How to Build a Web3 Loyalty Platform with NFTs

Blockchain technology has transformed businesses around the world, with Web3 loyalty platforms standing out for their innovative approach to user involvement. These platforms use NFTs and cryptocurrencies to address ongoing difficulties in traditional loyalty programs, such as security, transparency, and adaptability. However, despite their promise, understanding the benefits and drawbacks of Web3 loyalty solutions is essential for making informed decisions.

In this post, we’ll examine the fundamentals of developing a Web3 loyalty program, including its major components, potential benefits, typical issues, and recommended best practices.

The Expanding Customer Loyalty Market

The global customer loyalty market, valued at $9.17 billion in 2022, is expected to grow significantly, with a projected compound annual growth rate (CAGR) of 9.7% through 2030, according to Grand View Research. The U.S. market shows even greater potential, with a CAGR of 13.2% over the same period. A growing public interest in mobile wallets, digital loyalty cards, and personalized offers drives this surge. While Web3 loyalty platforms could capitalize on these trends, the hype around blockchain and NFTs may obscure practical concerns, particularly in terms of usability and sustainability.

What is a Web3 Loyalty Platform?

A Web3 loyalty platform is a decentralized application that uses blockchain technology to operate and administer client loyalty programs. These systems use NFTs and cryptocurrencies to give users more control over their incentives, potentially addressing issues like data security and reward transferability. However, decentralization might lead to difficulties. For example, consider accessibility, privacy, and usability for non-technical audiences.

Web3 loyalty programs provide a number of new features:

• NFT-based rewards are believed to provide users with increased ownership and long-term value.
• Transparency and scalability, along with blockchain, enable brands to design reward schemes with theoretically higher security.
• The acceptance of huge brands like Starbucks, Burger King, and Lufthansa indicates market momentum. However, it is important to note that these programs are still experimental, with limited evidence to support their effectiveness outside of brand marketing campaigns.

Challenges in Traditional Loyalty Programs: Can Web3 Really Solve Them?

Web3 loyalty platforms are offered as answers to a variety of problems in traditional, Web2-based loyalty programs. However, these claims warrant scrutiny:

1. Data Vulnerability: Traditional loyalty programs hold user data on centralized servers that are prone to hackers. Blockchain is marketed as a more secure option, yet it is not immune to security threats such as smart contract vulnerabilities and phishing.
2. Lack of transparency: The criteria for granting and expiring points in Web2-based loyalty programs are sometimes ambiguous. While blockchain’s transparency can help in this area, it also introduces a learning curve for those who are unfamiliar with decentralized systems.
3. Short-term focus: Conventional loyalty programs are sometimes criticized for prioritizing short-term sales goals above long-term involvement. Although NFTs provide a method for creating long-term value, the hype surrounding them may overwhelm the actual benefits and utility provided to clients.
4. Non-Transferability of Rewards: Unlike Web2 loyalty points, NFTs are theoretically transferable. However, NFT trading platforms might have large transaction costs, and volatile cryptocurrency values can impact reward stability, making it uncertain whether users would gain.

Types of Web3 Loyalty Programs

Web3 loyalty platforms claim to address traditional loyalty program issues by offering different types of NFT-based rewards. These models vary in design but share common elements that may pose both opportunities and limitations:

• Points-Based Programs: NFTs function like loyalty points that are collected with purchases, potentially resulting in individualized incentives. However, blockchain storage of small transactional data points may be expensive and inefficient.
• Purchase-Based Programs: NFTs are issued following a purchase, providing long-term advantages linked to the product. This approach is promising, but the complexity of blockchain mechanics may put off mainstream buyers.
• Value-Based Programs: These programs reward customers based on their alignment with a company’s social mission, using NFTs to reinforce brand identity. While appealing to conscious consumers, the actual mechanics can seem more symbolic than practical.
• Tier-Based Programs: NFTs represent different reward tiers, offering progressively higher rewards. Tiered programs are popular in traditional loyalty, but NFT-based versions introduce new challenges, such as high gas fees for tier upgrades or fluctuating NFT values.

NFTs in Loyalty Programs: Revolutionary or Overhyped?

NFTs are presented as a “ twist” in loyalty programs, but it is crucial to weigh their supposed benefits against their real limitations:

1. Digital Loyalty Cards: NFTs can act as loyalty cards with collectible or dynamic visuals. However, for many consumers, a blockchain-backed loyalty card may feel unnecessarily complex, especially when simpler digital solutions are available.
2. Redeemable Coupons: NFTs may be used as redeemable coupons online or in stores. However, blockchain transactions sometimes incur large fees, thus offsetting the value of a minor coupon or discount.
3. Exclusive Access: NFTs can provide “access-gating” to exclusive events or discounts, but these perks may only appeal to a specific audience. For most consumers, the initial attractiveness of NFTs may fade quickly, reducing long-term interest. 
4. Tiered subscriptions: NFTs allow you to update tiered membership cards. Marketers should consider whether blockchain technology is more valuable than traditional digital tiering tactics.

Real-World Examples: Do They Deliver on the Hype?

Several brands have launched NFT loyalty programs, yet their effectiveness remains an open question:

• Starbucks: Through its Polygon-based Odyssey program, Starbucks offers NFT “stamps” for completing tasks. While innovative, it’s unclear if these NFTs provide real utility or simply serve as collectibles.
• Burger King: Customers collect NFTs via QR codes on meals, eventually unlocking rewards. This approach may be more of a marketing gimmick than a long-term loyalty solution, as NFT collectibility may wear off.
• Lufthansa: NFTs awarded through Lufthansa’s Uptrip app offer potential flight rewards, but customers must navigate the complexities of managing NFTs, a barrier that may deter some travelers.
• Taco Bell and Clinique: These brands use NFTs for limited-time promotions. While novel, these programs often cater to collectors and enthusiasts rather than the average consumer.
• Lamborghini: Recently, Lamborghini introduced a Web3 loyalty program that rewards customers with limited-edition NFT collectibles linked to exclusive experiences and merchandise. While the program is still in its early stages, it highlights the potential of luxury brands to use NFTs for customer engagement and exclusivity.

Key Features of a Web3 Loyalty Platform: Practical or Ambitious?

Several features are critical to consider for those interested in building or participating in a Web3 loyalty platform. However, it’s worth asking whether these features truly add value compared to conventional systems.

1. User Profile Management: This offers users a centralized view of their loyalty points and NFTs. However, most users may find it challenging because blockchain interactions require wallets and private keys.
2. NFT Storefront: This shows which loyalty NFTs are available for purchase. However, expensive prices and difficult payment procedures could turn off buyers.
3. Product Listings: NFT ownership information is available. However, it may mislead users who are accustomed to simpler loyalty schemes.
4. Advanced search engine: While a complex search engine might be useful, it may indicate that the platform is overly complicated. 
5. Integrated payment gateway: Although cryptocurrency and fiat payment options are accessible, consumers incur financial risks due to high transaction fees and volatile cryptocurrency values.
6. The redemption portal allows users to redeem NFTs for real incentives; however, blockchain transaction fees can reduce the value of small and frequent redemptions.

Web3 Loyalty Platforms – Progress or Hype?

Web3 loyalty platforms are at an experimental stage, with both potential and unresolved challenges. While they bring innovation to customer engagement through blockchain’s security and transparency, they also introduce complexities and costs that could hinder widespread adoption. Businesses considering Web3 loyalty programs should weigh the benefits against practical concerns, such as user accessibility, transaction fees, and scalability. For clients, the attractiveness of these platforms may be more about novelty than concrete, everyday value.

In the end, Web3 loyalty platforms may show potential, but they must evolve to meet the practical needs of a broad consumer base. Only time will tell if they represent a true improvement in consumer loyalty or just another tech-driven trend.