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The Web3 Era of Loyalty Programs
Transactional relationships are out, Co-Creation is in
Today we have a special guest post from Tara Fung, a growth-oriented leader who believes blockchain technology will fundamentally alter the way the world works and what is possible. As Cofounder & CEO of Co:Create, an a16z-backed company, she helps innovative brands unlock the power of community with gamified, self-owned loyalty and reward programs built on web3. She is a graduate of Harvard Business School and the University of South Carolina.
Let’s break down a potential scenario…
I’m enrolled in 16 loyalty programs… I’m 80% more likely to spend more with those brands as a result. The number of programs I’m part of has grown by 50% over the past 10 years.
Or at least, these are the metrics that would be true if I were the average individual. I personally don’t know how many programs I’m a part of at this point. For all of the data on how well loyalty works, anyone who's been in these programs quickly learns the following: Loyalty programs aren’t really about loyalty.
It’s a misnomer or, at best, a euphemism for retention marketing. Brands dole out benefits that are “earned” but never owned. If you want to exit the program, you have to leave everything you worked for behind.
Let’s call a spade a spade - these programs are more about captivity than loyalty.
Is there really a problem?
As the saying goes though, “if it ain’t broke, don’t fix it.” Loyalty is working for brands … right?
If you take a look beneath the headline stats of this reported $5.6 billion market, there’s an alarming trend:
GenZ is half as likely to be enrolled in a loyalty program compared to GenX
57% of GenZ are less loyal to brands than they were pre-pandemic.
Sure, younger folks haven’t had as much time to enroll.
But the real issue is that most loyalty programs are boring and transactional. The allegiances formed are fleeting versus empowering or exciting. I’m all too willing to go with a replacement product based on the next ad in my Instagram story.
I’m definitely not sharing any love for the brand in my posts (or creating brand catnip: user-generated content) or spreading the word to my friends.
All of this leads me to the following: Loyalty is broken and in desperate need of a rebrand.
How did we get here?
A quick stroll down loyalty lane and we’ll find these programs got their start in the late 1800s with S&H Green Stamps. It was a brilliant concept: reward people for their purchases, simultaneously creating an incredibly strong incentive mechanism that drives repeat purchasing behavior. Airline and hotel programs took things to a new level in the 1980s, introducing complex earning mechanisms and aspirational VIP tiers.
Like anything else in life, however, what's worked in the past requires innovation to keep up with the changing times. Loyalty programs are no exception.
Connection in a world of distraction
We are living in a world of endless consumer choice and dwindling attention spans.
The most effective length of a TikTok video is 24 seconds. And most users watch content at double speed, including short-form.
Creating enduring connections, engagement and, yes, loyalty, in this environment is more important for brands than ever. Forward-thinking brands must recognize that cultivating genuine community is the only solution to combat shrinking attention, rising customer acquisition costs (CAC) and the loss of control over consumer relationships inherent to relying solely on ad-driven models and ever-changing algorithms.
The path to the promised land won’t be uncovered with stale programs and uninspiring rewards. Younger consumers demand more from the brands they support; they're after captivating brand experiences, increased ownership, and heightened transparency.
The next generation wants to be empowered as integral community members, not just numbers in a database.
The future of loyalty, powered by these community-centric sentiments, goes beyond mere transactional exchanges. It's about mutual commitments between brands and customers. It’s about building community.
The evolution of loyalty
So how do you build a brand community? What’s the formula for success? It comes down to new designs, new building blocks, and new mindsets.
Co-Creation - The new loyalty program design approach
Traditional loyalty programs often have a limited perspective on the value customers can bring to a brand. They focus singularly on purchases and foster a transactional relationship that lacks genuine loyalty.
Co-creation is the newest buzzword, but it represents something impactful. Younger consumers are looking for ways to be actively involved and recognized for their contributions. Regarding brand loyalty, this implies a shift from the passive receipt of rewards to active involvement in shaping the brand's future and identity. In practice, this looks like:
Surveys and Feedback: Inviting members to provide feedback on products, services, or marketing campaigns. This insight-driven approach not only improves the brand's offerings but also makes the customers feel heard and respected.
Ideation and Beta-Testing: Got a new product idea? Let the most loyal customers be the judge. Offering members the chance to submit product ideas, participate in beta testing, or vote on potential new releases can create a powerful sense of ownership and involvement.
Artwork and Creative Contributions: Brands can invite members to contribute to the brand's aesthetic — user-generated content, design contests, or collaborative projects can bring a fresh perspective and create a vibrant, community-connected brand image.
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Web3 - The new loyalty program building blocks
Web3 empowers consumers to become genuine owners of brand assets and stakeholders in a brand’s story. It also enables brands to seamlessly partner with one another (for a moment, a period, or in perpetuity) to enter exciting brand collabs that create value for consumers and lower cost of acquisition for brands.
Specifically, bringing loyalty on-chain will allow for greater:
🔒 Trust & Transparency
The key to loyalty’s true meaning. With all transactions recorded on an immutable ledger, blockchain-based loyalty programs offer enhanced transparency for members and certainty of rewards.
🕹️ Gamification & Interoperability
With Web3, brands can enable members to trade, sell, or HODL their tokens, adding an interactive layer for members. Interoperable rewards enable the extension of a brand’s loyalty program beyond the confines of their own ecosystem, enhancing the program’s value, attracting more individuals, and creating more dynamic experiences with other communities.
When creating web3 based loyalty programs, brands don’t need to start from scratch — developers can leverage composable, open-source tools to build integrated, highly-customizable rewards experiences. This increases the potential to innovate on pre-existing rewards infrastructure.
🔐 Ownership & Identity
Perhaps the most exciting facet of web3 loyalty is true ownership. Members can hold a digital piece of the brand, fostering a deep sense of belonging and commitment. This "token" of loyalty isn't just symbolic—it can be traded, sold, or kept as a collectible.
🎨 Unique Rewards
With the rise of NFTs, loyalty programs can offer unique, irreplaceable rewards—like limited edition digital artwork or exclusive, token-gated experiences. These digital assets are an acknowledgment of the increasingly digital footprint and its level of importance in our day-to-day lives.
By focusing on co-creation and web3-enabled rewards, the next evolution of loyalty programs will shift from transactional to relational. Members will become more than consumers—they will be co-creators and stakeholders in the brand's future.
Community-powered loyalty IRL (and on-chain)
This paints a beautiful picture of the future. What evidence exists today? As we often say “we are still so early” but there are exciting examples that point to what is possible:
Nike stepped into web3 with .SWOOSH, a new community-powered platform and marketplace to co-create and trade digital collectibles and wearables (i.e., virtual sneakers or jerseys), incentivized through royalties and prizes. I’m a big fan of how they enabled co-creation (personalization of your membership token, Our Force One design challenge) and balanced bringing folks on-chain with mass-market accessibility.
Co:Create partnered with Bleacher Report, to launch its watch-to-earn program as a way to foster greater engagement with their live show, Inside the NBA. By answering trivia questions after each airing, NBA fans earn BR tokens they can redeem for digital and physical items in the Bleacher Report rewards marketplace.
Other early, yet exciting, examples include established brands like Starbucks Odyssey and the newly announced Mercedes NXT, to Web3-native examples such as Boys Club and Kiki World.
A New Era for Loyalty
Loyalty is in desperate need of a rebrand, but it’s more than that - these programs can and should be built differently. Times have changed, and with it, so have consumer expectations, attention spans and the technological landscape. A co-creative approach to loyalty program designs powered by web3 technology will finally allow these programs to live up to their name.
This isn’t an altruistic undertaking for brands; it’s a smart business move.
When customers feel that sense of belonging, that connection to a brand, they're not just more likely to keep buying — they're more likely to spread the word and bring others into the fold. That's the power of real loyalty.
Any brand that sees itself as an innovator and ahead of the curve can no longer consider community-driven loyalty programs a nice-to-have — they are crucial to attract and retain the next generation of customers. Brand leaders who ignore this risk falling behind—an unforgiving mistake.
When we look back at this new era of loyalty, enabled by web3, brands who navigated this evolving landscape, were early to understand its implications, and effectively implemented strategies incorporating these learnings will be the clear winners.