According to the latest Bond Brand Loyalty Report, memberships across industries continue to rise and now average 14.8 per person. But - considering total global spend on loyalty programs is estimated to be $323 billion in 2019 – a more critical statistic is: on average people are active in less than half (6.7) of the programs they belong too.
More often than not, loyalty programs do not drive loyal behavior.
The travel sector has some of the lowest satisfaction rates, according to Bond’s survey of 55,000 consumers in more than 20 markets around the world. Only 37% of hotel loyalty members and 38% of car rental members say they are satisfied with their programs; airlines, meanwhile, fare slightly better at 42%.
Says the report, “In the travel industry alone, Bond estimates billions of dollars in customer spending is left on the table when brands fail to address the 14% gap in customer expectations versus current experience along the travel journey. By re-tooling travel loyalty programs and closing the gap to better meet expectations, customer spending in the travel category alone could grow by $5 billion."
Could blockchain provide a solution - both for companies looking to bring down program costs and boost loyal behavior and for customers looking for faster reconciliation and more plentiful earn-and-burn options?
KornChain founder and CEO Animesh Ghosh is one of a growing number of voices who answers that question with a resounding yes.
Founded in 2018, KornChain is creating a blockchain-based global loyalty points exchange marketplace called LoyalT. The company is one of 13 startups in the latest class of IAG’s Hangar 51 global accelerator program.
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“The loyalty industry has been deprived of technology,” says Ghosh, who comes from a background in finance and banking.
“Some bigger players have a huge amount of loyalty points sitting in their balance sheet that is unredeemed and that is a liability. Then they have to amortize - which nobody wants that. If you have too many loyalty pints unredeemed, that means only one thing: that your loyalty program is not working.”
By using blockchain’s smart contracts to define and automate - and therefore expedite – the entire rewards process, companies decrease the administrative and personnel costs of their loyalty programs.
And by creating a hub for partnerships with built-in security, transparency and rules, loyalty members can easily earn rewards from multiple providers and exchange them on the network without any cost in the form of “lost” points, thereby incentivizing behavior to earn rewards.
“The market today is prohibitively expensive,” Ghosh says.
“There is a company called Points.com that if you have some points, let’s say Delta Air Lines points and you want to convert to Icelandair, they would absorb 70% of the value of your loyalty points. That is the situation in the market. We want to make it zero for the customer.
“In our case if a company has a loyalty program and they want to allow customers to use them somewhere else, that customer is not going to lose anything. We make money only from receiver end, where we are bringing money to them in the form of loyalty points.”
In addition to working with IAG and other large companies that he cannot yet name, Ghosh says KornChain is working to onboard a variety of small- and medium-size businesses in more than 20 countries that could create new options for their loyalty members if they join the system: For example, a local coffee shop's customers could use their rewards on a British Airways flight.
Qiibee is another system in development since 2018 that offers enterprises a plug-and-play solution to running their loyalty programs on blockchain. Companies create tokens that function as loyalty points and can be exchanged with partners also on the network. Customers store, transfer and trade those tokens in the Qiibee wallet app.
Current companies using Qiibee include Swiss coffee producer Lattesso and German restaurant/bar chain Sausalitos, and co-founder and CEO Gabriele Giancola says about a third of the companies he is talking to are related in some way to travel.
“You could have much more connection in the whole travel market. It makes so much sense that everything you need for a trip should be connected,” Giancola says.
“This is our vision, that you can very easily exchange from one program to another. Why can’t I pay my Uber ride with my air miles. That is the direction we are thinking and envisioning, but for that we know it needs more time.”
Giancola says he expects adoption of blockchain-based systems to ramp up in the next few years as the technology becomes more commonly accepted – and as brands recognize they need to serve consumers that expect speed.
“What is super important is to understand you have a completely new generation of customers coming that are used to very, very fast rewards,” he says.
“[Companies] have to change their perception because they are used to customers that are, let’s say businesspeople of a certain age that don’t have a problem if they have to wait one or two days for an exchange of points. But if you are a young person in your 20s, and you are used to Facebook, Instagram, you don’t wait one to two days for a transaction. You want it directly.”
What may create a tipping point for adoption is a successful, large-scale blockchain integration by a prominent brand. And that is now closer to reality with the announcement last week from blockchain loyalty and rewards system Loyyal that it has signed a three-year commercial production vendor agreement with The Emirates Group, following a successful pilot that began in 2018.
Loyyal CEO Greg Simon says while he is most excited about the potential to create a better experience for Emirates Skywards’ 25 million members, the partnership is starting with a focus on reducing operational costs for the airline.
“When you’re talking about loyalty programs there hasn’t been much technological innovation for decades. It’s been these old clunky databases, and it’s effectively become a source of funding for these large companies because they run these breakage targets. It’s why we all hate our programs, because they aren’t run to improve loyalty, they are run as a source of financing for that company through that breakage,” Simon says.
“They are really focused on the profitability of the programs, and being able to go in to them and say, 'We can reduce your partner costs by 80%.' That gets them a lot more excited than if I say, 'We can use smart contracts to do targeted marketing for all of your consumers.'”
Simon says currently Emirates has more than 120 partners in its rewards program, each with a unique integration and reconciliation process, so the first step is getting those partners to migrate to Loyyal’s platform.
“All the partners would connect through the Loyyal product suite, which is through our distributed ledger, and then Emirates would access it through one point of connection as well,” he says. Participating partners also benefit from automated, real-time reconciliation.
Founded in 2014, Loyyal was one of the earliest developers of blockchain-based loyalty and rewards solutions, and Simon says it is no longer a matter of convincing companies that this is the future.
“We’ve been able to reach out to a large part of our target market, which is the large program enterprise market, and can say pretty confidently now that overwhelmingly the majority consensus is that this industry [loyalty rewards and incentives] will move to blockchain. Now the challenge is getting them to do it,” he says.
Giancola agrees and says the barriers are the same when any new technology is coming to market.
“It was the same for social media, the same for e-commerce. Maybe what makes our work a bit more difficult is we have to educate people that Bitcoin is not equal to blockchain or crypto is not equal to blockchain,” he says.
“But in the next five to 10 years, every loyalty system will be on the blockchain. That’s what we believe and that’s what we are working on.”