Starbucks’ Odyssey: The Future of Loyalty Or Is It Just Hype?
Since the beta officially launched on Dec. 8, Starbucks continues to onboard new customers by the day. Now that Odyssey has been out for three months, we’re breaking down whether the program is truly inventing the future of loyalty or if it’s just hype.
To summarize, Starbucks Odyssey is a first-of-its-kind Web 3.0 loyalty program that launched its Beta program in December 2022. How it works is customers log in with their Starbucks Rewards account and participate in challenges to earn “NFTs” called Journey Stamps. Through completing challenges and earning stamps, customers earn points that unlock unique Starbucks rewards, such as virtual martini-making classes or unique access to artist merchandise. For a full strategic analysis of Starbucks Odyssey, you can read more about it here.
The Experience So Far
Single Sign-On
Starbucks Rewards has over 31M members, making it one of the most successful loyalty programs on the planet. Thus, Starbucks doesn’t need to start from scratch. So when designing Odyssey, they’ve decided to use Single Sign-On to leverage the community of already engaged customers from Starbucks Rewards. Customers can log in to the Odyssey Web app using their existing Starbucks Rewards login credentials when they get their invitation to join the beta. This provides a seamless experience so customers don’t need to create a separate account and can dive right into the experience. In addition, this allows Starbucks to gather more data about these customers to better understand their preferences and behaviors and provide more personalized offerings. Along with linking their Rewards and Odyssey accounts, Starbucks also manages customers’ digital wallets within Odyssey in partnership with Nifty Gateway. So customers don’t need to worry about where their digital collectibles will be stored as it is all embedded into the Odyssey app.
Potential To Be Big
While over 1,000 lucky customers received exclusive access to Odyssey’s beta program, their new Web 3.0 loyalty program is still in the experimental phase. Starbucks hasn’t released official engagement metrics, but we can get a sense of the levels of engagement by scanning Nifty Gateway.
At the time of writing, Starbucks has a total transaction volume of $214K on its digital collectibles. They receive a 10% royalty for each transaction on Nifty Gateway, which means they’ve earned $21.4K in revenue. The prices of each collectible range from $80 to $2,000.
In addition, they’ve released four journey stamps to date, which means that there have been four challenges that customers have been able to participate in.
Here’s a list of the current stamps:
If we look closer, less than 15% of customers are selling/trading their digital collectibles on average. This means that a majority of customers are holding onto the collectibles. They’re probably hoping their collectibles will increase in value or there will be future hidden perks for owning a given collectible.
Starbucks incentivizes consuming loyalty points by attaching an expiry date to ones associated to digital collectibles. But the points, which you can redeem for in-store drinks or merchandise, seem to be a minor perk compared to the speculative value of stamps on the NFT marketplace. A Holiday Cheer Edition 1 most recently sold, as of writing, for $1,700.
If Starbucks can onboard 5M customers to Odyssey, and these numbers hold, they’re looking at an approximate transaction volume of $705M, meaning $70.5M in revenue for them in year 1. So there’s potential for this to be a significant revenue stream for Starbucks.
Despite this potential upside, Starbucks has been careful about rolling out a Web 3.0-based product in a way that hinges on customer experience. This careful approach that balances adoption, technology viability and risk assessment, and a sensitivity of public sentiment, is one that we and other brands can learn from.
Positive Customer Sentiment
Overall, the customer sentiment has been pretty positive. Many customers like the ability to “monetize” their time and efforts by participating in challenges. They enjoy being incentivized to partake in actions they usually would already do, such as buying coffee or giving friends gift cards. Although, as already mentioned, there have been low volumes of transactions.
Since Starbucks has such a strong customer base, Odyssey provides them with a new way to interact with the brand outside of when they’re purchasing coffee. The Web 3.0 Loyalty program provides a gamified experience that brings a deeper connection with consumers that spans both physical and digital. As brands look to the future of loyalty, programs like Odyssey could be early examples of how companies evolve their engagement strategies with customers, especially as we approach the rise of the Metaverse.
But Odyssey is not Web 3.0
Starbucks has made a big deal about Odyssey being a Web 3.0 loyalty program, but is it?
They’ve removed Web 3.0 jargon such as NFTs, tokens, and crypto-wallets from any customer-facing marketing copy and within the Odyssey experience. They have been abstracting the association to Web 3.0, presumably to emphasize the experience it enables.
Decentralized peer-to-peer transactions–touted as one of blockchain’s value propositions–is disincentivized in the Odyssey program. When you take your digital collectibles outside the Starbucks ecosystem, you lose your loyalty points and Starbucks based perks. Doing so decouples it from your Starbucks Rewards account and it then only lives within the Nifty Gateway marketplace.
In addition, if you look under the hood of Nifty Gateway, the majority of transactions for digital collectibles within the platform, including Starbucks’, may not actually be recorded on the blockchain. Nifty’s custodial platform stores collectibles in the Nifty Gateway Omnibus wallet and transacts within that wallet–not on the blockchain–to sidestep fees associated with blockchain transactions. Outside of these use cases, Nifty Gateway treats digital assets like any other before Web 3.0. This leaves us to question if any of Starbucks’ digital collectibles are actually recorded on the blockchain at all.
Starbucks has abstracted away so many of the components that would justify Odyssey as a Web 3.0 application or a decentralized platform. There are facets within the stack that allows for decentralization, but for the most part, it’s not. This seems more like a bridge to Web 3.0 or rather just hype.
But Starbucks has definitely considered the tradeoffs.
Risks with Web 3.0 Adoption
Firstly, Web 3.0 lacks centralized control. This means that brands operating in this space may be subject to market fluctuations and regulations that could significantly impact their brand image. Companies would be exposed to hacking, data breaches, and other security issues without centralized control. Not to mention, brands would need to embrace the freedom that users have in Web 3.0 by relinquishing control of user behaviour and designing experiences that hedge against bad actors.
Secondly, investment in development costs for Web 3.0 may not be justified for all brands. While the benefits of a decentralized web are tempting, it may not make financial sense for brands with more straightforward products or services to make significant investments in this area. In addition, building a presence on a new platform in a new ecosystem can be challenging and expensive, resulting in long-term financial strain for a brand.
In addition, a heavy focus on reducing user friction is a major challenge for brands operating in the Web 3.0 space. To attract and retain customers, companies must design user experiences that are seamless and intuitive. Given the complexity of Web 3.0 technologies, brands may struggle to achieve this, resulting in customers losing interest or abandoning the platform altogether.
Moreover, there are uncertainties around taking assets outside the ecosystem. While blockchain technology provides a high degree of transparency and immutability, taking assets outside the ecosystem may come with risks. For example, the transfer of digital assets may incur high transaction fees, and there is no guarantee that these assets will retain their value in the long term.
Finally, while Web 3.0 loyalty platforms could bring switching costs to zero, this could potentially result in brand churn. Brands may have to work harder to retain customers, as they can move between loyalty platforms at no cost. This can create significant challenges for brands to build loyalty and maintain their customer base.
Conclusion
Starbucks Odyssey has the potential to grow into a key part of Starbucks’ loyalty offering, engaging customers outside the bounds of buying coffee. Their approach sets them up early to understand the risks and value of experiences based on new Web 3.0 tools. Even though we call out that Odyssey only scratches the surface of Web 3.0 technology — they are experimenting with the ideas of collecting NFTs and peer-to-peer experiences — new behaviors that don’t currently exist in the mainstream. Starbucks is cleverly balancing Web 3.0 as a marketing tool, while abstracting it from the actual experience. This does foreshadow how Web 3.0 tools may be adopted in the future — completely invisible to the user. Starbucks is paving a path for how a global brand might leverage Web 3.0 for consumer loyalty — other brands would benefit from following this case study as they continue to explore, test, and gain experience with these new tools, behaviors, and ideals.
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