How Blockchain-enabled Loyalty Will Create a New Type of Competitive Advantage

There was a fascinating article by Holman W. Jenkins, Jr. in the WSJ recently called, The Media and the President It Deserves. In it, Jenkins introduced me to an economist named Albert O. Hirschman who wrote an essay entitled Exit, Voice and Loyalty.

Hirschman suggests that people have two options when faced with declining quality from a company. They can leave (exit) or they can inform the company about the issue (voice.) This is true with countries as well (emigrate/vote).

Jenkins’s article was about the relationship between two declining institutions in America, the Presidency and the Media and is worth the read on its own (paywall, but worth it).

I want to take it another way for a moment.

In his article, Jenkins observes:

Loyalty—or the capital of past trust—is a thing that enables institutions to decline: Their customers don’t abandon them overnight. Loyalty also allows institutions to repair themselves, because their customers don’t abandon them overnight.

If you have more than 3 days worth of blockchain familiarity, you will see the angle immediately.

“The capital of past trust” is basically a store of value created by the organization that allows for wiggle room and the opportunity to fix mistakes. Sometimes, marketers will call this “brand equity” as in “ok, we can afford this mistake or this risk because we have enough brand equity to withstand the failure.”

I know I did this at Sprinklr when I was there and I do it today. Brand equity (measured in Loyalty) is an asset that can be leveraged at opportune moments.

Which brings me to blockchain…from two sides.

The first is to build on Chris Burniske’s fantastic work on crypt-asset valuations. He does a wonderful job of explaining how an asset’s worth is a combination of current utility plus expected future utility. However, I wonder if he is neglecting the fact that, in the future, the asset/protocol will have built up some loyalty that allows for “wiggle room” and thus gives the value of the token a premium beyond just current+future utility.

Bitcoin and Ether, for example, definitely have brand loyalists. The “HODL” nature is a combination of a belief in future utility as well as an element of built up loyalty accrued over time. Bitcoin has a track record of not dying, despite countless predictions to the contrary. Whether it belongs in the model or not, I’ll leave up to Chris.

The second, is straight out of the Blockchain Marketing Technology Landscape and was a prediction that I made in the CMO Primer for the Age of Blockchains. It is that-after ad tech- loyalty offers the most potential for blockchain-driven disruption.

Today, for the most part, loyalty isn’t really viewed as an asset. It’s viewed as a way to “lock-in” (see the concept of “love-in” vs. “lock-in”) customers and keep them coming back. While there are true brand loyalists out there, how well does a brand who is loyal, e.g. ‘capital of past trust’ versus who just keeps coming back because of other reasons, e.g. you live in Minneapolis or Atlanta so you fly Delta because of convenience not loyalty.

We’re going to see protocols (aka brands) and marketers start to try and figure out exactly what percentage of the value of their token is based on user loyalty (and it may differ per person, which brings in the identity angle as well). It may even lead to a total re-think of what “customer loyalty” means and what a “loyalty program” comprises (something I will explore in the future).

Primoz Kordez (another of my new favorites) wrote a great piece called “How the Behavior of Token “Hodlers” May Create Volatility”. It’s a great read on its own but as it relates to this conversation, here’s what I think may be relevant:

Interestingly, in the token economy an investor is someone who impacts the floating number of tokens that can be utilized. By having more “hodlers” or passive investors in the token ownership structure, they effectively take tokens out of circulation for use.

What makes people become “hodlers?”

Part of it, to be sure, is based on the belief about a higher future utility/value. But, I wonder, if part of it is based on the “capital of past trust” as well.

What’s so exciting to me is that blockchains, and tokens in particular, will give us a way to measure the “capital of past trust” aka ‘loyalty’ in new and exciting ways so that it becomes an asset on the balance sheet (in the form of brand equity) and will enable protocols to understand the impact of their development efforts on the reservoir of trust they have built, allowing them to be even more user-focused and deliver more value.

This is good news for everyone.

Fred Reichheld wrote the book that introduced the concept of NPS-Net Promoter Score– to the world. It’s called “The Ultimate Question” which is: “how likely are you to refer a friend/colleague to this product/service?”

As we leverage blockchain to get more refined insights into what makes up loyalty, people seeking to create value for others (and get rewarded for it), will have an even better understanding of what they need to deliver in order to drive user-enthusiasm, word-of-mouth, and NPS.

In a decentralized world, where a protocol’s token holders are the most effective marketing asset, understanding this at a very deep level is going to be a competitive advantage.