The luxury sector can go hand in hand with blockchain technology, which has the power to revolutionize almost any industry that deals with payments, data ownership and tracking, and other business processes. There’s been a recent inclination towards exploring this novel technology for its potential to improve the customer experience, enable high-end companies offering high-end products and services to access new markets, and, more importantly, improve their sustainability efforts for a more accountable future. However, trends go beyond advancements in the business structure. As Statista shows, the luxury sector was the one that focused the most on responding to customers’ desire to see more companies implement cryptocurrency payments in 2021. This drove the adoption of Bitcoin payments and the number of users registering on reliable cryptocurrency platforms like Binance to check its price, analyze price charts, and invest in cryptocurrencies to use them further as they wished.
However, Bitcoin has a long way to go before becoming an eco-friendly cryptocurrency, with all it takes to achieve this objective being to be less energy-greedy. The merit goes to this leading cryptocurrency as even though the idea of the next generation of the World Wide Web was born in 1991, it was only when Bitcoin was created and its price and popularity grew that it took hold.
Regardless of their common roots and whether Bitcoin will cut out mining to generate coins, it’s fair to say that the possibilities enabled by blockchain technology can contribute to creating a more sustainable industry. So, how is this achievement possible, and why is the luxury sector growing increasingly enamored with the blockchain?
Demonstrating luxury brands’ efforts to achieve ESG objectives
The luxury sector and sustainability deliver a quite contradictory image due to the characteristics of high-end goods and services. Luxury is synonymous with opulence, premium prices, and a prestigious appearance, differentiating from the brands for mass-market through their rich brand heritage and deluxe experiences delivered to consumers. However, exclusive brands face many challenges, among which the prevalence of low-quality fake products and the increasing need to use sustainable marketing, sourcing, and manufacturing strategies are among the most pressing.
Blockchain technology’s distributed immutable and transparent nature can respond to the needs of a more transparent and accountable exclusive industry in several ways. Firstly, it can tackle the issue of increased complexity in transactions in some ways, from those between stakeholders to the exchanges involving numerous participants and international transfers. Brands using blockchain-related solutions can boost their transactional efficiency, solving delays and backlogs, thus streamlining their processes.
As the International Institute for Sustainable Development states, blockchain technology can increase transparency and openness in data sharing, thus showing how brands work towards achieving the Environmental, Social, and Governance (ESG) goals.
Last, blockchain enables companies from the smallest to the largest to boost their execution speed and autonomy in transactions, unblocking the cash trapped in the value chain. This step helps the luxury sector achieve its green finance goals, boosting competition in the market and laying the groundwork for supporting dedication in taking more climate action.
Improving the traceability and authenticity of goods
Non-fungible tokens (NFTs) are by nature developed via smart contracts on top of blockchains, which are responsible for the token’s transferability and traceability. While some NFTs criticizers argue that their heydays are ending, other crypto-rich individuals pour significant amounts of money into digital art. However, there’s more to non-fungible tokens than meets the eye. Beyond digital art, blockchain’s underlying technology can grant the same demonstrable, unique ownership to luxurious goods, demonstrating their provenance and reducing the fake products in the chain.
Blockchain technology can prove whether the brand’s sourcing is sustainable by checking supply chain details and enhancing the vintage and resale markets by enabling previous ownership verification. More notably, luxury brands can take advantage of the technology behind the decentralized distributed ledger to demonstrate to customers the sustainability of the manufacturing process and materials used, thus enhancing their trust in the company’s dedication to sustainability. Consumers can verify by themselves the provenience of the components in their products to determine whether they are renewable and ethical, as this kind of information will be recorded on the blockchain.
Engaging customers in corporate governance
Another utilization of blockchain technology still in its development stages is corporate governance, with which companies in the gaming sector are no longer strangers. Video game companies are accustomed to decentralized autonomous organizations (DAOs), which aim to create a different, democratic, and more open management structure. However, exclusive brands also benefit from the revolutionary nature of DAOs’ ability to involve consumers in various areas of corporate governance, including enabling them to have a say in what philanthropic causes should receive their donations, as well as involving them in the decision-making processes regarding further collaborations with other designers or brands.
The customer empowerment process doesn’t take place randomly at all and considers well-established criteria that demonstrate the client’s loyalty. For instance, DAOs in luxury brands can work by emitting tokens to clients depending on the number of items purchased, the ownership period of a product, or how long the client had an account.
Giving customers the gift of participating in decision-making processes, enabling them to vote on collaboration or express their opinions on the upcoming lines, can transform them into stakeholders, ultimately gaining their admiration and support.
Responding to Gen Z’s expectations
Generation Z strongly endorses Web3, with almost a quarter having already purchased an NFT. Because they keep making up an increasingly significant fraction of the luxury market, exclusive brands must seek ways to transform them into loyal customers. The younger generation and millennials are the new stakeholders in the industry, and for exclusive brands with rich heritage and tradition, responding to their expectations is critical to overcoming emerging challenges.
In light of this, blockchain can lay the groundwork for sustainable business practices. Suppose ownership records and product authenticity can be demonstrated via a blockchain-stored tamper-proof form. In that case, customers can have more trust in buying vintage collections resold by exclusive brands, as they are provided with more comprehensive details. This will ultimately pave the path to a circular economy, benefiting the bottom line of luxury brands.
Blockchain is set to transform the luxury sector in many ways, among which the most important ones are removing counterfeits from the chain and demonstrating their ESG efforts, ultimately leading to a more sustainable industry.