Published May 9-22, 2022
A friend recently called me up and asked me if I was a member of a specific loyalty program. I said I was. He said: Please go and convert your points to ecommerce vouchers because the redemption process was likely to be made harder. I did, and walked away with Rs 20,000 of vouchers. To the credit of this loyalty program: redemption was very easy.
One of the credit cards I have has a redemption process that consists of 11 steps!
Ever tried redeeming airline miles for free tickets? I have – multiple times. More often than not, there is a mismatch between the preferred date of travel and the availability of the free tickets. Net result: points keep expiring. And what is worse: the airline keeps sending emails periodically to buy back the expired miles!
The company where I bought shoes (a once-in-a-few-years purchase) auto-enrolled me in their program. So I keep getting messages about the points I have and prodding me to cross a threshold for availing benefits. An ice-cream chain also gives me points, and I hope one day I will have enough to get one free ice cream!
From airlines to credit card companies, from restaurants to ecommerce sites – loyalty programs are the in-thing. We are all advertently or inadvertently members of various loyalty programs. In some, we track our points earned closely. In others, we don’t care. Most loyalty programs are brand-specific. Points are generally non-transferrable and they can expire. While some have moved to mobile number as the identity, some have long strings of alphanumeric characters that make it necessary to carry the card along for earning points on purchases. Redemption is often not easy – multiple steps or restrictions make the process much harder than earning the points. A few open even debase the program forcibly reducing the value of the earned points. One thing common to all programs is that they are linked to transactions – us as customers spending money. This is the world of Loyalty 1.0.
Loyalty has not changed much in the past few decades. For brands, it is a mechanism to ensure an increase in purchase frequency as well as gather data about our preferences so they can personalise offers. In commoditised markets, a loyalty program can be a good way to ensure stickiness. For customers, it is a sweetener, a sort of cash-back program – paid for from our own money.
I recently started thinking what loyalty programs would look like in the Web3 future. Could rewards be linked not just to transactions but our time? Could these attention-based programs be pan-brand? Could customers be incentivised for sharing their data? Could the points be transferrable or even tradeable on an exchange? Could the loyalty programs be differentiated based on our lifetime value to brands? Could the value of the points increase over time? Could the programs be decentralised and onchain so that the points earned could never be debased? Could what has happened with crypto (the creation of a new asset class without central banks) happen in loyalty? These are questions we will explore in this series.
Past Writings on Loyalty
I have written two essays in the past couple years on loyalty. The first explored how velvet rope marketing (differentiated experiences for Best Customers) can transform loyalty. The second discussed how microns (messages with rewards) can gamify and reward attention.
There are some very big differences between the standard loyalty programs offered by brands and VRM. Typically, anyone can opt-in to a loyalty program and start earning points. The brand does not control who joins. There is also very little experience differentiation – the points are linked to spending, and that’s about it. In VRM, it is the brand which decides who gets to be part of the differentiated experience. Think of VRM as ‘By Invitation Only’, an exclusive club whose entry is decided by an algorithm which calculates Customer Lifetime Value (CLV), a forward-looking and predictive metric based on the expected future transactions and their value. CLV, as used for VRM, can be a better measure of segmenting customers and determining Best Customers.
Any brand can offer a loyalty program with rewards. Customer Experience differentiation via VRM for Best Customers can become the moat a brand builds to ensure greater customer loyalty, higher spending and a ‘profits monopoly.’ This can give us a new definition for customer loyalty – receiving more than 50% of the spending by a customer in the category.
… VRM is the secret sauce to ensuring customer loyalty and higher profits. Using CLV, it becomes possible to identify the current Best Customers for a business. Decoding the customer genome of the Best Customers offers the attributes to ensure more targeted new customer acquisition. This is the cycle that every business needs to drive.
The email inbox is one of the most powerful marketing platforms. Hundreds of billions of emails make their way to inboxes each month, all competing for our attention. And yet, most emails are ignored by the recipients. Imagine the multiplier impact if more emails could be read by their recipients.
What if brands could incentivise their customers to open and click on emails? (Of course, this could be easily abused but that can be addressed by monitoring the time taken for actions after opening an email, or what happens after the click. And incentives could be offered on a differential basis to the best customers versus the others.) Why has a multi-brand email loyalty program never been created? (This could be because no single email service provider has a large enough market share to get the critical mass for making such a program successful.) Would consumers respond to such a program or just ignore it? (The only way to know would be to actually do it and find out!) Is paying for attention a good thing? (Of course, it is – all advertising is about paying for attention. The difference is that brands pay intermediaries rather than their consumers.)
… There is a very interesting opportunity to build a loyalty program which monetises attention via microns by building a two-sided platform: connecting brands and consumers. It needs to have two components: the earn (how consumers can get the reward points) and the burn (how can they redeem these points). The innovative format of microns (short, informational, identified content) combined with a multi-brand loyalty program can lay the foundation for a big breakthrough in brand-customer engagement via the most ubiquitous identity that customers have – their email address. Such a program could, in short order, become the world’s largest loyalty program.
To summarise: Consider a new loyalty program that focuses on the upstream of transactions (attention, engagement and habits), begins with push messages because they are the way most customers are brought back to a brand’s properties (website and app), disproportionately incentivises Best Customers, and works across multiple brands that engage with customers through their inboxes.
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.
Blockchain and Loyalty – 1
There has been much discussion on blockchain and loyalty in recent years. Here is a sampling.
ICF Next: “In loyalty, blockchain capabilities tease the idea of portability or fungibility of loyalty currency to consumers. This makes sense – of course consumers would be excited by the opportunity to easily trade or exchange points into cash or another currency. While this ability may prove attractive to customers, it is typically at odds with a program’s goals to generate brand affinity, control point liability and cost, and drive redemptions of the brand’s products and incremental business. Certain industries, however, could see immense benefit from this approach. Industry experts suggest the travel industry is ripe for a blockchain-based innovation. While retail and credit card programs are usually simpler in design with a single currency and few partnerships, travel programs are more complex, with multiple currencies and partnerships that have different earning rates. Blockchain could support a near-real-time and secure record of loyalty transactions: earning, redeeming, exchanging, transferring, etc.”
Clutch: “Although loyalty programs are substantial, they are also fragmented; there are too many loyalty programs, each with its own way of earning and redeeming. This can lead to frustrated customers and a lot of unused points… Most loyalty programs are very limited, which discourages customer engagement. Customers can usually only redeem points with the same retailer they earned them from. Placing limitations on how and where to spend points decreases the loyalty program’s overall value. Through blockchain, companies can decentralize their loyalty programs and capitalize on blockchain technology benefits … a more streamlined experience, loyalty rewards that increase in value, a safer experience for everyone, an investment that pays off, and a more efficient process.”
BigCommerce: “Blockchain technology can solve for some of these issues with traditional ecommerce loyalty programs by connecting owners and users of multiple programs. This technology can simplify the process of applying and keep consumers from having wallets overflowing with rewards cards or passwords to multiple different reward accounts. These tokens never expire or lose value, unlike traditional reward points.”
Deloitte: “Customer loyalty and engagement can make or break companies, and as such, rewards programs represent strategic investments for all types of organizations. But as they have been growing rapidly, they are also still ailing due to inefficiencies. There are several reasons for this, but first and foremost is we believe the paucity of uniform management systems is a primary source of members’ lack of activity… The implementation of blockchain can drive the customer experience to the next level, and here’s how: reducing costs, enabling a frictionless system, making the process near real-time, providing a secure environment, and creating unique business opportunities.”
Blockchain and Loyalty – 2
Forbes: “Traditional loyalty programs present challenges for both companies and customers. Organizations are concerned with estimating liability, personalization, improving conversion rates and uniformity among channels. From the customer side, there are challenges with restrictions and rules, reward options and the most common problem: losing track of accumulated rewards points. This isn’t surprising given that the average U.S. household participates in up to 29 different loyalty programs. Armed with this information, companies that want to stay top of mind are looking to develop easy-to-use, secure and flexible programs that engage their customers. Blockchain has the potential to improve loyalty programs for both companies and consumers.”
Abderahman Rejeb, John G. Keogh and Horst Treiblmaier: “Blockchain technology is based on peer-to-peer communication which alters market structures by fostering disintermediation, namely the removal of intermediaries who process and filter data streams and add cost. By creating immutable and shared data records, blockchain technology can also help to improve data quality and facilitate data access. From a consumer-centric perspective, blockchain technology has the potential to substantially transform consumer relationships by enhancing data and information transparency and improving privacy and security. It also allows for innovative forms of consumer loyalty programs which might help to create additional value.”
CNBC: “One of the biggest upsides of crypto-based loyalty points is that they can be exchanged for fiat currency or other cryptocurrencies. Normal loyalty points, on the other hand, can only be redeemed for certain products and services. If you are not in need of these products and services, then your loyalty points hold no value. Also, with a normal loyalty programme, the company offering you the benefits not only knows your name and address but is also privy to your spending habits, redemption patterns and other unique consumer information. They can use this data to spam you with ads or sell this data to other parties. However, with crypto-based loyalty programmes you get higher levels of privacy and anonymity. Your transaction details are linked only to a wallet address, and it would take a fair bit of investigating to link this address with a real-world identity. Lastly, crypto-based rewards can appreciate tremendously over time. That being said, these assets can also dip in a similar manner. However, most companies offering crypto-based loyalty programmes would have some sort of fixed value to ensure you are safeguarded from the market volatility of cryptocurrencies.”
Raconteur: “Bridging the gap between cryptocurrency and traditional loyalty programmes, crypto rewards offer brands another way to connect with fickle consumers who are less attached to specific brands and more likely to shop online or via social media. Rather than collecting a retailer’s in-house points that can only be spent in one store, the idea is that consumers earning crypto rewards will be able to spend that currency in an increasing number of stores, invest it or use it to purchase NFTs.”
Blockchain and Loyalty – 3
Beincrypto: “The rise of NFT utilities is going to lure more brands to leverage NFTs as a new marketing tool, whether that be for brand rejuvenation or member engagement …. Properties of NFTs can be treated as membership levels. Someone might have a NFT with rare attributes – just like owning a Platinum membership card. By filtering wallet addresses with NFTs, brands can easily identify these holders and airdrop exclusive rewards to them (thanks to the transparency of the blockchain.)
Wise Marketer: “Cryptocurrency will reduce the number of parties involved in advertising campaigns. Modern digital advertisements involve four parties: the consumer (you), advertiser, content creator, and platform hosting the advertisement (e.g., Google, Facebook, YouTube). With blockchain advertising, advertisers can eliminate the platform that hosts advertisements. Instead of paying them, advertisers will upload their advertisements to a blockchain and the blockchain will make them available to its platform users. In short, the future of digital marketing limits the interacting parties to three groups: the consumers (you), advertisers, and the blockchain supporting the transactions between the consumer and advertiser.”
Coindesk: “Although loyalty points have some attributes in common with cryptocurrency, it doesn’t mean they are the same. One of the biggest differences between crypto and loyalty points is centralization. Because cryptocurrency and crypto wallets are decentralized, the value of those tokens can fluctuate with market demand. Loyalty points will almost always have a fixed value set by the program, which can change based not on community activity, but rather what is most profitable for the company. Furthermore, decentralization means cryptocurrency transactions are more anonymous than those in loyalty programs. Although your wallet address is logged on the public ledger, it takes a lot of investigation to link an individual with a wallet. With loyalty points, the program or financial institution knows not only your name and address but also knows your spending habits, redemption patterns and other unique consumer information, which allows them to advertise to your tastes – or sell data to other parties. Finally, while we can constantly track the value of cryptocurrencies in relation to fiat in real time, loyalty points often don’t have a cash value. A loyalty program user can’t go to the loyalty program and ask to redeem points for U.S. dollars, euros or other hard currencies. Instead, once the money is spent and points are earned, they are locked into that loyalty system. If you can’t use those points, they literally hold no value.”
Talon: “Beyond just awarding NFTs to high value users, using the interoperability of the blockchain and existing ecommerce platforms or microservices could see the emergence of rich loyalty and promotion strategies, with crypto underpinning it all. Gaming mechanics…use NFTs to award benefits or loot to characters, and those NFTs are potentially migratable between games. Imagine you could buy a sword in an MMO but then also redeem that sword’s associated graphic as a t-shirt or sneaker logo when you check out of a clothing store. Perhaps the user could store their accumulated loyalty points in their crypto wallet and use it across brands.”
Blockchain and Loyalty – 4
Loyalty Science Lab: “Web3 offers the organizational framework (DAO’s), the platform (Blockchain), the assets (NFTs), and rewards that are transparent and trusted by all (Cryptocurrencies and Tokens).”
Clickz: “Look at Starbucks rewards. I get stars (whatever those are) when I purchase coffee or snacks at Starbucks and then can use those stars to get bonus coffee and snacks. What else can I do with them? Nothing. Can they be taken away by Starbucks? Absolutely. What if instead of stars I received tokens? What if those tokens could be gifted to others, exchanged for other currency, or used to get exclusive Starbucks experiences? The token makes that possible. And if I collect enough tokens, I can financially profit from the rewards program as a customer (outside of just coffee), where I can resell or gift my rewards to others… Since forever, brands have delivered unique content experiences to customers in exchange for data. With Web3, now we can give our customers and prospects the ability to own and financially profit from owning this digital property. At present, I don’t think these types of programs are for all your customers. Instead, think of building superfans. Previously we needed to build large audiences on social platforms to get any kind of traction at all. Now, because of the token, small numbers can make a big brand impact.
Michal Bacia: “In the context of rewards and loyalty programs blockchain can be useful for the following reasons: Rewards, like loyalty points, can be issued to customers in a form of blockchain tokens. This increases customers’ trust because these tokens can’t be erased, canceled or expired by the issuer. Additionally, tokens can be exchanged and traded with other users. Rules of the loyalty program can be included in the blockchain code, so they are transparent and can be executed automatically. Rewards that are virtual in nature (digital — videos, access to websites; or financial — cashbacks, discounts) can be automatically redeemed by customers. They can, for example, exchange their loyalty points for a reward interacting directly with the blockchain automated ‘smart contract’… The most obvious implementation of the blockchain technology would be issuing loyalty points as blockchain tokens…Tokens can be traded between users (customers and other vendors) on third party exchanges. They don’t expire. The issuing company can’t ‘pull the plug’. When multiple vendors decide to use the same token, they don’t need a trusted party to keep the records. They are also able to use market price signals to calculate their share of costs and benefits of the program. Additionally, the redemption of the rewards can be automated and governed by the blockchain ‘smart contracts’ further increasing the trust in the program.””
CoinTelegraph: “A branded stablecoin is a price-stable digital asset issued and supported by specific — or groups of — brands, enterprises or institutions. Branded stablecoins, which can be embedded directly into consumer-facing applications, offer brands a novel way of connecting directly with customers and acquiring insights to regain market share from competitors. Because blockchain and cryptocurrency remain strange concepts to most consumers, it’s essential to have a seamless experience where users may not even realize blockchain technology is powering the system. Enabled by secure and transparent decentralized ledger technology, branded stablecoins provide marketing intelligence to brands on who their biggest fans are. At the same time, branded stablecoins incentivize and reward customers for their loyalty. Brands can store user purchasing histories on the blockchain and then apply associated savings to their purchases in the future. It’s akin to loyalty points but less complicated, more liquid and ultimately more useful. Other features could include removing the need for a credit card or even providing interest on branded stablecoin savings to incentivize customers to hold… One day, maybe not so far off, a customer will have a digital wallet filled with all their favourite brands, a global ecosystem opening up the floodgates for mass adoption.”
The Missing Link
There has been a lot of discussion about the use of blockchain for loyalty programs over the past few years. And yet, there has been very limited progress and no breakout success. Why is that the case? I think that the missing link is attention and data.
The assumption being made in the writings and early implementations is that the tokenisation should begin with the existing rewards programs. As we have seen, all rewards programs are linked with transactions – with customers spending money and being given some sort of cashback in the form of points. This does not substantially change the game for brands and customers. Whether they get points, stars, credits, gold, miles or some cryptocurrency does not move the needle significantly.
The starting point needs to be at the top of the funnel in the brand-customer relationship: with a customer’s attention and data. Attention is critical for everything else that follows. In a world of too much information, individuals can be lost; messages find it hard to get through; connections cannot be easily established. To instil loyalty, brands must solve the attention problem. This means building a pipe, a hotline to their customers. This is where the loyalty app comes in – an app which, crucially, rewards them for their time and data. As I have written earlier: to get customers to pay for their attention, pay them for their attention – else the brand will end up paying Google and Facebook (Meta) 100 times more for the same customer’s attention. There is no loyalty program anywhere in the world for attention.
After attention comes data. Brands need to understand their customers better. While they can decode actions of individual customers on the website and app, the better approach is to simply ask customers and incentivise their actions (in this case, the data being provided voluntarily). How many brands ask us? How many brands offer us incentives for giving information about ourselves? In this case, the additional benefit is that we will also benefit from the personalisation in the offers that we receive. We want to be shown opportunities that interest us, that speak to us. Revealing ourselves is both an opportunity to earn points and to ensure future communications are targeted for our particular tastes.
User self-revelation enables the loyalty program operator to approach more potential clients for participation in the program and points issuance and sales. Imagine a user who, when they sign up for a Loyalty 2.0 app, goes through a series of screens regarding their possible interests. The more screens the user goes through, the more reward points earned. One screen mentions an interest in culture. The next breaks it down into music, performances, art. Potential partners are streaming platforms, museums, galleries. Similarly, a screen on sports interests can be followed by a more detailed menu of items – cricket, football/soccer, F1, e-sports. Each box checked is an opportunity for the loyalty program to grow and better serve the user.
Attention and zero-party data should become the two starting points for a next-gen loyalty program. Because the quantum of rewards that can be offered by a single brand is small, the program must necessarily be pan-brand. For such a program to be trusted by both the participating brands and their customers, it must not be under the control of a centralised entity, and definitely not Big Tech or any of the data brokers. This is where the construct of a DAO comes in. With the DAO comes the Web3 token, where value is set not by a single omniscient entity but by the market (voluntary transactions, mediated via an exchange). The token can be listed on an exchange and over time; as its utility grows, its value should also increase.
This is the opportunity for Loyalty 2.0. The financial benefits for brands and customers are huge. As I have explained earlier, 50% of the adtech spending is being wasted on reacquisition and wrong acquisition. Some of this $200 billion adwaste can go towards incentivising customers via Web3 tokens which would drive higher revenues and some of it can help brands reduce marketing spends. Together, brands can increase profits – rather than go around in Big Tech’s doom loop of spending. Loyalty 2.0 is thus an imperative for brands, a cornerstone for profitability.
1.0 vs 2.0
We can now do a comparison between existing Loyalty 1.0 proposed and the proposed Loyalty 2.0 ideas.
|Attribute||Loyalty 1.0||Loyalty 2.0|
|Rewards for||Transactions (Money)||Attention and Data (Time)|
|Where||PoS: Offline, Website, App||App; Push Messages (to begin with)|
|Owner||Single Brand; Centralised||Multi-brand; governance via a DAO|
|Redemption||Brand Catalog / Store||Exchange / Marketplace|
|Redemption Ease||Hard (in most cases)||Easy|
|Can be debased||Yes||No|
|Can be traded||No||Yes|
|Can be transferred||No (in most cases)||Yes|
|Value over time||Stays flat or decreases||Will increase with utility|
|Expiry||Yes (in most cases)||No|
|Rules||Determined by brand||Encoded in “smart contract”|
As can be seen, there are many differences between Loyalty 1.0 and 2.0. Loyalty 1.0 programs are all around us; Loyalty 2.0 platform has yet to be created. To begin with, there is almost no overlap between the two types of programs. While the sole focus of Loyalty 1.0 is to drive and reward transactions, Loyalty 2.0 focuses on the upstream: attention, whether it is in push messages or later on the brand’s digital or physical properties.
Loyalty 1.0 aims for retention and repeat purchases in commoditised markets. It aims to influence behaviour with the prospect of a future reward. Loyalty 2.0 solves the problems of attention recession and customer data poverty, both of which are the priors in the customer journey. If a customer is not listening to a brand, it is hard to get them to the brand’s property for a transaction. In the pre-digital world, when it was not easy to know each individual customer, the only possibility of a loyalty program was based on transactions. The digital world has opened by the prospect of nurturing customer relationships via targeted messages, nudges and personalised recommendations.
Cristina Ziliani and Marco Ieva write in their book, “Loyalty Management: From Loyalty Programs to Omnichannel Customer Experiences”:
In today’s world, marketing is largely based on the goal of earning long-term loyal customers, and long-standing loyalty tools – transformed by the information revolution into datarich, interactive touchpoints – have become the enablers of loyalty-oriented and customer-centred omnichannel strategies that are shaping the consumer world…The rise of digital has added a new online dynamic and along with it, inevitable challenges and opportunities. Over more than a century, a variety of loyalty tools and practices have arisen and diffused across industries and countries. The paraphernalia of loyalty management has taken manifold forms from tickets, tokens and stamps to plastic cards, vouchers and coupons to digital wallets, wish lists and personalized journeys.
…Over the past three decades loyalty management has undergone three phases. From 1980 to the end of the twentieth century, it meant running a loyalty programme. Since 2000, companies have shifted their focus towards harnessing the ‘invisible’ advantages of such programmes: the insight they offer into the world of their customers, the opportunity this gives them to develop and manage positive relationships with those customers, and the value created by being able to use scheme data to inform decision-making and shape targeted marketing efforts to retain, upsell, cross-sell or reactivate their customer base. Today, in 2019, we are entering a new phase. Loyalty management is increasingly now being identified with the design and management of a quality customer experience across the various touchpoints that connect the customer and the brand and through which the customer journey evolves.
Loyalty 1.0 was built for the offline world; Loyalty 2.0 is made for the digital-first world. Loyalty 2.0 builds on the work done through the decades in loyalty. It moves loyalty higher in the funnel and earlier in the journey; attention retention is the first step in the customer relationship. Without attention, there is no retention; brands face churn and continuous high spending on acquisition and reacquisition which erodes profitability.
Before we get to discussing how to make Loyalty 2.0 a reality, let us summarise the key ideas we have discussed so far because they will point us to the implementation.
- The quest for sustainable profitable growth must begin with profit-centric marketing. In recent years, the extreme attraction towards new customer acquisition has shifted focus from customer relationship and experience management. Marketing budgets now skew heavily toward adtech rather than martech.
- Adtech has become a black hole for spending. Marketers are ignoring the “adwaste” that is happening because of reacquisition and wrong acquisition. The result is an unsustainable arms race in spending on Big Tech platforms to prop up what is being lost because of inadequate focus.
- With easy money from investors, brands are also spending heavily on discounting, offers and cashbacks – all of which are profit killers. With new age brands chasing only valuation and the next round of funding, the goal is to show topline growth whatever be the cost. Traditional businesses are left with no choice to compete. The only “profipolies” being created in this customer chase are Google and Facebook (Meta).
- To break away from this madness, brands will need to start focusing on the upstream of transactions: attention, engagement and habits. To enrich the lives of their customers, brands also need more volunteered data. The focus thus needs to shift from money to time. Win the battle for time, and only then will there be victory in the war for revenues.
- Brands need to therefore reward attention and data. This is the foundation for Loyalty 2.0.
- Attention begins with the push messages brands send out; they are the mechanism for bringing back customers to their properties. Thus, Loyalty 2.0 need to start with push messages. Zero-party data collection can also be done via push messages.
- Push messages are being largely ignored by customers today because they are filled with generic promotional content. This is where the innovations being championed by Email 2.0 come in.
- Loyalty 2.0 will not work if it is at the level of a single brand since the rewards will not be large enough to make it attractive for customers. These are “atomic rewards” – micro-incentives for micro-actions. They thus need to work pan-brand.
- The next question is: who runs such a pan-brand attention and data loyalty program? The right answer: no one! Loyalty 2.0 is run by rules, not rulers. This is where the intersection with Web3 comes in. A DAO (decentralised autonomous organisation) is the right home for a pan-brand Loyalty 2.0 program.
- The economic opportunity is huge: $200 billion is being wasted annually in spending on the adtech platforms on reacquisition and wrong acquisition. This is money which should be split between customers and brands. To disintermediate Big Tech’s centralised monopolies needs the disruptive innovations of Web3: a decentralised blockchain-based DAO-managed Loyalty 2.0 platform.
With this background, we are now ready to discuss how to bring Loyalty 2.0 to life. We need to think Mu, MuDAO, Micronbox and Muniverse.
Past Writings on MuDAO
Brands are faced with three challenges: the rising cost of new customer acquisition driving a “doom loop” of spending on Google and Facebook, attention recession among existing customers which leads to retention recession and continuous churn, and retaining existing customers since competitors are persistently targeting them for acquisition. Brands selling through marketplaces have another challenge: how to build direct relationships with their customers since marketplaces do not share customer information.
These challenges can be reconsidered thus. In the world of martech, the focus needs to be building deep relationships with existing customers so that the need to constantly offer transaction-linked incentives can be obviated. This needs brands to shift the focus to the upstream of attention, engagement and habits to create “hooked customers”. In the world of adtech, the power of the intermediaries (Google, Facebook in digital advertising, Amazon in marketplaces, and Instagram and Tiktok in influencer marketing) drives up spending and creates barriers to profitable growth.
Solutions need to be thought about against the backdrop of three colliding worlds: customer loyalty, gamification and crypto. In other words, how can brand-customer relationships be reimagined in a Web3 world? This is where the idea of the µniverse comes in, with attention tokens as one key building block.
… Consider an entity (MuCo) which creates a pan-brand attention and engagement loyalty program. Brands can buy Mu from MuCo and reward their customers for specific actions linked to attention, engagement and zero-party data. Customers collect Mu from across their favourite brands and then can redeem them at the Mu Shop.
… As Mu tokens acquire value beyond what is set by MuCo, it can become an “attention crypto-currency”. Transactions are stored on the blockchain to ensure transparency. Every customer now has a “Mu Wallet” where they can hold their tokens. And as marketers and customers see value, the usage of the tokens can also diversify. A MuBox (or micronbox, as I have termed it previously) can aggregate all messages with rewards into a single inbox. A MuBrowser can address privacy and generate rewards. These would be the baby steps to creating the µniverse, a virtual world where brands and customers can engage with each other.
Constructing the µniverse (envisioning the near future):
MuDAO had to solve the cold start problem and get both brands and customers to trust that a decentralised system could work. Luckily, the popularity of cryptocurrencies helped address the initial scepticism. Besides, the initial success of MuCo had enough brands and customers on board to get traction for the second avatar. The µ collected by customers now could be traded on an exchange so brands could buy it. The combination of abundance and scarcity of µ created value for both sides and helped drive µ not just as a means of earning some goodies but also as a long-term investment. For the first time, attention was being monetised – not by BigTech, but the people themselves.
Step by step, MuDAO solved the three biggest problems that brands faced: attention recession, repeat customers, and new customer acquisition. Attention recession was solved by using atomic rewards in the form of µ in push messages, starting with email and then expanding to the other channels. By calibrating µ to customer lifetime value, brands also started driving repeat purchases and loyalty – for the first time, they had a hotline via the Micronbox to their existing customers. With end customers valuing µ, it became easier to ask existing customers to help spread the word among their friends and family about the brand. Both the referring customer and the referred customer benefited from the rewards, and the brand could save on spending via the BigTech platforms.
MuDAO thus created a new ecosystem – the µniverse – between brands and customers. The relationship had meaning for both – attention was not taken for granted by brands, and incentives helped customers along their engagement journey.
MuDAO creates the Mu tokens. The number of tokens could be limited or fixed, or supply may be left flexible, in order to accommodate future demand or respond to exogenous shocks. For the purpose of this article, we will assume the supply is limited. Let us take the number of total tokens to be 300 billion. How do these tokens come into circulation?
The first 100 billion can be given to entities who help with enabling Loyalty 2.0 for brands. These could be ESPs (email service providers) or martech platforms. An ESP could embed the tokens it receives (or buys) in brand messages sent through its platform. A martech platform could do the same for push notifications. To take some real numbers: an ESP sending 10 billion messages a month could offer Mu tokens as rewards for opens and clicks on behalf of the brands. Assuming 2 billion such actions in a month, the ESP would enable the circulation of 25 billion Mu tokens in a year spread over hundreds of millions of individuals.
Another 100 billion Mu tokens could be auctioned over a 3-year period: 100 million a day for 1000 days. Brands could then buy them via the exchange, thus setting an initial price for the token. Brands could now reward their customers for additional actions: in-mail engagement, zero-party data, and so on.
The final 100 billion Mu tokens could be split two ways: 50 billion for the developers and miners who will underpin the Mu tech, and another 50 billion for treasury operations to ensure market liquidity.
The entire 300 billion should be in circulation in the next few years. Individuals would have a Mu wallet which could also serve as identity for their brand engagements. The wallet could also house NFTs that brands could periodically offer for free or sell. In the steady state, brands would buy Mu from the exchange (sellers could be individuals or even other brands) and then use them as incentives for strengthening their customer relationships.
The big question: where will brands find the money for this? Would this not lead to an additional outflow leading to a further hit on profitability? My answer is: No. It would be the opposite. Today, brands spend 90% of their marketing budgets on new customer acquisition, and half of that money is wasted. If they can use some of that “adwaste” money for their existing customers, it will lead to more attention, higher retention and, hopefully, increased transactions. As I keep saying: To get customers to pay attention, pay them for their attention (else you will pay Google and Facebook 100X more for them). The twin combo of higher revenues and lower marketing spends will improve profitability.
By disintermediating the adtech platforms, brands will find rich rewards themselves – delighted customers. The added dimension of gamification that the Mu tokens bring can make it attractive and exciting for customers. Metrics like Hooked Score and Earned Growth Rate can be good complements to Net Promoter Score in measuring customer loyalty – redefined to go beyond transactions but also include attention, sharing of customer data, referrals and many other actions that marketers decide.
There are many ways to earn and encash Mu tokens. Here are some starting ideas.
- Users providing zero-data about themselves upon registration
- Opening and reading emails and other incoming push messages
- There could be higher incentives for steaks (acting on successive messages) and speed (less latency between receiving the message and taking action)
- In-message actions eg. clicks, playing a game, giving feedback (NPS, ratings)
- Providing preferences (zero-party data)
- Participating in surveys
- Agreeing to participate in trials and sampling
- Watching a product video
- Sharing on social media
- Actions on website or app eg. connecting email ID to mobile number, which provides the brand an additional channel of communications
- Greater rewards for Best customers
- Using Micronbox as the app for brand messages
- Using WhatsApp or an in-mail chatbot as an alternative to calling a support helpline (helps reduce costs for the brand)
Note that all of these are not linked to transactions. The key point to note is that the Mu tokens become an instrument for marketers to nudge customer behaviour. As has been explained earlier, the prerequisite for success is creating the hotline with customers. None of these ideas are easily doable today because marketers don’t have the conversation pipe to their customers.
- Paying for unique and differentiated experiences on the three axes of access, ease and exclusivity. These are “priceless” in that brands (or influencers) are not “selling them”. For example, a bookstore can provide me early access to a book for some of my Mu tokens. So could the OTT platforms. A new electric car company could offer me a priority test drive. Artistes (creators) could offer priority access to their works in exchange for Mu tokens.
- There would be a brand marketplace where brands could list all their premium offerings to enable easier discovery
- Selling to brands or other customers via the exchange.
- Transferring to friends or family members
- Buying brand NFTs
- Holding on to the tokens with the belief that they will increase in value over time (because there is an upper cap on the total Mu tokens that will be in circulation)
- Converting to cash (this may have some tax implications in some countries, so perhaps could be avoided)
These are just a few initial thoughts. The MuDAO needs to create the trading platform (exchange). After that, brands and customers will take over and create a virtuous cycle which benefits both sides. What’s needed is for the tokens to have utility and be “alive” (have circulation), leading to mutually-beneficial brand-customer relationships, bringing them closer.
A New Mu World
Imagining something is the first step to making it real. Over the past few months, through a series of essays, I have tried to put forth a set of ideas that can solve a big problem that businesses face: how to grow their businesses profitably. With marketing sucking away an ever increasing chunk of the spending, brands need to think differently. This is where the Web3 disruption comes in.
Trying to change the status quo is not easy. Google and Facebook have established their dominance in the Web2 world. There is no single company which can take them on, though a few like Amazon and Tiktok will nibble away. Their valuations reflect the belief that investors have in their strong future cashflows – which are increasingly coming at the cost of brand profits. For now, VCs and PEs are willing to pour money into brands knowing full well that half or more of that investment will be spent on the adtech platforms. But at some point in the future, this ‘free money’ will stop. And then brands will be faced with the question of how they are going to get on the path to profitability. CMOs will need to become Chief Profitability Officers. That will mean looking at alternatives to an endless spending on new customer acquisition.
This will require a different approach. The ad spending problem cannot be optimised at the Web2 level. That game is over; Google and Facebook have won big. This is where the disruptive innovation of Web3 comes in. It is a fundamentally new way to imagine the future by asking the question: what is centralised today that can be decentralised tomorrow? Smart people backed by big funding are building the underlying infrastructure for Web3. Cryptocurrencies, their ups and downs, and government regulations have distracted many from the true potential of Web3. New constructs like the blockchain, NFTs (beyond art and collectibles) and DAOs are laying the foundation for a new world – just like the http protocol, HTML, web browsers and servers did more than a quarter century ago.
In my writings, I have tried to imagine what new worlds we can build on top of the Web3 infrastructure. We need to solve real problems and fix real inefficiencies. And as I see it, there is no bigger one than in the world of marketing – the 50% adwaste that is impacting company profits. The core theme I want to champion is sustainable profitable growth, which needs profit-centric and customer-centric marketing. This is where the idea of Loyalty 2.0 comes in.