6 Ways Blockchain Token Rewards Redefine Loyalty

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Blockchain token rewards let companies take a customer-first approach that transforms closed business loops into dynamic community ecosystems.

In this article, I unpack structural differences between traditional loyalty points and blockchain token rewards to underscore the ways blockchain tokens are changing the future of customer loyalty.

A Jaunty History of Loyalty Programs

Loyalty programs have existed for hundreds of years. Arguably, a Sudbury New Hampshire merchant launched one of the first loyalty programs in 1793, when he began rewarding customers with stamped “copper tokens” that they could accumulate and use for future purchases. This method of boosting repeat business quickly caught on: we would see loyalty programs proliferate across America in the 1800s and 1900s with inventive forms of collectable stamps, checks, tickets and coupons that could be redeemed for in-store or mailed items.

Benjamin Talbot Babbitt revolutionized the loyalty game in 1905 when he offered his clients an expanded selection of rewards in his Mailing List of Premiums. In exchange for a set number of trademark cut-outs on the packaging of his soap products, customers could acquire tantalizing items that ranged from a harmonica to a pocket knife with a buckhorn handle, a pair of Uncle Sam suspenders, up to a lady’s pearl ring and 14k gold-filled locket chain. B.T. Babbitt's catalog captures not only the utilitarian but also the aspirational nature of rewards in a never-before-seen way.

In 1981, American Airlines changed the modern loyalty program by introducing a new currency: air miles. AAdvantage program members earned miles at a set value that they could redeem for free flights, and later, other premium status services with the intro of the tiered system. Southwest followed suit, but instead of miles, they introduced “points” for the first time. The early 1980s and 90s saw the decline of loyalty stamps, coupons and the like, and the domination of points and miles programs that continues right to this day. But blockchain token rewards are changing everything. Read on.

Our On/Off Relationship with Loyalty Rewards Programs

People love the idea of collecting points to gain rewards, evident by the recorded 3.3 billion loyalty accounts in the U.S. alone. The idea is solid: get special access and perks for being a loyal supporter. While loyalty program membership continues to rise to an average of 14.8 programs per person, according to the latest Bond Brand Loyalty Report, members are active in less than 6.7 of them on average. This gap gives us a critical insight: loyalty programs are not driving loyal behavior. If a program member is not active, then they’re not really engaged.

So what’s the problem? According to the 2017 Colloquy Census, some 57% members don’t know the balance of their reward points. Many (37%) lose sight of their points entirely, because keeping tallies can be a tedious task with so many programs, account details and cumbersome cards to track. Only 25% of members are satisfied with the level of effort it takes to earn a reward (that’s 75% of members who are dissatisfied). The top reason (57%) given for abandoning a program was “it took too long to earn points or miles.” 33% cite difficulties using the rewards because of the various terms and conditions. 36% say their points or rewards expire before they can even use them. Finally, 59% said they felt the rewards were “not valuable enough.”

While the currencies of traditional loyalty programs have changed constantly, the core design of these loyalty programs have remained the same. Customers, however, have changed, and their needs have evolved with our modern digital landscape. We have adapted to faster internet connectivity, cell mobility and cross-platform applications. The unchanged structure of points programs has left wanting gaps and distances between brands and their patrons.     

Why Points Aren’t Rewarding

Currently, the loyalty points (or miles) that customers “earn” get registered on a centralized database, owned and operated by the issuing company. This means that your points are locked up in closed, centralized, non-public files. In order to access your account, check your balance, or redeem your points, you are dependent on the company gatekeeping and their standard operating procedures. Along with unlimited caveats nestled in the “terms of service,” the company can change the balance and value of accounts at will, move the marks for redemption, and basically do whatever they want to the points you supposedly earned. Bottom line is: the points belong to the business to dispense at their discretion. Customers don’t have real ownership or control.

There’s an inherent disconnection in loyalty points. Customers understand the relationship between today’s purchase and tomorrow’s benefits, but they don’t equate receiving the points with receiving the reward. They earn points for the sake of achieving the reward in the future, if they keep spending. While the potential to “rack up points” may create a game that spurs spending, deferred and delayed rewards can lead to frustration, disinterest and boredom. In today’s hypercompetitive landscape, customer apathy is not something a business can afford. Rather than create a culture of points accumulation and waiting, businesses could accelerate the value journey so that customers experience the immediate impact of more frequent rewards, and in turn, a continuously reinvigorated sense of loyalty.

The biggest difference between traditional loyalty points and blockchain token rewards is that blockchain tokens enable a more openly customer-centric (as opposed to the closed company-centered) approach. Blockchain tokens offer customers new experiences of rewards with immediacy, and they give both businesses and customers new ways to classify value and create more dynamic relationships. Here are just a few.

1. Ownership 

The key principle underlying blockchain token rewards is basic and immutable: you earn it, you own it. Once the token is in your wallet, it’s yours. It never expires and no one can take it away from you. The issuing company cannot control, revoke, or expire the rewards you have earned. Even if the program ends, you can redeem the value of your tokens for other currency.

Loyalty points on the other hand belong to the company that issued them. Businesses often exercise wide discretion in setting up their points programs. It’s not uncommon for companies to change minimum spends, expiration dates, the value of points, program rules, and more. The result is a complexity that can reduce the incentive and ability for consumers to redeem their rewards, as evidenced by the estimated 48 trillion loyalty points unredeemed by consumers globally. While this may seem advantageous to the company, these unspent points are persistent liabilities on a business’ balance sheet.

2. Trust 

These token rewards exist on the blockchain. Loyalty points live in a closed database. As a decentralized public ledger, blockchain technology provides a reliable way to store and share reward activity and balances across a network. This means that you can always access your token reward and know exactly what they’re worth. Unlocking this information opens up more ways for customers to be aware, to engage and to use their points, which ultimately reinforces loyalty.

Blockchain token rewards can increase customer trust because they can’t be changed, erased, or expired by the issuer. One of the powers of the blockchain is the ability to employ smart contracts that can embed the rules of the loyalty program so they are transparent and automatically executed. These “smart contracts” written onto the blockchain directly control the transfer of digital currencies or assets between parties under established conditions. All transactions get executed by the blockchain protocol and stored on the blockchain (making for much easier and more reliable accounting). Customers get end-to-end traceability of their tokens and can access the entire transaction history at any time.

When a new transaction occurs (say, when a loyalty token gets issued, redeemed, transferred or exchanged), a unique token is created and assigned to that transaction. Tokens are grouped into blocks and distributed across the network, updating every ledger at once. New transaction blocks are validated from multiple “nodes” and linked to older blocks, creating a strong, secure, and verifiable record of all transactions, without the need for intermediaries or centralized databases. The high level of security built into the system guards against fraud, data breach or hacks.

Leveraging blockchain infrastructure, businesses can use digital tokens to support transparent, immutable and frictionless transactions that unlock new channels for customer engagement.

3. Flexibility and Liquidity

Blockchain token rewards give customers increasing possibilities to gain or exchange value.

For example, you can spend RUBY tokens on in-game products or access new levels of virtual experiences instantaneously. You can also redeem tokens at various partners within an ecosystem using a digital wallet application. The interoperability of tokens means many vendors can participate in a program, offering a broader range of goods and services, and giving customers more options to redeem. The more partners involved in the program, The more options are available to customers, creating a greater emotional connection to the brand. 

Aside from enabling new ways to purchase products and services, many tokens can be traded on an exchange and converted to other currencies. This means that customers can easily and immediately track and exchange valuable loyalty reward tokens into other cryptocurrencies or even their local fiat currency. This fungibility adds tremendous value. With token rewards, you could actually pay your phone bill. Blockchain tokens are also transferable to anyone with a digital wallet. Essentially, tokens allow customers to engage their rewards in more dynamic ways.

Loyalty points are only redeemable for products and services, usually localized to the business that issued them. Except for a few credit card programs, loyalty points often have no real cash value. Inflexible program rules also prevent members from transferring points to friends or family or between different loyalty programs.

4. Better UX

The speed and agility of blockchain tokens give businesses the ability to create richer, seamless and more enjoyable customer experiences. Token rewards are responsive and instantaneous, and customers can use them right away. Faster feedback loops help customers see the dynamic causal relationship between loyal action and loyalty reward. Customers don’t have to wait to accumulate points that will finally earn them a future reward for their immediate contribution. Their value is apparent.

Because blockchain is an internet-native technology, people can access and use their token rewards straightaway, from anywhere, using their mobile or web devices. Customers can automatically redeem rewards that are virtual in nature (digital access to music, videos, art; and financial access to discounts and cashback), or in person, with participating merchants.  

Tokenization allows program members to develop new forms of value exchange within a network. By allowing customers to use loyalty rewards for purchases with different merchants rather than confining their redemption to the company, businesses can create more rewarding experiences for their customers.

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. 

5. Interaction

Blockchain tokens can stimulate more varied and frequent interactions. The traditional loyalty point programs often overlook the fact that customers help businesses grow by participating in ways other than just spending. Consider the value of a good public review, recommendation, or a brand evangelist who’s happy to share the company story in a post to their social networks. These types of activity cannot be incentivized with points, whereas tokens can generate new value, access to unique experiences and status for the user. Value-driving activities can all be immediately rewarded with tokens.

Tokens can be issued for every small, value-enhancing action that should be rewarded and reinforced. Customers can receive positive feedback in the form of valuable tokens as often as they engage in loyal activities. This is a game-changer as users are able to effectively turn the value of their online participation into a financial asset and strengthen their emotional connection with the brand.

6. Relevance

Blockchain tokens can create experiences that are more relevant for customers. Earning a meaningful reward that can be redeemed or traded, that doesn't expire, and has a value that can be easily understood, is gold. While loyalty points depreciate over time, tokens can become a store of increasing value, thanks to their potential for use and redemption in both local and global markets. Tokens are an asset that often appreciates in value as the network grows, so customers actually have a stake in driving loyalty.

Blockchain technology can be employed to make rewards and recognition more meaningful to the individual while significantly reducing the overall administrative labor through the use of smart contracts. For example, you could write a contract into blockchain token codes that direct a percentage of transactions to eco-conservation. This would resonate with the environmentally-conscious customer.  

Because token holders can use their rewards in diverse ways (including purchases of tangible products and intangible experiences, exchange, and transfers), they’re invited to participate in defining what’s valuable and meaningful for them. At the same time, businesses can gain greater insight into the ways their customer's transfer value in their token activity, and so be able to customize experiences that are more engaging.  

Conclusion: Blockchain Tokens Empower Users

We live in a world of dynamic interconnectivity. Businesses that operate traditional points programs may be uncomfortable with the disruption that blockchain token rewards pose. But by giving customers ownership and control, and building on trust of open records, companies can establish a rewards program that cuts costs, reduces errors and heightens customer experience with more frequent engagement.

Empowering customers with secure, diverse and immediate redemption options across multiple vendors requires a progressive, collaborative, community- and customer-centric approach. At Ruby Play Network, we’re embracing the RUBY token as an innovative way to engage, reward and retain customers, and help businesses grow, within more dynamic ecosystems. 

Join the Ruby Play Network community today to chat with other players, ask questions and get chances to win RUBYs.

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This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.