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Going beyond NFTs: how Web3 will impact the future of loyalty programs

Marking an evolutionary leap in the realm of the internet, the 3rd generation of the World Wide Web introduces decentralized technologies like blockchain and promises increased privacy, security, and user empowerment compared to its predecessors.

The evolution of the Internet

Source: Fabric Ventures

 

The evolution of Web2 has allowed loyalty programs to thrive more than ever before, so much so that over 90% of companies now have some form of loyalty program. Yet, due to their ensuing high prevalence, it is becoming increasingly difficult for loyalty programs to stand out from the crowd and offer a unique value, thus being more at risk of losing their impact.

As Web3 gains traction, we are being exposed to a metaverse built for gaming, social networking, and business. But will it open new paths for customer loyalty?

Who is the target audience for Web3 loyalty program rewards and how will they appeal to these users?

Tech & Crypto enthusiasts
Individuals who are interested in tech, including topics like blockchain, cryptocurrency, etc will be willing to engage more with Web3 offers.
Gamers
Brands targeting the gaming industry explored NFTs and blockchain-based assets to engage with gamers who were already accustomed to virtual assets and digital ownership within games.
High income individuals
Depending on the Web3 offerings, brand could target individuals with disposable incomes as they are more likely to invest in digital assets and exclusive experiences.
Art & collectibles enthusiasts
Brands offering unique NFT collectibles or tokenized ownership opportunities aimed to attract collectors and hobbyists interested in digital art, collectibles, or unique experiences.
Influencers & Creators
Brands collaborate with creators and influencers who had a presence in the Web3 and crypto communities so they can engage their followers.

These groups are growing predominantly on online platforms, and are seeking digital experiences that offer exclusivity, personalization, a sense of community, and the opportunity to own digital commodities, thus creating a unique space for themselves online. Traditional loyalty programs may no longer be attractive to them since they are in search of more innovative ways of using the internet.

Foundations of Web3 in action

We have recently seen these Web3 principles put into practice, mainly in the luxury world:

  • In terms of Community with Balmain’s NFT membership program called Balmain Thread;
  • Personalization with Nike’s Web-3 enabled .SWOOSH platform;
  • Gamification with Louis Vuitton’s NFT-enabled game called Louis: The Game;
  • Interoperability with Starbucks Rewards — Starbucks’ partnership with Delta SkyMiles — where collectible NFTs will unlock access to immersive coffee experiences;
  • Ownership with Dolce & Gabbana’s #DGFamily, an exclusive NFT community.

The non-fungible token (NFT) — a well-established commodity or simply a means to an end for brands?

NFTs are an emerging trend among Web3 loyalty programs, but we have recently seen a decline in their popularity and interest. In fact, almost 95% of NFTs may now be worthless.

So why are they still used and how can brands ensure their offers remain attractive?

Although opinions on their intrinsic value differ, there are steps brands can take to ensure NFTs remain more appealing to customers, namely leveraging utility NFTs — which will reward users with special offers such as first access, discounts, invites to events, etc. Louis Vuitton, under the auspices of Pharrell Williams, released $39,000 trunks over the summer that are both physical and digital goods. Prada used an NFT as a pass to its Milan Fashion Week. This kind of integration bridges the gap seamlessly between digital commodities and real-world utilities.

The limits of Web3

Despite their numerous advantages, NFTs are deemed to be more complex for the average user to understand compared to Web2, which will inevitably lead to increased cybersecurity incidents. In addition, a lack of central authority makes Web3 more difficult to regulate. Another hurdle is the cost — a basic NFT-type project can range from 60k to 80k, which is why we have seen luxury brands leading the way in this realm. Lastly, there is a lack of interoperability with Web2, since Web2 is centralized and Web3 is decentralized, therefore Internet users are likely to continue using both Web2 and Web3 for some time.

The verdict

There is no doubt that personalization is one of Web3’s biggest advantages, and loyalty programs depend on personalization for their success, so their conjunction bodes well for the future. With so many loyalty programs to choose from, it’s crucial that brands remain ahead of the game and strive to innovate wherever possible.

There are a few questions to consider to know if your brand is ready for this exciting new step into the future: do you truly need Web3 right now? Do you have the necessary resources? Do you have the technical infrastructure?
A solid plan will help maximize success in this field.