Never mind the Bored Apes. NFTs will revolutionize customer engagement
The hype and price bubble for non-fungible tokens may have already peaked, but the more interesting and lasting business uses are just beginning.
NFTs have upgraded the art world: Beeple’s Weekdays: The first 5,000 days sold for $69 million, Bored Apes has become a new status symbol to adorn social media profiles and metaverse avatars. Sports organizations have begun to embrace NFTs as a way to deepen fan engagement, from the NBA’s top shots for trading video highlights to Australian Open-themed NFTs for every little spot on the tennis court. With the latter, holders get key video replays of those routes, and even the ball itself in the event of a championship shot. The bid price for the NFT where champion Rafael Nadal’s winning shot landed quickly rose over 4,000%.
Do any of these investments constitute a bubble that depends on a “bigger fool” coming along to buy the next one? Business promoters like Warren Buffett and Bill Gates believe so and despise the rush to speculate in cryptocurrencies.
But put aside for a moment the wild spending on JPEGs of art, sports and entertainment, as well as the recent crash in cryptocurrency prices. More relevant and promising for consumer businesses are the underlying technologies. NFTs provide an ideal set of opportunities to rethink how companies engage their customers, not only in rewards and loyalty programs, but also in other creative ways.
Skeptics should keep in mind that the first NFTs appeared in 2014 and the first NFT standards were proposed in 2017, so the entire enterprise may be only 1% complete, as the ride-on-demand concept was before reservation, mapping , payment and rating functions were combined into one mobile app. The possibilities are incipient but real.
Not your father’s loyalty program
Think of an NFT as a programmable digital ticket that provides some traceable, verifiable, tradable rights to an asset. The owner can add more content to it over time, and the NFT creator can control its behavior with pre-designed rules. This opens up many opportunities for innovative ways to engage and reward customers, because NFTs are uniquely playable, stackable, tradable and programmable.
Playable: NFTs can easily turn into a “loot box” full of virtual consumables, to use the gaming term. A certain set of activities can guarantee the consumer a reward of a minimum value, but how much else is in the loot box varies. For example, after 10 purchases, flights or hotel stays, the consumer earns an NFT that can be redeemed for a gift. Some of the company’s customers can also randomly earn a shopping trip, a seat upgrade or a bottle of wine at check-in.
Stackable: NFTs may have content attached to confirm participation and capture the memory. One reward on a dining platform might consist of an upgrade to the chef’s table, and the NFT might have the menu and a photo of the party with the chef attached to it as a memorable memento.
Negotiable: It’s easy to share NFT-based rewards with friends and family, for a group to save collectively for a group experience, or for a timeshare owner to trade their weeks in a vacation rental.
Programmable: If the business wants to impose a small merchant fee on any sale, it can. If it wants the reward to expire on a specific date, or provide a richer benefit at off-peak times, it can be included in advance in the smart contract.
What needs to be fixed
While experimental buds are flourishing, many components of a robust NFT system have yet to be developed, limiting mainstream adoption. Three areas need particular attention, although these will not be obstacles for long.
The user experience is still clunky. Users must buy cryptocurrency on an exchange, move that crypto to a self-custodial wallet, connect the wallet to an application, and then engage with marketplaces and smart contracts that leave little room for error. There are three apps required, each with its own learning curve. Adoption will take off when the user experience is simple enough that each transaction can be easily completed in a single wallet without jargon or technical requirements, and users experience fewer hacking risks and fewer problems with activities such as restoring an account.
New regulations are not standardized. There is still uncertainty about the laws and regulations of NFTs. However, the US Treasury Department has already published a fact sheet outlining how it will work with foreign regulators (which in several jurisdictions are more advanced than the US) to address the risks and harness the potential benefits of digital assets and their underlying technology.
High transaction fees (“gas”) and a large carbon footprint bother NFTs. Both problems stem from the intensive use of computer servers to mine cryptocurrencies through the proof-of-work process. These concerns will be addressed by Ethereum’s recent upgrade and may move the chain’s consensus mechanism to proof of stake, which will almost completely alleviate the carbon footprint problem. Other blockchains exist where users can create NFTs without engaging in energy-intensive proof-of-work mining.
Make brands more memorable
Common use of NFTs is within sight. We see ticketing for events such as the 2024 Olympics – which are considering using NFTs – as the gateway to wider adoption and relevance.
Traditional points-based rewards and loyalty programs have had a good run in the airline, credit card and other consumer industries. They are not dead, but companies like Amazon and Rakuten have already shown more powerful models.
If we were to start with a blank slate for a new loyalty program, it would not resemble the old points-based system. Embracing NFTs with solid business outcomes in mind will drive a whole new wave of innovation in customer loyalty. NFTs will also make it easier for brands in a wide range of industries to stay memorable with consumers through far more effective two-way engagement.
Gerard du Toit, Alexander Mitscherlich, Nikhil Ojha and Kelly Pu are partners with Bain & Company. Bain & Company is a partner of Fortunehis breakthrough series.
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