Collinson On… NFT Loyalty Programmes

Marketing Team
Marketing Team
01 Aug 2023

Font image showing the letters NFT

NFTs – destined for greatness or demise? 

Non Fungible Tokens (NFTs) are dividing opinion right now. With brands as big as Amazon getting in on the action and even characters from Sesame Street becoming NFT collectibles, they looked set to soar. But some say they have had their day. Here we look at what NFTs are, how they work in loyalty and whether they are on the rise or destined for demise.  

Spoiler alert: Static NFTs may be gathering dust but their dynamic counterparts move hearts and minds and could soon be stealing your customers.    

Back to basics first - what is an NFT? 

NFTs are the colourful, funky and unique siblings of the standard homogeneous and fungible crypto tokens. They are both really just a mechanic for counting value, being tokenised assets recorded on and managed by blockchain capability. Either can enable basic blockchain based membership functionality like token-gating, where access to digital environments and experience benefits are conferred only to holders of specific tokens. So NFTs are definitely suited to closed user groups and membership bases.  

How does an NFT loyalty programme work? 

NFTs can be awarded as reward stamps for engaging in certain activities, purchased as limited edition items only available to your membership base, used as unique ‘profile pictures’, for the aforementioned ‘token-gating’ and can even be auctioned with members bidding earned loyalty programme points.  Trading and sharing, swapping and selling static NFTs, digitally, frictionlessly, openly and with low cost is a key value of these digitised assets as it enables a secondary market where perceived values and therefore realised cash amounts for sellers can be way higher than the initial launch price. Famously, Bored Ape Yacht Club NFTs hit a market high of around $500k per NFT, just for a digital picture of a monkey albeit each bore different features and characteristics which created ‘scarcity’ value.

And yet, even in this nascent market, NFTs are shape-shifting – they are no longer just about hype-based monkey images with inflated values but about utility – bringing practical value to you and me. Values have stabilised and their use now is less about art, more about marketers being smart. Applications are only as limited as those designing the mechanics.

How are smart marketers using NFTs in loyalty programmes? 

NFTs are digital by their very nature. They are low cost items with the potential to be high ‘perceived’ value while also being cost-effective to produce and distribute globally. Unlike many other redemption items, there are no fulfilment costs. Well executed NFT campaigns can create a low cost way for customers to redeem against a points balance that would otherwise require spend with a rewards provider. Developing appealing NFTs that people want to redeem and own is a smart, cost-conscious way to reduce loyalty programme liability.  

But this is just a basic use of NFTs – usage is changing as the market moves at warp speed. ‘Monkey’ NFTs are now being over-taken by ‘utility’ NFTs. Put bluntly, there’s a new breed of NFT in town, with a purpose beyond pictures. And utility NFTs are the marketer’s manna from heaven. 

Why so? For many reasons but here we’ll start with just three. Firstly, because marketers are using NFTs to profile their audiences, which turns out to be a master stroke in a world where all the (third party) cookies are crumbling. Simply scan a wallet, see what NFTs are held there and voilà – there’s a new kind of ‘profile’ indicating all sorts of brand preferences and interests, meaning marketers can serve up goods and services that fit the profile. Tropee for example is a utility-based marketing platform which helps brands target customer profiles based on the NFTs they hold. (It was only a matter of time post privacy law changes that marketers would find new ways to find, know and nurture audiences).  

Secondly, because with the profile cracked, relevant offers and benefit drops are used to build user and community engagement. Recipients don’t just hold an NFT nowadays, it unlocks offers, benefits and experiences for them. Utility NFTs (otherwise known as stateful or dynamic NFTs) move the dial for brands, creating engagement and ultimately, shifting stock or selling services.  

And thirdly because if profiling isn’t enough and brands still want to identify individuals (in a DM vs. advertising kind of way), then Soulbound tokens are the solution. Tied to an  individual, these tokens (which can’t be transferred or sold), provide an ID, allowing personalised customer recognition and 1:1 marketing as opposed to marketing to a profile. And so, ‘old school’ direct marketing disciplines are re-invented via new and nifty utility NFTs. 

Given the business benefits, it’s unthinkable that NFTs are ‘dying a death’ – those that say so simply need to keep up with the new capabilities that utility NFTs offer. 

Examples of NFT loyalty programmes 

So now we know the extensive capabilities of NFTs, here’s a snapshot of some of the brands using them to engender loyalty – in various different ways: 

Sesame Street: The Cookie Monster has been turned into a limited edition digital collectible by Sesame Workshop, with a growing range of collectibles to come. This is a clever use of much loved characters based largely on static NFTs for now.

Starbucks: Still in beta stage in the US, the Odyssey programme gives people immersive, educational experiences and lets them earn NFTs which can be swapped or even sold. There’s no need to use crypto and notably, Starbucks calls them ‘digital collectibles’ to make the (abstracted) Web3 experience more palatable for a Web2 customer audience. The coffee giant has now teamed up with Micah Johnson's Aku NFT project, with a new collectible stamp designed by Aku and members readying themselves for an ‘Aku Adventure.’

Lacoste: The French clothing brand now deploys utility NFTs in its ‘UNDW3’ programme, giving users the chance to participate in creative contests, video game quests and interactive conversations. Better performance means more points which increase NFT rarity and value. This goes miles beyond simply holding a static NFT, offering immersive ways to get involved with the label, building lasting loyalty and brand love. 

Louis Vuitton: The luxury fashion brand is selling an NFT of its iconic trunk for $39,000 together with its physical counterpart. The trunk here is an example of token-gating – providing the gateway and container that gets filled up with goodies. Digital keys awarded over three years unlock new collectibles and experiences from the brand, creating a veritable treasure trove for loyal fans. 

Salesforce & Polygon: Polygon (a blockchain network) has joined forces with Salesforce (the relationship management goliath) to help clients create token based loyalty programmes. And as a Salesforce partner, Collinson can consult on the conception of such schemes.  

When big brands and iconic properties enter the fray – alongside artists, designers, musicians and more – it’s time to pay attention. All are experimenting in the Web3 space and aiming to foster closer reciprocal customer relationships. Web3 -  including blockchain, tokens, NFTs and metaverse - provides so many new opportunities. The main challenge is not to replicate a Web2 loyalty proposition onto Web3 but instead use the different functionalities – especially utility NFTs - to profile audiences, then re-imagine a new customer value proposition and range of experiences. Those early to the game will not over-think, they will experiment to test and learn in this exciting space. Forward-thinking marketers are losing no time in turning digital innovation into dollars.  

What are the potential risks and rewards of NFT loyalty programmes? 

The potential benefit of creating highly appealing, unique rewards and the revenue streams which follow is there for all to see; even static NFTs are a neat way of managing liabilities while also driving a level of loyalty. But in our view, utility NFTs present the superior marketing opportunity for those looking to profile, immerse, activate, engage, entertain and retain customers. The attendant risk in both is gauging customer readiness, which is why brands like Starbucks have been smart using Web3 technology while wooing customers in a Web2 way that they will understand. It’s an approach that gets brands fighting fit for the future while allowing customers to enjoy the fruits of innovation without tech alienation.  

Well considered experimentation is the name of the game – perhaps introducing NFTs as part of a loyalty programme as a test vs. control groups, rather than fast-tracking the entire loyalty effort into relatively nascent territory. And of course, the blockchain is a ferocious consumer of energy so sustainability and the environment need to be carefully considered.  

Where next for NFT loyalty programmes? 

At Collinson, we make it our business to know what is ‘now, new and next’. In our recent Consumer Loyalty Landscape research, we asked loyalty scheme members their expectations of rewards in the next five years. 68% of respondents will still be looking for the bedrock of own brand and third party discounts, rewards points or miles. So consumers are looking for traditional rewards but these and other immersive experiences can and increasingly will be delivered not only digitally but via Web3 technology and NFTs. 

Our companion Business Loyalty Landscape research showed that most loyalty leaders are not seriously considering NFTs (or crypto, metaverse and the blockchain) as part of their programmes though they are interested in Artificial Intelligence. Let’s hope these businesses at least closely watch what others achieve with NFT led loyalty programmes. Think of the huge and growing global community of over 3 billion video gamers – from Minecraft to Fortnite to World of Warcraft and more. They are already building personas, socialising, trading in tokens and spending large tracts of time in an entirely digital world. These are tomorrow’s consumers, perfectly primed for NFTs. Ignore them at your peril! 

To find out more about NFTs in Loyalty, contact Collinson

Marketing Team

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