Redefining Engagement: The Evolution of Loyalty Programs with Web3

Web3 remains an ever-evolving and dynamic space in 2024. While many use cases are being built around it, the last few years have also seen the evolution of web3-based loyalty programs. Many brands across sectors are aiming to enhance their loyalty programs by leveraging web3.

Lufthansa, last year, launched its web3 loyalty program, Uptrip, allowing passengers to scan and exchange boarding passes for NFT collectible cards which can unlock exclusive rewards such as airport lounge access and flight upgrades to earning status and reward miles.

VISA has also announced its web3 loyalty engagement solution offering digital wallets and collectibles-based loyalty program features to boost customer engagement.

But why Web3 for loyalty programs ?

Loyalty programs are designed to increase brand loyalty, engage, and retain customers, leading to repeat purchases. However, most traditional royalty programs follow some form of “spend more, earn more” reward point model — i.e. the more you purchase, the more reward points or mileage you get, which can be used to get discounts or unlock gifts. This model lacks differentiation and is unappealing, and the one-size-fits-all rewards do little to foster genuine brand loyalty. Brand’s interactions with customers through these programs are impersonal and transactional at best, and the most crucial aspect — user engagement — is grossly missing. The loyalty space needed innovation and a creative approach that appealed distinctly to the brand’s unique customer base. Web3 loyalty programs aim to do exactly the same.

Web3 loyalty programs reward customers with tokens, which can be in the form of crypto, digital assets, collectibles(NFTs), and more. Tokens are units of value created, stored, and transferred within a blockchain network and represent an asset or part of an asset, physical or digital, on the blockchain. These programs aim to provide a superior customer experience designed to increase engagement through gamification and customized digital rewards, driving brand loyalty.

Brands are continuously exploring ways to connect with their customers and customize their products and services to optimize engagement and foster loyalty. They must also cater to their evolving consumption patterns and behaviors, especially of their next generation of consumers. This digital-native demographic is highly value-driven, values personalized experiences and authentic interactions, and aspires to unique identities, and communities. According to a survey by Consensys, more than 50% of respondents between the ages of 18–34 want more control over their identity on the internet. For brands, it’s crucial to redefine strategies and engage with this demographic in a place where they spend their time and in a manner how they spend their time.

Web3 loyalty programs can be advantageous to innovate engagement for modern consumers. They move away from the traditional models and emphasize building and engaging transparent, trusted communities. Every interaction is gamified, and touchpoints are part of digital journeys or quests, the completion of which results in the accumulation of digital rewards. Some of these rewards range from digital collectibles to unlocking exclusive products (digital and physical), access to gated events and experiences (online and real-world), and exclusive community privileges.

Some brands enable users to co-create, allowing customers to create digital assets and earn revenue and royalties from their creations.

Some web3 loyalty programs also entitle users to the ownership of their digital rewards. As per the Consensys survey, 68% of respondents between 18–24 years believe they should own the things they create over the internet. Ownership is associated with special status, privilege, and rights in the community and adds in exclusivity and digital scarcity to the reward system. It also allows users to utilize these digital assets on other interoperable platforms, making it another appealing aspect of the program.

Nike has been a pioneer in product innovation and community engagement. Staying true to their DNA, they were one of the earliest large brands to explore web3’s potential to enhance offerings as well as customer experience. Be it the creation of NikeLand, its branded virtual space or the acquisition of RTFKT, a metaverse fashion platform, Nike has been at the forefront of web3 innovation. Nike.SWOOSH, their latest web3 endeavor, is a platform to create and foster Nike’s digital community and an avenue for Nike’s all its virtual digital creation. Swoosh members can collect and trade digital assets, co-create these assets with Nike, and earn royalties from their sales. The utility of these digital assets extends beyond the swoosh platform and unlocks physical products as well. In Oct 2023, Nike unveiled Tinaj — the first ever IRL sneaker, only available exclusively to swoosh community members to purchase. To educate users about the platform, Nike also organized community learning workshops both online and offline.

As part of its 2024 roadmap, Nike had announced 2 key enhancements to the program

1. They plan to introduce a new line of video game virtual products — Nike in-game wearable, which can be purchased inside the game and will also unlock physical apparel and footwear in the real world. These digital assets need not be transferred to the Nike account, users can just connect their game account to Nike and enjoy the perks.

2. Nike will enable users to transfer their digital assets to their own wallets, allowing them to trade those in other marketplaces and earn royalties.

These steps show Nike’s continuous effort towards cross-platform integration and partnerships to not only advance the ecosystem but also to provide flexibility and power to its members.

All these features make web3 loyalty programs a very attractive proposition for brands to explore and experiment with but they must be cautious when implementing them as well. They should consider some key aspects that can make or break these initiatives:

• Ultimately, the program should solve real business problems and provide tangible value and ROI to the business. Deciding on a web3 loyalty program shouldn’t be about riding the trend.
• The approach must be to foster and engage the community rather than push customers to spend more.
• The program should provide real incentives to its customers. Be it digital avatars or physical products. brands must understand what appeals to their customer base and align their reward system accordingly.
• It needs to be simple and the experience, seamless. Web3 is in its infancy and is confusing for many, including digitally savvy users. Programs should be supported with ample training and support materials, workshops, and awareness sessions to make it easier for users to engage.

Starbucks Odyssey, one of the prominent programs in the space, was discontinued in Mar 2024. In its Beta version, it boosted a million dollars in revenue in its first year with 350000 active members. The program allowed members to participate in various activities and tasks known as “Journeys” and earn journey stamps. Accumulation of these stamps leads to unlocking exclusive rewards. These rewards ranged from exclusive merchandise to a trip to a coffee farm in Costa Rica.

While the reasons for the program’s abrupt termination are unclear, some suggest minimal community engagement, lack of integration with Starbucks apps, limited utility of rewards, and complex navigation could be the factors influencing the decision. However, the program was still in its beta phase, and with the 75 million customer base of its core reward loyalty program, the earning potential could be huge As its last announcement suggests the door is still open for an evolved version and we will have to wait and see what comes next.

• Brands should consider strategic partnerships and alliances to help build the web3 infrastructure with the potential to scale and integrate with other platforms in the ecosystem as well as ensure the security of transactions and digital wallets.

In Nov 2023, Grupo Rao, the largest Japanese food delivery service in Brazil announced its plans to launch a web3-powered loyalty program using the DUX smart wallet on the Moonbean network, a smart contract platform to build cross-chain connected applications that can access users, assets, and services on any chain.

Web3 is changing how digital innovation and engagement are viewed in the loyalty space. Strategically designed, web3 loyalty programs will not just serve as engagement mechanisms but also as customer acquisition tools. Programs like Starbucks Odyssey have demonstrated the earning potential of these programs and it opens up other revenue-generation opportunities through the sale of digital assets. But brands need to be very careful, look at what existing players are doing right and where they are faltering. It will be particularly interesting to see how innovative brands will get in designing their reward systems and how the ecosystem will evolve to support that.