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Is Blockchain the solution for customer loyalty programs?

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Loyalty programs have come a long way from the first iterations.

The idea has begun completely back in 18th century in which retailers issued customers with copper tokens that could be redeemed against future purchases. Companies soon realized that metal tokens were expensive to produce, and so the practice evolved into issuing stamps and coupons.

Nowadays, many brands have a sort of loyalty program – think of Amazon Prime, Starbucks Rewards or Starwood Preferred Guest schemes. The fundamental idea has not changed much over time.

However, practices have evolved to incorporate mobile apps and card-based systems. Each of these allows brands the added bonus of tracking customers' spending habits, generating data that feed on future marketing campaigns.

Evolving problems

While loyalty programs have evolved to become more common, they have also become burdensome for customers and businesses.

For customers, they must somehow keep track of multiple apps, logins, physical cards and different balance points, which can be overwhelming. A study has shown that most customers reach the five loyalty programs.

Trademarks often send promotions, some of which may be just as useless for large segments of their customer base. Consider an example of an airline that offers discounted last-minute flights at the end of September, with the goal of filling the seats during a traditionally quiet period. This offer is useless for parents who can not bring their children to school until the next holiday season.

Problems such as these involve a low activity on the loyalty account, as customers can not keep up with their various programs and therefore do not redeem their rewards. For the brand, they are not able to realize the full benefit of the scheme if the customer does not appreciate the prizes and promotions on offer. Furthermore, programs can be expensive to run from an administrative point of view.

Can Blockchain solve the problems of loyalty programs?

Deloitte certainly thinks so. The consulting company has published a report in 2016, explaining how a decentralized ledger could solve many of the problems associated with customer loyalty programs.

The report outlines how the blockchain could reduce administrative costs resulting from the implementation of loyalty programs, in particular through shared infrastructure. By recording customer data on a single blockchain, each participating brand can concentrate resources on targeted marketing campaigns and promotions that bring value to that segment of customers, rather than on the effort to collect and analyze customer data.

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Customers will benefit from the acquisition of a series of points that could then spend between all the brands participating in the same loyalty program infrastructure. It can be accessed from a single interface as a smartphone app, making the customer experience much simpler and more attractive to use.

Some big brands have already started experimenting with blockchain-based reward programs. American Express announced at the start of this year it would be the integration of Hyperledger allow merchants to create personalized reward programs. Similarly, Singapore Airlines has now a portfolio of blockchains has come out for users of its KrisFlyer airmail system.

Individual business initiatives do not maximize the benefits of single infrastructure outlined by Deloitte. For this reason, blockchain startups now also have their sights set on the market for loyalty programs, some of which have recently launched blockchain platforms that address the use of multiple brands in different industries.

Restaurant and food service

Rest it is one of these examples. The company is building a platform aimed at integrating loyalty programs in the entire catering and restaurant industry.

Although the catering service around the world has brands such as Pizza Hut or McDonald's that are recognized worldwide, the sector also includes a large number of single unit operators who would normally not have access to any kind of sophisticated technology-based rewards platform.

Using Resto, even the smallest food service operator such as a truck or a street food stand can sign up for the program and specify the percentage of a customer allowance to be assigned as

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rewards. Customers can then redeem the rewards at any other store remaining participant using a unique user interface. Because the Rest token works similarly to a cryptocurrency, customers can even exchange their prizes with fiat currency, if they wish.

The participating restaurants also have access to the entire Resto customer database, allowing them to issue targeted promotions for customers in their geographical vicinity and have culinary preferences that match the outlet.

Retail applications

While Resto sees the benefits of targeting a single industry to unite a large number of SMEs, other projects are taking a broader approach.

incent is a universal loyalty program, with the goal of bringing brands from a variety of retail sectors including fashion, home, electricity, health and beauty. Incent is developed on the Waves platform and has signed brands like Sephora since its launch last year. The company guarantees a fixed supply of tokens, which affirms creating value through scarcity.

Universal reward protocol he is operating a similar scheme. The French company has already signed major brands in its country of origin, including the Carrefour supermarket chain and the Galeries Lafayette department store.

Like Incent and Resto, the Universal Reward Protocol allows customers to accumulate their awards of different brands in one portfolio, which can then redeem at other participating points of sale.

Loyalty programs based on blockchain offer more value to everyone

Loyalty programs have become a victim of their success. This happened because of their evolution within the individual companies, creating complexity for the clients that are supposedly designed to maintain.

Blockchain provides a shared infrastructure and enables a single user interface, removing the headaches of customer loyalty programs. Therefore, if customers rely on blockchain loyalty platforms, even the most important brands that manage successful loyalty systems may find themselves attracted to the blockchain as a means of retaining their customers.

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