The Power of a Carrot: Social Change Rewards

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SOURCE: The Financial Post

Can a carrot get you to exercise more or quit smoking? Public health and Bay Street are betting on it

The theory behind the app is that people can be coaxed into making better decisions when indirectly offered choices designed to effect certain outcomes

Is the carrot more powerful than the stick? Can it encourage Canadians to adopt healthier lifestyles like quit smoking, eat better, or walk instead of drive? As the backer of a new social venture — an app fittingly named Carrot Rewards — the federal government is betting on yes. And so is a less likely player in the world of social entrepreneurship: Bay Street.

The app, which the company claims is the first of its kind in the world, leverages Canada’s loyalty-card-obsessed culture and nudge theory. Borne of behavioural economics, nudge has been widely recognized and adapted into public policies worldwide as an expedient way to motivate people to change. The theory is that people can be coaxed into making better decisions when indirectly offered choices designed to effect certain outcomes.

With millions of Canadians glued to their smartphones, the opportunity was obvious. “My philosophy is why not harness these addictions for good?” said Andreas Souvaliotis, CEO of Social Change Rewards (SCR), which developed Carrot Rewards, and past founder of mass green points program, Green Rewards. “If you do it authentically, you can have profound, positive impact on society.”

That potential impact attracted an unusual cross-sectoral bed-in of believers. The Public Health Agency of Canada provided initial funding of $5 million, and the government of British Columbia gave $2.5 million as part of an original contribution agreement. Venture capitalists invested another $2 million while loyalty providers and charitable advisers jumped on board — each convinced the app could entice an effective and more affordable alternative to traditional health advertising and efforts.

“We deliberately looked around at leaders in the private sector, tapping into the best of the best, and at ways to translate concepts that worked well in other sectors into our health promotion,” said Rodney Ghali, director general of the Centre for Chronic Disease Prevention, which operates under the Public Health Agency of Canada.

“We view it as an important tool which, used in conjunction with a lot of other efforts that we as governments, the non-profit sector and partners in the private sector do on a daily basis.”

By taking a wellness quiz or reading health-focused information, Carrot users receive points from their choice of loyalty providers — currently Aeroplan, Cineplex’s SCENE movie points program, and Petro Canada nationally and More Rewards in B.C. (where in the coming weeks it will launch, with exclusive usage for 90 days).

What particularly excites Marc Mitchell, SCR adviser and an expert in the field of incentives for healthier living, is the app’s capacity to challenge the “present bias” — outweighing the costs and benefits of the immediate, while discounting those of the future — by providing immediate positive feedback. “Instead of exercising because it cuts the risk of dying, you will do so because of a meaningful reward today.”

It comes down to nudge. “We made it our religion,” Souvaliotis said. That’s why the app won’t reward a user for quitting smoking but rather for knowing why smoking is unhealthy or for calling a smoker’s help line. “It’s been proven that if we nudge you down the process (with incentives) than the system takes over and produces great results.”

The first two million Canadians to install the app and refer others to do the same will automatically receive points. To put that control group in context (one that Souvaliotis is so convinced will be reached quickly, he’s capped B.C.’s at 370,000), Twitter took 10 years to get that number of users. “They will form an incredible foundation of credibility,” he says.

So too will, three of Canada’s biggest health charities — Heart and Stroke, Diabetes and YMCA — which will act as an advisory council given the task of unanimously approving of every message that goes out.

While Souvaliotis’ commitment to social good remains firm, so does his pledge of profitability. “I believe that the only way to change the world is through scale,” he said. “And the only way to have scale is through profit, profit motivates all of us.” Charities have tried to effect change in similar ways but scale proved elusive, he said. By attracting two million people to a project, rather than, say 2,000, achieving impact is made all the more viable.

It’s not every day that VCs jump at the chance of investing in social ventures but SCR’s latest round of financing was led by Relay Ventures, Lumira Capital, Epic Capital Management, Primary Capital and private investors was oversubscribed. Investing was a no-brainer for John Albright, managing partner focused on mobile technologies at Relay Ventures. Not only does the app take advantage of the mobile-crazed, content disruptive landscape but it has potential to be replicated rapidly across other policy areas and countries. If wellness works, financial literacy, taxes or the environment can be next.

I believe that the only way to change the world is through scale And the only way to have scale is through profit

And then there’s the social benefit. “The altruistic nature of the value proposition is beautiful, something as a financier you don’t always get,” Albright said about Relay’s first investment in a health venture with a social mission.

Relay is witnessing a rise in requests from socially conscious entrepreneurs, particularly millennials. And while Albright and the investors on behalf of whom he acts, applaud the social benefit, before other social ventures start tweaking their pitch he makes one thing clear: few get past the profitability threshold — the potential to monetize to at least $100 million in revenue. “Maybe that will change,” he adds, as ideas like Carrot take off.

Souvaliotis is taking it one step at a time, with future possibilities in sight, whether with other health-related agencies or responsible organizations in the private sector. Conversations across the globe have already begun. No matter what comes next, though, Social Change Rewards — recently designated a BCorp — will remain faithful to its original funders and mission. “We can’t cheat on a legacy. I’m married to this dream and my employees are too. Mark my words.”

Elisa Birnbaum is the publisher and editor of SEE Change Magazine.