Starbucks has one of the most successful loyalty programs around. With more than $1.6 billion stored up in their rewards app and gift cards, you could argue they’re one of the largest banks in America.
So when one of the biggest players in the loyalty space announces they're going all-in on NFTs - just months after the "crypto crash" - you should be raising an eyebrow. What does Starbucks know that other companies don't? Should you be exploring web3 too?
If you're not a huge brand with millions to plow into this new initiative, you'll quickly come up against obstacles. For one, launching an NFT loyalty program that's bespoke to your audience might mean hiring developer talent you don't yet have, and teaching your marketing team a whole new language of "airdrops", "hot and cold wallets", "public key infrastructure" and "consensus mechanisms".
And even if you have a partner like Taco to handle the tech for you, what should your web3 loyalty program do? The costs of messing up the launch include backlash from some of your best customers.
With that in mind let's take a look at Starbucks's recently-announced Odyssey initiative, and why we think it could revolutionize customer engagement.
Starbucks has run its successful loyalty program since 2008, but brands have been slow to take that lead. Of more than 500 companies with loyalty programs surveyed by Forrester Consulting this year, 57% had just launched in the last two years.
There are a number of reasons why. With the spike in ecommerce over the past three years, brands have to work harder to stand out. When the McDonald's near your house and the Burger King across town are just two buttons in the same food delivery app, they want to get you into their own app with their own experience and incentives. If you want coffee and a quick meal, Starbucks is no longer unique because of its rewards program.
Another reason brands were catching up with Starbucks was the rise of SaaS companies providing generic, white-labeled loyalty offerings out of the box. We'll see even more as the loyalty automation industry grows, from $1.25 billion in 2020 to an estimated $24.44 billion by 2029.
For some companies, this is a fine way to increase customer retention, but it won't give the company a real edge because they don't own the data and experience. Like most Web 2.0 platforms, all your customer data is held hostage as a switching cost and convenience comes at the cost of innovation: your loyalty strategy only changes when your host brings out a new feature.
Starbucks invested so much in their rewards app because they understood the value of owning the data and controlling the whole experience. They can expose and analyze their customer data however they must to gain new insights informing their entire strategy, and they can make granular changes to the loyalty program to increase customer retention.
We think web3 gives brands ownership and control for free: it's a beneficial side-effect of blockchain technology. Your customer list lives on neutral public infrastructure, and you can plug it into any software solution you need. But Starbucks has already spent more than a decade and millions of dollars to achieve this in a Web 2.0 world; why change?
Starbucks doesn't need to chase trends. They're moving into web3 because they recognize its potential to give customers new experiences and a sense of community, ownership, and connection. Starbucks's CMO Brady Brewer told Techcrunch:
Leveraging Web3 technology will allow our members to access experiences and ownership that were not possible before. Starbucks Odyssey will transcend the foundational benefits that our Starbucks Rewards members have come to love, and unlock digital, physical, and experiential benefits that are uniquely Starbucks … by integrating into the Starbucks Rewards ecosystem and grounding the experience in coffee, connection, and community, we are entering the Web3 space differently than any other brand, while deepening our members’ connection to Starbucks. Our vision is to create a place where our digital community can come together over coffee, engage in immersive experiences, and celebrate the heritage and future of Starbucks.
What that looks like in practice is a program built on gamification and IRL participation rather than an increase in mindless consumption. Customers can take part in activities or "challenges" like trying new menu items to earn "digital collectible stamps", which are NFTs on the proof-of-stake Polygon blockchain.
For Starbucks, this incentivizes brand-valuable behavior and more intentional, specific engagement with the company and its offering. And for customers, it unlocks exclusive perks like limited-edition token-gated products, virtual classes, and even trips to Starbucks's roasteries or coffee farms.
These are perks that only Starbucks can offer, and that's how the program aims to get their most enthusiastic customers more involved with the brand in a new way. The benefits of web3 technology here are identity and ownership.
If you've been on a trip to the Starbucks farm, don't you want a souvenir? And with social media sites integrating NFTs you might end up in contact with someone who has a "Starbucks espresso class" NFT on display, instantly giving you something in common to talk about.
And since the "digital stamps" are just NFTs, they can be traded freely like any other. If you get a stamp for a drink you know you don't like, you can give it away to someone who loves it: airdrop it to a friend's crypto wallet, or offer to swap it for another perk in any online community hooked into Starbucks's on-chain wallet list.
That might be an online marketplace that Starbucks runs themselves. But with the customer list on-chain there's room for anyone to spin up a Discord server that lets verified members trade perks, maybe with added #general, #memes, and #starbucks-news channels for them to chat about whatever else they have in common.
Starbucks's odyssey into web3 won't launch until later this year. But in the meantime, we already see two clear lessons brands can take away about the future of loyalty programs.
What percentage of Starbucks's customer base do you think are already set up with a web3 wallet? What about your own audience?
One of the biggest challenges for any brand NFT launch is onboarding new web3 users onto the tech they need to participate.
It's why big brands and household names with huge Web 2.0 audiences can announce a social token or NFT drop that turns out to be a flop. Maybe the initial sale goes well, but after a few weeks or months the whole endeavor goes quiet and it's never heard of again.
And it's why Starbucks has put all the web3 aspects "under the covers". They talk about "digital collectible stamps" rather than NFTs, which is much more intuitive, and the customer's web3 wallet will be integrated seamlessly into the app they already use. They won't have to spend 15 minutes at the computer setting up Metamask and writing down seed phrases just to get a free espresso.
A customer could rack up stamps for months and not even know what an NFT is. They shouldn't have to, just like they don't need to know how Starbucks's rewards app works internally to get value from it. "It just works." So should web3. Marketers should spend less time explaining the technology to new users, and more time selling them on the story, utility, and values.
It's easier than ever to launch a traditional loyalty program right out of the box. That's good for you, but it's also good for your competitors. If you want to use loyalty to build a real competitive moat, you need something new.
Anyone can compete on price. A discount might get people in the door, but it's not going to turn those occasional customers into deeply-engaged regulars with a high lifetime value.
Starbucks is making this push into web3 because they understand the value of participation, community, and ownership.
They have the money and the resources to make that happen on Web 2.0. But having looked into blockchain technology for a couple of years, according to Brewer, they see that web3 gives them features like ticketing, souvenirs, rewards, and more for free. (With web3 talent built up already, Odyssey will have gone from idea to live service in around nine months; that's a great turnaround for a fundamental shift at this scale.) And the blockchain "primitives" like NFTs and wallets are powerful and flexible enough that they can go in many directions with Odyssey in the future.
Odyssey isn't about speculating on the price of these NFTs, and it's not even about discounts; the rewards app already does that. It's about leveraging web3's strengths to incentivize new, more meaningful in-person interactions. With NFTs having come to the spotlight amidst the pandemic, many of their experiments in community-building were limited to online interactions. Now, Starbucks is about to launch the biggest experiment ever in using NFTs to build a more engaged customer base in person.
What does that mean for you?
We've covered Starbucks's thinking behind Odyssey. They understand the value of owning the whole experience, and they see what web3 offers for the kind of loyal customer base they're trying to build and develop further.
But they could only take Odyssey to market so fast because they'd spent years learning about the technology.
If you wanted to launch your own Odyssey starting now, you'd need to convince leadership it was worth a big push to educate the marketing and tech teams. Only then could you start building a strategy, and the platform to execute it, in earnest.
That would be a long journey and a serious investment. But with Taco's no-code commerce platform, you can take your web3 loyalty program from idea to product in a matter of hours, with no high upfront costs, and simple pay-as-you-go pricing.
Our merchant tools make it easy to set up: you can set up token-gated products online with our Shopify plugin right now, and our merchant wallet app lets in-store staff run web3 loyalty with almost no specific training.
And with our customer-facing app and email onboarding, you don't need to lift a finger to onboard users into web3, you don't need to explain what a blockchain is or how it works. You can just focus on the value you're delivering to customers and the relationships you're building, and Taco can handle all of the technology for you.
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