In almost every business, repeat customers are the lifeblood of growth. In fact, studies have shown that it costs a business about 5 to 25 times more to acquire a new customer than it does to sell to an existing one. Existing customers also tend to spend 67% more than new customers. It, therefore, goes without saying that businesses must strive towards customer retention if they are to remain competitive and maintain stable growth.
While there is a myriad of techniques applied by businesses to ensure customer loyalty, the reward point system is the most popular. Case in point, when a customer shops in a specific store or buys a given brand, they earn points which can later be redeemed into some type of reward. The problem with the loyalty points system is that it‘s’ marred with inefficiencies so much so that it is not very helpful to the consumers.
According to a 2017 report by Bond Brand Loyalty, only 50% of customers who enroll in loyalty reward programs redeem their points. As noted in the Harvard Business Review, the challenge with the points reward system is that they are so many making it impossible for the average consumer to monitor every loyalty program they are part of. A 2017 loyalty report shows that the average U.S. consumer is involved in 14 loyalty programs but, they have the capability to engage with only seven. Other challenges with the loyalty points reward system include inconsistent experience across different programs, delays in getting access to the points, and consumer privacy and data protection threat.
Enter blockchain -according to the Wall Street Journal, it has the power to streamline administration, improve customer experience, and reduce costs for loyalty reward programs. The technology is making it possible for all the parties in the program to operate in one system without compromising privacy or competitive advantage.
Simply put, blockchain technology connects multiple organizations and their loyalty programs and facilitates their interactions in the converting and exchanging of points. The whole process is without intermediaries and is fully secure given the distributed nature of the blockchain database.
Through blockchain, brands can issue loyalty points in form of a universal cryptocurrency that can be spent anywhere and converted to fiat currencies. This means that with this type of program, brands are only able to compete on how they target customers and how many loyalty coins they offer. When it comes to loyalty points’ redemption, the smart contract technology ensures that consumers automatically receive their reward when they hit the set thresholds.
SandBlock is a good example of a platform that is utilizing blockchain and smart contracts technology to streamline the loyalty reward programs. Through its decentralized Ethereum based Protocol, the platform aims to create an autonomous consortium and connect customers and brands together. The SandBlock platform utilizes is Satisfaction Token (SAT) to decentralize and facilitate the reward process. The SAT crypto can be used across different platforms and can be converted into other cryptocurrencies or fiat currencies.
Collie, a brand of the digital marketing company — Retainly — is another platform that is utilizing blockchain technology to disrupt the loyalty reward programs. Unlike SandBlock, Collie focuses on internet based businesses and SaaS applications. For instance, through Collie, digital-based businesses can reward customers by giving them RETN tokens for any action performed using their apps and platforms. Just like other cryptocurrencies, the RETN token can be redeemed for other cryptos or fiat currencies or exchanged for goods and services.
For merchants, blockchain powered loyalty reward programs also helps reduce loyalty liability. In the traditional loyalty reward programs, brands usually record the promises they make to their customers as liabilities in their books of accounting. This poses the risk of a liquidity crisis especially if many customers decide to redeem their points at the same time. However, with blockchain powered loyalty programs, the risk does not exist given that merchants can mine their own loyalty coins or borrow from other merchants.
As blockchain technology continues to advance, there is no doubt that major disruptions are bound to happen in the retail industry. The loyalty reward program is one of the areas that are already experiencing major disruptions and therefore this is the best time for investors to take advantage and invest.