Recently at Pepperdine University, I taught a metaverse pricing class for luxury brands. Given the scarcity of research on this, my very first thought was that, fundamentally, the rules of metaverse pricing should be similar to the rules in the real world. This was until I had an in-depth discussion with my students, many of them actively investing in crypto and collecting NFTs.
The discussion completely changed my view on the fundamental mechanisms within the metaverse. In many subsequent luxury metaverse masterclasses I have led since then, from Los Angeles to Paris, from London to Istanbul, I realized that most brands and managers don’t yet have enough clarity on the principles and inner workings of this new reality. The reason is simple: it’s a new field with lots of experimentation and few experiences. And most players have a dilemma: the brands underestimate the technology and the expectations of digital clients, and the digital agencies working on Web3, NFTs, and the metaverse lack the knowledge of luxury in most cases. The result: in the estimate of Équité Research, more than 95 percent of metaverse projects lack a fundamental value creation model and don’t leverage their potential.
In many cases, the image of a lot of luxury brands from the perspective of the most critical future customer group, Generation Z, will dramatically suffer when Web3 initiatives are seen as not on brand, not on trend, or not creating any value. Brands need to apply the same strategic scrutiny for any digital project that they would in the physical world.
Before we look at critical learnings for luxury brands and rules for mastering Web3 successfully, it’s worth making a few definitions.
Web3 can be defined as the next iteration of the internet, owned by users and builders, based on tokens. This is a fundamental difference to Web2, the current version of the internet. While Web2 is open, Web3 is closed. This will dramatically increase entry barriers and entry costs for brands and make access to clients significantly more expensive.
The metaverse is the more immersive world inside the internet, typically offering multidimensional experiences powered by virtual reality.
The currency of Web3 is tokens, with crypto being fungible and NFTs being non-fungible. The latter means that NFTs have unique qualities and can be precisely identified, which is what makes them so interesting for luxury brands.
Lastly, DAOs are Decentralized Autonomous Organizations where NFTs offer exclusive access: creating a new reality of brand communities, governed by their members.
This produces a new world where digital interactions and social media are no longer defined by who you follow or are friends with, but what you watch and like to see. Already today, research by Équité suggests that in the USA and Europe social media users now spend 70 to 75 hours per month on social, of which 60 to 65 hours are spent on social entertainment. In China, the numbers are even higher.
This indicates that, driven by more immersive platforms like TikTok and the relaunch of Instagram as a video platform, there is a shift of behavior from social media towards entertainment and edutainment. The even more immersive metaverse will dramatically extend this trend. The accelerating number of social channels, games, and metaverse projects make the digital customer access the new competitive advantage. Web3 at large should be perceived as the new Fifth Avenue, the new Rodeo Drive, or the new Place Vendôme. Consequently, breaking through the noise and leveraging customer passion points become critical success factors in the new reality.
Analyzing many of the current metaverse initiatives in the luxury world, I see too much focus on creating short-term hype and experimentation, while reflecting strategically on how to win in Web3 does not get enough emphasis or focus. The risk: brands lose money and potentially reputation with projects that will add zero value while wasting time to get in the pole position. What should brands do?
First, be obsessively intentional with any Web3 initiative. The questions you should ask include: are we creating significant value for our clients, say with an NFT? Why would the value of the initiative increase over time when more and more initiatives are entering the market and oversaturation is around the corner? Are there real assets backing the value of the initiative? Does the initiative have the power to create lasting desirability? And lastly, are we creating a luxury experience, one that is compatible with the fundamental values of the brand? Too many initiatives do not tick all or even many of these boxes and should be canceled or modified until they do.
Second, be aware that the pricing mechanism of NFTs using crypto and auctions will tend to lead to higher initial willingness-to-pay versus a real-world asset paid in Renminbi, Euro, or USD. This leads, in general, to currently overinflating the intrinsic value of NFTs, leading to massive risks of value loss over time, unless an NFT has a unique value due to its unique story or the fact it is backed by unique assets. In my experience, most brands completely underestimate the effect of the pricing mechanism and expose themselves to incredible volatility and risk which they would never do with real-world assets. In the end, ignoring the fundamental pricing mechanisms can mean gambling the entire brand equity if customers lose trust in the ability of brands to retain the value of their digital assets.
Third, you are competing for the attention of a digitally sophisticated audience who are unforgiving if they feel that an initiative is lame, not exciting, or does not make sense. When Japanese beauty brand Tatcha used Animal Crossing for their Tatchaland initiative, the brand hit on all the right dimensions and was able to reach an enormous number of gamers who were already on the platform. The result was a best-in-class execution. Many other brands are realizing after the fact that their initiatives are often completely irrelevant to their target audiences, and are thus operating without any significant base. Brands need to ask: why would anyone want to be engaged in this Web3 initiative?
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If the answer is not a clear affirmation due to unique, highly desirable, engaging content and because the initiative plays where audiences are, the likelihood of failure by far exceeds the likelihood of success. Most metaverse initiatives are (often far) below expectations and many bridges are being burnt right now. On top of this, as stated before, many brands lose valuable time by betting on the wrong horse and simply repeating what everyone else is doing.
Web3 is not a trend; it’s going to change the game of luxury. From open to closed. From easy client access to high hurdles. The future of the game is defined now. And brands need to play to win instead of trying to go for hype. Too much is at stake.
This is an op-ed article that reflects the views of the author and does not necessarily represent the views of Jing Daily.
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