CHRIS JUDD Invest
Looking after your customers and growing their loyalty has been an important business principle since the first companies were created. However, with business competition now existing between any business in the world connected to the internet and not just other businesses in the same region, customer loyalty has become a renewed focus for brands. Fostered by the pace of digitalisation, including digital wallets, non-fungible tokens (NFTs), and growing demand for enhanced consumer analytics, advanced loyalty and rewards platforms are at the forefront of business development.
With some of the largest customer facing businesses globally – such as Amazon and Walmart – pointing towards their exceptional customer relationships for their prolonged success, it is easy to see how business might embraces this idea in a modern, post-Covid environment. Competition is traditionally defined in the two parameters of price and quality, but with a new generation of consumers willing to “vote with their feet” based on their moral qualms or satisfaction garnered from generous loyalty programs, customer interaction has become a new battleground for business to compete. Amazon’s CEO Jeff Bezos put it well when he said “we’re not competitor obsessed, we’re customer obsessed. We start with what the customer needs and we work backwards.” Almost all customer facing businesses in the 2020s and beyond – be it online or physical – will be competing for customer loyalty, as it shifts from an intangible, incalculable asset to a commoditised token.
The frequent-flyer and credit card points programs most consumers are familiar with will quickly have to adapt in order to meet the growing loyalty demands of their customers. The test case for blockchain based tokens has been proven as a potential alternative to traditional points systems, giving far greater power to the consumer. A loyalty token market would facilitate the exchange of rewards points and remove the clutter and inefficiencies of storing points in several different accounts. This tokenised system would also make it easier for companies to value their rewards program and given the blockchain technology, increase the transparency to customers as to what the value of the token is at any particular time.
Binance – a crypto currency exchange platform – adopted this ‘modern’ rewards program, by creating their own cryptocurrency, called Binance Coin (BNB). The idea of the coin is to facilitate the operations of the Binance exchange, which can be used to pay exchange fees, listing fees and trading fees, whilst receiving a discount if the BNB coin is used. This would reward customers with a 50% discount on trades in year 1, and half every year, until eventually ending the discount from the fifth year onwards. The coin also gives customers access to initial coin offerings (ICOs) and allows owners to spend tokens on partnered platforms, such as the popular Asian live streaming website, Uplive. Binance also commit to regular “token burns” which is akin to a share buyback where they take out tokens, their commitment at current prices is to “burn” ~US $230m worth of coins. With the help of the BNB coin, Binance has become one of the world’s largest exchanges, and since the Binance Coin’s inception in 2017, it has grown from a ~US$10m asset to a ~US$40bn asset. While it may be easy for some to explain away such value creation as BNB belonging to a bubble in cryptocurrency markets in general. But even if that is your view, it may still be prudent to understand what the market is trying to tell us through such enormous price appreciation. Perhaps the market is speaking to the power of a reflexive feedback loop that Binance Coin’s loyalty program has created as customers are left with both a value proposition (cheaper fees) and in this case (for now) an appreciating asset (the token).
Mobecom (ASX: MBM)
ASX Investors interested in this space might consider doing some further research into Mobecom. The small cap stock offers investors exposure to the customer loyalty and rewards industry, with an exciting 12-months ahead, as their turnaround kicks into gear under the leadership of CEO, Iain Dunstan. Management’s focus since the beginning of 2020 was to undertake major restructuring of the business, closing multiple subsidiaries and reversing the AirCrypto acquisition, in line with their core objective to achieve a break even on an EBITDA basis in the short-term.
Under the direction of Dunstan and Mark Schoombie, Mobecom’s Chief Technology Officer, the platform was redeveloped into the fully integrated back and front-end system it is today, dubbed Project Mosaic. The simplification of the core business service should give investors confidence that the turnaround is well underway, whilst also giving a clearer picture on the CY2021 outlook. The first half of FY21 showed an increase in annualised recurring revenue YoY of 22%, which is expected to continue into the second half, with the new Unlimited and Flash deals to go live in 2HFY21. This trend is expected to repeat in FY22, with management expecting 50%+ revenue growth from existing and new clients, looking to add to their already impressive client book including Starbucks Australia, British America Tobacco, Vodacom and The Meat and Wine Co. Mobecom posted a ~$0.8m profit in the first half of the year, with their first cash flow positive 4C in December, although this profitability will be unlikely to continue short term into 2HFY21, given planned investment in sales and operations, as well as reduced government support.
For those investors interested in the thematic and have the patience to follow a ~$20m market cap company through the early stages of a turnaround, Mobecom could be one to add to your watchlist. Their reasonably strong cash position of $2.9m should allow them to aggressively pursue growth opportunities in the form of new service offerings, whilst expanding their client base and achieving profitability in the short to medium-term.
Disclaimer: This article should not be construed as investment advice and is for information purposes only. It does not take into account your investment objectives, particular needs or financial situation. Before making an investment in anything, do your own research and contact your investment advisor.