Loyalty programs are broken – are NFTs the solution?
Ben Owen, campaign director at Iris, examines whether NFT technology just might revolutionize loyalty programs.
At Iris, we believe that participation is the key to a brand’s success. A “participation brand” is not built “for” customers, however with them, designed to create excitement and engagement and to integrate into people’s lifestyles.
Loyalty programs are a common strategic tool for driving engagement at key moments with customers. But the goal of most loyalty programs can be boiled down to generating 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 the acquisition; the value exchange decreases as users spend more time in the program. Users have to spend 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 improved service, communication and value should be central to the core programme. In this way, benefits can be displayed effectively and users can recognize rewards for loyalty and engagement.
The new loyalty
Brands are constantly looking for ways to innovate loyalty programs to increase participation, such as REI’s partnership model, which gives users lifetime access to discounted experiences and a branded thrift store. Or Nike Run Club collaborates with Spotify and Headspace, bringing music and holistic well-being to a running experience.
But beyond stores, websites and apps, how can brands improve the platforms where users engage with loyalty programs? NFT technology can empower customers to participate and gain value from loyalty offers 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 the Starbucks Odyssey. An NFT-backed loyalty proposition built with Ethereum giants Polygon, it says, will allow customers to buy 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 those benefits and immersive experiences (not already possible with the current loyalty program) will be.
Benefit
How exactly can NFT-based technology drive more participation in your loyalty programs in new ways?
Two hot topics in the NFT space may hold the answer: utility and interoperability.
‘NFTs’ grant their holders privileges, rights or rewards that they would not otherwise have access to. With paper concert tickets, each ticket is unique, with a unique ticket number that gives access to the concert. Utility NFTs are based on this assumption.
If these gaming tickets were issued as NFTs, the first tool is (again) to grant the holder gaming access. But the technology can also be used to offer holders additional benefits: the opportunity to buy the band’s new album or limited edition merchandise, or VIP access to the concert.
The ways in which utility NFTs can be extended to deliver more value to customers over time are almost limitless. They can be used to improve loyalty programs and provide more opportunities for users to interact with a brand.
Interoperability
Interoperability is going to be key to unlocking more customer opportunities to engage with brands and loyalty programs.
Interoperability means connecting different programs into an interconnected loyalty network. With blockchain-based technology such as NFTs, this means that loyalty programs, suppliers, partners and customers can interact with a single system without the need for intermediaries.
Customers may 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 would not normally be available. It can also remove potential barriers for global brands to connect loyalty programs across business operations, rewarding users across multiple markets.
We don’t yet know how Starbucks is going to deliver utility or interoperability, but the thought is clearly there in the message around connecting customers to a like-minded community of committed coffee fans.
Star power
PlayStation Stars provides a concrete example of how utility and interoperability can be used.
PlayStation will try to reward players for their typical behavior and give them access to unique digital collectibles. Imagine if players could unlock the ability to combine and share rewards to access new shared experiences through an interconnected network.
Brands should keep an eye on NFTs and the possibility of interoperability. They can massively change the basic loyalty mechanisms brands can offer. Taken together, these measures can largely change how users want to participate in loyalty programs.
But there is still an awfully long way to go.
The mechanisms behind interoperability are in their infancy, and utility NFTs find far more traction in the entertainment industry than in commerce.
It is marketers who have a duty to design experiences to reward customers for engaging with our brands, and ultimately make customers want to engage more. Only then will we find ways to exploit these paradigm-shifting technologies.
