The technology behind Bitcoin can be applied to retailer loyalty programs to make them more appealing to consumers and easier for merchants to run.

Patrick Palacios, CEO, Appsolutely

Patrick Palacios, CEO, Appsolutely

As the holiday shopping approaches, retailers’ loyalty reward programs take center stage. U.S. consumers are still enthralled by the opportunity to be rewarded for their brand loyalty. They count 3.8 billion cumulative loyalty program memberships among them, according to Colloquy.

However, customers who participate in loyalty programs are sitting on at least $100 billion in unclaimed loyalty points. The scale of unclaimed points suggests participation is these programs is much easier to initiate than to redeem for value.

There are several reasons why consumers don’t redeem loyalty points. First, most retailer loyalty programs are too complex and confusing with too many rules for how to earn and redeem points. Some consumers are even unaware they have earned any points. For retailers, this complexity also means it’s more expensive and technically difficult for them to easily maintain a robust database of how their members use points.

Second, most loyalty rewards points expire, which defeats the whole purpose of the program for both consumers and retailers. This often leads to customers feeling like the loyalty program was overhyped and can damage retailer brands.

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Consumers can easily share and gift their reward cup of coffee to their friends or family members, expanding brand awareness.

Third, the sheer volume and variety loyalty programs have made it difficult for consumers to be actively engaged. Consumers tend to earn points among only a relatively small number of programs. A recent study by Accenture concluded that 77 percent of consumers are participating in at least one retail loyalty program, while 46 percent are enrolled in at least one hotel program, and 40 percent are engaging with at least one airline loyalty program.

Finally, point redemption becomes more difficult when brands don’t have enough retail partners that universally accept their loyalty points.

But all hope is not lost. Enter “the blockchain.”

A blockchain is a highly secure and decentralized digital ledger system that allows retailers to create better, nearly frictionless solutions to today’s loyalty reward program problems. How? Blockchain technology creates transaction records shared across a network of computers. In the case of a loyalty program, every transaction creates a new block of information for every reward point created. These “blocks” of information are “chained” to previous blocks, which are then shared across a network. Hence, the term “blockchain.”

But instead of creating one blockchain that contains all the records, the transaction records are also distributed across every blockchain in an entire network. So, blockchains cannot be altered without the other blockchains in the entire network also being changed. The decentralized but connected nature of blockchains makes them much more secure than a set of separate digital ledgers stored on a centralized server.

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But which loyalty program benefits does blockchain technology enable? Here are five: 

Increase Redemption Rates and Sales

Blockchains can significantly improve loyalty programs by converting rewards points into digital tokens that customers can use at potentially any retailer. Essentially, blockchains help create universal rewards. As a result, consumers no longer have to worry about how to use so many different reward programs with different, complex rules on how to earn and redeem points. They can now have a single, simple rewards system that allows them to quickly redeem their points anywhere. This in turn reduces friction and helps increase repeat sales transactions.

Expand Revenue Opportunities

Retailers can also offer consumers digital tokens as a payment method (and a new revenue opportunity) for buying other products. For example, consumers can also use a digital token earned at a coffee shop toward the purchase of a toothbrush at a pharmacy. Blockchains enable digital tokens to be fungible, creating a new and more efficient digital loyalty economy.

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Increase Brand Awareness

Digital tokens powered by blockchains also can enable customers to send and receive rewards to and from each other. So consumers can easily share and gift their reward cup of coffee to their friends or family members, expanding brand awareness.

Deliver Personalized Rewards

Blockchains also allow more consumer data to be collected and stored in a more efficient way, helping retailers gain more strategic insights into their customers and offer more personalized rewards programs that match individual preferences and purchase history.

Convert to Digital Currencies

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Blockchains can even enable consumers to convert these highly fungible digital tokens into other burgeoning digital assets such as digital curriences like Bitcoin, Ethereum, Litecoin, etc. Digital currencies (also known as cryptocurriences) can be used as investment vehicles or to pay for retailer goods and services. The use of digital currencies is a growing steadily among consumers, investors and retailers such as Overstock.com, which now accepts Bitcoin.

Powered by blockchain technology, a new unified ecosystem of rewards programs can increase redemption rates, improve sales through repeat customers, and deliver a more engaging and fulfilling experience for retailers and their customers. Blockchain technology is the perfect conduit between consumers, retailers, and brands to introduce better, more personalized rewards and help deliver on the unmet potential of today’s brand loyalty programs.

Appsolutely develops loyalty programs, apps and websites, including a program called LoyalCoin based on blockchain technology.