Loyalty Programs are the Tip of the Spear for Tokenization
Tokens and loyalty programs are perfect to enter a symbiotic win-win coupling. Look for companies to start introducing tokens that are more efficient and easier to use for the customer.
In the film “Up in the Air” the main character, Ryan Bingham, played by George Clooney, hits on a woman in a bar by bragging “I’d be the seventh person to do it [joining American Airline’s 10 M Mile club]. More people have walked on the moon.” Only in his early 30’s, my IBM colleague, Juan, was already an elite member of United’s Global Services program though still not quite the equivalent of the AA’s 10M club. Juan was going places. I called him a points whore. Juan would actually change hotels mid-week if check-in bonuses were involved. Meanwhile he would dole out points advice around flights, hotels, and car rentals. Need to change flight itinerary while maintaining max points, ask Juan. Want the best concierge service and the fastest way to getting status, ask Juan. Want to know any special point popping programs, ask Juan. Meanwhile I had to photochopped an “A” onto my Southwest boarding pass before hastily rushing out the client office. Trust me, you don’t want to board with the amateur travelers in “C” class, and then getting those looks from the previously A and B boarders. If you prick us do we not bleed? If you tickle us do we not laugh? If you give us that humiliating look do we not deserve any overhead space? I was not going to have any of that.
Consumer companies have trained us well to vie for status, however customers are getting increasingly disloyal to these programs. After calculating the lifetime value of these programs, customers are gaming them making it increasingly harder for companies to gain value. Customers are complaining that the programs are frustratingly difficult to use with frequent and confusing blackouts. Points can expire eroding loyalty, and yet transferring them where they can be best used and infecting loyalty is difficult.
Opportunity for Tokenization and Blockchain
Near the end of the film, Bingham passes the 10M mark in mid-flight becoming the youngest person to achieve the distinction amidst the jubilant flight crew. The plane’s captain, played by the great Sam Ellitott, takes time out of the cockpit to personally present the special 10M card, one of only 7 ever made, to a bewildered Clooney. Despite being the profound moment in his life, Clooney is dumbfoundedly speechless as he questions the value of the elite membership over the sacrifice he has committed. But in the next scene, he calls the AA frequent flyer number on his newly minted card where a friendly voice instantly greets him with a warm, “Hello Mr Bingham.”
“How’d you know it was me?” Silly boy, you have a dedicated line just for you. In real life, your call is placed on a high priority queue but after you have entered your membership number. This ain’t Hollywood. Both loyalty members and companies are finding it mutually costly to stay committed in the relationship.
When bitcoin crashed near the end of 2017, it took down a lot of token value along with the viability of blockchains. About 70% of 2017 issued ICO’s were either fraud or based on at best, inept business models so therefore I am not a fan of ICO’s. But issuing tokens for loyalty programs are an ideal platform for companies to introduce blockchain-enabled tokenization in order to build the next generation of brand loyalty. The efficiencies in using token
For starter, companies already have built in some level of trust with the consumer. That is already a valuable foot in the door. By leveraging blockchain and tokenization, companies can build more creative and complex programs which can leverage smart contracts. For an example, a customer can be awarded bonus tokens if they stay at some hotels, after flying a certain airline, renting a car, and dining in certain restaurants as part of a larger affiliate program. This types of complex programs would be easier to setup by the companies, easier for customers to participate and track, and easier for customer to redeem their points.
And why did Ryan Bingham need to call the frequent flyer number? He wanted to transfer a million miles to his niece as a wedding gift. Something which he could not complete with his initial call, albeit it was due to his boss interrupting him. If his miles were represented by tokens then it would have been only a simple matter of transferring them from his digital wallet to his niece’s wallet. While its true that companies can already do this putting a web/mobile interface on top of a points/miles transaction interface, it’s the blockchain and smart contracts which can then support more complex partner participation.
Finally tokenization provides greater liquidity, efficiency, transparency, and ease of use in a real win-win value proposition that makes it an ideal solution for loyalty programs. Once consumers adopt to using tokens, than more sophisticated digital finance will be a easier step to make.
Edward Wong is a Co-Founder at QuantDART, a crypto custody, wallet, investment funds, advisory, and exchange. Edward is the Co-founder of the Shanghai Futures Exchange and was the former Treasury Architect at the Federal Reserve. Besides being a FEDophile he is a World Champion Spicy Eater, Stuyvesant alumni and a cat lady.