How Luxury Brands Are Manufacturing Scarcity in the Digital Economy – Harvard Business Review

January 29, 2022 by No Comments

Traditional luxury goods companies have treated digital as a channel. But they’re now starting to treat it as a marketplace in its own right, thanks largely to Blockchain technology, which has delivered the Non-Fungible Token. Today, the key ingredients of luxury – rarity, exclusivity, and cost — can also apply to virtual products, as companies like Balenciaga, Louis Vuitton, and Gucci have realized.

Can digital be luxury? Until very recently, most consumers and luxury companies would have said no. Luxury is about exclusivity, whereas digital about making products, data, and knowledge accessible — the two would seem to be mutually exclusive. According to this logic digital is only ever going to be a channel or, at best, an add-on supplementing and amplifying a physical product or experience.

To be sure, the add-on can offer considerable value or access whole new customer groups. Tiffany’s engagement ring finder app is a case in point: it allows users to try on engagement rings using augmented reality in the app before entering the boutique. Louis Vuitton has collections of accessories that League of Legends players can buy online and then collect in stores. Gucci last year offered Pokémon GO players the ability to purchase fashion items from Gucci’s partnership collection with The North Face at one of the Gucci-Poke stops. Game company Epic Games has partnered with brands from Balenciaga to Louis Vuitton and committed $100 million for game creation in 3D space.

But it’s turning out that the digital world can also provide the basic ingredients of luxury goods and services quite independent of any physical artifact or experience.

Ingredient 1: Rarity

Even in the physical world, telling the difference between original and copy can be difficult. Distinguishing “real” digital products from equally digital copies has long been seen as well-nigh impossible. But technology, as ever, is coming up with a solution: non-fungible tokens (NFTs).

Leveraging blockchain technology, NFTs can be attached to digital products, such as a digital painting, making it possible to establish authenticity and proof of ownership. As a result, sales of products with NFTs have spiked, reaching $10.7 billion in Q3 2021. An NFT tacked on the digital artwork by the artist Beeple sold for nearly $70 million in March 2021 at Christie’s. Investment Bank Morgan Stanley estimates that NFTs could make up 10% of the luxury market by 2030 — a $50 billion opportunity.

NFTs also allow brands can create completely personalized fashion items: The first virtual hoodie NFT by the brand Overpriced sold on the platform BlockParty for $26,000. Companies such as RTFKT or PlattformE offer options for NFT holders to get a physical version of their digitally owned product with the help of flexible production processes such as 3D printing. This flexibility also offers the possibility to produce the products on-demand only when the NFT holder has tested them virtually and decided to own the physical version, avoiding the long-standing problem of overstock, which is particularly prevalent in the fashion industry.

But rarity and personalization are not enough. Luxury goods must go beyond rarity and find ways to tap into the dreams, fantasies, and ambitions that fuel our desire. Well, digital can do that too.

Ingredient 2: Exclusivity

In the digital world, we can present ourselves pretty much how we like — and change those identities very quickly. Some luxury brands have already spotted the opportunity this presents: Balenciaga, for example, has developed a virtual fashion collection in Fortnite — players can showcase their affiliation to the brand community by buying …….



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