Published November 8, 2022
One question I have always wondered is: why is it so easy to earn points (as part of loyalty programs of brands) but so hard to redeem them? If anything, it should be easier to redeem the points earned because that creates the incentive to earn more. And yet, most loyalty programs put hurdles aplenty in the process to translate points into rewards. I had started thinking about this in the context of MuCo and how to enable rewards redemption for the points earned. Ease of redemption needed to be another differentiator between transaction-linked Loyalty 1.0 programs and attention-linked Loyalty 2.0 programs.
Of course, there is a very big difference between the two. Loyalty 1.0 points are earned by spending money. Typically, brands give 1 point for every 1 dollar (or rupee) of spending. For redeeming, they do so at 1-2 cents (or paise). In other words, the redemption budget is 1-2% of the spending. [See this article by Business Insider for a helpful comparison across industries and loyalty programs. As it explains: “To figure out the number of cents per point or mile you’ll get from a specific redemption, divide the cash price of the award by the number of points or miles needed. For example, if an award flight that requires 25,000 miles to book would cost $500 if you paid cash, $500 / 25,000 = 2 cents per mile.”]
Earning points is easy. Most loyalty programs have free sign-ups. (After all, the purpose is loyalty and repeat purchases!) We are all members of many loyalty programs. Why not sign-up if there is no cost? The points then can add up. The challenge typically comes when one wants to convert those points into rewards. That’s where the hurdles arise. From a loyalty program’s perspective, the brand incurs a hard cost when points are redeemed. This means that every loyalty point given out is immediately a liability. So, points that expire (called “breakage” in industry parlance) can add to profits. Thus, the ideal outcome for a loyalty program is that points are given out but not redeemed and hence the incentive to put hurdles in the redemption process. But this is short-sighted thinking. In fact, if the redemption process were easy, customers would be encouraged to earn more points – which would mean spending more money. In the quest for short-term profits from unredeemed points, brands are sacrificing long-term revenue and repeat business. Nothing else can explain the difficulties in rewards redemption.
For MuCo, what would be the easiest possible redemption process? Since the initial Mu earnings would be via actions in email, could redemption of Mu be also offered in the same email? This was the thinking behind the MuCo Footer to complement the Brand Footer. The next question: since MuCo was centred on time, the redemption process should also be linked to time. Could we therefore think of AMPlets which could offer compelling rewards redemption in a matter of seconds – thus creating the virtuous cycle of Mu earn-burn-earn? This is the exploration we will do in this series.
Stephen Shaw writes about the power of loyalty programs: “The business case for a loyalty program is irrefutable: members will almost always out-spend non-members, due to the regular communication of personalized offers, and show greater affinity for the brand, making them more open to hearing about new products. But the program must be designed to augment the customer experience, not take the place of it. Otherwise customers will become loyal to the program and not the brand (which is the compromise coalition reward sponsors must make). The best loyalty program in the world will never make up for indifferent service or inadequate merchandise. Marketers need to shift the strategic emphasis of loyalty programs from issuing rewards to designing a rewarding experience. At that point, the lines will blur between the membership experience and how customers experience the brand. Companies will have learned to be loyal to their customers just by treating them honestly and fairly – and those customers will be loyal in return.”
McKinsey adds: “We have observed that around two-thirds of established loyalty programs fail to deliver value, with many actually eroding value. Yet enlarging loyalty-program participation can be a critical key to increasing company-wide sales, while creating the data foundation for other valuable initiatives such as data-driven marketing, and also improving the customer experience.”
Loyalty programs are a two-way street: earning and burning (redemption) of points. Brands need to get both right. Yet, they put many hurdles in the redemption process; we all have experienced loss of points because of an inability to redeem.
An article in Harvard Business Review by Yacheng Sun, Jonathan Z. Zhang, and Dan Zhang had this on hurdles in loyalty programs: “Have you ever signed up for a rewards program, only to discover several months later that your points expired before you had a chance to use them? If so, you’re not alone. Research shows that loyalty program members lose up to a third of the savings they could have earned from these programs due to redemption hurdles: policies such as expiration dates, spending minimums, and other requirements that hinder customers from actually reaping the benefits of membership. These redemption hurdles are extremely common. In fact, we conducted a survey with the top 100 U.S. retailers and found that 85% of the rewards programs these firms offered included some form of hurdle.”
Hurdles may be good for company balance sheets, but not for customers. Dan Gingiss wrote in Forbes: “Rewards programs can be lucrative for loyal customers, but when companies add lots of rules and restrictions to a loyalty program, it can actually have the opposite effect. Customers are very perceptive, and they understand when something is a value and something is not. One example of this is when rewards expire. From a customer’s point of view, this doesn’t make any sense. They earned the rewards, and now the company is taking them away? That is not the basis for a positive customer experience. The background on this is that it’s actually the Finance department making those rules. When a customer earns rewards, that shows up as a liability on the company’s balance sheet. It may or may not have to pay out those rewards, so the money has to be set aside for if and when the customer decides to redeem them. When rewards expire, it evens out the balance sheet and removes the liability. But it’s not a good experience for the customer.”
Of course, hurdles can be used to a brand’s advantage also. As Epsilon’s Nicole Shahid writes: “it’s no secret that properly designed and managed loyalty programs can unlock significant value. Top-performing loyalty programs can boost revenue from customers who redeem points by 15 to 25 percent annually, by increasing either their purchase frequency or basket size or both. So, if loyalty programs play a critical component in increasing company-wide sales, why would you want to insert hurdles into them? In reality, most loyalty programs have some redemption hurdles in place that limit a customer’s ability to reap their benefits. According to our Senior Director of Loyalty Consulting Andrew Herta, redemption hurdles enable companies to effectively price segment and control the cost of their loyalty program. With this approach, companies can design rewards programs that ultimately create more value by right sizing their offerings.”
Loyalty 2.0 and MuCo
I have written extensively about MuCo in my previous essays (see the Loyalty 2.0 sub-section). MuCo is about offering brands a mechanism to reward their existing customers for their attention and data, as an alternative to cutting their AdWaste and building better hotlines.
The motivation for Loyalty 2.0 and MuCo was to address the key challenges of Loyalty 1.0 programs:
Earning of Mu would happen through the distribution of Mu by brands to their existing program for various actions, starting with emails. Push messages are important because they are critical for getting customers back to a brand’s properties; email offers the best RoI among all push channels. Brands can reward many customer actions linked to attention and data: opening emails, clicking through to brand properties, giving of personal information, referrals, reviews, social media sharing, and more.
In this, a key aspect is to create a compelling rewards redemption program. A point to note is that unlike a transaction, there is no exchange of money in the world MuCo operates in. Hence, any money spent on rewards becomes a cost for MuCo and therefore for brands. So, how can a redemptions program be designed to create a compelling customer experience – keeping costs low for brands and value high for customers. In other words, we need a redemption program with low friction and few hurdles.
For inspiration, we will turn to the world of Tiktok and games.
When Tiktok was released a few years ago, it became an almost instant success. I have taken a few slides from a deck based on “Attention Factory: The Story of TikTok and China’s ByteDance” which showcase its story.
The first point to note is the fragmentation of people’s time.
The second point is the “push” model.
The third point is the product – short videos. (In its early days, Tiktok videos had a limit of just a few seconds.)
The fourth point is the shift to algorithm-driven recommendations.
The fifth point is the data and content flywheels that were set in motion by Tiktok.
To summarise: leverage the fragmentation of people’s time on their model devices, focus on push, keep the core product short in terms of time consumption, use algorithms, and create content and data flywheels. Can MuCo do something similar for its rewards redemption model? Can MuCo make the rewards so compelling that consumers will go the extra mile with brands to earn Mu? The answer begins with something we all grew up playing (and some of us still do as adults): games.
Games have always fascinated us. Many of us will have childhood memories of playing games. One of my earliest memories is playing “Challas” – Indian Ludo – with my grandmother in Pune, using cowrie shells and a piece of chalk to draw the board. (She would remind me that it was the only way to get me to eat my meals!) Here is a modern day equivalent of the game (picture taken from Amazon):
The games changed over the years. Chess, Draughts, Scrabble, Book Cricket, Monopoly, Othello, Mastermind, Settlers of Catan, Qwirkle, Rummy, Teen Patti, Poker, Clash of Clans, Wordle. The interest in games remained intact.
I also loved word games and puzzles. I remember tearing out the “It Pays to Increase Your Word Power” from Reader’s Digest during my school and college days and working through the words. Amar Chitra Katha’s puzzles on the last page of their books were also an attraction. Math puzzles were a special favourite. I probably have lots of the books I bought to while away time trying my hand solving the puzzles. And of course, the cryptic crosswords which I fell in love with during my IIT years. There was a daily battle to tear out the Times of India crossword and then solve it during the lectures!
As we grew up, games began to be seen as something of a “time waste”, something for kids and not adults, something we did not want to be seen doing in a busy workday. The mobile phone changed that – it afforded us privacy. Nobody else could easily tell whether we were typing out a message or indulging in a game!
Could games be the answer for Mu rewards retention? What if we could combine the Tiktok ideas of push and “short” to create 6-second games playable in-place in email footers for Mu? And where there is gaming, perhaps gam(bl)ing isn’t far away? Who doesn’t love a good bet? Imagine a surprise short game or puzzle with every brand message. Could that be compelling enough for us as consumers to open every email? And if we did open the email, would we also naturally consume the brand message – much like scanning the ads on our way to the Comics page in a newspaper to read the latest “Calvin and Hobbes”?
In email 1.0, no interactivity was possible other than a clickthrough to a landing page. In Email 2.0, AMP can bring interactivity in-place. No clickthroughs, no landing pages. The AMP email itself becomes the place for action, thus removing the friction of going outside the message for a secret moment of fun. While brands could use AMP for various ideas from form-fills to calculators to feedback to searches and even payments, the MuCo Footer could come alive with “game AMPlets” (gamelets) to offer instant rewards redemption in the Brand Footer.
In my essay “Microns and Loyalty: Gamifying and Rewarding Attention”, I had written this: “The email inbox itself becomes a game! And gaming companies have done wonders in hooking their consumers. Marketing has a lot to learn from games. The gamification idea is echoed in this excerpt from Game-based Marketing: Inspire Customer Loyalty Through Rewards, Challenges, and Contests: “In this socially networked, choice-driven world, the old methods of reaching consumers with advertising messages have simply stopped working as well as they need to. Game mechanics, on the other hand, are steadily rising to the surface. In everything from the airline you fly to the ATM card you use, savvy marketers are turning to the power of games to increase their return on investment, provide essential predictability, and—above all else—engender the kind of customer loyalty that wasn’t before possible… The future of marketing is games.””
In my essay “MuApp: The Brand-Customer Hotline”, I wrote about how the email footer can be constructed with the Brand Footer and MuCo Footer to earn and redeem Mu, respectively:
Brand footer: This can be used by the brand to engage with customers. Examples of AMPlets: rating (feedback on the brand or email content), chat, cart, search, preference collection, and so on. By combining with pan-brand Atomic Rewards, customers can earn Mu tokens for their actions. A “µ.[MuCount]” in the subject of the email can signal that this is an email with rewards (a micron).
MuCo footer: This can give opportunities to burn Mu. A Mu Shop can provide options for how to use the Mu. AMPlets with content subscriptions for news, stock quotes, weather, health tips, quotes, casual games, puzzles and even comics and cartoons can make the MuCo footer very attractive and a “must-see”.
In a subsequent essay “Reimagining the Email Footer”, I expanded on the casual games idea: “We all like a bit of diversion in our busy days. This typically involves opening an app or going to a website. What if some of these games came to us in our emails? Imagine playing Wordle or mini-versions of Scrabble (7 letters to make a word) or Chess (endgames) in the email itself. There could also be “casino” type games like Roulette, Blackjack or Poker. Or maybe Teen Patti! There could also be KBC-style “Double or Quits” quizzes or puzzles. Word games and solving cryptic crossword clues could educate. Each of these would just take a few seconds. They would involve using Mu to play – thus creating an incentive to earn Mu in the Brand Footer.” I also suggested that sweepstakes and lottery could be another useful addition: “For the betting types, the Footer could offer contests where a certain quantum of Mu could be bet to see if the kitty can be grown.”
The rationale: “The key thinking behind the MuCo Footer is to provide value and utility for Mu. Users will only be interested in earning Mu if there are ways to redeem it. (This is where most loyalty programs err; while earning is easy, they make redemption of points very difficult.) What better approach than enabling it right in the same email. This creates the necessary “hook” for ensuring each email has some surprises and therefore is like a gift that must be opened.“
Think of gamelets as 6-second games created using AMP and part of the email footer. These gamelets need Mu to play. As we have discussed earlier, Mu can be earned for free by paying attention and providing data to brands. It is not very different from a game like Clash of Clans where gold and elixir are earned by opening the app periodically and ‘collecting’ the production from mines. The redemption is for upgrades of buildings, heroes and troops to make a stronger base that can better withstand enemy attacks. This creates the attention flywheel – mine and build, earn and redeem.
Brand AMPlets enable the earning of Mu and MuCo Gamelets enable the redemption. Together, they create the attention and data flywheel. The more the engagement, the better will be the recommendation and personalisation of the marketing messages. In addition, more game play can also improve the gamelets – much like the Tiktok stream of what videos to watch next.
Let’s imagine what these gamelets could be. Remember that these will show up in the email footer and be signalled with the presence of ‘µ’ in the Subject of the email. (These will probably be biased by my interests, but each of us can imagine our favourite gamelets.) Each gamelet would need some Mu to play. Some could offer additional rewards for right answers.
Scrabblegrams like this would be a great 6-second challenge!
So would Chess endgames like the one that appears in Financial Times weekly. (In the puzzle below, the objective is to find the hidden mate in two.)
There could be a series of KBC-style questions, with the bets and rewards doubling with every right answer.
In fact, a BBC Mastermind variation could have questions focused on specific topics. This could be good for those giving competitive exams.
A Bridge puzzle could ask what the opening lead would be.
The ideas are endless. The key is that these all come as AMPlets in the email footer – perhaps no more than two or three at a time, keeping the element of surprise. Remember: the goal is to drive engagement with the brand which means getting the email opened. In fact, some of the gamelets would combine brand alignment (the equivalent of “in-game brand placement”) and user utility. For example, quiz questions or Scrabble/Wordle puzzles would use words linked to the brand, while media sites could have quizzes linked to news stories.
Gamelets, powered by AMP with learnings from the world of short video apps like Tiktok and games, can be game changers for brand-customer relationships. For consumers, their attention and data finally gets some value, and the Mu emails can be nice diversions during the day. For MuCo, the more the redemption of rewards via gamelets, the lower becomes the long-term liability.
Here are some additional ideas to think about for the future.
What I have described are examples of single-player gamelets. We can also think of multi-payer gamelets connecting in real-time others viewing the emails at the same time. For example, it could be a quick round of Teen Patti or Poker!
A Tiktok-like AI-based recommendations engine would be a very good tool for deciding which gamelet to show to whom. All that Tiktok does with videos can be applied to gamelets.
Gamelets will need a countdown timer.
The 6-second time is important to also prevent Google searches for some of the games and puzzles. This also means that there will need to be a very large bank of gamelets in a category (“infinite gamelets”) to ensure that the same gamelet is not sent to everyone at the same time.
An interesting application of gamelets could be for “Prediction Markets.” People could bet on real-world events with clear quantified outcomes. Be it stock indices, sports matches outcomes, election results, movie collections – all could benefit from prediction markets.
Gamelets are just one way for redeeming Mu. There can be other methods also. I have previously discussed Mu Shop and Mu Market as two possibilities. As I wrote in “The MuCo Future”: “For [redeeming Mu], MuCo will need to run a market of offerings from brands. This can work in two ways: either MuCo ‘buys’ the products from brands and ‘sells’ it to customers (like a Mu Shop) or brands can themselves sell directly to customers (in a Mu Marketplace). In the latter scenario, brands get Mu in return for their ‘experience’ offerings.”
An interesting added incentive could be to reward streaks in engaging with emails. Rewards can be increased for continued interaction with emails without break.
We need to also note that there is no real money changing hands, so hopefully the gaming / gambling rules will not apply. Mu are being given based on time and not transaction, and thus there should be full freedom on their end use.
Beyond MuCo, the gamelets offered by MuCo could also be useful mechanisms to offer rewards redemptions for Loyalty 1.0 companies. Rather than letting the points expire, they could convert them into Mu and use their email program to offer gamelets, thus ensuring customer interest in earning more rewards points.
A Gamelet “App Store” could encourage others to build mini-apps. Brands could then have a choice as to which gamelets they want to enable in their emails. For game developers, this could be an exciting new testbed for experimenting with short games.
In summary: there is a need to rethink rewards redemption to make loyalty programs attractive. Loyalty 2.0, with its clean slate start, offers an excellent platform to experiment with new ideas via gamelets. With billions of emails being sent daily by brands, the Mu-powered Email Footer Gamelet is an idea whose time has come!