Brands need to symbolize their loyalty and rewards programs

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The introduction of non-fungible tokens has served as a convenient entry point for users joining the crypto economy, mainly driven by their respective fandoms and the utility nature of the tokens. For example, if you’re a Lebron James superfan, you can understand why “The Block” from the 2016 NBA Finals is valuable to NBA Top Shot without understanding the blockchain. But when it comes to brands, stablecoins are likely to become the biggest entry point.

Rethink award points

Selling to existing customers costs brands less than acquiring new customers, which is a major reason why more than 90% of companies have some kind of loyalty program. Reward points are one of the most effective ways to increase both customer loyalty and sales. Starbucks Rewards, for example, is one of the most successful rewards programs ever. It has more than 19 million members, with point redemption accounting for nearly 50% of the company’s revenue. Starbucks uses Starbucks Rewards to align its business goals in a way that creates value and increases customer loyalty through a fun, playful approach.

Starbucks’ approach to reaching the masses is very different from Neiman Marcus, who is more focused on status and exclusivity through its InCircle VIP tier rewards program. When an InCircle member climbs the steps, they unlock access to concierge services that help customers plan extravagant vacations or attend coveted events. Effective loyalty programs are not a one-size-fits-all solution, but a carefully tailored program can do wonders in sales, engagement, and loyalty. The development of digital assets now enables brands of every category to offer their customers a unique and unforgettable experience.

Related: Understand the systemic change from digitization to tokenization of financial services

The Limits of Loyalty and Reward Programs

While it is undeniable that loyalty and rewards programs are an integral part of the consumer-brand relationship, they have their limits. Complexity, lack of liquidity, and interoperability are some of the major barriers to expanding loyalty and rewards programs to more customers. The ambiguity of the program rules means that a lot of value remains on the table.

According to a report released by Clarus Commerce, 75% of consumers want to be rewarded for their commitment beyond the purchase. This alone signals the need for innovation and offers brands an enormous opportunity to revolutionize the loyalty business.

When it comes to liquidity, the use of most points and rewards is restricted to the respective brand ecosystem; Consumers cannot redeem them at another company. Hotel brands like Hilton, Hyatt and Marriott allow the use of points like cash within a certain limit. However, this is only allowed during hotel stays – and in most cases points are valued differently from dollars. Not to mention issues like blackout dates or the limited number of rooms available for points. Because these programs lack interoperability, points are trapped behind a walled garden, which limits the movement of values. Impaired value transfer and a lack of cross-program communication lead to lower customer loyalty and in some cases to invalid points.

If point systems were more similar to cash in terms of their spending ability, they would be much more successful. Despite these varying degrees of liquidity, it seems clear that brands embracing this shift are trying to grab consumer attention by introducing as much flexibility as possible in the use of point currencies.

Enter: branded stablecoins

A branded stablecoin is a price-stable digital asset that is issued and supported by specific – or groups of – brands, companies or institutions. Branded stablecoins, which can be embedded directly into consumer-oriented applications, offer brands a novel way to get in direct contact with customers and gain insights in order to regain market share from competitors. With blockchain and cryptocurrency remaining an odd concept for most consumers, it’s important to have a seamless experience where users may not even notice that blockchain technology is powering the system.

Related: Cryptocurrency and the rise of the user-generated brand

Made possible by secure and transparent decentralized ledger technology, branded stablecoins provide brands with marketing information about who their biggest fans are. At the same time, branded stablecoins offer incentives and reward customers for their loyalty. Brands can store users’ purchase history on the blockchain and then apply the corresponding savings to their purchases in the future. It’s similar to loyalty points, but less complicated, more fluid, and ultimately more useful. Other features could include eliminating the need for a credit card or even providing interest on branded stablecoin savings to encourage customers to hold onto.

A bumpier driveway before the start

Although branded stablecoins are a step in the right direction, tokenized reward systems are still a form of centralization. A third party – in the form of a brand, a bank, or both – can be present to provide one-on-one stability and bridge the gap between traditional finance and crypto. The benefit of this centralization is that it may provide the user with a more intuitive experience that doesn’t require them to download other apps or get used to a new process. However, brands may have to make a tough choice between a smooth, centralized user experience or a bumpier, more decentralized driveway.

Another thing to consider is the brand’s bottom line: the minting and redemption costs can be high due to expensive gas fees. Combined with the brands’ operating, auditing, and compliance costs – and combined with interoperability with legacy banking systems – this could be costly barriers to entry. The uncertainty of the regulations makes the water even more murky. Brands may incur upfront loss for delayed future benefit. These are nuanced, business-critical decisions brands must make.

Consumers will feel empowered and more valued when they get cash in their app rather than getting points. For many, brands are a symbol of identity. Let’s say Gucci identifies you as an ambassador and sends you Gucci tokens as a thank you for posting positive about the brand on social media with your public tag “GucciCoin”. Having a certain amount of “GucciCoin” can give you access to an elite community, be it a physical space (an exclusive event, concert, in-store showroom, etc.) or an online space.

Related: Haute couture goes NFT: digitization at Paris Fashion Week

You might even get access to expanded or limited merchandise drops that others wouldn’t and receive an NFT to showcase your status with. Branded stablecoins are a win-win for brands and customers as they allow consumers to signal their support while brands increase engagement and loyalty.

Branded stablecoins provide a gateway to an interoperable, fluid and smooth future. One day, perhaps not that far, a customer will have a digital wallet with all of their favorite brands, a global ecosystem that opens the floodgates for mass adoption.

This article does not provide investment advice or recommendations. Every step of investing and trading involves risk, and readers should do their own research when making a decision.

The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.

Michael Gord is Managing Director of the DigitalBits Foundation and founder of GDA Capital. He has contributed to a few blockchain ecosystems including TRX, LRC, and ONT. He was also the first enterprise blockchain developer at Toronto-Dominion Bank (TD Bank Group), one of Canada’s largest banks.