The ROI on Web3 Loyalty
The ROI calculator for web3 loyalty programs
If you are an innovative brand, you are already evaluating web3 loyalty. You can get customers excited, cultivate community, and create a future-proofed, partnership machine to drive long-term revenue.
Understanding the levers that drive returns is critical to any marketing investment, and web3 is no exception. The web3 playbook is evolving from “selling NFTs” towards using collectibles and community to level-up your loyalty strategy.
This is Flaunt’s framework for measuring the ROI on web3 loyalty programs.
The loyalty formula: web3 vs. traditional
How it’s the same
The ROI formula framework is broken down into the same major components that you would use to evaluate the ROI of a traditional loyalty program:
- Incremental costs of sales
- Variable benefits & rewards expenses
- Program expenses
= Incremental profits
How it’s different
The differences exist in the composition of these buckets. Web3 loyalty drives more value from (1) organic marketing, (2) customer acquisition and (3) revenue from superfans.
This is why the ownership of web3 initiatives varies brand to brand. It typically straddles the loyalty, brand, social and paid advertising teams. Web3 loyalty programs are not just retention efforts, but acquisition and brand awareness efforts.
Let’s dive into the different line items.
Incremental value from web3 loyalty
1. Increased member loyalty
Web3 loyalty programs create more reasons for customers to purchase your core product or service, including (1) using digital collectibles as powerful incentives for engagement and/or purchases and (2) more purchases as a result of participants feeling a deeper attachment to the brand.
Example: Starbucks Odyssey “Coffee Heritage” collectible
The Starbucks Odyssey “Coffee Heritage” journey offers a unique digital collectible packed with benefits once you complete the following:
- Onboarding to the web3 loyalty program
- Watching a branded 6 minute video and taking a quiz
- Purchasing a signature drink 5 weeks in a row
- Completing a Starbucks history trivia quiz
- Complete a game unscrambling a photo of Starbucks’ first store
This quest not only requires spending money over several weeks and creates a habit, but it imprints a deeper understanding of the brand, increasing long term loyalty.
2. Organic marketing & awareness
The most important and under-appreciated driver is the revenue impact from organic marketing. Tradable digital collectibles and co-creating with a community creates a network of invested participants around your brand. This network is armed with visual brand artifacts that they can show off around the internet and strong incentives to invite other people into the network, driving more sales.
Examples: Nike’s .SWOOSH and Lacoste UNDW3
Nike’s .SWOOSH has a separate Instagram account (@dotswoosh), where it keeps its community of ~211,000 superfans up-to-date with engaging behind the scenes content. It launched a community challenge where holders of its membership could submit mood boards for a new sneaker concept. These were shared on social media (increased exposure) and the winner has been promised royalties on sales of the new product they inspired.
Lacoste’s UNDW3 has a Discord channel of ~60,000 participants who engage on topics across tennis, fashion, gaming and more. Lacoste has run multiple co-creation campaigns, first enabling community members to vote on the art direction of new collectibles (which community members shared all over social media) and then ultimately creating a Iine of products (which created lots of organic marketing content along the way). They’ve also hosted in-real-life events that have built connections between members, created more brand equity and more reason for fans to talk about their brand.
3. Digital collectible sales (prepaid loyalty)
Because you can configure digital collectibles to (1) have emotional value, (2) have financial value and (3) be tradable, consumers are willing to purchase them upfront. This “prepaid loyalty” is the holy grail because it is very high margin, but it must be approached with sensitivity. Gone are the days of selling expensive collectibles to niche audiences with light value propositions. You must offer a clear, ongoing value proposition and establish trust with your community before asking them to trust you with upfront payment.
Examples: Starbucks Odyssey Limited Edition Stamps
After laying a foundation and establishing trust with participants using their earnable, “free” collectibles ("Journey Stamps"), Starbucks made their first Limited Edition collectibles available to participants. There were only 2,000 of them available for a price of $100. They included unique artwork and big points bonuses and sold out so fast that they broke the site. They are available via resale from existing holders, with the current minimum price at $532.
4. “Club” product sales
Many traditional loyalty programs position themselves as “clubs” but very few function that way. Community is a pillar of web3 loyalty, and when you introduce unique, visually interesting collectibles that serve as community access passes, you create a compelling reason to sell member-specific merchandise people want to show off.
Examples: Liquid Death’s Murder Head Death Club
Liquid Death’s Murder Head Death Club offers merchandise, or non-core products, that only members of the program can purchase, introducing another superfan revenue stream.
5. New customer acquisition
Running a community-powered loyalty program using web3 offers you an explosion of new partnership opportunities because the technology costs are next to zero. You can invite members of other communities to participate in your program with the flip of a switch. You also introduce a novel new reason for customers to participate in your brand’s “game”, reactivating digital native customers that might have churned and increasing usage of your traditional loyalty progra.
Incremental costs of sales
Each dollar of incremental sales has costs associated with it, but the margin varies for each product category.
1. Core product/service margin
The direct variable margin of each sale varies based on your industry. The appropriate profit ratio to use is contribution margin, which is the amount of profit earned from each incremental $1 of sales. This can vary significantly across industry and is a percentage somewhere between your gross margin and operating margin.
2. Digital collectibles margin
Sales of digital assets are high margin revenue that approaches 100%. It is rare for marketers to be able to truly attribute high margin revenue to their programs and initiatives. This is one of those rare opportunities, but it must be done thoughtfully.
3. “Club” products margin
Assuming that this is primarily merchandise sold via ecommerce, this can be in the 20-30%+ range.
Adding tangible benefits and rewards to your web3 program is hugely important. Customers enjoy community, collecting, and competition. But to maximize the perceived value of your program, you must include financially grounded rewards. You can calculate the cost of these rewards by taking the cost per reward x rewards per participant x avg. redemption rate. This cost scales as your participation in your program grows.
Web3 loyalty program expenses
The creative effort is greater for a web3 loyalty program than a traditional loyalty program. Not only does the brand’s story get captured in advertisements, copy, campaigns and program design, but it is also embodied in the series of branded collectibles that drive your program.
Strategy & technology onboarding
Similar to traditional loyalty programs, weaving executing a strong web3 loyalty program that satisfies business objectives requires careful thought, strategy and software customizations to ensure a user journey that is positioned for success. Much of this cost will come up front as part of the design.
Program & community management
Labor and marketing costs to maintain your program are not unique to web3 loyalty, but building community can be. Combining a community-based loyalty strategy with web3 technology is extremely powerful and can build a differentiated moat around your brand. But cultivating community requires costs that must be accounted for in your ROI equation.
Web3 loyalty technology platform
As with traditional loyalty programs, web3 loyalty programs require specialized software products. Web3 loyalty software includes digital wallet technology, digital asset creation, campaign management, marketplaces, community management, and integrations with your core business (and in some cases, with your traditional loyalty software). The license fee for your software must be factored into the ROI equation.
The web3 loyalty equation
Picking the right web3 loyalty technology platform is critical to driving ROI of your program.
When evaluating technology partners, we’d urge you to evaluate based on these requirements:
- It must offer the ability to communicate with and engage members: If you cannot communicate with members of your program, it might as well not exist. Your web3 loyalty provider must connect digital wallets with other identifiers like email addresses, phone numbers and social accounts.
- It must show you the whole revenue picture: Not only must they capture the data that helps you communicate, but they must establish the critical link between participant and customer so that the marketer can see how this program is driving revenue in digital assets and in core products/services. This means being able to see the sales, resales and engagement with digital collectibles, the transactions that participants are making with your core business and the organic reach and activity of each participant in your program.
- The program must be easy-to-use by any consumer: Using blockchain technology introduces new technological friction. This friction cannot be pushed onto your target customers, otherwise it will fail. Your web3 loyalty provider must do the hard work of abstracting away any crypto UX patterns, maintaining a cohesive user experience and fostering a welcoming environment.
- The experience must be new and novel: If the platform doesn’t help you use blockchain technology to unlock a differentiated experience – like branded collectibles, swappable currencies, trading on marketplaces, participating in a community, competing on leaderboards, seamless partnerships, etc – then you shouldn’t use blockchain technology. It is expensive and it should only be done if it is necessary to bring to life a new experience in the most efficient and/or powerful way that creates differentiated loyalty.
These are the four key pillars enabled by Flaunt’s platform - designed to help enterprise brands drive ROI with web3 loyalty. We've also developed an ROI calculator tool, available upon request.
Contact us to learn more!