Beyond the hype: All you need to know about Web3, NFTs and loyalty programs

With leading brands like Nike, Starbucks, and Gucci continuing to integrate blockchain and cryptocurrency into their loyalty offerings, Web3 - and especially NFTs - will continue to influence the loyalty landscape in 2024 and beyond, with Forrester claiming that "the next frontier for NFTs lies in customer loyalty programs."

Beyond the rollercoaster ride of the crypto market, it's clear that Web3 and NFTs offer a unique and rewarding relationship between businesses and a certain customer demographic. But, does every aspect of Web3 apply to loyalty programs? What legal and security measures should brands consider? What are real-life examples of brands that have successfully used Web3 features? We’ll answer these questions below, and offer practical insights for businesses navigating the intersection of Web3, NFTs, and loyalty programs. 

Web3 is a term that describes the next iteration of the internet, marked by a series of open source, decentralized blockchains - distributed ledgers owned and controlled communally by participants. While the term has existed for a while, Packy McCormick played an important role in its widespread adoption by characterizing it as “the internet owned by the builders and users, orchestrated with tokens.”

The following table summarizes the differences between Web3 and its predecessors, Web2 and Web1.

Before diving into the benefits, a word of caution: brands - especially more mainstream ones - should bear in mind that NFTs and Web3 experiences typically cater to only a fraction of their total potential customer base. Before committing to your Web3 project, you’ll need to be sure of the effort involved and expected returns - especially since these projects require substantial technological investment. Despite this, Web3 has the potential to amplify your customer loyalty strategy, especially when it comes to creating user communities and offering unique benefits to a certain demographic. The most popular way of integrating Web3 into loyalty programs revolves around NFTs (Non-Fungible Tokens), digital assets based on real-world objects from the art, music, or gaming worlds. NFTs are bought and sold online, frequently with cryptocurrency. 

Two key benefits of adopting a decentralized Web3 framework for your loyalty program are:   

Web3 allows users to have a higher level of ownership and autonomy over their rewards, especially when represented as digital tokens or NFTs. Due to blockchain interoperability and transferability, customers are able to trade, sell, or transfer these digital assets across different platforms and experiences.

By facilitating the trading and transfer of digital collectibles, Web3-based loyalty programs can create a stronger and more engaged fan base with their tech-savvy customer community. This is because:

Web3 brings a decentralized, transparent, and highly engaging approach to loyalty programs, with three key elements at the forefront. Let's explore each element, with real-life examples to highlight their impact.

NFTs enable the creation of one-of-a-kind, unreplicable digital assets, while smart contracts are stored on a blockchain and run when predetermined conditions in a loyalty program are met. This combination adds a layer of transparency and security, ensuring that customers are able to trade their rewards without any intermediary’s involvement or time loss.

Example: Starbucks Odyssey

Starbucks was one of the first brands that incorporated NFTs into its loyalty program at scale. Powered by Web3 technology, Starbucks Odyssey offers members the ability to earn and buy digital collectible stamps (NFTs), unlocking access to unique coffee experiences. Members can participate in interactive games and challenges to enhance their coffee knowledge. Completion of these journeys earns members a digital "journey stamp" (NFT). Within the Starbucks Odyssey web app, members can also acquire "limited-edition stamps" through an integrated marketplace. These exclusive NFTs are easily accessible for purchase with a credit card, eliminating the need for a crypto wallet or cryptocurrency.

Web3's open ecosystems allow loyalty programs to extend beyond the confines of a single brand, fostering partnerships and collaborations. Token gating, or using tokens as access keys, grants customers access to exclusive loyalty program features.

Example: Tiffany & Co.

By implementing token gating, Tiffany & Co. streamlined its approach to connect with tech-savvy customers. In 2022, Tiffany unveiled NFTiffs, a collection of 250 custom NFTs. The NFTs were exclusive to CryptoPunks holders (a non-fungible token collection on the Ethereum blockchain), and NFTiff transformed the NFTs into a bespoke pendant handcrafted by Tiffany & Co. artisans. Buyers also received an additional NFT version of the pendant. 

The sense of belonging to a larger community, combined with digital ownership, is a key driver of customer loyalty. The presence of DAOs, decentralized autonomous organizations, further amplifies this sense of belonging and control, as token-holders actively engage in management and decision-making processes.

Example: Gap hoodies

 Last year, Gap launched NFTs of its iconic hoodies, joining a limited rank of retailers selling virtual assets for real money - and sending its shares about 5% higher. To make the experience more engaging and exciting, Gap used gamification to encourage customers to participate in design challenges, where the winning designs were minted as NFTs. By empowering users to actively shape the brand's offerings, Gap mirrored the principles of DAOs in a creative and impactful way.

Talon.One supports brands looking to incorporate Web3 features into their loyalty programs. Our platform can integrate with a Web3 provider, enabling:

It's important to note that while Talon.One provides the infrastructure and tools for managing Web3 loyalty programs, we do not store the NFTs themselves. Talon.One empowers brands to run programs that master loyalty fundamentals while connecting to any external technologies.

Integrating Web3 technology into loyalty programs has the potential to revolutionize customer engagement and brand loyalty, but requires careful planning to ensure success. Brands looking to embark on their Web3 journey in loyalty programs should:

Brands need to go the extra mile to ensure all legal and security measures are met when integrating Web3 into their loyalty program. Web3 technologies are subject to constantly evolving regulations and potential security vulnerabilities, and failing to comply with legal requirements can lead to legal consequences and damage brand trust.

Before diving into Web3, brands should thoroughly evaluate whether it aligns with their target audience. If NFTs and Web3 technologies don't resonate with your audience, jumping on the Web3 bandwagon will be a costly mistake - and may even alienate your core audience.

When contemplating integrating Web3 features into your loyalty program, it's essential to evaluate whether existing Web2 technology can achieve similar results. Creating entirely new ecosystems within Web3 is a complex and resource-intensive undertaking. If the Web3 use cases don't necessitate entirely new systems, it might be more pragmatic to deliver Web2 functionality, even if it's not as cutting-edge.