God-Tier Loyalty Programs Can't Repeat the Mistakes of the Past

By Charles Wayn, Co-Founder of Galxe

Loyal customers don’t just happen. From arts to technology, we as consumers are constantly being bombarded with value propositions and CTAs. Our eventual decision to engage with a brand is often the result of dozens of behind-the-scenes calculations, re-targeting, and profiling. Of course, this process is anything but simple; it is a nut that brands have been trying to crack for as long as they’ve been around.

Although they are often pitted against each other, the goal of web2 and web3 companies is pretty similar — attract and retain an audience. Unlike in web2, however, web3 companies are not relying on the same mechanisms of data monetization, traditional reward flow (spend money = get money) and technical siloes as their centralized predecessors. Rather, web3 companies have the potential to disrupt how consumers connect with brands and creators. 

In web3, companies can incentivize to foster cultures around their communities of choice. And due to the open-source nature of blockchain — and “build in public” expectations around web3 brands and communities, it’s increasingly more difficult for companies to abruptly change the framework of on-chain loyalty programs, as we’ve seen happen. One could scream irony that Starbucks, after launching the successful Odyssey Program, a web3 loyalty program focused on coffee experiences, rewards, and NFTs — and an extension of their long-running flagship rewards program (Stars) — abruptly increased the points needed to earn free coffee, much to the chagrin of their customers. 

Whether a business finds itself in web2 or web3 or is considering migrating to blockchain technology, history has shown that building successful loyalty programs is more than guesswork; it requires a nuanced ecosystem of tools and applications to create a culture and nurture a community.

Strong Loyalty Programs Require Innovation

Rewarding loyalty isn’t new in the business world. From coupons to frequent flier miles and those coffee shop punch cards we love to misplace, brands have been pushing customers to spend and earn for many years. But just how authentic are certain loyalty programs over others? If done carelessly, can they become counterintuitive to their primary purpose: to build loyal customers? Traditional loyalty programs sometimes feel like a means to an end. Most have little love for the credit companies they build up debt with or the airlines they rack up miles on while overpaying for flights that, these days, are rarely a smooth ride. These hard truths are why web3 loyalty programs are so exciting: brands must do more than reward you for giving them money. Brands must innovate.

The Promise — and Potential Problem — of Web3 Loyalty Programs

Arguably, the first web3-native loyalty program to hit a mass audience was the airdrop, the act of a web3-based project giving out free tokens as part of a wider promotion push. Airdrops provide many direct benefits to web3 businesses: an immediate audience, a decentralized community, and easier liquidity. They also can create a culture of loyalty and reward; a feel-good feedback loop in which a company says thank you to its earliest supporters, and those supporters directly benefit. A similar tactic made popular by the NFT space is the allowlist, which awards early supporters (or big-name investors) of projects with early access to new drops—like a web3 version of a concert pre-sale. 

However, as things like airdrops and allowlists have grown, so too have their negative externalities, which put them at risk of being counterintuitive to their web2 counterparts. Just a few years after Uniswap’s game-changing airdrop in 2020, we’ve seen this loyalty scheme become commonplace. Companies feel pressured to airdrop; customers feel entitled to lambo-money. Across the airdrop landscape, we’ve seen scams, confusion, and a lack of strategic thinking and design that has contributed to short-lived interest rather than long-term loyalty. Allowlists often can veer negatively into promoting inner-circle and influencer shilling. 

So, what does this landscape force? If we don’t want to see web3 loyalty programs follow in the footsteps of some of the traditional commerce and business’ sub-par attempts (Amtrak, Subway, most supermarkets), we need more innovation in the world of web3 loyalty programs to truly instill confidence in products and drive awareness and even investments into new projects.

Disrupting Loyalty Models is all about Design

The nuance of loyalty programs reflects the state of the technology. In the early airdrop period, wallet association (the ability to know more about users and customers via the assets they own and trading habits) was a straight-forward process. A more nuanced look at wallets and their behaviors was too complicated for most projects. And airdrops, despite their simplicity, provided an electric value proposition for getting involved with early projects and staying involved.

As more brands and individuals get involved in web3, loyalty programs will need to advance in their complexity to help promote longevity and trust. So how do we do that? 

Properly designing effective loyalty programs requires keeping users’ “status” in mind. With a combination of analytics, on- and off-chain verification, reputation, soul-bound tokens, and NFTs, we start to see the future of these programs take shape. 

Though original programs like airdrops and yield farming will remain, those who benefit the most from these loyalty schemes will not be as straightforward as “hold asset X, receive asset Y.” Companies will be more empowered to reward ecosystem participants who have taken net-positive actions within crypto — based on engagement, holding vs. selling, on-chain grants, governance participation, and more.

Designing Loyalty Programs for the Long Run 

While many traditional brands struggle to create a culture of loyalty beyond the necessities of their products, web3 loyalty programs have an even greater opportunity to nurture a committed, long-term community built on trust. Basing rewards purely on superficial metrics or biggest-spender mindsets runs the risk of burning out your community and customers, attracting only those in search of the next financial opportunity. Such an approach has been a necessary, albeit successful, one for blockchain projects over the last couple of years. As commonplace loyalty schemes like airdrops become increasingly insufficient, however, a new world of nuanced loyalty programs arise.

While it can be tempting to offer communities flashy rewards and airdrops, which often result in little more than quick hype, I urge web3 to think deeper when designing loyalty programs to incentivize long-lasting community participation. It will pay off in the long run for everyone involved. 

About Charles Wayn

Charles Wayn is a serial web3 entrepreneur and the Co-Founder of Galxe, the leading platform for building web3 community. Prior to founding Galxe, Charles Co-Founded and served as CEO of DLive, the largest live streaming platform in the world built with blockchain technology. The platform was acquired by BitTorrent in December 2019 and Charles served as VP of Interactive Entertainment. Charles is also the Co-Founder and Managing Partner of Bullet Labs, a venture studio focusing on web3 product development. Charles holds a Bachelor of Science Degree from the University of California, Berkeley, where he was President of the Association of Chinese Entrepreneurs. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.