Why and How NFTs Are Important to Watch For Your Business’s Future
NFTs are one of the key technologies to watch as they will significantly transform future marketing processes (Gartner, 2021). In this article, I will explain to you why it is important to watch this technological trend.
Content:
- What are NFTs and what problem are they solving?
- Who is benefiting from the use of NFTs?
- Why should you use NFTs in your business?
- How can you apply NFT technology to your marketing strategy?
- Conclusion
What are NFTs and what problem are they solving?
Non-fungible tokens (NFTs) are a novel trend using blockchain technology, e.g., Ethereum, to certify ownership of and tradable rights to digital assets (Dowling, 2021). Simplified, NFTs help people get unique ownership of their digital assets, for example, tickets for a festival. Whereas these tickets used to be centralized and, therefore, in hands of the company selling the tickets, NFTs transfer the ownership from the sellers towards the buyers.
The underlying problem that NFTs solve is that digital assets used to be easily copied and distributed. Think of an image you made and published on the internet: everyone can copy it, and, in the end, nobody knows that you were the original owner of the picture. With NFTs, this problem is solved, because everyone can now see that your picture was originally yours by looking at the blockchain.
Who is benefiting from the use of NFTs?
Not only do festival directors benefit from the new technology: also, musicians, filmmakers, sportsmen, artists, and brand owners can benefit from it. An autographed shirt can be distinguished from a fake one by verification on the blockchain, whereas before this was impossible because of fake signatures. While these advantages seem to be mainly aimed at the buyers of the physical and digital assets, there are also major advantages for the creators of digital assets.
Why should you use NFTs in your business?
According to Gefen and Pavlou (2012), consumers consider institutional factors while making a purchase decision. These institutional factors influence whether the consumer sees the company as trustworthy and risk-free. Referring to Fig 1., five marketing implications have been examined and compared between centralized and decentralized applications (e.g., NFTs).
Firstly, NFTs are unique whereas copies of other digital assets are not. Consumers try to get scarce resources to gain a competitive advantage over others (Sharma & Alter, 2012). Thus, promoting scarcity can exploit consumers’ desire to buy the asset (Fan et al., 2019). Secondly, consumers must believe that the conditions in which they operate in the market are appropriate. The decentralized characteristic of NFTs can help consumers in believing so.
Thirdly, companies must build an in-house infrastructure and marketplace to let their digital assets run whereas the blockchain infrastructure already exists and is compatible with many existing applications. Owners of NFTs can also trade their NFTs for other assets without interferences of any parties. Another advantage is the royalties that are directly distributed to the creators of the digital assets, rather than through the platform. Lastly, the creators of NFTs are not limited to a geographical location, because everyone with a computer and internet can access their digital assets.
How can you apply NFT technology to your marketing strategy?
Using a modified AIDA model, Chohan and Paschen (2021) analyzed where the business opportunities are for using NFTs. The original model is used as a consumer buying decision model for selling (digital) goods and consists of four faces: attention, interest, desire, and action. In line with existing literature (e.g., Jansen & Schuster, 2011) the last phase of the decision model is adjusted to recurring action. Referring to Fig 2., the four stages are described.
During the first phase of awareness, marketers should focus on the scarcity of the NFT. By promoting the unique features, they create supply-based scarcity (Koch & Benlian, 2015). According to the commodity theory, consumers prefer scarce products over available products as it enhances their feelings of personal uniqueness (Lynn, 1991). However, companies should keep in mind that the NFT relates to the brand’s objectives and personality.
During the second phase desire, the objective of the marketeer is to emotionally connect with the consumer to move them from liking the NFT towards wanting it. This can be done by offering exclusive features or real-life services that the consumer can benefit from. For example, the Kings of Leon’s NFT album gave exclusive access to unreleased music, visual artwork, and backstage passes to shows. Offering these features moves the consumer into the desire phase when they are aligned with the brand’s positioning.
The goal during the third phase of action is to encourage the consumer into purchasing the NFT. As mentioned earlier, the customer wants to be assured that the transactional process is safe and trustworthy. Here, the marketeer can focus on providing enough information for the consumer to safely purchase the NFT. Videos with guidance on how to purchase the NFT are a way to do so.
Another important aspect is that the NFTs value does not decline over time. This can be achieved by setting long-term benefits for the owners. Make sure that the NFT has a roadmap and consistently communicate with the community if obstacles occur along the way. This way the creators of the NFT can benefit from royalties for a long time.
TL;DR
· Non-fungible tokens (NFTs) are a novel trend using the blockchain technology, e.g., Ethereum, to certify ownership of and tradable rights to digital assets
· While most advantages of NFTs seem to be mainly aimed at the buyers of the physical and digital assets, there are also major advantages for the creators of digital assets.
· Figure 1 displays five characteristics of NFTs (decentralized) and traditional digital assets (centralized)
· Focussing on different aspects of NFTs can help your business’ marketing and navigate your consumers through their decision model
What are you planning to do with NFTs in the future? Let me know!
References:
Chohan, R., & Paschen, J. (2021). What marketers need to know about non-fungible tokens (NFTs). Business Horizons.
Dowling, M. (2021). Is non-fungible token pricing driven by cryptocurrencies?. Finance Research Letters. DOI: https://doi.org/10.1016/j.frl.2021.102097
Fan, L., Li, X., & Jiang, Y. (2019). Room for opportunity: Resource scarcity increases attractiveness of range marketing offers. Journal of Consumer Research, 46(1), 82–98.
Gartner (2021). Gartner Identifies Key Emerging Technologies Spurring Innovation Through Trust, Growth and Change. Retrieved February 8, 2022, from https://www.gartner.com/en/newsroom/press-releases/2021-08-23-gartner-identifies-key- emerging-technologies-spurring-innovation-through-trust-growth-and-change
Gefen, D., & Pavlou, P. A. (2012). The boundaries of trust and risk: The quadratic moderating role of institutional structures. Information Systems Research, 23(3-part-2), 940–959
Jansen, B. J., & Schuster, S. (2011). Bidding on the buying funnel for sponsored search and keyword advertising. Journal of Electronic Commerce Research, 12(1), 1–18.
Koch, O. F., & Benlian, A. (2015). Promotional tactics for online viral marketing campaigns: how scarcity and personalization affect seed stage referrals. Journal of Interactive Marketing, 32(2015), 37–52.
Lynn, M. (1991). Scarcity effects on value: A quantitative review of the commodity theory literature. Psychology & Marketing, 8(1), 43–57.
Sharma, E., & Alter, A. L. (2012). Financial deprivation prompts consumers to seek scarce goods. Journal of Consumer Research, 39(3), 545–560.
