Can cryptocurrency save the Loyalty Program?

10 December, 2019

Unless you've been living under a rock for the last 25 years, you probably have at least some exposure to retail loyalty programs. These are programs designed to keep customers coming back over many years of shopping. Retailers use them because they know it is cheaper to keep loyal customers happy than have to go out and win new customers.

Interestingly enough, retail growth in the United States had been pretty flat prior to 2017. Annual growth of 3% was normal, leaving retailers scratching their heads as to how they could improve things. That led KPMG to conduct a survey in 2016 source. They wanted to gauge retailer and consumer perceptions of loyalty programs.

This post will discuss that survey alongside the question of whether cryptocurrency can save the tried-and-true loyalty program. If something does not come in to change the game, it is quite possible that retailers will start saying goodbye to loyalty programs that are not growing sales.

What CEOs are saying

Let us start with the retailers themselves. The first thing to note is that the CEOs of the world's most prominent retailers admit, at a rate of 85%, that most growth comes from loyal customers. In other words, retailers rely on their loyal customers to increase sales year-on-year. That makes perfect sense.

Next up, 90% of the CEOs surveyed by KPMG said they were worried about customer loyalty. And yet, only 24% of them make it a priority to create and sustain it. It would appear as though they are leaving customer loyalty to chance.

What consumers are saying

So now we know that CEOs are worried about customer loyalty. What do consumers think? More than 60% admitted to having made a special trip to a retail store within the previous six months to earn some sort of loyalty reward. Nearly the same number said they would willingly shop at a store with slightly higher prices if that meant earning rewards that interested them.

So what's the problem? KPMG's survey was taken in 2016. A Bond Loyalty report from 2019 revealed that just 22% of the 55,000 surveyed customers are actually satisfied with the rewards they earn. The primary cause of their dissatisfaction are rewards that are not tailored to their interests.

Do you see the disconnect? Consumers are not happy with their rewards and retailers are not making the effort to change things. Thus, sales growth is hindered. Retailers are staying above water for the most part, but their sales are not increasing significantly. Here's where the cryptocurrency idea comes into play.

Tokenizing rewards programs

Traditional loyalty programs suffer from a lack of originality. Your typical loyalty program invites customers to earn points that can be redeemed for more merchandise. That is all well and good, but modern consumers don't buy objects at the same rate older generations bought them. Today's consumers tend to be more minimalist with their possessions, choosing to focus on experiences instead.

What if a retailer change things up by tokenizing its reward program? Customers could still earn points, but those points could be redeemed for a variety of tokens. One retailer might exchange points for BTC. Another might reward customers with Litecoin or XRP. One of the biggest benefits of this sort of program is that its rewards never expire. Once a customer owns cryptocurrency, possession is maintained until that crypto is spent or sold.

What if a retailer doesn't want to offer actual coins? Not a problem. A tokenized loyalty program could offer other perks as well. Customers could be rewarded with exclusive experiences - like concert tickets, for example. They could use their tokens to pay for fancy meals at exclusive restaurants or spend a weekend at a ritzy hotel.

The point here is that tokenizing a loyalty program opens the door to a ton of possibilities without requiring retailers to spend billions on programs operated by third party vendors. Tokenization lets them keep everything in-house while still catering to individual preferences.

Put it all on a blockchain

This idea of tokenizing loyalty programs inevitably leads to a discussion of blockchain. It has been demonstrated by countless projects that blockchain is not a good technology for every need. There are plenty of apps built on blockchain that would perform better utilizing a different technology. All that aside, blockchain is the perfect technology for a tokenized loyalty program.

One of the fundamental benefits of blockchain is automation through the execution of smart contracts. A blockchain ledger is more than capable of tracking a retail loyalty program and all the customers who participate in it. Blockchain can easily track every customer's earned rewards and how those rewards are redeemed.

A blockchain system can even be programmed to allow participants to customize their rewards. Everything is executed with smart contracts so as to keep things as automated as possible. This cuts down on the amount of human intervention required to make the program work.

The icing on the cake could be a unique token developed by the retailer for exclusive use within its stores. This would be a specialty token that could only be spent with a retailer who created it. Loyal customers could be given the option to purchase tokens at a reduced amount, thus increasing their purchasing power dollar for dollar. Combined with regular sales and promotions, the tokens could end up saving customers quite a bit.

The new normal for retail

By now you might be thinking that what this post proposes is not all that different from what retailers currently do. That may be true to some extent, but there is one factor we haven't yet considered: modern perceptions among consumers. Those perceptions dictate that it is time for new normal in retail. It is time to start shaping retail to match the way consumers think.

A case in point is using credit cards to pay for things. Credit cards have been around for decades. Our parents and grandparents used them regularly. Younger consumers in the 21st century are not as quick to jump on the credit card bandwagon. However, they get fairly excited about other options like touchless payments and digital tokens.

Younger consumers are more likely to look favorably on cryptocurrency payments than credit cards. They are more likely to accept a tokenized loyalty program over something like airline miles. It is the way they think. Young people are all about digital technology. Just say the word 'digital' and their eyes come alive with a discernible sparkle.

Digitization should be the new normal for retail. Retailers should slowly phase out old ways of doing things and replace them with newer technology. Tokenized loyalty programs can be a big part of that.

Partner with other retailers

Something else younger consumers are interested in is the retail partnership. In other words, they like to see several retailers partner together to offer shared promotions on experiences. This represents another lucrative area for developing a tokenized loyalty program. To illustrate, we can use a fictional example that features a clothing retailer, coffee shop, and ride-hailing service.

Let us assume all three companies agree to a loyalty program partnership. They develop their own blockchain and token, then begin distributing tokens to loyal customers based on their purchase habits. Tokens are earned collectively. That means shopping with all three retailers gradually increases the total number of tokens a person holds.

When a customer is ready to spend those tokens, she can do so at any of the three retailers. Maybe she earned 50 tokens through purchases mainly at the clothing store and coffee shop. It matters not. She can spend some of them on getting a ride home from a night out. She can even tip her driver with tokens.

At the same time, the coffee shop customer is earning tokens that can be spent with the clothing store or ride-hailing service. It doesn't really matter where tokens are earned. They can be spent with all the participating retailers in the partnership.

Something needs to change

Perhaps some of the proposals described in this post would not help as much as crypto enthusiasts think they would. That is understandable. This author is by no means a retail expert. However, none of that alters the fact that something needs to change. Retail sales are not growing, and loyalty programs are not making customers happy. That is not a good recipe.

Cryptocurrency and blockchain have done a lot to transform electronic payments. They have turned the entire payment industry on its head. It stands to reason that they could transform loyalty programs as well. With a little creativity, the right blockchain and token, and a concerted effort by marketing experts to spread the word, cryptocurrency could save the beleaguered loyalty program.

What do you think? If you are a cryptocurrency enthusiast, would you be swayed to be loyal to a retailer that offered you crypto rewards? Cryptocurrency appears to be a ready-made vehicle for boosting customer loyalty by offering customizable rewards. Hopefully retailers will soon start getting on board with this fledgling idea. Some are already doing it.