Why NFTs are a golden opportunity for luxury brands
Everyone is jumping on the non-fungible token (NFT) bandwagon these days, it seems. From budding artists to automotive brands, every day a new company launches its own NFT to capture a slice of this rapidly growing market.
Luxury brands are also active in this space, with well-known names from Louis Vuitton to Prada venturing into blockchain technology. The big question is: what do they gain by doing this?
An NFT is a tradable digital financial asset that typically contains digital photos, videos, or audio files. Like cryptocurrency, NFTs are stored on the blockchain and can be transferred, sold, or traded. However, unlike cryptocurrencies, NFTs are uniquely identifiable assets, which is why they are called “non-fungible”.
Daniel Langer is the CEO of luxury brand strategy firm Equity and Executive Professor of Luxury Strategy and Disruption at Pepperdine University in Malibu, California. He says NFTs offer businesses, for the first time, the ability to uniquely identify a digital asset.
“Most NFTs today are tied to some form of digital art. Luxury has always played a role at the intersection of culture and art, so there is a logical connection,” says he. The CEO’s magazine.
Langer believes that by launching an NFT, a luxury brand hopes to appeal to a young, affluent, influential and digital audience, especially Gen Z and Millennials.
“This group has already been driving the disruption in luxury, just think of the meteoric growth of luxury sneakers and luxury backpacks, to name just a few recent product categories that have emerged from trends and trends. Gen Z preferences,” Langer says.
Cameron Roddha of myNFT.com, a marketplace with a mission to make NFTs accessible to everyone, says luxury brands aim to cultivate meaningful experiences through storytelling to engage and capture their customers.
“With the advent of NFTs, for the first time, their customers will be able to take ownership of a piece of that history. Offering this to a clientele that values exclusivity and heritage resonates extremely well,” he says.
“With the advent of NFTs, for the first time, their customers will be able to take ownership of a piece of that history. To offer this to a clientele that values exclusivity and heritage resonates extremely well. – Cameron Roddha
This concept of exclusivity has historically always existed, with luxury brands often using purchase history as a means of rewarding their loyal followers – Ferrari, for example, will only accept orders for a new limited-edition model from customers who already own a Ferrari.
NFTs are seen as an extension of this strategy, albeit on a digital platform. “Having this represented as a unique, proprietary digital token is the next logical step. These collectibles often expand to offer additional rewards and incentives to build customer loyalty,” says Roddha.
If a business knows what it wants to achieve and, more importantly, has a strategy in place, then NFTs seem like a surefire winner for growing a brand’s audience.
“If projects are well managed, there is a chance to engage with customers, broaden their base and provide a new and different entry point to a brand. However, to be successful, a thorough strategy is required. In many initiatives that I observe and review, this is missing,” adds Langer.
Indeed, if the strategy is not well thought out, it could be synonymous with digital disaster. This often happens when a brand just wants to look innovative and digitally-focused, but doesn’t actually understand NFTs.
Lindsey McInerney is one of the “Top Players of the Metaverse” and a recognized Web3 leader, and she says some brands have launched and will launch NFTs to achieve advertising or theatrical innovation without understanding the real impact or possibility of technology.
“Brands that do NFTs well will think long-term and community first and be so much further ahead than brands that see what’s happening as a passing fad, or those that jump in to capitalize on a trend,” she says.
“Brands that do NFTs well will think long-term and community first and be so much further ahead than brands that see what’s happening as a passing fad, or those that jump in to capitalize on a trend.” –Lindsey McInerney
Langer often sees the other side of the coin, when they are wrong. “In many NFT projects we observe, companies often don’t know enough about NFTs and how to create value with them,” he says.
“They also often don’t gather enough information about the target audience and the role of NFT in creating value for the target.”
But it’s worth remembering that the NFT space is relatively young and brands are still learning about this incredibly popular and popular market as it evolves. Mistakes seem inevitable.
“Even some big luxury brands have seen initiatives that have not garnered significant audiences. When this happens, brand equity is damaged more than brands anticipate,” Langer says.
However, NFTs are still considered an exciting new category and some estimate that the NFT market will overtake the traditional art market by around 2025.
Although NFTs have been around for about 10 years, it’s only been in the last 18-24 months that they’ve grown in popularity. The adoption rate was rapid, while the learning curve was steep.
While NFTs offer an opportunity to excite audiences in a new way, they come with words of warning.
“The most important thing for brands to remember is that every NFT should follow the brand playbook and there should be an obsession as to why a customer would want to buy it and how the value of the NFT can be maintained or even increased over time. Today, the luxury industry does not pay enough attention to this,” says Langer.
“NFTs are a revolution in customer engagement because both parties can unlock value, ultimately connecting customers closer to the brand.” –Cameron Roddha
Roddha believes the rewards on offer are worth taking the risk. “The icing on the cake for the brand? Through the use of smart contracts and royalties, they continue to generate revenue through resales,” he says.
“NFTs are a revolution in customer engagement because both parties can unlock value, ultimately connecting customers closer to the brand.”
After working so hard to perfect the in-store customer experience, the challenge luxury brands now face is how to best replicate this physical format in the virtual world.
The emergence of the metaverse could facilitate the adoption of NFTs for luxury brands as it enables the convergence of the physical and digital worlds. But the digital world is a changing landscape and brands need to act fast – or be left behind.