Beer and diapers - the myth of purchase data analysis

Doing some research on how Foursquare and other social media companies are trying to get into the loyalty business, I stumbled on this piece that basically says that the key is data analysis:

"Loyalty programs enable businesses to conduct what we market researchers call market basket analyses of purchase data – by determining what items frequently get purchased together or at least by the same types of consumer, companies can optimize promotions."

I could almost see it coming ... the beer and diapers story. And bang, right on cue, there it was:

"There is a reason why Godiva chocolates are sold near the jewelry counters, and why (to use my example above) beer and diapers are often near each other in convenience stores."

Twenty years of purchase data analysis and the only story that sticks is beer and diapers. The secret is that there has always been much more talk about this type of analysis, and very little real work.

If not, we would be talking about something other than beer and diapers.

Currency competition: the next driver for innovation in money and payments?

The economic crisis is a great motivator for innovation. Since fiat money is at the heart of this crisis, we could see a resurgence in private currencies. Dave Birch's Digital Money Blog has brought up private currencies many times. Now, with government fiat currencies devaluing around the world, the topic is being looked at through the angle of currency competition.

"In the two years since the recession began, in order to fight off a depletion of local wealth, local communities have created their own currencies," writes Jeffrey Lewis in this article. "The benefit here is that the money spent at these shops can openly circulate throughout the community, ensuring that at least a small amount of liquidity stays local and keeps the economy moving."

Downside?

"One of the biggest disadvantages to these local currencies is that they are unfortunately pegged to the US dollar, so it is just as encumbered with the threat of inflation as the dollar. However, their popularity does suggest that consumers are at least willing to drop the greenback as a medium of exchange, and we can only expect that as these currencies spread further and further, Americans will begin looking at their dollars a little bit differently."

The Next Step?

"The next step in moving forward with competing currencies and the eventual resurgence in metals as money is right around the corner. Following the success of currencies backed by the US dollar that can be readily exchanged in local businesses, we should only expect that the next step will be a currency system that is devoid of any ties to the greenback. Instead, the new currencies will be backed by metals, labor, or another fungible product that is easily monetized. Their use in local businesses will help propel an economy that is strained by debt and fear of the future, and we can only hope that they will go mainstream."

Crisis, Innovation and Relationship Cards

Here's a great presentation by Patrick Gauthier. It's missing the audio, which I imagine must have been very interesting to hear.

Crisis Innovation and Relationship Cards 2.0

View more presentations from hyperion941.

Hyperinflation – An Upcoming Black Swan in the Payments Industry?

With no inflation in sight, why am I writing about hyperinflation? Remember, in October 2008, the deer in the headlights look on the faces of economics experts? Nobody in charge knew what was going on. None of the experts in textbook economics, none of the Nobel Prize winning old men. They were all dumbfounded. Every one of them. And they are still playing with dangerous things like derivatives and money printing, turning the Western economic world into a gambling den, and forcing all of us to bet on possible outcomes when some of us would rather be focusing on building great companies.

When strategizing my business activities and planning the safety of my family, I now take a serious look at the impact of these people being wrong again, and of their gambling losses causing more damage. I’m certainly not placing all my bets on the continued blind faith in the dollar and other fiat currencies.

Hyperinflation doesn’t need to be the cartoonish version that happened in Zimbabwe. It is actually much more common than that. We’ve seen it in the last decade in places like Turkey, Thailand, Brazil, and other places. It still leaves vivid memories in Italy, Greece and even France if we go back just a few decades.

Around ten years ago, in Turkey, two banks grew their credit card businesses much faster than their competitors. Garanti Bank and Akbank both credited their success to the real-time loyalty programs that they offered. My prior company, Welcome Real-time, provided the software for Akbank’s program. Several years later, I came to understand that it was in fact high levels of inflation that actually drove the success of those loyalty programs.

Inflation causes people to spend money quickly, to convert cash into goods before prices go up further. High inflation will boost credit and debit card payments, since that is an easier and quicker way to spend cash than paper money. All credit card issuers can benefit, especially those that can quickly increase their points program ratios to take into account higher interest rates, like Garanti and Akbank did in Turkey.

But there is another area where inflation will have an even bigger impact and create much larger opportunities for a few nimble payment providers. I see a once in a lifetime opportunity for new prepaid services.

Putting $50 on your Starbucks prepaid account is not very useful in a high inflation environment. But tweaking the system to let customers prepay 10 coffees is a completely different thing. Dollars are converted to goods and services immediately, locking the value of those goods in for the future. Want to lock more in? Prepay 20 coffees. Want to spend your money on more than just coffee? Purchase Starbucks Sterling or Carrefour Bucks. The exchange rate for each retailer’s currency can be displayed on a daily basis.

Customers are already familiar with loyalty currencies and exchange rates for points. Why not retailer currencies for payment?

Closed loop prepaid providers will be the big winners. Open loop prepaid cards are useless in a high inflation environment. Closed loop gift cards that are based only on dollars are also useless.

The real disruption this time, compared to ten years ago in Turkey, is the ability to use mobile phones for transacting. Now, with my new startup venture, Taggo, and with prepaid technology offered by CRM, membership and POS providers that have integrated Taggo into their solutions, any retailer can quickly create their own currency, without needing to issue new pieces of plastic that customers don’t want to carry around.

I have been talking and writing for many years about ways to make payment acceptance more attractive to merchants. This has been a big focus for me in creating Taggo. Developing strategic ways to benefit from potential currency devaluations is an added plus that doesn’t cost much today, but could prove to be very profitable.

Still, I wish all of those gambling addicts in London and New York and Washington would just go cold turkey and let the rest of us get on with our lives.