NFTs devalue
physical products

Luxury brands are increasingly integrating Non-Fungible Tokens (NFTs) into their marketing strategies, using digital twinning to connect physical products with digital counterparts. This approach aims to bridge the gap between the tangible and digital realms, enhancing brand experiences and extending product value.

While this practice has been shown to be effective in promoting NFTs, a new study has revealed surprising results: these digital twins may actually undermine the perceived luxury of the physical products to which they are tied. The research was conducted by the School of Business Administration at Bar-Ilan University in Israel and the School of Business and Law at the University of Agder in Norway.

In a series of eight experiments involving over 2,300 participants, the researchers investigated how the launch of NFTs as digital twins affected the perceptions of the physical luxury products with which they were associated. The findings suggest that while NFTs may elevate the digital product itself, they can harm the perceived value of the physical counterpart.

Specifically, the research indicates that linking a luxury item to an NFT may introduce a sense of “temporariness” to the product, diminishing its image of timelessness – an essential aspect of luxury.

“This study challenges the use of digital twins in the luxury sector,” says Raz Henkin, a PhD student at Bar-Ilan University and the lead researcher of this study. “Our findings suggest not only that digital twins fail to enhance the perceived value of the physical product, but also that linked NFTs may introduce a sense of novelty, digitalisation, and impermanence that undermines traditional perceptions of luxury.”

Tobias Otterbring, a professor at the University of Agder, says: “Luxury brands, which have long been known for their ability to convey exclusivity, timelessness, and tradition, now face the challenge of striking the right balance between maintaining their heritage and embracing innovation.”

Findings of the research showed that the connection between NFTs and luxury items, while innovative, can disrupt this delicate balance and ultimately affect consumer perceptions. The research was recently published in an issue of the Journal of the Association for Consumer Research, which focuses on metaverse, consumer behaviour, and well-being.

Early insights from a preliminary follow-up study suggest that NFTs not only raise concerns about the perception of temporariness, but also, among consumers unfamiliar with the technology, can be seen as lacking authenticity. This further erodes the luxury status of the linked physical products.

Despite these concerns, the researchers are not advising luxury brands to abandon digital twins entirely. Rather, they emphasise the importance of careful planning and strategic integration when marketing NFTs. By ensuring that NFTs are part of a broader strategy that reinforces the timeless status and the authenticity of their products, luxury brands can mitigate the potential risks of devaluing their physical items.

Dr Dikla Perez, from the School of Business Administration at Bar-Ilan University, says: “We believe that while NFTs have their place in the marketing and digital engagement strategies of luxury brands, their application must be approached with caution. Brands should focus on protecting the core values of authenticity, exclusivity and timelessness while incorporating these new technologies in ways that don’t undermine them.”

* Read the paper here.