Unlocking the Power of Tokenized loyalty
Loyalty programs can be awesome for driving revenues up and maintaining customers. The global loyalty market recorded an annual growth of 12.4% during 2019-2023 and is expected to grow another 9.5% each year up to 2028 (source).
True loyalty is created when the brand creates a deeper connection with its customers and aligns on values. And yes, salience and availability are obviously important. A well-designed program incentivizes actions by its customers and delivers value in return. That value can be monetary gains, but also include softer rewards such as a sense of community, status and value alignment.
The loyalty challenges
The below BCG research shows the correlation between loyalty member satisfaction and member return on spending. The low correlation suggests that members are looking for more value than just monetary rewards. Hence the need to design programs that foster ownership and community as well.
The challenges with most current loyalty programs are:
Perceived lack of value: this is due to constraints in rewards set by program owners and lack of personalization and community. This is one of the crucial causes for the overall number of inactive members from loyalty programs to rise. From 28% in 2014 to 54% in 2022 (source).
Transactional: most programs focus on transactional relationships, creating low emotional engagement and attachment. Resulting in 61% of consumers switching some, or all, of their business (source).
Costs to scale partners & network: creating partners and creating a loyalty network are great ways to increase the perceived value by members. However, it comes at considerable costs to scale and maintain. And these programs do not necessarily create deeper connection between brand and customer.
Tokenized loyalty benefits
Tokenized loyalty can, when designed well, help overcome these challenges in a number of ways. We discuss these below.
Apply anywhere
The tokenization of rewards on a public blockchain enables interoperability with any other brand that chooses to accept the tokens. This scales the partner program without the need to strike partner program contracts and maintain partner deals, decreasing costs of management substantially. And thus, increases perceived value by its members, as they are now not restricted to the partners in the program to redeem their rewards.
Some examples:
A luxury sunglass company has the capability to provide a 10% discount to all members of the IWC Diamond Hands Club through a token-enabled Shopify store, all without the necessity of coordinating with the Swiss watch manufacturer. This not only boosts the value of IWC's loyalty program and its membership tokens but also yields advantages for IWC, its loyal members, and the sunglass company. Such integration is feasible in the present day. (source)
Visa launched a Web3 loyalty service involving gamified giveaways and other experiences. This is not a standalone offer; it is available to Visa’s existing 80m+ partners. The solution enables brands to create digital wallets, which will be used for storing reward points and experiences on behalf of the consumers. For Visa merchants it offers: "engage customers with virtual, digital and real-life experiences, provide a seamless digital experience that can unlock promotional rewards, perks and benefits and offer new and existing customers fun and rewarding experiences in the digital world" (link).
2. Better personalization
Tokenization involves the creation of wallet-based data. As discussed in our previous article, this comes with a number of advantages in terms of marketing automation and personalization. It also opens up the option to provide loyalty rewards in the second-hand market. This is particularly useful in a market where cookies and mobile identifiers are increasingly hard to use.
Some examples
Let’s say Concept2, the manufacturer of different types of fitness and rowing machines, offers tokenized product passports. These passports unlock specific loyalty rewards, even when that buyer is buying on the secondhand market. So, one might ask: what is the difference with re-registering online?
There is no need to re-register and find the serial number. When the token is transferred Concept2 can assume the machine has a new owner that needs to be onboarded. It can trigger wallet communication to enrich the customer profile.
The wallet now holding the product passport can reveal other details such as other Concept2 products held, buying power or tokens held from other brands. (The customer decides what to associate with his or her wallet.) This can enrich the loyalty program with delivering particularly relevant offers to this customer.
Now the ownership history of the product is stored publicly; and is always updated. Not privately by Concept2; and only when someone reregisters. This provides a transparent basis for trust in the product's history and therefore will increase the secondhand valuation
The Lufthansa Innovation Hub in collaboration with Miles & More, launched Uptrip, an addition to the existing Miles & More services. As part of the collaboration, the airline enables flyers to collect tokens which can be utilized for rewards like accumulating miles and accessing the lounge. These specific rewards offer new ways to segment and target their customers in unique ways.
3. Resell
Ownership of the reward tokens means that users are also able to transfer them on a secondary market for loyalty rewards. This helps to increase the perceived value of the program. When someone has a reward that he or she is unable or uninterested in claiming, it can still be resold to someone else. As such creating an increased perception of value of the program.
An example:
Starbucks Odyssey: this separate loyalty program, where Starbucks experienced with tokens, has closed down. But the company goes forward by implementing the learnings about tokens into the larger global loyalty program. The reward tokens provided in the Odyssey program themselves cannot be removed by Starbucks because they are on the blockchain. As such, these are still available, and prizes paid for these tokens have even soared after the announcement. Probably due to belief that the closure of the program has increased the scarcity of these tokens (source). The fact that rewards remain valuable, even when the program closes down, helps to establish more trust and perceived value at customers of tokenized loyalty programs.
4. Value alignment:
True ownership through tokenized rewards can fully align the value created by members to the company objectives and valuation. For example:
Decentralized exchanges like Uniswap incentivize liquidity providers with fees and governance rights, nurturing a loyal community of users.
Decentraland empowers users to buy, sell, and trade digital assets, fostering loyalty through ownership and participation.
5. Co-creation
Value alignment consequently can drive deeper engagement between members and the brand, leading into multiple scenarios where members can contribute to the brand’s creativity and production. For example:
Lacoste Undw3: Lacoste is integrating Web3 technology into its loyalty strategy by offering exclusive benefits to Undw3 (Underwater) token holders. These perks include access to a specialized web platform featuring creative sessions, contests, video games, and interactive discussions. The loyalty program is multifaceted, incorporating community rewards, collaborative opportunities, and a vision to engage customers in the creative process (source).
Nike .SWOOSH Studio Your Force 1: With .SWOOSH Nike is experimenting with ways to engage their community. With the Force 1 project they enabled .SWOOSH token holders to deliver creative input on a forthcoming release of the shoe, where in potential Nike would be able to deliver verifiable sales numbers as a way to determine royalty rights for the contributor (source).
Getting started
Getting started in tokenized loyalty requires considerations on how it can be started in parallel to existing loyalty programs. For example, by segmenting a particular group and measuring how that performs in contrast to the members of the current loyalty program. The below BCG overview gives some structure to the topics needing to be considered to set up the web3 loyalty offering.
Technology partners
Once the strategy is clarified, and a general design of the program has been agreed upon, the next crucial step is to find the right technology partners.
In the world of loyalty martech, a wide variety of technology partners offer various solutions, from token infrastructure partners to CRM to specific loyalty applications. It’s a complex landscape to navigate. Luckily, our martech landscape is here to guide you.
Are you ready to revolutionize your loyalty strategy? Reach out to Rebels 43 today and let's embark on this journey together.