In theory, nothing is stopping blockchain networks or crypto platforms from becoming super brands. However, in reality, there are several factors that hinder their growth and adoption. Industry chatter often attributes plateaus in adoption to macro-market factors or audience mismatches. However, a closer look reveals that great brands are not defined by awareness alone but by customer captivity.
The Key to Building a Captive Customer Base
According to Bruce Greenwald’s book "Competition Demystified," building a captive customer base requires playing to at least one of three core tenets of demand-based competitive advantages: habit, switching cost, and search cost. Many crypto companies, particularly exchanges, are well on their way to becoming household names and have a distinct advantage in this regard.
Super Brands in Traditional Finance
Traditional finance market leaders developed over decades, not overnight. Market leaders in fiat banking and trading have established themselves through consistent innovation, customer service, and brand recognition. Crypto exchanges don’t get a shortcut here but have distinct characteristics based on their creation.
The Unique Characteristics of Crypto Exchanges
Crypto’s inception was that of a borderless currency built for the internet by the internet. The crypto community was global from day one, unlike traditional finance’s localized, geographically bound, and hierarchical structure. Crypto exchanges were built to welcome users worldwide, uninhibited by regulatory restrictions.
The Role of Habit in Customer Captivity
Habit is a critical driver of customer captivity. In the early days of crypto, habit formation was limited due to the rapid innovation pace. Customers looked for new exchanges that would list new coins quickly. However, with the introduction of perpetuals and stablecoin settlement, habit formation became a significant competitive advantage.
Regulatory Intervention and Switching Costs
The evolution of trading volume and customer bases grew alongside regulatory intervention and KYC protocols for onboarding. This raised switching costs among exchanges and introduced friction to trying new exchanges or products. Marketing restrictions imposed by regulations increased search costs for challenger brands beyond the disadvantage of scale.
Analogies in Traditional Finance
There is an analogy between the crypto industry and traditional finance. When regulations were enacted on how cigarettes and other tobacco products could be advertised, big brands slashed their marketing budgets and retained whatever market share they managed to obtain. They became more profitable by concentrating ‘top-of-mind’ awareness.
Breaking the Cycle: The Exchange Paradox
Once a smaller exchange "cracks the code" on what will drive users away from leading exchanges and entice them to pay the switching and search costs, they can scale quickly and start consolidating success. By breaking the habit factor that leading exchanges build with their user base and offering enough reasons for them to search and switch, competitors can grow their footprint exponentially.
Becoming a Super Brand
For an exchange to break this cycle and become a super brand, it has to create a network effect that plays on habit, switch, and search costs to its advantage. Retaining an entrepreneurial and innovative mindset is critical here, as those are the keys to staying ahead of competitors. Remaining proactive on regulation rather than adopting a "too big to fail" attitude can help shrink the targets placed on the backs of market leaders.
Conclusion
No brand is invincible. Trust and habit are built on a millimeter-by-millimeter basis, so it’s up to exchanges to internalize this approach and move forward with that mindset to win new users and keep them engaged. Hendrik Ghys is co-founder and CEO of Thalex. Having transitioned to the crypto sector in 2017, Hendrik was instrumental in negotiating the acquisition of Bitstamp and served as chair of its board post-acquisition.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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