Despite recent macroeconomic and geopolitical events, the luxury goods industry remains strong.
Global revenues of the top 100 luxury companies grew by 8.4% CAGR (compound annual growth rate) between 2019 and 2022, reaching $347 billion, a new record for the sector (Deloitte).
However, consumer needs and preferences are changing rapidly.
For a new generation of customers, luxury has a new definition that means craftsmanship, excellence and storytelling, but also authenticity, sustainability and trust as new core values.
What are Non-Fungible Tokens (NFT) Digital Product Passport Tokens?
The Digital Product Passport (DPP) can conceptually be seen as the bridge between physical products and their digital identity in the form of an NFT token (Non-Fungible Token). It functions as a digital link between the product, the owner and the brand, integrating and preserving information about the entire lifecycle of the product, accessible throughout its lifetime.
DPP's NFT tokens enable new use cases both in the supply chain and in end-customer sales:
Upstream:
- Securely store and transparently share product information across the entire value chain through tokenisation, demonstrating sustainability and circularity (incl. sustainable product sourcing, craftsmanship, raw material extraction, recycling, etc.).
Downstream:
- Establish a new direct channel to each customer via their proprietary NFT token, before and after the point of sale, regardless of the channel used for the purchase (e.g. own brand boutique vs. wholesale distributors).
Luxury customers demand DPP's NFT token features
From a downstream perspective, DPP's NFT tokens can help drive new direct revenue by enabling more complete product storytelling and deeper brand experiences. Product storytelling is becoming a differentiator in luxury, helping to influence the purchase decision and increase conversion rates.
In addition, sustainability and circularity are increasingly expected by consumers. Only 1% of clothing is currently recycled (European Parliament), and DPP's NFT tokens can help brands demonstrate their commitment to sustainability in a transparent and immutable way, proving that it is not just marketing.
Authenticity and trust are also must-haves for luxury customers, with up to 24% of consumers accidentally buying a fake product online in the last 12 months (Forbes). With NFT tokens, customers can easily verify the authenticity of a product and authenticate their ownership to access enhanced services and experiences.
The Italian brand Tod's recently launched this for its Custom Di Bag, allowing customers to scan an embedded NFC chip to access certificates of authenticity and ownership, information on production and craftsmanship, the origin and sustainability certifications of materials and packaging, as well as a variety of exclusive owner benefits.
Regulators demand more transparency and traceability
The European Commission proposed a new regulation, the Ecodesign Regulation for Sustainable Products (ESPR), which is expected to be approved and enter into force in 2024, making transparency and traceability a regulatory requirement for any luxury brand in Europe. This has accelerated the adoption of tokenised Digital Product Passports (DPPs), which will soon become a necessity.
As the global regulatory landscape on traceability and sustainability matures, it is likely that other jurisdictions will mimic the EU's regulatory approach in the future, similar to what has happened in the past with data protection laws such as the GDPR.
DPP's Non-Fungible Tokens (NFT) and the future of luxury CRMs
DPP's NFT tokens are a multi-faceted solution for luxury brands, with unrivalled potential to create direct touch points with the final product owner, including in the case of gifting and resale. In practical terms, this can generate new revenue streams for brands, which is a key factor in establishing a business case for DPP NFT tokens.
Currently, luxury CRMs cannot track products after the point of sale, which in the long run damages the effectiveness of customer profiling and messaging.
Tracking customer interactions with an NFT token could allow brands to really understand who their customers are, even after the sales ceremony, to:
- Unlock new sources of CRM data not available today, such as tracking products sold through wholesale distributors.
- Elevate the customer's connection to the brand by deploying new "phygital" experiences that can be personalised to each customer's specific history with the brand.
- Create a direct relationship with customers, regardless of the channel they used to purchase a product and interact with the brand.
DPP NFT tokens can be used by brands to drive new revenue streams by offering customers new product-based experiences and enhanced after-sales services (e.g. e-warranty, loyalty, loss and theft protection, etc.).
In July 2023, French fashion house Dior announced a line of men's shoes complemented by an NFC chip-based authentication system. Verifying ownership of the shoes unlocks a "Digital Twin" of the product, granting access to a secure DPP platform and exclusive services and experiences. Dior sold two versions of these shoes, one with the chip and associated Digital Twin experience, and one without. The findings showed that the enhanced version with a digital twin led to an increase in price and also in sales volume compared to the same products without a traditional experience.
Key challenges of adopting DPP NFT tokens
For luxury brands, the main challenges of implementing DPP NFT tokens are as follows:
- Achieving a high token activation rate will be key to enabling successful NFT initiatives. To incentivise customers to scan the product and engage directly with the brand, the customer value proposition must be tailored to specific segments, and the sales and marketing approach must focus on building awareness of this new proposition.
- Launching an NFT token project can take some time and require organisational learning, so a fast time-to-market will be key to outperforming the competition. The earlier a brand starts its journey with NFT tokens, the greater the advantage it will have over competitors.
- Complex supply chains can make it difficult to collect all the information necessary for product traceability. NFT tokens present an opportunity to improve data capture on material origin and product longevity and circularity.
- It is critical to ensure appropriate governance and project team set-up, as NFT token projects are transformational across all departments of the organisation (from procurement, to manufacturing, to point of sale, to e-commerce and logistics).
- Investing in training will increase visibility and ROI. The more sales, marketing and service teams can explain the value of NFT tokens and leverage the product storytelling they enable, the better the returns generated before and after the sales ceremony.
Towards blockchain-based DPP NFT tokens
As tokenised DPPs become the new norm, a new generation of blockchain-based DPPs has emerged, powered by the Aura Blockchain Consortium.
DPP's blockchain-based NFT tokens offer advantages over cloud solutions such as:
- The immutability and transparency of blockchain builds trust with consumers.
- Trusted and certified data anchored in blockchain complies with being a "trusted source of information".
- Certification of immutable property can help prevent disputes or fraudulent claims.
- The link between the physical asset and the NFT token ensures transparency and supports a more secure transfer of ownership, reducing uncertainties about counterfeiting.
- The benefits of product-based Web3 experiences can be unlocked.
Aura Blockchain Consortium leads change
Aura is implementing this new generation of DPP NFT tokens for luxury globally and is the industry leader with more than 30 million products tracked on its blockchain.
Aura allows brands to choose between a private blockchain for traceability and product lifecycle, and public blockchains for the creation of tokenised "Digital Twins" to enable personalised services and loyalty features.
**In March 2023, Aura announced support for public blockchain networks in addition to its own private one, increasing the flexibility for brands to customise their NFT token architecture according to their needs.
Deloitte supports DPP's transformation to NFT tokens
April 2024, Deloitte partnered with the Aura Consortium to drive global luxury digital transformation, providing end-to-end support to brands from strategy to implementation of DPP NFT tokens.
Its collaboration with the Swiss watch manufacturer H. Moser & Cie. to launch the NFT tokens in its Genesis collection, Genesis demonstrated integrated capabilities in strategy design, technology implementation, partner ecosystem orchestration, mobile application development and metaverse experiences, global communications campaigns, legal documents and risk assessment.
Finding a partner with expertise in innovation, business transformation, circularity and human-centred design will be key to defining NFT token value propositions tailored to each luxury brand.