A Year Ago

Consumer brands and retailers are under continued pressure from many different sides concurrently.

Consumer brands are experiencing increased competition from Asian manufacturers and, at the same time, they are often suffering because of information asymmetry with ever-larger distribution and retail partners. Large organisations, like Amazon and, online German fashion retailer,  Zalando, collect and control the data regarding customer behaviour, pricing and product preferences.

The high street is also battling the online retailers, which often have an advantage in terms of operating costs, range of products and potentially most important of all - “data”. Meanwhile, online retailers are in a “race to the bottom”, with price comparison services making it difficult to price products above the lowest price, while service levels and reputation goes largely unnoticed by the consumers. Furthermore, online retailers are also struggling with distribution costs, especially due to the high rates of returns which, for fashion retailers, can be as high as 40%. Online business is growing fast and in the USA it now accounts for over 30% of sales for retailers like Nordstrom and Macy’s.
In response to these challenges, consumer brands are increasingly looking to expand their geographical market reach, to raise their brand’s profile and to collect more data from consumers directly.
Blockchain technology can help consumer brands to accomplish some of these goals. For instance, by incentivizing consumers to scan tags on products, consumer brands can accomplish several things at once:
Provide more information about the product such as provenance data and exclusive content, with the intent to increase the brand value
Collect data directly from the end user e.g. through surveys and quizzes
 Reward brand loyalty e.g. through loyalty programs or cashback.
 Incentivize consumers to refer the brand and products to their friends
Create cross-selling opportunities e.g. selling insurance or service agreements
Blockchain technology can ensure that reliable data is provided, e.g. regarding provenance, and makes these reward-based marketing solutions cost-efficient, even when “rolling them out” on a global basis. No more need to deal with multiple local currencies and no need to run a complex system to manage the loyalty program balances and transactions. All data is securely stored on a Blockchain, and interoperability between the various systems is possible. For example, Loylogic, which was established in 2005, has a global network of more than 500 retailers and 2,000 online stores offering millions of products and services linked to various loyalty reward schemes.
Retailers can benefit from Blockchain technology in much the same way. They can use similar reward-based marketing techniques to improve customer engagement and data collection. High street retailers can incentivize consumers to visit their stores, not by giving discounts, but by providing more value in terms of rewards, more exclusive products and those controlling access to a more exclusive experience. 
For instance, a football shirt sold in a store using Near Field Communication (NFC) can offer exclusive video content from the player, or an exclusive item for an “Esports game”, whereas the same shirt bought online does not come with these value-added features. So, if you want to be Ronaldo in FIFA 20 on your PlayStation, then you have to go to the...

The size of loyalty schemes globally has been valued at $1.94 billion in 2016 and is projected to reach $7.305 billion by the end of 2022.

This represents a growth of 24.73% per annum, as companies desperately seek to attract and retain customers’ attention and their repeat business. Increasing online sales and the impact of technology, as millennials use mobile devices to shop, is helping to stimulate more companies to put additional resources into loyalty programs. But why bother?

Source: Shopify

As the above chart illustrates, if you can retain customers it can lead to a significant increase in revenue. This explains why loyalty schemes are seen as being an important part of the marketing mix for many organizations.

The concept of loyalty programs is thought to go back to the 18th century, with “premium marketing” in America. This was when retailers gave their customers copper coins with their shopping, which could then be used at a later date to make further purchases. However, it was not until 1958, when Green Shield stamps first started to appear in the UK, when those modern loyalty schemes took hold. We have now seen an explosion in the number of loyalty schemes which, in turn, has led to customers being disillusioned and feeling “why bother?”, as it results in them being signed up to a “cornucopia of programs”. However, how often can their loyalty points be redeemed for anything meaningful?

Blockchain technology can help us instead of signing up to dozens of different schemes, a customer can join a network that offers reward points which aren’t just redeemable at one company but are with any business in the loyalty schemes network.

Blockchain technology makes this possible by keeping a record of all of the transactions that can be accessed by the whole network. Instead of having separate accounts for all your airline miles and a wallet overflowing with paper-based cards, which get stamped every time you buy a coffee, a Blockchain platform securely holds and enables the sharing of the data, without breaching data protection legislation. While providing greater security and transparency for customers, for retailers this type of loyalty schemes can also be less expensive to create and maintain. 

Purdue University has developed X-Blockchain, allowing customers to buy goods and services, and be rewarded within a loyalty scheme and receive points. The companies that are part of these loyalty schemes and who pay for the points have access to “shredded data”—meaning any personal or confidential information has been removed. 

Source: Perdue University

Mohammad Rahman, an associate professor at Purdue's Krannert School of Management, and who leads the research team said. "This technology enables two people to confidentially exchange rewards points from perhaps a coffee chain for airline rewards points at a rate that both find acceptable and this is not disclosed to any third party, including our platform." In effect, technology is used to “code data” by removing sensitive information and enables access to the non-private data which is still very valuable for marketers.

Using Blockchain technology in loyalty schemes to collect and store rewards enables customers to redeem their points more easily, and therefore make loyalty schemes more appealing. 

If we are to see Cryptocurrencies being given...

Loyalty Schemes
In recent years retailers have been focusing on loyalty reward schemes as a way to entice their customers and encourage them to buy more.

According to a study by the Harvard Business School, increasing your customer retention by just 5% can have outsized benefits on profits of up to 95%! However, low redemption rates are a big problem for providers of loyalty schemes, as it can result in a lack of engagement. Loyalty schemes are often not that popular with companies’ accounts’ departments as they can create a large, intangible liability on a company’s balance sheet. Loyalty scheme members that do not redeem their rewards are not actively engaged but, on the flip side, members who do redeem points typically spend more and have greater satisfaction with loyalty programs.

According to Mckinsey, US companies spend $50 billion a year on loyalty schemes alone, and if you get it right, loyalty programs can generate as much as 20% of a company’s profits! However, with increasing online shopping, and particularly shopping on mobile devices, consumer retail behaviour has been changing dramatically and reward schemes seem to have lost some of their appeal. Customers often cite the difficulty of being able to redeem rewards and the fact that they may have many different loyalty schemes with few of them operating together. This is where Blockchain technology is able to help bring multiple brands together, offering a wide range of products to consumers in order to redeem their reward points.

Blockchain technology allows a customer to store all points in a single wallet rather than trying to manage these multiple schemes. It would be possible to create a solution enabling all schemes to have compatible rules for acquiring and redeeming points from different loyalty schemes. It is thought that Facebook’s proposed Digital currency, Libra, could be a real boost for loyalty schemes, as it may allow some form of global standard to develop for smaller schemes to then adopt. One challenge Facebook has is that regulators do not like the collection of data from individuals without the user being compensated. However, if Facebook started to pay it’s 2.3 billion users in Libra for clicking on content, it could be a way to satisfy regulators and, in turn, create the world’s BIGGEST loyalty scheme overnight! 

Loyalty schemes using Blockchain technology and Smart Contracts can automate many of the transactions, making the running of loyalty schemes autonomous. Data can be stored in a highly secure manner using a Blockchain platform, enabling the privacy of users’ information, which will increase the trust of the brand among these users. Implementing joint loyalty schemes with other brands becomes easier because Smart Contracts can handle the transferring and converting of reward points while validating users and redeeming these points. Furthermore, the brands/ retailers are not giving up control or access to their most important asset – their customers’ data!


Loyalty Programs

2 Years Ago

Target, who is the eighth largest retailer in the USA, has been working with Hyperledger, IBM, and Bitwise to use Blockchain technology, initially to help it improve its supply chain logistics for a number of its paper products.

Target is also looking at using Hyperledger as it is used by Cargill, who is one of Target’s main food suppliers. In a recent blog, Joel Crabb, at Target said “Working directly with one of our largest food suppliers will allow Target and all other participants to learn from one another as blockchain technologies mature. This also gives us an instant use case in determining which data to share and how to govern a multi-enterprise, blockchain-backed distributed ledger.

Once again, as we have seen in the luxury goods sector with LVMH and the shipping sector with Tradelens, Target is looking to collaborate with suppliers and other parties enabling them to all share their experience and knowledge. This style of “collaborative capitalism”, where independent organisations are actively engaging with each other and sharing information and knowledge, is intended to create a stronger, more robust and transparent solution which will help the market and not just the interests of one organisation. This collaborative style is well summarised by Crabb: Maturity in this space will take time, but we’ll only get there when enterprise partners like Target and Cargill dive in together.

Meanwhile, the third largest retail store in Russia, Dixy, is using Blockchain technology to help it develop an open-trade finance platform, called Factorin. This platform is designed to enable it to engage with factoring firms and help Dixy’s cash-flow management. The Factorin platform has been under trial for a few months and has already processed over 10,000 transactions. It has been developed to help improve efficiency, cut out human errors and speed up payments due to small and medium-sized business - which are estimated in Russia to be valued at $45 billion.

Supply Chain
FlashBoys, in Holland, has been working on a number of initiatives using Blockchain technology to help the retail sector in an effort to reduce fraud and improve transparency in supply chains.

One of the projects that it has developed is to use Near Field Communication (NFC) chips, and have these placed on bottles of wine or within items of clothes. An advantage of NFC chips is that no special equipment is required to read them, just a smartphone, and a product’s provenance can be held on the chip as well as other details, helping to tackle the sale of counterfeit goods.

Indeed, Flashboys is currently in discussions with Luxottica, the world biggest eyewear  manufacturer, to have an NFC chip inserted into a pair of sunglasses. Once the chip is in the sunglasses, it could create a unique token which could have information about the owner stored on a Blockchain. This would hopefully reduce the sale of second-hand sunglasses, as the new owner could easily scan them to see if they have been reported as lost/stolen. Ideas such as these are also being explored by fashion retailers, as they struggle to drive sales to their ‘bricks and mortar shops’ and find ways to differentiate themselves from online sales. One way would be to insert an NFC chip into items of clothes that are only sold in-store and say to customers “if you buy from one of our shops, you will get a discount of another purchase, or you will be able to see who and how your garment has been made”. By using an NFC chip, customers could use their mobile phones and retrieve discounts, and/or access to various different types of information. This could help retailers to encourage customers to use their physical shops more.

Meanwhile, American Express is looking at how it can use Blockchain technology to upgrade the many different loyalty programs it offers. Qiibee, founded in 2015 and based in Switzerland, also believes that Blockchain is a technology ideal for the loyalty industry as it offers brand owners more options and ways in which they can engage with customers, and hence offer them better value and information. Qiibee is trying to address the challenge such as when customers shop with a brand they like, they are rewarded with the branded token, ending up collecting numerous different tokens. These, in turn, are a hassle to use. However, by using the Qiibee platform, they can exchange the tokens they need from someone who requires the tokens they themselves have i.e. swap tokens!

So, it would appear that the retail sector is embracing Blockchain technology in a variety of ways, but I suspect, as this industry had greater adoption, more ways will be found to harness it still further for both on and off-line retailers.

Supply Chain