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How Brands Should Be Entering Web3
Discover your brand's North Star
The Naked Collector is the home of the latest news and deepest analyses of Web3 Fashion and Culture.
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Finding Your North Star
A Web3 approach just for the sake of having one hardly makes sense.
To create a long-lasting Web3 strategy less attention should be paid to what other companies are doing and more on your own North Star. Copying a Web3 strategy is similar to forking (i.e. copying) an existing open source protocol to create a new project. While it can work, often such projects end up becoming copycat projects without distinct identity and long term vision.
So how should brands identify their North Star and the consequent Web3 approach? I think the most productive approach is to think what is a net new experience that Web3 enables that also aligns with the macro vision of entire brand. The more forward looking the better. While it’s ok to experiment and create “Web3 firsts”, looking at the volume and revenue (can see those here and here), Web2 based drops are almost certain to fail unless there’s a coherent long term plan in place.
Some examples of potential North Stars we’ve seen thus far:
Starbucks → Digital “Third Space”
Nike → New drop mechanism (10% – 50% of Nike drops are botted) + using/developing IP in gaming (Fortnite, EA) + wear to earn (down the line)
Adidas → Developing new IP (ALTs, “Into the Metaverse” product line) + new modes of customer interaction. After all, the Yeezy line termination created a $441 million sized gap that needs to be filled.
Gucci → Expanding its metaverse presence + gaming (GG) fashion line. Gucci needs to rebuild a new coherent narrative as it reels from the breakup with Alessandro Michele and its decrease in cultural relevance based on the Lyst Hottest Brands Index Q1 2023.
Once the North Start has been established, here’s how NFTs can be plugged in to take a brand from just another fashion laggard to a future proofed brand.
How NFTs Can Help Implement Your North Star
NFTs Enable Community Participation/Co-creation
There are especially three notable consequences of Web3 enabled community participation.
First, such a model gives rise to a two sided communication with customers. A “UGC+” model if you will (see visual below). As brands get closer to and more personal with the customers, the line will be blurred over time. Token gating, digital identities and on-chain attribution are pieces of Web3 infrastructure that already allow for a closer relationship between the brand and its customers.
Second, the Web3 tech stack enables streamlined revenue sharing with artists and communities, particularly as the legal landscape becomes clearer. This should become a no-brainer for brands, especially smaller ones. Additionally, this technology paves the way for the emergence of full-time micro brand ambassadors, a topic I will discuss later on.
Third, Web3 paves the way for product customization 2.0. By participating in the creation process, customers effectively end up selling the product to themselves. In some ways, this is form of a more advanced product customization (I recommend reading my piece on generative fashion to learn more about mass customization). Such participation in the process can positively affect consumer psychology e.g. increased brand stickiness and customer willingness to purchase. It’s every consumer’s dream to have an input on a Nike shoe design or a Chanel handbag, even if so small as having an input on the color of a button. As culture is democratized, this Web3 already has the infrastructure in place for this. Token gated voting systems like Snapshot combined with proof of humanity (see last section) is a good start.
Customization = Choosing from a limited selection of pre-selected attributes
Co-creation = Creating the attributes + creating the parameters of the designs.
NFTs Enable Community Ownership
First, NFT ownership can create a metagame (a game about the game). Examples include fantasy teams, cooperatives, token gated teams and subcommunities. A prudent observer would realize that Web2 congregation platforms are facing serious problems. From the Reddit to Twitter backlash, we’re reminded that companies are here to make money first and if that aligns with consumer interests great, if not, then tough luck. Brands that want permanence and stability are, thus, left with the option of either building their own internal community infrastructure (time consuming and expensive) or integrating existing open source tools. The latter is one of the strengths of Web3. Not only is this good for the consumer, but it allows more unique infrastructure stacks to be adopted by traditional brands.
Second, crypto composability allows group formation outside the company servers. What companies may miss out on consumer data, they gain in increased brand ambassadorship. As such there’s not necessarily a loss, but a shift in consumer data. KPIs shift from the relatively opaque indicators such as time spent on a website and shopping cart conversion rates to community chat engagement, branded activity completion and previous collection ownership. Consumers are effectively transmuted from clicks to a face and the KPIs shift from short term to longer term ones. As such, in addition to being a direct revenue source for Web2 brands, Web3 can actually increase Web2 revenue by increasing the lifetime value of customer.
Third, brands can reward micro-influencers and brand champions in totally new ways via NFTs. As advertising shifts away from traditional brand social media campaigns toward more creative modes of advertisement (e.g. TikTok micro-influencers and brand participation in user generated trends) the momentum is shifting from top-down to bottom-up advertising. In this evolving landscape, NFTs have the potential to address the shortcomings of the current brand champion/micro-influencer reward system. To illustrate this concept, let's draw upon the economics concept of deadweight loss, which represents the mismatch between demand and supply due to market inefficiencies:
A deadweight loss is a cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium. Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources. – Investopedia
In this analogy, influencers/brand champions take on the role of producers (supply) while brands act as consumers (demand) of user-generated brand publicity, such as content shared on social media platforms. However, the current system faces limitations in efficiently incentivizing these influencers to meet the growing demand. Brands often desire more social media content created around them, but they encounter challenges in reaching and appropriately incentivizing the influencers. Consequently, this inefficiency occurs in the influencer linking/reward system.
Under the current system, brands often struggle to hire or identify their most passionate brand champions, also known as their 'Top 1% Fans.' Additionally, intermediary-driven inefficiencies, such as lengthy employment contracts, create further challenges. What if brands could reward micro-influencers without traditional hiring by offering limited collectibles, such as NFTs, which may or may not have monetary value on secondary markets? This approach would enable small social media creators to directly benefit from creating content or trends around a brand. Instead of using money as the primary means of reward, brands could leverage their cultural capital, especially through limited edition NFTs. Although NFTs are not equivalent to equity, they can align the interests of the brand and the creator. Furthermore, these influencers or brand champions could be sourced internally from within the brand community, strengthening the alignment of incentives. Such a process has the potential to combine the advantages of international micropayments with brand-community incentive alignment. For reference, loyalty and on-chain credential platforms like 9dcc Network Points and Disco are doing interesting stuff in the space.
NFTs Enable New Sustainable Experiences and Context
As sustainability conscious modes of consumption gain relevance, we could and should redefine what products are, even those of primarily physical brands. With the integration of NFC technology, digital products can now be directly linked not only to their physical counterparts but also to digital or physical experiences, creating new product possibilities. However, the current product model usually revolves around private, one-off transactions, where consumers consume products individually and can showcase their purchases to others. The consumer touch point is one of:
“Thanks for buying, our next touch point will be when you decide to buy another product from us.”
Moreover, we know from research that consumers derive a much greater and longer-lasting feeling of happiness from experiences than from physical products. The experiential happiness preference is even stronger the higher the respondent income. This renders the findings extremely relevant for luxury markets.
Thus far, the majority of fashion brand experiential offerings have been confined to flagship stores (limited to a handful of cities around the world) and fashion shows, (limited to a handful of insiders). Overall, there is still a strong “you can look but you can’t touch” inside vs. outside mentality. As discussed, consumer touchpoint are often transactional and impersonal.
On the other hand, if we look at the most popular games like Roblox and Fortnite (with their new Unreal Engine editor), these platforms let users participate in the creation of their own worlds. Whether it’s a consequence of creative director egos or curation of brand expression, most physical brands seem to be beyond user input. Perhaps the reason is money. We often see brands transform into something they’re not by chasing trends. We see Ivy League fashion brands transform into a confusing amalgamation of street style meets old money aesthetics. We also see an increased focus of global aesthetics e.g. K-pop due to consumer demand growth in those markets, and most of the time, not due to internal ideological design choices.
While social media creates network effects and trends that are beneficial to fashion brands and consumers (e.g. you can discuss fashion aesthetics or trends with 1M+ of your online peers), it has also made us lose a degree of individuality. Second hand and vintage clothing are good examples of people seeking individuality through novel or undiscovered brands. I’ve always thought that the beauty of fashion (and many other consumer facing products) lies in its context, not just the physical pieces of cloth. Instead of letting nostalgia create the context, I suggest brands utilize NFTs to proactively create unique and exclusive context for its members. Instead of recreating context 2-4x per year during fashion weeks, a persistent, not seasonal, context makes much more sense. We can’t blame consumers for trend and brand hopping if the brands are doing the exact same thing. Not only does this make sense in the shifting consumer landscape but it makes business sense as well.
I created a case for the Finnish brand Marimekko that explains how brands can play perfectly into their brand identity. Access it for free via this secret link.
NFTs Enable Proof of Humanity
Finally, with the rise of AI and internet bots (47.4% of all internet traffic came from bots, a 5.1% increase from 2021), to maintain the humanity on the internet, proof of human input is needed. In other words, it'll be of existential importance for the internet, especially social media platforms, to distinguish between human interactions and artificial intelligence entities.
This is essential for preserving organic internet culture. Bots jeopardize the very essence of social media, which is why Elon Musk is doing so much to curb bot activity on Twitter.
(Alternatively, it's equally crucial to determine whether a piece of art was created by a human or an AI. The human forgers of yesterday will have nothing on AI-made forgeries.)
Some potential ways to advance proof of humanity include:
Token gating – Humanity via ownership
Owning a membership NFT gives access to token-gated perks and fashion drops. While NFT drops can still be botted to some extent, implementing effective drop mechanics, combined with on-chain credentials (see next point), can significantly reduce bot activity. Big brands like Adidas, Nike, and PUMA have already experimented with a digital-to-physical mechanism. They hope to apply this approach to their future exclusive drops, aiming to avoid the same bot problems Nike is facing with its SNKRS drop platform.
On-chain credentials – Humanity via activity
Bot-proof on-chain accomplishments or proof of collection (e.g. via POAPs) can also act as proof of humanity. These can be adjusted regularly to make it physically impossible or financially impractical for bots to complete these tasks.
An additional benefit of on-chain credentials is that brands could actually see brand champion/influencer metrics in real time. Things like referrals, activity, loyalty, even helpfulness could be rewarded. This opens up new design and reward spaces for brands. Something that Starbucks Odyssey and other loyalty programs are realizing.
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