🪪Loyalty Programs

Analysis: Blockchain-Based Loyalty Programs and Their Impact on the Travel and Tourism Industry

Market Growth and Relevance of Loyalty Programs

The global loyalty management market was valued at $4.54 billion in 2021 and is projected to grow to $24.44 billion by 2029, reflecting a compound annual growth rate (CAGR) of 23.5% (Horst and Elena, 2023). This substantial growth underscores the increasing importance of loyalty programs in driving consumer engagement across industries, particularly in sectors like travel and tourism.

Blockchain-based loyalty programs have demonstrated significant advantages over traditional models. Research highlights several key features positively impacting consumer attitudes:

1. Immediate Accrual of Points: Enhances consumer satisfaction and engagement.

2. Points Without Expiration Dates: Builds trust and long-term loyalty.

3. Transferability of Points: Increases flexibility and adds utility for users.

These factors suggest blockchain can address critical pain points in traditional loyalty systems, while also enabling the market to capture a larger share of value.

Blockchain Technology: Enhancing Loyalty Programs

The scalability, transparency, reliability, and audit-proof nature of blockchain technology (Stallone et al., 2020) make it particularly attractive for loyalty program implementation. By leveraging blockchain, companies can address common challenges:

1. From the Consumer Perspective:

   • Ease of Use: Blockchain eliminates the need for physical loyalty assets, such as stamp cards, reducing friction.

   • Privacy Protection: Users can interact using virtual wallets without sharing personal information.

   • Asset Ownership: Consumers gain ownership of their rewards, which can be traded or transferred across programs, unlike in traditional models.

   • Customizable Rewards: Blockchain enables more tailored rewards, improving customer satisfaction.

2. From the Corporate Perspective:

   • Cost Efficiency: Eliminating intermediaries reduces operational and infrastructure costs.

   • Simplified Partnerships: Blockchain facilitates easier collaboration between brands, allowing shared loyalty ecosystems without duplicating programs.

   • Data Security: Enhanced protection of user data builds consumer trust.

Benefits to Travel and Tourism

Blockchain-based tourism tokens present unique diversification opportunities, particularly during periods of industry crisis (Yousaf et al., 2022). Key insights include:

• Portfolio Diversification: Tourism tokens act as inexpensive hedges with low connectedness to traditional assets, offering stability during market volatility.

• Dynamic Connectivity: Tokens demonstrated resilience during COVID-19, exhibiting high dynamic spillovers that mitigated risks associated with broader market disruptions.

By incorporating blockchain-driven loyalty programs, the travel and tourism sector can address challenges of consumer retention while benefiting from diversification attributes inherent to tourism tokens.

Addressing Limitations in Traditional Programs

Traditional loyalty programs, while effective in many contexts, face several shortcomings (Santos et al., 2023):

1. Consumer Frustration:

   • Over-saturation due to multiple programs.

   • Lack of asset ownership and limited reward portability.

   • Ineffective reward structures, such as expirations and one-size-fits-all incentives.

2. Corporate Challenges:

   • High costs from third-party reliance.

   • Complexities in forming partnerships.

   • Limited scalability due to program silos.

Blockchain addresses these issues by consolidating programs, enabling seamless asset transfer, and ensuring asset value stability. Users benefit from enhanced autonomy and streamlined program participation, while companies reduce costs and complexity.

Financial Impact of Loyalty Programs

Loyalty programs play a pivotal role in boosting company revenues. According to Reichheld (2001), a 5% increase in customer retention can lead to a profit increase ranging from 25% to 95%. Blockchain-based programs amplify these outcomes by increasing consumer trust and simplifying program engagement, thus fostering deeper loyalty and higher retention rates.

Conclusion

Blockchain-based loyalty programs represent a transformative innovation for the travel and tourism industry. By addressing traditional program limitations and leveraging blockchain's inherent advantages, these systems offer improved consumer engagement, cost efficiencies, and diversification opportunities. As the loyalty management market grows, integrating blockchain solutions positions companies to capture both customer loyalty and financial value, making this a strategic imperative for the future of travel and tourism.