Tokenization is the process of converting tangible or intangible assets into digital tokens on the blockchain
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Delphin Verghese, CRO, AdCOunty Media, a specialist in Media Planning, Media buying & selling, Campaign Management, Affiliate Management, Business Development, Client Servicing and Market Research.
The way that brands interact with and reward their customers is changing dramatically in today’s digitally driven marketplace. At the vanguard of this development is the tokenization of digital assets, facilitated by blockchain technology. Businesses are discovering new ways to add value, improve consumer loyalty, and develop communities around their goods and services by allowing brands to tokenize rewards.
Tokenization is the process of converting tangible or intangible assets into digital tokens on the blockchain. Where these tokens have value, rights, or access to be exercised, they may be freely exchanged, traded, or redeemed in a specific marketplace. As an example, in customer loyalty systems, regular loyalty points can be converted into digital tokens and then these become multifunctional, exchangeable and more interesting to users. The use of blockchain technology provides an assurance of transparency, security, and invariance of tokens which implies that once a token is created the initial possessor and the subsequent transactions are all visible and cannot be altered.
Leveraging Blockchain Technology to Reward Customers
More often than not, conventional loyalty programs remain unworkable and require high maintenance. Moreover, owing to the design of the program, redeemable points are non-transferable and confined to one brand. The prospects of transferring value across platforms cut the necessity and appeal of the program to the customers and confine brand allegiance to a small box. The scenario is therefore improved thanks to the use of blockchain technology, which allows tokens to be issued, stored, and managed in a manner that is decentralized, clear, and smart. Doing so allows companies to connect with customers in creative and fresh ways.
Benefits of Tokenized Rewards for Brands
For brands seeking to foster greater customer interaction and engagement, particularly through various tokenization of rewards such as the following:
Enhanced Flexibility
Clients redeeming their rewards in an innovative manner is now possible as blockchain tokens can be used on various platforms and marketplaces. For instance, a loyalty reward token from one brand could be utilized with a partner brand, making cross-promotional loyalties even more efficient. This kind of versatility enables brands to develop more robust ecosystems and encourages convenient partnerships between them.
Transparency and Security.
Blockchain technology provides customers with easy visibility of the reward structures, which are independent of the organizations. This is because all the transactions of the tokens are confirmed on the ledger hence the customers know the safety of their rewards and that they cannot be manipulated. When there is visibility, there is trust, customers can see the value behind the reward which makes them feel appreciated when executives reward them.
Portability and Tradeability.
A reward token does not belong to a vendor or a brand alone. These tokens can be traded, sold or transferred thus establishing a secondary market for the rewards that appreciate their worth. This kind of portability enhances the attractiveness of the reward tokens to the customers, and it will entice new ones who believe that their loyalty will generate some value.
Reduced Operational Costs.
The implementation of the tokenization model will help to cut down the expenses that are likely to be incurred in the management of loyalty programs. This is because the blockchain has no middlemen, allowing the brands to issue, manage, and redeem rewards with minimal administrative costs. With this reduced number of intermediaries and an efficient reward management system, firms will be able to redirect their focus on enhancing the customer experience and not spending a lot on administrative processes.
Numerous industries are already seeing an increase in the use of tokenized loyalty programs. For instance, several travel agencies tokenize points using blockchain technology so that clients can spend them with a variety of partners, including hotels, car rentals, and airlines. Non-fungible tokens (NFTs) are being experimented with by retail businesses as collectible incentives to entice consumers to interact with the brand in novel ways. Fashion firms are also using tokenization to create a distinct sense of exclusivity by rewarding customers with limited-edition digital goods.
Building a Tokenized Ecosystem Around Customers
The potential for brands to fully enhance the concept of tokenization requires the construction of an unbreakable ecosystem that emphasizes the customer. Such an ecosystem may extend further than just a system of rewards, implementing other aspects like gamification, straying exclusivity, or creating a community. Tokens may be used to grant access to brands offering keys that unlock special activities like launching new products early or being able to use them in other richer experiences provided by brands.
The community aspect is however the most precious. Such token holders will become part of the brand communities enabling them to take part in some brand activities and even product feedback loops. This type of involvement transforms such customers into brand ambassadors which deepens the relationships as well as creates a feeling of belonging.
Roadblocks
However, these prospects are tempered by the adoption of the concept of tokenization within the context of loyalty programs. If not handled with the necessary care, there are challenges such as regulatory frameworks, customer comprehension, and even volatility. Since rules concerning digital assets differ across jurisdictions, it remains imperative for brands to ensure that they are upholding and transparent in regards to how they issue and redeem any tokens. In addition, educating customers around tokenized rewards and their utility will be essential for ensuring that there is acceptance.