Porsche’s NFT Crash: A Warning On FOMO And Digital Asset Pitfalls

German luxury sports car marque Porsche’s recent foray into non-fungible tokens (NFT) hit the skids after the assets’ value crashed and consumers lashed the offering, potentially damaging the brand’s reputation, trust and desirability. The case highlights the pitfalls of rushing in to digital tokens, a lesson other brands would be well advised to heed. Unveiled during Art Basel Miami in November 2022, the automaker planned a release of 7,500 units at a minting price of 0.911 ETH (US1,452, as of January 30) — a nod to the Porsche 911 brand icon. However, the brand was forced to take action on January 25 after the value of the initial tranche of assets’ dipped below the offering price, with observers complaining of high minting prices and a lack of utility, and some calling for a price reduction to 0.0911 ETH (US145). Porsche did not just halt the minting process, limiting supply to 2,363 tokens, but also scrambled to boost the NFTs’ intrinsic value by adding benefits money can’t buy, such as access to Porsche experiences. It worked — the floor price hit 2.5 ETH (US3,968) on January 30, according to NFTGO, although the damage had been done. I’ve presented masterclasses in London, Paris, Monaco, New York and Los Angeles on the best practices for metaverse projects covering NFTs and decentralized autonomous organizations (DAO), including the Équité x Jing Daily Metaverse Webinar series; taught MBA classes at Pepperdine University and New York University; and had the opportunity to review dozens of luxury metaverse projects in detail and advise numerous brands on the topic. The key mistakes brands commonly make are treating digital assets differently than their physical counterparts and succumbing to the fear of missing out, or FOMO. Let’s start with FOMO. Many metaverse projects are driven by a business’ desire to appear at the forefront of innovation and to not miss out on the hype. As prominent brands created NFTs, DAOs and other digital products and rolled out massive public relations campaigns around them, others felt the urge to quickly join in. Some brands over-reached, hastily briefing agencies to quickly develop NFTs or other metaverse projects, launching them without deep strategic scrutiny. Marketing managers faced huge internal pressure to jump on the bandwagon. However, many managers lack significant experience in creating digital assets, and digital agencies often don’t understand luxury and its extreme value creation principles, leading to disastrous outcomes. Most luxury space digital initiatives analyzed by Équité Research either create little to no intrinsic value, are launched on the wrong platform, or address the wrong audience, or no audience at all. Shockingly, hundreds of thousands of dollars, in some cases millions, have been wasted on digital asset projects with no clear objectives or long-term vision, and little understanding of key performance indicators or success factors. This must change. As the Porsche debacle shows, there’s much more at stake than money — brands risk their credibility. There’s little room for error in luxury. When consumers buy a digital asset from a luxury brand, they expect it to be an investment and not a rapidly depreciating asset, disconnected from the brand’s value model. Thus, by overly relying on experimentation, being too hasty and not thoroughly thinking through the value proposition, many luxury brands have traded in long-term brand equity for five minutes of fame. Brands underestimate consumers’ value perception of digital assets, which is colored by the combination of auction models and crypto payment. These elements tend to boost consumers’ willingness to pay above a digital asset’s intrinsic value, in turn creating long-term negative value correction, a situation that could haunt luxury brands over the long term if not addressed in the early stages of a project. If your digital activities don’t follow a strict strategic playbook, your brand equity will take a hit, whether through consumers’ criticisms or brand equity erosion. Consumers scrutinize digital assets the same way they do physical ones. Together, the newness of this asset class and luxury brands’ lack of experience form an explosive mix, resulting in brands unnecessarily burning through resources and damaging their brand equity. What’s worse is members of Gen Z are digitally savvy, meaning mistakes in this arena will disproportionately affect future clients. In short, don’t trade brand equity for FOMO, avoid the common digital asset pitfalls, be strategic and create value digitally. 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 him: LinkedIn: https://www.linkedin.com/in/drlanger, Instagram: @equitebrands /@thedaniellanger

Porsche’s NFT Crash: A Warning On FOMO And Digital Asset Pitfalls

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Published January 30, 2023

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Porsche’s NFT Crash: A Warning On FOMO And Digital Asset Pitfalls