Exploring Blockchain Technology to Enhance Loyalty Programs

Published : Aug 18, 2020

loyalty programs blockchain

  • Using a loyalty program ensures increased repeat purchases, customer retention, and a loyal following of brand advocates. It has always been one of the most beneficial marketing strategies for diverse industries. However, there is a rapid decline in the participation of customers in traditional loyalty programs due to multiple challenges. Key players believe that loyalty programs and solutions built with emerging technologies like blockchain can revive the potential. Our experts at Oodles believe that blockchain with cryptocurrency and smart contract development for a loyalty program solution can be a significant growth enabler.

    Let us understand the challenges that preclude the widespread adoption of traditional loyalty programs and solutions that blockchain provides.

    Blockchain in Loyalty Programs Management

    Monthly Reward Points Issuance, Not in Real-Time

    Inside a digital, real-time economy, most customers often receive reward points at the closing of the statement only once a month. Then, they will have to wait several weeks to receive a purchased product or service. The unmanageable and lengthy reward redemption mechanism requires customers to visit a third-party site to find out the best deal from a small selection of pre-approved merchants themselves. The combination of slow accrual, an underwhelming range, and disappointing delivery tends to minimize the anticipation associated with purchasing a reward, and these difficulties raise the likelihood of depletion of customers.

    With blockchain and smart contracts, providers can locate the accounts of their customers on the shared ledger, and automatically credit them with reward points based on real-time transactions. It also improves the overall ability to make higher-value purchases without requiring any third-party website while enabling flexibility in using loyalty points within a collaborative marketplace without restrictions.

    Inefficient Reward Redemption

    Among them are challenges associated with redeeming points before they expire, and maintaining records of various loyalty programs.

    Blockchain lets a customer collect all loyalty points in a single crypto wallet instead of attempting to manage different programs. There will be no specific guidelines, as is currently the case, for gaining and redeeming points from various loyalty programs.

    This lack of friction, in effect, enables consumers to swap tokens and discounts or incentives with several different companies. 79 percent of participants said in a global loyalty survey that they find it attractive to choose from many forms of rewards.


    When businesses have confidential private data, the information will not be stored on the blockchain but will remain on existing systems that can communicate with the blockchain. All the requisite information reside on the ledger for Network members. It can lead to loyalty scam reductions.

    Costly Programs

    One obstacle to expanding reward services is that it takes time and money to do so. The risk will be much smaller with a distributed ledger. The benefits may pass on to the company in the form of having a lower minimum balance for the redemption of bonus points or more beneficial consumer interactions.

    Limited Business Opportunities

    Additionally, retailers may give customers digital cryptocurrency tokens built with, for instance, ERC-20 as a means of payment (and a potential revenue opportunity) to purchase items. Consumers may also use a digital token won at a coffee shop to buy a toothbrush at a pharmacy, for instance. Blockchains allow for fungible digital tokens, creating a new, more efficient digital loyalty economy.

    Ineffective Brand Awareness

    Blockchain-powered crypto tokens will also allow customers to send and receive rewards to and from one another. Thus, customers can easily share and offer their reward cup of coffee with their friends or family members, increasing awareness of the brand.

    Non-Customizable Rewards

    Blockchains also make it easier to gather and store more consumer data in a more efficient way. It can assist retailers in gaining more competitive insights into their customers and providing more tailored loyalty packages that suit user desires and purchase history.

    Improve Current Network or Develop a New Infrastructure

    When a business implements a new technology operating system, it must weigh the costs and benefits of "build versus buy."

    At Oodles, our experts suggest that "buy" is the appropriate option for a loyalty rewards service provider. It is prudent to focus and concentrate on the experience and expertise of the consumer base (and expansion) instead of creating a new technology platform. Multiple technology players have paved specific blockchain paths to different types of business operations, especially in financial services, through the development of distributed ledger systems based on a protocol built by leaders in space, like Ethereum. Leveraging this expertise through some form of partnership would be an optimal scenario.

    Also, stakeholders can either set up blockchain-based innovation labs with proof of concepts that appeal to their employees. They, they can exploit them as templates for proven protocols to lend consumer loyalty services integrated for blockchain-based loyalty networks. Or, they may work collaboratively with other loyalty reward programs organizations to develop solutions that could become industry standards. We recommend the latter as the "consortium approach" with blockchain development platform providers like Hyperledger and R3.

    Also, read | A Comprehensive Guide To DLTs and Types of Blockchains

    Public or Permissioned Blockchain

    Theoretically, loyalty program service providers can develop their platform either on a public or a permissioned distributed ledger. The public blockchain is not a viable option given that it is open-source. It prevents the control that providers of loyalty programs may want as rewards issuers.

    Loyalty rewards providers achieve degrees of transparency and control within a permissioned blockchain. But, it also depends on the balance required for scalability and cross-company and cross-industry participation.

    Also, read | Maximizing the Efficiency of Loyalty Rewards Program Management with Blockchain


    Incentive programs powered by blockchain technology will radically enhance loyalty management for businesses. It will augment redemption rates, boost repeat customers, and provide an immersive experience for retailers and customers. Blockchain technology is the ideal bridge between customers, retailers, and companies. It creates enhanced, more personalized incentives and helps achieve the unfulfilled promise of the brand loyalty programs today.

    Oodles is a blockchain development company that also develops loyalty program management solutions, apps, and websites based on blockchain technology. Connect with our blockchain experts for more information.

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