The Intersection of Blockchain and the Future of Loyalty

For the past several months Blockchain and the rise of cryptocurrencies have permeated news headlines, yet the ability to grasp the magnitude of impact these emerging technologies will have across industries has been slow at best.

While the media has focused primarily on Bitcoin and Etherum, an entire ecosystem of other platforms and currencies are emerging that have the potential to reshape the nature of customer engagement and remake traditional points-based loyalty programs.

Blockchain is poised to dramatically transform payment options and major functions in retail and business. While this won’t happen overnight, we are at a point where we need learn more about Blockchain — how to approach it and the impact it will have on the retail and business world, including customer loyalty.

Fortune magazine explains it as “Blockchains use complex mathematical functions to create a secure and definitive record of who owns what. In other words blockchains keep a ledger — which businesses can also use to track credits, debits, and other transactions.”

The Global Retail Marketing Association recently invited 20 CMOs and CIOs representing national retail, restaurant and financial services companies to join us for a lively conversation about how Blockchain technologies could transform the future of loyalty. As CEO of GRMA, I had the pleasure of co-hosting this Special Access Experience with Dave Kimbell, Chief Marketing and Merchandising Officer at ULTA Beauty.

Our guest speaker was Mark Bonchek, Founder and CEO of Shift Thinking, and our contributing sponsor partners were from Quad / Graphics and Advantage Solutions.

Mark presented a provocative discussion on the intersection of customer loyalty and digital currency, the importance of new mental models around how we think about our brands, the customer and loyalty, and how Blockchain when applied in the context of social currency can evolve any brand from operating IN an economy to becoming its OWN economy.

Last week Forbes featured an article on this topic, stating, “Blockchain technology, due to its distributed and secure nature, offers a solution to many of the problems that many large customer loyalty programs face right now — issues such as complexity, the integration and alignment of a large network of suppliers and partners, the calculation of balance sheet liability as well as data protection and security issues.”

And, as a result, the growth of Blockchain is running rampant. Last week shares of e-commerce retailer Overstock.com jumped more than 20 percent upon announcement that a Hong Kong private-equity firm will invest up to $270 million into Overstock’s Blockchain subsidiary tZero.

Shift your thinking and embrace new mental models

So how do we embrace this new technology?

Mark opened the GRMA discussion emphasizing the importance of adopting new mental models within an organization to help better grasp new technologies. It’s not about the technology itself, it’s about how you think about the technology.

Shifting how we think is often necessary when companies are exploring new technologies like Blockchain, creating innovations, and/or embracing new business models. It’s not enough to say, we are deploying a new business model or new technology and the rest of the company will follow. Companies need to change the way they think in order to change what they do, and the adoption of new mental models requires a process of unlearning vs. learning.It’s important to understand that as humans we are wired to learn in an additive way, meaning you learn something, and then you learn something new on top of that. We are also wired to learn something new when it is connected to something familiar (relatable to our own experiences). Because we see new ideas and innovations though the lens of the familiar or “old”, we hold onto these old mental models until new ones are within reach.

It’s like a trapeze — people won’t let go of the bar until the next bar is within reach. When exploring new concepts and radical technologies like Blockchain, you need to help bring new concepts or mental models within reach so people can let go of the old models.

“ The reason Blockchain is difficult to grasp is because it violates the rules of what we have known. It’s about unlearning and rethinking about new ways of doing something.”

We hang on to old models until new ones are within reach.

In order for people to grasp the concept of the first automobile, it was called “a horseless carriage” (a carriage no longer led by a horse). Thinking transitioned to a new concept through the lens of the old. Similarly, the first mobile device or cell phone was called a cordless phone (a phone without a chord) and today autonomous cars are being referred to as “driverless cars” (cars without a driver).

When something is new, companies need to find ways to get people to the horseless carriage. For us to think about radically new ideas, we need to see through the lens of the old and familiar.

The reason Blockchain is difficult to grasp is because it violates the rules of what we have known. There is nothing that connects the word “Block” and “Chain” to anything familiar. It’s now about unlearning and rethinking about new ways of doing something.

To illustrate a way to rethink how something gets done, the founder of Wikipedia, Jimmy Whales, had originally created “Nupedia.” It was meant to be the world’s largest international, peer-reviewed encyclopedia, free to anyone with open-content, not proprietary, and where articles could be written, edited, reviewed and copied. It was a revolutionary concept that failed because of old models of thinking. At the time, peer review meant something different than peer review today. Nupedia had a team of expert editors considered peers, and a seven-step approval process for content to be produced. As a result, in year one, Nupedia published only 21 articles.

It was the ability of the founders to “unlearn” the old model and completely rethink that there is an entirely different way of doing something that allowed them to create Wikipedia. They realized that the process and the platform they were using for the editors to review articles could be used and externalized for the community to become the editors.

In the first year of launching Wikipedia, they published 18,000 articles. It became THE distributed model of content production, purely open-source, open-edit and a collaborative platform. It wasn’t about taking an encyclopedia and making it digital. It was about rethinking a new mental model about how distributed content could be produced.

Where Wikipedia is the distributed model of content production, Blockchain is the distributed model of trust. It’s relevant in that it’s a similar way to rethink about how something gets done. You have to transform the way you think, not just what you do. If mental models across growth, strategy, culture, and engagement are all outdated, then we need new mental models.

New mental models for your brand, loyalty, marketing, and economies

The relationships of brands and customers

Research (The Human Brand) has shown that people relate to companies, brands, and even inanimate products in the same way they naturally perceive, judge, and behave toward one another. Brands and faces mean the same thing to people. We’ve hijacked the part of our brain that we use for human relationships and that’s what we use for brand relationships. We perceive and judge corporations as if they were people.

This is an important factor because brands can behave more like a person. So how do we make our brands more human and create loyalty?

The new way of thinking about loyalty is in the “human sense” of loyalty as opposed to “incentive-based” loyalty. In the human sense, loyalty is defined as “unswerving in allegiance” and “staying true to someone or something even when other things call attention.” Here’s an example: You have a friend who needs you to pick them up in the middle of the night at the airport. It’s not convenient for you, but out of a sense of loyalty and allegiance, you pick them up.

But as companies we don’t think about loyalty in the human sense. We think about it in the incentive-based marketing sense. Wikipedia defines loyalty marketing as, “an approach to marketing, based on strategic management, in which a company focuses on growing and retaining existing customers through incentives. The goal of loyalty marketing is to drive repeat purchase behavior. The loyalty loop is all about transactions and getting people to buy.”

We live in a world where we build relationships to drive transactions. It’s what we’ve created loyalty in an institution sense versus a human sense. However, data shows that 79 percent of customers would take their business to a competitor within a week of experiencing poor customer service.

So what happened to “unswerving in allegiance” and the “staying true” part of loyalty? In the human sense of loyalty, it’s not about incentives; it’s the opposite of incentives.

If you want loyalty, you go for gratitude and shared purpose, which drives allegiance.

The new mental model of “Brand Orbits” and the move from transactional to relational

The Internet and social media have provided us with two-way communication, giving us a pull model vs. the push model of the past. If you think about your brand as the solar system (planets in orbit), your brand, not at the center of the orbit, but rather it is the whole solar system in the galaxy of your industry. So how do you pull customers into your solar system rather than someone else’s?

What goes at the center is a shared purpose of some kind and all of your stakeholders are in orbit around that shared purpose. Rather than firing things at them, you are trying to build up the gravity that pulls them in, and then there is an ongoing relationship, not the loyalty loop where the transaction is at the center. The center is the shared purpose, an ongoing relationship beyond the individual transactions.

Apple, Google, and Amazon are examples of successful companies creating brand orbits, where not every touch point has to be monetized or transactional (think of the free service and support through Apple’s genius bar or the free subscription to Google’s search engine). It’s a whole set of interactions that feed each other.

In the case of ULTA Beauty, you flip it around. It’s now about beauty rather than cosmetics. In the push model, we sell cosmetics and strive to build relationships with people who will want to buy our products. In the pull model, we create a deeper relationship with our customer focused on beauty, and in turn they buy cosmetics. It’s what you might call the “uber effect,” when the payment disappears and/or is embedded inside the relationship. ULTA Beauty’s success in new thinking: “We are all things beauty.”

New way of thinking about economies

Economy is defined as “any system of interaction or exchange.” Anthropologists identify two kinds of economy: the market economy and the gift economy.

In a market economy, it’s about the transaction or the contract, while in the gift economy it’s about reciprocity and relationship. The medium of exchange in the market economy is a financial currency or equivalent, a point that you redeem, such as a coupon. In the gift economy, the medium of exchange is social currency.

A currency is a stored value medium of exchange and social currency is something that is given or exchanged to establish trust and to express or reinforce relationships.

Here is an example: How might you express or reinforce your relationship with a friend who helped you move? Perhaps it’s buying them pizza, beer, or a bottle of wine. It’s not about how much the pizza or beverage costs, because it’s about “what” rather than the monetary value. If you know your friend likes Hawaiian pizza, you buy her what she likes. It’s socially accepted in this situation to create value in the relationship, whereas giving them money in this circumstance may not.

Other examples of social currency in the gift economy, like making a mixed tape made for a friend vs. buying them a cassette tape as a personal way of signaling value in your relationship — you focus on choosing the songs and the order of the music, specifically for that friend. The Grateful Dead mastered social currency in context of the gift economy by allowing their fans to record their concerts and then giving them a link to their concert performances so they could share within the community. Rather than monetizing sales for each performance, it was about giving back. Waze has built a community on social where members pay it forward by sharing real time updates with their peers.

There are deeply seeded intuitive and universal understandings of whether we are operating in a transactional economy and relationship economy. If you can master both worlds as a brand, you win.

The key to unlocking how Blockchain will transform loyalty is through this social currency in the context of the gift economy.

Managing the flow of social currency in a micro economy builds relationships and generates gratitude. What if you could reward your customers for their social currency relating to your brand? In the case of Facebook, there is value in a “Like” reaction, and what if points were earned for the number of likes received?

In the case of ULTA Beauty on Pinterest, social currency is heavily in place — eyes, lips, nails, likes, and posts are all social currency.

As a company determines the actions they want to reward, they begin to manage the flow of actions and gratitude, peer to peer and customer to customer. This allows us to incentivize transactions and communication, while we assure trust in that activity being recorded accurately.

Blockchain is the key to unlocking this. Through deploying smart contracts to legitimate the process (i.e. preventing robots from entering “likes”), in a token economy, you can create your own social currency, and legitimate the process.

In simplest of terms, Blockchain is considered the distributed model of trust or a distributed ledger because the technology allows for a vast network of computers or servers to record an individual transaction. Instead of using a third party verification process, such as your bank to record a financial transaction where currency is exchanged from one person or entity to the next, the transaction is recorded across the network. The trust no longer resides with a third party. How you store and track information is distributed instead of centralized.

Blockchain can be deployed in these three ways:

  • Smart Contracts
  • Smart Money
  • Token Economy (programmable money)

Blockchain makes it possible for brands to have their own currency and add intelligence into their transactions. Those transactions or exchanges are intelligent/“smart” programmable, meaning you can put conditions inside the transaction or contract. You can build intelligence in the contracts. Records could be stored and facts could be checked across a system of computers, while there is no central owner and it’s decentralized and distributed … and secure!

Because they are stored on the Blockchain it inherits properties. Smart contracts are immutable and distributed — whenever it is created it cannot be changed again, so no one can tamper with your contract.

Companies connecting supply and demand that create their own markets through social media and through your community can now create your own currency with smart contracts as your governance. You now have your own economy, a token economy, a micro-economy.

Blockchain allows the company to go between the transactional economy and the relationship, blending the two together. It allows you to think of your brand not as a business that operates IN an economy, but rather your brand IS an economy.

Blockchain is about trust

Whether you are an Airbnb, a bank issuing loans and automatic payments, a retailer with a loyalty rewards program, or an insurance company processing claims, Blockchain offers you new possibilities, by embracing new mental models and rethinking about your brand. You can evolve from a business that operates in the economy into being the new economy.

GRMA is building a collaborative group of leaders who would like to learn more and explore the possibilities of Blockchain further.

Feel free to reach us at info@nullthegrma.com

Stephanie Fischer, CEO, GRMA

Links to related articles:

https://www.forbes.com/sites/adrianswinscoe/2018/08/13/should-you-be-considering-the-use-of-blockchain-to-power-your-customer-loyalty-program/#34cbacee7104

https://www.cnbc.com/2018/08/09/overstock-shares-jump-after-investment-in-blockchain-subsidiary.html

http://fortune.com/2018/08/13/blockchain-identity/