Web3 and NFTs Unlock Next Level of Customer Loyalty
The cost of customer acquisition has been rising and will continue to increase, and there is little brands can do about it. This means that brands have to spend more marketing dollars to drive the same amount of traffic and conversions.
The latest report from Shopify suggests that some brands are seeing ad costs go five times higher than before to drive the same amount of traffic.
But it doesn’t end there… According to Harvard Business Review’s “The Value of Keeping the Right Customers” article, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.
When you combine these factors and add a pinch of common sense, the takeaway should be pretty clear.
Brands should focus on what they can control and that’s retaining their existing customers. Brands have to prioritize customer lifetime value and promote brand loyalty. If they fail to do so, they may as well soon see their customer acquisition funnel dry up altogether.
Rising acquisition costs force brands to foster long-term relationships with their customers — Shopify
Customers Are a Brand’s Most Valuable Asset
On the bright side, it has been repeatedly proven by various studies that customers are a brand’s most valuable asset.
- Acquiring a new customer is 5 to 25x more expensive than retaining an existing one — HBR
- Increasing customer retention by 5% can increase profits from 25–95% — HBR
- Returning customers spend 67% more than new customers — Bain & Company
- Loyal customers are 5x as likely to repurchase, 5x as likely to forgive, 4x as likely to refer, and 7x as likely to try a new offering — Temkin Group
Retention Drives Acquisition
As a brand retains customers, those customers perform actions that accelerate further acquisition, either through social sharing, content creation (user-generated content or so called UGC), or word-of-mouth marketing. This makes retention a self-nurturing virtuous cycle that creates a compounding effect over time: As more new customers are retained, more are acquired.
Result: Retention effectively increases customer lifetime value (CLTV) and decreases customer acquisition cost (CAC).
Retention Improves Monetization
Retention increases the length of time that a customer sticks with a brand, which increases repurchase rates, up-selling, and cross-selling opportunities.
Retention Makes Brands Unstoppable
As a brand increases retention and thus improves monetization and CLTV, it has more income available to reinvest in customer acquisition.
Different Types of Customers
At the point of purchase, each customer has the potential to remain a loyal customer, become a brand advocate, a brand ambassador or later churn by leaving the brand’s ecosystem.
Note: The risk of churn is not only limited to losing future purchases, as churned customers can also include detractors that spread negative opinions.
Loyal Customers
Loyal customers can be defined as customers that make repeat purchases.
Brand Advocates
Brand advocates are those customers who actively promote the brand to other customers. They may not necessarily make as many repeat purchases as loyal customers but they still have a strong positive effect on a brand’s bottom line.
Brand Ambassadors
Brand ambassadors are defined as customers who actively promote the brand to other customers and make frequent repeat purchases. Comparing these three cohorts of customers, loyal customers and brand advocates perform primarily one function (either making repeat purchases or advocating for the brand by sharing content), while brand ambassadors are able to do both.
How do brands get as many brand ambassadors as possible? When you Google “customer loyalty” or any similar variation of that, you will get a lot of entries on how community engagement, clear communication and loyalty programs are key. Sure, these can help but what you really want to see is that customers not only love your product/service (yes, it’s important) but they’re also emotionally and ideally financially invested in your success — we call this aligned incentives.
Here is an example…
How do all investors behave when it comes to their portfolio companies? They talk about those companies all the time, buy the companies’ products, promote them everywhere they go, you get the point. These investors not only love the products and teams they back but they also financially and emotionally — we're all somewhat driven by ego ;-) — benefit from the success of their portfolio companies.
Even though we as customers are also sort of investors of all the brands we buy products from, we rarely get any direct financial benefit, usually it stops at the emotional connection which can be caused by:
- Solving a specific need or want
- Marketing and communication (i.e. your favorite celebrity endorses a product)
- Alignment with the company’s mission statement (i.e. sustainability)
This is where it usually ends. Don’t get me wrong, there are companies building incredible businesses applying the above but what if you could take it to the next level?
Enter the World of Web3 and NFTs
We have already discussed NFTs in our previous article. In today’s article we want to explore why NFTs are such a great tool for unlocking unprecedented customer loyalty and driving retention and organic growth.
Ownership
NFTs allow customers to own a piece of the brand they buy products from. It’s not just about buying the product anymore, it’s about becoming a member of a community. NFTs transform customers and fans from consumers into co-owners. This is when the investor mindset kicks in:
The more customers and fans support the community or brand, the more it’s worth. This naturally means that more qualitative as well as financial value is captured by these customers and fans — now co-owners.
Loyalty as an Asset
NFTs enable entire economies to be built around loyalty. The most loyal and active contributors to the brand communities receive NFTs and their utility (i.e. VIP access, lifetime discounts) as rewards. New or less active members who desire the same type of utility have to purchase these NFTs on the secondary marketplace.
Gamification
NFTs allow brands to gamify their commerce and community experiences. Customers receive certain NFTs as rewards for their purchases and community contributions and then exchange these NFTs (or “burn” them) for other benefits and IRL experiences/physical products.
Note: Community members can also buy these NFTs on the secondary market in case they missed a drop and failed to perform a specific action at a specific time.
One of the recent examples of this is GAP Threads NFT.
In Conclusion
We believe that in the near future every brand will be thinking about their Web3 and NFT strategy because the potential for customer loyalty and community engagement that come with these innovations is massive — if brands fail to take full advantage of these trends, they will be leaving a huge amount of value on the table which could be detrimental for their long-term and sustainable growth.
About Yoloyolo
Yoloyolo is a web3 fashion and lifestyle app that helps brands unlock the potential of web3. By utilizing the power of web3 and NFTs, brands are able to kickstart unprecedented customer retention and organic growth which is crucial in today’s competitive world of commerce and rising customer acquisition cost. At the same time, Yoloyolo allows customers and fans to share in the value they create.
