We collaborate with clients as they strive to solve customer loyalty challenges, and customers being customers, these challenges are complex, subtle, and fluid. And they occur in the context of an industry which is being disrupted.

The rate of change is particularly high at the moment, a pause and review could help as we try to understand the consequences of the perfect storm; GDPR, cookies going, apple permission-based tracking, EU Civil Liberties actions, skepticism about the effectiveness of programmatic marketing… What does all of this mean for customer loyalty? Why are retailers transforming like werewolves on a full moon?

Our attempt at explaining what has / is going on may be helpful, or at least interesting? We would love to talk with you about it.

There is a two-sided market for selling stuff

The business of selling to consumers is simple in principle but complex in fact. On one side is a population of buyers looking for a good deal, on the other a collection of merchants looking for buyers. Two-sided markets cry out for market operators to connect the two groups, buyers, and merchants, and vice versa.

Like most ‘dances for three,’ the arrangement gets complicated, quickly. Especially as we introduce technology.

Merchants looking for buyers

Let’s start with a look at the Merchant side of the market. This has been guided by the ‘cost per impression’ models of mass advertising and 'The Attention Economy’1, with its belief that the critical resource is customer attention. 'Look at me!’ marketing resulted with operators aggregating deals and discounts/remarkable offers in an attempt to attract attention. The internet made this easier, so affiliate shopping malls, cashback shopping programs and Amazon grew dramatically.

In many ways this ‘fresh’ marketing channel emulated the mass advertising channels it supplemented; intrusive, undifferentiated, blurrr.

Just as merchants worried about the 50% of their advertising, they were wasting2, now they worried about the discounts they were giving to customers who already intended to buy at full price. And as media channels proliferated, the selection of the best became a daunting task.

The need to increase marketing conversion rates incubated 'The Intention Economy' thinking: "The intention economy is an approach to viewing markets and economies focusing on buyers as a scarce commodity. Customers' intention to buy drives the production of goods to meet their specific needs.3 " We hope customers with an intention to buy are easier to sell to.

The challenge is in detecting this intention early enough to influence their decision on what exactly they buy to get their job done, and from whom to buy.

The surveillance marketing platforms stepped in to build ‘prediction markets’ selling ‘intentions’ inferred through user browsing history and site characteristics. Google, Facebook, and other web publishers participating in Real Time Bidding platforms are now powerhouses. To advertisers the claim is that digital offers will be presented to consumers who have an intention (or at least an interest) in what you have to say. The volumes involved are impressive4;

The biggest data breach ever recorded
Tracking-based ads (RTB) broadcasts by biggest “ad exchanges"

Since customer intent is inferred, not measured, it is difficult to ensure sales can be attributed to the investment in programmatic ad placements. Lack of accountability has resulted in some ‘slack’ in the system apparently, “…Half of Google’s ad revenue once came from helping publishers show ads on publisher’s own properties. But now nearly all (85%) of Google’s ad revenue comes from displaying ads on its own websites and apps, with the benefit of data siphoned from publishers’ websites & apps.”5 And it appears that 35% - 70% of advertising fees paid by advertisers in the tracking-based ad industry go to intermediaries in the process.6

But the fundamental problem with this particular approach to the matching of merchants with buyers is the lack of permission sought and permission granted in the process. Consumers, once aware, are not comfortable with having their browsing and search behaviour bundled into profiles and sold to the highest bidder every 120 milliseconds. Privacy laws are reflecting their discomfort and will eventually ban the process. 

What we see implemented is a far cry from what was described in 2006. In those heady days Marketers thought the customers would be active participants in the selling of Intention, rather than unsuspecting targets. A robust market of Vendor Relationship Management (VRM) platforms is still to blossom – there are some promising shoots – but the proposition is attractive to consumers and consumer advocates; ‘Free customers are more valuable than captive ones’, and ‘Free markets require free customers.’“In The Intention Economy, a car rental customer should be able to say to the car rental market, “I’ll be skiing in Park City from March 20–25. I want to rent a 4-wheel drive SUV. I belong to Avis Wizard, Budget FastBreak and Hertz One Club. I don’t want to pay up front for gas or get any insurance. What can any of you companies do for me?”—and have the sellers compete for the buyer’s business.”Searls, Doc. The Intention Economy. Harvard Business Review Press. 2006