Exploring Smart Contract Use Cases: Diving into Blockchain-Based Customer Loyalty Programs

Toju Ometoruwa · July 10, 2023
Exploring Smart Contract Use Cases: Diving into Blockchain-Based Customer Loyalty Programs

In this week’s #LearnWeb3, we’re diving into ‘smart contracts’ and their implications for brands launching web3 programs. 

In the traditional economy, contracts are legal agreements between parties that outline obligations each party must fulfill; they are typically enforced by a court in a relevant jurisdiction. In the realm of web3, a new type of contract exists called a Smart Contract. These contracts are considered "smart" due to their full reliance on computer code and ability to autonomously execute instructions. 

#What are Smart Contracts

A Smart Contract is a specific type of software program that functions on a blockchain. It performs particular actions based on pre-set rules or criteria established by the contract creator. By doing this, it enables a broad range of agreements between multiple participants - ranging from two individuals to thousands - without the need for an intermediary to enforce the rules.

#How Smart Contracts work

A smart contract essentially works as a series of "if, then" statements implemented and enforced through code. Let's consider a scenario where Alice lends Bob $1,000, and Bob placed $1,500 worth of ETH as collateral. The terms of the loan are a 6 month repayment period at 5% interest. If Bob fails to repay the loan plus interest within the given period of 6 months, the Smart Contract would automatically reassign Bob's collateral to Alice, to cover the loan repayment.

In another scenario, Bob wants to trade his NFT for Alice's 1 ETH. First, he secures his NFT in a Smart Contract. Alice then has a predefined time frame, say 10 minutes, to send 1 ETH to Bob's wallet to receive the NFT. Should Alice fail to transfer 1 ETH to Bob within the 10-minute window, the Smart Contract automatically returns Bob's NFT to his wallet and cancels the transaction.

#Smart Contracts applied to Customer Loyalty Programs

Consider an example of a food delivery app using smart contracts to enable customers to automatically convert points accumulated on the app into token rewards once they earn 1,000 points, or the equivalent of $200 in orders:

1. NFT Collection Launch: The app first launches its unique NFT collection. This collection consists of digital artwork tied to the cultural essence of restaurant cuisines featured in the app. 

2. Smart Contract Deployment: The app then deploys a smart contract on a blockchain platform like Ethereum. This smart contract is designed to automatically distribute NFTs from the apps collection to eligible customers.

3. Customer Registration and Wallet Setup: Customers register for the app's loyalty program. As part of this process, each customer is automatically set up with a web3 wallet through a service like Magic. This wallet will store their digital assets, including any NFTs they earn from the app.

4. Order Tracking and Data Feeding: The app tracks each customer's order history and feeds data about points accumulated into the smart contract.

5. Smart Contract Execution: Upon receiving the updated data from the app, the smart contract verifies if the customer's total points reach or exceed 1,000. If these conditions are met, then the smart contract automatically mints a new NFT from the apps collection and sends it to the customer's wallet.

6. Repeated Rewards: This process could repeat every time a customer accumulates another 1,000 points. As a result, the more a customer spends in the food delivery app, the more NFTs they earn, incentivizing continued loyalty and patronage.

These NFTs could be redeemed for discounts on future orders and delivery fees, or sold on the secondary market using NFT marketplaces. Smart contracts can also be used to enforce royalties on each NFT traded on the platform. This enables businesses to generate additional revenue from the secondary sales of their token rewards while also benefiting from the boost in customer engagement.   

In conclusion, token-based loyalty programs provide a unique, blockchain-powered way to reward loyal customers with collectible digital assets, potentially increasing customer engagement and retention. When coupled with smart contracts, programs can run autonomously and without the need of an intermediary to enforce the rules.

Customers can earn token rewards by achieving goals based on predefined criteria, such as minimum purchase limits, engagement with a company's social media posts or new customer referrals. As long as these benchmarks can be objectively quantified, the corresponding data can be incorporated into the smart contract. This ensures accurate, fair, and timely distribution of loyalty tokens to customers. ⁠ ⁠Subscribe for More Web3 Insights to Boost Your Customer Engagement.

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Exploring Smart Contract Use Cases: Diving into Blockchain-Based Customer Loyalty Programs