By Shravan Poorigali
Enterprises across every industry are exploring ways to leverage blockchain technologies for business benefits. As proof, $2.1 billion has been spent globally on blockchain solutions in 2018, according to IDC. This is a clear indicator that this emerging technology is here to stay and bring increased opportunities with it.
One industry expected to benefit greatly from blockchain, is the hospitality sector. Blockchain is frequently used in business scenarios that involve multiple parties participating in a transaction. Using distributed-ledger technology, blockchain technology removes the middleman in transactions, such as hotel bookings or gaining loyalty program points. Built on three inherent features – Transparency, Security and Immutability – blockchain technology has the potential to drive new business models and improve workflow.
- Transparency: If multiple parties are involved in a business transaction, blockchain ensures that all parties have visibility into all of transactions. It also ensures that a transaction will fail if all parties involved do not agree to the terms and conditions under which the transaction is carried out. This enables accountability and trust among all the parties.
- Security: All transactions on Blockchain are cryptographically encrypted which makes it very difficult to break or alter. As its name suggests, blockchain is a chain of digital “blocks” that contain a decentralized record of transactions. Each block is built upon and connected to all the blocks before and after it. This interconnectivity makes it difficult to tamper with a single record or transactional data point without being detected.
- Immutability: Along the same lines, once recorded, data cannot be changed without the alteration of all subsequent blocks and complete compromise of the network. By allowing digital information to be distributed, but not altered without consensus, blockchain technology creates the potential for a new system of trust to be leveraged to collect and store personal guest information.
Considering these features and advantages of blockchain, let’s look at its applicability in the hospitality sector and its business benefits
Distributed Loyalty Platforms to Improve End-to-End User Experiences
The boundary in which a loyalty program operates today is limited to the business that owns the program. Loyalty systems are usually independent systems and combining them across businesses has many challenges. Hence, there is no easy way – like with a click of a button or tap of the phone – for a traveler to use loyalty points earned from his/her air miles on a hotel stay or to shop at the airport. This results in lost business opportunities and reduced scope for better customer experiences. Distributed ledger technology offers a solution that enables travelers to seamlessly use loyalty points earned from air travel to shop at airports, rent a car or stay in a hotel of their choice.
Consider a scenario where a loyalty member of a hospitality chain also has affiliations with airline(s), car rental companies or a favorite coffee chain. Unless the hospitality chain has a deep integration with the loyalty programs of the airline, car rental or coffee chain – there is not easy way for loyalty members to redeem points. This is where blockchain technology comes into play. It helps multiple partners come together to deliver enhanced user experiences.
If the hospitality chain, airline, car rental agency and coffee chain collaborate via a private permissioned blockchain network, it offers a whole range of options for the member to redeem loyalty points from any of the partners across the network. APIs provide an elegant way to integrate backend loyalty systems that partners can leverage to offer unique and creative customer experiences.
The benefits of such a solution include:
- Inverse the idea of earning and spending miles: In today’s landscape, a traveler earns air miles when they shop or rent a car. This is of no use if the member is not a frequent flyer. With an open loyalty platform, customers are enabled to spend their loyalty points in multiple ways, which may otherwise remain unspent. In fact, according to Bond Brand Loyalty, there are an estimated $100 billion dollars’ worth of loyalty points are unspent in North America alone. This platform has the potential to unlock the loyalty points treasure chest.
- Fraud prevention: The majority of loyalty program systems are targets for fraud because of the high monetary value of the unspent loyalty points. Fraud impacts businesses in two ways – one, lost loyalty of customers and two, businesses have to pay the customers for the fraudulently lost points. Since distributed ledger technology is inherently secure and difficult to tamper, it mitigates fraud.
- Bolstering low value transactions: As of today, a low value of points – say 500 – cannot be used to buy a plane ticket. But, it can definitely allow them to buy a coffee or shop for a souvenir, thereby creating value for the customer.
Transparent, Efficient and Decentralized Procurement of Supplies
Large hospitality enterprises typically follow the franchise model where the enterprise owns the brand(s) and not the physical properties. This reduces the capital expenditure requirements, but puts the obligation on the enterprise to ensure quality of the supplies to the franchises. Additionally, the brand’s reputation and image is at stake. Blockchain technology is best suited in this scenario as it can help maintain transparency in the supply chain.
Let’s take the example of a franchise owner of a hospitality chain on the East Coast. The typical supplies that he procures would include in-room kitchen items like towels, coffee and tea. He would also have to procure toiletries like soaps and shampoos. All these items are typically purchased from different suppliers in multiple geographic locations, and all required to meet the hotels standards of quality. Most often, there are a minimum of two parties involved in the procurement process. For example, coffee grown in Columbia in South America is bought by an exporter from the farmer, then procured by an importer in the States, distributed to various wholesalers and probably to a packer before it finally lands on the in-room kitchen table.
If the exporter, importer, packer, franchise owner and the hospitality brand owner participate in a private permissioned blockchain network, it provides immediate visibility of supplies, from the farm or factory to the hotel room. Once the exporter buys the coffee from a farm, details of the region where the coffee is grown, when it was grown, quantity, price and any of the required details as mandated by the hospitality chain can be recorded as a transaction on the blockchain. At each stage of the supply chain, transactions can be recorded and stored.
This brings transparency to the franchise owner and hospitality chain who now have immediate visibility into the origin and status of supplies. At the same time, this information can be leveraged to prove to customers that all products and supplies in the hotel come from ethical sources.
For a large chain with hundreds of franchises and thousands of suppliers, it gives in-depth visibility of the supply chain’s times and quality of procurement. This data can be used to help franchises optimize the supply chain that results in cost benefits, thus increasing the bottom line. Because the data of each transaction is secure and immutable, it saves precious time in dispute resolution, expensive paper work and process time.
The Untapped Potential of Blockchain Technology
There are many uses cases for blockchain in the hospitality industry. This sector is extremely sensitive to customer sentiments as it has a direct impact on the brand value. Blockchain technology will help improve customer experiences, make backend processes more efficient and improve overall brand value.
To learn more about the benefits of blockchain in the hospitality industry, read ‘Top Use Cases for Blockchain in Hospitality‘. Now is the time for the hospitality industry to consider the benefits of blockchain and prepare for a secure future.
