A blockchain-based framework for customer loyalty programs

Loyalty programs have grown in travel, retail, financial services and other economic sectors. Therefore, Loyal customers are one of the primary driving forces of any profit-making business. By creating loyalty rewards programs, companies aim to increase customer experience. Customer loyalty and engagement play an important role in the growth of companies and reward programs therefore represent strategic investments for all types of organizations. However, while customer loyalty programs are growing rapidly, some bottlenecks arise which lead to inefficiencies. In the Fast-Moving Consumer Goods (FMCG) industry, manufacturing companies put promotion cards to their products. Their aim is gaining customers' loyalty and directing them to buy company products more frequently. Therefore, customers who bring promotion cards to merchants, are allowed to get promotion products. Traditional customer loyalty programs have several bottlenecks especially in the FMCG industry such as lost coupons and payback process complications. Customers earn promotion cards by buying snacks and chips. They need to bring promotion cards back to merchants for promotion products. However, since these cards are small and oily due to exposure to products, users generally ignore or sometimes forget bringing them back. Lost coupons decrease the participation ratio of the loyalty program which also means manufacturers cannot get customers' loyalty. In addition, merchants collect thousands of promotion cards from customers and they need to give them back to manufacturers for payback. Manufacturers get those promotion cards from merchants and make payback to them according to the quantity of promotion cards. Counting thousands of promotion cards is a challenging issue thus some of the manufacturers prefer weighing cards to find an approximate number instead of counting which can cause unreliability in the process. Moreover, manufacturers have to cooperate with third-party companies to maintain customer loyalty programs. Collaboration with third parties requires integration with third-party services, including data sharing. Blockchain creates a shared registration system between network members and eliminates the need to reconcile different stakeholders. Benefits of using blockchain technology are intrinsically related to its technical features. This distributed technology allows reduction of costs and bureaucracy as well as the improvement in trust and efficiency in systems. Logic of block chaining also guarantees that the data not to be altered and together with the temporality feature it allows the traceability up to the very first data generated. This thesis presents the design of a blockchain-based customer loyalty program, Promotion Asset Exchange (PAX) framework, to solve bottlenecks in the traditional customer loyalty programs thanks to replacing promotion cards with virtual tokens. PAX framework adopts the smart contracts of blockchain technology by using PAX tokens to digitalize transaction processes. It provides better usability for customers and more information from manufacturing companies' perspective.