Non-fungible tokens (NFTs) are a hot topic in many industries, but what do they mean for the luxury market? Discover how NFTs can help the world’s most exclusive brands reach young HNWIs (high net worth individuals) and HENRYs (high earners not rich yet) below.
What are NFTs?
NFTs stands for non-fungible tokens. Something that is fungible can be exchanged for something of equal or similar value. An example of this given by Neil Patel is fiat currency (aka money), which we can use to buy things that are known to be worth the amount of money we are spending. So if I have £100, I can exchange this for say a gift hamper or a leather wallet.
Something that is non-fungible cannot be exchanged for an equal value, meaning it is a completely unique asset. Forbes gives the example of a movie ticket, which is only usable for a specific movie at a specific date; it cannot be simply exchanged for a ticket to another movie, as it is promising an individual experience that will not be recreated at any other time, or at any other film.
So how are NFTs completely unique? A non-fungible token is a cryptographic asset created using blockchain technology – a system of recording information that makes it impossible to change or cheat the data. Cryptocurrencies are typically fungible tokens as they are able to be exchanged for equivalent values. However, NFTs in crypto have unique identification codes and metadata to distinguish one from another.
This means that each NFT is a one-of-a-kind digital collectible that cannot be replicated. This concept has captured the imaginations and wallets of many in the last few years, offering huge investment potential – think of it like owning an original piece of artwork, but in eternal digital form.
NFTs in crypto date back to 2012, but it wasn't until 2017 that we saw them explode for the first time, with CryptoKitties, a blend between Tamagotchi and trading cards, becoming a highly desirable asset. Each of these digital kittens could be raised like a real cat, and some were traded for as much as $140,000 thanks to the hype surrounding them.
Do NFTs work in the luxury market?
Vogue has raised concerns about whether the NFT crypto market, which is predominantly composed of young men, would be interested in investing in luxury fashion or beauty NFTs.
At the same time, traditional HNW buyers may not understand the value of these digital assets, with luxury still strongly associated with physical tangibility. Even those that do appreciate NFTs may not go to the trouble of getting a cryptocurrency wallet in order to make a purchase, as the process may seem too confusing and unfamiliar.
However, the non-fungibility of these assets may be what wins over HENRYs and young HNWIs. Jing Daily points to the exclusivity of both traditional luxury products and NFTs. Instead of being known to be worth a certain amount of money, an NFT’s value is set by market demand, and its individuality often pushes this higher. This is the same scarcity principle that the luxury industry uses regularly: for example, how Hermès’ iconic limited edition bags, such as the Birkin, drive a frenzy around obtaining one.
While real world luxury products have the disadvantage of being copied by fraudsters who want to get the status of ownership without paying the high price tag, one strong benefit of NFTs is that they cannot be duplicated. Blockchain technology provides each item with a digital certificate, ensuring that the trade of these assets is transparent and ethical, and that copyrights cannot be ignored. This is a big advantage from both brands’ and clients’ perspectives, protecting the creativity of designers and preserving the individuality of the product.
What’s more, like luxury items, NFTs are meant to be timeless, having a long-term appreciating value. Just as people hand down heirlooms to give to their children, it is likely that in the future we will see people passing down digital assets in the same way.
How can luxury brands use NFTs to reach young HNWIs?
With NFTs having already attracted a global interest, luxury brands can now use these tokens to find new ways of telling their story and interacting with their clientele. Today’s wealthy consumers want to understand the story behind the products they buy, and for these products to spark a connection between them and other like-minded individuals. They want their products to reflect their values. Using NFTs, luxury businesses can produce ‘priceless’ digital assets and experiences that can increase brand awareness, encourage interaction and ultimately drive interest in their brand.
Creating NFTs is a new way of connecting with your desired audience, particularly HENRYs and young HNWIs, with the potential to encourage a wave of new, loyal fans and buyers who will follow your brand for decades to come. It is a way of showing young HNWIs that you understand them and are willing to adapt your product or content to different mediums in order to deliver it in whichever way suits them best.
The opportunity that NFTs provide to create unique, everlasting and highly valued branded digital content is unlike anything else currently available and is something that luxury brands can’t afford to miss.
So, how to go about it? Forbes recently spoke to Karinna Nobbs, co-founder of The Dematerialised, the first online authenticated marketplace for digital fashion, to find out what brands need to be aware of when selling fashion via NFTs. Nobbs advises that there is currently a first-mover advantage, with very few fashion brands having released NFTs (and even fewer luxury fashion houses), so there is an opportunity to dive in, experiment and get a huge media/social exposure.
The same goes for luxury industries such as beauty, travel and yachting, with the NFT property and art markets slightly further advanced – contemporary artist Krista Kim just sold a digital house for 288 ether (valued at $500,000 at the time of purchase) back in March this year, while an NFT artwork by artist Beeple fetched an incredible $69.3m in an online auction at Christie’s.
Nobbs also advises marketeers to think about how their NFT will actually be used after it is purchased. For example, in the fashion industry, will it be for the buyer’s avatar or character to wear inside an online game, or perhaps for the buyer to wear it using an AR filter? In other words, don’t just jump on the bandwagon and create an NFT for the sake of it – think long and hard about how it will benefit your clients and how you can design your NFT to give them the most value.
Partnering with a blockchain provider that makes it as easy as possible for the consumer is vital, especially if you are trying to entice the typical HNW client – even young HNWIs are likely to not have yet made a foray into NFTs, and so need to helped along their journey.
The most straightforward example of a product NFT is where the asset is the digital twin of a real-life product, and this certainly has its value – for example, it can bridge the way for your brand’s aspirational fans to potentially access less costly versions of your products.
However, when Amber Jae Slooten, co-founder of digital fashion house The Fabricant, spoke to Vogue about ways that luxury fashion brands can use NFTs, she encouraged businesses to go beyond their physical reality, creating highly exciting digital items that could never exist in real life.
This method is likely to deliver a lot more hype and push the boundaries of what HENRYs and young HNWIs are expecting from a brand. However, businesses must be careful not to stray too far from their image, or they risk weakening their overall brand.
NTFs: future or fad?
There are some indicators that public interest has started to drop in NFTs, with world famous pop artist The Weeknd raising a fairly modest $2.29m from his first NFT drop over the weekend, and CryptoPunks, among the earliest and now most sought after NFTs, having fallen in price by roughly 40%. However, with NFTs still being relatively new, I don't think we’ve seen even a fraction of what is possible with these digitized tokens.
People are still willing to pay large amounts of money for NFTs across industries, and with blockchain technology powering them, the luxury market will likely continue to embrace them, benefiting from the reassurance that each item is truly unique and unduplicable. What’s more, as luxury marketeers we can’t ignore the exciting opportunities they offer to engage our audience in a new, innovative way, allowing clients to interact with our brands in a way that may better suit them. The future of NFTs in luxury looks very bright.
To discuss how NFTs could work for your brand, please get in touch today.
Rumble Romagnoli is president of Relevance.