Independent review by Annich McIntosh, Monday, 13 August 2018 13:20
Book Review: Blockchain Loyalty – disrupting loyalty and reinventing marketing using cryptocurrencies
I remember the first time someone introduced me to Bitcoin and the concept of the blockchain for keeping data secure. It was some time ago now and it seemed crazy, but I have watched while the world fell in love with the idea, which has developed and matured as any precious and capricious child.
Blockchain is now beginning to grow up into a very impressive adult indeed, even outside of currency. The concept is proven for a raft of use cases from supply chain through to medicine. Even for running a repository to test and register different strains of cannabis.
But when will it be the right time for shared distributed ledgers – of which blockchain is one – to take on the thorny job of moving loyalty on of the 1990s and into the present age?
There is nothing fundamentally wrong with loyalty, it is just that many of the systems running loyalty programmes are getting a little old for the job. Getting a distributed ledger to do the background work of storing records, handling the redemption, enabling the customising and personalising of communications and linking programmes seems entirely sensible.
In his book “Blockchain Loyalty – Disrupting loyalty and reinventing marketing using cryptocurrencies”, loyalty professional Philip Shelper takes this idea much further – arguing that a blockchain can create a whole infrastructure with a fluctuating crypto-currency not dissimilar to bitcoins and friends, and which would operate in a similar way, with an exchange, trading and tokens. He suggests that a loyalty management company could launch an ICO (Initial Coin Offering) to raise funds, rather than try to interest early investors, and because regulation is running so far behind developments in cryptocurrency, he suggests all this could be done without having to apply for an electronic money licence. This is because loyalty points are not considered currency, because they are not exchanged for coins (fiat).
It is unfair to cherry pick points from this book which is an extraordinary journey through both the history of loyalty programmes and the development of cryptocurrency. He makes it clear that at the time of writing (the book is only just published and so is bang up to date), there was no loyalty programme that he knew of (or Loyalty Magazine for that matter), that was running on a blockchain, but that it was very much only a matter of time.
The interesting part about the feasibility of blockchain for a loyalty programme, is that it could be as useful for running and securing a simple coffee shop loyalty programme offering a free cup of coffee every nine cups bought, as it would be for a multi-tier airline loyalty programme with a huge number of variables.
Philip Shelper suggests that among the advantages of blockchain would be the novelty factor for customers, the perceived security and trust that a crypto system would bring, the ability for customers get excited by the fluctuating value of their points and the ability for the programme managers to do so much more for their members, in terms of surprise and delight offers, and personalised and valued communications.
Risks and reward
Be aware, that loyalty programmes the world over are watching blockchain developments, waiting for the right time to move. Too early and it could be costly in terms of system failures, reputation damage and trust loss; too late and they will miss the benefits of being an early adopter.
But there are risks. Said Philip Shelper: “Because blockchain loyalty is a very new phenomenon, the clear rules of how to execute are only now being devised. It is very similar to the situation facing early website designers who applied test and learn strategies to determine better homepage design and navigation approaches. Blockchain loyalty doesn’t necessarily make delivery of this principle easier but an ever-developing programme must be embraced to ensure the execution is successful.
Because there was no research available into blockchain loyalty, Philip helped conduct some, and concluded that cryptocurrencies have the potential to be an effective substitute loyalty currency for points and miles, but also, that loyalty programmes could play a key role in mainstreaming cryptocurrency ownership and adoption. One of the reasons he gave was that it is much easier to sign on for a loyalty pgroamme than it is to set up an exchange account to buy cryptocurrency. He added: “Loyalty programmes have the means to delivery digital wallets to be used across a coalition of retail partners to spend cryptocurrency balances, ensuring real world utility also.”
Cryptocurrency ICOs are a very powerful route to funding for new loyalty and blockchain companies. Hoa Nguyen, CEO of EZPos, which raised US$6m in just 41 seconds in its last round, said that after studying peer to peer networks, he realised that by running a cryptocurrency over the top of his POS business he could transform the business into a two sided market (like Uber, Airbnb) in which one side is retailers and the other side is consumers. Hoa strongly believes cryptocurrencies and tokens will replace points and miles as the dominant loyalty currency. His goal is to create a large global network of retailers who reward members with EZToken. EZPos is not the only company working on the concept of the loyalty hub or marketplace and who realises the benefits – to customers of being able to pool points and to retailers of being able to widen appeal.
So blockchain can be used as a way to excite and engage participants, but it can also be introduced so that while theoretically, the whole loyalty industry could be blockchain based, nobody will notice and the consumer need not even know the blockchain is powering the programme. Lets face it, nobody knows how a loyalty system works today.
Shelper concludes that while there is no reason to question the concept of loyalty, which has stood the test of time, the core problem is that of a lack of value in today’s loyalty indsutry, excessive saturation and homogenisation, and unrelenting marketing assault.
“The industry is certainly ripe for disruption and cryptocurrencies and tokens are the biggest opportunity to do so since the invention of the frequent flyer programme in the early 1980s,” Philip says.
Because of the fast pace of change in loyalty blockchain developments and cryptocurrencies, Philip has every intention of updating this book regularly.