In the past, even as little as a few decades ago, it was enough for a company to create a great product or service to get a lot of customers and become very profitable.
These times are gone. Today a company will announce a new product and several days later eBay and other online marketplaces will have a number of knockoffs.
The manufacturing industry has been developing rapidly and being able to manufacture an excellent product is no longer an advantage it once was because competition can also manufacture great products. Initially, Wal-Mart was able to grow very quickly because of its unique and efficient distribution system. The company was able to get products to its stores faster and cheaper than its competition could get the products to its stores, but today this is also no longer an advantage in business with giants such as Amazon being able to ship products faster and cheaper than anybody else.
For these reasons, what is becoming more and more important for all types of business is building a relationship with customers. Amazon may be able to ship products extremely fast, but it can’t replicate a personal relationship that a yoga teacher at a local yoga studio can have with his or her students. In building relationships, it is important for businesses to create loyalty and rewards programs and to communicate with the customers directly.
With many of such programs today, the conditions and benefits are not clear to the customers, tracking is a lot of work, and giving customers access to their status in a loyalty program is complex from the technological standpoint. Blockchain technology can help with all these issues.
How blockchains can help with loyalty programs: a 10,000 foot view
Bitcoin has been the first blockchain network to gain a large adoption. Satoshi Nakamoto has launched the network in 2009. Bitcoin has proven that it is possible for a blockchain network to become a peer-to-peer solution for financial transactions, yet this is all the Bitcoin network is – a pure financial network.
Vitalik Buterin has launched the Ethereum network in 2015. In addition to being able to process financial transactions, the Ethereum network also has Ethereum Virtual Machine, which can run computer code on the network.
Practically speaking, this means that the Ethereum network can run smart contracts, which are combinations of “if then/or else” logical statements and computations related to them. The Ethereum network works not only with computations performed on the network, but also with external data. It does so via a tool called oracle. An oracle on a blockchain network is software that finds and verifies necessary information and then submits it to the network. For example, if a farmer were to have a contract with an insurance company and the contract were to say that the farmer would get a payment in case of a draught, defined as no rain for X days, then the oracle could collect the information about rain from a weather service.
Smart contracts and loyalty programs
In essence, any loyalty and rewards program is a series of “if/then” statements just like smart contracts are on the Ethereum network. For example, “if you buy five cups of coffee and get a stamp on your loyalty card each time you are doing so, then you will get a reward” is a statement that is extremely easy to program in computer code. It is also extremely easy to run such a code on a blockchain network.
Doing so would provide merchants with all the benefits of blockchain technology, including transparency and decentralization.
Transparency in the case of loyalty programs would mean that both customers and merchants would know the exact status of any customer at any time. Anybody and everybody would also know the rules of loyalty programs.
Decentralization and immutability of records would mean that customers would have increased trust knowing that nothing will happen to their data. This trust is extremely important after all the hacks of big name companies that have been occurring in the recent years, including the hack of Equifax, theft of the customer data from Uber and theft of payment information from Target customers.