How cryptocurrency is set to change the customer loyalty program model

New trial using cryptocurrency instead of loyalty points at UNSW highlights the value consumers perceive in earning digital dollars

Cryptocurrency is the biggest game-changer to hit customer loyalty programs since the introduction of frequent flyer points more than 30 years ago.

That’s the view of LoyaltyX CEO and customer loyalty expert, Philip Shelper, who has just completed a trial in partnership with the University of NSW that saw students and staff earning cryptocurrency instead of points in return for day-to-day purchases with merchants across the campus.

Shelper told CMO more than 170 students and staff and 12 merchants participated in the seven-week, ‘world-first’ trial, which was backed by the NSW Government via its Boosting Business Innovation Program.

Participants signed up to a Web-based application designed for Unify Rewards’ cryptocurrency program and earned a digital stamp for each purchase, tracked via scannable barcodes. Ten stamps translated to $10 worth of ‘Ether’ cryptocurrency.

Ether is the second-largest cryptocurrency by market cap globally after Bitcoin. PicoLabs also provided scanners for the trial.

Participants were then given four options on how they accessed their Ether currency: Cash it in for a gift card; have the currency directly deposited into their bank account; transferred to another participant; or banked directly and held in an Ether wallet. Shelper said 66 per cent chose to transfer the currency earned into an Ether Wallet, with the majority of remaining students cashing it in via their bank account. Just 5 per cent chose a gift card.

Shelper attributed these results to two factors. The first was that the UNSW trial gave consumers the opportunity to earn cryptocurrency without initially setting up a crypto wallet, a somewhat complex process given immaturity of the technology. Ether currency being earned at UNSW was held in trust by LoyaltyX, which meant only participants wanting to trade or save currency long-term were required to set up an Ether wallet.

“Secondly, there has been a lot of media speculation about cryptocurrency being a bubble and risky,” Shelper said. “Earning currency without having to spend their own money made it a desirable proposition.”

Notably, students who chose to keep their Ether rather than cash it have seen its value rise by about 450 per cent, Shelper said. During the seven weeks, participants saw their Ether balance increase in value by 30 per cent.

Introducing cryptocurrency also changed participant purchasing behaviour, UNSW associate professor of the School of Computer Science and Engineering, Salil Kanhere, said. Over the trial, 83 per cent adapted their spending patterns in order to earn more cryptocurrency.

“There was a lot of buzz among students – many had heard of cryptocurrency but not owned any of it,” he said. “The set-up suggested people are receptive to this and owning it engages people more as well as encourages them to spend more.”

Changing the nature of customer loyalty value

For Shelper, introducing cryptocurrency into customer loyalty programs will transform the very nature of the industry. Prior to establishing his own customer loyalty program consulting business, Loyalty & Reward Co, Shelper spent several years on the Qantas Frequent Flyer program.

Labelling himself a “loyalty historian”, Shelper noted the predominant form of generating value within loyalty programs today is to offer miles or points, a concept first introduced in the 1980s.

“Periodically, there’s a dominant loyalty currency that takes the market, then gets superseded by something superior. That generally relates to better value,” he explained. “The reason you join the programs is you thought you’d get value out of doing so. And the reason you continue to engage with these programs is because you feel you’re getting value of it.

“Crypto is the opportunity to hit the reset button on loyalty… the reason crypto has so much potential is because they create better value to members.”

Shelper has established LoyaltyX to explore these new loyalty operating opportunities.

One of the problems with points or miles is that they’re only redeemable on the products the loyalty program says you can use them on, Shelper continued. Another issue is points expire over time. On average, about 20 per cent of points expire every year. A third issue is that points over time often lose their value, or are devalued by the company supplying them.

“Crypto solves all of these problems. They don’t expire, and can be used anywhere or be transferred into cash,” he said. “But the most exciting part is the value. Unlike a points program, where brands can create as many points as they like, there is a finite amount of cryptocurrency. So as demand increases, the price and value of currency increases as well.

“If more retailers provide an opportunity earn this currency in a loyalty program, and more members are using it, then the value increases and everyone benefits.”

This doesn’t mean more risk to the program loyalty program provider, however. For example, what merchants have done historically when acquiring third-party miles or points, is used a percentage of the total purchase price of what a consumer buys to cover the cost.

“With crypto, the same dynamic applies,” Shelper said. “Rather than earning 2 crypto coins, you’d earn 3 per cent of the value of the transaction. The program operator takes that 3 per cent and buys currency from a crypto trading exchange.

“Because you’re providing a set amount based on what customers spend, the only thing that changes is how much crypto currency a member receives.”

Ultimately, Shelper saw the rise of cryptocurrency in loyalty programs as a way for the next-generation banking system to build a mass market presence.

Having cryptocurrency rather than brand-specific points or miles does raise branding questions, too. But Shelper noted coalition loyalty programs in existence today, such as Nectar in the UK and Fly Buys in Australia, which run across multiple merchants using a shared currency.

“We think in the first instance the opportunity for us to build that kind of program,” Shelper said.

The LoyaltyX team has recently been to the UK and is working with investors to raise seed funding to help launch its cryptocurrency-based customer loyalty program offering later this year.

The wider potential of blockchain

So what happens to the customer data being gained through the program? Shelper said this is where things get even more exciting. Specifically, he suggested blockchain’s role in the experience economy will transform the way brands and consumers interact.

“Blockchain marketing is really going to change the world on its head. What this does is allow customers to hold all their data on the blockchain, and have control over who accesses that data,” he said. “For instance, a customer might join the program and transact with different retailers. All that product data is captured within their account. They can then choose to receive different options and receive cryptocurrency payments for receiving those crypto ‘bonuses’ for taking up those offers. But if they don’t want to receive those offers, they don’t have to.”

Blockchain could in, turn, change the nature of how customer loyalty data is captured and used by marketers in any customer activity.

“This allows customers to build up and sell their own data to the companies they want to, rather than the data being purely exploited by those brand partners.”

Over at UNSW, the loyalty program trial is one example of a range of activities being instigated around cryptocurrency, blockchain technology and how both can be applied to consumers and businesses. The university recently established a blockchain interest group across all faculties, and is running fortnightly seminars led by internal and external speakers to further knowledge around the burgeoning technology. It’s also looking at the feasibility of building a dedicated blockchain research centre.

One technology-based project, meanwhile, see the computer science faculty looking into the application of blockchain for the Internet of Things.

“Scale is a big problem in terms of management with IoT,” Kanhere said. “The underlying blockchain is a nice solution for this, so we’re looking at developing a framework for how to use blockchain to scale and manage IoT connected devices.”

Follow CMO on Twitter: @CMOAustralia, take part in the CMO conversation on LinkedIn: CMO ANZ, join us on Facebook: https://www.facebook.com/CMOAustralia, or check us out on Google+:google.com/+CmoAu

 

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