Brand Reward Tokens: The New Asset Class Powering Customer Loyalty
In the dynamic landscape of digital assets, brand reward tokens issued from web3 loyalty programs are rapidly emerging as a new asset class in the web3 space. Acting as tangible gateways to exclusive or discounted products and services in the real world, these tokens represent the convergence of customer loyalty and blockchain technology, and could potentially redefine the consumer market in a significant way. In a future where Stocks, Bonds and Commodities are all tokenized and traded on the blockchain, we believe brand reward tokens will stand out as a major asset commanding competitively high volumes from a market of passionate and highly engaged online consumers.
Decentralized Finance (DeFi), a subset of web3 that focuses on the securitization (or tokenization) of digital and physical assets on the blockchain, is an essential pillar for this novel asset class, bringing brand tokens into the financial ecosystem in a transparent and decentralized manner. As DeFi adoption grows, so does the liquidity and the range of composable tools, expanding the utility of brand tokens and fueling their transformation into financialized assets.
Essentially, brand tokens could ultimately function as currencies, collateral, or even stores of value. Unlike other traditional assets, brand tokens stand apart as they are akin to IOUs for exclusive digital and physical products (i.e Product IOUs). This unique feature presents a radical shift in asset classification, essentially birthing a new class similar to Stocks, Bonds, or Commodities.
Web3 applications hold the potential to transform brand-issued product IOUs into a new kind of asset class. The value of this asset class is closely tied to the total value of consumer products, specifically within the business-to-consumer (B2C) market.
To grasp the scale of this evolution, consider this: the market size for Loyalty Programs is expected to grow by 12.6% on an annual basis to reach US$ 225.9 billion in 2026. As brands continue to realize the benefits of launching loyalty programs on blockchains, we could witness a significant percentage of this massive market becoming tokenized.
These brand-issued product IOUs would plug into the web3 ecosystem, laying the groundwork for a vibrant marketplace where tokens can be traded, lent, staked, and more. Imagine being able to purchase tokens for your favorite brands, leverage them for exclusive deals, and even trade them in a decentralized marketplace. These brand tokens could become a powerful asset class, driven by consumer loyalty and backed by real-world value.
The realm of brand reward tokens represent an untapped goldmine for both web2 enterprises and web3 developers. As evidenced by this, we’ve seen brands like Mattel generate $750K in sales in less than 12 hours by selling NFTs of their popular Barbie and Hot Wheels toy collections on their own peer-to-peer marketplace. Owning some of the rarest virtual collectibles grants users access to exclusive physical products, essentially making them a brand-issued product IOU. This is one of the driving factors behind the massive demand for these items.
In another example, since 2021, Nike has earned $185M in NFT sales revenue and generated $1.3B in NFT sales volume. One of the key factors that enables their success with NFTs is their promise to ship out exclusive physical products tied to these collectables in 2023. These include 4 different types of sneakers linked to their respective NFT’s with an RFC tag.
These examples highlight the significant potential of brand reward tokens. As a new type of asset, they enhance consumer interest by providing exclusive benefits. They also promote the creation of new online marketplaces where brand enthusiasts can exchange their exclusive rights, further driving demand.
The following guide outlines practical steps to tap into this nascent sector and harness its potential for exponential growth.
1. Understand and Embrace Blockchain and DeFi: Prior to launching a token rewards program, it is crucial for web2 enterprises to have a comprehensive understanding of blockchain technology and the DeFi space. Blockchain technology, for instance, underpins cryptocurrencies like Bitcoin and Ethereum, and allows for the creation of decentralized applications (dApps) and Non-fungible tokens (NFTs). Meanwhile, DeFi, or Decentralized Finance, opens up financial services to anyone with an internet connection, removing the need for intermediaries like banks. Gaining this knowledge could be accomplished through free educational programs, industry events, or consultations with experts. For example, crypto media site CoinDesk features a Learn section that gives readers a beginner, intermediary and expert level education on blockchain technology and cryptocurrencies. They also include crash courses on Ethereum, DeFi and NFTs.
2. Identify Tokenization Opportunities: web2 enterprises need to examine their current loyalty programs and identify areas where tokenization can enhance the customer experience. For instance, Starbucks could tokenize their loyalty points, allowing customers to trade, sell, or gift their points. This would provide a new level of flexibility and utility to the rewards, improving customer engagement and loyalty. Tokenization can also represent exclusive products or premium services, creating a direct incentive for customers to earn and hold these tokens.
3. Partner with web3 Developers: Collaborating with experienced web3 developers can provide the technical expertise needed to successfully create and launch a token rewards program. These developers can guide the process, ensuring the platform is secure, user-friendly, and compatible with existing web3 protocols. For example, a brand like Louis Vuitton could partner with a blockchain development company to create a token that rewards customers and ties into their existing loyalty program.
4. Educate Your Customers: Before customers can fully embrace token loyalty programs, they need to understand their value and use. Therefore, web2 enterprises should implement comprehensive educational initiatives to enlighten their customers about the utility of their tokens, the basics of blockchain technology, and how to use these tokens within the broader web3 ecosystem. For example, a company like Shopify could create tutorial videos, FAQs, and user guides, or even host webinars to educate sellers on their platform about token-gated commerce and how to build communities around exclusive brand offerings unlocked with NFTs.
5. Token Launch and Promotion: Once the token loyalty program is ready to be launched, it's crucial to promote them effectively to drive adoption. Traditional marketing channels, like social media, email newsletters, and advertising, can be used to reach existing customers. However, web2 enterprises should also consider promoting within the crypto community, leveraging crypto influencers, blockchain news outlets, and platforms like Discord or Reddit. For instance, when launching an NFT collection, a company like Nike could collaborate with popular crypto influencers for product placement or sponsorships, driving hype and awareness among potential users.
1. Understand Consumer Needs: It's critical that web3 developers fully understand the desires and requirements of their potential customers in different sectors. A rewards program in the travel industry, for instance, would require different features and functionality compared to one in retail or food and beverage. A travel-focused token might offer rewards for booking flights and accommodations or creating travel content, while a retail-focused token might reward users for making purchases, leaving reviews, or referring new customers. Understanding the specific needs and behavior of consumers in each industry can help developers build more effective and engaging loyalty programs and tokens.
2. Develop User-Friendly Platforms: Usability is a key factor in the success of any web3 platform, especially for those new to blockchain technology. Consider platforms like Coinbase, which has seen significant success due in part to its user-friendly design. It allows users to buy, trade, and store a variety of cryptocurrencies without needing to understand the underlying technology. Similarly, a platform for tokens should be easy to navigate and use, offering a clear and straightforward process for buying, trading, and using tokens. This extends to the onboarding process too. For example, creating self-custody wallets can be complex and intimidating for newcomers. So, a tool that simplifies this process, such as Magic’s Wallet SDK, which enables users to create instant web3 wallets using email, social, or SMS logins, can significantly lower the barrier to entry.
3. Ensure Security and Transparency: Trust is a crucial element in the crypto world. The transparency and immutability of blockchain technology can be leveraged to build this trust. For example, all transactions involving tokens could be viewable on an easy to navigate dashboard, assuring users that their tokens and rewards are managed fairly. Likewise, strong security measures are critical to prevent hacking and fraud. Two-factor authentication, encrypted communications, and regular security audits can help protect users' assets and data.
4. Collaborate with web2 Enterprises: There are many web2 enterprises looking to venture into the web3 space but lacking the technical know-how to do so effectively. Web3 developers can partner with these companies, offering their blockchain and tokenization expertise. For instance, a web3 developer could work with a large retailer to create a collection of NFTs that rewards loyal customers and encourages repeat purchases. This not only opens up new opportunities for the web2 company but also expands the user base for the web3 developer.
5. Continuous Improvement: As the web3 and blockchain industries continue to evolve, it's important for web3 developers to stay informed and adapt their platforms as needed. For example, Ethereum's transition to ETH 2.0 may present new opportunities or challenges that should be considered. User feedback is also a crucial source of information. If users find certain features confusing or are asking for additional functionality, developers should take this into consideration when refining their platforms. For instance, if users are having trouble managing their self-custody wallets, developers might introduce new features or tutorials to simplify the process. This continuous improvement can help maintain user satisfaction and engagement, ensuring the long-term success of the platform.
In conclusion, the rise of brand reward tokens represents a paradigm shift of tremendous magnitude, paving the way for both web2 enterprises and web3 developers to tap into a potential trillion dollar market. This convergence of digital and real-world assets is more than a mere fusion—it signifies the birth of a new asset class that encapsulates the best of both worlds.
By understanding the market, embracing blockchain technology, and constructing user-friendly and secure platforms, brands can capitalize on this burgeoning asset class today to secure a robust position as innovators in their respective industries. As an increasing number of brands venture into web3 loyalty programs, we stand on the brink of a future where the value of customer loyalty is not only rewarded but also recognized and traded as a bona fide financial asset. Subscribe for More Web3 Insights to Boost Your Customer Engagement.