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Loyalty Point on Blockchain — the right time has come!

The loyalty programs we have all been familiar with are about to change, all thanks to the latest development in blockchain technology.

1. Basis of loyalty point program

Put simply, loyalty point program rewards frequent consumers with points, and when consumers collect enough points, they can claim for products or services.

This basic idea has been developed to a variety of different models. In the airlines industry, some airlines call points MILES, and the collected Miles are to exchange for flight tickets.

One consumer may have multiple types of points, and most of the major brands have their own version of loyalty points. The market, therefore, is much more complicated. This matrix of point supposes to attract consumers to have more loyalty with each brand, and encourage them to spend more. However, due to the complexity of user experience, as well as the limit of the ecosystem, that goal is still far from being reached.

2. The loyalty program which is not loyal

Despite the purpose of increasing consumers’ spending with the brand, the loyalty point programs around the world are facing problems which distance them from the initial goals:

Fragmented system results in poor user experience

Let’s say Alice has points from 5 brands which she frequently shops. However, she has not reached the threshold to spend any of those points. This means she cannot claim for any of the services that she spent so much money on. Her points spread out in a variety of brands which are not exchangeable.

The hurdle of not able to collect sufficient point in a short-enough time would discourage Alice to spend more on the brands.

Long collection time

When it comes to many services such as airlines, high-end resort, tourism, the time required to collect enough loyalty point to claim the rewards last very long. Sometimes it takes years for a consumer to be rewarded for his spending. This is quite frustrating and the impression and patience with brands are, therefore, eroded.

Low liquidity

There are over 60% of issued loyalty points are not used, due to this ineffective system design.

3. A better approach

So the current loyalty point system does not work. We came up with a better design for this loyalty game — based on blockchain technology. First, let’s imagine the principles of an ideal loyalty point system.

– Exchangeability. The first and foremost importance is the points need to be easily exchanged. This is to enable point holders to be able to exchange different points to gather enough a certain brand’s points and claim for rewards.

– Security. Since the points belong to the consumers and now they can exchange them, the points become more valuable. Therefore, it needs to be kept securely.

– Data history. The knowledge of how the points are spent is essential to the brands since it helps them to predict their consumer’s behaviors, then make the business decision accordingly.

– Smooth user experience. Above all, the system needs to be very user-friendly and effortless to consumers, even the most traditional, non-technical consumers.

When designing the loyalty point based on blockchain, we discovered that the tokenized loyalty points satisfy all of the requirements, and surpass the current system in many aspects. The advantages are depicted in the diagram below.

4. Blockchain as a solution

We propose a tokenized loyalty point system with the following features:

– Each brand’s loyalty point is issued as a new type of token on TomoChain.

– Loyalty points (now tokens) can be freely exchanged on certain decentralized exchanges with the super user-friendly interface.

– The brands have an easy mechanism for consumers to claim for services and products.

– The exchange price of the loyalty points is defined by the market. Although the brands have no direct power to alter the exchange price, they can affect that by mandating the price to buy back the loyalty point (or reward claiming policy).

5. Why TomoChain, and more importantly, why now?

The idea of tokenizing loyalty point to connect separated systems has been around for a few years. The implementation, however, has not caught up with the imagination. There are quite a few reasons for that, but we can funnel down to the very core: the technology is not yet ready. Not until now.

First of all, the loyalty point is a traditional business, and its users are traditional as well. Although blockchain technology has been developed for over a decade, the technical barriers still distant it from the adoption of the traditional business. The private key management, exchange trading, wallet generation, that knowledge is alien to non-technical users.

Furthermore, most of the public blockchains require users to have a certain number of native tokens to pay for transaction fee. In the case of loyalty points, if those points are on Ethereum, consumers need to buy some ETH somewhere (likely from an exchange they do not know how to use) to power the transactions. This is simply ridiculous. Sometimes crypto users take for granted that using blockchain technology meaning you need to go through the prerequisites of purchasing tokens on exchanges, generating a crypto wallet and knowing certain crypto jargons. Time has told this is not the case. Either blockchain technology finds the way to easy up the interface to be more user-friendly, or it will fall into the giant tech grave arch before realizing any of its promises.

TomoChain follows the better approach and it is equipping its ecosystem with the new standards that make tokenized loyalty points possible.

i. TomoZ — TRC21

A detailed explanation of what are TomoZ and TRC21 as well as how they work can be found in a previous post HERE. Technical description and Github link can be found in TomoChain’s documentation HERE.

Once loyalty points are issued as TRC21 token, they can be exchanged without using TOMO as transaction fee. This is the bottleneck described above, and TomoChain is the first public blockchain handles this by a layer-1 solution. Consumers now do not even need to know that they are using blockchain technology, they only need to know the brands and their points.

ii. TomoX

TomoX is the protocol for anyone to build decentralized exchanges based on TomoChain. This exchange is necessary for consumers to exchange points, and because it is decentralized, it is highly secure. Thanks to this, the exchange built for loyalty point can be developed easily and quickly.

TomoX is planned to roll out the test net version in Q4 this year, and the mainnet version will follow soon after that.

iii. TomoChain performance

TomoChain works based on Proof of Stake Voting, which enables 2000 TPS and block time of 2 seconds. The transaction fee is also near zero (1 TOMO can power millions of transactions). These features make TomoChain friendly with mass adoption applications and low-value transactions.

Conclusion

Loyalty points contribute largely on the repeated consumer bases of the brands, and such loyalty programs are undoubtedly important to any companies. However, it has been designed poorly and it limits consumers in many aspects. We hereby propose a much better approach which we believe will be the standard for the whole market in the foreseeable future. With TomoZ, TomoX protocols based on TomoChain, the adoption of blockchain can soon come to each consumer’s fingertips.

Source: https://medium.com/tomochain/loyalty-point-on-blockchain-the-right-time-has-come-c3dae68c6e6d