Marketers all know that paid advertising is largely broken, particularly these days with rising costs and diminishing performance. Filling the top of the funnel is becoming more expensive and more difficult, leading sensible marketing leaders to invest in other workstreams, like content and loyalty, which has seen some big shake-ups in recent weeks from the colossus of coffee, Starbucks.

In the span of about six weeks, Starbucks announced two massive upgrades to its globally renowned Starbucks Rewards loyalty program.

First, the caffeine shillers announced a blockchain-powered companion program dubbed Odyssey, running on Polygon and empowering customers to complete quests, collect token-backed stamps, redeem them for rewards, and buy and sell them from each other — likely in a fully contained ecosystem.

As if that wasn’t enough, the coffee giant rolled out a partnership announcement with Delta Airlines that combined the twosome’s rewards programs. Miles for coffee and coffee for miles, or something like that. It reads a little gimmicky at first, but there’s a cleverness in the details that eludes most project briefs in crypto: the combined program uses “currencies” that already exist and people use Delta miles and Starbucks Rewards points.

Starbucks is aiming to expand its Rewards program to include more partners across the US and Canada, with more countries likely to come. However, its pre-web3 loyalty program is built on a complex, closed system which likely requires a year or two of legal and engineering work to bring any partnership deal to fruition.

That sure sounds like a major pain in the rear.

Multiplayer Loyalty Programs

Most loyalty programs are administered entirely by a single merchant and require a ton of effort to maintain, improve, optimize, and protect from fraud. Building scalable systems that customers will want to engage with is quite a challenge, especially if the program isn’t going to break the bank and can’t be so easily gamed by its participants.

The Points Guy developed a rich portfolio of content showing how to optimize participation in various rewards and loyalty programs, pointing out what the best moves are in plain English. As more and more people signed up for credit cards and frequent flier miles, a greater share fell into the “power customer” behavior bracket than was initially projected. Thus, the merchants felt forced to pull back on benefits and reconfigure the points programs to be less advantageous to consumers.

The problem of standard loyalty programs is that they’re almost entirely single-player; each and every merchant has to go it alone building and tracking and optimizing, an exhausting effort for any company below a certain revenue threshold.

Wonder what would happen if companies found a seamless way to unite their loyalty programs and save a ton of paperwork in the process?

Fortunately, businesses could easily explore and develop token-backed loyalty programs and experiment with the best deployment and management methodologies. With the right product configuration and using the available toolsets, a company could stand up a tokenized loyalty program inside a few months, at least as a pilot for a small segment of the business and focused on the most loyal segment possible. A failure here could alienate the flightier of the customer base.

If a loyalty program is built on-chain, the results are hard to hide, but that isn’t necessarily a bad thing (unless it’s on a lame private chain). Customers participating in loyalty programs often have no idea how they stack up against their fellow consumers and can struggle to keep track of their earnings in a low-effort way. Seeing the proof of the value and all the other people engaging could move a lot of skeptics into the system and convert them into regular customers.

That partnership between Starbucks and Delta could have launched much sooner with Odyssey for two reasons:

• All the data around the programs would be visible and verifiable for Delta

• Odyssey’s technology is generally interoperable, making it much easier for Delta’s product and engineering teams to work with than Rewards

What are the odds that Delta joins in on Odyssey in 2023?

Merchant Alliances

Companies often ride a fine line between competition and collaboration and loyalty programs follow that trendline just the same.

A web3-powered loyalty program can provide a venue for easy and rich collaboration, wherein an innovative firm takes the lead and builds out the infrastructure, then invites some new business friends to use its system.

A big brand with millions of regular customers, like T-Mobile or Target, could build a solid loyalty system and on-chain, deploy it to its customers, then test and experiment for what works best. Using those learnings, the brand now has deep expertise on the enterprise use case and could then recruit other brands from different verticals to join its program.

T-Mobile, which has few competitors in the telecom industry and a relatively sticky offering, would be well-positioned to attract tons of allies to the loyalty network as its business wouldn’t be cannibalized by the new entrants. Tons of retailers, fashion brands, DTC startups, and other consumer companies would make great recruitment targets because they’re always looking for some edge to improve their customer retention and outdo their competitors.

Since the blockchain technology is inherently interoperable, all that each new brand needs to do is build the hooks with its payment systems so the right signals are sent to and extracted from the chain — much, much easier than forcing multiple distinctly designed databases to sync up with every single transaction.

But what about the millions of small businesses out there catering to their niche customer bases?

Simple answers: APIs, SDKs, and Shopify plugins. Maybe even a new QR code to scan for payment.

Using a loyalty program centralized on a single technical foundation, a major brand could deploy the umbrella that gives cover for dozens, if not hundreds, of emerging brands and established small and local businesses to understand and experiment with web3 dynamics.

Suddenly, candle shops and bookstores would now have the means to access a broader system of value exchange with their customers they couldn’t hope to build themselves. And big brands can team up those smaller firms to connect with extremely niche customer groups.

Customers of All Stars and Stripes

No matter if a company is big or small, targeting niche customer segments is about as challenging as it is rewarding. Bigger brands tend to come across generic in their marketing because they’re distant, while smaller businesses often struggle to muster the resources necessary to fully capture a segment.

By combining their powers and resources via a tokenized loyalty program, big brands can create valuable offers that cater to a niche’s predilections, while the small ones can expand their reach to lookalike customers in the network.

A shared loyalty program lets any merchant create a low-cost appeal to virtually any customer group. If a smoothie brand’s research suggests that potential new customers enjoy fitness, then the smoothie brand could make a joint offer with a chain of gyms or a running shoe brand that’s also participating in the tokenized loyalty network to draw in more customers from those brands.

Since smoothies don’t directly compete with gyms or running shoes, they would grow their overall pie together. The smoothie brand gets more customers, while the shoe company would score points in its customers’ hearts and minds for recommending such excellent smoothies.

With a big enough network of merchants, companies can find any customer segment and collaborate to effectively target them with valuable offers and rewards for their purchases.

And with one unifying loyalty system tying together their favorite brands, consumers disaffected by the headache of managing points systems from multiple credit cards, airlines, hotels, and everything else under the sun would benefit from a much smaller number of programs that each service several brands concurrently.

The best part? They would never know or care if their loyalty points are being tracked by NFTs or other forms of tokens.

All These Boats Need a Rising Tide

In order for something as massive as this proposed tokenized loyalty system to work, a massive Fortune 500 needs to take on the task of building the system and recruiting a couple allies from its fellow titans of industry (albeit different industries).

While there might be a short-term hit on ROI since the program’s creator would be inviting other movers and shakers into the tent, the program would pay off over the long term by providing extremely low-cost mechanisms for grabbing attention and driving customer conversions. If the loyalty program is valuable enough for consumers, then companies can reduce their reliance on advertising to draw folks in.

Instead, they can provide more of that value directly to the customer and save some for themselves — a marketing surplus!

For maximum uptake, this new loyalty platform would probably thrive with a fresh coat of paint, not weighed down by any baggage associated with the parent brand, especially when it comes to recruiting other merchants.

Finally, the platform powering the loyalty program needs to smooth out merchant onboarding with plugins for major ecommerce and CRM software, like Shopify or Salesforce, and it will need to iron out the consumer touchpoint, starting with wallet sign-in on merchant sites and progressing to a full-blown app or even browsing experience.

One master loyalty token, an army of brands and merchants in the wings, a massive pool of purchasing data, and a near-microscopic ability to target customers on the cheap. With these resources, the brands in the lead could become unstoppable in winning customer loyalty.

NOTE: These images were generated using DALL-E 2 and a good amount of frustration.