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BLOCKCHAIN TECHNOLOGY AND CRYPTOCURRENCY ARE TWO VERY DIFFERENT THINGS. BE SURE NOT TO CONFUSE THEM.

In recent months many people have written and spoken about Blockchain technology and its potential to be a game-changer. There is a lot of buzz about how it will affect loyalty programs, financial services and marketing initiatives in general.

I am not a Blockchain or technology expert. But I do have extensive experience building customer engagement, fostering customer loyalty and successfully motivating and rewarding profitable, long-term customer behavior. I know how critical it is to execute a customer loyalty program using the best, most appropriate technology; today’s best-designed programs are enabled by the best and newest tech.

One thing I’ve learned is to understand the difference between the strategy and the execution of customer programs. And that the available – or most hypothetically attractive – technology should never drive program design. Successful program design is built on understanding the real drivers of customer loyalty, both the behavioral and emotional elements of customer engagement. Once the program is designed, THEN it is time to determine what the best technology is to support it.

So, what does this have to do with Blockchain?

Blockchain technology was made famous by its most widely known application, as the foundation of cryptocurrencies like Bitcoin. But Blockchain, as defined by Wikipedia, is simply “a continuously growing list of records which are linked and secured using cryptography.” In addition to enabling cryptocurrency trading, Blockchain is finding commercial applications like managing carbon credits, secure exchange of healthcare data and insurance claims processing. Blockchain is an enabler, not a program in and of itself.

Blockchain provides greater security, permanence, convenience and transparency. As such, it clearly has implications for loyalty program designers. Using Blockchain could help reduce fraud and other security risks – a growing concern among loyalty marketers – and make program management easier.

But it seems like many conversations about Blockchain’s potential for loyalty quickly devolve into discussions about the use of universal loyalty cryptocurrencies. And that’s pretty scary for loyalty marketers.

What’s wrong with a universal loyalty currency?

There are a number of companies popping up promoting the adoption by marketers of universal loyalty currencies. This, of course, arises not from an altruistic impulse to improve program management, but by the financial opportunity these companies have to profit from the arbitrage of a widely traded loyalty currency. Fair enough, we’re all here to make a profit.

The argument goes something like this: Wouldn’t it be great if consumers could use the loyalty currency they earn anywhere they like? Surely customers would shop more with you if they could spend their currency all over town? It would be a golden age of choice and freedom for consumers.

But here’s the thing: Why would McDonald’s give you currency you could redeem at Burger King? I would hope at the very least that anyone peddling a universal loyalty currency would ensure category exclusivity. But that still wouldn’t drive real loyalty.

Loyalty programs do not exist primarily to reward customers. In fact, well-designed programs go to great lengths to reward only incremental behavior or to retain customers at high risk of defection. Loyalty efforts are designed to gain customer-level data, and use the understanding of that data to drive profitable behaviors. Of course a program must have a compelling value proposition for the consumer. But a program that rewards customers in ways that don’t drive repeat visits and incremental share of wallet is useless. You might as well just lower your margin by the cost of the rewards.

What really builds loyalty and engagement?

In research, consumers will always say what they want most is in rewards is discounts or cash back. And that works for credit card programs, because the banks don’t care where you shop; they just care about how you pay. But in real life, consumers quickly forget about the discount or the cash reward they have earned. Cash back – or a loyalty currency as fungible as cash – is soon forgotten. And if the cash reward is in the form of an automatic statement credit, it’s even worse; the customer often won’t even notice the discount, let alone appreciate it, remember it and change their behavior because of it.

What consumers remember is what’s special about your brand – and your program. They care not only about what they get for being brand loyal, but also about how they feel about your brand.

We’ve identified the drivers of emotional loyalty as:

  • Status – “I feel better about myself when I shop here.”
  • Habit – “I shop here without really thinking about it.”
  • Reciprocity – “I’m treated so well, I almost feel an obligation to be loyal.”

Here’s an example: While celebrating our birthdays at Wrigley Field, my friend mentioned the occasion to the ticket takers, who all sang happy birthday to us. But as she scanned our tickets, the associate must have entered a note on her device. During the game a guest services rep visited our seats, and invited us to the Cubs dugout after the game to have our photo taken. That was four years ago, and we’re still talking about it. We’ll never forget it. If they’d just given us 10% off on food or souvenirs, we’d never remember that.

What matters most – unique or universal?

Loyalty efforts should seek to differentiate your brand, not commoditize it. If programs using universal currency were to gain traction, it could take away an important tool in the marketer’s toolkit and undo years of loyalty building by hundreds of marketers. Disruptive technologies are great; disruptive strategies drive creativity and competition. But not all strategies are equally wise. A universal currency would discourage, not foster, loyalty.

If you’re interested in learning more about how to differentiate your brand and improve your loyalty program, email us at info@kobie.com.

Author: Howard Schneider

With over 25 years’ experience in customer loyalty, Howard brings innovation and insight to the creation of effective solutions for each client’s unique situation. Prior to joining Kobie, Howard was Managing Partner of Metzner Schneider Associates where he led the team developing customer engagement strategies for multiple global brands. He also served as Executive Vice President at Brierley+Partners. Howard and his wife Marcia live in a little house in the woods in Oregon with their Airedale Terrier, Tapioca and about fifteen koi. They have two grown sons, a musician and a scientist.

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