Wednesday, September 28

Brands must tokenize their loyalty and rewards programs.

The adoption of non-fungible tokens has served as a practical entry point for users joining the crypto economy, driven primarily by their respective fandoms and the profit-focused nature of tokens. For example, if you’re a Lebron James superfan, you can understand why “The Block” from the 2016 NBA Finals is valuable in NBA Top Shot without understanding the blockchain. But when it comes to brands, stablecoins are likely to become the biggest entry point.

Reimagining reward points

Selling to existing customers costs brands less than acquiring new ones, which is one of the main reasons why more than 90% of companies I have some kind of customer loyalty program. Reward points are one of the most effective methods of increasing both customer loyalty and revenue. For example, Starbucks Rewards is one of the most successful rewards programs out there. It has more than 19 million members, with the exchange of points responsable for almost 50% of the company’s income. Starbucks uses Starbucks Rewards to align with its business goals in a way that adds value and increases customer engagement through a fun, gamified approach.

Starbucks’ approach to reaching the masses is very different from Neiman Marcus’s, which focuses more on status and exclusivity through its VIP tiered rewards program InCircle. As an InCircle member levels up, they unlock access to concierge services that help clients plan extravagant vacations or attend requested events. Effective loyalty programs aren’t a one-size-fits-all solution, but a carefully designed program can do wonders for revenue, engagement, and retention. The evolution of digital assets now allows brands of any category to offer their consumers a unique and memorable experience.

Related: Understand the systemic shift from digitization to tokenization of financial services

The limitations of loyalty and rewards programs

While loyalty and rewards programs are undeniably an essential component of the consumer-brand relationship, they do have their limitations. Complexity, lack of liquidity and interoperability are some of the main obstacles to expanding loyalty and rewards programs to more customers. The lack of clarity around the rules of the program leaves a lot of value on the table.

According to a report Posted by Clarus Commerce, 75% of consumers want to be rewarded for their commitment beyond their purchase. This alone indicates the need for innovation and creates a great opportunity for brands to revolutionize the loyalty business.

When it comes to liquidity, the use of most points and rewards is limited to their respective brand ecosystem; consumers cannot redeem them at another company. Hotel brands such as Hilton, Hyatt and Marriott allow points to be use as effective within a certain threshold. However, this is only allowed during hotel stays, and in most cases, points are valued differently than dollars. Not to mention issues like blackout dates or the limited number of rooms available for points. Because these programs lack interoperability, the dots get trapped behind a walled garden, restricting the movement of value. Impeded value transfer and lack of communication between programs result in less customer engagement and, in some cases, void points.

If point systems were more like cash in their ability to spend, they would be much more successful. Despite these varying degrees of liquidity, what seems clear is that the brands that adopt this change seek to capture the attention of the consumer by introducing the greatest possible flexibility in the use of the point currency.

Enter: branded stablecoins

A branded stablecoin is a price stable digital asset issued and backed by specific brands, companies or institutions or groups of them. Brand-name stablecoins, which can be directly integrated into consumer-facing applications, offer brands a novel way to connect directly with customers and gain insights to regain market share from competitors. Because blockchain and cryptocurrency are still foreign concepts to most consumers, it is essential to have a seamless experience where users don’t even realize that blockchain technology is powering the system.

Related: Cryptocurrency and the rise of the user-generated brand

Enabled by secure and transparent decentralized accounting technology, branded stablecoins provide marketing intelligence to brands on who their biggest fans are. At the same time, the branded stablecoins incentivize and reward customers for their loyalty. Brands can store users’ purchase history on the blockchain and then apply the associated savings to their purchases in the future. It’s similar to loyalty points, but less complicated, more liquid, and ultimately more useful. Other features could include eliminating the need for a credit card or even providing interest on brand name stablecoin savings to incentivize customers to keep.

A bumpier entrance ramp before take off

Even though branded stablecoins are a step in the right direction, tokenized reward systems remain a form of centralization. A third party, in the form of a brand, bank, or both, may be present to achieve one-to-one stability, bridging the gap between traditional finance and cryptocurrencies. The advantage of this centralization is that it potentially presents a more intuitive experience for the user, where he does not have to download different applications or acclimate to a new process. However, brands might have to make a difficult choice between a centralized, frictionless user experience or a decentralized on-ramp with more bumps.

You also have to take into account the bottom line of the brands: minting and redemption costs can be high due to expensive gas fees. Combined with brand compliance, auditing and operational costs, and combined with interoperability with legacy banking systems, this could present costly barriers to entry. The uncertainty of the regulations makes the waters even more murky. Brands may need to decide to take a loss up front to delay future profits. These are nuanced mission-critical decisions that brands will have to make.

Consumers feel empowered and perceive greater value when they receive money on their app instead of receiving points. For many, brands are a symbol of identity. Let’s say Gucci identifies you as an ambassador and launches Gucci tokens at you as a thank you for posting positively about the brand on social media using your public tag “GucciCoin.” If you own a certain amount of “GucciCoin”, you can gain access to an elite community, be it a physical space (an exclusive event, concert, in-store showroom, etc.) or an online one.

Related: Haute Couture becomes NFT: digitization at Paris Fashion Week

Maybe you even get access to limited or advanced edition products that others won’t, and receive an NFT that lets you show your status. Brand name stablecoins are beneficial to brands and customers as they allow consumers to show their support while brands increase engagement and loyalty.

Brand name stablecoins provide a gateway to an interoperable, fluid, and frictionless future. One day, perhaps not so far away, a customer will have a digital wallet full of all their favorite brands, a global ecosystem that will open the floodgates for mass adoption.

This article does not contain investment advice or recommendations. Every trade and investment move involves risk, and readers should do their own research when making a decision.

The views, thoughts, and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Michael Gord is the managing director of the DigitalBits Foundation and founder of GDA Capital. He has contributed to some blockchain ecosystems, including TRX, LRC, and ONT. He also served as the first enterprise blockchain developer at Toronto-Dominion Bank (TD Bank Group), one of the largest banks in Canada.