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What Does a Blockchain-Based NFT Loyalty Program Bring to the Table?

An outlook on NFTs as a loyalty reward.

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  • Understand the Web3, blockchain, NFT loyalty program value proposition even after seeing the rising demands of an evolving digital customer base to satisfy interconnected needs across all channels.
  • Adopting, building, and scaling loyalty programs is complex and involves rethinking the operational models, collaboration, partner integration, technology platforms, and security capabilities to remain competitive.
  • NFT loyalty requires a hyperscale tech stack with a unified convergence of capabilities like consumer touchpoint channels, partner infrastructure, apps, and platforms to provide customers with connected services.
  • Enterprises need a fully integrated loyalty strategy to reconsider evolving emerging ecosystem needs.

Our Advice

Critical Insight

A Web3 blockchain-based NFT loyalty program design increases the extent of partnerships, collaboration, and visibility accessible for establishing a unique open loyalty ecosystem that will seek to drive expressively advanced levels of customer retention and acquisition. In addition, it will enhance customer community interactions, visualize their needs, and create value in a visibly nimble and scalable network across online-to-offline channels.

Impact and Result

  • Identify opportunities across your customer to capitalize on the blockchain, NFT, infrastructure, and virtual environments to monetize key customer insights.
  • Realize the effects of digital loyalty programs that are being felt on all entities of the physical and virtual retail ecosystem.
  • Learn how the best-in-class retailers are already reaping business benefits from adopting technology demands with the holistic digital loyalty program.
  • Align the organization's business and technology modules in unison for your enterprise to design NFT loyalty initiatives to integrate into the digital business strategy.

What Does a Blockchain-Based NFT Loyalty Program Bring to the Table? Research & Tools

1. What Does a Blockchain-Based NFT Loyalty Program Bring to the Table Storyboard – Research that analyzes digital strategies to design NFT loyalty initiatives that integrate into the organization's digital business strategy.

Use this research to identify opportunities across your customer to capitalize on the blockchain, NFT, infrastructure, and virtual environments to monetize key customer insights.

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What Does a Blockchain-Based NFT Loyalty Program Bring to the Table?

An outlook on NFTs as a loyalty reward.

Analyst Perspective

Harness the NFTs using a blockchain to boost the customer loyalty program.

The future loyalty programs have arrived, or so it seems, as brands adopt an open loyalty model to drive customer acquisition and advance customer lifetime value. Open loyalty is a Web3 architecture in which customer loyalty is saved on a blockchain, allowing retailers to connect and incentivize customers across the network with utility non-fungible tokens (NFTs).

A Web3 blockchain-based NFT loyalty program has the potential to unlock new customer engagement, turning traditional loyalty programs into robust customer acquisition channels. In addition, it can increase the extent of partner ecosystem collaboration and prominence for establishing a unique digital community. Retailers often look to improve customer loyalty programs by partnering with other retail brands, banks, and third parties to offer a wider selection of customer rewards that can be redeemed across an extensive network of partners. With a managed blockchain network, retail brands can implement a blockchain system to share and authenticate rewards information rapidly and transparently, without needing a central authority to process rewards transactions, and save considerable processing time.

Rahul Jaiswal

Rahul Jaiswal

Principal Research Director, Retail
Info-Tech Research Group

Executive Summary

Your Challenge

Understand the value of a blockchain-based NFT loyalty program to adapt to the rising demands of an evolving digital customer base and satisfy interconnected needs across all channels.

The process of adopting, building, and scaling loyalty programs is complex. It may include rethinking operational models, collaboration, partner integration, technology platforms, and security capabilities to remain competitive.

NFT loyalty requires a hyper-scale tech stack with a unified convergence of capabilities, such as consumer touchpoints, channels, partner infrastructure, apps, and platforms to provide customers with connected services.

Enterprises need a fully integrated loyalty strategy to consider evolving or emerging ecosystem needs.

Common Obstacles

Retailers are reluctant to execute blockchain and NFT programs. These programs are key to the future success of a retail organization’s digital loyalty strategy.

Most retailers do not know how to begin. Retailers have not taken a structured approach to execute technology in each shopping phase and have deployed technology before developing a robust strategy.

Organizational strategy is misaligned. Business executives think digital is “IT’s problem” because digital is viewed synonymously with technology. On the other hand, IT thinks digital is “a business problem” because digital exceeds the current scope.

Business teams struggle to link to partner ecosystems. Teams do not take a structured approach to connect sets of products and services with hyper-scale technology platform partners.

Info-Tech's Approach

Identify opportunities across your customer base so you can capitalize on the blockchain, NFT, infrastructure, and virtual environments to monetize key customer insights.

Realize the effects of digital loyalty programs that are being felt on all entities of the physical and virtual retail ecosystem.

Learn how the best-in-class retailers are already reaping the business benefits of meeting technology demands with a holistic digital loyalty program.

Align organization, business, and technology modules to design NFT loyalty initiatives that are integrated into your digital business strategy.

Info-Tech Insight

A Web3 blockchain-based NFT loyalty program increases the extent of partnerships, collaboration, and visibility to establish a unique open loyalty ecosystem that drives advanced levels of customer retention and acquisition. It also enhances customer community interactions, visualizes customer needs, and creates value in a visibly nimble and scalable network across online-to-offline channels.

Leverage Web3 to build your NFT loyalty program

The current state of loyalty management

The loyalty market is important but played out.

  • The loyalty management market was worth $US5.57 billion in 2022.
  • US shoppers held an average of 16+ loyalty memberships in 2022.

Source: “Loyalty management,” Statista, 2023

Brands run closed e-commerce systems in siloed Web2 architecture.

  • To compete at scale, brands often create connected loyalty partnerships. However, they face issues managing cross-program closed loyalty agreements, including compliance, currency reconciliations, collaborations, and high acquisition costs.
  • Apple blocked cookies, and Google plans to remove them by 2024.

Source: Bloomberg, 2022

Loyalty schemes proliferate.

  • Schemes that worked well before are not working now, due to the proliferation of new e-commerce brands.
  • Consumers manage multiple fragmented loyalty accounts.
  • Constant promotions dilute the exposure of a single program.
8X Increase in Number of Shopify Merchants from 2015 to 2021. Increasing Customer Acquisition Costs for TikTok Google, Facebook and Instagram.

Source: M13, 2023

The future state of loyalty management

Significant growth is imminent. Market estimations predict that the size of the loyalty management ecosystem will surpass US$24 billion by the end of 2029, growing at a compound annual growth rate (CAGR) of 23.5% (“Loyalty management,” Statista, 2023).

Web3 architecture allows brands to switch to open loyalty. Web3 expands a partnership’s total addressable customer base and acquisition capabilities. Brands are switching to open loyalty to drive community retention and new customer acquisition. Open loyalty is a Web3 concept in which customer loyalty is stored on the blockchain.

Web3 loyalty applications are secured by token-gating technology. This website architecture permits digital storefront owners to restrict access to website subsections to utility token (NFT) holders.

Strong blockchain growth is predicted. The NFT market is predicted to increase by US$113,933.5 million at a CAGR of 35.02% from 2022 to 2027 (Technavio, 2023).

Worldwide spending on Blockchain Solutions (In Billions). From 2017 to 2024

Source: “Global blockchain solutions spending,” Statista, 2023

NFT drivers will deepen consumer connections

Drivers of NFTs as a loyalty program

Drivers of NFTs as a loyalty program: e.g. Unique Ownership, Digital Certification, Secondary Value.

NFTs can be used to create an innovative loyalty program with accurate, secure, and digital ownership certified on blockchain technology. NFTs can be bought, sold, and showcased on various platforms, making them tangible assets that customers can hold on to and cherish. NFTs allow a horizontal relationship with a brand. Customers become stakeholders and ambassadors of the brand. Ethereum is a green blockchain; Ethereum's proof-of-stake mechanism only uses ~0.0026 TWh/yr. (terawatt-hours per year) across the entire global network. (Ethereum.org)

Sources: Info-Tech Research Group Analysis, Ethereum.org, Morning Consult

Share of US respondents who already collect NFTs as a hobby or an investment

Share of US respondents who already collect NFTs as a hobby or investment. 15% of men and 23% of Millennials collect NFTs.

Research conducted in 2022 found that millennials are the generation most likely to collect NFTs. Based on the research, 23% of millennial respondents claim to collect NFTs as a hobby or an investment. Gen Xers are the next most prevalent collectors of NFTs by generation, with 8% of respondents claiming to do so. Gen Zers, with 4%, ranked third of the four generations surveyed. Lastly, only 2% of baby boomers claim to collect NFTs as a hobby or an investment. (Morning Consult, 2022; N= 2,200 US adults).

Source: Morning Consult

NFT-based loyalty programs will enhance the customer experience

  1. Leverage Smart Contracts to Execute Commercial Transactions and Agreements. Smart contracts use blockchain technology to enforce the obligations of all parties in a contract, without the extra overhead of an intermediary. Smart contracts are computer programs that facilitate, verify, or enforce the negotiation or execution of an agreement. They often emulate the logic of standard contractual clauses, so many contractual sections can be made partially or fully self-executing or self-enforcing, or both.
  2. Enhance Data Portability and Reduced Risk Storing Customer Information. Know Your Customers (KYC) statements can be stored on a blockchain to decrease administration problems and costs while outlining the concerns that still need to be addressed. In addition, a decentralized identity management platform can reduce the stress on the current centralized approach for storing customer information. By storing data in blocks and using a tamperproof hash format, retailers can improve the security of the stored identity, improve the portability of data, and reduce the time taken for KYC efforts.
  3. Deliver Seamless Direct Asset Transfers, Money Transfers, and Payments. Blockchain technology can be used to overcome the current problem of the correspondent system and international money transfer. Fee-intensive, fragmented, cross-border non-cash transactions can be eliminated by excluding third parties and enabling direct money transfers and efficient interbank settlements. Creating a competitive marketplace of liquidity providers can ensure the best exchange rates for international exchange and payment transactions.
  4. Use a Decentralized Ledger for NFT Trade Settlements. Trade settlement processes typically require two to three days for payments and securities to change hands. Moving these processes to a decentralized ledger can have a transformative result on the markets. This need not be limited to debt, etc., but can be extended to complex modelling.

Awareness and Readiness

Core of the Blockchain Journey: Start the blockchain journey with integration, modernization, and agility at its core.

Legacy Modernization: Integrate blockchain technology into an existing legacy environment.

Service Integration: Assist complex integration when integrating blockchain technology into the current business and technology environment.

Agile Prototyping: Practice agile prototyping to achieve efficient communication with stakeholders, track design decisions, and manage the implementation of blockchain prototypes.

Proof of Concept (PoC): Retailers must explore blockchain technology with PoC for recognized use cases using an agile approach.

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Author

Rahul Jaiswal

Contributors

  • Rajiv Shankar, Chief Information Officer, Redtag
  • Anitha Reddy, Vice President of Software Engineering, Qurate Retail Group
  • Prabhu Sundararajan, Director IT, Qurate Retail Group
  • Mitch Ruebush, Director of Enterprise Architecture, Qurate Retail Group
  • Khalid Tadlaoui, Chief Information Officer, Al-Nahdi Group
  • Cherokee Chamorro, Client Leader, Vancouver Canada
  • Aiman Ali, Director of Applications, Al-Nahdi Group
  • Nastaran Bisheban, Chief Technology Officer, KFC Canada
  • Anonymous Contributor, Senior Advisor, Palo Alto, USA
  • Laura Becker, Enterprise Architect, Qurate Retail Group
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