Saison Capital: Venti, Grande, NFT? When Big Brands Bring Loyalty Programs to the Blockchain Sandbox

By Chris Sirise (@chris_sirise), Founding Partner, @SaisonCapital

Introduction

The Starbucks launch into the web3 ecosystem with the NFT-powered ‘Odyssey’ program isn’t a mere experiment – it could bring billions of dollars onto the blockchain, and revolutionise how users engage with loyalty programs both in reality and the metaverse.

What builds loyalty

To understand how an NFT-driven loyalty program could work, or how in-person habits could be transferred into a web3 space, it’s important to consider the constituent parts of what builds a strong fanbase or loyalty program, and how that translates into the web3 arena. There are two key elements of the Starbucks rewards program that drive customers to continue to engage with it, and encourage loyalty.

First, personalisation. Using machine learning to leverage millions of transactions, including the user's preferences and historical orders, Starbucks is able to deliver highly personalised offers to customers. Instead of mass-sending generic promotions that loosely align with the season or a marketing campaign, members of the loyalty program receive targeted offers, such as birthday freebies or individualised orders. By tapping into what they already like, users are far more likely to convert, and make use of these offers – an act of brand loyalty.

Second is the gamification. The next step on the loyalty program is always clearly laid out, with rewards incentivising the loyalty journey to earn more points. What your points can redeem you is always clearly laid out, with special challenges and games in-app allowing customers to collect additional points. By making the loyalty process transparent and understandable, consumers are empowered to feel control over their own loyalty journey, and can make informed decisions on how they are spending their money.

Loyalty programs are hardly new; so why is putting them on the blockchain so interesting?

How NFTs can improve loyalty

There are strong commonalities between what makes a strong customer loyalty program, and what builds a loyal NFT community. Still in its nascent stages, NFTs require loyalty to grow from an asset class to a functioning ecosystem. While there are no proven business models with NFTs as the core product (yet), some of the strongest use cases for NFTs have started as cult collectibles: from metaverse fashion (where owning a unique and custom piece of apparel is social currency) to web3 gaming (where custom avatars and skins are are also used as social signalling or to appeal to the collector’s psyche). This creation of a niche, targeted community creates an exclusivity and loyalty that cannot be mass-produced. Consumer brands can also build a similar ecosystem of collectibles to strengthen and reward customer loyalty, and desire to align with the brand.

NFTs can be used to enhance the personalisation and gamification of the Starbucks loyalty program through digital ownership. By completing certain transactions or challenges, customers will earn NFT collectibles, called ‘ journey stamps’ that gives them points which can be exchanged for experiences, which could vary from online workshops to unique NFTs, all the way through to invites to special events at Starbucks Reserve Roasteries or the Hacienda Alsacia coffee farm in Costa Rica. Although simple, the idea that a collectible awarded is permanent, not dependent on the lifespan of the app, and interoperable with other apps is the true definition of ownership. What's interesting to take note of is how these collectibles were positioned to Starbucks' consumers. Ultimately, the right branding paired with a consumer-friendly UX will help to facilitate blockchain technology's education and adoption. We’ve also seen this play out with the recent launch of Reddit’s NFTs, which removed the web3 jargon when introducing the collectibles to users, focusing instead on explaining the value-add of the underlying technology.

Further, by soft-launching the program with a waitlist, Starbucks is building further loyalty. A limited edition ‘release’ encourages competition and makes the outputs even more desirable: the first NFTs that Starbucks issue may be some of the most valuable in the secondary market because of their ‘historical’ nature. Furthermore, by building the experience slowly, Starbucks can experiment and get feedback from early members, further building loyalty as they feel directly connected to the process and the program.

What does the future of loyalty look like?

While Starbucks is capturing an early mover advantage, this play may well force the hand of other big names in the hospitality industry, and we may see a boom in NFT-based loyalty schemes. This will either accelerate the innovation path, pushing programs to find product-market fit faster, or may create an artificially inflated bubble that will eventually have to pop. Hopefully, we end up somewhere in the middle – where gimmicky NFT projects sink, while intentionally designed and lucrative programs are able to iterate quickly to develop exciting and rewarding experiences.

For the mid-term, we can expect to see a rise in these loyalty experiments. This could include the creation of digital collectables, or NFT ‘stamps’ that represent activities undertaken in-app or in-person; such as purchasing a specific drink or meal or ordering during a specific holiday.

These collectibles could be artworks by well-known artists, or uniquely-generated avatars whose characteristics are determined by user actions. Order enough oat flat whites, and your avatar could have a pair of hipster glasses. The benefit of these collectibles being on-chain means you can then use them in the metaverse; you can wear those hipster glasses in an online game, or hang your unique artwork in your virtual office.

Decentralisation emerged as a way to remove power from big corporations – but the rise of web3 community-led development could lead to the rise of consumer-centred experiences that are curated and powered by centralised organisations, but determined by people’s preferences and interactions. While web3 has nailed the niche interest, bringing these specialised experiences to the experts in customer acquisition and loyalty marks an opportunity to accelerate adoption.

Conclusion

So, what does blockchain-based loyalty programs mean for the future of web3? We are moving from the experimental era. Big brands have played in the sandbox, and are ready to lay major foundations in the web3 space. As these real-world case studies pile up, we will see mass adoption of blockchain-backed products. NFTs will become less of a speculative play, and more of a utility. Just as most technologies, from AI through to Bluetooth and web apps, have eventually faded into the background as necessary yet invisible infrastructure, the critical mass of blockchain projects may well begin to obscure the technology that underpins them.

With web3 products entering the mainstream, the improving UX and functionality will obscure the underlying blockchain to such a point that most users won’t realise it’s there. The mild chaos and unpredictability of early blockchain “BUIDLing” made web3 an interesting and fun space to explore, but the increasingly clear cases of utility that create interesting experiences and empowering moments for users mark an exciting next chapter for the space.