The Token Economy

Innovation The Token Economy Nicola Attico Brand Contributor ServiceNow BRANDVOICE Storytelling and expertise from marketers | Paid Program Eugene Chuvyrov Brand Contributor ServiceNow BRANDVOICE Storytelling and expertise from marketers | Paid Program Sep 16, 2022, 10:46am EDT | Share to Facebook Share to Twitter Share to Linkedin Monetary value has always been a matter of human consensus. Earlier this year, the market presented a unique opportunity for Champagne enthusiasts who also happened to be futurists. A British entrepreneur commissioned an artist named Mig to help produce a bottle of Champagne with an image of “Bored Ape Mutant” on the label.

The bottle quietly hit the private collectors’ market—and it sold for $2. 5 million . Selling NTF art, conceptual illustration.

getty But the eye-watering price paid isn’t the most interesting part of this story. The new owners of the bottle also “took home” an NFT. NFTs, or non-fungible tokens, represent one small category of tokens.

Most people are familiar with tokens serving as a simple record of ownership in gaming and gambling. Beyond that, tokens are often used to incentivize and encourage positive behavior. Think of retailers supplying coupons to loyal customers, or parents handing out stickers to children when they get their chores done on time.

Today, tokens are undergoing a seismic change. As our lives grow more digital, a complex economy of unique and irreplaceable tokens is taking shape online. So far, NFTs are the most widely known example of digital tokens.

Since 2021, Gucci, Dolce & Gabbana, and Louis Vuitton have all created and sold NFTs. Outside fashion, however, businesses seem to underestimate the power of tokens to drive customer loyalty in the age of customization. Welcome to the token economy For over a century, psychologists and behavioral economists have been studying “ token reinforcement ,” the concept underlying the token economy.

Many argue that we’ve been trading token-like objects since our species evolved—and even before that. In the 1930s, a team of researchers trained chimpanzees to deposit poker chips into a vending machine in exchange for rewards like grapes and water. The chimps caught on quickly.

Soon they seemed to understand the exchange rate between a poker chip and a snack. For us and for chimps, tokens have no value on their own. A poker chip isn’t worth anything until it becomes part of an agreement: A chimp can exchange one for a snack, or a human can exchange one for cash.

A company giving out tokens to employees isn’t functionally different from the early humans who exchanged clay coins for food. Both transactions are driven by the same desire to create meaning and connection. On a wider scale, the token economy offers a chance to reach customers by appealing to their desire for a meaningful, personalized relationship.

Scaling token reinforcement Personalization can make or break brand loyalty. Over 70% of customers now expect to have personalized interactions with businesses, and most report frustration when that doesn’t happen. Today’s fastest-growing companies derive 40% of their revenue from personalization.

Many businesses use loyalty programs to build personal relationships with customers. But many consumers find traditional loyalty programs inflexible and impersonal. Less than half of Americans who are eligible for loyalty programs actually participate in them, and about 20% say they’re very happy with the level of personalization they receive from these programs.

Combining tried-and-true principles of the token economy with new technologies like NFTs offers a promising alternative. In a token-based loyalty program, customers gain consolidated access to tokens issued from multiple companies. These tokens can represent nearly anything, such as products, points, affiliations, cash, and memberships.

When a customer uses a token­—say, to receive an exclusive service—a transaction is issued on a distributed ledger system. As our lives grow more digital, a complex economy of unique and irreplaceable tokens is taking shape online. Legacy rewards programs restrict when and where customers can redeem their rewards.

With digital tokens, the customer is in charge of their own experience. In the near future, customers will be able to access their tokens from a digital wallet. Wallets are the ultimate key to user-centricity and trust, and they’re a critical part of the service stack.

Digital reward tokens are extremely effective tools for motivating customer behaviors. Their superpower is flexibility. Traditional rewards programs have a fixed set of rules and structures.

In contrast, businesses can make quick changes to the way customers can use their digital tokens. They can choose to allow customers to purchase exclusive products and services, trade with other people, or swap out the tokens for cryptocurrency or cash. Organizations can adjust their business models by combining their tokens like Legos.

The 185-year-old jeweler Tiffany & Co. , for example, recently offered its exclusive NFTiff to all CryptoPunks owners. Similarly, an airline might provide a token that guarantees lounge access to passengers who have demonstrated their commitment to environmentalism.

Or a company might give employees involved in charity tokens that can be exchanged for time off. Equally important, token economies enable businesses to build a community around their brand. We’re already seeing this happen in the world of NFTs.

Token collectors are forming communities and hosting meetups around the world. In the fashion industry, brands use digital tokens to drum up excitement before a product drops, creating a community of people who are excited about the item even before it hits the shelves. It’s token reinforcement at scale.

Not everybody can spend $2 million for a bottle of champagne, even if it does come with an NFT. But customers are hungry for better and more consistent engagement with brands. In the early part of the pandemic, the majority of shoppers bought from a retailer or brand they’d never tried before, and many plan to stick with these brands now that they’ve found them.

Businesses have an exciting opportunity to create a new base of loyal customers. Digital tokens based on distributed ledgers will be a major part of the story. It’s a big step up from chimpanzees putting poker chips in slot machines—the same psychology, but paired with exciting new technology.

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