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Enhancing Loyalty Programs with Web3: 5 “Ways In” for Legacy Brands

Posted by Chris Miller
Feb 23, 2023

In our last article, we introduced a new type of loyalty program powered by web3 technology.

These represent an exciting opportunity for brands to fuse together proven concepts - memberships, community-building, equity ownership, gamification and collectability - to forge more engaged customer relationships and drive higher lifetime value.

We also discussed the mounting evidence that this new model works, as proven by emerging brands like Bored Ape Yacht Club. But we acknowledged that the web3-native playbook may not be the right one for legacy brands, as several have tried to replicate it and failed.

For brands looking to explore web3 for customer loyalty, there are a number of questions that remain:

  1. How should we get started, particularly when we have an existing loyalty program?
  2. How can we make a web3 loyalty program successful and desirable among our target customers?
  3. How should we evaluate and measure the ROI of a web3 loyalty program?

Today, we’ll focus on addressing the first question of how to get started.

Start with the outcome in mind

Any web3 program strategy is best laid by first reviewing the objectives or key performance indicators (KPIs) the marketing team is already on the hook to deliver. 

Whether an initial program or campaign comes from the loyalty, innovation, or digital product team, web3 technology is poised to help brands accomplish both customer loyalty and acquisition objectives, while complementing their existing loyalty programs.

Customer loyalty & lifetime value

Entry Point #1: Challenges to earn tradable collectibles

Brands can complement their loyalty programs by engaging members with campaigns featuring challenges to earn digital collectibles that unlock rewards (see: Starbucks Odyssey). Challenges can be tied to consuming videos, taking quizzes, or geared toward lower-funnel actions like making purchases over a specified period of time. In either case, they can be designed to stimulate high-value behaviors marketers need to drive.

The ownable & tradable aspect of NFTs is the real differentiator here vs. a web2 approach. Keeping the focus on Starbucks, Odyssey has been designed with a similar strategy as the Starbucks for Life program that happens each year during the holidays. However, with Odyssey, participating Starbucks Rewards members actually own the “stamps” (badges) they earn and can choose to collect, trade, or resell them at will. This type of ownership & collectability enhances the experience beyond what’s possible (or at least done easily) in web2.

Today, some Starbucks Journey Stamps are selling for nearly $2,000 on the secondary market due to their rarity. And brands can earn royalties on resales as an additional revenue stream.

Entry Point #2: Points auctions for rare collectibles & experiences

Points and rewards liabilities are a major consideration for loyalty program managers and CFOs. Thus, creating full scale web3 loyalty programs should be approached with substantial consideration of the associated costs (more on this in an upcoming post).

One way to test into web3 and address this problem is to auction off high-end, limited-time experiences, gated behind NFTs that can be purchased by sinking loyalty points.

While brands must honor their offer for the experience, this approach offers flexibility to shorten the redemption window vs. the points expiration date (if one exists).

Hotel giant, IHG, rolled out a similar program with 10 total NFTs in late 2022. The initiative was targeted to IHG One Rewards members, and it was advertised that “NFT holders will get exclusive ownership of a unique NFT artwork, a one-night stay at the InterContinental Rome Ambasciatori Palace, which will open in 2023, as well as InterContinental Ambassador status for a year.” Official results of the program are unknown, but it appears only 3 of the 10 NFTs are currently held in consumer wallets

To execute this (or any of these entry points) effectively, brands must cater their messaging in an authentic way to the intended audience and understand that even most web3-native consumers no longer just want NFTs, they want the things they unlock. Tradability is an important part of the value proposition, but it can no longer be the value proposition itself.

Entry Point #3: Creating a web3 partner ecosystem

Partner and coalition loyalty programs are nothing new to marketers, but as BCG discusses in detail in their recent piece, blockchain technology enables more seamless, privacy-compliant partnerships between brands than ever before because blockchains are (in most cases) public ledgers, not private databases.

As a tangible example, a brand can set up a marketplace whereby existing loyalty program members can burn their points to seamlessly purchase NFTs and other virtual items from strategic partners already participating in web3. This expands the value proposition of joining the loyalty program, engages web3-native customers, and addresses point liability challenges without requiring the brand to launch its own tokens.

Customer / loyalty program member acquisition

Entry Point #4: Web3 community acquisition

Similar to the use case above, brands can enter the space and acquire new customers / loyalty program members without launching their own collectibles.

Brands like Callaway have partnered with LinksDAO, a web3-native community for golf enthusiasts to offer exclusive benefits to holders of LinksDAO NFTs. Similarly, Wrangler identified a strategic opportunity with Deadfellaz and NARs recently partnered with Boss Beauties, each in an effort to experiment in the space and acquire new customers without a significant technology investment.

To expand beyond a limited set of partnerships or to host more of the experience themselves, brands can set up their own portals, welcoming members of various web3-native communities to authenticate their NFTs and unlock a myriad of rewards and experiences. And they could even decide to gate reward redemption behind collecting an email or having the user sign up for their loyalty program first.

Entry Point #5: Web3-native memberships

Finally, brands can create smaller scale, standalone programs targeted to web3 natives by selling and/or creating free or earnable memberships powered by digital collectibles.

To-date programs have been defined by tapping into concepts like collectability, co-creation with a community, and connected experiences across platforms.

Lacoste’s UNDW3 program and Nike’s Dot Swoosh are two of today’s best-in-class examples of legacy brands establishing new precedents for community building and co-creation with customers. Time will tell whether these programs merge with, replace, or remain isolated from their traditional, large-scale loyalty programs, but they have garnered much notoriety so far among web3-natives and those paying close attention to the space.

Up Next: How to make your web3 loyalty program successful

Our next article of this series will focus on what comes after dipping the initial toe in.

For brands looking to grow beyond their initial web3 strategies and/or leap right into creating web3 loyalty programs, we will discuss the key considerations to inform your approach. 

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