The organizations understand the importance of customer retention and are always working on a system directed toward building customer loyalty. Loyalty programs have been in the industry since the 1700s to today, in the early marketing stage American retailers gave their customers copper tokens that could later be redeemed for products on future purchases. Since then there has been significant growth in Loyalty Programs, from coins to stamps and cards and now digital coupons that have eliminated the need of physical coupons and made the process much simpler.

Loyalty programs are important to boost the revenue of a business, it encourages customers to spend more.  According to research by Baln and Company, when you increase customer retention by just 5%, your revenues can increase by as low as 25% and as high as 100%. Attractive loyalty programs attract new customers which saves money big time. Acquiring new customers is an expensive and time-consuming process, loyalty programs makes it possible to attract new customers without having to spend big on the process.

A study by American Express revealed that 62% of millennials tend to only ever buy a preferred brand compared to 54% of the wider population.

In addition, 58% of millennials say that they will buy the same brand of products no matter what. However, there’s a glitch in current loyalty program system. While customers appreciate being rewarded by loyalty points, they also value flexibility with redemption.

 IS IT TIME TO RETHINK YOUR LOYALTY PROGRAM?

  The current Loyalty Program is not just a hassle for customers but for retailers as well.

• Complex sign-up procedures make one rethink the loyalty points. The cost associated with establishing, operating and securing loyalty points is complicated as well as expensive. Another problem with most of the loyalty programs is its stringent redemption process – for example businesses have their own reward programs and points earned can only be redeemed with the same business and not with the sub-brands, which dwindles the cross-functionality.

• In the current scenario, it is labor some to keep track of customer retention and difficult to pinpoint where the loyalty behavior actually comes from. The centralized system limits the loyalty data, it is hard to keep track of every customer associated with an organization. In a big firm, keeping track of each customer and their loyalty points is an immense problem.

• The rewards for loyal customers are a honeypot for hackers, with the digitalization of reward points, loyalty programs are increasingly tracking a currency that can be more valuable than how much a customer spends: personal data. As a result, the programs know things about you that some of your friends may not, like your favorite flavor (mango), when your cravings strike (early afternoon), and how you pay (with your Visa), in addition to billing details and contact information that hackers are in pursuit of. In 2017, 11% of attacks on existing financial accounts (not involving payments on credit and debit cards) were on loyalty accounts, compared with 4% in 2016. In a data breach revealed last year as one of the largest ever, thieves attacked Marriott’s Starwood unit, stealing the personal information — including five million unencrypted passport numbers — of more than 350 million customers and Starwood Preferred Guest members.
  
• Loyalty program breakage: points or currency which expires before being used. As industry insiders know, breakage can be as high as 30%. And till the day these points expire, they will sit as a liability in the balance sheets of brands. And for an industry that tops $300 Billion, the problem is undoubtedly immense.

THIS IS WHERE BLOCKCHAIN COMES IN

Blockchain technology is an excellent solution for running loyalty programs on a distributed because they address many of the technical problems mentioned above. A shared transaction ledger is created between all the business brands, rules are implemented in an interchanging smart contract which is fraud and cheating prevented. The shared ledger will provide frictionless transactions between two parties without the involvement of third party. Every transaction is recorded on the blockchain which is time-stamped and immutable hence the foolproof feature of the Blockchain.

WHY PREFER BLOCKCHAIN?

Because: 

• Interoperability and third-party cost: Loyalty programs today are not interoperable among multiple stores of different groups. Customers usually suffer from loyalty program fatigue due to the vast number of programs available, which subsequently leads to loyalty program inactivity (breakage). Since the program is based on a distributed ledger, it allows different sub-brands of a business to redeem coupons and make transactions without third-party cost.

• Cost efficiency: Loyalty programs are extremely expensive to develop, implement and maintain. In 2014, companies spent $2 billion on loyalty programs in the United States alone.  Blockchain-powered loyalty programs would certainly require substantial investment however it will reduce system management cost with smart contracts that secure, track and provide transparent transactions; reducing costs associated with errors and fraud.

• Frictionless: Through a trustless, decentralized nature of Blockchain, it is centralizing the customer’s loyalty program. Loyalty providers decide how and with which customers’ reward points can be used, hence making the process of accessing and managing loyalty points for the customer practically frictionless and also reducing breakage of Loyalty points.

• Security: Blockchain allows secure and immediate redemption of loyalty points across vendors via a trustless environment by the use of cryptographic proofs rather than third parties. It offers a time-stamped and tamper-proof distributed database of every transaction ever made which makes it easy to keep track of loyal customers.

• Universal Wallet: Blockchain will allow customers to store all of their points in a secure digital wallet rather than trying to maintain multiple physical cards. There would not be separate rules for acquiring and redeeming points from different loyalty programs as is the case now.

• Reduce fraud: If companies have sensitive private data, that information will remain on legacy systems with which blockchain can interact. For network members, all the necessary information is stored on the ledger. All of this could lead to a reduction in loyalty fraud.

CONCLUSION

Quillhash is always exploring the way to use Blockchain in real-time applications, we are working on a number of ways to implement blockchain in loyalty programs as mentioned above. It is necessary to take steps to increase data privacy and protection from hackers. Hashing algorithm protects the blockchain from data breaches, only limited information can be stored on a shared network. The rest, which needs customer permission in order to be collected, must be stored separately. Also implementing a joint loyalty program with other brands will be a piece of cake because smart contracts will take care of everything, from transferring of tokens, converting tokens, and validating users during rewarding and redeeming of tokens, thus creating a trustful environment between multiple involved brands. Also one doesn’t have to rely on any 3rd party which gives each brand full access to their most valuable asset data, apart from saving the management cost. As an emerging technology, blockchain loyalty platforms have enormous potential which will be exploited by various industries with time.