We all know loyalty and rewards programs. In their simplest form, they are the punch card at your local coffee shop. Buy four and get the fifth free. In their most complex form, they are an elusive and ever-changing formula for earning and redeeming rewards at some of the world’s biggest brands in massive industries like aviation, hospitality and financial services. The complexity of these projects is enormous Countless industries have sprung up Just to help consumers understand them.
Loyalty programs are a way for businesses to encourage customer engagement and retention. There is a common saying that the most profitable sale is to a customer you already have. Extending the LTV (Lifetime Value) of an existing customer is more cost-effective than going out and acquiring a new one. This is becoming increasingly true as the cost of paid acquisition channels for large ad intermediaries such as Google, Facebook and Instagram has increased and the business has become more marginal.
Tara Fung is the CEO and Co-Founder of Co:Create. This op-ed is part of CoinDesk Crypto 2023 Cont.
But the versions of loyalty programs that we know and love (don’t hate?) are very limited. They live in walled gardens where the rewards you get often offer little benefit and come with a large number of restrictions. These points can only be used on select items or at select times, offer varies, point-cost varies, Points may be devalued From one day to the next, you may not be able to transfer them to someone else (unless you pay Overcharge), don’t even think about cashing out and selling the loyalty points you “allegedly earned”.
Because these loyalty programs operate within closed systems, many of them do not develop loyalty as captives.
What does it cost you as a consumer to “opt out” of a particular loyalty program? On the other hand, are you likely to value your earned points when you don’t know if you’ll ever reach the membership tiers that unlock the associated benefits?
These switching costs and commitment barriers greatly reduce consumer value. It begs the question of whether these points are ever truly yours, and whether this belief in micro-economies is an illusion.
However, blockchains enable alternative systems where both brands and consumers can share larger pieces of the bigger pie. By tokenizing rewards, customers can own their loyalty, and brands can take advantage of stackable technology to help increase LTV. [loan-to-value, a ratio] and lower customer acquisition costs (CAC).
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So what does it look like?
We have an early look at Odyssey, Starbucks’ newly revamped Web3 loyalty program. Individuals in the beta program can now earn tokenized rewards and redeem those rewards in the Starbucks app. Starbucks has shared plans to sell those rewards to customers in the Starbucks Marketplace. This framework allows customers to take ownership of their loyalty in a way that was never possible before.
But for emerging and smaller brands — those focused on achieving growth with limited resources — they can be more adventurous. They may be willing to team up to defeat the big guys and take potential risks for the promise of greater outcomes. This is the area I look forward to the most – as someone who advances consumer and blockchain technology – to not only improve our current systems, but to build new and better ones.
What if some of these brands introduced interoperable loyalty programs that offered more value to consumers by using points across multiple merchants? This type of organization allows merchants to create new partnerships with non-competing brands that serve similar customer segments.
In my own life, it’s easy for me to find examples of brands I’d like to see partner with:
- All Birds x Comet
- Soho House x Lululemon
- Athletic Green x Glossier
From these examples, you can guess my age, gender and demographics, but that’s the whole point. Personally, I greatly value the ability to use Soho House credits at Lululemon, and it will undoubtedly cost both businesses more. Using Earned Rewards feels significantly different than sending a Soho House Lululemon discount code via email. Knowing I’m one of the thousands emailed for “15% off” isn’t the same as being told I can use the loyalty tokens I’ve earned at one brand with another to unlock rewards, discounts, etc. Store credit or limited edition drops.
From the brand’s point of view, it benefits from increasing the value of its own loyalty program. As more applications for loyalty tokens are added, their perceived value increases, attracting more consumers. Additionally, by using a new and open data standard (e.g., ERC-20), brands can agree and launch these partnerships overnight, avoiding spending months developing and implementing data sharing APIs between proprietary systems.
This is not an entirely new concept. We have seen Joint ventures Launch cross-brand loyalty programs to great success. What’s new is advanced and flexible technology that allows multiple merchants to enter projects and evolve quickly, and in doing so take away many of the advantages traditionally enjoyed by large corporations.
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Some may worry that tokenizing loyalty exposes a brand’s crown jewel to the world (and direct competitors): their customer data. Currently, the most commonly used blockchains are public blockchains that allow anyone to see transactions and account holders. This is likely to change as the industry matures, data security standards are developed, and zero-knowledge technology advances. Yet even now, in its current form, one could argue that the competitive risk offered by branding loyalty to companies that serve their customers well is minimal. Among the most well-known cases Vampire attacksWe find that these competitive strategies are often short-term and less successful, with most customers returning to the original platform.
Undoubtedly, there are many aspects of open loyalty programs, such as mechanisms for regulating healthy supply and demand dynamics, where individuals cannot earn proportionately from one merchant and redeem at another merchant. And this brave new world, starting with using brands, is likely to be simultaneously incremental and repetitive. Transfer restrictions Addressing some of the most unanswered questions about return on investment (ROI). Regulatory uncertainty.
Nevertheless, this change will come. Blockchain technology will open up new opportunities for smaller brands and consumers to share more value with each other, rather than allowing that value to be captured by large advertising intermediaries. Progress is relentless, and this is one of the areas where we see it catching on.
The views and opinions expressed herein are those of the author and those of Nasdaq, Inc.