RETHINKING LOYALTY AND REWARDS PROGRAMMES WITH BLOCKCHAIN
Published on May 13, 2020
Facing an influx of brands on the market, consumers are inundated with an ever-increasing number of choices. As companies struggle to compete for interest, the cost of customer acquisition is on the rise with research showing that it costs five times more to acquire new customers than it takes to retain existing ones. Such initiatives are not without merit, given that they do have a marked impact on brand loyalty. In fact, 4 out of 5 customers are more willing to engage with a brand that offers incentives and increasing retention rates by 5 percent can increase profits anywhere from 25 to 95 percent.
While customer loyalty is at the top of the agenda for most brands, not every company is able to implement retention strategies equally. Only a mere 27 percent of customers feel that the offers they get via loyalty programmes are relevant to them. Worse still, even executives themselves are dissatisfied with their company’s loyalty programmes, with 58 percent of those surveyed believing that their company’s approach is not effective.
As part of this blogpost, we’ll be breaking down some of the key issues currently plaguing programmes and how the application of emerging technologies such as blockchain can potentially bring about greater efficiencies in these schemes.
What’s the matter with today’s loyalty and rewards programmes?
The simple reality is that a rewards programme is no longer novel. Look in your wallet—how many loyalty cards do you have in there right now?
Consumers juggle different programmes and multiple cards at any given time, making it increasingly difficult to keep track of each and every loyalty point gained before they expire. Accenture even recently uncovered that a colossal $100 billion worth of loyalty points go unredeemed by customers across a spectrum of schemes ranging from credit cards to retail and airlines.
So why is this happening? Here are some of the main reasons for why today’s programmes are missing the mark:
- Inadequate personalisation: With a lack of transparency across the entire programme ecosystem, partners and programme owners are unable to maximise the full potential of insights that can be reaped from customers. Without a shared ledger to track how points are being spent and redeemed, participants in the programme ecosystem aren’t able to adequately tailor their offerings based on the actual actions of their customers. Having the insights to know what most customers are using their points on, as well as when and where, could help create better personalised offers to boost engagement and loyalty.
- Burdensome reconciliation costs: According to McKinsey, US companies spend US$50 billion on loyalty programmes alone and if done right, they can account for up to 20 percent of a company’s profits. However, the unfortunate reality is that these programmes can be expensive to run. For large-scale loyalty programmes such as Emirates Skywards which sees over 120 partners, each one has its own integration and reconciliation processes. This lack of standardisation within a given network can lead to additional hidden costs for programme owners and partners alike. Oftentimes, such costs can be absorbed by consumers when they convert their points between two participating partners within a given loyalty ecosystem leading to frustration and dissatisfaction with a given scheme.
- Illiquidity across ecosystems: With the growing abundance of programmes, wouldn’t it just be easier if you could transfer your points across each one? Customers certainly think so. Rather than operating within closed systems, loyalty programmes benefit from having a greater pool of partners—the more, the better. Due to the reconciliation costs, the barrier to entry for some prospective partners may be too high, forcing them to forego an opportunity to otherwise interact with a wider range of customers. Limited partners within programme ecosystems inevitably leads to low liquidity. As a result, the lack of transferability and interoperability across individual programmes leads to many of these points then going to waste when they expire.
With these infrastructural and economical challenges in mind, brands need to rethink their rewards systems as an end-to-end engagement strategy. From the point of attainment to the moment of redemption, the quality of customer experience will ultimately shape a programme’s given utility. Alongside that, convenience and flexibility in redemption as well as personalisation of rewards can help improve the overall user experience. Customers would no longer need to be tied to only certain types of rewards or programmes, instead free to choose from a range of rewards in accordance with their wishes, all on within the same wallet.
How does blockchain come in and what would that look like?
Simply put, blockchain is a distributed ledger of transactions operated by a select group of participants rather than a centralised governing authority. Blockchain can be distinguished by two key characteristics—transparency and immutability. As a shared ledger, all stakeholders benefit from transparency—having access to a full view of a historical record of all transactions that have taken place on-chain. With immutability, stakeholders are assured that all transactions or data stored on the network cannot be changed or falsified once it has been recorded on the network. Additionally, due to the network’s distributed nature, the absence of a single point of failure reduces the overall vulnerability of the system. For an easy breakdown of blockchain, head over to our blog post on 5 Things That Every Marketer Should Know About Blockchain.
When comparing traditional and blockchain-enabled loyalty programme infrastructures, it’s clear where the benefits lie. Transparency ensures that all partners are able to gain a full view of the end-to-end lifecycle of loyalty points from the moment of issuance to the moment of redemption, allowing participants to optimise offers over time.
Rather than programme owners having to onboard partners, each with their own unique integration and reconciliation processes in mind, blockchain can reduce reconciliation costs significantly due to a rules-based model. With smart contracts, reconciliation can be automated and conducted in near real time, so as long as transactions take place in accordance to pre-encoded conditions set within the contract. Participating programme partners and programme operators are also no longer burdened by the hidden costs of reconciliation, thus lowering the barrier to entry into a given programme ecosystem while increasing the cost-efficiencies of a programme.
To date, several airlines have explored the potential of blockchain as a means of optimising their rewards programmes. Singapore Airlines was the first airline to launch their blockchain-based digital wallet, KrisPay, for their Krisflyer members who are then able to use their miles for real-world transactions across a broad network of participating merchants and retailers. Following on from this, Emirates announced in February 2020 that it onboarded a vendor to power the Emirates Skywards with blockchain, in order to enable increased transparency and traceability between airline partners and reduce redundant reconciliation processes.
The more, the merrier
One caveat to this remains: these benefits can only materialise if they take place at scale. The more partners within a single programme, the better. With that in mind, brands need to collectively agree on a shared vision for loyalty programmes that involves the inclusion of blockchain in order to reap its full benefits for themselves as much as for their customers.
Across multiple programmes, loyalty points have always been like currency, but they haven’t always felt like real money when consumers struggle to or aren’t sufficiently incentivised to redeem them. With blockchain’s ability to boost opportunities for providing increased value for one’s customers, it pays to remember that loyalty can’t be bought, it has to be earned.
To learn more about how we can help optimise your loyalty programmes, learn more about our decentralised rewards and loyalty management application.