Customer loyalty is what many businesses care about in the digital age. If you know how to fully exploit it, this will be an effective support tool for customer attraction strategies.
Customer Loyalty in the Web3 Era
What is Web3?
The term Web3 was first introduced in 2006 by journalist John Markoff of The New York Times. He has emphasized that this is the revolution in the new web history. In essence, Web3 is a type of technology that helps to process, organize, and manage data on the Internet in a decentralized manner.
What is Customer Loyalty?
Customer Loyalty is understood as the loyalty of customers to the brand or product of the business, which is expressed through shopping behaviors and attitudes. These customers will often buy your product instead of choosing to buy similar products from competitors.
Customer Loyalty is one of the promising areas of Web3
Web3 offers ways to revive customer loyalty programs. Today’s consumers are fairly open to loyalty relationships, and Web3 is a rich context for increased engagement and more efficient scale collaboration.
However, the answer is not always as simple as launching another customer loyalty program into a flooded market. Businesses must understand Web3 and its various options to increase engagement because consumers will respond, but only with the right services.
Utilities, customer-accessible services and features, and digital assets are critical to the success of Web3’s loyalty services. Businesses can tokenize customer relationships through NFTs to increase community engagement and activation. There is also meaningful utility in encrypting transactions to strengthen the faithful cooperation of partners.
Four leading challenges brands face today in Customer Loyalty
- Fragmented loyalty relationships: Diminished customer loyalty program efficacy as customers participate in more loyalty programs. Though most customers are willing loyalty members, they are overwhelmed by the promotions and messaging from different programs as they manage multiple loyalty accounts.
- Longtail of Low Activity Users: Longtail of less active users, especially in non-everyday spend categories. There is a large distribution of less active users throughout many programs, particularly in categories like travel, hospitality, and luxury goods. Interacting with this wider base of less active customers could help to convert their latent participation into more revenue.
- Closed ecosystems: Competition from walled gardens and larger players that have created self-sufficient closed ecosystems. Large digital players have the lion’s share of customer eyeballs, and merchants and smaller brands often find themselves left out. Commerce giants for example have created self-sufficient, closed ecosystems for consumers across a wide array of products and services. 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.
- Complexity scaling partnerships: Integration and overhead cost in scaling 1-to-1 partnerships to multi-partner ecosystems. Though there is strength in numbers, partnerships are hard to solidify. Brands often create “connected loyalty” partnerships to craft more comprehensive and widely appealing offerings for their diverse customer base. However, these partnerships are mostly point-to-point integrations that become harder to scale beyond one-to-one setups into multi-partner ecosystems. 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.
Web3’s versatility in customer loyalty engagement
Some of the brands on the Web3 front end have taken a more methodical and strategic look, taking a holistic look at how Web3 can fit into their customer engagement and loyalty strategies. Others have taken a more opportunistic route, experimenting with many aspects of Web3, such as NFT drops, metaverse forks, or crypto rewards.
Tokens and smart contracts
The World of Web3 Content Creation illustrates how coding can enhance programming loyalty. Content creators use tokens to bootstrap projects and build a community of engaged, loyal fans who can access premium content and interact with fans and creators themselves
In a loyalty environment, branded and non-negotiable tokens on the blockchain can replace or complement traditional point- and tier-based loyalty management solutions. The tokens can be used to play interactive games, track engagement with brands, and reward loyalty with real-world perks and benefits. Tokens can also open innovative avenues for businesses to plug in partners and merchants more easily with programmed interoperability rules. Smart contracts can automate a lot of the manual costs that go into managing debts and settling cross-party points.
Utility NFTs in customer loyalty
Customers are starting to lean towards NFT combined with utility to connect the digital and physical worlds. The success of any Web3 loyalty offer is usually found by pairing utilities to issue tokens. Such assets can reward NFT holders with special offers, early access to products, discounts, and priority access to stores or events. NFT metadata can be used to track progress and loyalty to the brand and its partners, such as tasks completed or points earned.
Open Ecosystem and Token Gating in customer loyalty
Token Gating is gaining popularity as open and connected ecosystems become an alternative to walled gardens, enabling smoother collaboration between brands and loyalty programs. A brand can attract token holders of another brand and grant them access to exclusive offers and experiences. Public or consortium-based blockchain platforms will enable more seamless plug-and-play collaborations between brands, bypassing complex one-off IT integrations. Gating tokens allows Tiffany & Co. to target affluent, NFT-savvy clients with minimal complexity. In 2022, Tiffany launched the NFTIFF project, where NFTIFS owners will get exclusive rights to necklaces and pendants like the cryptocurrencies they own.
A Framework for Web3 customer loyalty services
Web3 customer loyalty strategy and goals
As a first step before diving into pilots and initiatives, companies must understand the gaps and opportunities in their offering and discover their current customer loyalty, where Web3 can help. Leaders should define the overarching strategy, protection, and priority goals of the offering.
Subsequent Web3 use cases must address the underlying goals or shortcomings of the existing customer loyalty program. Common goals include extending program rewards to a broader, less active customer base; expansion and cooperation; attracting a new customer segment; and increasing customer engagement with the program or brand.
Token Strategy of Web3 customer loyalty programs
Organizations must then think through the token strategy they will use to deploy, supplement, or replace existing services and help them perform against defined goals. The options fall along a spectrum of prototypes that vary in technical and regulatory complexity. Careful financial modeling must accompany the chosen prototype to ensure that it achieves the desired financial goals for the overall loyalty offering.
Some programs may choose to create mushroom abilities based on their existing points. Cryptocurrency enthusiasts and customers can convert points into crypto for liquidity or investment purposes. Financial institutions like Sofi and Venmo have launched crypto rewards credit cards or allowed the conversion of points to crypto.
Provide a tangent token
Brands can explore an additional token offering made up of NFT collections that provide real-world utility beyond the digital token itself. These services can integrate with existing loyalty management solutions and program gaming to create new ways to engage and incentivize customers, especially in technically savvy establishments.
Loyalty points on the chain
Companies that don’t have a customer loyalty program or who want to revamp their existing loyalty management solution can offer mushroom tokens or loyalty points on the blockchain. This is useful for partner-heavy programs that require optimal cross-programming, settlement, and reconciliation.
Original cryptocurrency token
On the far end of the spectrum is a pure Web3 game focused on crypto tokens that can be rewarded, bought, and traded on currency markets. Companies should be cautious with this approach. The complexity of this model is exponentially larger than other plays, involving high regulatory oversight and complex tokenomics to drive token demand and traction on all sides of the coin. The catastrophic token collapse had serious financial and reputational consequences, such as the Fallout token FTX and the ensuing FTX bankruptcy.
Most of the companies experimenting in this space were stuck in the first two choices, with a few engaging in point-on-chain tokenization to realize cross-program settlement efficiency. Several native Web3 businesses operating under more crypto-friendly regulatory regimes have launched native crypto tokens as part of a broader ecosystem strategy demanding utility and incentives. loyal. An example is the basic attention token (BAT), which is funded by advertisers and earned by users and creators for participating in an AD ecosystem.
Partner Ecosystem of Web3 customer loyalty
A third and important aspect to think about is aligning the partner ecosystem with the brand loyalty strategy. The company’s goals will be better met through closed networks of one-to-one or one-to-many partnerships, with mushroom tokens being minted and used within that network as a token reward or payment.
For example, a financial institution can help power a network of loyal customers. Businesses can offer merchant-sponsored loyalty tokens to customers at the point of sale through a pre-programmed network of merchants and partners.
As we outlined earlier, the success of any loyalty offer will require pairing facilities for the tokens to be issued. The utility spectrum can span physical, social, or purely digital utility. Physical utility involves coupling access to real products and services into a digital asset, such as an NFT granting access to a redeemable product. Tokens can also have social utility in the form of access to community events, VIP benefits, or exclusive brand voting rights. Digital gadgets extend perks and access to the digital world in the form of metaverse events, virtual encounters with brand ambassadors, or using in-game tokens.
Loyalty utility could span all three worlds, where companies can use NFT as a form of engagement and retention. The gadget can also be gaming in three worlds, where companies can use NFT as a form of engagement and retention. The gadget can also be gaming. For example, if a customer collects three rare NFTs, they can burn them to create an exclusive NFT that gives them access to priority shipping for a year.
Participation and rewards
In addition to the traditional reward proposition that includes incentives and benefits, companies can take advantage of other engagement tools that have gained traction in the Web3 world.
One option is to use DAO-like structures to allow loyalists or a subset of the customer base to participate in selective brand decisions. Promotional efforts like “What color hoodie should we launch?” or “Which band would you like to see at a virtual concert?” All give the customer a voice in shaping the company’s products or the loyalty program itself. Companies can choose to target specific token holders or specific customer accounts or wallets, ranging from holders of proprietary NFTs to those who have collected a certain number of tokens in their wallets or reached a certain loyalty tier.
Navigating the Web3 technology landscape is no simple feat. Specifications vary by blockchain platform, and emerging Web3 infrastructure players are trying to solve the complexities through APIs and SDKs. As a starting point, companies must make four considerations:
- Which Web3 businesses and solutions will the company partner with to drive Web3 strategy, business case, product vision, customer experience development, and supplier selection?
- Which blockchain platform will deploy its token? Does it go with a public or private blockchain?
- Which Web3 infrastructure provider, if any, does the company leverage?
- Which institutional wallet and custody infrastructure will the company choose to manage its loyalty tokens? Will it go the self-made route where it manages its own keys, or will it work with a vendor to nurture its digital assets?
Congratulations! Now you know what customer loyalty is and why it is important. In addition, through this article, Twendee also shows you the connection between it and Web 3.