Building loyalty with Web3

The Web3 Advantage: Top Benefits of Web3 Loyalty Programs (for Brands & Customers)

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October 4, 2023

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Could Web3 be the best way to supercharge your loyalty program? Let’s delve into the benefits for your brand and customers, as well as the challenges of its integration.

Say that you pass two coffee shops on your morning commute. Both of them offer a tasty jolt of caffeine at the same price. And it’s equally convenient to go to either one so… What’s going to make you choose one over the other?

Well, what if one of the shops says, “Hey, every fifth cup's on us!" 

Bingo, you’ve stumbled onto a loyalty program, the ol' carrot-on-a-stick approach to nudge you in the right direction. Seems like a foolproof plan, doesn't it?

Well, what if every coffee shop offered a free drink for every fifth purchase? 

This is the reality of modern-day business. Almost every B2C brand has a type of loyalty program to incentivize customers to keep ‘em coming back.  But these programs, with perks like discounts and free products, are now so common that their allure isn't as strong as it once was.

Where loyalty programs often slip up 

Some of the most common pitfalls in loyalty programs include: 

  • Unclaimed rewards: It’s been previously estimated that customers sit on as much as $100 billion in unclaimed loyalty points. 
  • Low engagement: Customers belong to an average of 14.8 loyalty programs but are only active in about 6.7. 
  • Complicated program structure: Bond Brand Loyalty lists “poor loyalty solution design” as an extremely common pitfall for loyalty programs. Programs should be as simple as possible. 
  • High churn: With customer churn as high as 30% in some markets, loyalty programs should aim to decrease churn rather than encourage it. 
  • Low enrollment rates: On average, 79% of consumers have established some form of relationship with brands they purchase from in the form of engaging with a loyalty program. What percentage of your customer base is engaged with your loyalty program?

Key ingredients of a successful loyalty program

It’s widely acknowledged that loyalty programs are crucial for forming more meaningful relationships with your customers. But McKinsey notes that loyalty programs are most successful when: 

  1. The benefits outweigh the fees
  2. They offer experiential and personalized rewards
  3. Engagement with the program/brand is easy and effortless

The good news? These are all advantages that Web3 loyalty programs offer. Web3 loyalty programs take advantage of Web3 technology to build the infrastructure for personalized rewards that are directly owned by your customers. 

We’ve seen brands like Lufthansa and Etihad use Web3 to set their brands apart by offering rewards that their customers are actually interested in. 

So why might Web3 be your best option for upgrading a loyalty program? Let’s delve into the benefits for your brand and customers, as well as the challenges of its integration.

Neat advantages of Web3 loyalty programs,

for brands

Customer rewards can be revamped

Web3-based loyalty holds distinct advantages over traditional loyalty programs. Web3 rewards are usually non-financial, experiential, and relevant to your customer’s individual interests. These types of rewards once demanded extensive infrastructure and were difficult to manage. Now, with Web3’s smart contracts, rewards are auto-distributed based on company-set conditions, making the redemption process easier. (For more details, check out our short post on Web3 rewards.)

Stronger customer relationships

So what do better rewards accomplish? Well, this focus on a better experience for the customer fosters stronger relationships with your customers to increase your brand’s retention. Because you’re 14 times more likely to sell to an existing customer vs. a new one, increasing customer retention and reducing churn is incredibly important. Beyond this, personalized rewards inspire customers to feel more connected with a brand. And customers are 83% more likely to purchase from a brand that they feel emotionally connected with. The ultimate goal is for your brand to establish a group of brand advocates who personally attest to the merits of your brand. 

Brand differentiation

Web3 loyalty programs also make your brand stand out from the crowd.

Lufthansa’s Web3 loyalty program revolutionizes one of the most stale loyalty program formats of all time: airline miles. Their new loyalty program involves NFT trading cards that can be earned through customers purchasing flights. Members collect these NFTs to earn exclusive upgraded benefits for their travel experience. For example, a specific NFT collection may grant a member access to the airport lounge or bonus miles to use on flights. This gamified loyalty system focuses on experiential rewards to be completely different from the classic airline loyalty structure. 

Better results through valuable data 

Finally, we note that 87% of Americans are willing to share their personal data in order for rewards that are personalized and relevant to their interests. If you’re struggling to understand and connect with your audience, Web3 can be an excellent avenue for collecting valuable insights about your customers in a way that both parties feel comfortable with.

Neat advantages of Web3 loyalty programs,

for customers

Engaging rewards and experience 

For customers, Web3 loyalty programs are more fun and rewarding to engage with than traditional loyalty. Web3 allows you to explore a wider range of rewards that address the psychological needs that customers need fulfilled. To understand the benefits of this more, consider our article on choosing the right rewards for your customers. With rewards matching your customers’ preferences and behavior, your loyalty program will feel far more rewarding to engage with over the competition. 

Access to new communities

There are also opportunities to create social spaces for your brand where your most dedicated brand advocates can socialize and share content that they’ve created related to your brand. Access to your community can even be a potential reward a customer gains from your loyalty program. Supporting and engaging with brand communities lets your customers know that you’re listening to their feedback and care about their dedication to your brand. 

Transparent data usage

We touched on customer control of their personal data as a potential business benefit but it’s a definitive positive for any customer that’s considering engaging with a loyalty program. Data privacy concerns continue to be a relevant topic in modern technology, such as AI. Customers are rightfully wary about giving out personal data and understanding how it’s to be used. Web3 utilizes an open-source blockchain, which means that anyone can see how Web3 projects are built and how they’ll be used. This way, if any personal data is to be collected, your brand will have full transparency as to how it only intends to use their data to create better benefits for them.

The challenges of embracing Web3

If Web3 is so great, why hasn’t everyone made the switch yet? 

Web3 is still in its early stages and forming a realistic, concrete plan can be difficult for companies not as familiar with decentralized spaces. There are also certain costs for investing in a Web3 loyalty program, sometimes financial, sometimes in the very infrastructure of the company, sometimes more. Here are a few of the most common ones.  

Knowing where to start 

It’s a daunting task to redesign an existing loyalty program entirely from the ground up. Your company may have spent years building an app, a database, and other infrastructure that manages a loyalty program. The prospect of introducing Web3 means rethinking how a loyalty program functions, which can be scary. But, if your loyalty program is struggling, it will cost more to maintain mediocrity in the long term than to upgrade towards success. 

Cost and resources

The upfront costs of making the switch to Web3 loyalty are certainly there. Creating NFTs and integrating your loyalty program with a Web3 platform will require financial investment. However, loyalty programs that are failing tend to actually cost the business money, rather than drive sales. Remember that the value created by a loyalty program must exceed the cost of value delivered. If your program is failing to demonstrate value, you’re losing money by not upgrading it. Of course, your brand still needs to be realistic about what it can achieve by introducing Web3 into its customer engagement strategy. Therefore, it can be beneficial to experiment with experimental non-financial rewards first to understand the value proposition that Web3 offers. 

Marketing and positioning the program

A program with low enrollment rates may be perfectly functional with excellent value provided to customers but still fail. Why? Because oftentimes brands fail to properly market their loyalty program and encourage their customers to enroll in it. If this is the case, it doesn’t matter how much your brand upgrades the program, as it will still ultimately fail to get in front of any interested parties. Partnering with an expert of the latest digital marketing trend is essential and should be thought of as just as important as revitalizing the loyalty program itself. 

Web3 proficiency

Web3 is a relatively new space that not everyone is as familiar with. Both customers and brands still hold several misconceptions about Web3 to be true, so don’t underestimate the value of partnering with a Web3 expert. A Web3 expert can help both design a loyalty program that addresses your business’ specific needs as well as set realistic goals for the program. If you need some help, get in touch.

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