Everyone is jumping on the non-fungible token (NFT) bandwagon these days, it seems. From aspiring artists to car 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 from 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’re called ‘non-fungible’.
Daniel Langer is the CEO of luxury brand strategy firm Équité and Executive Professor of Luxury Strategy and Disruption at Pepperdine University in Malibu, California. He says that NFTs offer companies, for the first time, the ability to uniquely identify a digital asset.
“Most NFTs today are related 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,” he tells The CEO Magazine.
Langer believes that by launching an NFT, a luxury brand hopes to appeal to a young, affluent, influential and digital audience, particularly generation Z and millennials.
“This group has already been the engine of luxury disruption, just think about the meteoric growth of luxury sneakers and luxury backpacks, to name a few recent product categories that emerged from gen Z trends and preferences,” Langer says.
Cameron Roddha of myNFT.com, a marketplace with a mission to make NFTs accessible to all, says that luxury brands are all about cultivating 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 own a piece of that story for themselves. Offering this to a customer base that values exclusivity and heritage resonates extremely well,” he says.
This concept of exclusivity has historically always existed, with luxury brands often using purchase history as a means to reward 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 and ownable digital token is the next logical step. These collectables often extend to provide additional rewards and incentives to keep customers coming back,” Roddha explains.
If a company knows what it wants to achieve and, more importantly, has a strategy in place, then NFTs look like a surefire winner to grow a brand’s audience.
“If projects are managed well, then there is a chance to engage with customers, grow their base and provide a new and different entry point to a brand. However, in order to succeed, deep strategy is needed. In many initiatives I observe and review, this is missing,” Langer adds.
Indeed, if the strategy is not well thought out then it could spell digital disaster. This often happens when a brand simply 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 recognised leader in Web3, and she says some brands have and will launch NFTs to reach for publicity or theatrical innovation without understanding the real impact or possibility of the technology.
“The brands that do NFTs well will be thinking long-term and community-first and will be so much further ahead than brands who see what is happening as a passing fad, or those who launch to capitalise on a trend,” she says.
Langer frequently sees the flip side, when they get it wrong. “In a lot of NFT projects we observe, companies often don’t know enough about NFTs and how to create value with them,” he says.
“They often also don’t gather enough information about the target audience and the role the NFT in creating value for the target.”
But one must remember the NFT space is relatively young and brands are still learning about this incredibly hyped-up and hot market as it evolves. Mistakes seem inevitable.
“Even some top luxury brands have seen initiatives that did not draw any significant audience. When this happens, more damage to the brand equity is done than brands anticipate,” Langer says.
However, NFTs are still seen as an exciting new category and some estimate that the market for NFTs will surpass the traditional art market by around 2025.
While NFTs may have existed for about 10 years, it has only been in the past 18–24 months that they have gained significant traction. The adoption rate has been fast, while the learning curve has been steep.
While NFTs offer an opportunity to excite audiences in a new way, they come with words of warning.
“The most critical thing for brands to remember is that every NFT must follow the strategic playbook of the brand and there should be an obsession about why a client would want to buy it and how the value of the NFT can be retained or even increased over time. Today, the luxury industry does not pay enough attention on this,” Langer explains.
Roddha feels the rewards on offer are worth taking the risks for. “The cherry on top for the brand? Through the use of smart contracts and royalties, they still make revenue through the resales,” he says.
“NFTs are a revolution in customer engagement as both sides can unlock value, ultimately connecting the customers closer to the brand.”
Having worked so hard to perfect the in-store customer experience, the challenge luxury brands now face is how best to replicate that physical format in the virtual world.
The emergence of the metaverse could make the adoption of NFTs for luxury brands easier as it allows the convergence of physical and digital worlds. But the digital world is a vastly changing landscape and brands need to act fast – or be left behind.