5 Lessons for Luxury Retail Success With NFTs and the Metaverse

The hype surrounding non-fungible tokens (NFTs) and metaverse environments has had highs and lows. Media attention increased dramatically in late 2021 after Facebook rebranded as Meta and virtual art sales made huge profits. This initial fervor quickly subsided with consumer search volume for NFTs and the term “metaverse” decreasing substantially in 2022.

It's still difficult to ascertain what the total market opportunity is with these technologies. Gartner sees both metaverse and Web3 in retail as over 10 years away from reaching a point of maturity of adoption and usage, while it sees NFTs in retail as five years to 10 years from this point. This hesitancy is partly due to low consumer demand. A January 2022 survey of Gartner’s Consumer Community found that few consumers grasp the metaverse. Thirty-five percent of respondents have never heard of it, and just 6 percent say they understand and can explain it to others.

Luxury Brands See Early Success

While the initial frenzy may have slowed, brands have the opportunity to leverage NFTs to achieve business goals. Some luxury retail brands have been successful in using NFTs and metaverse campaigns given their strong brand recognition and the relatively high affinity of younger, affluent audiences for these new technologies.

CMOs wishing to leverage NFTs and the metaverse should consider the five key lessons learned from proven successes across luxury brands:

1. Leverage the right expertise.

Metaverse environments and NFTs present brands with unique technology challenges to create viable, exclusive digital-art projects. A successful metaverse or NFT campaign requires brands to develop expertise in the underlying technology, the mechanism of the NFT marketplaces, and a proven content promotion strategy. Before defining areas of engagement, it's crucial to first understand the wider opportunities and risks of developing campaigns in this emerging space:

• Investigate the legal implications of virtual environments. Entering into an uncharted area brings along risks involving brand health, community safety and lack of governance. Individuals responsible for the management of their brand’s NFT and metaverse environments should speak to legal teams to assess the threats or opportunities posed by creator communities who might already be using trademarks in virtual spaces. To protect brand equity, brands can consider a licensing strategy or enter the space early with an official establishment.
• Assess platform and creator partnerships prior to developing your road map. Creating a NFT typically requires creative and technical skills, including 3D design, product design and how to link an artifact to a blockchain. However, there are steps that can reduce the need for such expertise. NFT marketplaces typically provide minting tools that can easily turn any upload into a NFT as well as provide partnership opportunities. Several luxury retail brands initiated their first NFT projects through collaborations with artists with established skill and experience. In this way, brands could outsource technical work and tap into their partners’ existing audiences.
• Tap into internal talent while building competency in 3D content design and distribution to optimize future campaigns. Traditional advertising content such as high-production photos or commercial video doesn't fit naturally into metaverse environments. Instead, build up internal competency in 3D and virtual experience design for a successful metaverse and NFT campaign.

2. Focus on where your target audience is before launching campaigns.

To maximize the impact of metaverse and NFT campaigns, brands must first develop a clear understanding of where their target audience is and define the objectives of their efforts. Most luxury retail brands’ metaverse and NFT campaigns have launched on gaming channels instead of their owned channels, though there are advantages to each.

One on hand, campaigns launched on third-party platforms build reach to a new audience that may not have previously engaged with the brand. On the other, campaigns promoted to existing communities can help to shift brand perceptions among a core audience that may not have much exposure to metaverse environments or NFTs.

3. Leverage NFTs as part of brand campaign offering.

Luxury retail brands are likely better positioned to succeed with NFTs compared to other retail categories based on their established high levels of brand equity. From this starting point, NFTs are increasingly used by luxury retail brands within marketing campaigns to increase engagement. For example, luxury brands have offered NFTs as a reward for signing up to their newsletter. They become common elements when brands launch their virtual stores in metaverse environments. The application of NFTs is also extended to member and other brand campaigns on owned channels.

To avoid wasted resources, tie NFT investments to wider business goals, such as enhanced campaign performance. Others benefits include improved brand reach to younger, affluent demographics; traffic to brand channels; and real or virtual product sales.

4. Target measurable marketing objectives via NFT campaigns.

Due to the newness of the technology, marketers struggle to identify accurate ways to measure the performance of NFT-related activities. By focusing on specific marketing objectives, luxury retail brands can develop their success metrics using a similar methodology to other campaign types. Start by defining an objective (awareness, revenue generation, etc.) and then establish campaigns with suitable key performance indicators to compare against other activations.

5. Leverage agile operations to evolve fast.

Like all emerging technologies, there are risks of overinvesting while consumer appetite doesn't exist. To avoid this, investigate all potential use cases and benefits before planning investments to form a long-term strategy. NFTs can be just another speculative asset but can also be an important enabler of digital product creation and a new route to market.

For others, a more steady growth of expertise will fit better with the company’s appetite for innovation. When starting with metaverse and NFT projects, the company’s culture and processes for executing experiments are important. A successful experimentation requires an open-minded culture and a formalized approach to continuously testing.

Consider your company's goals and appetite for innovation first and foremost when defining its strategy for NFT and metaverse campaigns. This will provide direction on whether expensive moves or smaller partnerships with creators provides the most appropriate path forward.

Matt Moorut is a director analyst in the Gartner Marketing practice, covering a variety of retail and digital marketing topics.