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What’s the future of blockchain in loyalty marketing?

May 20, 2019 4 MIN. READ

At the height of the Cryptocurrency trading frenzy, Bitcoin reached a unit value of $19,650. It hasn’t been that high since. A little more than a year later, Bitcoin declined 84 percent and hit a new low of $3,128. It is currently trading around $3,600.

Despite the fact that Crypto-mania has long since subsided, the underlying technology remains a trending topic among loyalty marketers. Blockchain, the decentralized, distributed public ledger, has also become a particularly hot topic in the loyalty space (a $360 billion industry, we might add). But why?

Blockchain seems to solve a lot of difficult challenges for businesses. The concept is designed to lack a central point of failure that can be exploited by hackers, and the data storage is considered incorruptible because of its massive replication. For digital currencies, it solves the problem of double-spending or duplicating digital tokens, a potential flaw in digital cash schemes.

Opportunities at the intersection of blockchain and loyalty

In loyalty, blockchain capabilities tease the idea of portability or fungibility of loyalty currency to consumers. This makes sense – of course consumers would be excited by the opportunity to easily trade or exchange points into cash or another currency. While this ability may prove attractive to customers, it is typically at odds with a program’s goals to generate brand affinity, control point liability and cost, and drive redemptions of the brand’s products and incremental business.

Certain industries, however, could see immense benefit from this approach. Industry experts suggest the travel industry is ripe for a blockchain-based innovation. While retail and credit card programs are usually simpler in design with a single currency and few partnerships, travel programs are more complex, with multiple currencies and partnerships that have different earning rates. Blockchain could support a near-real-time and secure record of loyalty transactions: earning, redeeming, exchanging, transferring, etc.

Access to travel rewards is complex, but key to success

The value of participating in any loyalty program depends on access to rewards. At ICF Next, our research has found that members (regardless of the brand) who redeem a reward have a customer lifetime value five to seven times higher than non-redeemers. However, in the travel industry, access to rewards is constrained by the member’s ability to earn enough points as well as the availability of a free seat or room. This problem becomes more acute as load factors and occupancy rates increase in today’s data-driven travel and hospitality environment. That’s where partnership programs come in. Partnerships help give members more opportunities to redeem rewards and also create a more personalized program experience.

Members participating in partner programs may be most intrigued by the promise of a blockchain-based loyalty program and its potential to enable currency fungibility. For these members, a digital wallet could be the centerpiece that allows them to track and manage multiple programs. The high utility could make the program more valuable to the member, encouraging its use and engagement with the brands that participate.

There are still challenges and risks associated with blockchain

The obvious risk of a blockchain-based program is the public nature of the ledger. This could expose the most valuable asset of a loyalty program—individual member data—to partners and competitors. Rules would first need to be written to control inter-company participation in the network, ensuring individuals’ identities are not made public.

Numerous complex loyalty programs fit the profile of those that could explore blockchain as a technology option. Despite that, of organizations worldwide, 77 percent had no action planned for blockchain, according to a Gartner May 2018, survey of CIOs. And only 1 percent have already invested and deployed blockchain.

Looking forward, investment in blockchain is expected to grow from $850 million in 2017 to $11.65 billion by 2022, according to the market intelligence provider IDC in their July, 2018 forecast. This growth comes across the spectrum of businesses and business applications.

If your loyalty program is complex with multiple partnerships and currency, consider blockchain and the potential to reap first-mover benefits. These could look like reduced costs for your company, more room to focus on campaigns and promotions, and less time spent on collecting and analyzing data. Most importantly, a happy customer and in turn, a happy loyalty program. If not your program, who will be there first?

How do you see blockchain supporting loyalty programs and partnerships? Is your business exploring blockchain to solve loyalty challenges? Join the conversation by tagging @ICFNext on Twitter and LinkedIn.

By Mike Sund

The latest marketing trends, uncovered.

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