How Blockchain Can Fix Oversaturated And Overstretched Customer Loyalty Programs

Posted: Feb 22, 2018 11:17 AM
How Blockchain Can Fix Oversaturated And Overstretched Customer Loyalty Programs

Loyalty Programs Overview

When running a business, customers retention is one of the most important contributors to success. According to an old business adage, 80 percent of sales are due to the top 20 percent of customers, a statistic that tends to hold true across most industries.

Since top customers are such a monumental contributor to sales, businesses have adopted loyalty programs as a means of keeping their highest spenders returning. Loyalty programs span across nearly all sectors and each one of them is structured in a cunning way to retain clients. Loyalty programs work by rewarding customers for continued purchases, eventually giving them progressively larger rewards and preferential treatment based on the total spent. By creating an artificial system of progression, companies are keeping customers rooted in their services due to the perceived higher cost of switching to a competitor

Customer loyalty programs are so effective that as of 2015, U.S. consumers held a total of 3.3 billion memberships – an increase of 26% since 2013. The programs are spread across a huge variety of sectors, ranging from airlines to pharmacies. While the explosive growth in loyalty programs demonstrates the emphasis that corporations place on customer retention, the proliferation of these programs has created an extremely oversaturated market that has diminishing returns.

Drawbacks of Loyalty Programs

The landscape for loyalty programs is oversaturated. The average U.S. household is subscribed to about 29 various loyalty programs, which means individuals have to navigate through a maze of rules and options. Individual loyalty programs can be cumbersome but having to sort through dozens of programs proves to be almost impossible. The process is so inefficient that many people subscribed to loyalty programs fail to use them regularly, and companies are recognizing the decline of customer interaction. 

Oversaturation is not the only issue associated with loyalty programs, there are huge implications associated with the balance-sheet liability connected with loyalty points. Airlines are a prime example, while the number of customers in overall loyalty programs have been growing, the number of available seats for flights hasn’t grown at the same rate. The disparity between the growth rate of reward points versus redemption options has led to a pool of unredeemed points that is growing every year. This is a nightmare scenario from an accounting standpoint, as revenue associated with loyalty points is only counted when points are redeemed. 

It becomes clear that loyalty programs are taxing, both for the client and for the company. The creation and maintenance of loyalty programs is taxing for the business and navigating through rules and rewards is not easy for the client. The ability to transfer points to different loyalty programs is either impossible or available at very unfavorable rates. The inefficiencies of today’s loyalty programs are clear – they are unwieldy, too fragmented, and can have extensive liability.

Implications of Technology on Loyalty Programs

Technological disruption is perhaps the best answer to solving issues with loyalty programs. Blockchain technology is one of the largest heralds of change for these programs as it can be used as a platform to consolidate and manage them. In fact, there are already a multitude of startup companies trying to leverage blockchain technology to disrupt the loyalty program industry, such as a new startup called Sandblock. Sandblock is looking to streamline managing, creating, and maintaining loyalty programs by consolidating them into one, easy-to-manage platform.

Loyalty programs have historically been fragmented across many different companies. One of the benefits of Sandblock is that it can unify all kinds of different loyalty programs onto one platform which makes it easy for companies to rapidly add, maintain, and update loyalty partnerships without having to create them from scratch. The fact that a multitude of loyalty programs operate on the same blockchain platform also opens up more possibilities for redeeming points gained as well. 

Unifying loyalty programs with technology is just one aspect of improvement, blockchain technology opens new avenues for loyalty programs as well. Sandblock, for example, has a system which rewards customers in exchange for reviews. The fact that processes are being conducted on a blockchain guarantees that only real customers can leave reviews, which means a business can get crucial information without risk of fake or false reviews. 

Rewarding clients for reviews is not a new idea, but it a recent development. In fact, Marriott’s reward program was regarded as the Best Loyalty Program of 2017 due to the innovation in their model, which rewarded clients who reviewed their stay, posted about their stay on Twitter, or checked in on Facebook. Marriott is effectively leveraging social media in a new way by creating a win-win scenario for both the business and clients translates into a better way of targeting millennials. The potential of blockchain technology lies in the fact that verifying reviews requires very little to no effort, improving on the process that Marriott developed. 

The Future of Loyalty Programs

Today, loyalty programs are highly fragmented and cumbersome for both businesses and customers. However, this is something which can be fixed through the use of technology, such as blockchain. Blockchain-based loyalty programs have two major benefits. Firstly, they make costs of developing new loyalty programs significantly less since it is no longer necessary to create everything from scratch. Secondly, blockchain based platforms also help relieve the balance-sheet liability which industries are facing, because the network of companies on the platform opens up many reward options, creating an outlet for the excess points. Ultimately, new technology will lead to loyalty programs that are easier to use for all parties while removing the inefficiencies which plague the old model.