What Starbucks’ investment in NFT says about the future of loyalty
Over the past year, non-fungible tokens (NFTs) have become commonplace, with brands often tying them to digital benefits, merchandise and exclusive experiences. Although the tokens have gradually lost their shock factor, an upcoming push by Starbucks to tie NFTs into its vaunted loyalty program could reignite a spark.
In a recent earnings call, the company teased a September launch date for the NFT affiliate, a move intended to attract new customers to the loyalty program, which already awards free drinks and merchandise. The chain also hopes that the loyalty update will be active for the core stores.
“This new digital web3-enabled initiative will allow us to build on the current Starbucks Rewards engagement model with its powerful approach to spend to earn stars, while introducing new ways to emotionally engage customers, expand our digital third-place community and offer a broader set of rewards, Starbucks interim CEO Howard Schultz said on the call.
Although full details of the program have yet to be revealed, the announcement has made waves in the marketing industry. Starbucks’ loyalty program is an extremely successful part of the business, with over half of its sales coming from reward members. Linking the program to the virtual world and blockchain technology underlying NFTs could pave the way for future programs.
“NFTs can make sense for loyalty programs because it’s another way to interact with consumers,” said Pedro Rodriguez, senior vice president of growth and transformation at Horizon Media and head of the Chapter and Verse division. “With the write-off of cookies, access the first-party data [in other ways] is going to be critical.”
Some businesses have already gotten a jump on introducing similar concepts. Last December, Applebee’s launched an NFT-centric campaign where the owner of a unique digital photo unlocked a year’s worth of real-world purchases at the chain. Taco Bell and Domino’s are reportedly considering ways to tie NFTs into their loyalty programs, but to date the brands’ NFT campaigns have involved generating donations to charitable arms.
Heavy betting on NFTs can help the business for several reasons, but the core is the potential to market to younger consumers who have yet to enter Starbucks’ rewards program. If the strategy proves successful, other marketers looking to engage Gen Z may follow suit.
“There’s a generational difference between the use of Twitter and TikTok,” Rodriguez said. “In the mobile space, there is a generational divide, and you have to start playing in the areas where the new generation is.”
In addition, the ability for consumers to trade NFTs based on their changing interests and loyalties can provide a way for brands to offload costly balance sheet liabilities.
“Points liability is a big deal,” said Mary Pilecki, vice president and principal analyst for customer loyalty programs at Forrester. “The fact that an NFT can be traded means it has value. If I’m no longer interested in the product or the brand, I can more easily share that value. … They’re an exchange of value between brands.”
As privacy and access to data become a bigger issue, NFTs are also a way for consumers to get something of value for the information they share with brands. An NFT linked to loyalty rewards offers a concrete value exchange that can make the transaction feel worthwhile to both parties.
“It’s a way to give data and get something back,” Rodriguez said. “A consumer doesn’t want anything from a brand unless it has something of value.”
Still, Starbucks may face an uphill battle. In Forrester’s March 2022 Consumer Energy Index and Retail Pulse Survey, 72% of consumers said they had never heard of an NFT and have no interest in buying or owning one.
“People don’t understand what an NFT is and they don’t understand that their value can change dramatically,” Pilecki said. “Starbucks is going to do a lot to help consumers understand them [but] right now there is a lot they and we don’t know. There is no consumer protection and there can be a tax liability for an NFT because there is value to them.”
Nevertheless, the category may have a long-term upside. Consumer comfort with new technologies and platforms may be slow, but the brands waiting in the wings are in danger of being left behind.
“If there’s a brand out there that thinks NFTs are the way to go, they need to get involved in NFTs now,” Pilecki said. “Starbucks will not be the last. We’re going to see a lot of experimentation with NFTs in the future.”
