How Brands can leverage Blockchain to build Loyalty Programs

Quest Labs
6 min readDec 15, 2022


There is a pressing need for brands to bypass the platform-centric marketing world of web2 and reclaim ownership of their digital consumer relationships to truly build a collective. Brands today need to create high-engagement experiences for their users if they want them to return or choose them over other brands. High engagement needs to be incorporated into their digital experiences and in every interaction with customers.

Loyalty programs are hugely important for brands — after all, 84% of people will choose a brand that has a loyalty program when making a purchase decision. Loyal customers are one of the primary drivers of any for-profit business. By building loyalty rewards programs, companies aim to heighten the customer experience. These programs turn potential customers into paying ones. And paying ones into loyal brand evangelists. When brands get customers to buy into their loyalty programs, they’re 2–3 times more effective because they’re emotionally engaged. Their posts and suggestions to their network are also received as more authentic and trusted — leading to better engagement and conversions than the one-size-fits-all outbound messages of traditional mass advertising.

But creating and retaining loyal audiences has always been one of the toughest challenges for any company. It has never been more expensive for brands to acquire and retain customers. Acquisition costs skyrocketed by 60% over the last decade while customer lifetime value has stagnated. Current loyalty programs have most consumers being cynical of their real value due to Points Fatigue, Elusive Tier Status, and an overall, distrust of the mechanics. Only 37% say that the points and tier are an effective tactic to retain their loyalty. That’s why current engagement programs are perceived as negative by an estimated 90% of consumers according to research by Capgemini. These customer interactions are very transactional (you give me X and you receive Y) and don’t do much in terms of building a meaningful relationship with the user.

So how do we get people excited about loyalty programs? How do we make sure the rewards are really relevant to each individual member? How do we make people feel valued as individuals and not just as numbers within the program? This is where Web3.0 comes in.

Blockchain Brands — Brands 3.0

We have recently witnessed the influx of huge brands into the Web3 space such as Adidas, Tiffany, Starbucks, Gucci, Prada and so many more. These brands are leveraging Web3 as a new channel to build brand awareness, loyalty, and engagement and reduce retention rates.

The Future of Loyalty is Tokenized Rewards

The implementation of blockchain can drive the customer experience to the next level. Instead of a fragmented loyalty market, blockchain allows for an integrated system of loyalty programs that are interchangeable between different brands. This flexibility means customers can personalize their experience and seamlessly exchange tokens without having to switch providers. A customer uninterested in the rewards from a hotel might want to spend their tokens on their weekly groceries, for example.

Loyalty programs on the Blockchain, will not be built on a single NFT, but rather a collection of composable NFTs and smart contracts that connect like Lego Bricks. This capability will enable a whole host of possibilities for brands and their consumers, starting from composable NFTs with rewards such as providing exclusive access, encouraging participation through gamification, and becoming a large part of a consumer’s digital identity, brands can leverage tokens and NFTs to drive hyper-personalized engagement and retention.

Value Proposition of leveraging the Blockchain

  • Reducing costs — Although blockchain incurs upfront expenses, we believe that the trade-off cost savings will be identifiable on three major levels–system management, transactional, and customer acquisition. A blockchain-based loyalty rewards program should reduce system management costs with smart contracts that report secure, tracked, transparent transactions to legacy systems, reducing costs associated with errors and fraud.
  • Enabling a frictionless system — An airline credits a customer’s rewards in the same digital wallet from which he/she redeems them for the hotel. Through a trustless, decentralized technology solution, blockchain is centralizing the customer’s loyalty programs. Loyalty providers decide how and with whom the customer uses these rewards, but from a consumer perspective, his/her ability to access and manage them is practically frictionless.
  • Making the process near real-time — Blockchain can enable a transaction to be recorded and accessed by multiple involved parties in near real-time, increasing the chance that loyalty rewards program providers can cut through coordination inertia to credit points faster.
  • Providing a secure environment — Blockchain creates an immutable and time-stamped distributed database entry of every single transaction ever made, making each transaction and its record easily traceable, but also rendering them irreversible, preventing double spending, fraud, abuse, and any other type of manipulation of the transactions.
  • Creating unique business opportunities — At the onset of building an interlinked loyalty network, large loyalty rewards program providers with well-developed programs will have unique opportunities to offer value-added services to other businesses.

How to Build a Blockchain-Based Loyalty Program

To truly make a loyalty program successful, brands need to make sure that the incentives align with their customer base’s demands and that they have a vested interest in engaging and promoting the brand.

Brand tokens incentivize your customer base to stay loyal as it rewards them for the sweat equity they put into growing your brand across their niche network of peers who trust them. Not only does this keep existing customers coming back, but it’s an effective way to appeal to new ones. Earning is the most important factor to determine how much tokens users can earn in each transaction. Using the right tools to draw in customers and collect data will be key to build personalized journeys.

Membership Token(NFT) — Non-transferable Token (soul-bound) token serves as an access point to a brand’s loyalty program and specific tiered or individualized perks and benefits. “Soul-bound NFTs” means that these NFTs can’t be sold or traded, but are instead bound to the individual. This NFT can also be Dynamic, which changes and evolves over time. The evolution is a reaction to a combination of both off-chain data (e.g. location data), and the other NFTs that accumulate in the loyalty members’ wallets over time and through their engagements.

Reputation Tokens — Reputation Tokens are a collection of Non-transferable NFTs that represent any activities or actions the user performs related to the brand and serve as a non-transferable reputation signal to recognize ongoing member contributions. Dynamic Loyalty Points/Program — Automated instant points calculation according to the rules specified in signed smart contracts

Not all activity is equal and as always there is a need to filter signal from noise. But with the right formula, embedded in smart contracts, reputation systems can be built such that they can authentically recognize which activities the community deems as value contributing and having a positive ‘impact’. You should earn points based on how much value you’re creating for the platform

Utility Tokens — This is the Community coin or Brand token that is a transferable liquid asset rewarded to holders of points on a regular basis.

NFTs as a digital twin — Digital twin of a customer is a “persona” Instead of merely collecting data points, it provides context and predictions of future behaviors. The metadata contained within a customer’s digital twin can be augmented with permission-based on-chain wallet data and off-chain social data. Once connected to a non-custodial wallet, a brand’s representation of a customer’s digital twin will be complemented with non-brand tokens that will provide a more holistic view of a customer’s behavioral and affinity profile.

Quest is an SDK & Tools to Incentivize & Engage your Web3 Community. If you are a part of a DAO, NFT Community, Web3 Community, or Platform interested in using Quest, fill out this quick form or schedule a time to chat here!



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