How Web3 is shaking up customer loyalty for the better, giving brands the ability to build loyalty programs that set themselves apart.
It starts with a simple question: Why do customers choose your brand over others?
There’s a whole rainbow of answers to that. Some might choose you because of sheer convenience. Others might be drawn to your charismatic sales rep, Naomi. And then some just think your brand is pretty neat.
But the crux of the matter is this: If your customers continue to do business with you, that’s a big deal. It means you have a healthy customer relationship that you should continue to incentivize.
This is what loyalty programs set out to accomplish: Reward customers for repeat purchases.
While early loyalty programs had a structure we’re all familiar with – freebies and discounts after hitting a purchase target – today’s programs are rapidly changing, offering customers compelling rewards personalized to their interests.
And the key ingredient in these innovative loyalty initiatives? Web3.
Thanks to its decentralized nature, Web3 can help brands build loyalty programs where rewards aren’t just received, they’re owned.
Web3 gives control of personal data back into the hands of the user and gives brands the building blocks to create experimental, experiential, personalized rewards that customers are actually interested in.
In this post, we’ll explain how Web3 is shaking up customer loyalty for the better; giving brands the tools to build a program that gives customers rewards that stand out from the crowd.
A little background on loyalty programs
"To understand the future, we must understand the past." This adage is as true for improving loyalty programs as it is for learning from life’s many lessons.
Traditional loyalty programs often hinge on points, discounts, and random free stuff. While they’ve gained momentum in the digital age, rumor has it that they date back to the Stone Age… Okay, just joking – but they have been around for a few hundred years at least!
In the 1800s, companies like the Grand Union Tea Company began giving customers tickets with their purchases of coffee and tea products. Collect enough tickets and a customer could redeem them for something, like an Oak Chair or a dinner set. While not explicitly called “points,” this ticket system behaved much the same as a modern points system, even allowing the customer to choose what rewards they’d like to redeem their loyalty on.
Much later, in the 1980s, airlines like American Airlines allowed customers to earn miles based on how far they’d flown. Rack up enough miles and you’d earn yourself a free flight. Pretty cool 30 years ago, but given how long these programs have been around, it’s unsurprising some of them have grown a bit stale. These days, customers have a vast range of options at their fingertips. Without that spark to captivate them, they’re just a click away from the next big thing. In fact, 75% of consumers would readily switch brands for a better loyalty program.
According to a Zippia study, 75% of consumers prefer companies that offer rewards and 85% of Millennials believe that loyalty programs enhance their experience with a brand. Meanwhile, 34% of consumers think that being part of an online group nurtures a sense of community around their favorite brand. This is particularly true for younger generations, who seek a personal connection with the brands they shop with.
To understand how to improve a traditional loyalty program, let’s take a look at how customers usually participate in these programs.
How customers earn rewards
The average loyalty program encourages customers to sign up for the program by offering them some sort of reward for participating. Participating, in most cases, involves the customer making repeated purchases with the company. And therefore an ecosystem is established: Customers continue to buy from a brand and earn rewards in turn.
Of course, this doesn’t even begin to encompass every way that a customer can participate in a loyalty program. Some examples of some of the other ways that customers typically participate in loyalty programs are:
- Leaving product/service feedback
- Interacting with certain content (e.g. reposting or commenting on social media posts)
- Referring a friend
- Taking part in special promotions
- Reaching a milestone
- Hitting an anniversary (e.g. a birthday or your loyalty program signup anniversary)
- Attending a workshop/event
- Being sustainable (e.g. returning packaging)
- Completing courses/tutorials
- Renewing Subscriptions
- Buying from affiliate brands
- Buying gift cards
- Using specific payment methods
- Engaging in social media
- Taking part in a brand-specific challenge (e.g. record yourself with a product)
Rewards in a loyalty program can be tied to any of these actions that a customer can take. We encourage you to rethink how you can reward your customers with your loyalty program outside of just making purchases. These creative solutions express more of your brand’s identity and build a more active and engaging relationship with your customers.
What makes a reward rewarding?
We’ve outlined how customers earn rewards, but what exactly constitutes a “reward”?
Your first thought may be something like a free drink, a 20% discount, or some other financial incentive. And you’d be correct! Monetary gains are some of the most common reward types that you’ll see in loyalty programs. They may be somewhat predictable, but customers usually appreciate them as they’re tangible and the value is immediately obvious.
But rewards go beyond money. In a separate post, we covered 12 different ways that you can reward customers without discounts or points. These are called non-financial rewards that don’t have a tangible monetary value. So what’s the benefit of rewarding customers with these types of rewards?
Focusing on monetary rewards makes your brand’s loyalty program more of a transactional relationship between you and your customer. The rewards don’t take into account an individual customer’s preferences, they prioritize short-term benefits.
Non-financial rewards can help build an emotional connection with your customers. They focus on higher levels of personalization and rewarding customers with unique experiences. Some examples of non-financial rewards are:
- Community access - Exclusive social spaces where other loyalty program members can discuss interests.
- Personalized offers - Utilizing customer preferences and personal data they share to offer rewards relevant to their interests.
- Experiences - A ticket to an event or a unique workshop/tour.
- Early access - Give your loyalty program members access to early products or services before they’re widely released.
Why Web3 is shaping the future of customer loyalty
The issue that we’ve outlined with purely transactional rewards is actually what Web3 reward programs directly address. Imagine the new and interesting rewards and how they can be earned within a loyalty program that’s far more exciting and relevant to a customer’s interest. This cutting-edge approach focuses on building these personal, positive emotional connections with customers for longer-lasting business relationships.
Automatic reward rollouts
With Web3, enhanced and personalized rewards are facilitated by smart contracts. These contracts automatically dispense rewards when customers meet conditions predefined by your loyalty programs. Since it's all managed on a blockchain database, there's no need for additional infrastructure on your part. Whether you want rewards triggered by social media engagements, purchase milestones, or anything else, smart contracts handle the criteria that you define.
So how do Web3 loyalty programs handle member management? Access to Web3 loyalty programs is granted through an NFT (non-fungible token) that acts as an access pass to the program. The benefit of doing this is that the NFT exists on the blockchain, so again doesn’t require any infrastructure on your end. As long as a customer holds an NFT, they’re granted access to all loyalty benefits that you want. This NFT acts as the member’s credentials for getting benefits similar to a membership card or account.
New community spaces
Web3 loyalty programs take advantage of the network of brand advocates that you form to create social spaces where these token holders can discuss your brand and their similar interests in a brand community. Brand communities are spaces where these most loyal customers convene, create UGC, give helpful feedback to your brand, and generally socialize. This group is your most valuable segment of customers, with 80% of your future profits coming from just 20% of your existing customers.
Utilizing Web3 technology also opens the doors for working with other brands in the form of co-branded rewards. A co-branded reward is a synergy between two brands that is mutually beneficial to all parties. These types of initiatives are usually fairly difficult to execute, but the blockchain is highly interoperable, meaning that Web3 loyalty programs play well with one another. Co-branded rewards are a great opportunity to tap into other markets and experiment with new synergies. This is especially important when 54% of companies reported that partnerships drive more than 20% of total company revenue.
Personal data stays personal
We’ve talked a bit about personal data and Web3 earlier. What makes Web3 so trustworthy in this area? Web3 is a transparent space with most blockchains being entirely open-source. Anyone concerned about how their data is used can just go in and check out the infrastructure of a blockchain to see how it works. The transactions that occur on a blockchain are also entirely automated, meaning there’s no need for a centralized third party to verify a transaction’s validity. If a customer chooses to share personal data for better rewards (87% of members are interested in having details of their activity and behavior monitored to receive access to personalized rewards) they can be assured that this data will only be used on what they’re comfortable with.
Brands embracing Web3 loyalty in 2023
- Customers can create, collect, and trade digital sneakers and are granted access to exclusive products, experiences, and early access to products.
- May 2023 NFT sneaker collection surpassed US $1 million in sales.
- Customers progress through interactive Journeys to earn NFT stamps that give them access to exclusive benefits and experiences.
- Starbucks’ first 2,000 stamps all sold out within the first 20 minutes.
Dolce & Gabbana DGFamily NFT Community
- D&G NFTs come in the form of different tiers: black, gold, and platinum boxes. These tiers each come with their own set of rewards such as access to fashion shows and physical apparel.
- Their 2021 Genesis Collection saw $5.65 million in initial sales.
- Cafe and restaurant chain Farm Girl launched a collection of 70 NFTs with a simple premise: NFT holders get free coffee whenever they want. This collection comes in multiple tiers with increasing benefits the higher the tiers. The most common tier is the one-year free coffee tier that allows the holder 1 free coffee every day. The highest tier offers two free coffees and two free meals every day for life!
- Passengers flying airlines under the Lufthansa Group can earn NFT trading cards themed around popular travel destinations. Members who complete collections of cards earn benefits like in-flight Wi-Fi, discounted plane tickets, or other VIP upgrades for their travel experience.
- The successful soft launch saw 20,000 users collect over 200,000 trading cards.