Blockchain Loyalty is being touted by many industry observers and experts as the next big thing in the loyalty industry. Just what is it all about?
Firstly Blockchain. A blockchain is a continuously growing list of records, called blocks, which are linked and cryptographically secured. Blockchains are inherently resistant to modification of the data because the data in all the blocks must match in order for a record to be valid. This makes it incredibly secure.
Secondly, Cryptocurrency. Because blockchain is so secure, it allows for the creation of a trustworthy digital currency, called cryptocurrency. Prior to blockchain a digital currency couldn’t be trusted, because there was no way for the holder to ascertain whether it had already been spent or not.
Blockchain solves this trusted currency problem in the following way:
- Say Kate wants to send Nell 100 digital coins.
- A block is created detailing the transaction, which is broadcast to every computer in the blockchain network.
- The network validates and approves the transaction.
- The block is added to the chain stating Nell now owns the 100 coins. It is a permanent, non-repudiable, transparent record of the transaction.
- Nell receives the 100 digital coins.
From a loyalty perspective a trustworthy digital currency is particularly exciting, as it provides a viable alternative to issuing Points.
Points have been a mainstay of loyalty programs for decades, and while they’re still wildly popular as a loyalty currency, consumers are becoming increasingly frustrated with (a) their lack of utility, (b) their perchance for expiry and (c) their systematic devaluation by loyalty program operators. Let’s look at each of these in turn:
- Lack Of Utility: Most loyalty programs only allow Points to be used within their eco-system. This might be on flights, upgrades, an online store, retail vouchers or other company-specific discounts. One of the key frustrations for many frequent flyer program members is the lack of availability of flights when they try to use their Points i.e. they have Points but can’t use them. A digital currency doesn’t have any of these limitations. It can be bought, sold, transferred, gifted, sent overseas or transferred into any fiat currency.
- Points Expire: Members who aren’t highly-engaged with a program can be stung when their Points expire. This might be because the Points aged and expired (e.g. Points expire 2 year from issuance) or because there was no account activity for a specified period (e.g. Points expire if there is no activity on your account for an 18 month period). Major coalition programs use actuaries to deliberately manage the program to maintain a set expiry rate in order to maximise their program profitability. Digital currency avoids this customer experience issue; it doesn’t expire.
- Systematic Devaluation: A major airline loyalty program launched an online store in 2008 which allowed members to redeem Points for merchandise and gift cards. This included a $100 gift card for a popular department store for 13,500 Points. Today, the same $100 gift card costs 17,500 Points. What’s changed? The $100 gift card is still worth $100. Only the value of the Points is less, a deliberate act by the airline to extract more profit from the program. Digital currency doesn’t reduce in value as it becomes more popular. Market forces of supply & demand force a value increase as the digital currency becomes more desired, ensuring the value accumulated by members also increases. Members aren’t penalised because they’ve been loyal to a program which grew in popularity, but rewarded.
A rewarding loyalty program? Hey, that could catch on . . .
Philip Shelper is Chief Design Officer & Co-Founder of LoyaltyX, an experimental loyalty agency and the program operator of Unify Rewards. He is also CEO & Founder of Loyalty & Reward Co, a leading loyalty management consulting agency.
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