Could Web3 and NFTs be the future of loyalty programs and how brands recognise and reward true customer loyalty?

People’s interest in blockchain and digital assets has continued to grow.

A lot happened in the past year; the total cryptocurrency market cap surpassed $2.8 trillion, major institutional money flooded into the market and that kid you knew from high school became a millionaire by investing in a coin featuring the face of the Shiba Inu.

Like any technology in its relative infancy there is a lot of hype, but there is also rapid evolution. One particular use case of blockchain technology has seen a huge increase in popularity: Non-Fungible Tokens, or NFTs.

Major brands like Taco Bell, Coca Cola, McDonalds, Louis Vuitton, Nike and the NBA have all minted their own NFTs. The technology is shaping a new world of digital consumerism which offers new opportunities for brands and customers to engage. Welcome to the metaverse.

But in order to dive into how brands and loyalty programs could use the full potential of NFTs, we must first understand what an NFT is, the metaverse and how it all works, and how this relates back to the wider topic of Web3.

What is Web3?

Web3 refers to the third generation of the World Wide Web and is based on concepts of ownership, decentralisation and peer-to-peer networks, facilitated via blockchain technology (including decentralised applications (dApps), cryptocurrencies and NFTs).

Fundamentally, Web3 is the vision of a more open, transparent and equitable internet that empowers individuals and communities to control their data, identity and assets. An important distinction must be made; Web3 is not a replacement of the existing web, but rather an expansion of possibilities.

Taking this perspective into the world of loyalty programs, Web3 brings decentralisation, transparency and empowerment to the member experience. Rather than perceiving it as a threat or complete replacement for traditional loyalty models, the philosophy and accompanying technology offers supplementary approaches to enhance online interactions, the exchange of value, and the overall customer-brand relationship.

Our loyalty consultants are continuously reviewing and helping brands shape Web3 loyalty across five key areas; blockchain, cryptocurrencies, non-fungible tokens (NFTs), Decentralised Autonomous Organisations (DAOs) and the Metaverse. A full breakdown is also available in Chapter 12 of Loyalty Programs: The Complete, the most comprehensive book on loyalty available.

What is an NFT?

An NFT (Non-Fungible Token) is a term used to describe a unique digital asset where ownership is tracked on a blockchain.

At a high level, non-fungible simply means that it is unique and cannot be replicated, for example the Mona Lisa is a unique painting. On the flip side, something fungible is non-unique and interchangeable – for example, you can swap $1 for another $1 in your given currency.

NFTs are stored on a blockchain, where the data is locked and permanent once confirmed by the consensus of a network of servers verifying the data to ensure it is correct and consistent.

You can view an NFT as a ‘one-of-a-kind’ asset in the digital world that can be bought and sold like any asset in the physical world. There is proof (a record) of the asset’s details such as name and description, the source (the creator), the seller (if sold on the secondary market) and the owner (the current holder of the asset). In its simplest description an NFT is a digital fingerprint.

OK, so how do NFTs tie into the metaverse?

The metaverse and NFTs

Loyalty & Reward Co hinted back in 2020 that the metaverse will have a role to play in the future of loyalty, and the concept has certainly become far more widely known ever since Facebook rebranded itself Meta.

The metaverse is a future iteration of the internet, made up of persistent, shared, 3D virtual spaces linked into a perceived virtual universe.

Whereas today’s internet is limited to allowing you to experience by seeing, the metaverse describes a virtual-reality space where you experience by being. In the metaverse, people will learn, work, shop and play – a person’s favourite real-world brands will all be there.

While it is difficult to conceptualise it now – the future is often vague and speculative – virtual and real goods will eventually be viewed the same. Brands are already looking at ways to blend physical and digital realms – Dolce & Gabbana designed a collection of suits available in the metaverse as an NFT, and offered the owner a real-world suit too.

Technologists believe NFTs will play a major role in the metaverse – it is the technology which will help define the answer to the big question: ‘how can you own virtual goods?’

What is an example of an NFT?

NFTs work best with digital assets, like a digital painting, an animation or a song. They can in principal be extended to claims on a physical asset, like real estate or a piece of clothing, although there are more complications validating a physical asset directly with a digital fingerprint.

NFTs are not just about digital art, they can be minted and linked to any form of intellectual property or physical asset.

It is even possible to pair the two, so that when the physical asset is sold, the digital asset is included in the transfer of ownership (digitally recording the transfer in perpetuity). Compare it to when you might buy an expensive artwork and along with it you receive the certificate of authenticity.

Some examples of NFTs include:

• digital collectibles by designers, e.g., Beeple’s The First 5000 Days sold for $69 million
• limited edition albums by musicians, e.g., Kings of Leon ‘When You See Yourself’ album
• memorable sporting moments or movie clips, e.g., NBA Top Shot
• Exclusive access rights to fashion events and products, e.g., VeeFriends by Gary Vaynerchuk

Key takeaways:

Rather than get carried away with all the possibilities of NFT technology, here’s what you need to know about NFTs:

• an NFT acts as a certificate of ownership which uniquely represents any piece of media or asset
• the value of an NFT is not necessarily the media or asset itself but the proof of ownership

Why Web3? Why NFTs? Why all the excitement?

The NFT market has grown from almost nothing to a multi-billion-dollar industry in just one year – the largest marketplace, OpenSea, is about $20 billion alone.

Drivers of the explosive growth go well beyond the ridiculous headlines of people making ridiculous amounts of money – though it has certainly raised general interest. Of note, China banned cryptocurrencies but has allowed NFTs to flourish and major stock market listed crypto exchange Coinbase is launching an NFT platform.

Rumours even suggest Meta is looking at ways to bring NFTs directly into Facebook and Instagram. Such a move would make sense for a company pouring billions of dollars into investing into the future of the internet and all that is related, metaverse included. If there is a signal a company needs to start paying attention, this is it.

Digital transformation continues at exponential speed, and so it would be remiss not to highlight the importance of the technology and what it enables: digital scarcity and programmability.

Digital scarcity

People instinctively love to collect and own things, especially when there is an element of exclusivity to it. If something is non-fungible, that means there’s only one. Each NFT is unique.

Think about NFTs in the same way you would rare sporting memorabilia, artworks, comic books or trading cards. Thanks to the blockchain, we now can do something which has never been truly possible – to verify origin and ownership (and value) of anything digital. The result, scarcity and FOMO in the digital world.

As with anything exclusive and scarce, it is often the sense of ownership which delivers the greatest amount of value to a person. Communities and exclusive collectives have sprung up around some of the most prominent NFT projects, whereby token holders often adopt membership in these communities as part of their own personal identity –  some people even use NFTs as a representation of their digital self. Each community has different personalities and benefits – and the collective can build on this overtime, which in turn increases the value of ownership.  

They say cash is king, but this element of NFTs is likely to play an ongoing role for loyalty programs and any customer engagement activities. Social identity drives ownership, supply and demand drives value.

Programmability

NFTs can also contain smart contracts, which make it possible for a creator to attach features which expand their purpose.

For example, a creator can program royalties into their NFT. Every time the token changes hands, a portion of the resale value is returned to the original creator, or for that matter, any person or organisation they choose to reward a percentage of the value.

Contrast that with royalties in the music or art industry today and it doesn’t take a lot of imagination to see how this new technology opens a world of possibility. Vincent Van Gogh is one of the most famous and influential artists in history, but in his lifetime only recorded selling one piece for 400 Francs (around $2,000 today). His artwork has since sold for approximately $880 million, and his extended family get nothing.

Because NFTs are programmable, it’s even possible for the tokens to provide additional utility to their holders over time. In this regard, tokens can function like a loyalty membership card, providing the member with access to exclusive communities, events, special discounts or time-based unlocks, amongst a host of additional benefits sent only to holders. Revenue from initial or secondary NFT sales can be fed back into the brand and used to fund new rewards and further support the community and its development.

All of this creates a new and more direct method for brands to reward customer loyalty and build a highly engaged community.

10 Ways Brands are using NFTs

Here are some interesting ways brands are using NFTs, including inspiration from brands with loyalty programs using NFTs to drive member acquisition, engagement and recognition.

AMC (AMC Stubs)

AMC partnered with Sony Pictures ahead of the film release of ‘Spider-Man: No Way Home’ by offering around 86,000 NFTs as freebies to select loyalty members, including those who subscribe to its Stubs Premiere and A-List programs. AMC plan to airdrop discounts and other benefits to holders of the new cinema chain NFT – and AMC will collect a small royalty on all transactions made from the trading of the NFTs.

Australian Open (AO Artball)

The AO ArtBall Project is an NFT based membership created by the Australian Open (AO), a major tennis tournament held annually in Melbourne, Australia. The project allows fans to purchase digital artworks that grant them access to exclusive benefits, such as the chance to win tickets to future AO matches, Web3 educational resources, member in-person events, and collaborator benefits. Each ball represented a 19cm square plot of tennis court randomly assigned when the NFT was minted. Every time a winning shot landed in that plot during a match at the 2022 Australian Open, the relevant NFT was updated in real time with match and ball tracking data. Our loyalty consultants have written a more in-depth review of the AO Artball project and how it web3 membership programs.

Burger King (Royal Perks)

As part of the rollout of its Royal Perks loyalty program and continuing investment into digital platforms, Burger King partnered with NFT marketplace Sweet on a set-completion game. Customers could scan a QR code on each meal box to receive one of three collective NFT game pieces. On completion of the set, customers programmatically received a fourth NFT reward, which could either be a digital collectible, free Whopper sandwiches for a year, merchandise or a call with one of the collaborating artists. Burger King have also dabbled in more simplistic cryptocurrency giveaways to drive engagement.

Clinique (Smart Rewards)

Clinique ran a competition for members of its Smart Rewards program. Three winning Smart Rewards members were awarded the limited-edition NFT, early access to a new physical product, and token holders unlocked access to receive various Clinique products once a year for the next decade.

Louis Vuitton

Louis Vuitton celebrated 200 years by launching Louis: The Game. Players had a chance to receive one of 30 limited edition NFTs. Louis Vuitton opted to lock the tokens (not for sale) until a future date, choosing to focus on educating customers on brand values and tap into the general hype surrounding the technology.

Marriott (Marriott Bonvoy)

Marriott Bonvoy launched its own NFTs as part of its ‘Power of Travel’ campaign. The brand partnered with digital artists to allow three lucky individuals to win one of the NFTs and 200,000 rewards points for Marriott Bonvoy. The hospitality group aims to continue building a digital presence with NFTs to engage and incentivise customers and members. 

Nike (.SWOOSH)

SWOOSH is a Web3 platform designed for Nike’s fans, creators, and athletes to trade and create digital assets (NFTs) that can be worn in games, provide access to real-life events, and even unlock access to physical products. Users are able to join the .SWOOSH program to collect and trade assets, with community members earning the opportunity to co-create and earn royalties on sales. By implementing NFTs into their operations, SWOOSH offers Nike new revenue streams and the opportunity to create new forms of community-driven engagement with its customers.

Starbucks (Starbucks Odyssey)

Starbucks Odyssey is a loyalty program that uses NFTs (called Journey Stamps) to reward members for completing a specific series of actions (i.e., Journeys). Starbucks offer a variety of Journeys to choose from. Some Journeys focus on educating members about the Starbucks brand, while others are more transactionally focused and encourage members to explore the product range. Whilst Odyssey’s core framework fundamentally follows an advanced gamification model, the innovative element of the program is that the NFTs are integrated with the open crypto market, enabling members to freely trade on any marketplace for real money. This introduces real-world economic incentivisation into the traditional loyalty approach

Sunny Skin

Australian beauty brand, Sunny Skin, are creating a NFT collection called ‘Aussie Angels’ based on iconic Australian animals. The inaugural digital character, Kali the Koala, is viewed as a digital influencer which embodies the brand and its values in the metaverse. NFTs are a part of the long-term brand strategy, seeing opportunities to collaborate with other brands using smart contracts, and build an exclusive community to access and buy special products, and create a space for token holders to discuss skincare and important social issues tied to the brand.

Taco Bell

Taco Bell used NFTs to generate hype and support a good cause by auctioning off limited edition NFTs, dubbed NFTacoBells. The 25 pieces of NFT artwork sold out in 30 minutes. Each GIF started at a bidding price of $1 and quickly sold for thousands of dollars each. The NFTs included a real-world perk in the form of a $500 electronic Taco Bell gift card for the original token owner, and the campaign included a social responsibility all proceeds went to the Live Más Scholarship through the Taco Bell Foundation.

NFTs: A New Reward for Brand Loyalty

For any loyalty program, rewards play a critical role in driving member acquisition and engagement.

If a brand is considering implementing NFTs into a loyalty program or overall member engagement strategy, there are several unique benefits and challenges to consider:

Benefits of NFTs

Unique: given their non-fungible nature, NFTs are inherently unique and limited. They create an air of exclusivity and mystery because of their rarity, especially when there are additional benefits granted by token ownership.

Cost-effective: NFTs are relatively easy to create and therefore the cost of entry is low. Collections can be algorithmically programmed to reduce costs whilst leverage brand value. The real investment is in planning and committing to a long-term strategy which suits the brand identity.

Experiential value: NFTs are often more about the experience rather than the product. NFTs are part of the much wider blockchain movement – people want to be a part of something new, and they also want to talk about it. As more complex use cases develop, the line between the physical and digital experience will blur, building on a tokens monetary and social value.

Hype: as a new technology and emerging market there is a lot of excitement which creates opportunities to try something new and stand out. While the initial hype cycle may subside, brands who take the time to invest and execute early can apply their learnings and succeed in the long run.

Long term brand equity: brands need to create a brand with longevity, and this requires change and leveraging technology to maintain relevancy. NFTs provide a new way to directly access and reward customers, collaborate with other brands, support a social purpose and build a community – all these elements can encourage consumers to follow and maintain engagement with a brand in the long run.

Challenges of NFTs

Execution: to be successful, NFT projects must be meaningful and viewed as such by consumers. Community continues to be an important foundation of any successful project – interest and engagement relies on users seeing meaningful value, and the original creator or brand providing genuine utility rather than a speculative money grab. Brands need to commit. If a brand is struggling to find a purpose for digital ownership or is simply trying to cash in on NFT hype, the success will be short lived – and could even damage the brand.

Accessibility: most blockchain technology at the moment is not user friendly, so real emphasis must be placed on how a brand can make NFTs more accessible to their particular audience. The technology is so new – but as major brands continue to get involved, the UX and UI will significantly improve to meet public demand and interest.

Volatility: cryptocurrency markets are highly volatile, and the relevant regulatory frameworks continue to develop. Dramatic price changes can significantly impact demand for NFTs. Due to this inherent risk, brands must optimise for engagement rather than pure monetary value. 

Perpetuity: there is little to no existing legislation or case law yet in relation to NFTs. People will commonly assume that the holder of an NFT is granted automatic copyright, but the legislation or treatment of tokens is not so clear-cut. Smart contracts are locked to the blockchain in perpetuity, whereas in most traditional legal contracts there is space built in for negotiation. Intellectual property and copyright are going to be a major, major source of challenges in the future.

Sustainability: sustainability and the environmental impact of blockchain technology continues to be an ongoing debate. Entire articles exist on this topic, and therefore the argument for or against will not be made here. Nonetheless, there are various blockchains that have very low carbon emissions, but they do not yet have the market size of the majors. Sustainability remains an important consideration for any brand moving into the space as it will influence adoption and brand perception. It is a delicate dance that will evolve over the coming months and years.

NFTs, digital assets and the future of Web3 loyalty

NFTs are in the early adoption phase, but many major brands have already shown great interest. Adoption and appeal will be primarily driven by younger generations – forward thinking companies understand this.

Digital assets and new applications of the technology will continue to flow into the loyalty space as adoption grows in the coming years – it’s likely the most prevalent use cases haven’t been envisioned yet.

Loyalty crystal ball gazing

In the near future, the same technology underpinning NFTs is likely to be used as loyalty devices in the same way physical and digital membership cards have been used for decades. They will not only be used as proof of membership, but also of achievement, and even some degree of commercial rights ownership or governance of a brand.

More complex use cases will develop, with brands seeking to blend NFT ownership with online-offline connections. Likeminded brands will collaborate to unlock value for holders across ecosystems, akin to today’s coalition programs.

Brands will increase investment into digital assets and platforms to realise a new source of revenue – some completely replacing traditional revenue streams in favour of digital ones.

As the metaverse narrative develops, more individuals will adopt branded NFTs as part of their extended self in the digital world – a new type of customer will arise, the brand omniadvocate – powerful influencers which bridge word of mouth across digital and physical worlds in an entirely new way. Omniadvocates will be universal brand ambassadors symbolising the ultimate form of brand loyalty.

Closing thoughts

NFTs are exploding and powerful and need to be on the radar of any forward-thinking organisation.

They can be used to encourage advocacy, engagement and long-term loyalty. From creating a collectible piece of brand history, rewarding specific behaviours, to programming exclusive perks and community access rights, there are many opportunities for brands to tie NFTs and loyalty together, right now.

If a brand is looking to get into the space, they need to invest the time to understand what makes a NFT project successful – execution is one, but a focus on building engagement and community is integral.

Staying relevant has always been the key to brand success, and in the blockchain world, relevancy moves swiftly.