Hype or opportunity: NFTs for businesses

Introduction

Let's begin with the most fundamental aspects. The acronym NFT stands for "nonfungible token," meaning it represents a unique digital asset that cannot be exchanged on a one-to-one basis.

NFTs leverage the power of Blockchain technology, which ensures accurate documentation of ownership.

A fantastic analogy I came across on Forbes illustrates this concept. Imagine someone claiming to own an original Picasso artwork. In order to verify its authenticity, an inspector would need to physically examine the piece. However, with Blockchain technology, the authentication process becomes much simpler, allowing us to easily determine the original owner of any individual NFT.

In the United States, slightly over 12% of adults have either engaged in or intend to participate in NFT trading.

The hype began when Beeple, an incredible American digital artist and graphic designer, scored a whopping $69 million by selling the very first NFT-based artwork in March 2021. Ever since that mind-blowing moment, the NFT industry has exploded like fireworks on New Year's Eve. Hold on tight because the numbers don't lie! According to a study by the Lufthansa Innovation Hub, funding for NFT startups skyrocketed nearly 40 times from 2020 to 2021, reaching a jaw-dropping $4.5 billion. And by early 2022 it was said that the funding had already surpassed the total amount raised between 2017 and 2020.

With the ongoing evolution of NFTs, companies will discover even more avenues to harness their advantages. They can delve into crafting distinct digital assets that hold value for sale or as incentives for loyal customers. Moreover, by leveraging the power of blockchain technology, businesses can ensure secure transactions and enhance transparency in their operations. For small business owners, these NFT-driven possibilities open up an exhilarating realm of opportunities.

Why companies tap into NFTs

There are two major factors driving the surge in NFT adoption and sales, and they make a lot of sense. First, humans have an innate desire to collect things. Whether it's stamps, cards, or digital assets, the act of collecting has always been appealing. NFTs tap into this inherent inclination and provide a digital medium for satisfying our collecting cravings.

The second reason lies in the programmed scarcity of NFTs. It's a basic principle of economics: when something is scarce and in high demand, its value tends to skyrocket. NFTs are designed to be limited in quantity, adding an element of exclusivity that further fuels their appeal. As a result, the scarcity factor drives up the prices of NFTs, creating a vibrant market for these unique digital assets.

While NFTs may not provide immediate returns on investment, they can have a significant impact on conversion rates and sales. One of the core reasons is that NFTs serve as a protective shield for files, ensuring they are shielded from unauthorised copying and usage, much like how we safeguard physical property. For instance, movies, books, music, and other intellectual assets can be licensed through NFTs.

Let's imagine a movie company producing a film and selling tokens to theatres for reproduction. This is akin to distributing physical reels of film. Artists can participate in bidding wars for original digital artworks, while game developers can sell digital assets like skins and textures. NFTs even allow the registration of property rights for real-world objects such as real estate, cars, and art pieces.

Here are some of the benefits NFTs bring to businesses:

1. Create unique brand experiences: NFTs become tangible parts of your brand's storytelling, adding depth and allowing customers to own something special.
2. Increase brand awareness and loyalty: NFTs generate brand awareness, loyalty, and advocacy. Notably, during the NFT craze in March 2021, brands like Taco Bell, Twitter, and Pringles released their own NFTs, garnering attention and participating in discussions about the thriving technology.

3. Encourage follower interaction and community building: Rewarding early adopters through badges or NFTs builds trust within your community and adds value in advance. The Proof of Attendance Protocol (POAP) is an excellent way to accomplish this.

4. Boost interest in your brand, services, or products: Authenticity is key. Utilise social media to share the story behind your project and introduce the team involved. Collaborations with influencers, other projects, and artists can also generate buzz and expand your audience reach.

5. Provide users with a secure investment: NFTs offer relatively safe investment options, diversifying risk profiles and improving portfolio performance. They provide a balanced approach between risk and return.

6. Reduce security risks in the NFT ecosystem through blockchain: The blockchain maintains clear records of authenticity and ownership, safeguarding NFTs from mishandling and theft. Once data is added to the chain, it remains unalterable, instilling confidence in the authenticity of each NFT.

7. Act as a gateway to the Metaverse: As more people immerse themselves in virtual reality and the Metaverse, unique assets like NFTs become crucial. This presents a potential opportunity for small and medium-sized businesses to leverage NFTs and benefit from this growing trend.

How small businesses can use NFTs

By harnessing NFTs, small businesses can establish stronger connections with their audience, expand their reach globally, foster customer loyalty, engage in collaborative product development, and even explore crowdfunding options. The innovative world of NFTs holds immense potential for small businesses to thrive and stand out in today's digital landscape.

Let's take a look at some of the ways in which SMBs can tap into its potential:

Utilising NFTs to Boost Brand Exposure

One remarkable benefit of incorporating NFTs into your small business strategy is the potential to enhance your brand's visibility. By creating unique digital assets like artwork and videos, you can showcase your business and attract a broader audience. NFTs also serve as a fantastic tool for promoting events and limited-time offerings, enabling you to swiftly spread the word.

For instance, let's imagine you own a furniture store and want to highlight an exclusive holiday sale. You could design a special NFT with a holiday-themed touch and share it across social media platforms. To incentivize customers, you can offer rewards such as discounts or exclusive access to new product launches for participating in the sale.

NFTs can even serve as a gateway to larger audiences through NFT marketplaces, enabling you to generate buzz around your offerings, increase brand recognition, and capture the attention of potential customers.

Expanding Reach to a Global Customer Base with NFTs

NFTs present an opportunity to connect with a wider and more diverse customer base on a global scale. With the rising popularity of digital currency, businesses can now accept cryptocurrency payments, which can be easily converted into traditional fiat currency. This streamlined payment method eliminates concerns about exchange rates, transaction fees, and other complexities, providing a convenient and secure payment option for customers.

Moreover, leveraging NFTs allows businesses to tap into new markets and engage with customers from different corners of the world. By creating digital assets tied to the blockchain, you can reach a broader audience, regardless of geographical barriers, and unlock new business opportunities.

Loyalty Programs Made Special with NFTs

We all understand the impact of rewarding customer loyalty on retention rates, and there are various reward schemes that businesses employ. However, an intriguing example of NFT implementation comes from Burger King's Royal Perks program. Customers visiting their stores can scan a QR code on their meal packaging to collect NFT game pieces.

Essentially, customers aim to collect three pieces, and upon achieving this milestone, they receive a fourth reward. This fourth reward could be a digital collectible NFT, free Whoppers for a year, or even merchandise. Burger King is not alone in this endeavour, as Starbucks has also adopted a similar approach, demonstrating the potential of NFTs in powering loyalty programs.

Fostering Open Innovation through Collaborative Product Development with NFTs

Another way businesses can leverage NFTs is by embracing open innovation through collaborative product development. By creating digital assets associated with specific projects, companies can involve customers, partners, and suppliers in the product development process, tapping into a wider range of talent and ideas.

Mark Pierce, CEO of Cloud Peak Law Group, emphasises that NFTs provide businesses with an excellent opportunity to embrace open innovation. Through blockchain technology, businesses can engage customers, partners, and suppliers, resulting in the creation of high-quality products that align with customer needs and preferences.

Building a Community and Crowdfunding via NFTs

Finally, by harnessing crowdfunding, businesses can utilise NFTs to foster a dedicated community around their brand. By linking digital assets to specific projects, companies can directly raise funds from their customers and supporters.

Imagine you own an organic skincare business, and you create an NFT linked to a crowdfunding project for your upcoming line of products. This approach allows customers to purchase the NFT and, in turn, contribute to the funding of your new line. This not only helps raise funds but also cultivates an engaged community that is passionate about your brand, leading to increased awareness and support for your products.

By utilising NFTs for crowdfunding, businesses can gather the necessary resources to develop new and exciting products and services, while simultaneously nurturing a strong and loyal customer base.

Conclusion

While the NFT trend continues to gain momentum, it is crucial for businesses to carefully consider how incorporating an NFT aligns with their broader brand, marketing, or community development strategy. Simply jumping on the bandwagon without a clear purpose can result in an expensive gimmick that lacks substance. Therefore, it's essential to assess the specific value an NFT can bring and how it fits into the overall objectives and goals of the business. By thoughtfully integrating NFTs into a strategic framework, businesses can unlock their true potential and avoid mere superficiality.