Retailers and companies use loyalty programs to ensure customer retention, engagement, and loyalty. As of 2019, the industry was worth 360 billion dollars, with over 16 trillion loyalty points distributed to 7.6 billion consumers. Unfortunately, while loyalty programs are substantial, the system is broken.
First, loyalty programs are numerous, with each one having its way of earning and redeeming. This can lead to several unused points and frustration among customers. A Colloquy Study reveals that an average American is registered to 29 loyalty programs. About 50% of these loyalty programs show no physical activity, and 30% of customers never redeem a reward point.
Second, most loyalty programs are focused on profitability and centralization rather than on encouraging customer engagement and keeping customers happy. It has been the status quo for years. It is so because retailers with these programs need to be more receptive to new technologies that could offer true innovation to boost customer experience.
Furthermore, loyalty programs are restricted. Customers can only redeem points and spend from where they earned. Limiting customers on how and where to spend their reward points discourages engagement and reduces the program's value.
What can enterprises do to eradicate these limitations? By leveraging blockchain technology to decentralize their loyalty programs to enjoy the full benefits of the technology. By blockchain, we mean applying smart contracts to loyalty programs.
What Are Smart Contracts?
A smart contract is software code implemented on a distributed ledger technology that automates the exchange of digital assets, such as reward points, once the conditions are fulfilled. A smart contract is an agreement written and stored on a blockchain that runs when predetermined terms are met. This self-executing agreement allows all involved parties to be aware of the outcome, reducing time wastage and eliminating intermediaries.
Smart contracts run transfers automatically and in a decentralized manner, meaning a centralized server doesn't manage them. With smart contracts, peer-to-peer transfer over a network is fostered and efficient. In addition, they allow developers to create apps and programs and enjoy the benefits of blockchain's reliability, security, and anonymity.
Benefits of Smart Contract Application in Loyalty Programs
1. Fosters Interaction in One System
Smart contracts are embedded in a blockchain and can help participating agents interact in one ecosystem without intermediaries. For example, multiple companies across multiple sectors in different countries can create consolidated loyalty programmes, where customers can redeem points borderless. In addition, points can be exchanged because they're all backed by the same platform within the blockchain.
The benefit of smart contracts is that you don't compromise privacy, so all interaction within the system is anonymous.
2. Streamline Execution
When written and deployed on a blockchain, smart contracts can simplify execution and ease the administration of loyalty programs transparently in near real-time. For example, companies that want to accept each other's loyalty points can reach an agreement, write a smart contract based on the agreement, deploy it on the blockchain in a programming language, and enable exchanges based on the contract. Ultimately, this reduces costs significantly.
3. Minimize Costs
Typically, creating loyalty programs is costly - tracking and logging points and overseeing redemption adds up. By leveraging blockchain, companies can significantly reduce costs in the long run. They minimize costs associated with system errors and transactions. Integrating blockchain into the business's structure becomes convenient in the long run if the processes have been established. Not only will this allow companies to manage loyalty program costs effectively, but customers will also have more value.
4. Build Trust
It is difficult for large companies to enter into a multi-partnership where customers can exchange reward points in real life. The truth is a settlement of this kind of promotion has proven to be complicated in the past, and most companies would want to avoid repeating history. Smart contracts solve this by building trust between companies since they are immutable. The terms of an agreement can only be altered in the presence of both parties.
5. Smart Contracts Lead to More Efficiency
Some loyalty programs are still in ancient times, manually inputting points, which is time-consuming. This process can lead to more frustration among customers. A smart-contract-powered loyalty program will automate logging points and make it easier to record rewards point transactions. Applying smart contracts in loyalty programs would give companies the upper hand in tracking points timely and distributing rewards to customers effectively. Faster delivery = more loyal and happy customers.
6. Ensures More Privacy
Some customers are skeptical of entering loyalty programs because they will give away their details and other information that the company can use to the customers' detriment. However, according to a survey by PwC, almost 70% of customers have shared their concerns regarding exposing their private details online. This is understandable, considering the level of online identity theft.
Blockchain technology through smart contracts can reduce these risks, thanks to its anonymity. Consumers don't need to give out their details. But, if they must, blockchain keeps the information anonymous and secure.
A smart-contract-powered loyalty program also benefits retailers. About 72% of these programs have been cheated by people who want more loyalty rewards for never recorded purchases. In addition, blockchain ensures transparency and traceability, making it challenging for malicious customers to scam the system. Overall, smart contract integration can reduce fraud and online theft and provide a much safer experience for everyone.
A Smart-contract Powered Loyalty Program is the Real Deal!
Applying smart contracts in loyalty programs is necessary to curb the limitations companies with traditional loyalty programs experience. Blockchain is still disrupting various sectors and every aspect of our daily life. Therefore, companies offering loyalty programs must follow suit to avoid being left out in the dark ages.
Expanding loyalty programs and improving rewards can be achieved using a reliable blockchain-based platform to create customer-centric loyalty programs. That is what LIX does. LIX allows businesses to personalize rewards for their clients. It enables retailers to easily incorporate their loyalty programs on their platform with LIX plugins while providing customized user data regarding behavior and context. Consumers will use the platform's token LIXX to spend their loyalty points.
Companies can visit the website or contact the team to establish customer-centric loyalty programs.