WHAT THE FUD?
A marketer’s perspective on NFTs and loyalty
First published on WARC.
PREFACE
Okay, full disclosure.
I have immersed myself in the vortex that is the NFT world of investors, whales, and degens for about 3 months now. In that time, I have aped, flipped, staked, and minted a variety of NFTs, and have participated in Twitter Spaces, Discord games, and karaoke parties. I have made friends who range from entrepreneurs, to college students, to stay-at-home dads from all across the world. And I have, through analytics, word of mouth, and pure impulse (stupidity), pulled together a growing bag of around 90 NFTs. In the process of which, I have also been scammed out of 3.5ETH within my first week in the space. I am not an NFT expert, I do not own any blue chips. I am not here to share an investor’s point of view, nor am I remotely in a position to do so. I am a brand and marketing strategist by trade and am currently serving as advisor to an NFT project, sharing with you a point of view on the world of NFTs through the lens of marketing applications and prospects.
In the grand scheme of things, NFTs is still very much in its infancy. As such, in attempts to cater to the initiated and uninitiated alike, the points I will cover will vary in depth and sophistication. To the seasoned Web3 veterans, please bear with me.
LET’S TALK NFTs
FUD — Fear. Uncertainty. Doubt. If you are a marketer judging NFTs like parents do TikTok challenges, you may be FUDing too hard. But if you are a marketer running an ‘NFT campaign’ without a care in the world, you are probably not FUDing hard enough.
With the world economy coming to a halt and both Crypto and NFT spaces signaling capitulation; with the buzz (hopefully) fading, and the bandwagonners dissipating, marketers are now given a fantastic opportunity to deep dive into the space and relook at NFTs and its actual prospects beyond a buzzword to impress clients.
I’m not going to bore you with the various Web3 interpretations or prospects of the metaverse, as I am sure many of those who are reading this have probably had courtside seats to the occasional skirmishes between Web3 thought leaders and Mark Ritson. So, let’s not go too far into speculating the future, and work with what we know now — let’s start with the fundamentals.
Strip down the hype, the $300k PFPs, and the cultish degen followings, NFTs is just a piece of technology. It is uniquely identifiable digital tokens built on decentralized contracts that allow for proof of scarcity and verification of ownership. It can be a piece of digital art or music, it can be a ticket to a piece of physical merch or IRL event, but it can also be a membership to networking, SaaS, and so much more. Like all tech throughout history, its potential is only limited by how we use it.
LIKE ANYTHING ELSE, IT’S ABOUT VALUE EXCHANGE
Sticking to the fundamentals, I find that the best way to understand NFTs is by breaking projects down to its value chain, i.e., what is on exchange, and how do different parties benefit? Similarly, for businesses to consider building their own NFT projects, I would start with the same place, i.e., what do we want, and what can we offer in exchange?
Currently, from the various active NFT projects’ points of view, with the objective to increase the value of their collections, what is on exchange is a lot of ‘stuff’ in exchange for supply control, i.e., a healthy holder base. The less people list, the lower the supply. When the supply is lower than demand, the value of the collection increases. I say ‘stuff’ because what is on offer is as eclectic and diverse as they come, a testament to the creativity and resourcefulness of the NFT landscape. The space started off with artwork, as the tokens themselves are represented by images. But to continue to entice holders, anything with perceived value-add is possible and considered. From something as sophisticated as market analytics SaaS, to something as arbitrary as getting to be a part of a joke, like my @FastFoodAzuki (a joke NFT about how the bear market will have us all end up working at McDonald’s).
Here are how some of the value exchange works in NFT projects:
MARKETERS — BETTER AT COMMUNICATING VALUE THAN CREATING IT
NFTs create hype, because, whether you like it or not, they create value in some shape or form. And yes, sometimes, they create value because they are hyped, but that is correlation, not causation. This is also why marketers are so ready to hop on the NFT hype-train; after all, hype is a part of our business. However, this mindset results in NFT collections leveraging inherent brand fame, rather than brands getting something out of the NFTs; besides maybe a nice press release and 2 days of self-congratulatory pats on the back. Okay, this is my last shake of salt, I promise.
Seriously though, one of the primary reasons why some NFT projects fail to take off, be they native to Web3 or from established brands, is the lack of clarity on what is on exchange, both to the market as well as internally. The difference between one-off transactional projects like art or merch tokens, sustained value propositions like alpha groups or utility tokens, and ecosystem projects like game-fi, community, or metaverse tokens, leads to different implications on supply, pricing, audience segmentation, and marketing plan; not dissimilar to running any other kind of business. And this is not to say these are mutually exclusive to each other, but when an NFT project is treated as a marketing gimmick, and when marketers can’t find it in themselves to take it seriously enough to sort out concepts as fundamental as the 5Ps, we can’t expect the marketplace to take it seriously either.
A CASE FOR MARKETERS — LOYALTY ‘3.0’
But if NFTs need to be treated like a product offering, what does this have to do with marketing, and why should we care? If anything, the point here is that there is no reason why NFTs in the marketing context should be limited to a coupon for merch or some fancy jpeg. It can be those things, but it is already so much more, with more to be discovered, and therefore shouldn’t be taken so lightly.
One of the perks of marketing is that when we create an NFT platform, we don’t necessarily have to make money directly with it. There is a business that we are supporting which takes care of cash flow. So, on the project owner side, taking away the burden of constantly needing to maintain cash flow and make money, we have the advantage to focus on a singular return in value — retaining an engaged and active community to attract greater demand. And you can do it through community building, marketplaces, causes, merch and limited drops, raffles and giveaways, etc. Which sounds suspiciously similar to what loyalty programs try to do.
But if Loyalty Programs already exist and function, why integrate them into Web3 through NFTs? How is this not bandwagonning and cashing in on the hype as well?
LOYALTY ‘3.0’ UPSIDE — REFRAMING INVESTMENT
So, what do NFTs bring to the table? Consider the recruitment cost of any given loyalty program. Managing the cost of recruitment marketing to expand penetration is like trying to fill a leaking bucket. Every dollar spent in driving registration is a dollar lost when the recruit disengages from the platform. However, in a decentralized environment with an open and fair secondary marketplace, the paradigm shifts in favor of the program.
Instead of a game of whack-a-mole finding and losing brand loyalists, think of NFTs as a loyalty membership that is passed around until it meets a worthy owner. Disengaged members would no longer represent a lost cause, but a sale in the secondary market to someone who is far more likely to feel invested in the brand (literally), and therefore more likely to engage with the program. This removes the continuous marketing cost of recruitment that is wasted on generating registration without securing engagement.
LOYALTY ‘3.0’ UPSIDE — REFRAMING VALUE
Now that we’ve covered cost, let’s talk about value. It is no secret that loyalty programs nowadays are commonly built on a spend-for-rewards framework. A transition to Web3 integration wouldn’t disrupt that but build on it significantly. Stacking the value to consumer against the status quo, marketers can run a program by creating a sustained ecosystem of value as opposed to a glorified version of a coupon redemption.
Loyalty to a brand, especially in today’s context, has got to extend far beyond ‘how much you spend’, especially when it comes to cultivating the next generation of consumers. In a digital world of user generated content, communities, and tweets, NFTs has been at the forefront of engagement and advocacy. In which, ‘purchase’ is definitely rewarded, but with engagement, recognition, value, and rewards that extends so much further. From community building to UGC advocacy, to cause integration, these are things that brands constantly effort to do, but often in piecemeal. And yet, the currently chaotic world of NFTs already holds the blueprints to a far more integrated approach.
@OnChainMonkey and @NotYourBroNFT are good examples of how NFTs can integrate community engagement, community voting on ESG initiatives, and merch all under one roof. Extending a sense of ownership to holders that goes beyond asset ownership, but operational ownership. This by no means represents surrendering control over the brand to its holders, but instead including them in decisions that are significant enough to matter, but minor enough to not steer the project off course.
Now almost everything on the Web3 column can be replicated on Web2. And obviously, I am not suggesting that loyalty programs should execute every one of these engagement tactics either. These are but some of the things that are already considered commonplace in the Web3 space, and something that every loyalty program can draw inspiration from and learn from. But piecing it all together, building a loyalty program with NFTs offer the prospects of engaging customers both through short term tactics, as well as providing sustained long-term value.
LOYALTY 3.0 UPSIDE — THE POWER OF OWNERSHIP
One thing that can’t be replicated however, is ownership. At the heart of it all, NFTs advance participation and engagement to true digital ownership. Obviously, I am not talking about equity in the brand, but ownership nonetheless. For holders (consumers) it doesn’t just represent stakes in the game to encourage participation, but true ownership that naturally inspires advocacy and action, producing the most organic, relentless, self-motivated creative marketing engine — a community.
An example that perhaps speaks the loudest in this matter is @YugaLabs, project owner of @BoredApeYC. In 2021, Yuga Labs only spend $2 million on ‘advertising and community building’, which represents a measly 1.5% of their revenue. The kicker? Most of which was spend on events for holders, and $0 on digital marketing. One can argue that Yuga Labs’ fame was driven by the absurd rise in value of their collections, and I am not going to deny how success begets fame and reach. However, look deeper and it will be clear that we are not merely talking about mentions, but advocacy where they are discussed, and protection where they are attacked. You can find them in galleries, boutique cafes, and office walls, creating exposure that no media budget can buy — thanks to their communities.
The NFT craze wasn’t just driven by cash hungry investors or degen flippers. At its foundation are communities that devote their time advocating for and defending their projects on public forums; that engage and on-board new followers and prospects; that discuss and share their ideas and thoughts on the on the project — essentially every metric marketers use to measure brand love and affinity. And it all stems from ownership.
Pulling all these pieces together, we arrive at a value exchange that is much more favorable on both sides:
RISKS AND CHALLENGES
However, like all first-mover endeavors, trailblazing is not without risks. Here are a few things that all marketers should consider and think through.
Scale vs Scarcity
At its core, there may seem to be a dichotomous relationship between loyalty programs and NFTs. The former is often benchmarked against scale and reach, whereas the latter is built on scarcity. However, as most would know, NFT collections have extendibility in the form of derivatives or follow-up collections. In fact, we must also recognize that loyalty works both ways, and the immutable scarcity of each collection is not only a way to reward loyal customers, but a way for a brand to demonstrate its commitment to these brand loyalists.
On the same train of thought, a transition into Web3 may shift the way we approach and evaluate loyalty programs. When the value on exchange is no longer purely transactional, should loyalty tiering be solely defined by gross transaction? From dNFTs that naturally evolve over time in wallet, to awarding roles on community discord, the metrics or tiering of rewards can evolve drastically when we push for loyalty programs to evolve beyond a glorified stamp card.
Point of No Return
Perhaps the biggest hurdle to overcome for brands to front an NFT loyalty program right now is that it marks a point of no return. With the current culture of Web3, ‘rugging’ can forever tarnish and exile a brand from the space and beyond. At the moment, venturing into the space for established brands comes with the condition of no-exit-strategy. This of course does not mean that brands cannot be explorational or experimental, but they should enter knowing that at a certain point of popularity, there is no turning back.
To gain a sense of how strongly the NFT community feels about abrupt exits, we can look no further than @AzukiOfficial. As one of the fastest growing projects, Azuki was considered the 2nd generation of blue chips destined to follow in the steps of @BoredApeYC and @CryptopunksNFTs. Despite achieving a status within the NFT space that fundamentally made it ‘too big to fail’, founder @ZAGABOND was caught in a controversy for having started and abandoned three other projects prior to the meteoric rise of Azuki. The details of what transpired with all three projects were litigated publicly on Twitter, and his character and trustworthiness were called into question. When the story broke on May 10th, the subsequent FUD tanked Azuki’s floor price from 22ETH to 10ETH within 2 days. Whether what happened was deserved or not is irrelevant. How this community, in its current state, responds ‘rugs’ is the clear takeaway.
For projects in Web3, failure is tolerable, abandonment is not.
Managing the FUD
Fear. Uncertainty. Doubt. Three words that every project needs to deal with at one point in time or another. For established brands, FUD can lead to bad press, negative attention, and even affect brand metrics. In the NFT space FUD is as unavoidable as taxes. However, this is also driven by the fact that an overwhelming proportion of consumer participation is driven by an investment mindset. And even the strongest of projects are not immune to market volatility.
As a loyalty program however, a disciplined narrative can shift expectations away from the prospects of investment to the value of engagement and community, etc. And although current NFT projects do create value aside from monetary value as investment, none has managed to depart from their investment centric perception. And until projects carry the discipline to eliminate language like ‘To the moon’ or ‘Wen Lambo’ from their marketing lexicon, they never will. And perhaps they will never want to, but as brands and marketers, we can, and we should.
The Early Bird Or The Second Mouse
At the moment, Web3 is still taking shape. With that is much volatility and requires frequent and rapid adaptation. Simply managing server security, bots, and scammers on Discord alone, can be a daily struggle for projects. This, with the addition of on-ramping the uninitiated, who make the perfect target for social engineering, makes for a very delicate balance between security, education, and managing friction. The uncertainty doesn’t stop there either. Taking the extremely fluid regulatory environment into consideration as well, aggressively entering the space can give brands the advantage of being the early bird that gets the worm; but at the risk of being the hasty mouse that gets caught in the trap. And managing the risk-reward of participation, or in this case, leadership, is something that every brand should have clear internal alignment on, because as I’ve pointed out, it’s a one-way trip where the only viable path is forward.
REALITY IS — PANDORA’S BOX CANNOT BE UNOPENED
What marketers also need to recognize is that some things can’t be unseen, unheard, or unexperienced. As chaotic, volatile, and lawless Web3 may seem right now, they are grooming a (de)generation of consumers who are going to have a vastly different exposure, understanding, and expectation of what brand engagement is. This cannot be undone. And like it or not, brands of today are going to have to find a way to incorporate these learnings from this emerging meta of engagement. It may not be decentralized, it may not be Web3, it may not even be NFTs, but brands are going to have to catch-up to these expectations or risk being left behind.
TL;DR
So if there is anything to take away from this paper, I hope to leave you with this.
Think of NFTs as an opportunity to create value
NFTs can be a means to create greater value and engagement. Don’t limit yourself to generating just a nice piece of press release.
Ownership enables a powerful marketing resource
True digital ownership inspires communities of self-motivated advocates that have the potential of creating significant branding and marketing value.
Loyalty 3.0 is just one example
Just to show what we can learn from the NFT space and how it can add value to both the brand and the consumer.
Start by immersing yourself
The space is rapidly learning, evolving, and shifting. The best way to understand it is to immerse yourself in it.
Consider the risks
1. If you arrive at an idea, make sure you also find the commitment to stick with it. The space does not treat exits kindly.
2. Consider your intended audience and the implications that come with them on education, security training, and on-ramping.
Map out your value chain
Treat it like a proper extension of the business. Draw up your 4Cs, 5Ps, what is on exchange, and how different parties benefit from it.
And last but not least, as always,
DYOR, WGMI.
GLOSSARY
Ape
To buy in or take a substantial position in an NFT.
Bag
Your portfolio of NFTs.
Blue-chips
The most recognizable high value NFTs that are perceived to carry the least risk.
Degens
Short of ‘degenerate’, self-deprecating term describing people with a proclivity for risky bets in NFTs without due diligence.
Derivative Collection
A new collection of NFTs under an existing NFT brand, usually taking on variations of existing traits from the original (Genesis) collection, and usually higher in supply to help the brand scale.
dNFT
Dynamic NFTs. These NFTs can evolve over time.
DYOR
‘Do your own research.’ A common disclaimer in the space.
Flip
To buy and sell in quick succession for a small profit.
IRL
In real life.
Mint
The transaction process of putting an NFT on the blockchain.
PFPs
Profile pictures, also commonly referred to as jpegs.
Rugging
‘Rug-pull’ — when project owners abandon a project after earning their pot of gold at the expense of holders and supporters.
Stake
A mechanism to lock your NFT from trading, in exchange for sustained value in return, usually involving tokenomics.
To the Moon
A common rally cry, declaring that the price of the NFT collection will go up, rocketing to the moon.
Wen Lambo
A common expression to invite pricing speculation, asking when will the price of this NFT go high enough for me to buy a Lamborghini?
WGMI
‘We gonna make it.’ A common rally cry in the space.
Whales
Someone who owns a lot of high value NFTs.
