Why Luxury Brands Need to Be Strategic with NFTs in the Metaverse

NFTs have seen explosive growth over the past two years and their ubiquitous appearances make them easy to forget that the first NFT was only created in 2014. In less than a decade, NFTs now represent between 16 and 20% of the art market. The disruptive shift towards digital art is so profound that it is very likely that many traditional art galleries will disappear by 2030. Moreover, I predict that by then 50-70% of the market for digital art will art will be NFTs.

The traditional proximity between luxury and art, creating culturally relevant objects and services of desire, has made NFTs and luxury a logical complement. Consequently, a plethora of brands have launched or are working on NFT projects, many of which also combine physical products and services with its digital twin. This is one of the dimensions in which the metaverse takes shape and begins to influence the total luxury brand experience.

Take Hennessy 8. It’s a limited edition of 250 bottles that celebrates eight generations of master blenders, bringing together over 250 years of cognac expertise in a single bottle. The first and last bottle in the collection sold at auction for over $250,000 and came with an NFT.

Owners of the Hennessy 8 NFT could exchange physical bottles and were invited to visit the Hennessy estate in France. Photo: Hennessy

Meanwhile, Prada and adidas launched the Prada Re-Nylon collection, which included the adidas for Prada Re-source project. This is an NFT collection curated by digital artist Zach Lieberman, which includes photographs submitted by enthusiasts of the brand. The final piece sold for almost $100,000.

On OpenSea, Gucci and Superplastic offer the SUPERGUCCI collection. This is a three-part series of 500 NFTs that were co-created by Gucci creative director Alessandro Michele and synthetic artists Janky & Guggimon. All featured items from Gucci’s Aria collection. Each piece also comes with an exclusive 8-inch tall white ceramic SUPERGUCCI SuperJanky sculpture, handcrafted by ceramists in Italy. Most of them are currently traded between 3 and 7 ETH, between $10,000 and $20,000.

The NFT SUPERGUCCI take up the codes of the House found in the Gucci Aria collection and are accompanied by an exclusive ceramic sculpture. Photo: Gucci

These examples show the value that luxury brands can create with metaverse-based digital products. However, there is a caveat. The pricing mechanisms of NFTs are often not sufficiently understood. NFTs are sold using crypto. And crypto is – psychologically – often not viewed as “currency” by users, but rather as something akin to a chip in a casino where the notion of its dollar value is fuzzy. The use of crypto eliminates the traditional security barriers buyers would have in terms of reference pricing and pricing anchors.

This greatly increases the willingness to pay. Additionally, the auction nature of markets like OpenSea puts the pricing mechanism on steroids. Auctions trigger the feeling of “virtual ownership” even if we don’t own the object yet. For example, while the auction is taking place, if we currently have the highest bid, we already “virtually” feel like we are the owner. To avoid losses, we will now be willing to defend virtual property much more than if the items were sold without an auction. The two effects combined greatly increase the amount someone will pay and the NFT.

Therefore, there is a significant risk that the price paid for an NFT will exceed the perceived value if a traditional currency were used. In fact, in a recent discussion with affluent luxury NFT collectors, attendees told me that buying NFT is like playing a computer game, like being in a casino, or just something fun to do. To do. One said he “would never buy NFTs with money, but crypto to him doesn’t feel like money.”

As long as the category is hot and exciting new projects and collaborations are emerging, it’s possible that many NFTs will continue to fetch major prizes. There is definitely an element of FOMO currently. However, as more and more initiatives hit the market and the user base matures, there will be a substantial shift towards those that are truly exceptional and have a great story to tell. These will further increase in value, whereas many of today’s NFTs can lose significant value over time, especially if their storytelling or differentiation is lacking.

We already see a lot of projects that seem unintentional but where brands are just launching an NFT to experiment or just to have one. What many brands underestimate is that a digital product has the same impact on the overall brand image as a physical product. Therefore, if a luxury brand launches NFTs that lose significant value over time, its total brand equity will also drop.

The metaverse offers exciting opportunities for brands. It is however essential to be extremely strategic and play to win instead of just playing to be part of it. The NFT market will consolidate at some point and brands that have been too quick or not strategic, differentiated and bold enough in their NFT initiatives may pay a heavy price later.

I’ve often called promotions an “easy growth trap.” NFTs can become the same trap for luxury brands, when taken too lightly. Brands must master the art of luxury storytelling when it comes to this new category. Above all, as in the physical world, brands must be obsessed with the type of value they create for their customers. Only then will NFTs become long-term value creators. An exciting new world that requires maximum precision and focus to succeed.

This is an opinion piece which reflects the views of the author and does not necessarily represent the views of Jing Daily.

Named one of the “Top Five Global Luxury Key Opinion Leaders to Watch”, Daniel Langer is the CEO of luxury, lifestyle and consumer brand strategy solidify Equity, and executive professor of luxury strategy and pricing at Pepperdine University in Malibu, California. He consults with many major luxury brands around the world, is the author of several best-selling luxury management books, a main speaker, and conducts luxury masterclasses on the future of luxury, disruption and the metaverse of luxury in Europe, the United States and Asia. To follow @drlanger

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