What Social Tokens Can Learn From British Supermarkets

I’ve received quite a bit of feedback from people who said they enjoyed reading about how loyalty points relate to communities and social tokens. My plan was to dive deeper into loyalty points, following the excellent themes raised in Lana Swartz’s book. But finding detailed material to dive into proved difficult.

Luckily, I got introduced to Matt Alston (thanks, Jess Sloss!) who worked on Uber’s loyalty programme, and who’s building tools for creators on Rally and Ethereum. He corroborated the fact that there’s not a ton of detailed info on loyalty schemes out there, except one book: Scoring Points, a tale told by executives at Tesco, the British supermarket chain, about how they developed a loyalty scheme called Clubcard that helped propel the business to the top of the market.

At this point, it’s interesting to note the special place that supermarket chains have in British life. It would not be inaccurate to say that each supermarket brand attracts its own tribe or community, with all the associated psycho-social implications. For instance, Mark and Spencer is posh, but Waitrose is posher still. Tesco is for people who appreciate good value, but Aldi is for the even tougher bargain hunter. Here’s a 200+ comment thread on Reddit about this very phenomenon.

So it’s probably fitting that a study of a British supermarket brand’s loyalty points scheme contains some parallels to the social token space that interests us. After all, whether you’re a myWaitrose member or a Clubcard points collector, or a Co-op Member indicates something about your place and outlook on the world.

The next few editions of Pacenotes will cover various aspects of loyalty scheme design outlined in the book, with observations on how they might apply to social token design. Without further ado, let’s dive in.

Designing a loyalty scheme One of the most instructive parts of the book is the mapping of loyalty schemes’ different components. The authors break down the basic design choices and trade-offs as follows:

• Opt-in or automatic Asking people to opt-in to a programme forces them to be active, but results in fewer people ultimately enrolled. Simply enrolling everyone by default means you get better coverage, but users might be passive.
  This is similar to current social token distribution conundrums: Do you airdrop tokens to previous users of a protocol, or holders of some other token (eg. the Forefront drop is a good example of this); or do you launch the token with a blank slate and encourage users to earn it or buy it?
• Anonymous or personalised The example offered here is a coffee shop stamping a loyalty card for each drink purchased, versus a supermarket asking for a name and address to join its scheme. The trade-off is obviously privacy: the anonymous version lets a customer control their data, while the personalised version holds the potential for greater rewards for the customer and the brand.
  There isn’t a really a direct parallel to social tokens here, since crypto itself hasn’t fully solved the identity problem. But you might consider the situation where you have a pseudonymous creator or founder, versus someone with a real-world identity. The risk in the pseudonymous situation is that the creator dumps the coins on fans and disappears — a DeFi style “rug pull”.
• Flat-rate or top-down The question concerns hierarchies within the loyalty scheme. Airline miles schemes enforce rigid hierarchies and assign status that way. Supermarket schemes tend to be flat-rate systems, where everyone on the scheme has the same chance of getting a discount, for instance. The hierarchical scheme puts more pressure on customers to consolidate their spend with a brand, but comes at the expense of the charge of elitism.
  The social tokens version of this is easy to see: token-gated communities, for example, are all expressions of a top-down, hierarchical loyalty scheme. Hold a certain amount of tokens in your wallet and gain access to more channels, and more goodies. I’m not sure I have come across a flat-rate type scheme within social tokens—which will be an important model to have for a truly mainstream and mass-market community or creator.

Types of loyalty currencies The authors also provide a taxonomy of the in-house currencies used in various schemes. These amount to the mechanics or monetary policy of a loyalty scheme. Here we go:

• Points-led A unit of account for an in-house currency. The goal is to have a stable unit of account with a notional face value. The problem for social tokens is price volatility in the token.
• Discount-led Two prices for the same product, with members getting the lower price. One danger of this system is that brands end up discounting products that members would have paid full price for anyway. This is perhaps more relevant to social tokens infrastructure providers, like liquidity-providers, who might get liquidity mining rewards in return for their capital.
• Information-led Provide editorial products that help customers understand something better. The examples are of a Tesco wine club that helps customers select new and more interesting wines. This seems apt for social tokens: newsletters, podcasts and other media products lend themselves naturally to building a community.
• Privilege-led The example given here is American Express and its membership perks. This makes me think of the Kings of Leon golden ticket NFT sale, or Gary Vaynerchuk’s NFT series, where NFT holders get perks.

Beyond the mechanics and design components of loyalty schemes, this observation also stood out for me:

Loyalty as bribe A former chairman of Asda, a price-focused supermarket chain, is quoted as saying loyalty schemes are really “bribes” to the customer. “They encourage customers to be mercenary by making them play one retailer off against another,” the authors write. The bosses of Waitrose, another supermarket chain, but one that’s focused on the high end of the market, also object to loyalty schemes because they say it’s the whole customer experience that generates loyalty, not promotions like points. Thus, better to offer customers creches, and better packaging design than points-collecting schemes.

The point I’d make here is that the sort of “playing one retailer against another” that’s being talked about is quite similar to the sort of super-liquid market dynamics that happen with social tokens. If a social token is to succeed in capturing and demonstrating community loyalty, then it has to be more than just a financial instrument that’s constantly pumped or dumped the minute a more lucrative opportunity is found elsewhere.

More on loyalty scheme design from Tesco Clubcard in the next edition of Pacenotes.