How brands’ virtual currencies encourage customer loyalty

January 21, 2014

This article first appeared on the Guardian Media Network

In the wake of ‘Amazon Coins’, a virtual currency that makes it easier for Amazon customers to purchase apps, games and other in-app items, Lexi Brown examines the rationale behind the move, its potential pitfalls and some of the consumer benefits.

With the introduction of Amazon Coins, the online retailer aims to make it easier and cheaper for customers to shop on its Appstore and on Kindle Fire. To kick-start the initiative, Amazon has gifted Kindle Fire owners 400 coins (worth £4), and consumers buying Amazon Coins in bulk will receive up to a 10% discount.

Central to the retail giant’s strategy is that Amazon Coins essentially will work as an incentive for consumers to shop within Amazon’s ecosystem, as they offer more value and purchasing power than real money.

This will initiate a virtuous circle, whereby customers are encouraged to buy ‘Coins’ to access value offers and discounts, which in turn means they will be more inclined to keep shopping on the Amazon Appstore.

This is clearly a very sensible move from Amazon as it tries to retain its Kindle Fire users, who might otherwise visit rival sites.

More than ever, it has become clear that the creation of a healthy brand ecosystem is vital in a highly competitive and crowded marketplace, as it builds a powerful and loyal community around the brand.

Indeed successful brands have long since developed ecosystem strategies, among them, Apple, a pioneer in this field.

Where Apple managed to achieve this successfully through the alignment of strategy, design, product integration and communications, Amazon is seemingly trying to meet a similar objective through its virtual currency.

Virtual currencies can encourage consumers to stay within the ‘walled garden’ of the brand’s retail ecosystem and the benefits are multiple: they can help enhance customers’ loyalty and have the potential to improve the personalisation of the shopping experience. They could even become the nexus between the online and offline channels, shortening the path to purchase, by making ‘click to buy’ easier. Parents can also use them to easily set spending limits inside games for their children.

From this perspective, virtual currencies could be the way forward. However, this is not the first time they have been introduced.

Amazon Coins are very similar to the now-obsolete Facebook ‘Credits’ and “retired” Microsoft ‘Points’: both ambitious attempts at virtual currencies, which failed because users perceived them as superfluous. They were ‘non-convertible’, i.e. entirely useless outside of the ecosystem, and an extra layer of friction in the transactional process. Users didn’t feel ‘credits’/’points’ provided a strong enough reason for being loyal to the ecosystem – quite the opposite, they were pushing users away from it.

So, will Amazon be able to create a successful ecosystem based on its virtual coins and capitalise where Facebook and Microsoft failed?

It all depends on the momentum of consumer adoption. Amazon will have to convince its customers of the convenience and value of its virtual currency. It will also probably need to offer more than just discounts, as it is normally a combination of factors, which lay the foundations for a successful ecosystem. They will also need to build traction fast.

Virtual currencies for brands and retailers are still largely uncharted territory. Amazon will have to tread carefully and keep expectations low to ensure its new currency doesn’t suffer the same fate as Microsoft and Facebook’s attempts.

 

From a brand’s point of view, the case for virtual currencies appears all but made – but as far as customers are concerned, the jury is still out.

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