There are several limitations of existing loyalty programs. First, the absolute focus on transactions at the cost of the upstream. Second, the lack of incentives for customers to proffer their own data and preferences, which can help brands personalise the offerings creating a win-win relationship. Third, the hurdles put in the way of redemption creates asymmetry: easy to earn, hard to burn, when in fact rewards must be made easy to avail because it will actually lead to more spending. Fourth, the siloed and centralised nature of loyalty programs – limited to a single brand, and therefore the whims of a single individual running the program.
So, let us construct a new loyalty program that can address these limitations and delight customers:
- App-based: This will make it agnostic of platform, with the possibility of becoming a wallet where points, tokens, NFTs can be saved and spent. It can also double as the micronbox. The app will ensure its always with the individual. The app should also have QR support.
- Attention-based: Attention is upstream of transactions. Attention needs a hotline via omni-channel push messaging (email, SMS, notifications, WhatsApp) to foster engagement and therefore habits. Brands need to drive mental availability of their brand on a daily basis such that there is top-of-mind recall when a customer wants to explore a purchase. This means moving away from the flow of offers to providing informational content which can generate consistent interest from customers. (This is a theme I have covered in my Email 2.0 essay
- Data-driven: Every customer is different. While segmentation is better than mass communication, what’s even better is hyper-personalisation. For this, brands need to aggregate data and then use AI-ML to discern patterns to recommend the next best action to customers. Data today is collected from actions done by customers on the brand’s communications (push messages) and properties (website and app). A trick that marketers have missed is the simplest one: asking customers directly. To make the collection of zero-party data (data volunteered by customers), two building blocks are needed: a hotline to ensure customers are paying attention and not ignoring incoming brand messages, and incentivises which reward them for their data. Data-driven thus means incentive-driven, asking the user to self-reveal both because subsequent interactions will become more targeted and because of the rewards earned in return.
- Redemption orientation: Most loyalty programs are stingy: they see redemptions as failure. They prefer to issue points, but prefer to make benefits difficult to earn. Sometimes that is structural – limited number of seats on a plane; sometimes that is because alternative means to monetise points aren’t developed. What if a loyalty program embraced redemptions as the lifeblood of the program, prompting rapid cycles of point issuance and redemption? The value of the program would expand exponentially.
When redemption offers exist, they generally fall into two categories: use the points to reduce the payment on a future transaction (offering a discount or a freebie), or pick some items from a limited catalogue. What of the loyalty points could be used as currency in a marketplace where brands could use the customer’s interest to sell new products? Also: what if the points need not be spent at all, and in fact could be traded on an exchange where the value of the points increased with time?
Finally, redemption-orientation could mean rewards are sales leads, not costs to the program or affiliates. Issuing points, to a program, represents a liability. Assets need to be found to match that liability, with the utility for the points buyer – a hotel, car rental company, or ecommerce website – being the customer’s propensity to transact. Assets can have a monetary value to a loyalty program’s affiliates – the difference between selling something full-price vs selling something at a discount. But rewards need not be monetary; indeed, rewards can lead to new sales. Think of offering early access for test drives of a new model if the partner is a car company; to new music or a new TV series if the partner is a streaming platform. In other words, rewards can be experiential and help the brand sell more.
- Pan-brand DAO: Most loyalty programs are restricted to a single brand and administered centrally. They thus run the risk of being debased. This is exactly the problem that is faced by fiat currencies with the reins in the hands of central bankers who owe their allegiance to the politicians and not the people. This is one of the reasons behind the growth of cryptocurrencies as a new asset class. Loyalty programs could become pan-brand and governance overseen by a decentralised autonomous organisation (DAO); in other words, run by rules, nor rulers. This could dramatically increase trust and therefore usage, which would be beneficial to participating brands.
Combine these ideas together and one has the foundation for Loyalty 2.0 – an app-enabled, pan-brand, token-based, incentive-driven loyalty program built on user attention and data.