Rethinking Loyalty: beyond the pointless chase

(There's some reading ahead - grab your coffee and relax. I promise it will be worth your while)

The concept of loyalty programs isn't new. It dates back to the late 1800s and took a modern turn with airline miles in the 1980s. They have been around for a reason - they work. Or at least used to.

Research shows that 77% of people stick with brands that offer these “incentives”, and customers enrolled in these programs spend 12-18% more.

But there’s a saying that applies to MANY things, and also fits here:  

What worked in the past needs a serious upgrade to stay relevant.

Traditional loyalty programs have often been a sugar-coated term for retention marketing. The focus has been laser-sharp: keep people buying, again and again.

But let's call it what it is - these programs are commonly more about captivity than loyalty. You stack points, but when it comes to cashing them in, the options generally feel like a letdown.

My reality check with Points and Perks

I've been there - “wow, I have got 42069 points” - only to find out they're often as useful as Monopoly cash.

Through traditional programs I would accumulate points for a free hotel night, only to find out it's valid when I couldn’t travel. Or how about gym rewards that I can't even use for the classes I actually want to attend? Frustrating, right?

Let's make it more clear by quoting something I mentioned recently during a meeting with a F500 brand:

Thanks to my personal (usually bad) experiences with traditional programs, and a ton of time exploring the possibilities created by Web3, I truly believe we are at the perfect moment to take the next step into the customer-brand relationship.

Why are Loyalty Programs broken?

To answer that question we will lean on this incredible publication by BCG titled “Web3 Opens New Paths to Customer Loyalty”:

Let’s break down each of those 4 pillars:

1. Fragmented Loyalty Relationships

• Customers juggle multiple loyalty programs, overwhelmed by numerous, often commercial, promotions, diluting the impact of individual programs.

• Brands need a standout loyalty offering with a straightforward user experience and valuable partnerships to effectively compete.

2. Longtail of Low Activity Users

• Many loyalty programs have a wide base of minimally active users, especially in sectors like travel and luxury.

• According to Bakkt’s Loyalty & Rewards 2022 Outlook Study, 66% of the average US consumers would prefer cash back instead of earning points.

3. Closed Ecosystems

• Large digital entities dominate customer attention, creating self-contained ecosystems that sideline smaller brands and merchants.

• To reach more customers, brands must tap into such ecosystems and walled gardens, where an intermediary company or platform controls access to customers and ad space.

4. Complexity Scaling Partnerships

• Data = Liability. With that said, data integration between brands is the major killer of partnerships as it makes it almost impossible for brands to collaborate and build really compelling user experience.

• There’s also lots of overhead when managing the details of cross-program agreements, including legal and regulatory compliance, currency tracking and reconciliation, and marketing collaborations

So, what’s the solution for the problem?

Open loyalty has joined the chat.

You are invited to stay a little longer, because in this edition we'll dive into the benefits brought by Open loyalty, real-world examples, and more.

In a recent LinkedIn post, that was my answer:

“Open Loyalty is a decentralized, blockchain-based loyalty program, enabling customers to proof fandom, earn, redeem, and trade loyalty points across various brands and platforms, offering a universal, interoperable loyalty currency”.

(By the end of this edition, this will make sense. I got you!)

But Diego… Why should I care?

It's not just about the points or the freebies; it's about the relationship. Traditional programs have fostered a purely transactional bond, missing the essence of what loyalty should be.

They've been so focused on purchases that they've overlooked the broader value customers can bring to a brand.

Now, back to the “needs a serious upgrade” point I made some lines ago: younger generations are rewriting the rules of engagement. Gen Z is half as likely to enrol in a loyalty program compared to Gen X.

They're not just looking for points or discounts; they're after captivating brand experiences, increased ownership, and heightened transparency. They want to be part of a community, not just a database.

So, if traditional loyalty programs have been so successful, why fix what isn't broken? Because the world is changing, and customer expectations are evolving. The future of loyalty is not just transactional; it's relational. It's about mutual commitments, not just between a brand and a customer, but within an entire community.

And that's where Open Loyalty flips the script.

Web2 & Web3: the next-gen leap in Loyalty Programs

Alright, you read the topic “Why are Loyalty Programs broken?” above and perhaps are still on the fence about this whole Web3 loyalty revolution.

Trust me, once you see the difference, you'll be as pumped as I am about the future of brand loyalty.

As we discussed above, generally speaking, Web2 loyalty programs have been all about centralized control, limited user empowerment, and rewards that are confined to single platforms or industries.

But Web3? It's a whole new playground. We're talking decentralized architecture, enhanced customer control, and cross-industry reward integration. It's not just about transactions; it's about community, shared value, and yes, even a stake in that community.

Now, let’s see a side-by-side comparison between the old playbook and what’s brewing with Web3:

Ready for a deep(er) dive? Next up, we're exploring how Starbucks is brewing up some Web3 magic in their loyalty program ☕.

Spotlight: Building Communities, the Starbucks Way

No need for a drumroll for this one, right? I’m pretty sure you already know we're diving into something special here.

With nearly 30 million members (!!!) in their existing program, Starbucks is no rookie in the loyalty game.

Launched in Q4 2022, Starbucks Odyssey is a blend of the traditional and the transformative. It’s their next-level play. Members are not just earning points for their lattes; they are embarking on "journeys" that involve online games, quizzes, and activities. The reward? NFTs called 'Journey Stamps' and Odyssey Points, which unlock unique coffee experiences you can't find anywhere else.

Keyword here: EXPERIENCES

What's super cool is the flow they've set up. You spend on coffee, engage in educational activities, play virtual games, and then - boom! - you redeem perks and even buy & sell stamps.

It's a circular economy, but make it caffeinated. They're using NFTs to deepen the community experience, offering unique activities and rewards. You could be sipping a virtual espresso one day and visiting a Starbucks coffee farm in Costa Rica the next. It's not just about transactions; it's about experiences, and that's on point for brand engagement.

Now, let's break it down:

🌱 Community-centric: Starbucks has always been about community, but Odyssey takes it to the next level by making members active participants in the brand's journey.

🔗 Blockchain-powered: Built on Polygon, Starbucks Odyssey leverages blockchain for trust and transparency, making it a win-win for both the brand and its community.

💎 Tokenized rewards: Forget points; think NFTs. These digital assets are not just collectibles but also potential investments. Some stamps have even been resold for nearly $2,000!

🔄 Circular economy: The program's design encourages ongoing engagement, from buying coffee to participating in activities and redeeming unique rewards. It's a self-sustaining loop that keeps you hooked.

To wrap it up, Starbucks Odyssey is a masterclass in how to evolve a loyalty program for the Web3 era.

Instead of just earning and burning points, the company is creating a dynamic, interactive experience that truly values its customers and their actions. And that, my friends, is the future of loyalty.

Exploring new horizons: 3 Web3 loyalty innovators

Fresh off our deep dive into Starbucks' Web3 magic, it's clear that they're not the only ones brewing up innovation. Many brands are exploring what Web3 can offer in the realm of loyalty programs.

These examples can certainly help us understand how deep the rabbit hole goes.

→ Clinique: By integrating NFTs into their loyalty program, this leading skincare brand is not just offering points but unique digital assets that deepen customer engagement. It's a smart move that leverages the exclusivity and ownership features of NFTs to enhance brand loyalty.

→ Lufthansa: Launching their loyalty program on Polygon, Lufthansa is embracing blockchain's global and decentralized nature. This allows for a more flexible and expansive rewards system, making your loyalty as global as your travel plans.

→ Etihad Airways: With their Horizon Club Web3 program, Etihad is allowing customers to stake NFTs for miles. This adds a layer of engagement, turning digital assets into real-world travel experiences and making the loyalty program more dynamic.

That's just a taste of the Web3 loyalty landscape. There's a whole universe of brands, big and small, across various sectors, diving into Open Loyalty.

And hey, when we're talking Open Loyalty (and Web3 in general to be honest), one concept you'll hear me rave about is "Interoperability."

Let’s see what that means.

Unlocking synergy: The power of interoperability in Open Loyalty

This is where the magic happens, fam. Imagine racking up Starbucks tokens and then using them to snag a pair of Adidas kicks.

What about being a top-platinum-elite tier customer at Nike and being able to leverage this status to get free access to your favorite gym?

That's not just cool; it's revolutionary. And it’s possible.

As we have already discussed here, in the Web2 world, loyalty programs are like walled gardens. Your points are locked within a single brand's ecosystem, limiting your options and freedom.

But Web3 changes this. With on-chain loyalty programs, we're talking about a seamless flow of value across different brands and communities. This isn't just a win for consumers; it's an asset for brands too. It's like tapping into a whole new community that already vibes with your brand ethos.

So, what's stopping us? The technology is here, and the opportunities are endless. It's time for brands to step up and embrace the future of loyalty.

So in short, why interoperability is a game-changer:

🤝 The Concept: Open Loyalty programs that work across brands.

🤝 The network effect: A win-win situation for both consumers and brands.

🤝 The opportunity: The technology exists; it's time to put it to use.

🤝 The future: Imagine a world where your loyalty benefits are not confined to one brand.

A few months ago, Brent Annells (Smart Token Labs CMO), shared some really interesting thoughts on interoperability:

So whether you're steering the loyalty ship for a big brand, an advisor crafting tech solutions to revolutionize these programs, or just a curious mind looking to understand the future, I'd say this is one area you'll want to keep your radar locked on.

Unlocking the future: How deep do you want to dive into Open Loyalty?

Hey, we've been on quite a journey exploring the ins and outs of Open Loyalty, right? From coffee to interoperability, it's clear that this is a space with endless possibilities.

Now, I'm curious to know how much further you'd like to explore this topic. Are you “just browsing” or are you ready to really understand the range of possibilities Web3 brings to the table when it comes to customer loyalty?

Your input will shape the insights and deep dives we explore moving forward.

(you may have to access a different tab to reply to this poll - and I truly appreciate if you could do that)

PINK BEANIE’S TAKE:
Loyalty in Web3

We've been talking a lot about Open Loyalty, and I've shared some real-world use cases with you. But now, let's get a bit more personal.

You know, there's a mantra I find myself repeating, whether I'm on stage at a conference, in a strategy session with Fortune 500 brands, or just having a one-on-one chat.

It's not just some catchy phrase; it's a core belief that drives what I've been doing in the space recently.

With that said, let's get real about the digital landscape. It's not just changing; it's evolving at warp speed.

Enter Web3 - a decentralized, secure, and interoperable universe that's rewriting the rules. We're talking about a golden opportunity to reboot loyalty programs and forge connections with customers that are not just transactional but transformational.

If you ask me to summarize the key aspects I see in Open Loyalty, this would be my reply:

For the Customer:

→ Proof of fandom: This isn't just a points game; it's about authentic engagement and rewarding true brand love.

→ Interoperability (did I mention that I love this part?): Your loyalty points become a universal currency, usable across multiple brands.

→ True ownership: You own these points/stars/tokens; they're your digital assets.

For the issuing brand:

→ Partnerships: This isn't just additive; it's multiplicative. Partnerships in Open Loyalty can exponentially increase customer value.

→ Engagement: We're talking about creating experiences, not just transactions.

→ Authenticity: This is about building real relationships, not just pushing offers.

For the brand providing value:

→ Open economy: This is bigger than any single brand; it's about creating a loyalty economy.

→ Data-driven: Use rich data for personalized marketing that actually resonates.

→ Quick partnerships: Think agility and speed in forming new brand alliances.

Operational considerations

But I’ve got to be real: successfully implementing a Web3 loyalty program requires navigating the complexities of decentralized applications, fostering network effects, and adapting to an evolving regulatory environment.

Brands must carefully consider these challenges to make informed decisions and create loyalty programs that resonate with consumers' desire for engaging digital journeys and personalized experiences.

And if you or your company are looking for a partner to better navigate these waters, I may know someone… Ever heard of the BorgoLabs initiative?

Let's not kid ourselves though. Migrating to Web3 isn't some magical, fail-proof formula for crafting the perfect loyalty program. If it were, I'd probably be sipping a cocktail 🍸️ on a beach somewhere, comfortably retired.

But here's the real talk: Web3 and open loyalty are not just a trend or the cool buzzwords of the year. They are the next chapter in the evolution of digital engagement and loyalty.

It's coming, whether we're ready or not.

Sorry, let me fix that: In fact, it’s already here.

So, the question isn't whether you should get on board, but how quickly you can adapt and innovate. Are you with me on this journey? Let's roll.

What's Next?

Hey, we've unpacked a lot today - from rethinking loyalty to the real-world magic of Web3.

Next week, we're stepping into a space where your digital footprint takes on a whole new dimension. Trust me, you’ll like it.

See you soon.

#LFGrow
Diego Borgo