The underpinnings of loyalty rewards programs date as far back as 1793 when a merchant in the US began handing out copper tokens to his customers, which they could then exchange for items in the store, thus enticing customers to return time and time again. The idea caught on and the rest is history! While merchant and customer interaction has evolved over time, the desire for brands to create loyalty incentives in a bid to retain their customer base, has largely remained the same.
Be it flying across the world earning air miles with your favourite airline, visiting your local coffee shop, or getting your hair done, companies across every industry have implemented loyalty systems which build traction and patronage from their customers. The emotional connection that is created with each stamp for a new haircut, cup of coffee, or a discounted airline ticket, creates a bond between the customer and the brand. Subconsciously, emotion plays a big role in consumers’ desire to be loyal to a certain brand, especially if loyalty rewards programs are in place and benefits can be accrued over time.
Although beneficial when up and running, encouraging greater customer engagement, increased footfall and repeat visitors, loyalty programs are not without their shortcomings. From a brand standpoint creating the program, implementing guidelines, and focusing on the longevity and retention rate of customers remain ongoing issues. When it comes to customers themselves, spending trends play an influential role, while drop off rates continue to be a problem.
In today’s world, everything can be accessed at the click of a mouse and customers have the ability to research the best options on the market when looking for a specific product or service. While this has its advantages, it can also lead customers astray, regardless of whether or not a loyalty rewards program is in place. A recent study by Essential Retail revealed that more than 54% of those surveyed appreciate loyalty programs from service providers. However, 42% of respondents claimed that loyalty programs alone did not instill a sense of brand loyalty.
The oversaturation of the market can also cause customers to engage with brands less and with countless companies vying for consumer loyalty, it can be overwhelming for customers and result in them availing of another brand’s products or services due to the rewards they stand to benefit from joining the other brand’s loyalty program.
The end result is that customers often find themselves enrolled in numerous loyalty rewards programs, where they are then left with a plethora of stamp cards and loyalty swipe cards that they need to hold on to in order to avail of rewards. Often, customers collect loyalty points but rarely redeem them and, against this background, it is difficult for brands to boost the level of activity within their loyalty programs.
So where does blockchain come into all of this? Incorporating distributed ledger technology is a way to unify, simplify, and streamline the challenging aspects of loyalty rewards programs for both consumers and brands.
One of the biggest benefits of powering a loyalty program with blockchain technology is the ability to account for inactivity. Blockchain enables the consolidation of different programs onto a single platform without the need for cost-intensive integration for brands or an upfront investment for customers.
From a consumer standpoint, a blockchain-powered loyalty program also makes it easier to monitor the loyalty programs one participates in, and the ability to manage rewards in one digital wallet. Also, a loyalty ecosystem offers customers the ability to sell loyalty tokens for fiat or other cryptocurrencies, where previously points might not have had real value outside of the brand context.
Another advantage for brands utilising blockchain to power their loyalty programs is the lower implementation costs involved. Due to blockchain’s decentralised nature, the technology minimises costs that can be incurred when setting up and running loyalty programs over a sustained period of time.
We are increasingly seeing companies recognise these benefits – just last month, Singapore Airlines officially launched its blockchain-based loyalty program for frequent flyers. The loyalty program, KrisPay, allows customers to convert their travel miles into units of payment. These units of payment can be used with partner merchants in Singapore, including restaurants, salons, petrol stations, and a handful of retailers.
For companies such as Singapore Airlines, there are specific benefits to be gained by switching to a blockchain-backed loyalty program. Loyalty points have historically translated into outstanding liability for brands as they are accounted for as deferred revenue. In this sense, blockchain technology addresses the operational risks and inefficiencies inherent in loyalty programs. Besides Singapore Airlines, retail stores are also looking to encourage customer loyalty. Brands know how important customer loyalty is for their bottom line, as repeat customers contribute to a steady revenue stream and it makes financial sense for brands to retain customers than constantly attempt to acquire new ones.
One thing is for sure: the future of the loyalty sector looks bright with blockchain technology and with consumers seeking more innovative, flexible, and rewarding loyalty programs, companies will need to up their game if they want to stay relevant.