Loyalty 2.0: How Brands can Tokenise Customer Attention and Data (Part 10)

Recap

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.

Thinks 502

The Economist: “Executives have been keener to get people back into the office full-time, so that employees can bond with peers, absorb the corporate culture and appreciate the awesome power of laundry. But even sceptics have accepted that hybrid working will be part of the post-pandemic future…The job now is to make sure that hybridisation works as well as it can for both employees and employers. That depends on one ingredient above all: clarity. Things function best when everyone knows what is expected.”

Joel Mokyr reviews “Leave Me Alone and I’ll Make You Rich: How the Bourgeois Deal Enriched the World”: “The book makes a powerful case for a classical liberal society: what accounts for economic success and growth is liberty. Other elements such as institutions, science, trade, resources and so on may have a mattered a bit, but the indispensable element that did it all was freedom from coercion, from regulation, and from oppression. That freedom was absent for most of human history, and it emerged only in Britain and the Low Countries in the seventeenth century. The Bourgeoisie, a group much maligned by the “left-wing clerisy,” are really the heroes of our prosperity and the “bourgeois deal” as they call it and as reflected in the well-chosen title of the book was the main driver that led to modern prosperity. The deal was simple: give us our freedom and we’ll make the economy grow. We’ll take the risks, but if we succeed, we’ll be rich and so will (almost) everyone else. The idea was so powerful and successful that it spread worldwide and has lifted up most economies on the planet. Hence, the majority of humanity is immensely richer than ever before and material life is better than ever before. That is the economic history of the modern world in a nutshell.”

Donald Boudreaux: “A people are not made richer when their government obstructs their access to low-priced goods and services. They’re made poorer. “

Loyalty 2.0: How Brands can Tokenise Customer Attention and Data (Part 9)

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
Earnings Points Web3 Tokens
Storage Brand Database Blockchain
Redemption Brand Catalog / Store Exchange / Marketplace
Redemption Ease Hard (in most cases) Easy
Value Decision Brand Market
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”
Anonymity Not possible Possible
Security Low High

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.

Thinks 501

Andy Kessler: “Price controls don’t work. Never have, never will. But we keep instituting them. Try finding a cheap apartment in rent-controlled New York City. Or look for many entry-level jobs eliminated because of $15 minimum wages. Or try to get gallbladder surgery in Britain or other nationalized healthcare systems that ration care…Want to whip inflation now? Forget all the Band-Aids and government controls. Instead, as Friedman suggests, stop printing money. Stop stimulus. Raise interest rates to above the prevailing inflation rate. Prices will adjust naturally. The market works best when it sets prices. Sadly, politicians can’t help themselves. They might disguise and sneak them in while everyone’s focus is on war, but price controls are coming.”

Harold Demsetz: “Capitalism is an economy based on decentralized private ownership of resources and open markets; “based on” means that private ownership rights are acknowledged and respected. Most members of society must feel a duty to respect the private rights of others. Ownership rights must be exercisable without fear, ridicule, or disrespect from other members of society. An economic system that is forced on people will not perform as would one to which there is general assent.” [via CafeHayek]

Frederick Douglass in the 1850s: “Power concedes nothing without a demand. It never did and it never will. Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them, and these will continue till they are resisted with either words or blows, or with both. The limits of tyrants are prescribed by the endurance of those whom they oppress.” [via Atanu Dey]

Loyalty 2.0: How Brands can Tokenise Customer Attention and Data (Part 8)

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.

Thinks 500

The Economist: “There is mounting evidence that the smartphone era is fading. Phone sales have been in gentle decline since 2016, as slower technological improvement has led to people upgrading less often. In rich countries, already saturated, the decline is especially marked. So tech innovators and investors are on the hunt for the next big thing, in hopes of winning not just a juicy hardware market but the potential to control the platform on which everything takes place. The current big idea is virtual-reality (VR) headsets, spurred on in part by pandemic lockdowns. More promising, but further off, are glasses for experiencing augmented reality (AR), in which computer graphics are overlaid on the real world.” More: “From Apple to Google, big tech is building VR and AR headsets. They might just be the next big platform after the smartphone.”

FT on a leader’s first 100 days: “The moment you know you are going to be taking charge, you need to start work, finding out as much about the organisation as you can. “And I don’t just mean sitting in your home office reading through stuff,” says Cagla Bekbolet, managing partner in the London office of Egon Zehnder, the headhunters and leadership advisers. Even before they start, leaders should be visiting company facilities and talking to customers, analysts, bankers and the board. The aim is not just to pick up facts about the organisation, Bekbolet says, but to “understand the DNA, understand the heritage, understand the purpose, the identity”…Having spent time learning and formulating strategy, new leaders do need to act. “That old phrase always stuck with me: we must avoid paralysis through analysis. And the leader’s job is to make decisions. Sometimes you have to be courageous,” Parker says. ”

Bogart/Wilder celebrate market entrepreneurship. [via CafeHayek]

Loyalty 2.0: How Brands can Tokenise Customer Attention and Data (Part 7)

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.”

Thinks 499

FT: “The case for Web3 rests on the belief that a blockchain-based technology platform will become the foundation for a new class of applications, with digital tokens mediating interactions of all kinds in a so-called “trustless” online world. There will be no digital gatekeepers to set the rules or take the lion’s share of the profits. Users will be in control. So far, though, it is hard to discern mainstream uses for this technology. The main applications — non-fungible tokens (NFTs) and decentralised finance — are founded almost entirely on financial speculation and regulatory arbitrage. When the speculators take a bath and regulators decide it’s time to close the loopholes, what will be left?”

Seven lessons from a late-starting entrepreneur. From FT. Among them: “Many budding entrepreneurs hide their ideas like Molière’s Miser hoarding gold. Their understandable fear is that someone else is going to steal their genius, life-changing ideas. But as my Stanford course director Yossi Feinberg made clear, ideas are worth nothing if they remain just ideas. And what distinguishes success from failure is rarely the quality of the idea itself but how well it is executed…Another liberating lesson is that you do not need to know all the answers when you start. Indeed, the core methodology of a start-up is experimenting, and failing, fast. I still remember Haim Mendelson, a Stanford professor who boasts a fine white beard and a merciless, forensic eye, ripping apart my team’s rickety business plan before concluding: “You’ve only got 70 per cent of the answers. But that’s probably good enough.””

WSJ: “Tracy Britt Cool spent a decade working for Warren Buffett. She now wants to buy the kinds of companies that might have interested the famed investor 30 or 40 years ago. Those are businesses typically run by founders or family owners that have solid performance and competitive “moats”—a favorite term of Mr. Buffett’s—yet aren’t big enough to draw Berkshire Hathaway Inc.’s attention today. “Berkshire needs multibillion-dollar acquisitions to move the needle,” Ms. Cool says. “So many of the people who contact us or reach out would want to sell to Berkshire, but they’re just too small.” Ms. Cool launched an investment firm with a former colleague in 2020, called Kanbrick, that aims to focus on such companies.” Tracy: “I think just the power of long term, the power of finding high-quality businesses and the power of partnering with high-quality people. When those three things are done in the right way, you can build something really amazing.”

Loyalty 2.0: How Brands can Tokenise Customer Attention and Data (Part 6)

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.”

Thinks 498

The Economist reviews “Spin Dictators”: “For modern autocrats, lying is more useful than killing…The goal of a spin dictator is to appear to allow political competition while making it nearly impossible in practice. Rather than criminalising dissent, he imprisons his opponents for non-political crimes, such as fraud or rape, of which they are innocent. Sometimes he locks them up for short periods, so they do not become martyrs, and often, so their work is constantly disrupted. Rather than banning opposition parties, he tangles them in red tape or bankrupts them with fines and lawsuits. For extra deniability, the task of making dissidents’ lives hell can be outsourced to a youth militia or army of online trolls, who may rough them up, publish their addresses or leak embarrassing photos.”

Richard Feynman: “You should, in science, believe logic and arguments, carefully drawn, and not authorities.” [via Shane Parish]

John McWhorter: “Why we can’t just prepare students for the work force. Why do we assume that people need four whole years of further education after high school? One answer comes from Leon Botstein, the president of Bard College…The upshot is simple: The idea that in our society, after high school the ordinary trajectory is to attend another four years of school has become arbitrary, purposeless and even absurd. Botstein noted, “America has a more elaborate educational system that spreads over more years, reaches more people, and ends up with results for the entire population that are worse than those countries with educational systems that are explicitly not democratic and on the surface offer fewer opportunities for advanced education.” This model, he argued, is hardly what we would choose if asked with no experience how things should go. He argued that the model of high school we currently use is from a time when teenagers were on average less intellectually mature than they are now. Botstein proposed instead that childhood education can stop at 10th grade and that the education kids get during that year be a richer one than kids typically get today even going up through 12 grades.”