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Building The Next Level Of Customer Loyalty Through Tokenization


Now more than ever, the value of a loyal customer is incomparable. And businesses in commerce understand this value — especially with rising customer acquisition costs and new competitors emerging on the horizon daily.


In such circumstances, ensuring a loyal customer base that will champion for your brand is more important than ever as well. After all, these customers are willing to spread the word about your brand — and word-of-mouth and customer support is the best kind of social proof that drives success.


Moreover, loyal customers are also a good source of stable revenue as well. According to BigCommerce, returning customers generate 40% of a store’s revenue. An American Express survey carried out by Populus showed 62% of the Millennial respondents are likely to buy exclusively from their preferred brand, compared to 54% of the larger population.


With this understanding of a loyal customer’s value, many companies — from startups to Fortune 500 — have been using loyalty programs to retain customers and grow the number of loyal consumers. With perks like discounts and exclusive access, these programs are the overwhelming tactic to retain and build on loyal customers. However, these programs recently have been less effective at maintaining consumer engagement, eagerness and loyalty with their complexities and transactional nature.


What makes it more complicated is that the majority of loyalty programs are designed with the company’s interests in mind, rather than the consumer’s. This discrepancy in the incentives behind loyalty programs can be seen in such instances when a customer is required to complete purchases they might not otherwise need in order to unlock some minimal rewards in the first place.


If that’s not enough, consumers are also fatigued by the number of loyalty programs they are part of — and thus fail to redeem the majority of the points they may accumulate. In one survey from Statista, as of March 2020, consumer respondents were found to be a member of 14 loyalty programs but actively using only seven.


Another important deterrent is the consumers’ concern about the safety and security of the information they share upon signing up for a loyalty program. A Harris Poll of just over 2,000 adults has shown that 71% of consumer respondents are less inclined to join a loyalty program that requests personal data beyond the baseline name and phone number.

With new solutions emerging as technology continues to develop, blockchain has been the most recent solution to the complex, archaic loyalty programs that customers are encumbered with. And commerce businesses are now looking to blockchain to alleviate — and even remove — some of the most pressing pain points that burden the modern consumer today.


According to EuroMoney, blockchain is a system of tracing and transmitting information in a way that makes it difficult or impossible to change, hack or cheat the system. It’s a decentralized method of managing data, managed by multiple participants, also known as DLT (Distributed Ledger Technology). Every 'block' in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is included in every participant’s ledger. Moreover, each of these blocks has a unique code — or a hash — that distinguishes it from others and thus makes it hard for hackers to mess with the data.


Blockchain attempts to solve a majority of the pain points that consumers face with loyalty programs today — from juggling multiple loyalty cards to trying to remember multiple passwords to different accounts. The logic behind the introduction of blockchain is the possibility to use loyalty tokens that are interchangeable between loyalty programs and don’t lose value over time. These tokens are exclusively granted by the company to the customer, and while the transaction is publicly recorded, there is no risk of it being taken away, expiring or losing cost — which is intended to ensure a transparent and fair loyalty system.


The interchangeability of tokens across loyalty programs — from miles to points to discounts at your favorite restaurants — are meant to keep up the consumer’s enthusiasm at all times without locking them into a rigid process with no flexibility and limited timelines. This ensures that the consumer can maintain their loyalty to a variety of brands at once, rather than one single one. It also attempts to reduce the amount of effort required to remember all the programs with their own rules — and the loyalty cards that come with them.

Finally, blockchain is working to address the customers’ concerns about data privacy and security. Thanks to blockchain’s peer-to-peer nature, the chances of a severe breach or privacy violation are significantly reduced. Since the records in the database have a timestamp that cannot be altered or tampered with, there is no risk of manipulation of the information – and all the data is securely stored on the ledgers with their individual hashes.

Of course, blockchain-backed loyalty programs are still in their infancy. But there are already some initial examples that prove the concept viable and promising. In 2018, American Express partnered with Boxed to launch a blockchain-based loyalty program test that allowed cardholder-customers to customize their rewards. Another early example is Singapore Airlines, which announced the launch of a digital miles wallet that would allow users to exercise points with other merchants.


Whatever the direction in which blockchain-based loyalty programs will grow, they are already here and will only continue to develop in order to address the customer pain points and re-establish strong relationships between customers and brands.


Originally published in Forbes