What Companies Should Know About Web3 Loyalty Programs
by Nitin Kumar
With its re-envisioning of the ownership economy, Web3 offers new avenues to explore with loyalty programs and points.
By offering consumers the chance to truly own something as part of a loyalty program—such as an NFT, for example—they may be more likely to become fully invested in the company, which could translate into higher brand loyalty. This is just one of the reasons many brands—like Gap, Starbucks and Clinique—have started to explore Web3 for driving value through loyalty programs.
Challenges With Web2 Loyalty Programs
The current design of loyalty programs does not seem to be one of the main motivating factors for why customers are loyal to a brand.
Part of the shortcomings of these Web2 programs is that customers do not feel that they are being truly rewarded. For example, many Web2 companies claim they offer the portability of loyalty points. But if you have a rewards credit card, you can often only redeem them for hotel or airline rewards. The redemption formula and porting terms are set by the company, not the consumer.
These programs can also be difficult to manage on the company’s end. Since they are point-to-point partnerships rather than open ecosystems, they can be difficult to establish, maintain and scale, owing to the enterprise baggage, legacy methods of operating, technology incompatibility, among other reasons.
Unlocking Value With Web3 Loyalty Programs
Web3—powered by technologies like blockchain—can add unique and lasting value for consumers and brands. With Web3, customers can earn, own, trade and redeem rewards instantly, such as special experiences, higher status or exclusive access. (See the Starbucks and Clinique examples mentioned above.) These things are more opaque and more expensive to track and administer in Web2, but blockchain technology and smart contract automation can make the process immutable and more streamlined.
Here are a few other ways Web3 loyalty programs are differentiated from traditional programs.
Tokenized loyalty points create liquidity through a new asset class, and it can allow consumers to trade loyalty points through a more open ecosystem.
In Web3, a user’s wallet-based login verifies the identity and ascertains proof-of-loyalty of a customer through an NFT issued by a brand. They then share information in return for perks such as early access or an invite to a launch event. This unique data can be moved across platforms. If a consumer is no longer interested in the loyalty program, they can send it to another customer who wants to join the program or build their rewards.
Granularity Of Insights
Given the granular consumer views enabled by NFTs, brands can also reciprocate rewarding individual consumer behaviors without the traditional tiering process. The enhanced sense of exclusivity and ownership is likely to motivate customers.
Measure Engagement, Not Purchases
Because Web3 loyalty program members are not fungible, each has unique behavioral and spending attributes, activity levels and redemption data. Research suggests that higher engagement loyalty program members spend 25% more than dormant members. Measuring granular engagement data through Web3 technology can offer more insights into who is active and who is not than traditional metrics like spend and member numbers.
Transparency And Efficiency
With Blockchain technology, Web3-enabled tokenization can offer secure and transparent transactions and automated agreements. These benefits could, like with other Blockchain-based transactions, reduce intermediaries as well as fraud and counterfeiting risk.
Interoperability And Portability
Porting tokenized loyalty points from one program to another and across blockchains is possible with Web3. To do so, brands can consider Ethereum Virtual Machine (EVM) compatible chains.
Operational Considerations To Implement Web3 Loyalty Programs
In order to successfully implement a Web3 loyalty program, brands must weigh operational issues and trade-offs between the challenges of Web2 and the benefits of Web3. Here are a few key considerations.
1. Decentralized applications are complex to develop and maintain. Companies must overcome barriers to entry such as understanding Web3 identities, private keys and programming language complexities. Using low-code, no-code platforms can help to mitigate technical risk and enhance speed to market, but Web3 is still a new and complex space.
2. Web3 is about network effects. Finding a critical mass of users is crucial to ensure success. These users must be incentivized, onboarded and retained. Good UX and low gas fees are a must, or else users could migrate to platforms that offer these features.
3. It’s an evolving regulatory environment. Some brands may find it difficult to begin working in the Web3 space due to the volatility of consumer interest and regulatory uncertainty.
While it is up to each particular organization to decide what is best for their company, brands should become educated on disruptive technologies and trends like blockchain and Web3 loyalty programs. Major companies are already thinking about how these programs can change the way loyalty programs will work.
Regardless of the direction your company goes in, remember that many consumers are not looking for lock-in, pure purchases and boring old tiers of loyalty. They are looking to be part of a digital journey and to make the brand a part of their identity.