Hang’s Guide to Next Gen Loyalty in Web3

Polygon Labs
August 7, 2023
Polygon Giga Brain
Image source: Dribbble

In the beginning, there were box tops.

Consumers cut and collected tops of General Mills products, like cereals and mixes, in order to keep the physical points printed on the cardboard. The reason? Enough box tops worth enough points could be mailed in for items from the Betty Crocker catalog. 

This was a rewards program to end all rewards programs, brand loyalty woven into the fabric of many families' lives

And yet, in 2006, General Mills discontinued Betty Crocker points and catalog. Consumer behaviors had changed alongside new technologies. It was clear 20th century loyalty programs fit unevenly in the 21st.

That’s why loyalty programs need an update. 

Whereas the Betty Crocker program was perfect for an era of mass media–the print catalog a faded symbol of an analog past–the loyalty programs of tomorrow will need to leverage new, digital technologies that unlock different relationships between brands and customers.

This guide investigates two major loyalty opportunities enabled by Web3, though countless open design questions wait to be explored: tokenized memberships and tokenized rewards.

Tokenized Memberships: Disrupting Siloed Loyalty with Composability and Interoperability

Web3 brings a fundamental change to loyalty programs: the promise of letting go. 

Tokenized memberships shatter the loyalty silo. Customers who grow tired of a program can always exit on a secondary market. 

Tokenized memberships allow every customer's loyalty status to be represented by a unique Non-Fungible Token (NFT). Rather than remaining trapped in an ecosystem of points and rewards they don’t value, customers can seek others who do. As a result, the customer effectively owns their status and can use it across a potentially infinite number of brands and platforms. 

So what design principles should program managers keep in mind when thinking about the next gen of loyalty programs?

Horizontal Interoperability

A customer’s membership with one brand can be ingested, read, and utilized across an ecosystem of other brands. Brand collaborations are simplified, as brands effortlessly verify a customer's status in partner brand loyalty programs and offer them cross-brand perks and benefits. 

Imagine an LA coffee shop and a local streetwear brand both have NFT-based loyalty programs. The streetwear brand could offer exclusive patches for the coffee shop's members, while the coffee shop could give a discount to the streetwear brand's loyal customers. The result is a mutually beneficial partnership, fostered by interoperable loyalty programs, that would otherwise have required costly custom integration.

Vertical Interoperability

Brands interact with their customers across digital and physical ecosystems. NFT-powered loyalty programs serve as the connective tissue linking all customer touchpoints, thereby enabling brands to track and reward customer interactions across their varied distribution channels.

Imagine a fashion brand that sells its products through various channels like brick & mortar, ecomm, and distributors can leverage NFT loyalty to verify, track, and reward customer interactions across all these outlets. The result is an enriched understanding of the customer journey, personalized reward offerings, and boosted customer engagement.

In an interoperable environment, the value of a customer’s status grows exponentially, rather than linearly, through the larger brand ecosystem. In the days of box tops, the value of a box top was directly associated with what was in the Betty Crocker catalog. An on-chain membership’s utility continues to grow past its value within the brand, but as the larger ecosystem of on-chain brand memberships grows.  

Tokenized Rewards: Turning Static Rewards into Tradable Assets

Web3 shifts loyalty thinking from the 'earn and burn' model to one where rewards are tradable assets that bolster customer engagement and loyalty.  

NFTs significantly alter the dynamics of customer engagement by providing insight into new kinds of data.

Brands can help ensure a higher redemption rate on rewards, as the rewards that they issue are far more likely to end up in the hands of customers that will redeem them. Higher redemption rates signal higher customer engagement and loyalty. 

Tokenized rewards have a number of unique properties. 

  • Creation and Distribution: Digital tokens are minted as rewards on a blockchain. The creation and distribution of these tokens are governed by smart contracts—self-executing contracts with the terms of the agreement directly written into code. Brands can define the rules for minting and distributing tokens based on customer behaviors and actions.
  • Ownership and Transferability: Once a customer earns a reward token, they become the unequivocal owner of it. They have the autonomy to utilize it as per their preferences—they can redeem it, hold onto it, or even transfer it to others. 
  • Market Dynamics: Secondary markets may arise, where customers can trade or sell rewards. Such markets allow rewards to derive value dynamically. Furthermore, brands could leverage these dynamics to adjust their rewards strategy, responding to market trends and customer preferences in real-time.
  • Gamification and Community Building: By allowing customers to level up, trade, or sell their rewards, brands can engage customers in a new and exciting way. Brands can also offer new ways for their customers to interact and earn rewards. Next generation loyalty leverages features like loot boxes, quests, raffles, and mini-games to broaden the customer experience and make interactions more joyful. This gamification drives customer loyalty and stimulates community building around the brand. 

Tokenized rewards represent a new frontier in customer engagement and loyalty strategies, leveraging blockchain and tradability to make rewards more engaging, dynamic, and valuable. 

As brands continue to explore and adopt these innovations, the possibilities are virtually limitless. 

Embracing the Future of Loyalty with Web3

Brands have the opportunity to reimagine loyalty programs utilizing Web3 technology. Tokenized memberships and rewards pave the way for dynamic, interconnected ecosystems that break the silos of traditional loyalty systems. 

And it’s already happening. 

An influx of big brands are building out loyalty programs with Web3-native elements on Polygon. As the ecosystem pivots to the proposals of Polygon 2.0, even more brands will be able to see the upside of interoperable, Web3-native brand loyalty.

Hang is leveraging new possibilities in personalization, gamification, and web3 technology to create a new paradigm for brand loyalty. With Hang, brands are building radically new loyalty programs that are individualized, fun, and engaging, fostering deeper relationships with their customers. Learn more about Hang here

Tune into the Polygon Labs Blog and our social channels to keep up with updates about the Polygon ecosystem.

Together, we can build an equitable future for all through the mass adoption of Web3!

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