Conventional retail loyalty schemes offer little value for consumers or businesses. A blockchain reward system can change that, as well as address the far more profound problem of inequality and lack of access to good investments.
Conventional loyalty doesn’t work. A slew of research points to the same picture, time and again: while customers like the idea of collecting loyalty points with their purchases, the reality rarely offers significant value to either them or the businesses that issue these points. The average American household has signed up to 18 loyalty programmes, but is active in less than half of these. Anecdotally, the proof of the problem is in the unused cards forgotten in wallets or gathering dust in drawers at home.
There are good reasons for this lack of uptake. The math of traditional loyalty is a zero-sum game. Reward points are issued as IOUs – meaning that every time a business gives a customer a loyalty point, they take on a potential future liability. If too many customers redeem too many points at once, the business takes a damaging hit to its cashflow. Historically, the most successful loyalty programmes have been Air Miles, because the cost to the airline of a seat on a plane that would otherwise remain empty is very low, while its value to the consumer is high. However, most businesses don’t enjoy these dynamics. The cost of every free sandwich or coffee will eat into the bottom line for a low-margin business in the hospitality sector, for example.
And so businesses find ways to reduce the utility of the points they issue and make customers less likely to redeem them. Points are typically non-transferable; they may expire after a few months; they may be used to buy only certain goods and services, or only when a larger purchase is made. Incent Loyalty characterizes this dynamic as “closed value,” as opposed to truly valuable “open value” systems, analogous with closed source software. The result is, predictably, that customers don’t feel they are getting something worth spending, so businesses don’t get the benefit of their repeat custom. It’s lose/lose. Add to this the fact that most loyalty programmes operate on 20th or even 19th century technology – there are few mobile phone apps, and stamped-card systems are still common among small retailers – and it’s no surprise that consumers just can’t be bothered.
A blockchain-based system offers something very different. The core properties of blockchain lend themselves to a radical new approach to loyalty. Cryptocurrencies are open, transparent, transferable, and can be traded on the secondary market – something simply not possible for the vast majority of traditional loyalty programs. Blockchain has the potential to realize the true market value of loyalty points for users, rather than locking them into an artificial “market” for their rewards.
It is quite possible to re-create conventional, IOU-style loyalty on the blockchain, gaining advantages of efficiency and speed in the process. But the open nature of blockchain holds out some qualitatively differences, too. Instead of the fiat-style points that can be issued ad nauseam by businesses like a central bank issues currency, a Bitcoin-like “digital gold” approach is possible. Instead of points being inflationary, fixed supply can be built in, with points bought and sold on the open market on issuance and redemption.
This presents an entirely new concept: a rewards system that builds wealth as consumers go about doing their everyday shopping, placing increasing demand on the currency as the ecosystem expands.
Challenging the Status Quo
It will not come as a surprise, however, that businesses are wary of mothballing their existing closed-loop loyalty mechanisms. They have invested many dollars in these, and ahead of any evidence to suggest that a new technology will enhance their bottom line, they are inclined to be conservative. The risk they perceive in an open-loop alternative is that value might leak away, as customers exercise the freedom it affords to bank or spend the reward value they accrue elsewhere. This is essentially why blockchain has thus far failed to penetrate a sector crying out for disruption. The logical conclusion is that to catch the attention of commerce, any innovation in this space must first be proven to resonate with consumers.
In this respect, it is instructive that Millennials are the demographic that has proven most interested in cryptocurrency. They have suffered as the global financial crisis led to austerity, higher taxes, and lack of employment. At the same time, the quantitative easing that was the policy response to the crisis has inflated stocks and priced first-time buyers out of the housing market. There are few ways for Millennials to gain a return on their investment. Now, as a series of economic indicators signal another recession looming, it looks like they will be required to bear more pain for the mistakes of their parents’ and grandparents’ generations. For a tech-savvy cohort with few other options, crypto is an attractive investment.
With these factors in mind, a team in Sydney, Australia, held a crowdfund late in 2016 and have since been focused on developing complementary technologies that bring the potential of blockchain loyalty to life in the minds of consumers – particularly Millennials.
The first, named Engage, allows anyone to reward any digitally trackable event with a micropayment of crypto. First piloted commercial with the eSports promoter Gfinity, where it doubled audience engagement, Engage is now being piloted with individual streamers to even more powerful effect. Once Incent’s API is opened up, its potential to disrupt the attention economy is profound. Any brand or publisher will, through any media, be able to connect with and reward their audience seamlessly and with real value.
The second is Blink, which leverages Open Bank API technology to reward users frictionlessly with cryptocurrency against any expenditure, at the bank level. Currently under pilot and scheduled for mainstream release in June, Blink has the potential to drive commercial interest through a consumer audience determined to build real wealth through their consumption decisions.
Unsurprisingly, perhaps, the successful pilot of these technologies has attracted interest from global brands in the conventional loyalty and financial services sectors. More broadly, the impact of growing awareness can be seen in the steadily rising valuation of INCNT, the crypto fuelling these technologies and the Project.
Bear markets have a Darwinian effect, killing off weaker projects and leaving only higher-quality initiatives to start the next market cycle. As the long crypto winter starts to show signs of giving way to spring, this is one token that is well worth a look.
For more information, visit www.IncentLoyalty.com.
Guy is a writer and communicator with over 5 years of experience in the blockchain and cryptocurrency world. He has been involved with a number of crypto platforms and projects.