Insights & Publications | The Lacek Group

A Beginner’s Guide to Cryptocurrency’s Impact on Loyalty Marketing

Written by The Lacek Group | Mar 23, 2022 10:09:47 PM

Loyalty programs have long been a popular marketing strategy, allowing brands to identify, recognize, and reward customers for desired engagement. The most significant benefits of loyalty programs include increased brand consideration, deepened customer insight, and incremental revenue. Studies show that selling to existing customers costs brands less than acquiring new ones, which is a leading reason more than 90% of companies have a customer loyalty program.1

Traditionally, loyalty programs focused on an “earn and burn” structure where members earned points with every purchase and later used those points for free products or services from the brand. However, digital currencies and blockchain technology have emerged in recent years, providing consumers and brands with alternative currency options and greater flexibility.

Blockchain Technology Is Changing Loyalty

Blockchain is a decentralized digital database that records all transactions across a computer network; no central hub or company controls the platform, reducing the chance of data tampering or security breaches. The blockchain is also transparent, with every transaction visible to the public and unable to be altered or deleted. That means companies are more accountable for their actions, and customers will notice mistakes more quickly.

Cryptocurrencies and non-fungible tokens (NFTs) are two blockchain technology applications used in loyalty.
Cryptocurrencies—digital currencies created by users, not banks or governments—are a growing market. On March 1, 2022, the cryptocurrency market capitalization value was nearly two trillion U.S. dollars.2 Cryptocurrencies use cryptography to secure transactions and control the creation of new units. They require no central authority for their operation. Instead, they rely on blockchain technology to record all transactions.

Cryptocurrencies can offer customers more flexibility and control over their loyalty rewards. They can also allow customers to use the same currency, such as Bitcoin, across multiple brands, meaning customers no longer need to carry a stack of loyalty cards.

Loyalty programs can also use NFTs to give more flexibility and control to consumers. NFTs are unique digital assets on the blockchain, following similar rules and properties as cryptocurrencies, but they’re not interchangeable. They can be used to create digital scarcity and value for items that have real-world value, such as ticket stubs, concert memorabilia, or other collectibles that can be redeemed for rewards. Because NFTs are unique, NFTs allow companies to reward customers based on their individuality instead of one-size-fits-all rewards.

NFTs provide authenticity and represent the future of blockchain technology. As a result of the rise of NFTs, consumers and internet users can now use blockchain technology, a trustless distributed ledger, to register their digital works and convert them into certain sellable assets and loyalty rewards.

Blockchain Is Already in Loyalty

Blockchain incentive systems have yet to be adopted widely in loyalty, but some companies are pioneering the technology’s potential. Consider these examples:

The frequent-flyer club of Singapore Airlines, KrisFlyer, allows members to convert their miles from other programs into KrisFlyer miles and partner reward points into instant everyday purchases directly from the program’s mobile wallet.

Chanticleer Holdings—an investor in burger chains that include BGR, Little Big Burger, and American Burger Co.—is collaborating with blockchain architecture software firm MobivityMind. Customers who dine at one of their restaurants can earn Mobivity Merit, a cryptocurrency.3 As part of the loyalty program, the currency can be redeemed across brands and sold without fear of fraud.

Recently, American Express unveiled a blockchain test program with online wholesale retailer Boxed. It established a proprietary mechanism for Boxed to transfer information using a blockchain foundation, which merchants on Boxed can use to fulfill rewards program incentives.

These are all examples of active cryptocurrency-based loyalty programs, but what about NFT-based loyalty programs? While less common, NFTs are also gaining ground in loyalty.

Clinique was the first Estée Lauder brand to offer an NFT—a move that boosted customer loyalty and marketed its top items. Instead of selling NFTs, the cosmetics company gives consumers who join its loyalty program free items for ten years and one of three “Meta Optimist” NFT art editions.5

The NFT is a conceptual “molecule” that changes colors based on two of its most popular products: Moisture Surge 100H moisturizer and Almost Lipstick Black Honey.

Furthermore, New York Times best-selling author Neil Patel discusses how NFTs impacted brand loyalty programs by assisting brands in raising awareness and supporting a cause—e.g., Taco Bell GIFs, RTFKT digital sneakers, Grime videos, the launch of the Kings of Leon album When You See Yourself, Beeple artworks, and Nyan Cat GIF implementation.6
According to data from market tracker DappRadar, NFT purchase volume increased to $10.7 billion in the third quarter of 2021, up more than eight-fold from the previous quarter, as the craze for cryptocurrencies expanded to a record high.7

Branded Stablecoins Live Up to Their Name

Stablecoins are a type of cryptocurrency that have low volatility, which makes them a good option for a store of value, unit of account, and potential loyalty currency. Their price is pegged to an asset, such as gold or fiat currencies. Stablecoins have an increased stability compared to other cryptocurrencies, allowing merchants to accept payment in the form of a stablecoin without suffering significant price fluctuations.

For example, Tether (USDT) is a stablecoin pegged to the U.S. dollar, and it can be sent between exchanges without having to go through cryptocurrency conversion. Tether’s historical price chart shows a straight line, meaning it experiences virtually no volatility at all.

Digital Currency Offers Diverse Opportunities for Loyalty

Loyalty programs keep evolving to meet customer demands and expectations in innovative ways that benefit companies.

A digital currency revolution is on the horizon, and it could be a significant game-changer for loyalty. While blockchain technology for loyalty programs is still in its infancy, it has the potential to disrupt the industry as its capabilities are explored. As more and more organizations consider switching their old loyalty programs or creating new ones using blockchain, it will be fascinating to see how this emergent technology scales up.

The pandemic caused some industries (such as travel) to rethink short-term strategies, while the tech industry surged to unprecedented heights. As people adjusted to social isolation and began working remotely, they became more open to technological advancements, including cryptocurrencies. This widespread acceptance spurred a massive crypto bull run that lasted far into 2021, with Bitcoin increasing in value by more than 1,000% in a year.8 Many other cryptocurrencies followed suit, including Ethereum and Dogecoin (a new cryptocurrency that started as a joke and quickly became a major player).

Cryptocurrencies’ volatility and unpredictability is an undeniable drawback. A news story or a single statement from a prominent figure such as Elon Musk may prompt a tenfold rise or significant drop in value. Despite that, statistics show little doubt that digital currencies and the blockchain technology they rely on will become a more significant part of our future.

According to Yahoo Finance, over 21 million (i.e., about 14%) of Americans own some form of the 10,000 available virtual currencies. And crypto assets continue to grow in popularity, with another 20 million individuals considering the purchase of cryptocurrency in the next year.9

The use of blockchain in loyalty programs isn’t limited to simply earning and spending cryptocurrency. Blockchain can speed transactions, build customer engagement, and reduce administration costs. Plus, it offers a decentralized system that allows transaction tracking without involving a third party.

Consider some ways to use digital currency in your loyalty program:

NFT Auction for a Cause

Allow members to bid on limited-edition, artist-designed branded NFTs. All proceeds could go to a charity that reinforces your brand purpose. The NFT could also be used to redeem future surprise-and-delight perks, such as branded merchandise or cobranded experiences.

Rewards Flexibility

Loyalty members appreciate having options. Expand member options by allowing them to purchase reward points or rewards using cryptocurrencies and vice versa. This gives members greater flexibility for redemption.

Driving Desired Behaviors

Use branded NFTs as a prize incentive to drive desired behaviors by members. Members could potentially win for downloading mobile apps, writing reviews, and recruiting others to join your program. Again, the NFT prize can be used for future surprise-and-delight incentives.

NFT Redemption Option

Allow members to purchase limited-edition branded NFTs with their loyalty program points. The NFT can be used for special offers and surprises that only NFT owners can access.

Keep Blockchain and Cryptocurrency on Your Brand’s Radar—but Seek Advice

While they’re still in early stages, it’s clear that digital currencies will play a significant role in all aspects of our lives for years to come. Loyalty programs that offer rewards in digital currencies are becoming increasingly popular among customers, which gives brands incentive to explore how these new options could dovetail with their current loyalty approach and open up fresh opportunities.

However, blockchain and cryptocurrency present potential legal risks for brands: copyright considerations related to creation, ownership considerations related to authentication and liability, and others. Be sure to consult with legal counsel before launching a marketing initiative utilizing cryptocurrency.

Notes

1 Robert Wollan, Phil Davis, Fabio De Angelis, and Kevin Quiring. “Seeing Beyond the Loyalty Illusion.” Accenture Strategy, 2017. https://www.accenture.com/_acnmedia/pdf-43/accenture-strategy-gcpr-customer-loyalty.pdf.

2 Today’s Cryptocurrency Prices by Market Cap: March 1, 2022.” CoinMarketCap. https://coinmarketcap.com/.

3 “Chanticleer Holdings to Deploy Mobivity’s Blockchain Technology to Power Cryptocurrency Rewards Program.” Mobivity, Jan. 2, 2018. https://ir.mobivity.com/press-releases/detail/592/chanticleer-holdings-to-deploy-mobivitys-blockchain.

4 Erica Sweeney. “Amex Pilots Blockchain-Based Loyalty Rewards with Boxed.” Marketing Dive, May 29, 2018. https://www.marketingdive.com/news/amex-pilots-blockchain-based-loyalty-rewards-with-boxed/524452/.

5 Maghan McDowell. “Clinique’s First NFT Ties to Loyalty and Products as Uses Expand.” Vogue Business, Oct. 19, 2021. https://www.voguebusiness.com/technology/cliniques-first-nft-ties-to-loyalty-and-products-as-uses-expand.

6 Neil Patel. “How Brands Are Using NFTs.” neilpatel.com. https://neilpatel.com/blog/non-fungible-tokens/.

7 “NFT Sales Surge to $10.7 Billion in Q3 2021 as Crypto Asset Frenzy Hits New Highs.” Gadgets 360, Oct. 5, 2021. https://gadgets.ndtv.com/cryptocurrency/news/cryptocurrency-nft-sales-surge-q3-2021-usd-10-7-billion-buying-frenzy-opensea-dappradar-2564362.

8 https://coinmarketcap.com/.

9 Dawn Allcot. “14% of Americans Own Crypto Right Now—Here’s Who’s Actually Doing It Right.” Yahoo!, April 21, 2021. https://www.yahoo.com/now/study-reveals-crypto-biggest-investors-132102315.html?guccounter=1.

The Lacek Group is a Minneapolis-based, data-driven customer engagement and loyalty agency that has been delivering personalization for its world-class clients for more than 30 years. The Lacek Group is an Ogilvy company.