Blockchain's Role in Transforming Consumers into Brand Partners

A Childhood Memory

Some of my earliest memories date back to when I was 4 or 5 years old. My father would pull out a brand new box of color pencils from his desk, along with a block of pristine white paper. He'd hand me a navy pencil and encourage me to "just draw".

After I finished my chef d'oeuvre, he would study my creation intensely from every angle. Then, with a thoughtful "Ah!", he'd grab a green pencil and transform my abstract lines into a lion, a rabbit, or a birthday cake. I was always in awe of this magical process.

Decades later, these remain some of my happiest memories. As I've reflected on why these moments were so impactful, I've identified several key elements:

Personal expression: I initiated the drawing, with no constraints beyond the marker and paper.
Validation: By using my drawing as a basis, my father validated my creativity and established an immediate bond.
Safe space: This unique, intimate moment created a dialogue beyond words, allowing emotions to be expressed and take shape.
Tangible result: The co-created drawing forever materialized our timeless bond.

This experience exemplifies co-creation in its purest form.

The Brand Perspective: "The Race to Intimacy"

Brands have long been adept at leveraging psychological mechanisms, initially to drive consumption and progressively to weave lasting bonds with their audience. As Rich Barton founder of Zillow and Expedia, puts it, the future of customer interaction isn't about optimizing a webpage or an application—it's about the "race to intimacy."

But what exactly is intimacy, and why is it so crucial for brands?

Intimacy is a deep sense of closeness and connection between individuals, characterized by emotional, physical, intellectual, and sometimes spiritual sharing and understanding. For brands, establishing intimacy with their audience means entering the realm of trust, emotions, identity, and sharing something precious and timeless.

This type of connection is highly sought after by brands, as it creates a lasting bond with their client base. However, achieving this level of intimacy has been challenging due to a lack of technological tools - until now.

The Evolution of Brand-Consumer Relationships

The Top-Down Approach: A Model Coming to an End

Over the past 50 years, brands have dramatically improved their ability to reach and engage their audience with precision. The rise of social media and advanced algorithms has enabled unprecedented targeting capabilities. However, this approach has predominantly been top-down:

In this top-down model, consumers find themselves under constant observation, their behaviors meticulously categorized and subjected to endless A/B testing in an attempt to predict consumption patterns. Brands have deployed increasingly creative techniques, evolving from traditional TV advertisements to sophisticated influencer marketing campaigns, all in an effort to tap into the audience's sense of self and identity. However, despite these elaborate efforts, traditional CRM systems often fall short in capturing the true human dimension of the audience. They struggle to grasp the emotional quotient – the "EQ" – of these interactions, missing the nuanced, personal aspects that truly drive consumer behavior and brand loyalty.

As a result, brands are now seeking to reconnect with customers on a more human level, offering experiences that evoke emotions.

Why?

Experiences engage multiple aspects of our being, including cognitive and emotional components. Our cognitive processes help us perceive and interpret these experiences, which can evoke or influence emotions. These emotions, in turn, can create lasting impressions and memories.

This shift in brand strategy aligns with a prescient observation by venture capitalist Chamath Palihapitiya who in a recent tweet predicted: "The luxury brands of the future will not sell cars, watches or purses but offer knowledge, ideas, and connections. Because when everyone dresses the same, vacations in the same places, drives the same cars and eats the same food, luxury will need to redefine itself around a new scarce good for people to want to pay a premium to be associated with it."

Palihapitiya's insight underscores the growing importance of intangible assets like knowledge, ideas, and connections in creating value for consumers. This perspective dovetails perfectly with the concept of co-creation, where brands and consumers collaborate to produce unique experiences and products. As is often the case, luxury brands are likely to lead this initiative, with mainstream brands following suit as these practices prove successful and consumer expectations evolve.

The Shift to Co-Creation

While experiences are valuable, their impact increases by an order of magnitude when they become participative. This means involving the customer not just in the operation but in the very essence of the experience—its creative process.

Through co-creation, brands have an opportunity to weave organic relationships with their audience. This approach is potentially more powerful than any social media campaign, as it establishes a deeper, more lasting connection.

The concept of co-creation in psychology has deep roots, dating back to the work of D.W. Winnicott, a renowned pediatrician and psychoanalyst. Winnicott developed a technique called the "Squiggle game," a participative co-creative and a therapeutic technique. In this game, the therapist draws a random "squiggle" or line on paper, and the child is asked to turn it into a picture. Then, roles are reversed, with the child drawing a squiggle and the therapist completing it. This back-and-forth process continues, fostering communication and revealing the child's inner thoughts and feelings through creative co-creation. The Squiggle game serves as a non-threatening way to establish rapport and gain insights into the child's psyche, making it a valuable tool in child psychology and psychotherapy.

In our case it also demonstrates that co-creation can be a powerful tool for establishing deep, meaningful connections - a principle that's now finding new applications in the world of brand-consumer relationships.

This would translate to brands physically "sitting with their audience" - like Winnicott would do - to co-create products, making them partners in the commercialization process and financially compensating them for their participation and success. While this has been attempted sporadically in the past (e.g., TV shows asking audiences to vote on plot developments), it has never been deployed at scale—until now.

Blockchain: The Enabler of True Co-Creation

Blockchain technology is fundamentally about the re-appropriation of what is ours: our personal data. Here's why this matters:

Data ownership: Blockchain allows individuals to truly own their data, reversing the current state where centralized entities control and monetize our information.
Disintermediation: Blockchain enables a more direct, unmediated relationship between individuals and brands.
Value distribution: It allows for a more fair distribution of value, mitigating the "take rate" of centralization giants like Google and Meta.

This is the most fundamental utility of blockchain technology - a decentralized ledger technology allowing each of us to truly own our data. Moreover, as discussed in my previous post on tokenization, blockchain's impact extends far beyond just data. Real estate, currencies, stocks, art, and virtually all liquid and illiquid assets will be tokenized - i.e. will become data or represented by data. This widespread tokenization will enable us to have a much higher degree of ownership over what is rightfully ours, revolutionizing how we interact with and control our assets in the digital age.

Blockchain's Role in Enhancing Brand-Consumer Intimacy

By enabling data ownership, blockchain technology offers several key features that can significantly enhance the level of intimacy between brands and consumers:

Personalized experiences: With blockchain, brands can access consumer preferences and history (with permission) to create highly personalized experiences without compromising privacy.
Participatory models: Smart contracts and tokenization enable consumers to participate in product development, decision-making, and even profit-sharing, fostering a sense of belonging and shared success.
Direct communication: Blockchain-based platforms can facilitate direct, unmediated communication between brands and consumers, creating more meaningful and intimate interactions.

The Emergence of Web3 in Consumer Applications

At Paris Blockchain Week, Arianna Simpson from a16z crypto shared insights on the emerging landscape of Web3 in the consumer world. She highlighted a growing trend of businesses seeking to understand and adopt Web3 technologies, recognizing their transformative potential. She also emphasized that Web3 consumer applications will be the driving force in bringing blockchain into our daily lives, with millions of people adopting these apps without necessarily understanding or caring about the underlying technology.

The key lies in leveraging Web3 infrastructure to create experiences that people genuinely want, while keeping the blockchain layer abstracted away from the end-user. This approach makes the technology accessible and appealing to mainstream consumers.

Real-World Examples of Blockchain-Enabled Co-Creation

Sephora: Reimagining Loyalty Programs

SEPHORA's Beauty Insider program, widely recognized as one of the most successful customer loyalty programs globally, is at the forefront of exploring blockchain technology to enhance customer relationships. Vincent Benoist, Global Innovation Director at Sephora, recently shed light on their innovative efforts to create a new space for co-creation and forge deeper connections with their audience. By implementing blockchain-based wallets for loyalty members, Sephora aims to enable one-on-one conversations with consumers, spearheading decentralized, unbrokered relationships. This approach allows for experiences tailored to customer preferences, free from intermediaries like Google and Facebook. Perhaps most excitingly, it opens up the potential for loyalty members to become co-owners and co-creators of the brand itself.

New entrants in the beauty industry are also embracing this decentralized-first approach to brand-consumer relationships.

A Decentralized-First Approach

KIKI, founded by Jana Bobosikova, is a prime example. Jana emphasizes the importance of allowing consumers to participate in the success of the brands they support. Kiki.world offers a platform where consumers can co-create beauty products, participate in product development through voting mechanisms, and earn collectibles that recognize their contributions as co-creators. This deep level of engagement has resulted in impressively high email open rates of 50-60%, testament to the stronger connections forged between the brand and its community.

Empowering Creators and Restaurants

The potential of blockchain to revolutionize brand-creator relationships extends beyond the beauty industry. Swan Sit, speaking at the Cannes Lions International Festival of Creativity, highlighted how blockchain can create win-win relationships between brands and creators by ensuring proper credit for creations. Meanwhile, in the restaurant industry, Ben Leventhal is addressing the pain points caused by delivery apps' centralized power. His new service, Blackbird Labs, leverages blockchain technology to give restaurants real ownership in the network, fostering better relationships with consumers and a more just distribution of value.

The Future of Brand-Consumer Relationships

Web3 applications are emerging, leveraging blockchain's infrastructure to create experiences people genuinely want, all while keeping the complex technology hidden under the hood. This shift is the dawn of a profound change in the brand-consumer relationships, enabling deeper connections and turning consumers into co-creators and even co-owners of the brands they love.

Looking ahead, the brands that embrace these technologies and co-creation principles will forge the most intimate and enduring relationships with their consumers.