Why Trust and Incentives Help Consumers With Better Brand Selection
More than 90 percent of people trust family and friends' brand recommendations. Just 38 percent trust info from advertisers.
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Trust and loyalty rewards have underpinned U.S. consumer spending for decades. Trust makes it easy to do business with a brand while a loyalty program rewards customers for returning. Such programs stabilize demand and supply chains and are effective at increasing revenue in the long run. Smart businesses know how to incentivize their customers and get them in the door with freebies, a deal they can't ignore or other smart marketing ideas, but once that customer is in the store, they can sell them the more expensive items.
Loyalty program members generate 12-18 percent incremental revenue growth year over year compared to non-members, according to a 2017 Accenture study. However, the pandemic has led to big changes in terms of what types of incentives customers are looking for. In these difficult times, entrepreneurs want to know about how trust and incentives help consumers choose brands.
People trust family and friends' recommendations
Earning trust online is more critical than ever as the pandemic and work-from-home (WFH) situations force consumers to begin a digital migration. According to a July 2020 McKinsey survey, 34 percent of respondents have shopped on Instagram based on influencer recommendations. And 55 percent of consumers reported turning to brands they trust during the lockdown.
When it comes to family and friends, the numbers are compelling: 93 percent say they trust family and friends' brand recommendations while only 38 percent trust info from advertisers, according to a 2020 survey by Kantar Media.
Companies need to redesign ecommerce processes, marketing strategies and partnerships to increase customers' trust in purchases and shopping journeys. Ecommerce and retail are seeing a big shift, but there's also been a shift in the enterprise software sales side.
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Blockchain company UTU which means "humanity" in Swahili, believes the way to get there is to build a trust-based infrastructure on the web. That means delivering APIs, Oracles and SDKs that enable trust signals to be evaluated dynamically and presented descriptively.
I recently spoke with Jason Eisen, CEO of UTU, who says that such an infrastructure would make it difficult for businesses, salespeople, advertisers and unethical parties to manipulate product testimonials, ratings and scores. Their technology is valuable for situations when services are researched and obtained digitally. Fake reviews and rankings have grown pervasive online, and these mislead customers into choosing subpar products and services. Thus, cheating and obfuscations are rewarded. Cheaters exist, unfortunately, so businesses need to be proactive and build their infrastructure with possible loopholes in mind.
In the last year, 82 percent of consumers have read a deceptive review, according to 2019 research by marketing firm BrightLocal. In the U.K., fake reviews potentially influence $29.3 billion of customer spending annually.
"A trust infrastructure must be decentralized and can be tokenized to incentivize the creation of trust and good outcomes," says Eisen. "In ecommerce, trust unleashes frictionless transactions. Unfortunately, peoples' data and personal information are taken, their privacy violated and reputation sold to bidders. Thus, the current approach to digital trust is wrongly conceived, poorly implemented and subject to rampant abuse and manipulation."
Loyalty programs must adapt to consumer preferences
Loyalty programs are important mechanisms that help customers choose brands. Modern loyalty incentives were popularized by U.S. airlines in the 1980s with frequent-flyer miles. Since then, various iterations permeate across hyper-competitive, consumer-facing industries — particularly in credit cards, financial services, retail, hotels, entertainment, electronic goods and groceries. Companies award perks, points, discounts and free goods in exchange for customers' repeat purchases which, in turn, enhances enterprise value.
With the growing popularity of non-sovereign digital coins, as well as smartphones, companies are beginning to turn to cryptocurrencies to reward tech-savvy customers for their loyalty. For instance, Hong Kong-based Powerchain is launching a blockchain-based loyalty points exchange that enables merchants worldwide to offer a more valuable format of loyalty reward.
I spoke with Michael Mathias, the company's CEO and the founder of GreenPower, who says that blockchain-based rewards can significantly enhance value as well as reduce inefficiencies of traditional points. "Blockchain-integrated loyalty points improve trust and ensure security," he says. "The loyalty points on our blockchain-based platform represent a superior format of customer reward that never expires, is never restricted and is exchangeable for other forms of value, including cash."
However, 75 percent of consumers have changed shopping behaviors because of the pandemic. "Value, availability, and quality or organic products were the main drivers for consumers trying a different brand," according to McKinsey's COVID-19 Global Consumer Sentiment survey.
The top three reasons are now value, availability and convenience. Due to the recession, people want value purchases for essential items; buy products that are actually available (due to disruptions in the supply chain); and choose businesses that make shopping convenient such as online orders, curbside delivery and in-store pick-up.
People value freebies and giveaways more than ever but are primarily focused on essential services like restaurants, banks, gas stations and medical services. One such essential service that's seeing challenges in terms of emerging competition from budding entrepreneurs is banks. As banking customers struggle to keep enough money in their checking and savings accounts to avoid paying the banking usage fees that accumulate when their balances go below the threshold, decentralized banking services are attracting new customers with giveaways, rewards, contests and incentives.
Related: 4 Tips for Holding Onto Customers During the Pandemic
The past few months have seen huge growth in the total value of locked assets within these protocols and a lot of developer and community interest. Another trend emerging from decentralized finance platforms has been incentivized rewards: paying out tokens to early users of a new product. This has proven to be a powerful method to drive the adoption of new crypto products and services.
"I expect this trend to develop as projects try out variations of different types of rewards and see which are most effective," Scott Stuart, co-founder of the Hard Protocol project told me. "As the world's first cross-chain money market, Hard Protocol aims to bring customers rewards in the form of HARD tokens, the governance token of the platform, as an incentive for users to contribute their capital in the money market. HARD tokens are distributed to users in addition to the interest they are paid on their capital." These new breed of money markets are not just for the wealthy either. There's no minimum requirement to open an account, no minimum balance that needs to be maintained and there is no lock-up period.
Being a governance token is important to improve decentralization and ensure that the application grows with new feature updates. Governance token incentives are now common practice across all decentralized money market applications available today. Active competition in the decentralized application space requires incentives that will incentivize user participation and promote liquidity.
Due to the recession and as a result of customer demands, companies will need to redesign loyalty programs and journeys to address consumers evolving priorities. That means giving customers access to discounted essentials and making redemptions convenient amid limited store hours and customer support.
Companies in the FinTech space are offering incentives to users to get them in the door. Another trend that is emerging during these uncertain times is 0 percent APR on loans. Banks are seeing competition as their customers are looking elsewhere for the lowest APR available. In previous times, 0 percent APR has been unheard of, but given the trends in the industry and how competitive it is, offering 0 percent APR loans allows the customers to choose the best option for them.
One example of such an incentive is with cryptocurrency where customers can generate a loan instantly using an app called Crypterium. There are no credit checks required and no repayment deadline, with loans ranging from $50 to $5,000 at the lowest APR. The program serves customers similar to how a credit card works. Unlike the typical interest rates that range from 4.95, 5.9 and even 8 percent APR, the incentive of 0 percent APR is to attract new customers who will then want to use other services within the app.
"With the economy the way it is, people are turning to holding Bitcoin or Ethereum as a way to take out loans faster than ever," Steve Parker, former general manager of Visa and CEO at Crypterium told me. "Trust is a balancing act for blockchain-based incentives. Customers need more incentives to extend their trust. The transparent nature of the technology is not enough. Also, as an easy way to attract users and familiarize themselves with our service without taking a big risk, we are offering the unbeatable incentive of 0 percent interest rates."
On the other side of the coin, oftentimes small businesses compromise trust with incentives. If the customer's trust is extended and the incentives aren't what they thought, the customer might feel duped. For example, a credit card with paragraphs of fine print restrictions of the initial catchphrase that gets the customer's attention. Small business owners need to be ever mindful to create the right balance of incentives with their customers without compromising the integrity of trust.
Trust is key to doing business. When family and friends share a brand recommendation on social media, a user will generally trust that recommendation. Companies can familiarize their goods and services by incentivizing consumers with loyalty points and other perks. Customers who make repeat purchases will become accustomed and make a brand part of their daily life.