NFTs have experienced explosive growth over the last two years, and their ubiquitous appearance makes them easy to forget that the first NFT was first 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. Furthermore, I predict that by that time, 50-70% of the digital art market will be NFTs.
The traditional closeness between luxury and art that creates culturally relevant objects and desires has made NFTs and luxury a logical complement. Therefore, a host of brands have launched or are working on NFT projects, many of which also combine physical products and services with their digital twin. This is one of those dimensions where the metaverse takes shape and begins to impact the overall luxury brand experience.
Take Hennessy 8. It’s a limited edition of 250 bottles celebrating eight generations of master blenders that bring together more than 250 years of cognac expertise in a single bottle. The first and last bottle in the collection was sold at auction for over $ 250,000 and came with an NFT.
Meanwhile, Prada and adidas launched the Prada Re-Nylon collection, which included adidas for the 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 last piece was sold for almost $ 100,000.
At OpenSea, Gucci and Superplastic offer the SUPERGUCCI collection. This is a three-part series of 500 NFTs created by Gucci’s creative director Alessandro Michele and synthetic artists Janky & Guggimon. All featured items from the Gucci Aria collection. Each piece also comes with an exclusive 8-inch tall white ceramic SUPERGUCCI SuperJanky sculpture, handmade by potters in Italy. Most of them are currently trading between 3 and 7 ETH, between $ 10,000 and $ 20,000.
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 seen as “currency” by users, but rather as something resembling a chip in a casino where the notion of its dollar value is unclear. The use of crypto eliminates the traditional security barriers buyers would have in terms of reference prices and price anchors.
It significantly increases the willingness to pay. In addition, the auction character of markets like OpenSea puts the pricing mechanism on steroids. Auctions trigger the feeling of “virtual ownership”, even though we do not own the object yet. For example, while the auction is taking place if we currently have the highest bid, we already feel “pretty much” as if we are the owner. To avoid losses, we will now be willing to defend virtual property much more than if the goods were sold without auction. Both 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 wealthy luxury NFT collectors, participants told me that buying NFT is like playing a computer game, like being in a casino, or just something fun to do. One said he “would never buy NFTs with money, but crypto for him does not feel like money.”
As long as the category is hot and exciting new projects and collaborations are emerging, it is possible that many NFTs will continue to win big prizes. There is definitely an element of FOMO at the moment. But as more and more initiatives hit the market and the user base matures, there will be a significant shift towards those that are truly exceptional and have a good story to tell. These will increase further in value, whereas many of today’s NFTs may 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 just launch 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 overall brand equity will also decline.
Metaverset offers exciting opportunities for brands. However, it is important to be extremely strategic and play to win instead of just playing to be a part of it. The NFT market will consolidate at some point, and brands that have been too fast or not strategic, differentiated and brave enough in their NFT initiatives may pay a high price later.
I have often called campaigns a “light growth trap”. NFTs can become the same trap for luxury brands when taken too lightly. Brands need to master the art of telling luxury stories when it comes to this new category. Above all, as in the physical world, brands need to 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 that reflects the views of the author and does not necessarily represent the views of Jing Daily.
Named “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 keynote speaker, and conducts luxury masterclasses on the future of luxury, disruption and the metavers of luxury in Europe, the United States and Asia. To follow @drlanger