Greg Simon, CEO & Co-Founder, Loyyal (greg@loyyal.com)
Working at Loyyal is the best job imaginable. Our infrastructure solutions, built on blockchain and smart contract technology, remove pretty much all of the frictional limitations in the loyalty and rewards industry. Removing those limitations changes everything.
We like to compare it to an auto manufacturer’s expert knowledge of the transportation industry when a gravity variance device is invented and two-dimensional limitations are removed. Expert knowledge of the old paradigm goes in the bin, as all of the rules change in an instant.
Our team has the luxury of discussing the various possibilities in the loyalty and rewards industry soon to be made possible by the removal of its equivalent of gravity: friction. It becomes a fascinating path down the concept of agent incentification within a relationship network tree.
How can multi-agent relationship networks be incentivized to create greater multilateral value? What do the agents in that relationship network value and why do they value it? While thinking about manufacturer coupons, one relationship network that has recently caught our attention is the supply chain, resulting in the development of what we call supply chain loyalty.
The Supply Chain
A supply chain is a relationship network tree representing a one-way flow of physical value (manufactured goods) from the production base through branches and sub-branches until finished goods inventory reaches end consumption. An example would be mayonnaise. From raw materials at the farm to the consumer’s plate, agents are connected through multiple branches in a complex relationship network tree.
Unfortunately, goods passing through the supply chain can be lost, stolen, damaged, spoiled, etc., resulting in wastage. Eggs bound for mayonnaise can spoil if delayed or break if handled improperly by any agent throughout the relationship network tree.
Loyalty and Rewards
Generally speaking, there are two types of loyalty and rewards programs. First, there are loyalty programs that reward repeating loyalty by a customer to a brand, merchant, or service provider. Then there are cash-back programs, which incentivize a consumer into a single transaction, leaving no residual loyalty relationship afterward. In either case, it’s simply the use of value to incentivize interaction between agents in a network, through relationship loyalty, resulting in a greater generation of aggregate value within the overall network — what we call Loyalty Capital.
Coupons are Supply Chain Management
Yeah, we didn’t realize this at first, either. Coupons are a kind of cash-back rewards program. As a direct brand-to-consumer program, its goal is to liquidate inventory built up at the very end of the supply chain by incentivizing consumption of the finished goods. Brand-to-consumer (hereafter referred to as supply chain) loyalty programs are rare. A few exist, but none are exceptionally effective beyond a novel marketing campaign.
Existing coupon technology fails to generate an effective supply chain loyalty program for producers and brands because it only gives users a cash-back program, not a loyalty program. It is an attempt to transfer digital value (in the form of a reward) from one end of the supply chain (brand) all the way to the other end (consumer) while also actively managing a relationship network of one agent to many agents — millions, or even billions .
As consumers we are physiologically more loyal to the brand of the goods we consume than the merchants we buy the goods from. But these relationships are the most inefficient and difficult-to-manage value transfer channels within the entire supply chain relationship network. Friction is the culprit — again, the industry’s equivalent of gravity. Hmm … let’s get rid of that!
Dynamic Coupons
Let’s leave gravity behind and introduce dynamic coupons. Dynamic coupons dramatically improve the effectiveness of existing coupon programs. How would they work?
● The coupon becomes a wallet, or private keys granting access to a wallet, on the network.
● The coupon is now product-specific, attached directly to a specific work-in-progress or finished goods inventory.
● The value balances for all inventory items can be controlled from one central location, regardless of where the item may be.
● The value balances for each inventory item can be individually increased or decreased any number of times, instantly and at no cost.
● Dynamic rules defining how the value balance in each wallet will adjust can be embedded within the coupon itself and automated, allowing for the simple operation of complex logic.
Let’s go back to the mayonnaise example, focusing just on the finished good coupon we are already familiar with:
● A balance can be increased any number of times as the mayonnaise nears its expiration date.
● The wallet could be charged with up to 100% (or more) of the mayonnaise’s purchase price and still be economically advantageous for the brand, as it would avoid the cost of disposing of the wasted good.
● More consumers are experiencing greater satisfaction, as the previous one-price-fits-all fixed price point is now a dynamic pricing scale, customized exactly for each individual item no matter where their subjective valuation may fall along that scale.
We call these dynamic coupons SmartCoupons™, as a partner to our Smart Rewards. SmartCoupons save value by turning the expense of wasted goods into profits for the brand, improving satisfaction for the consumer, and generating greater loyalty capital between all agents involved. Nice!
Further leaving gravity behind, let’s leave that old paradigm behind and enter into orbit!
SmartCoupons for Supply Chain Management
Coupons are a supply chain management tool already. They are a value-based incentification tool to accelerate consumption of inventory at the very end of the supply chain. With SmartCoupons, we can expand this existing concept to include the incentification of all agents within the supply chain relationship network, regardless of who they are or where they are — an effective supply chain loyalty program!
The supply chain loyalty program built on SmartCoupons creates multi-directional value flow within the relationship network. Whoa, what?!
Consumer-to-producer value flow
In addition to producer-to-consumer value flow, we can now introduce consumer-to-producer value flow, flowing back up the supply chain. We can tokenize non-fungible value, such as consumer feedback, into fungible digital value on a secure distributed ledger network. That value can be transferred, frictionless, throughout the relationship network in any vertical or horizontal direction between any number of agents.
Incentivizing supply chain efficiency
Beyond the end consumer, SmartCoupons can incentivize other agents higher up in the supply chain relationship network, such as:
● Supply chain managers
● Subsidiaries
● Wholesalers
● Delivery services
● Retail merchants
● Consumers
We use this Token Tree as a virtual representation of the existing supply chain relationship network, or any other real-world relationship network such as a franchise organization, marketplace, payment network, and so on. The network operator sits at the base of the Token Tree. It defines the global rules for how agents in the tree can be incentivized or incentivize each other.
Solving the Challenges
We’ve defined three challenges currently preventing the creation of an effective supply loyalty program and the final escape from our orbit: data integrity, friction, and the complexity of agent incentification logic. You guessed it — we solve all of them.
Data Integrity
Blockchain, or distributed ledger technology, can create a counterfeit-proof environment where there is 100% confidence in data integrity. Bills of lading, invoices, inventory validation, inventory ownership chain, and real-time tracking are just a few examples of data that can be securely shared in a distributed ledger network. All agents can have 100% confidence the data hasn’t been compromised and is exactly what it should be.
Friction
Blockchain removes (nearly) all of the existing friction from the issuance and transfer of value. Data and other digital or digitized value reside on a shared immutable ledger, reducing the cost of trust to something negligible and insignificant. For the techno-peeps reading this, our LoyaltyNetwork uses AVCP (Abstracted Value Consensus Protocol) next=generation blockchain technology. For the rest of us, we can just think of it as the Internet of value.
Complexity of agent incentification logic
The elusive thing about value is that it is defined subjectively. Each agent in a network will observe goods through unique lenses, such as a set of beliefs, values, emotions, knowledge, etc. In a value-based behavior incentification scheme, where each agent is dynamically incentivized, the value offered for that incentification must be customized into alignment with each agent’s unique observation of value. Not easy to do!
The complexity of this logic until now has made this program cost-prohibitive. It is the potential friction, a point we haven’t even been able to get to, let alone surpass. Our SmartCoupons based on smart contract technology allows us to take an arbitrarily complex set of rules or logic and allow it to run autonomously within a secure network. It allows for the simple operation of complex rules, facilitating incentification:
● Down the Token Tree for distributors to reduce waste or deliver on time.
● Up the Token Tree for feedback on areas of inefficiency and waste or to reward agents higher up the tree for exceptional service.
● Across the Token Tree for warehouses to redeem Brand A points with Brand B.
● And more!
Complementary to Existing Tools
Supply chain loyalty programs work alongside other existing supply chain management tools, enhancing their effectiveness. Most other tools seek to capture data and analyze it, such as the state of inventory or wastage. These tools alone are insufficient because they are after the fact. They are measuring loss rather than preventing it.
These tools are missing one critical component that can instantly flip them on their heads, turning them from tools of loss measurement into tools of loss prevention. It’s the same reason home treadmills become expensive coat hangers and wearable exercise devices make us depressed rather than motivated: incentification.
The incentification component in the system is missing. We provide that missing component. It’s the final step that takes us out of orbit into a new paradigm, to potential limited only by our imaginations.
Greg Simon
CEO and Co-Founder, Loyyal
