Loyalty programs are broken – are NFTs the solution?

Loyalty programs are a common strategic tool to drive participation at key moments with customers. But the goal of most loyalty programs can be boiled down to driving more value from customers through increased retention (or by increasing basket size or frequency).

Often, the value exchange for users and brands can be heavily skewed in favor of loyalty programs. Brands will offer generous discounts or rewards, usually at a loss during acquisition; the value exchange decreases as users spend more time in the program. Users must expend a lot of time and effort to extract meaningful value.

This can lead to programs giving their most generous rewards to their least loyal customers in an attempt to drive profitable behavior.

Instead, driving participation through enhanced service, communications and value should be central to the core program. This way benefits can be effectively surfaced, and users can recognize rewards for loyalty and engagement.

The new loyalty

Brands are constantly looking for ways to innovate loyalty programs to drive more participation, such as REI’s co-op model, which gives users life-long access to discounted experiences and a branded second-hand swap shop. Or Nike Run Club partnering with Spotify and Headspace, bringing music and holistic wellness to a runner’s experience.

But beyond stores, sites and apps, how can brands enhance the platforms where users engage with loyalty programs? NFT technology can give customers more power to participate and get value from loyalty offerings through cutting-edge digital assets and innovative loyalty currencies.

Brands are already jumping into the NFT space with varying degrees of success.

The likes of Nike and Adidas are exploring NFT marketplaces; Starbucks leads the way with Starbucks Odyssey. An NFT-backed loyalty proposition built with Ethereum giants Polygon, it says, will allow customers to purchase and earn digital collectible stamps as NFTs that will offer benefits and immersive experiences.

It’s not yet clear how Starbucks will make this a reality, or what these benefits and immersive experiences (that aren’t already possible with its current loyalty program) will be.

Utility

How, exactly, can NFT-based technology drive more participation in their loyalty programs in new ways?

Two hot topics in the NFT space may hold the answer: utility and interoperability.

‘Utility NFTs’ grant their owners privileges, rights or rewards that they wouldn’t be able to access otherwise. With paper gig tickets, each ticket is unique, with a unique ticket number granting access to the gig. Utility NFTs are based on this premise.

If those gig tickets were issued as NFTs, the initial utility is (again) to give the holder gig access. But the technology can also be applied to offer holders additional benefits: the chance to buy the band’s new album or limited-edition merch, or VIP access to the gig.

The ways in which utility NFTs could be expanded to deliver more value to customers over time are almost limitless. They can be used to enhance loyalty programs and deliver more opportunities for users to interact with a brand.

Interoperability

Interoperability is going to be key for unlocking more customer opportunities to participate with brands and loyalty programs.

Interoperability means connecting disparate programs into an interlinked loyalty network. With blockchain-based technology like NFTs, this means that loyalty programs, vendors, partners and customers can interact with a single system without the need for intermediaries.

Customers could have the chance to interact with each other through their engagement with loyalty programs, sharing and combining points to potentially unlock experiences or discounts that wouldn’t normally be available. It could also remove potential barriers global brands have to connect loyalty programs across business operations, rewarding users across multiple markets.

We don’t know yet how Starbucks is going to deliver utility or interoperability, but the thinking is clearly there in its messaging around connecting customers to a like-minded community of engaged coffee fans.

Star power

PlayStation Stars gives a concrete example of how utility and interoperability might be applied.

PlayStation will be looking to reward players for their typical behavior and grant them access to unique digital collectibles. Imagine if gamers could unlock the ability to combine and share rewards to access new shared experiences through an interlinked network.

Brands should be keeping an eye on utility NFTs and the possibility of interoperability. They could massively change the fundamental loyalty mechanisms brands can offer. Combined, these measures could massively change how users want to participate with loyalty programs.

But there’s still an awfully long way to go.

The mechanisms behind interoperability are in their infancy, and utility NFTs are finding way more traction in entertainment industries than in commerce.

The onus is on marketers to design experiences to reward customers for participating with our brands, ultimately making customers want to participate more. Only then will we find ways to capitalize on these paradigm-shifting technologies.