Starbucks as a big adoption driver
In early September, Starbucks announced that it would expand its existing customer loyalty program, which has nearly 30 million members in the U.S. alone, with features in line with its Web3 strategy. In addition, the coffee brand generates nearly half of its global revenue from users of its existing loyalty programs. But what exactly does this mean? From our perspective, Starbucks is taking a huge step toward mass adoption of the technology with their Web3 strategy. We explain the benefits of a tokenized points system and why Starbucks is now handling NFTs in this article.
How does Starbucks' new customer loyalty program work?
Starbucks' existing and proven customer loyalty program allows customers to collect so-called stars with every purchase, which can be exchanged for free drinks, merchandise or other surprises when certain milestones are reached. For example, guests receive three stars for every euro spent. For 150 stars, the equivalent of €50, the next drink is free. Much of this is done via their own app, which even enables payment.
Starbucks' Web3 initiative "Starbucks Odyssey" will complement this existing program with entirely new collection experiences and rewards to drive customer engagement rates above all else. While Starbucks' existing loyalty program is used above average compared to other brands, free drinks starting at $50 consumption are not the most customer-centric reward that will additionally skyrocket Starbucks traffic. For this reason, the benefits of blockchain technology are being used to trigger a meaningful expansion of customer loyalty opportunities.
The focus of the "Starbucks Odyssey" is on the so-called "Journey Stamps", which customers can earn via gamified actions in the existing app, for example, and which can be used to unlock new rewards and unique experiences. The core difference between the Stars, which can be exchanged for free drinks, and the "Journey Stamps" is that the latter are blockchain-based and thus classified as NFTs. This makes the "Journey Stamps" tradable, dynamic, and most importantly, an interactive tool within the Starbucks community. For example, Brady Brewer, executive vice president at Starbucks, describes that "for the first time, our Starbucks Rewards loyalty program members will be connected not only to Starbucks, but to each other." That's because members can participate in Odyssey journeys while interacting with other users to ultimately win NFTs. Each NFT receives a value depending on its rarity, which is tied to rewards and experiences. For example, NFTs give access to artist collaborations, barista classes, invitations to exclusive Starbucks events, or even trips to the coffee farm in Costa Rica.
In addition to this access to experiences, Web3 technology most importantly enables ownership of milestones and rewards, which was not possible before. For example, "Journey Stamps" can be traded among members in an integrated marketplace, with ownership secured on the blockchain. In this way, particularly loyal customers can benefit financially for the first time from coffee consumption and loyalty to Starbucks by selling their NFTs. The trick here is that although the "Starbucks Odyssey" program is based on Web3 technology, this is not perceived by the customer. This is because users do not need their own crypto wallet or cryptocurrencies to collect NFTs. The transactions are paid in fiat currencies and to see the collected NFTs, the guest only needs to log into his app.
Why companies should use NFTs for their loyalty programs?
This is precisely the question that marketing managers at innovative companies are dealing with. And rightly so, because the introduction of new technologies usually means revising existing systems. However, these concerns should be put into perspective, as blockchain technology can be excellently integrated into existing systems despite fundamental changes. So we are not talking about a replacement of existing customer loyalty programs, but a useful addition. Accordingly, the answer to the question is quite simple: loyalty and reward programs do not exploit their potential because user accounts are not used, redemption rates are too low, customer acquisition costs are too high, and customer loyalty is accordingly too low.
A point system on the blockchain means higher engagement when implemented in a customer-centric way. This can be achieved with both NFTs, Starbucks' "Journey Stamps," and loyalty points, Starbucks' "Stars." This is because by actually owning the memberships, loyalty stamps, customer status and points, they can not only be used within the company's internal ecosystem, but also traded or even used with partner companies without having to build a new technical infrastructure. These possibilities open up a completely new customer experience.
Another advantage is the emotional charging of NFTs. Loyalty points in their previous form are often not collected with much passion. In the example of Starbucks' "stars," the member eagerly collects them and waits until enough points have been accumulated to start all over again after redeeming them. Using the artwork Starbucks employs, which also represents the rarity of each NFT, Starbucks builds on effective storytelling. Actual ownership, and the accompanying power to decide whether to use or sell, potentiates this engagement enormously.
A third advantage is that Starbucks now knows not only the customer's email address with which they registered in the app, but also the wallet address where all the tokens the customer has collected from Starbucks are stored. This allows Starbucks to transfer stimulus checks or engagement-based incentives directly to users' wallets via a so-called airdrop, rather than sending coupon promotions to email addresses that, in the worst case, end up in spam or with fake addresses. As wallets are used to store digital possessions, they will become much more important in the future. For this reason, it can be strategically important for companies to allocate and identify them at an early stage.
How does this affect rewards for loyalty?
In addition to the aforementioned freedom to decide whether to redeem or sell rewards, NFTs overcome existing boundaries and can be linked to any system. For example, Starbucks could easily link its NFTs to other systems, which is why the cost of establishing a brand partnership drops to zero. For example, Lufthansa could make its lounge accessible free of charge to owners of rare Starbucks NFTs to attract passengers. In this way, Starbucks offers another exclusive added value that can be implemented with just a few clicks.
What are the added values within the community?
Owning Starbucks NFTs, which unlock exclusive added values depending on their rarity, could serve as the highest incentive for many, despite the sales opportunities. That's because by representing digital possessions, NFTs also increasingly represent digital identities, which are growing in popularity. For example, more than 60% of Generation Z say they already value their digital identity more than their real identity. As Starbucks seeks to connect its members through digital games and digital worlds, this underscores the importance of digital identities. For example, Starbucks describes itself as a "third place between home and work, now extended to digital worlds."
A Web2-friendly Web3 solution
As a brand, it is very important to understand that most people currently buying NFTs are not doing so out of attachment to the brand. Often, a purely speculative interest is the driving force. As a result, brands find it difficult to build a solid foundation of loyal customers. Quite the opposite: in the worst case, the consequence is that the brand image is damaged if the value of NFTs does not increase. Starbucks understands this and takes advantage of Web3 technology, but removes the complexity entirely by rewarding its members solely for their commitment to the brand. The brand forgoes a one-time sale with artificially scarce collections. Starbucks is thus creating a customer loyalty program that anyone without technical knowledge or crypto affinity can join, ultimately increasing customer engagement and identifying superfans and rewarding them accordingly. In our view, this makes Starbucks one of the biggest drivers in the Web3 space. If your brand is also interested in launching a Web3-based loyalty program that's foolproof for anyone to use and integrate with existing processes, we'd love to hear from you.
