Choosing a Path for Customer Loyalty Programs

Mar 30, 2023

Loyalty programs are a vital tool for growing long-term value within a customer base. 77% of customers report being more likely to keep doing business with a brand that has a strong loyalty program, and 71% of customers say that a loyalty program is important to their connection with a brand.

Overall, companies with the strongest loyalty programs see 2.5 times more revenue growth than their competitors, making these initiatives essential for brands striving to lead in their market.

Nevertheless, many loyalty programs are stagnating. Around two-thirds of customers ignore the majority of loyalty programs that they sign up for. For decades, loyalty programs, built upon centralized databases, have remained static. The limitations of this traditional model have become increasingly evident as web3 has presented an alternative approach to designing loyalty programs.

Brands now have to choose a path: keep memberships in a centralized database or leverage web3 to make loyalty programs more dynamic and compelling.

The web3 model offers fundamental advantages for both brands and their customers. Web3-based loyalty programs are simpler to operate and scale, and they enable a diversity of strategic partnerships, members-only perks, token-gated commerce, and gamified engagement, all without requiring bespoke engineering solutions.

In addition, web3  community management tools like Kazm allow brands to transition their loyalty programs to the blockchain without costly migrations. With this type of plug-and-play platform, companies can quickly launch campaigns and accurately measure ROI, enabling data-driven growth through customer loyalty programs.

Path 1: The Traditional Model

Traditionally, customer loyalty programs have been structured around a centralized database of member information. Although functional for basic tasks, this model inevitably runs into important limitations.

Novel perks or experiences for members must be built on or integrated with the centralized database, which often involves custom engineering. The same applies for any partnerships or collaborations because facilitating secure interactions between siloed databases leads to cumbersome technical challenges and escalating costs.

In this way, expanding the functionality of a traditional loyalty program becomes expensive and slow. Higher costs make new initiatives more risky, discouraging innovation and leading many loyalty programs to become stagnant.

The end result is fewer benefits for customers, which culminates in reduced engagement. Not surprisingly, researchers have found sluggish performance among traditional loyalty programs. On average, people sign up for well over a dozen loyalty programs, but they ignore the majority of them. Without engagement, these loyalty programs fail to strengthen customer relationships or cultivate long-term value.

Path 2: Web3-Powered Loyalty Programs

Using blockchains as its underlying technological rails, web3 presents an alternative path for loyalty programs that moves beyond the limitations of the traditional model.

Web3 customer loyalty programs are built on interoperable platforms that enable multi-faceted partnerships without bespoke integrations. Their token-based structure creates a new framework for rewards that offers more benefits and spurs more active member participation. At the same time, brands can leverage a quickly-growing roster of token-enabled tools and member experiences that work out-of-the-box.

With fewer technical costs to launch innovative campaigns, brands can quickly experiment and iterate, pulling multiple growth levers to optimize long-term value from existing customers. Compelling rewards programs can also strengthen brand identity and appeal to encourage conversions, reducing customer acquisition costs and spurring growth at all levels of the funnel.

The following sections explore some of the key benefits of web3-based loyalty programs along with concrete examples of how forward-looking brands are taking advantage of these capabilities in their community-building campaigns.

Cross-Partner Promotions

On-chain loyalty programs are built on interoperable platforms, which allows for seamless integrations for both long-term strategic partnerships and one-off promotional collaborations. A web3 loyalty program can be easily programmed to recognize tokens from another brand, so these multiplayer partnerships require virtually no engineering work or integrations.

Partnerships are a fresh source of perks for existing customers, which can strengthen brand loyalty. At the same time, partnerships can heighten brand recognition and provide immediate access to new customers who can effortlessly join the loyalty program. By rewarding members and allowing brands to tap into new communities, the overall impact of cross-partner promotions is to both improve retention of existing members and lower acquisition costs for new customers.

Members-Only Perks

Token-based loyalty programs provide a simple method of giving participants access to a range of members-only benefits. With token-gated access, membership verification is instantaneous and works as an off-the-shelf solution with no additional engineering resources.

There is virtually no limit to the types of perks that can be offered in web3 loyalty programs. Token-gated benefits could include access to:

Unique rewards can be offered for separate membership tiers to benefit the most loyal and engaged customers. Brands can experiment with various types of token-gated rewards tailored to meet different goals, such as strengthening the community around the brand, incentivizing specific purchases, encouraging other forms of engagement.

Token-Gated Commerce

Another way to deploy token-gated perks is through unique product launches or shopping experiences available only to members. This could involve merchandise that is only offered to token holders, or it could provide early access to new or limited edition products for specific members.

No engineering resources are needed to spin up token-gated commerce, and as a result brands have the flexibility to target certain customers with specific product launches or to undertake broader campaigns for all their members.

Token-gated commerce creates an ongoing incentive for meaningful engagement with a brand, especially since research has found that more than half of people assign more value to rewards that are tangible and not simply digital. In addition, launch events and product releases can turn into community building events, reinforcing loyalty and also drawing wider attention that can raise brand awareness among potential new customers. In these ways, token-gated commerce can be harnessed to encourage growth at different levels of the funnel.

Gamification and Member Showcasing

Web3-based customer loyalty programs empower brands to use gamification to cultivate customer engagement without expensive and time-consuming engineering projects.

On-chain loyalty programs can be built to include experience points (XPs) that can be earned through predetermined activities. Brands can establish membership levels and/or public leaderboards that showcase the most active participants. Membership tiers and multi-part quests can unlock special perks and benefits for the most committed community members in order to drive more frequent and long-lasting engagement.

Unified Loyalty Management With a Web3 CRM

Many of the early headlines about brands moving into web3 focused only on speculative or short-term revenue plays, such as rushed NFT mints or metaverse land grabs. Unfortunately, this has caused many companies to miss the bigger picture, which is the opportunity that web3 offers to build a new class of loyalty program. Driven by interoperable platforms and an exploding ecosystem of plug-and-play tools and partners, web3 loyal programs are more cost-effective to operate and more appealing to customers.

Web3 is rapidly maturing, and a web3 community management  platform can allow brands with traditional loyalty programs to quickly transition and deploy a dynamic, token-based model. Adopting a web3-based loyalty program can benefit brands by:

While the traditional model for loyalty programs is stagnant and resource intensive, the web3 model is dynamic and interoperable. At this point, brands must reflect carefully on which path to follow. They can decide to either tap into a growing web3 ecosystem or be left in the dust.

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