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Ideas for Leaders #719

The Benefit of Blockchain Loyalty Programs

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Key Concept

A review of the different types of traditional loyalty programs, the challenges associated with those programs, and the potential benefits of blockchain-driven programs reveals the benefit of adapting blockchain technology to loyalty programs. 

Idea Summary

Blockchain technology is a decentralized database tracking a transaction as it moves from its source to the destination (third parties add a data ‘block’ of information to the chain with each step of the journey). Blockchain technology, which is still evolving, is used in a wide variety of applications. A recent study by a team of researchers from York University’s Schulich School of Business in Toronto illustrates the potential for blockchain technology to enhance rewards programs for both consumers and companies.

The different types of traditional loyalty programs, from punch cards to points loyalty programs to cash back programs, are well established with businesses and customers. However, traditional loyalty programs present challenges for both companies and their customers.

Challenges from the company’s perspective include: difficulty estimating liability (when accumulated points have not been redeemed, for example) and ROI; 
personalizing loyalty programs to meet the needs of individual customers; 
ensuring better conversion rates of customers with loyalty points into loyal customers; lack of integration and lack of uniformity among channels used for loyalty programs

The challenges of traditional loyalty programs from the customer’s perspective include: the need to create accounts and register; restrictions and rules; limited reward options; losing track of rewards points.

Blockchain technology can help resolve or attenuate some of these challenges. 

One major reason is that a blockchain ecosystem is not limited to one company. It involves a number of different companies collaborating around the transaction. As a result, blockchain-based loyalty programs allow the customer to accumulate into a single ‘wallet’ generic loyalty rewards — in the form of universal loyalty cryptocurrencies — from all of the parties in the chain. The accumulated cryptocurrencies rewards can then be redeemed from any and all of the partner companies.

In a business-to-business context, companies can offer their clients value-added services. A bank, for example, can offer its small business clients access to interlinked rewards, which, by passing on this access to their customers, improves their brand recognition. 

Another advantage for companies can be reduced management costs; a blockchain-based partnership between two companies, for example, can be set up to enable exchanges by the customer with no centralized management.

It should be noted that blockchain technology is still improving. There are currently, for example, high start-up costs for implementing blockchain rewards programs. There is also the challenge of companies losing control over their data — as opposed to traditional loyalty programs in which the data is closely guarded. However, new platforms are already being developed to resolve these issues. 

Business Application

A blockchain rewards program is not intended to replace traditional loyalty programs, but rather to act as, in the words of the research team, a ‘system facilitator’ that reduces costs. As a transparent system, for example, blockchain technology reduces losses from fraud and error, a major issue with loyalty programs today. Another advantage: with loyalty rewards gathered in a multi-company wallet, customers will redeem their points faster and more efficiently, reducing costs per transactions, and attenuating outstanding liability issues. Since blockchain loyalty programs operate on social media platforms, a company’s customer acquisition costs are also reduced.

In short, blockchain technology can eliminate costly inefficiencies in traditional loyalty programs while offering customers greater value through redemption opportunities from a variety of companies.

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Authors

Institutions

Source

Idea conceived

  • September 2018

Idea posted

  • November 2018

DOI number

10.13007/719

Subject

Real Time Analytics