specials, coupons as well as unique activities and experiences. The specifics: Customers earn one coin, no matter what they buy. The collected coins can be redeemed for various rewards.
Payment and credit card providers like Mastercard own the purchase data, have the relevant partner network and customer access so that they are well-positioned to offer new loyalty concepts on top. And they are already trusted (more or less) by customers to handle their data.
So, it remains an open question who will win the market: New blockchain players or powerful legacy players.
A different kind of loyalty: Blockchain for Transparency and Purpose-Driven Reward Mechanisms
A major blockchain advantage is its ability to create a complete and immutable record of all transactions making it transparent to prove for external viewers.
Considering that, it’s no wonder that blockchain is on the radar of social-driven businesses who aim to bring transparency and trust by design to donations or innovate consumption with purpose.
One example is ELBI app founded by the model Natalia Vodianova. ELBI brings together consumers, brands, and charities aiming to make philanthropy easy, pleasant and rewarding.
In order to get access to an exclusive shop with a selection of exclusive luxury products by partner brands, users need to donate for a charity campaign of their choice first. They then earn love coins and can spend them in the shop. Blockchain helps to maintain the transparent records of donation history.
This mechanism develops a new kind of loyalty to a brand or retailer — emotional loyalty combined with a sense of purpose or “doing good”.
What do you think?
Is blockchain the killer app for loyalty programs? For what specific use case would you rather apply blockchain?
Or is it good just as discussion opener about data abuse, ownership, and transparency so that players like MasterCard throw their brainpower and make loyalty programs more fair and transparent? :) Let’s discuss