Loyalty 2.0: How Brands can Tokenise Customer Attention and Data (Part 4)

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.”

Thinks 496

Nathan Baschez: “In a nutshell, the idea is that the internet enabled a new type of publishing process that I am calling recursive because it runs on algorithms that perform an iterative looping discovery process where audience reaction → more distribution → more audience reaction → more distribution, etc. This is as opposed to the old world where a publisher would pick a few winners for wide distribution—what I am calling “linear publishing.” The recursive publishing process originated to handle user-generated content in totally open platforms, but I think recursive publishing is currently in the middle of a multi-decade run where it will take over every kind of media: films, books, games, courses, music, magazines, news, and more. In the same way Marc Andreessen once declared “software is eating the world,” I think it’s fair to say “recursion is eating publishing.” My theory is that this will happen because recursive publishing is “” over the pre-internet model. This basically means recursive publishing is a strategy that will win no matter how well the opposing (linear) players perform.”

Tom Wozniak: “Maybe a good analogy of email’s performance over the past two years is a veteran actor who was a superstar in his/her early years, but for the past couple of decades just keeps churning out rock-solid performances without getting much fanfare. Then, they take on a new role, deliver a performance for the ages, and suddenly everyone remembers how great they have always been. That could be a pretty good description of how people are looking at the email marketing channel in 2022. The spotlight is back on email marketing and the channel is showing it is more than up to the task.”

Atanu Dey: “At one end of the spectrum there’s the economic system. It depends on freedom and voluntary action, which is the essence of cooperation. At the other end of the spectrum is the political system, where the primary instrument is coercion, not voluntary cooperation. Force is used to make people bend to the will of others. These others can be a democratic majority or a dictator or an autocrat. In a political system, some person (or a collective) other than the individual (or a voluntary association of individuals) determines what people may do. Socialism, communism, etc., are not alternative economic systems. There is only one economic system; the collectivist systems are political systems.”

Loyalty 2.0: How Brands can Tokenise Customer Attention and Data (Part 3)

Decentralising Loyalty

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.

Thinks 495

Dan Hughes: “[T]he crux of Web 3 for me is that it offers choice. Up to quite recently, you didn’t have a great deal of choice as an individual. The obvious example is in the financial system. Prior to Bitcoin, if you weren’t desirable to the financial system and you couldn’t get a bank account then you were kind of stuck. You were very limited in the choices that you could make around how to manage your money, how you could invest that money, how you could try and maximize the value of that money by starting a business and stuff like that. Now we have a lot of choice in terms of our money. We have Bitcoin and an endless number of other cryptocurrencies, and I can choose to win yield on it, I can lend out to people, I can start a business within the DeFi ecosystem that’s currently evolving. Web 3 is an extension of that choice. If you are content creator, say you’re making videos, then you don’t have a lot of choice of where to go with your content. It’s mainly YouTube or Twitch and once it’s there, you’re at the mercy of their policies. Web 3 allows you to have a lot of choice over a broader spectrum of your life.”

New York mag on Adam Tooze: “What Tooze gives a reader like Williams is not a piercing, singular insight but a sense of rigorous mastery. In March, drawing on work by scientists, work by economists, and context in German politics, he assessed the feasibility of a Russian-energy boycott by Germany. (Conclusion: certainly difficult but perhaps not impossible.) Tooze’s great intellectual power is a gift for synthesis. “He just digests staggering amounts of information,” said Ted Fertik, one of his former Ph.D. students and now a policy strategist. Tooze roves across vast fields of data — historical data, technical data, data about Russian currency reserves, data about the Nazi steel-tube industry — and returns with a reasonably accessible brief in hand. His omnivorously quantitative approach combines with his economic expertise to reveal familiar subjects in new ways.”

Arnold Kling: “In a true liberal order, your status rises with your ability to persuade. In an illiberal order, your status rises with your ability to conform and coerce.”

Loyalty 2.0: How Brands can Tokenise Customer Attention and Data (Part 2)

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.

How Velvet Rope Marketing can transform Customer Loyalty:

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.

Microns and Loyalty: Gamifying and Rewarding Attention:

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.

Thinks 494

Shane Parish: “One of the best ways to improve performance is to change where you start. You don’t need to start at the bottom of the mountain to get to the top. You can learn from the people that came before you. Standing on the shoulders of the people that have done what you want to do changes your starting position. You’ve unconsciously done this all your life. Consider how you learned calculus in school. Isaac Newton climbed the calculus mountain years ago. And while you might never reach the summit, you’re certainly not trying to work out everything for yourself. Learning from his work allows you to start halfway up the mountain.”

FT: “We all know about KISS — Keep It Simple Stupid — a design principle widely used in the US armed forces. But how about what military professionals call BLUF? It stands for Bottom Line Up Front, meaning one should put the most important stuff first in any report or email, as well as what needs to be done about it. That way, the message gets through as quickly and easily as possible.”

WSJ reviews “the Voltage Effect” by John List: “Mr. List starts with five questions to ask yourself before deciding to scale up. First, is your product or idea actually good, or has your research misled you because you wanted to believe something was true when it wasn’t? (Perhaps your test sample doesn’t conform to the general population or you mistook correlation for causality.) Do you know your audience, and can you deliver something people want and are receptive to? Does the product or idea work because of the talent of certain individuals, and can it scale without them? Does it work in small settings but once scaled create externalities or spillovers that undermine success or make things worse? And does the idea, instead of getting cheaper, become more expensive as it scales?”

Loyalty 2.0: How Brands can Tokenise Customer Attention and Data (Part 1)

1.0

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.

Thinks 493

Donald Boudreaux: “Do today’s socialists, as well as advocates of industrial policy, not know that human beings given the power unilaterally to take or to alter strangers’ property rights have little incentive to take into consideration the welfare of those whose property they take or destroy? Do advocates of socialism or industrial policy not know that the greater is government officials’ discretionary power to command economic arrangements the greater is the risk that these officials will be corrupted? Do today’s skeptics of free markets – whether these skeptics be full-on socialists or advocates of ‘mere’ industrial policy – have any accurate knowledge of economic history, of economics, or of human nature?”

Anticipating the Unintended points to a paper by Lant Pritchett: “National development is empirically necessary and sufficient for high levels of human wellbeing. Measures of three elements of national development: productive economy, capable administration, and responsive state, explain (essentially) all of the cross-national variation in the Social Progress Index (SPI), an omnibus indicator built from 58 non-economic indicators of human wellbeing. How national development delivers on human wellbeing varies, in three ways. One, economic growth is much more important for achieving wellbeing at low versus high levels of income. Two, economic growth matters more for “basic needs” than for other dimensions of wellbeing (like social inclusiveness or environmental quality). Three, state capability matters more for wellbeing outcomes dependent on public production. These findings highlight the key role of national development—and particularly economic growth—as instrumental to increased human wellbeing, which is increasingly challenged in favor of “small” programmatic and project design which is, at best, of third order of importance.”

Gary Hoberman on enterprise sales: “I had one potential investor who said, “Pick one client, stay stealth, get it live to production, and then go to your next client.” And what I could tell you coming out of the corporate world is that is the absolute worst advice anyone’s going to give you. Why is that? After all, it makes sense on paper. But what’s going to happen in the real world with your client is there’s going to be a job change. There’s going to be reprioritization, re-budgeting, cuts, regulatory concerns – outside forces you have no control over. And when that client’s project suddenly becomes less important to them and takes a backseat, your business is out. We started with five concurrent clients in all different industries, so that we understood all their needs. It also mitigates risk because you’re not dependent on a single change in the company.”

MarTech 360 Interview

My interview with Rohan Jagan. An excerpt:

How do you envisage Customer Engagement evolving in the years to come?

The future is about omnichannel personalisation. For this, brands need to have a unified view of their customers – which means a complete and integrated stack rather than a stack stitched together from various point solutions. Next, there is a need for an external team that extends the brand team to ensure delivery of KPIs. This needs a shift in thinking from product-only to progeny. Third, brands will need to build a hotline to their existing customers – because if customers don’t listen to brand messages, they will not come back to the brand properties. Thus, they need to shift focus upstream from transactions to attention and engagement. This is where Netcore is introducing innovations like Email 2.0, which compromise of Atomic Rewards (gamification), Interactive Emails (AMP), Informative Emails (ems) and  Hooked Score.

Tomorrow’s world of customer engagement will be driven by a very important premise: To get customers to pay attention, pay them for their attention (else you will pay Google and Facebook 100X more for them).

What 3 things that business owners can do to optimize their digital outreach?

I think of this as the 3 Ps – pipe, partitioning and prospecting. The pipe is about building a hotline to existing customers (winning attention, driving engagement, creating habits). Partitioning is about using the Best-Rest-Test framework to segment customers based on CL (customer lifetime value), and then creating a separate SBU for Best Customers because these 20% customers account for 60% of revenue and 200% of profits. Prospecting is about using acquiring Next customers like the Best – via referrals and smart targeting on adtech platforms. Doing this will help brands increase revenues, reduce “adwaste” in marketing, and increase profitability.

 

Thinks 492

Praveen Chakravarty: “The high costs of not voting for a likely winner enables a ‘politics of fear’…If the average Indian voter does not believe that their vote is a secret and their costs of not voting for the likely winner are very high, is India’s electoral democracy a reflection of a politics of ‘fear’ and not just ‘faith’?”

Data50: The World’s Top Data Startups. From a16z’s Future. “They are valued at more than $100B and have raised approximately $14B in total capital, with 20 having reached unicorn status by 2021.”

Brie Wolfson: “Delivering feedback about the tough stuff in a way that lands is tricky, but the upside of doing a good job of it is enormous. So, here’s a step-by-step guide to help you get it right.”