Despite the first mention of the metaverse being found in Neal Stephenson's "Snow Crash" (1992), it wasn’t until 2020 that the term became an omnipresent buzzword in retail, technology and finance. And it wasn’t until October 2021, when Facebook officially announced it was changing its name to Meta, that it became a household trending term. Like any trending word, it’s being used with various definitions, mostly with similar attributes: virtual, blockchain, virtual reality interface, digital ownership and, of course, avatars.
For retailers and brands, the introduction of the metaverse and its derivative, meta-commerce, signals another channel and opportunity for shopping and winning the consumer. However, for an overwhelming majority of retailers and brands, a meta store is completely foreign, just like e-commerce and online were back in the 1980s. One comforting thought is that the metaverse is new to all of us, and no single brand or retailer has built a walled garden. There are a few early adopters, yet no clear winning platform. So the question is, who sets the rules and what are the pricing rules?
What we do know is the virtual customer is younger and more experiential. Meta-commerce introduces new opportunities to attract and engage with buyers like never before, providing more interaction, greater visual experiences, and the fusion of physical world elements with an infinite online dimension. "It will be more progressive," states Serge Gianchandani, co-founder of Metamall, commenting on the physiological impact of a virtual vs. physical store. I’ve been referring to this as "physi-digital," the combination of physical and digital. Traditionally, retailers and brands used physical stores for shopping and their digital presence for storytelling and experiences. Then the push was towards increasing commerce through their digital platforms and providing experiences in stores. However, in the metaverse, it’s an all-in-one, submerged meta-commerce experience for your consumer to be in brand.
While the metaverse has been around for digital purchases in virtual worlds (e.g., gamers purchasing in-game add-ons for their apps), many retailers keep debating if the trend is here to stay and if the addressable market is worth the investment. Some early adopters that are winning the meta-buy box include:
- Gucci opened a virtual shop experience by purchasing a digital plot of land in The Sandbox, a virtual game world. Here a selected number of Gucci items are available for users to buy, own and use in the game world.
- Nike launched a virtual world called "Nikeland." It allows users to outfit their avatars with unique Nike products, with best-sellers and limited-edition drops.
- Adidas created its NFT collection, a mix of digital and physical items produced with collaborators, including Bored Ape Yacht Club. The collection will consist of digital wearables that users can buy and use on digital platforms as well as physical clothing to match.
- Louis Vuitton entered the meta-market with an adventure-based game, Louis the Game, to celebrate its 200th anniversary. The mobile game character of Vivienne travels through six worlds collecting 200 candles and 30 NFTs created by the famous artist Beeple.
- Walmart announced the launch of its NFTs and cryptocurrency to start selling virtual electronics, toys, home decor, and appliances.
- Ralph Lauren opened its newest stores in the metaverse. With just a couple of clicks, consumers can buy puffer jackets, checkered beanies, the brand's iconic polos, and other retro wearables priced under $5.
- Kaufland tapped into the new land in a different way. The retail chain built a Kaufland supermarket on an Island in Animal Crossing, a social simulation video game series. The new virtual store, called KaufIsland, is demonstrating Kaufland’s sustainability strategy and aims to engage with younger consumers.
The prevailing number of fashion brands in this list isn’t a coincidence. It shows the demand for fashion goods in Web 3.0. According to eMarketer, 27 percent of respondents would like to try on clothes via augmented reality/virtual reality before making a purchase. By making forays into the metaverse, brands and retailers are trying to kill two birds with one stone. They respond to the surge of market demand and build bonds with younger consumers by engaging with them in the space where they want to be. Brands are bringing shopping to the young generation of consumers in the metaverse vs. hoping they come to physical stores.
Unpacking Pricing in Metaverse
The global metaverse market is expected to increase from $45.6 billion in 2020 to $344.8 billion by 2027. Due to this potential growth, brands are aiming to be the AWS of the metaverse and get a head start on their rivals.
While the primary goal now for many companies is brand awareness and brand presence in the metaverse, the next big thing will be pricing. Given that the decentralized ecosystem of Web 3.0 has no limits and rules and allows experimenting with pricing, retailers can benefit from these opportunities and go beyond their traditional pricing tactics.
Prices in the metaverse today differ considerably from those offered in physical and online stores.
For instance, Gucci’s virtual sneakers can be bought at $12.99 while in real life they're up to a thousand dollars.
Or vice versa. The average price for an item in the Adidas NFT collection Into the Metaverse is about $765 while on the company’s website the assortment is more affordable.
In fact, these prices aim at creating marketing buzz rather than achieving some sales targets. Yet, such marketing tricks have already brought their first results despite analysts’ expectations. For example, Ralph Lauren's investments in the Metaverse Roblox Winter Escape world enabled the company's third-quarter revenue to increase by 27 percent and reach $1.8 billion.
Thus, the pricing issue is still open. Pricing items in the metaverse is being approached like the wild wild west. Some are wondering if the answer is adding 10 percent to 30 percent on top of the customer's real-world purchases to give them a virtual outfit for their avatar. But as practice shows, the answer is "No." At least for now, the majority of metaverse purchases have been mutually exclusive from IRL purchases, and the pioneers are focusing on making purchases affordable for users.
In the long term, retailers can transform Web 3.0 into another sales channel with an expected revenue stream and elaborate pricing strategies. The main block here is where to start. The entire journey to metaverse commerce may consist of four big stages.
Data is a crucial component of effective offline and online sales. And the metaverse provides excellent opportunities for monitoring and tracking information about users' preferences, behaviors, needs and choices. Retailers can connect these dots and get a comprehensive picture of buyers' profiles.
By checking the digital footprint of Web 3.0 users, retailers get a hint on how to meet these people and turn them into loyal customers, as well as become more aware of their willingness to pay for different products. Given the demographic peculiarities, search history, etc., retailers can segment their buyers and define a particular price for every group and even a single buyer. It also mitigates price discrimination as a seller can interact with a buyer one-on-one and offer a price based on the data retrieved from users’ profiles.
When selling in the metaverse, retailers can also collect data on equivalent products in competitors' assortments. Like in real life, retailers can parse information about item features and prices so that it becomes simpler to set prices in their metaverse store.
With data, retailers don't have to make blind decisions. For instance, a manager tries to decide on a reasonable price for a pair of sneakers. Knowing e-commerce competitors, the company can check if these brands are on Web 3.0 and what prices they offer for equivalent sneakers. Furthermore, it's a great opportunity for a brand to get to know about new competitors and use this information in their future pricing tactics.
Pricing Mono Brands
However, what price to offer if retailers sell unique goods? In this case, companies should take into account their customers' requests and needs and also their readiness to pay for the product's uniqueness. If there are no similar products in Web 3.0 and a brand doesn't want to set an arbitrary price, it's time to search for similar products in the metaverse. Pricing managers can shortlist a few of them with the most similar features and analyze how these products are priced. Plus, retailers can use e-commerce data as a benchmark when pricing similar SKUs.
Adopting the Potential of Algorithms
Ultimately, algorithms are serving as a win-win solution for retailers across industries as they allow for fast and data-powered decision making. Today, algorithms enable retailers to consider over 20 price and nonprice factors. For the metaverse, this number may significantly rise. Some of these factors will remain, new will appear, and others will become meaningless. So while pricing experts and analysts are testing commerce in the decentralized space, the best decision they can make right now is to widely integrate data and algorithms into introductory pricing, price optimization, promo campaigns and other processes.
As the list of companies entering the metaverse keeps growing, the next pivotal iteration in this process will be to ensure the presence of well-known physical and digital stores in the virtual world and even monetize these efforts. The metaverse holds a plethora of options for businesses ready to discover the sales potential of this new channel. The sooner retailers begin collecting data and applying algorithms, the quicker they will come up with effective iCommerce solutions to boost revenue and offer customers one-of-a-kind virtual experiences and personalized prices.
Marina Dias is a senior pricing consultant at Competera, a pricing platform that enables retailers and brands across all retail industries and markets to increase customer trust by setting and maintaining optimal price positions.
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