Web3 Opens New Paths to Customer Loyalty

Many businesses are overlooking the advantages of Web3, and crypto’s recent setbacks are a big reason why. Billions of dollars in customer wealth have been lost in cryptocurrency trading, perhaps Web3’s most publicized area, with crashes like the fall of the now bankrupt FTX exchange. A “crypto winter” has set in, scaring retail companies and institutional adopters away from Web3’s considerable promise.

One of the most promising areas for Web3—the internet’s third evolution—is in customer loyalty offerings. Web3 offers a range of ways to revitalize loyalty programs. Concepts like tokenization (digital tokens that represent assets or ownership rights) support use cases linked to wholesale payments, identity management, and most importantly for retail, loyalty revenue streams. Consumers today are quite open to loyalty relationships, and Web3 is a rich setting to further boost engagement and scale partnerships more effectively.

At the same time, the wild shifts in regulatory and technology conditions are pushing brands to look at loyalty programs as reliable drivers of customer data collection. Regulators are steadily scrutinizing consumer privacy, and big tech platforms are limiting use of third-party cookies and setting up more stringent controls around data sharing. As brands peer into a cookie-less future, they are eager to construct their own loyalty programs for first-party data collection to better engage customers—a function that Web3 serves with broad versatility.

However, the answer is not always as simple as launching yet another loyalty program into an inundated market. Customers are enrolled in more programs than ever before; US consumers held upwards of 16 loyalty memberships on average in 2022, according to Bond’s Brand Loyalty Report. The activity across these memberships can be underwhelming, though; active customer loyalty engagement has been stagnant at below 50% of enrolled programs in recent years. Businesses must understand Web3 and the various options to boost engagement, because consumers will respond—but only to the right offerings.

Utility—the services and features that a customer can access along with a digital asset—is vital to the success of Web3 loyalty offerings. Businesses can tokenize customer relationships via nonfungible tokens (NFTs) to boost engagement and activate communities. There is also meaningful utility in tokenizing transactions to strengthen cross-partner loyalty collaborations. Businesses should avoid mimicking mainstream, short-sighted use cases, or worse, avoiding Web3 altogether out of caution. This article explores challenges with existing loyalty paradigms, examines how Web3 technologies can be used in loyalty contexts, and offers a framework to help companies revive or boost loyalty offerings to energize customers.

Understanding Web3

Discussions of Web3 are often clouded by misunderstandings and hype, so it is helpful to clarify how this new technology follows past versions of the internet. Web3 brings together emerging technologies—blockchain most foundational among them—to offer users more control over their activity and interactions. Web 1.0, which lasted from roughly 1990 to 2005, supported the information economy, where publishers controlled content and collected revenue and users consumed the content. Web 2.0 (2005–2020) was the platform economy, where networks and platforms enabled users to both read and create content. The platforms however still controlled creators’ revenue streams in a centralized manner. (See Exhibit 1.)