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In recent years, a new narrative has emerged in the Web3 world: innovating customer loyalty programs with Web3 technology. Whether you're already familiar with this concept or you’re hearing about this for the first time, we will explain the evolution and provide examples of how Web3 can be used to enhance customer loyalty in this post.
Let’s start by providing some context: what is customer loyalty? In short, it's all the activities a company does to retain its customers. This can be very broad, and in real customer-centric organizations, everything the company does contributes to customer loyalty. For this post, we'll focus on loyalty programs. These come in various forms:
Reward programs: the most well-known form of these reward programs is the loyalty card at your favorite supermarket. You earn points or a similar currency which you can exchange for benefits.
Tiered programs: a good example is the miles program that some airlines offer. The more you fly, the higher you rank, and the more benefits you get on future flights.
Memberships: you pay to become a member and receive certain benefits that others do not have.
The main goal of customer loyalty is to increase retention - keeping your customers loyal to your brand. Retaining an existing customer is up to 25 times cheaper than acquiring a new one. This makes sense because attracting a new customer requires investments in marketing and sales. You’ll also be spending much more time earning their trust.
A loyalty program can offer value to your customers in the form of discounts and other benefits, keeping them connected with your brand so they don't forget you. The ultimate goal of loyalty programs is to increase the share of wallet: the percentage of a customer's spending that goes to you instead of a competitor. 93% of companies that measure the ROI of their loyalty programs see a positive ROI. For every euro or dollar you invest in a loyalty program, you get more in return.
Investing in a loyalty program is relevant and profitable. However, there are some challenges today:
Consumer dissatisfaction: a lot of consumers are dissatisfied with loyalty programs. In the Netherlands, 58% of customers are not satisfied with the loyalty programs they are part of (Bond Loyalty Report, 2023).
Increased inactivity: the number of loyalty programs has increased by 50% in the last 10 years, but the number of inactive members has doubled (Bond Brand Loyalty Reports, 2015, 2021, 2022). More companies are investing in these programs because they are profitable, but it is increasingly difficult to engage people with these programs.
Generation Z disinterest: the new generation of consumers seems to be less interested in loyalty programs. 40% of 18- to 24-year-olds (Gen Z) have never signed up for a loyalty program (Salesforce State of the Connected Customer Report). But by 2026, this generation will make up 40% of consumers!
Partnership setup: setting up partnerships with other companies is a strong way to deliver value to customers. However, setting up such partnerships can be time-consuming and costly. This is particularly challenging for small businesses who want to collaborate with large companies.
Data collection: with third-party cookies disappearing from browsers by the end of 2024, companies need to find new ways to collect data about their customers. Capturing zero and first-party data is becoming increasingly important.
In general, we can conclude that organizations face significant challenges when it comes to customer loyalty. They need to find new ways to activate their customers and create a deeper connection between brand and consumer.
Web3 is one way to address these challenges. Spoiler alert: it is certainly not the only way to do that. Web3 does not form the future of customer loyalty on its own, but it is a new tool in the toolbox that organizations can experiment with. But how can you use Web3 to enhance your customer loyalty?
You can reward customers with collectibles (e.g., NFTs) when they engage with your company. This engagement can be a purchase, but also actions like sharing a social post, playing a game, or being active within a community.
A good example is Uptrip by Lufthansa, an extension of the miles program. By scanning your boarding pass, you receive collectibles: from the destination, the type of aircraft, and the airline. By bundling these collectibles, you can receive certain benefits, such as access to the business lounge or free baggage check-in. This seems quite traditional, but the difference here is that you can choose to trade your collectibles on the Uptrip marketplace. You can even convert your collectibles into a real NFT and trade them in other ways.
Another example is Nike .SWOOSH, a Web3 platform for Nike fans and creators. On this platform, digital assets are created that users can wear in games, for example. The community also gets access to exclusive sales. Owners of a particular NFT were granted access to the first physical shoe created and sold via .SWOOSH. This shoe was the Air Force 1 'TINAJ,' which stands for 'This is not a jpeg,' a nod to the NFT hype.
Communities are part of the native model of Web3, as seen in the crypto world. People are drawn to a particular brand, only in this case, the brand is a blockchain platform. Many platforms issue their own coin, which is initially distributed to attract people (this is called an airdrop). By investing in a coin, people become invested in what happens with the brand. This makes them part of a community where ideas are developed together. The platforms benefit from promoting their brand well, in order to make their tokens increase in value.
Now this is mainly used for speculative reasons in the crypto world, but these principles can also be applied to brands. By creating a community around a brand and by engaging people to interact with it by for example: voting on which new product to launch or voting on a strategic decision that impacts the community, you can give people a sense of belonging which will result in a deeper connection with the brand. Organizations are actively experimenting with this model and building more community-led brands, with examples like Nike .SWOOSH, Travala, Hugo Boss, KIKI, Pudgy Penguins, and more.
Thanks to blockchain technology, you can target customers who have a certain collectible from a particular brand, without needing to set up a direct partnership with the brand first. This brings interesting possibilities, such as in the music world. Nowadays, it's very difficult to buy concert tickets due to high demand and limited supply. You could give priority to fans who own a certain NFT, have streamed a lot of music, or have attended many concerts.
Even after the concert, you can capitalize on this. Concertgoers could be given access to an exclusive playlist on Spotify. Blockchain makes this possible without needing point-to-point integrations between the record label, the ticket company, and other platforms.
Web3 can be used to target a specific audience as well. Let’s look back at the concert ticket example: if your ticket is also an NFT, then Burger King or any other brand could send all NFT holders a 50% discount for a purchase that evening. This allows you to approach customers in a completely different way. The possibilities are endless. It also partly addresses the issue of third-party cookies disappearing in 2024.
It's often said that NFTs are the new cookies. Everything that happens on the blockchain is linked to a specific wallet and is publicly available. This data can be used to create customer profiles. If someone has bought a certain pair of shoes and also owns an NFT of them, brands can see that and approach that person with a relevant offer. If the customer gives their permission, you can also link that NFT to their personal data, making it an ideal way to collect zero and first-party data.
Web3 is not the all-encompassing solution for challenges in customer loyalty, but it is a new way to keep customers engaged, build community-led brands, simplify partnerships, and collect data. Especially if Gen Z is your target audience, it can be valuable to experiment with this technology.
Many large companies have experimented with web3 in recent years. They started programs using NFTs, but dropped them when the NFT bubble burst. Some didn't see the return they expected and changed course, which often happened because they didn't use the technology in the right way:
They expected significant revenue solely from selling NFTs as images;
They launched these new programs completely separate from their existing programs, making it difficult for consumers to find their way and thus not creating the expected traction;
They did not provide easy onboarding for users, often making it too complex to start.
A market cycle in Web3 always goes through four stages: product innovation, increased interest, increased volatility, and market reset. Each cycle brings new innovation, more sophisticated use cases, and therefore greater value for companies to experiment with. The previous NFT-based cycle (2020-2022) led to innovation and exploration of use cases in the customer loyalty market. The current, new cycle will bring even more innovation and better ways for companies to use this technology. At the same time, only the solutions that truly work will remain.
By combining and integrating these new technology tools correctly with existing "traditional" programs, they can deliver more value and create a deeper connection with the consumer. Brands should not fall into the trap of using these new techniques in isolated programs, but use it as a part of a complete loyalty and business strategy. Only then will they reap the benefits of it.
