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Understanding the web3 Loyalty Loop

Why brands should harness web3 technology to mimic the success of classic loyalty programs.

13 Sep 2022by Kayla Santos

With consumers facing a dizzying array of options for everything from their daily cup of coffee to long-haul flights, it has become more important than ever for brands to focus on acquiring and retaining customers. 

No method for doing this has proven more effective than loyalty programs. Through perks and discounts, loyalty programs incentivize consumers to stay with a brand rather than switching to an alluring competitor. 

Let’s take a moment to reflect on some of the ways that brands have successfully developed loyalty programs in the past:

  • Buy coffee at the local coffee shop and for every 10 coffees purchased, the next is free. Nowadays, this either happens with a punchcard or through an app (like Starbucks).

  • Collect Box Tops from cereal boxes, bring them into your classroom and earn your school money to buy school supplies. 

  • Fly on the same airline repeatedly to receive points, upgrades, and airport lounge access. Your favorite hotel franchise uses a similar model. 

  • Shop online at your favorite brand. Once you reach a certain number of transactions, you receive a discount on your next purchase. 

What do all of the above examples have in common? They have all become a part of our everyday lives and are thus reflective of natural consumer behavior. 

There’s no better way to acquire and retain customers than to employ a loyalty business model. Consumers love being rewarded for consistent behavior. 

The Loyalty Loop explained

A consumer Loyalty Loop is a model that explains how consumers go from making a decision about a purchase to maintaining brand loyalty through a series of steps. It works as follows:

  1. Consumer onboards to brand through a sign-up mechanism, generally with their email as the unique identifier.

  2. Consumer transacts with brand.

  3. Consumer is rewarded based on the frequency of their purchases.

  4. Rewards build as the consumer continues to transact.

  5. A “tier” status is applied with a “leveled up” opportunity for rewards.

  6. Consumer stays with the brand rather than leaving for something new.

  7. Repeat loop from step 2 onwards.

The web3 Loyalty Loop

Now, web3 is making it easier to build deeper relationships with consumers. Here is how the same loyalty loop can apply in web3:

  1. Consumer onboards to brand by connecting their digital wallet, with their wallet address as the unique identifier.

  2. Consumer transacts with brand by connecting their wallet to the brand’s ecommerce site or app.

  3. Consumer is rewarded based on the frequency of their purchases via the blockchain, where transactions across multiple brands can be documented.

  4. Rewards build as the consumer continues to transact. Rewards can accrue in the consumer’s digital wallet in the form of a monetary sum, token-gating, or unique 1:1 digital token (NFT) that unlocks utility/access.

  5. A “tier” status is applied with a “leveled up” opportunity for rewards. Consumers can receive a unique digital asset airdrop that denotes their status via the blockchain. 

  6. Consumer stays with the brand rather than leaving for something new. 

  7. Repeat loop from step 2 onwards.

Now, let’s see how this might play out with an example. 

For illustrative purposes, we will use Southwest Airlines as the brand deploying a web3 loyalty program:

  1. I sign up for Southwest Airlines Rapid Rewards by connecting my digital wallet to the Southwest App.

  2. Upon booking my first flight, I receive my airline ticket in digital form within my wallet via a scannable NFT. 

  3. On my first Southwest Airlines flight, I am airdropped an NFT into my digital wallet that signifies “My First Flight.” I can redeem for either a free beverage or commemorative t-shirt by using the token in my digital wallet. 

  4. On my 10th flight via Southwest, I receive another digital token in my wallet. This token unlocks access to redeem a free one-way flight via NFT ticketing on the Southwest app. 

  5. On my 20th flight, another token is airdropped. This token grants me access to a Priority Pass lounge for the next two years. Instead of having to separately apply for Priority Pass and receive a membership card, I can scan my wallet upon entrance to the lounge.

  6. On my 30th flight, I receive a Companion Pass for the next year. This digital token that I proudly hold in my wallet is now an all-access pass to VIP areas at events (concerts, sporting events, etc.) that Southwest sponsors.

  7. I continue to fly Southwest Airlines.

But you might ask: why does all this have to be on the blockchain? 

The blockchain serves as a universal language to track consumer rewards activity and allow for utility to unlock across multiple touchpoints.

Just like rewards programs in web0, web1, and web2, the technology will be in the background working its magic. It will become a part of our everyday lives, unnoticeable and non-disruptive if integrated seamlessly. 

That’s the power of web3.