7 Reasons Why Loyalty Programs Should Use Web3

Web3 is enabling new ways to engage customers.

Loyalty programs are a massive industry, worth over 4 billion USD¹.

In an uncertain market, with a growing number of competitors, maintaining customer loyalty is increasingly challenging but valuable.

Web3 brings several benefits to loyalty programs that are difficult to reproduce using only web2 technology.

Summary

The major benefits of going web3 for loyalty programs include:

1. Wallet tracking
2. Community development
3. Preparation for web3
4. Brand awareness
5. Marketplace effects
6. Interoperability
7. Outsourcing record keeping and security

Let’s look at each of these in detail.

1. Wallet Tracking

The public nature of the blockchain brings transparency to information about user’s crypto wallets. When a user clicks “connect wallet” on a web3 website, they are asked to sign a confirmation, allowing the website to view (but not modify) their wallet’s information. This information includes:

1. Wallet’s address (an identifier like 0xb794f5ea0ba39494ce839613fffba74279579268)
2. Total amount of assets, including balances of cryptocurrencies
3. History of every transaction associated with the wallet, including transfers in and out
4. What chains the wallet is associated with, i.e. Ethereum, Binance, Polygon, etc.
5. Basic analytics, like what their highest/lowest ETH balance was, and when the wallet was created.

In other words, once you have a user’s wallet, any information that is publicly available can now be retrieved with ease. It can easily be viewed by dropping the user’s wallet ID in etherscan.io.

Etherscan displaying details of wallet “0x690B9A9E9aa1C9dB991C7721a92d351Db4FaC990”.

The ability to retrieve this type of usually private information has never been seen before on web2. Details about a user’s account balance was once only available to financial institutions, but now any web3 website can access this information and act on it.

Business Value

• Offers can be made to users with particularly large balances. For example, a business could send out free NFTs (air drop) to wallets with large balances to entice them to engage more with the community, or more blatantly — spend more.
• The customer community can be grown based on transactions associated with a wallet. While wallet addresses are usually anonymous, certain wallet holders choose to utilize a recognizable name, such as vitalik.eth. Furthermore, messaging applications for wallets enable direct communication with the wallet owners. Another method is to cross-reference a user’s web2 information, such as their email address during signup, with their wallet address.
• Attribution engines are an upcoming technology which enable tracking how wallet addresses are finding a business, for example if they clicked on a link on Twitter, or through a Telegram group — and what the outcome was, whether they signed up for a rewards program or not. Check out www.definitive.io for more details on this concept.

2. Community Development

Community and loyalty go hand-in-hand. Few communities are more fiercely loyal than sports teams. Across all sports, in all countries, there are fans who will gladly be representatives of their team’s branding, purchase merchandise + jerseys, and even save up money for attending live sports events.

This intense loyalty only exists because of the sense of community, ownership and exclusivity that has been created by athletic businesses.

Web3 is positioned exactly to create this same level of loyalty and engagement among users. A current web3 trend is to create a Discord server where only users that hold a certain NFT are allowed to access and chat. This simple mechanism is what has driven unbelievable prices for NFT clubs such as BoredApeYachtClub, which at the time of writing (2023–03–06) is valued at a minimum of >100K USD per NFT.

Businesses can leverage this loyalty mechanism by following a series of simple steps:

1. Publish a limited number of exclusive NFTs (an NFT drop).
2. Allow users to either purchase or mint them for free.
3. Set up a Discord channel that grants access to users only if they have the NFT.
4. Engage in the Discord channel by offering discounts, information, and events exclusively for NFT pass holders.

Why not do this on web2?

Creating an exclusive community is possible on web2. Any forum-based website, or even a Facebook group serves a similar purpose. However, the status that users receive in web2, is limited to the container that its provided in. Having a high reputation on Reddit is not transferable to Quora. However, having an NFT on the public blockchain can be sold or traded on any NFT marketplace, such as Opensea or Rarible.

The blockchain provides a universal backbone for maintaining ownership of assets across platforms, websites, and apps.

The question is, does the public understand this benefit yet? Probably not. To me, this signals an opportunity to get ahead of the competition.

3. Preparation for Web3

Web3 is going to become as widespread as web2 is. Eventually it will be second nature and abstracted away, in the same way that an average person uses the Internet without knowing how it works.

Transitioning an existing enterprise from web2 to web3 is challenging and can face many hurdles. Starting with one aspect of the company, such as a rewards program is a good way to gradually move into web3. By setting up a web3 loyalty and rewards program, businesses will have to undergo the following steps:

1. Select a vendor to research, architect and implement a web3 solution
2. File for trademarks and patents related to web3, NFTs, etc.
3. Establish accounts or even partnerships with web3 third-party services such as Opensea for listing NFTs, or Pinata for storing content on IPFS.
4. Create and onboard users on to the web3 loyalty program.
5. Train existing staff to help support customers interacting with web3 components.
6. Setup web3-based communities on Discord, Telegram, or other social media.
7. Secure against any potential attacks. This may include getting a third-party audit done on any smart contract code.

Of these 7 steps, 6 of them are reusable for any other web3 use case beyond loyalty and rewards. For example, they can be used for creating a new cryptocurrency, establishing a DAO, setting up fractionalized ownership, and whatever other new web3 use case inevitably becomes common place.

Case Study: Home Depot

The Home Depot is entering web3. Source

The Home Depot (THD) has filed for 24 Web3 Trademarks for its name, logo, and brands related to web3. Although THD has yet to announce any web3 programs or features, they are gearing up for entering the web3 space soon.

4. Brand awareness

Whenever a large brand enters web3, a significant amount of press and buzz is created. This alone can drive new traffic and interest, especially in industries dominated by age groups 35+ such as home improvement, since web3 is most popular among younger adults.

5. Marketplace effects

Once users receive NFTs, they are free to sell and trade them on any NFT marketplace. This is the unique utility that web3 provides, which is impossible to replicate on web2.

If a brand provides its customers with NFTs for spending a minimum of $500, and so long as they have this NFT it gives them a 5% discount on their orders, they can now sell this NFT on Opensea, allowing another user to receive this discount. The benefit for the brand is that they can receive royalties on any resale of the NFT. Also, marketplace effects are creating, meaning that a new wave of interest and demand will occur for these NFTs. This could lead to a sudden boost in sales for people who are shifting their purchases over to one brand from another, just to receive and sell the NFTs.

In all scenarios, brands are increasing their customer size, customer engagement and overall bottom line.

6. Interoperability

The blockchain has created interoperability between websites. For example, if a brand such as LVMH, which has dozens of subsidiaries and sub-brands, wanted to create an organization wide NFT, they can have it working across all their brands.

LVMH is the parent company of Loui Vuitton, Moet, Hennessy, and other luxury brands.

This also means that NFTs can be used across different vendors, platforms, and third parties. This opens use cases for getting better analytics for connected wallets or extending web3 use cases.

7. Outsourcing record keeping and security

Record Keeping

All transactions on the blockchain are public, including wallet addresses, balances, transfers, etc. Although this would not be a replacement for an accounting system, it provides a single source of truth for all activities.

This can help accounting teams reconcile transactions and help build trust with customers.

Security

Security is a broad term, and web3 doesn’t guarantee security across all vectors (especially social engineering). What web3 does guarantee is that all records are incredibly difficult to alter by a malicious party. With NFTs, smart contracts can provide limits to how many NFTs are allowed to be in existence, and what metadata they represent.

Conclusion

Web3 is bringing a new normal to the web. Loyalty programs are one example of how blockchain technologies will be used under the hood for everyday use cases.

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