Loyalty Programs on Blockchain in UAE

Parati
13 min readAug 28, 2021
From Copper coins to Reward points, history of Loyalty Program

The effort of building customer loyalty dates back to the 1700s when merchants developed an initiative wherein they would give copper tokens to customers for redemption on future purchases. Very soon, it was discovered to be a very costly method of gaining customer loyalty and so, merchants shifted from copper tokens to stamps.

In the late 19th century, Green Shield Stamps became popular in Britain where customers were rewarded with stamps on every purchase, which could be redeemed for catalog products.

These types of schemes continued in a similar way up to the early 1900s, until Betty Crocker came with its Box Top program in 1929, which laid the foundation for loyalty programs as we know them today.

A full-scale loyalty program of the modern era, however, is credited by many to have been started by American Airlines in 1981, with the launch of the first Frequent Flier program.

Loyalty programs have since then grown from strength to strength and today, it is seen as an essential requirement to forming good customer relationships. It is a means to gain new customers, nurture existing relationships, improve the existing customer experience and satisfaction levels, and in the end, increase customer retention and impact the bottom line of the business positively. At the same time, loyalty has also become an effective marketing tool, where by showing customers your appreciation, you generate word-of-mouth referrals, thereby, enhancing your brand reputation and increasing sales revenues.

Introduction to Loyalty Programs
Loyalty programs should be relevant to its target audience and should offer them with valuable benefits which can be redeemed through a user-friendly process. This will lead to building customer trust and retention.
Key Takeaways of Loyalty Programs
Market Opportunity of Loyalty Program is 190 bn USD globally growing at CAGR of 3–4%. Loyalty management market is 3 bn USD globally and growing at 20% CAGR.
Loyalty Program Market Size
Loyalty market in UAE distributed across airlines, supermarkets and restaurants.
Sector-wise distribution of loyalty market in UAE

Impact of Loyalty Program in UAE

Loyalty programs are quite effective in the UAE market, primarily because of the vibrant business scenario and availability of numerous brands. In such hyper-competitive environment, customers are tempted to try out other products and services, making it important for brands to set up loyalty programs to gain consumer trust and generate repeat business.

This has led to loyalty cards gaining special importance in the country, as retailers rush to present their “loyal” customers with the best offers and greatest discounts all year long, which boosts their sales and encourages happy customers to recommend their services to their friends and acquaintances. There are tens of loyalty programs in the UAE and they vary in terms of services offered and the brands they are connected with. Most large retail chains in the country have set up their own loyalty programs which are applicable at their brand outlets and stores spread across the country.

While these programs are designed in a way such that consumers who use them regularly benefit the most from them in the long-term, there is still suspicion around the true value of these programs. There are still opportunities in developing and growing loyalty programs to positively impact customer experience and drive loyalty. However, it is important to identify and refine the true loyalty value proposition.

Introduction to Global and UAE Loyalty Program Market

Global loyalty program market is currently at USD 190 bn; CAGR of 3–4%,
while the loyalty management market is sized at USD 3 bn; CAGR of 20%.

Traction of Loyalty Programs in the UAE

  • 6.7 trillion points issued each year, worth USD 51 billion
  • Participant rewards constitute around 75% of total costs for a loyalty program.
  • 37% members are willing to pay a fee for access to enhanced loyalty program benefits.
  • Willingness to pay for enhanced benefits is significantly higher among Gen Z (47%) and Millennials (46%), as well as households with children (44%) and early technology adopters (69%)
  • Loyalty in UAE is highest for supermarkets at 43%, followed by airlines at 35%, and restaurants at 30%.

UAE Market Estimation for Loyalty Program

Market Estimation of Loyalty Program in UAE — 20 million memberships in UAE with 4 million active memberships
UAE loyalty market memberships

Process of Crafting a Loyalty Program
A successful loyalty program should be able to provide a tangible benefit to the customer while also being able to generate a revenue stream for the business. There is no uniform solution for building the perfect loyalty program, but the program should be built on an objective-driven strategy which is omni-channel to engage customers on multiple fronts and incorporates personalisation to offer relevant and timely deals.

Process of Crafting a Loyalty Program — Loyalty programs should start with defining their objectives, identifying their target audience, build their economics model and define benefits, and create redemption channels and processes.
Process to create loyalty programs
Introduction to Loyal Customer
Behavior of a Loyal Customer — Customers subscribe to the loyalty programs of their favourite brands to avail benefits and highly value the ease of redemption processes. They favour loyalty programs which are accepted at multiple brands instead of enrolling in different programs separately for greater value.
Top things that loyal customers expect from their favourite brands

Who is a loyal customer?

A “loyal customer” showcases his/her brand to others, does word-of-mouth publicity, value brands over convenience or even price at times, doesn’t switch over one bad experience and has an emotional connect with the brand.
Characteristics of a loyal customer
Benefits of membership programs
Source: KPMG, Insights, The truth about customer loyalty

What attracts Loyal Customers?

It is important to focus on onboarding merchants that have a high product quality which spreads through word of mouth.

7 most valued things or characteristics in a brand by loyal customers
Source: KPMG, Insights, The truth about customer loyalty

Deterrents for New Members

Top reasons because of which customers don’t join loyalty programs
Source: KPMG, Insights, The truth about customer loyalty
  • Consumers are apprehensive about the rewards and benefits of loyalty programs in terms of their actual value as well as redemption timelines.
  • A crypto-based rewards system might alleviate these concerns as their rewards have an inherent monetary value and can be easily redeemed or traded as per requirements.

Next-gen Loyalty Program

  1. Flexible Redemption Options:
    61% of local shoppers would like to have more flexibility to earn or utilise benefits. A crypto-based reward system would provide consumers with actual options to utilise their rewards and make it easier for them to derive maximum benefit out of it.
  2. Consolidation of Loyalty Programs:
    65% of UAE consumers believe they belong to too many loyalty programs.
    There is an opportunity to sit on top of existing loyalty programs and create a unified platform where digital assets can be offered instead of points for partner programs.
  3. Immediate Gratification
    61% members mentioned that the most valuable benefit of a reward program is “cashback on future purchase.” A crypto-based loyalty program would allow customer to extract immediate benefits by trading the reward assets on exchanges.
  4. Digital and Secured Accounts
    70% of loyalty program members currently access their rewards using an app. They would rather join programs that offer digital cards that can be accessed through their phones. Physical loyalty cards are difficult to manage and often get misplaced. A completely digital wallet for loyalty points is easier to use and more transparent .
Blockchain in Loyalty Program
Introduction to blockchain in Loyalty Program
Challenges, opportunity and key elements of blockchain-based loyalty programs

Challenges with Traditional Loyalty Systems

Challenges faced by retailers/Agencies and Customers/members with the traditional loyalty program
Challenges of traditional loyalty program from agencies’ and customers’ perspective

Using Blockchain for Loyalty Programs

Blockchain, as a distributed ledger is a fundamentally new way to transact and maintain records in a secure, trustful, digitised interlinked network, and will eliminate many inefficiencies with regards to loyalty programs.

Blockchain allows instantaneous and secure creation, redemption, and exchange of loyalty reward points across programs, vendors, and industries through a trustful environment using cryptographic proofs in lieu of trusted third parties and administrators.

The most successful application of blockchain until now is Bitcoin, the digital cryptocurrency. Loyalty rewards are also a type of digital currency, so it is only natural that the engine that enables Bitcoin to be transacted among multiple parties, could do the same for loyalty reward points.

Key Elements of a Blockchain-based Loyalty Program

The key elements of such a blockchain solution are a loyalty network platform, reward applications, and loyalty tokens.

  • Loyalty Network: The platform that accommodates the loyalty network could accommodate different and multiple organisations and their loyalty programs, facilitating their interaction, especially in terms of the convertibility and exchange of their points. It connects them through all of their agents who reach consensus about a transaction without the need for a middleman or clearinghouse.
  • Reward Applications: The reward application, via a digital wallet, is the point of entry into the loyalty network. Rewards applications contain identities in the form of digital signatures, which store value in the form of loyalty tokens.
  • Loyalty Tokens: On initiation of a loyalty transaction — issuance, redemption, or exchange — the blockchain protocol creates an algorithm-generated loyalty token, which is a base for all types of rewards, including points. The loyalty token’s existence and unique identifiers are updated on each participant’s ledger and made available across the network.

Benefits of Blockchain-based Loyalty Programs

  • Improved Security: With so much personal data involved, security is a top concern among customers. Blockchain allows customers to exchange tokens for rewards without compromising private data and doesn’t store it in a single location owing to its decentralised nature. It can also help minimise errors and fraud through smart contracts by cryptographically securing transactions, making them immutable and time-stamped, thus, increasing transparency.
  • Reduced Costs: With blockchain’s ability to execute programs in almost real time, companies can decrease both administrative and personnel costs. It enables exchanges by the customer with no centralised management where smart contracts can be used to enforce terms, automate processes and reduce organisational costs. Cost savings with blockchain occur on three levels — system management, transaction, and customer acquisition.
  • Flexible Rewards: Short expiration dates of benefits is a big challenge for customers. To eliminate this issue, blockchain allows reward currency to be stored in a digital wallet which is redeemable at any point. Blockchain also enables a multi-channel network that can enhance customer satisfaction by making it easier to redeem rewards with any partner or trade with another currency.

Traditional vs Blockchain-based Loyalty Programs

Comparative study between traditional v/s blockchain based loyalty program
Comparison between traditional loyalty programs and blockchain-based loyalty programs

Blockchain-based Loyalty Programs

  • Singapore Airlines KrisPay: KrisPay is a miles-based digital wallet which members can use to convert miles into digital spending power with other merchants. KrisPay has partnered with 18 merchants across categories ranging from beauty and food services to gas and retail.
  • Chanticleer Holdings: Chanticleer Holdings is an investor in several burger restaurant chains including BGR, Little Big Burger, and American Burger Co. As part of their new loyalty program, customers who eat at one of their restaurants receive a type of cryptocurrency called Mobivity Merit which can be redeemed across brands and traded freely.
  • American Express: AmEx created a private blockchain system called Boxed to transfer information which merchants on Boxed can use to fulfil reward program offers. When a consumer makes a purchase on Boxed, the blockchain stores the data about the transaction while hiding privileged data about the card holder. The details of the transaction triggers the creation of a smart contract which then creates and awards points in a backend loyalty system.
  • Rakuten: Rakuten Group offers 70+ services globally which are connected through a single membership ID and rewards members with Rakuten coin which can be converted to other cryptocurrencies as well.
  • Loyyal: Loyyal is a blockchain-as-a-service platform that provides the blockchain architecture for loyalty programs to run their programs better. In cases of large retail chains or businesses, who have hundreds of partners, the process of earning, redeeming and reconciling points can be incredibly complex.
  • Qiibee: Qiibee offers enterprises a plug-and-play solution to running their loyalty programs on blockchain. Companies create tokens that function as loyalty points which can also be exchanged with partners on the network. Customers store, transfer and trade those tokens in the Qiibee wallet app.

Challenges faced by Blockchain-based Loyalty Programs

  • High upfront costs: There are upfront costs involved to break down siloed systems, maintain data security and coordinate multiple intermediaries.
  • Customer data: In situations where loyalty programs incorporate multiple brands, there can be a reluctance for some companies to share personal information due to fear of losing control over data.
  • Scalability: Scalability can be a challenge with blockchain-based applications.
  • Valuation risk: Currency devaluation is another risk in what is essentially an open marketplace for points trading.
Loyalty Program in UAE
Status and characteristics of loyalty market in UAE
Loyalty programs in UAE

Types of Loyalty Programs in UAE

Different loyalty systems can be mixed and matched together to create your own unique loyalty program. Following are the most common types of loyalty systems in the UAE -

  • Points programs: Customers are given points in exchange for the amount spent by them, which can be redeemed at a fraction of the initial purchase amount. This incentivises customers to purchase more to reach the threshold of points for meaningful redemption.
  • Cash-back or discount programs: Customers earn money back from their purchases or get instant discounts. This is one program which every merchant runs at some level.
  • Tier System: The frequency of purchases made by a customer and the cost of those purchases will determine the level of rewards they receive. This system works well for high value items.
  • Membership programs: Customers get access to special services, discounts or unique opportunities which makes them feel like they are a part of an exclusive club.
  • Value-based programs: A loyalty program that is aligned to your customers’ values. This is effective in connecting with customers on a deeper level.
  • Non-monetary rewards: Exclusive notifications about upcoming products or services, opportunities to donate rewards to the customer’s favourite charity, special birthday rewards, incentives to share deals on social media, and more.

Top Loyalty Programs in UAE

  1. Amber: Al Tayer Group’s Amber rewards program is a points program where a person earns 1–3 points on spending AED 1. One can redeem only when they have a minimum of 500 points to redeem.
  2. WAFI: Points-based program, where one can use their loyalty card for shopping and dining at the WAFI Mall. One can earn 1 point on a spend of AED 1 and the points earned are redeemable within a year.
  3. Club Apparel: This is a points-based program where one can earn rewards redeemable at more than 75 brands. This offers AED 2–5 on a spend of AED 100 and the points earned are redeemable within a year.
  4. Tamayaz: This is a discount card that one can use in Dubai for grocery shopping. This is again a points-based program where one gets 1 point on a spend of AED 1, here 4,000 points is worth 50 AED and one needs to have a minimum of 4,000 points to redeem.
  5. Entertainer: Subscription-based loyalty program that falls under the cash-back and discounts category that offers multiple packages to cater to a variety of customer needs. The app provides customers with offers at more than 10,000 merchants. Redemption and validity depends on the criteria and rules of use.
  6. Sukhran Rewards: Cash-back and points program that offers automatic cash-back when you shop at any of the Landmark Group’s outlets in UAE. Here, 500 points is worth 25AED and one needs to have a minimum of 500 points to redeem.
  7. Privileges Club by Alshaya: Its a membership program with non-monetary rewards where members are automatically enrolled into the monthly and half-yearly draws to get a chance to win huge discounts and savings, irrespective of their purchases.
  8. Talabat: Points-based loyalty program for talabat users on orders placed by them through the app.

Loyalty Management Platforms in UAE
1. Rewardz:
It is a personalised customer loyalty programs. Offers Plug and play for brands through APIs, CRM integration and digital wallets. The features includes personalised programs, API integration, analytics. It is a marketplace of loyalty programs where all types of merchants are available. Merchant categories includes financial services, retail, transport, healthcare, entertainment.

2. Lovelty: Lovelty combines 10 distinct loyalty reward programs in one platform. It offers dedicated mobile app, multiple branch set ups and analytics. Within the loyalty program, Lovelty offers points, stamps, offers, exclusive deals, referral program, multiple branches and personalised programs. Merchant categories includes F&B, services, entertainment, health & beauty, retail and hotels.

3. MySearch UAE: This is a marketing-oriented loyalty program for brands, which primarily focuses on food brands and restaurants. It offers features across customer engagement, marketing campaigns and loyalty programs. It has customisable loyalty programs.

How to Partner with Merchants?

Loyalty programs are a competitive market with low differentiation. In addition to this, there is a high switching cost involved for the merchants as there are multiple customers owning rewards at any given time. This calls for a heavy sales and marketing effort and a strong competitive differentiation to onboard brands.

Merchants can be brought onboard through a variety of channels:

  • Sales outreach: Set up an operations team to reach out to potential merchants and onboard them.
  • Marketing: Effectively market the benefits and publish case studies of the loyalty program on various channels to attract new merchant partners.
  • Channel partnerships: Partner with business hubs like malls and business parks to reach a larger set of merchants.

Merchants look for the following aspects while choosing a loyalty partner:

  • Competitive commission rates: Merchants look for minimum commission rates on the rewards given to customers.
  • Ease of working: Merchants prefer working with loyalty partners which have a straightforward business model from a merchant’s perspective and can manage the complexities of the reward dissemination and redemption operations with the customers on their behalf.
  • Co-ownership of costs: Rewards are essentially a cost to merchants to acquire new business, and they prefer sharing these costs with loyalty partners so that they are invested in the process and aligned with the merchant’s goals.

Economics of Points-based Loyalty Program

Points Loyalty Program Economics
How points-based loyalty programs work?
Incremental revenue v/s incremental costs
Revenue and cost structure of loyalty programs

Read our next part on the regulatory governance and requirements for blockchain-based loyalty programs in the UAE here.

Please visit our website to know more about our services. For any requirements on market research, please reach out to us at contact@parati.in.

--

--

Parati

Leading Business & Technology Consulting Firm In India