The Applicability of Blockchain in the Hospitality Sector
Enterprises across industries are exploring use cases to leverage Blockchain technology for business benefits. Till date, over two billion dollars have been invested in Blockchain and the bulk of it has happened in the last three years. This is a clear indicator that Blockchain is here to stay.
Equipped With deep domain expertise, the Hospitality practice at Mindtree clearly sees business beneﬁts in certain areas where Blockchain can be used to augment existing systems.
Blockchain is typically used in business scenarios which involve multiple parties forming a network to participate in a transaction. Blockchain as a technology has the following inherent features which makes it most suitable for certain businesses.
If multiple parties are involved in a business transaction, Blockchain ensures that all parties have visibility to all the transactions. It also ensures that the transaction fails if all the involved parties do not agree to the terms and conditions under which the transaction is carried out. This gives the additional benefit of trust among all the parties.
All transactions on Blockchain are cryptographically encrypted which makes it very difficult to break or alter. So, transaction data cannot be tampered, resulting in fail-safe systems.
A transaction once agreed amongst all parties and registered on the Blockchain cannot be changed. This avoids disputes and the need for a third party arbitrator, resulting in cost savings.
The benefits that result from these inherent features are:
- Efficiency in business processes, especially in reconciliation of transactions as immutability of transactions avoids conﬂicts and results in cost savings
- Auditability of transactions as data provenance is maintained on the Blockchain
- Elimination of a trusted third party resulting in time and cost savings
Considering these features and advantages of Blockchain, let’s look at its applicability in the hospitality sector and its business benefits
Distributed loyalty platform to improve end-to-end user experience
According to a recent survey by Mindtree, “Expectations vs. Reality: How to Better Serve the Connected Traveler”, 38% of respondents state that being a member of the loyalty program is the main reason why they book with the same hotel/vacation rental provider. Hence, having a rewarding, flexible and active loyalty program can be very crucial for hospitality brands. However, the boundary in which a loyalty program operates today is limited to the business that owns the program, or at best, includes a limited number of alliances. Loyalty systems of alliances are usually independent systems and integrating with them is fraught with challenges. Hence, there is no easy way, like 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 where a traveler can use loyalty points earned from air travel to shop at airports, rent a car or stay in a hotel of his/her choice.
Consider a scenario where a loyalty member of a hospitality chain also has loyalty affiliations with airline(s), car rental companies and a favorite coffee chain operating in the same region as the hospitality chain. Unless the hospitality chain has a deep integration with the loyalty programs of the airline, car rental or coffee chain, the loyalty member cannot redeem his points. This is where Blockchain technology comes into play. It helps multiple partners come together and deliver enhanced user experience.
If the hospitality chain, airline(s), car rental agencies and coffee chain come together on a private permissioned Blockchain network, it offers a whole range of options for the member to redeem loyalty points from any of the partners on the network. Points can be redeemed the other way round by the member―points gained on air miles can be spent for a hotel stay or to rent a car. APIs provide an elegant way of integration with the backend loyalty systems which 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 he/she shops or rents a car. This may not be of much 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. As of today, an estimated $48 billion dollars’ worth of loyalty points are unspent just in North America. This platform has the potential to unlock the loyalty points treasure chest
- Fraud prevention: Majority of the 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 helps prevent fraud
- Low value transactions: As of today, low value points, say 500 points may not buy an air ticket for the customer. But, it can deﬁnitely enable 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 capex requirements but puts the onus on the enterprise to ensure quality of the supplies to the franchises. Else, 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 who runs a chain in the east coast of USA. 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 procured from multiple suppliers from multiple geographic locations. And they have to meet the hospitality chain’s standards and quality. Most often there are at least more than two parties involved in such procurements. For example, coffee grown in Columbia in South America is bought by an exporter in Columbia from the farmer, then procured by an importer in USA, 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 brings in immediate visibility of supplies, right from farm or factory until it reaches 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 on the Blockchain.
This brings in transparency as the franchise owner and hospitality chain have immediate visibility of the status of the supplies. This helps the franchise owner to plan his procurement better and optimize the shelf life of supplies. At the same time, Blockchain establishes the provenance of the supplies which can be leveraged to increase customers’ trust in the brand by sourcing the supplies from ethical enterprises and proving it to the customers with the help of Blockchain.
The beneﬁts to the hospitality chain are much more. 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, resulting in cost benefits and increase in bottom line for both, the franchises and the enterprise. Because the data of each transaction is secure and immutable, it saves precious time in dispute resolution, expensive paper work and process time.
The hospitality industry is extremely sensitive to customer sentiments as it has a direct impact on the brand value. We believe Blockchain technology will help improve customer experience, make backend processes efficient and improve brand value. To learn more about how Blockchain can enable Hospitality industry achieve all this, read our paper on the Top Use Cases for Blockchain in Hospitality. Now is the time to explore the benefits of Blockchain and be ready for the future.