With all of the buzz around Bitcoin prices recently, blockchain; the technology enabling the cryptocurrency inevitability comes into spotlight. There has been great wonder about how else can we make use of this technology outside of the cryptocurrency world, what other use-cases are there?
Many of the articles around loyalty program on blockchain starts with explaining blockchains and it useful features, and then in a very narrow sense, come to the conclusion that blockchains can or should be used to run loyalty programs.
If we instead first understand what a loyalty program is, we can than see if we can use a blockchain architecture to design a loyalty program:
- Loyalty program is about creating the right experience to the customer to improve the affinity they have for the brand. Subsequently, hopefully, they make more frequent purchases to a higher value, overtime. It normally involves information and experiences that goes well beyond points, discounts and promotions
- The company (brand) control the creation, destruction, distribution and value of points and benefits, and want to continue to control this as part of the design of the loyalty program that continuously is being refined and improved
- Redemption, cancellation and changes are a natural part of most consumer transactions and the points, discounts and benefits need to be adjusted and changed based on these actions
- Most brands only allow certain areas or points to be transferrable with other companies’ loyalty programs, not because it is technically impossible, but because it makes sense from a loyalty strategy and customer engagement perspective. The brand normally wants to have exclusivity in its category. So called “closed loop” of companies working together.
- The customer insights and value are based on data and information that is not related to any points but why and how the individual behave in various different scenarios
Blockchains are good for irrevocable transfer of non-expiring, fungible, digital tokens without the need to trust a central counterparty (as related to digital tokens). Based on these characteristics it does not immediately lend itself to power a loyalty program.
Are we thinking disruptive enough and does customer today demand interchangeable loyalty points? If the whole “point” is to have interchangeable loyalty points that you can redeem freely across a very large set of merchants, it is no longer a loyalty program. It is a rebate program where it seems to be much more logical to offer a direct rebate or discount rather than an elaborate interchangeable program. This is very different from coalition programs that is targeted and specific jointly designed programs that improves the overall value of the loyalty program to the companies being part of the coalition program.
You also have loyalty / point exchanges running today where a critical part is the central exchange and translation of points, since different loyalty points is not a common digital token.
So, in conclusion, although blockchains undoubtedly will have many useful application areas, loyalty programs do not directly seem to be one of them. Do you agree with us?