Published August 7-15, 2022
We are all members of various loyalty programs. We earn points proportionate to the spend we do with brands. Airlines, credit cards, hotels, restaurants, bookstores, high street fashion, ecommerce sites – many of them give us points linked to our transactions. This is what I call Loyalty 1.0.
Then there is Loyalty 2.0, a new idea I proposed in a recent essay. It is about rewarding our non-monetary assets in our engagement with brands: attention and data to begin with, and extending to our network (referrals) and voice (reviews). The common theme across these is time. The more time we spend with the brand, the greater the likelihood of present and future purchases. As I wrote:
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.
… 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.
… 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.
In that essay, I went on to describe an entity called MuDAO, a pan-brand blockchain-based decentralised platform for earning and redeeming loyalty tokens not necessarily linked to spending. In this essay, I will dig deeper into the MuDAO entity – I call it MuCo in this series because it could have some parts which exist in the Web 2.0 world also.
In the context of MuCo, the one question that has come up in multiple conversations is: how will we demonstrate the utility and value of Mu tokens? Why will brands want to give them? Why will consumers want them? This is what I will dig deeper into in this series because only if it’s an exchange that both sides want will we be able to build a profitable business.
In Part 13 of the Loyalty 2.0 essay, I discussed various ideas for brands and their customers to exchange value via MuCo. In a sense, MuCo could enable a barter system – not linked to the products and services offered by brands, and delinked from the money being spent by customers. This barter system would help drive many actions that brands want done and power experiences customers want – both of which are not possible today because the entire focus is on driving transactions.
Brands miss out on the upstream (attention and data) and downstream (referrals and reviews). As I had written: “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 instill loyalty, brands must solve the attention problem. This means building a pipe, a hotline to their customers … 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) … Revealing ourselves is both an opportunity to earn points and to ensure future communications are targeted for our particular tastes.”
Customers miss out on the softer experiences that could create a richer relationship with the brands. Think of these as the equivalent of “Community Chest” cards in Monopoly! As I had written: “[Mu Tokens could be used for] 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.”
In an essay on Velvet Rope Marketing (Part 2), I had written about three dimensions for providing differentiated experiences for Best customers – exclusivity, ease and access:
- Get premium samples free – from wishlist and new launches
- Get a special page designed based on preferences – likes, new season, offers
- Get notifications on topics of interest
- Participate in product co-development
- Cancel tickets or orders without loss
- Pre-book a slot based on visit patterns, etc; get an assigned concierge
- Get free exchange opportunities
- Pick their own seats in advance (flight, theatre etc.)
- Order service/product before arriving on-premise
- Preferential treatment from customer service; first-in-line always
- Get invited to media events celebrating the brand’s loyal customers, to get first-look at products
- First opportunity to book an order for limited edition apparel
- Offers for orders similar to previous purchases
- An earlier opportunity to buy tickets for upcoming events
Similar ideas could be used to power Loyalty 2.0 experiences which can only be unlocked by Mu tokens, thus demonstrating the value and utility of Mu tokens. Ideally, these should be costless for a brand and priceless for a customer.
I asked myself: which experiences would be costless for the brands I engage and transact with, and at the same time be priceless for me as a customer? In loyalty parlance, these are 1:100 rewards – cost is 1 for the brand and value is 100 for the customer. Airline miles are the best and most successful example. The incremental cost for an airline is just providing free meals (assuming the seat was anyway going empty), while the perceived value for the flyer is that of the actual cost of the ticket.
- Daniel Silva is one of my favourite thriller authors. His new Gabriel Allon book, “Portrait of an Unknown Woman”, was published on July 19. I would have loved to get early access to the book by paying Mu (tokens).
- A similar approach can be taken for releases on Netflix or other OTT platforms. I could have paid in Mu to get early access to the recent “Lincoln Lawyer” series on Amazon’s Prime Video.
- We participate in many online webinars. Most of them have a chat box to type in the question; the moderator then picks a few for the presenter(s) to answer. I could use Mu to ensure my question is prioritised and answered.
- Publishers could connect readers with authors. For example, I read Richard Rumelt’s book, “The Crux.” I would be keen to ask a few questions to the author – and Mu could be the passport for that conversation.
- Influencers could do the same – offer their followers exclusive content in exchange for Mu.
- Media companies could offer interactions with editors and journalists with payment by Mu as the entry (access) fee. Imagine being able to discuss the Ukraine crisis or the inflation scenario with the team at The Economist.
- Content companies with paywalls could offer a Mu-based payment system for single articles (as an alternative to a full subscription package).
- Samsung could offer early access to their new mobiles for Mu to long-standing Samsung mobile customers (like me).
- Fashion companies could allow me to use Mu to unlock special features on their website (an Augmented Reality option, for example).
- In a long queue at a shopping outlet, I could use Mu to get to the front of the line and checkout faster. A similar approach could be used at airports – not just for check-in but perhaps even at the security and immigration counters.
Most of these experiences do not happen today. It is because customers are reluctant to part with their money to pay for these and brands do not have an alternative ‘currency’ that they can accept. This is the friction that Mu can eliminate. Mu becomes the alternative – which customers earn with their actions delinked from spending. Because Mu is, in a sense, ‘free’, we would be more amenable to using it for optional and yet exclusive experiences. As customers start seeing value and utility for Mu, they will be keen to earn it – and that is where brands will benefit in the form of attention, data, referrals and reviews. Think of things that Mu can ‘buy’ as “digital goods” – akin to what happens in games.
Clash of Clans
Well-designed games grab our attention for long periods of time. One such game is “Clash of Clans” (CoC). Thanks to my son, Abhishek, I have been playing it for a few minutes daily for the past many years. It is the only game I play. (I tell everyone who is willing to listen that they should pick a game and stick with it for many years; there are a lot of marketers and product managers who can learn from games on how to ‘hook’ customers.)
Recently, CoC introduced a whole new section, “Clan Capital”. After the Home Village and Builder Base, it is the third expansion.
Every weekend, there are “raids” (attacks) that need to be done on other Clan Capitals. In return, one earns “raid medals” which can then be redeemed for various goodies.
Through the years, I have not spent a rupee on buying the in-game digital/virtual goods. But the time adds up. It’s fun and one also learns about gamification through the various tricks and tweaks CoC does to keep the interest going. (For example, they recently removed all training costs on troops encouraging gamers to attack much more.)
Mu can be thought of as doing something similar. It removes the financial element from the brand-customer equation – that has its own Loyalty 1.0 equation. What Mu does is bring in the non-monetary aspects into the equation. Give time (like in CoC), get rewards (like gems and medals in CoC) and then use those to ‘buy’ experiences (gold, elixir, dark elixir and various “Magic Items” in CoC). If all of this had cost money, I would have probably stopped playing it a long time ago.
What Mu therefore enables is for customers to ‘earn’ rewards in the form of Mu which can then give them exciting experiences that money cannot buy. In that sense, it “gamifies” our real world. And as far as I can tell, no one has done that before. This is what is unique about MuCo and Loyalty 2.0.
My friend, Atanu Dey, had once told me about LETS (Local Exchange Trading System). It traces its origins to Michael Linton in 1983 in British Columbia. According to Investopedia: “Local Exchange Trading Systems (LETS) are locally organized, economic organizations that allow the exchange of goods and services among group members. The groups use a locally created units of value as currency which can be traded or bartered in exchange for goods or services. Members of LETS typically view the systems as organized and cooperative schemes that maximize purchasing power while benefiting members and the community.” From Slow Movement: “Instead of money LETS use ‘community credits’. People earn LETS credits by providing a service and they spend their credits on whatever is offered by other people in the scheme e.g. childcare, transport, food, trade services or home repairs. Where there has been a financial outlay to provide the service eg purchase of wood to make a box, the recipient pays for the wood, but not the service of making the box.”
A list of services offered by network members is put together to create a LETS scheme, and trading takes place between members using a local currency. The LETS foundation is a virtual currency, a check book, a directory as well as a transparent accounting system built on trust and community regulation. The first LETS required nothing more than a telephone, an answering machine and a notebook. Since then, there have been several attempts to improve the process with software, printed notes, and other familiar aspects of traditional currencies.
- Local people set up an organization to trade between themselves, often paying a small membership fee to cover administration costs
- Members maintain a directory of offers and wants to help facilitate trades
- Upon trading, members may ‘pay’ each other with printed notes, log the transaction in log books or online, or write cheques which are later cleared by the system accountant.
- Members whose balances exceed specified limits (positive or negative) are obliged to move their balance back towards zero by spending or earning.
LETS is a full-fledged monetary or exchange system, unlike direct barter. LETS members are able to earn credits from any member and spend them with anyone else on the scheme. Since the details are worked out by the users, there is much variation between schemes.
MuCo can be thought of as creating a LETS-like trading system. Think of it as a two-sided system. Consumers have time, personal information, their social networks, and their recommendations to offer – attention, data, network and voice. Brands can benefit from all of these. But they have no easy way to compensate customers for these. They could use points as part of their existing loyalty programs, but there are two constraints: rewards for these non-monetary actions need to be much smaller than what is possible via the loyalty programs, and not all businesses have loyalty programs. The way to solve this problem is to create a pan-brand solution delinked from money – that is where Mu as points or tokens comes in. Micro-incentives for small, in-the-flow actions all add up to enable a meaningful aggregate for consumers who can now be offered an array of ‘priceless’ experiences by the brands at close to zero cost. MuCo thus creates a LETS-like market where there is none today, a win-win for both brands and customers.
Workings – 1
Let’s dig deeper into the inner workings of MuCo. To make it simpler, we will first assume MuCo is operating in the Web 2.0 world – the current Internet as we know it. We will then later morph MuCo into a Web3 entity. The best way to look at MuCo is to follow the money and tokens (or points).
Think of MuCo as a Mu factory. It takes fiat currency as input and produces Mu. The Mu can then be distributed by the buyers (brands) to their customers – MuCo has no control over that process. MuCo maintains a centralised database which tracks the flow of Mu (from source to destination). End consumers have to come to MuCo to use the Mu – they begin by activating it by identifying themselves (email address, mobile number) to claim the Mu that has been given to them by brands. Thus, brands and consumers have “wallets” and transactions are stored in a database. This is almost identical to how current loyalty programs work.
Consumers will then want to redeem Mu. For this, MuCo will need to run a market of offerings from brands. This can work in two ways: either MuCo ‘buys’ the products from brands and ‘sells’ it to customers (like a Mu Shop) or brands can themselves sell directly to customers (in a Mu Marketplace). In the latter scenario, brands get Mu in return for their ‘experience’ offerings.
This is quite straightforward. MuCo derives its revenues selling Mu. With enough Mu out there, brands will find it to their benefit to create offerings for consumers. Mu works across brands – that is its true utility.
The limitations of the above approach are that there is dependency on MuCo for maintaining the integrity of Mu. Brands and consumers have to implicitly trust MuCo that it will not in any way debase the value of Mu or charge a ‘tax’ on transactions.
One point not discussed above is the price at which Mu gets sold by MuCo. Ideally, this should be via an auctions process so there is price discovery. But that will probably take time because it will need enough demand generation and therefore interest from multiple bidders. Until then, MuCo may need to set an arbitrary price and sell as brands ask for Mu.
MuCo is thus running a 2-sided marketplace between brands and consumers. The challenge such marketplaces face is the ‘cold start’ problem – creating enough demand on both sides to get activity going. To overcome this problem, MuCo may need partners who can help accelerate the process of getting Mu in the hands of consumers. It will also need to create an attractive shop to get consumers to see the value and utility of Mu before brands start coming in with their own offerings. This is where MuCo will need initial capital to bootstrap itself.
Workings – 2
Making MuCo as a Web3 entity is important for multiple reasons: governance is not in the control of a single ‘centralised’ entity but is decentralised, which in turn should lead to an increase in trust in Mu; Mu creation is decided by rules and is either capped or the increase is pre-planned, which should then lead to appreciating in the value of Mu over time creating an alternative to simply spending it; and the creation of a Mu Exchange, which allows trading of Mu without a central intermediary determining the price. This is how most cryptocurrencies work. The creation of new Mu can still continue with the proceeds being used for Mu operations. Mu transactions and the ledger can be onchain thus enabling Mu to be traded on other exchanges also.
The one assumption made above is that Mu cannot be converted back into fiat currency. This may be necessary to ensure it is not considered a ‘currency’ or a ‘virtual digital asset’ and taxed. One side of a Mu trade is of course Mu, while the other side of Mu is a product, service or an experience.
Let’s run through an example to see how this works in practice. Let’s say I have earned 1,000 Mu from various brands for my non-transaction actions – attention, data, voice and network. Now, I have two options. I can either hold on to the Mu with the hope that it will ‘buy’ more in the future than today, or I can spend (redeem) it on the Marketplace for experiences. Let’s say I decide to spend 300 Mu to get an advance copy of the new Daniel Silva book from HarperCollins. I then pay 400 Mu to attend an interaction with The Economist editors.
Brands will need a constant supply of new Mu. They can get some Mu from selling ‘experiences’ on the marketplace. They can also buy Mu from the daily auctions conducted by MuCo on the exchange. This is where price discovery happens. It is probably what happens on commodities markets with daily trades determining the price. At some future point of time, once enough Mu have been ‘mined’, MuCo ceases to offer Mu and lets Mu holders trade among themselves – this is what will perhaps lead to an appreciation in the value of Mu.
While MuCo is selling Mu, it has a clear source of revenue. What happens once all Mu are minted? How does MuCo then generate revenue? The answer could be two-fold. MuCo could then introduce a small fee for running the exchange, or it could simply remain a ‘protocol’ and end its existence as an independent entity. Mu exchanges (and there could be multiple of them) would create the liquidity, with the wallets on the public blockchain. (Note: This is perhaps a bit speculative and needs more thought.)
Whatever be the long future, as long as MuCo has created a lubricant to remove the friction between non-financial interaction between brands and consumers, it would have served its purpose. Investors in MuCo would benefit from the revenues from Mu sales and perhaps an initial pre-mine of the Mu tokens that they could later sell on the exchange(s).
MuCo’s Loyalty 2.0 platform can be done in the Web 2.0 world with a centralised entity maintaining a database and running the marketplace. The problem with this is exactly the same as what fiat currencies face – a “ruler” can decide to debase the currency (or tokens in the case of MuCo) and there is nothing anyone can do about it. This undermines trust and makes people hesitant to use the system. Web3’s decentralisation using the blockchain can help address the issue. A DAO (decentralised autonomous organisation) can also solve MuCo governance, making it “run by rules, not rulers.”
The market opportunity for MuCo is the $200 billion that is being wasted in reacquisition and wrong acquisition in adtech. As I wrote in my Loyalty 2.0 essay: “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 … 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.”
In the first era of marketing, brands relied on mass media to get their message out. In the second era, the Internet helped do targeting and data-driven marketing. But what marketers missed was that the Internet enables a two-way communications channel. Instead of building direct relationships and hotlines with their customers, brands went overboard on the ease of acquisition provided by Big Tech, and thus handed over their customer data and profits to the likes of Google and Meta (Facebook). In the third era of marketing, what MuCo does is give power back to the brands by making customer retention and loyalty central to the relationship.
As I wrote in an essay on Profit-centric Marketing: “This is the new world of marketing, reinvented for a digital world. The basics do not change. Marketing is about bringing customers back for more and ensuring they get their friends. What is different is the ‘how’ to get started – a new-look email format (what I call “microns”) and atomic rewards in the form of tokens for attention and data to nudge behaviour. These are the ideas that hold the key to building the pipe (hotline) with existing customers, and therein lies the secret of profit-centric marketing.”
In the new world of two-way engagement where customers are digital and can engage in myriad different ways with the brand, Loyalty 2.0 and MuCo provides for a deeper and better relationship – a true, long-lasting ‘friendship’ that transcends money. Web3 elevates MuCo to beyond the control of a single entity; it makes the community central. Brands (with their marketing managers) and customers can come together to create a better relationship without Big Tech as the intermediary. A trust platform based on Web3 principles and the blockchain can serve as the perfect foundation. Welcome to the Mu-niverse!
There are still many questions that need more probing and discussion.
What information about consumers will be publicly available on the blockchain? How does MuCo ensure privacy is maintained? If transaction details are published, then it may be possible to trace an individual. So, perhaps only a wallet address and the quantum of the trade is what should be published.
Should Web 2.0 Mu points and Web3 Mu tokens co-exist? Some countries may introduce restrictions on anything crypto; so just the use of encryption may put Mu in their crosshairs.
What KYC will be needed? Is an email address or mobile number good enough? In future, is a crypto wallet address the answer to ensure even greater anonymity? Is anonymity and privacy really important? After all, this is an exchange between brands and customers.
Should Mu be tradeable against other crypto tokens? A related question: should Mu conversion to fiat currency be allowed? (I have argued against both purely to guard against taxes, but this may need a rethink.)
Should Mu decay over time? Many loyalty programs expire unused points. My take: Mu should not decay or expire.
There is the big question of the 0🡪1 problem. How does MuCo get started? Who are its initial anchor partners? On this hinges its future success.
What if brands want to issue NFTs – XRTs, for example? Should MuCo facilitate that? [See Part 5 of Extreme Retention = Profit-centric Marketing for a discussion on XRTs.]
How will MuCo governance work once it moves to a Web3 entity? Getting millions of token holders to vote could make decision-making quite messy! Will MuCo need a new class of governance tokens? Should the Web3 version of MuCo be a DAO, a foundation, or a for-profit entity? What are the pros and cons of each?
Are they any examples of other entities doing something like this? (When I have asked people, I have been frequently referred to the Brave browser and its Basic Attention Token. There is a big difference: BAT is for anonymous users, while Mu is about interactions between a brand and its existing and known customers.)
How can Mu be relevant in the metaverse future?
What future applications can be built by MuCo? It will have a direct-to-consumer relationship, and will have usage and interest data. Can it help brands with acquisition of new customers and bypassing the Big Tech tax?
There are perhaps many more. As with any new idea, each new thought brings with it a new set of questions. Some are perhaps unanswerable and unknowable at this point, and will become clearer only after the journey has begun. What is exciting about MuCo is that it can solve a real problem (or perhaps two): for brands, attention recession and data poverty; for customers, the soft-touch multi-dimensional engagement with brands beyond just the transaction. And at the intersection is a $200 billion ‘adwaste’ opportunity. In a world where profits are once again coming centrestage, MuCo is an idea whose time has come!