This article was first published on Medium
Lacking fungibility, 48 trillion unspent loyalty points is a God-sent opportunity for blockchain. Blockchain may be the Holy Grail of loyalty programs that can potentially harvest almost a trillion dollar worth of loyalty points sitting idle.
Source
First launched by American Airlines in 1981, frequent flyer (loyalty) programs (FFPs) have become the most successful marketing innovation in history. Hospitality industry followed suit, and Holiday Inn became the first frequent guest program in 1983. Taking the cue from airline and hospitality industries, National Rental Car introduced the first frequent car-rental program in 1987. The rest is history.
Instead of marketing being a cost center, loyalty programs transform marketing into an incredible profit center. In fact for most airlines, their FFPs are more profitable than their core business. This is because other businesses rent their brand, and buy their mailing list and loyalty points.
Airline loyalty programs have approximately 288 million active loyalty members, who earn around 3.5 trillion points annually. By far FFPs still constitute the largest chunk of loyalty programs in terms of value.
According to a recent report from McKinsey & Company recent report more than 30 trillion frequent-flier miles are currently sitting unspent in accounts, and as redeeming points is becoming harder, airlines must innovate to reinvigorate their FFPs to ensure that they regain the customers’ affection. McKinsey further makes 8 suggestions to innovate and improve loyalty programs, and concludes:
Customer-loyalty programs risk becoming victims of their own expansion. Airlines must act now to ensure that a profit driver doesn’t become a profit destroyer.
Decentralized ledger technology (DLT), more specifically, Blockchain can overcome all the downsides of the current loyalty programs by introducing economy, security, seamless liquidity and consequently redeemability to 48 trillion unspent loyalty points. At $0.02 a point, that’s almost a trillion dollar brought back into the economy.
It is estimated that airline loyalty programs are cumulatively worth over US$160 billion.
With 288 million total FFP members globally, the net worth of each FFP member is estimated at a whooping $555.55.
Although pioneered by the travel industry, Loyalty programs are now well established marketing strategies designed by merchants to encourage customers to continue to shop at or use the services of businesses associated with each program. These programs cover most types of commerce, each one having varying features and rewards-schemes. Blockchain’s ability to monetize the loyalty points into a liquid cryptocurrency asset has an added advantage of homogenizing the otherwise heterogenous spread of loyalty points across the diverse loyalty business-models.
Much has been published on how companies are embracing blockchain to modernize loyalty program, enhance them, reinvigorate the lags in them, and how airlines have started to use blockchain to unlock frequent flyer miles. However, the following advantages that blockchain can potentially bring to loyalty programs are not found in prior art:
- Blockchain if deployed creatively to monetize user activities can potentially make loyalty programs self-funded and sustainable.
- Loyalty programs can potentially provide the optimal ecosystem for blockchain to generate the much desired currency that complies with all the five generic rules of Ideal Money, more particularly the third rule.
Blockchain for loyalty is a work in progress. Follow me for more on this topic.
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