I owe my soul to the company store: another look at loyalty
Tuesday 19 July 2016
Money isn’t money if you can’t spend it like money, and fixing that problem is the power of blockchain.
‘You load 16 tons and what do you get? Another day older and deeper in debt. St Peter don’t you call me ‘cause I can’t go - I owe my soul to the Company Store.’
Merle Travis’ immortal hit Sixteen Tons (sung below by Tennessee Ernie Ford) drew its inspiration from the injustices surrounding economic relationships in remote mining towns in early 19th century America. The company responsible would run a store on site - the only one that employees could reach, since there were no cars. Because they had a monopoly, they could charge what they wanted for basic goods and necessities. They would accept trade on credit, forcing employees to pay them back on unfavourable terms - and thereby to remain in employment, a kind of debt slavery.
The effect was to direct miners’ pay back to the owners of the mine and company town. Money was restrained; it couldn’t behave like money should, acting as a true medium of exchange. Friction was high - so high that a lot of money never really reached the miners at all.
This, incidentally, is one reason that the idea of permissioned blockchains terrifies me: it’s the risk that an oppressive government will start using money as a means of control over the population, effectively turning a country into one giant Company Town. But this principle of friction also serves as a way of unpacking the problems surrounding the loyalty and rewards sector.
The ‘company store’
Just to be clear, I’m not suggesting that companies offering loyalty schemes today are engaged in the kind of injustice that some of these early company towns were. In fairness, they don’t even claim to create money - and the shortcomings of their loyalty schemes are driven primarily by the fact that they don’t yet have or understand a better model, rather than by the desire for exploitation.
But the reality is that the rewards sector is broken, and friction is the reason. Loyalty schemes, such as the ones offered by companies large and small all over the world, lack value because they prevent the free movement of value. The value of a loyalty point is predicated solely on the customer’s ability to redeem it for a limited range of goods and services. It’s backed by the ‘company store’. Small wonder that such a vast number of loyalty schemes are under-used, and that so many millions of dollars worth of points are wasted. It’s just not worth the trouble to cash them in.
This is precisely the issue that BitScan will address with its coming project, provisionally titled Incent. Using the blockchain, it will be possible for merchants to reward loyalty in a meaningful way by granting customers points that can be used at their store or any other participating ones - or exchanged for their market value at any time. Not only that, but merchants can set the conditions under which points are issued and redeemed at their stores. In a high-margin business that might meaning incentivising repeat custom with an effective 10% cash back; in other sectors it might be just 0.5%. SImilarly, they might accept give a 5 or 10% discount if reward tokens are used to buy a product. It’s not just frictionless money: it’s smart money.
Money is ideally supposed to be portable, fungible, divisible, hard to counterfeit and rare. We want to make it configurable, too - not just money, but better than money.
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