In the second edition of our Jing Daily x Équité webinar series about the luxury metaverse, the focus was on extreme value creation and pricing. Attendance from brands including Gucci, Louis Vuitton, and Vacheron Constantin underscored the importance of the topic.
Digital value creation in luxury is one of the most critical aspects, because pricing is complex and not well understood. Importantly, the psychological effects of paying for NFTs with crypto plus using auction mechanisms may feel like an advantage at first, since it increases the willingness to pay, but the long-term risks of a value decline are significant.
The conclusion of the webinar was that brand storytelling was never more critical than today and that to sustain pricing, each metaverse project needs a unique, intriguing, and desire-creating story. Here, many luxury houses have significant gaps that impact their ability to price and to retain the value of their digital products over time. Given the ample number of questions during the Q&A, I decided to dedicate this column to answering the most pressing questions.
In a nutshell, getting the pricing right means to create value first and then price for it. Unfortunately, the reality for most metaverse initiatives is different. Not enough emphasis is put on structuring projects in a way that they create extreme value and pricing is often just determined arbitrarily. This can lead to catastrophic results. We break this concept down below.
What are your thoughts on factors of scarcity in the metaverse and how these relate to physical products?
Scarcity alone does not create value. Scarcity needs to be connected to a unique story that resonates with the audience. Similar to physical products, the combination of a desire-creating story and scarcity will drive up the value of an initiative, hence the willingness to pay.
Do you think the concept of “loss of virtual ownership” during auctions can be amplified if you virtually show the object moving from bidder to bidder in a metaverse?
The effects of virtual ownership and its loss are felt on an individual level. If I bid for an NFT and the highest bid then exceeds my offer, I will feel that I “virtually” lost the item and experience the psychological pain associated with it. I would not expect it to increase by showing how the object moves from one person to the other as I will feel the pain of losing my virtual ownership instantly once I know someone else placed the higher bid.
The visualization should not have a significant additional effect. It’s more critical for brands to be aware that the particularities of the pricing mechanism may lead to a measurable increase of the willingness to pay. In a short-term scenario, this may sound like a great option. However, in the long-term there is a significant risk of alienating clients if the (too high) prices can’t be sustained over time and the value collapses.
If I set my NFT price lower than my competitors, is my brand at risk of being perceived as less valuable?
Your aim should be to first strategize about the value that each individual initiative provides. This includes creating a powerful narrative that is unique to your brand. The price should reflect this individual value, not what your competitors do. If the story of your competitors creates a value that is 100x higher, then their ability to price will be significantly higher than yours, and vice versa. So instead of worrying about the signal of the pricing, my recommendation is to be obsessed with the value and then afterwards define the pricing in line with the value. There are tools like the Luxury Index (LI), which is detailed in my book “Luxury Marketing & Management,” that allow you to estimate the value of the brand and initiative storytelling.
How can luxury brands create a customer experience in these virtual worlds? We all know that one of the biggest advantages of luxury brands is the customer experience in stores.
Even in stores, the customer experience often differs significantly. I recently visited the Paris flagship store of one of the most iconic luxury brands in the world and the service experience was so miserable that I have not bought anything from the brand ever since. In a digital reality, there is more opportunity to control the environment and use real-time data about the client, such as his or her preferences, to ensure consistency.
There are also disadvantages like, in most cases, the lack of human interaction. This means that there are pros and cons. It is critical for brands to be aware of both and maximally leverage the opportunities while minimizing the shortcomings. The customer experience needs to be mapped and designed in a holistic way combining the physical and the digital.
How does a brand audit work?
Every brand we work with has a different starting point and different objectives. It is critical to approach a brand audit holistically and ensure that we analyze the internal perspective and a client-specific external view. This includes a comprehensive customer sentiment analysis, experience audits that focus less on the obvious (great service is not a differentiator, it’s expected), and benchmarking of the stories that are typical for the competitive set.
It’s a structured process that can take several weeks and leads to actionable recommendations, which in most cases result in a significant sharpening of the brand story (90 percent of audited brands have significant deficits), an overhaul of the client experience, and a redefinition of digital messaging and touchpoints. In a world that is getting dramatically more complex, these audits are critical for the survival of brands.
Named one of the “Global Top Five Luxury Key Opinion Leaders to Watch,” Daniel Langer is the CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the executive professor of luxury strategy and pricing at Pepperdine University in Malibu, California. He consults many of the leading luxury brands in the world, is the author of several best-selling luxury management books, a global keynote speaker, and holds luxury masterclasses on the future of luxury, disruption, and the luxury metaverse in Europe, the USA, and Asia. Follow @drlanger