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CPGs and NFTs

May 11, 2022

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The digital world is changing how we interact with one another — both virtually and physically. It is also changing how consumer packaged goods (CPG) companies interact with their customers. One of the latest ways CPG manufacturers have opted to interact with consumers is with non-fungible tokens (NFTs). For example, journalist Shawn Lim (@mediumshawn) reports, “Unilever’s oral care brand Closeup has created a non-fungible token marriage certificate that recognizes all couples in a relationship in the metaverse.”[1] What? You’ve probably heard or read about non-fungible tokens, but have been wondering what they are. In response to a previous article I wrote about NFTs, I was contacted by Pamela Tatam, a content provider at Porch, who directed me to an article she wrote. In that article, she writes, “So you’ve been hearing more and more about this mysterious NFT topic, and you’re ready to find out what it’s all really about.”[2] She proceeds to solve the NFT mystery.

 

What is a Non-Fungible Token?

 

Tatam writes, “Let’s start with the name. NFT stands for non-fungible token. Don’t worry; it’s not as complicated as it sounds. ‘Fungible’ means that something can be traded, like physical currency or cryptocurrencies. So, a non-fungible token means that this particular token can’t be traded for another one. Why? Because NFTs are digital representations of assets, and those assets can be nearly anything. An NFT isn’t a currency; it’s basically a certification of authenticity for a digital asset. Frequently, these assets are collectibles, like sports memorabilia, but they’re digital.” She continues, “You might be asking why anyone would bother flipping NFTs or paying for something like this, and it’s a good question.” A good question indeed; however, it’s a question you could ask collectors of all sorts of things. The late British author Hector Urquhart once wrote, “One man’s rubbish may be another’s treasure, and what is the standard of value in such a pursuit as this?”[3] The value of a collectable item is generally set by collectors themselves.

 

Tatam explains why there can be a “standard of value” for an NFT. She writes, “Digital art is one of the best examples to explain this. If we think about physical art and how much people value it (think of a painting from a renowned artist like Monet selling at a world-class auction house for tens or hundreds of millions of dollars), the actual value lies in having the original. Anyone can go online and look at a digital representation of a Monet painting, but only one person in the world will be the owner of that piece. Scarcity creates demand, and NFTs allow for scarcity to be created around digital items.” In other words, if someone is willing to pay for something, it has value. And as Tatam notes, “More and more of our daily lives are moving online, including how we perceive value.” According to Tatam, there are three main NFT categories: digital art, real estate, and gaming.

 

NFT Digital Art

 

Tatam writes, “Digital art is one of the most popular ways that NFTs are used. The process of creating a unique token for a piece of artwork allows the artist to verify the authenticity of the piece, thereby creating scarcity around it. On the buyer side, the NFT use of blockchain means that hacking the NFT and creating a fake is much less likely. Of course, like physical art, there is the opportunity for hackers to ‘forge’ artwork, but it becomes much less likely using blockchain.”

 

NFTs in Real Estate

 

According to Tatam, “NFTs in real estate are broken into two categories, entire asset (EA) and fractional ownership (FO). Fractional ownership NFTs are more common because they essentially work as stock in a company. You could purchase an NFT representing a portion of a real estate company, and you would be paid out accordingly based on profits. In this case, an NFT is treated similarly to stock and is intended to be registered with the Securities and Exchange Commission. Entire asset NFTs are much more complicated because we don’t have the class of ownership in place yet to tokenize an entire property. Here’s a fun, very 21st-century concept — online real estate. Metaworld platforms like Roblox and Decentraland are virtual worlds that now offer real estate opportunities. Essentially, they work just like physical world real estate. There are a limited number of parcels available in varying locations, and they are bought and sold as NFTs. The future is here.”

 

NFTs In Gaming

 

Tatam writes, “Gamers, get ready! Going on quests and winning battles with game characters that are in themselves NFTs can now earn you crypto, which you can exchange for traditional currency. Axie Infinity is a great example of one of these types of games, where characters are NFTs called Axies, and their trainers win more in battles or breed new ones from their existing Axies. These trainers can then sell their Axies to other players. Another significant way the NFTs show up in gaming is in wearables, like sneakers.”

 

CPGs and NFTs

 

Not all value needs to be measured in currency. Unilever’s venture into the NFT field demonstrates what I mean. Lim explains that couples who want to participate in the Unilever venture enter a metaverse “called ‘Closeup City Hall of Love’ [where] couples can create their avatars to propose to their partners and choose a wedding officiant in Decentraland to sign their NFT marriage certificate.” In this situation, the value to the couples is emotional and the value to Unilever is reputational. According to journalist Colin Smith, “Couples that participate in the Closeup City Hall project enter ‘Decentraland,’ a Metaverse application based on the Blockchain, to engage in virtual wedding celebrations. In order to participate in this project, couples will need to share their love stories on Instagram or Twitter with the hashtag ‘#CloseupCityHallOfLove.'”[4] The Unilever effort does have a real-world reward. The company “will select 10 awe-inspiring stories over time and fully finance the weddings for these couples.”

 

Of the three categories, the Unilever example discussed above probably falls into the gaming category. And that is likely to be area exploited first by consumer packaged goods companies. Salah Zalatimo (@Salafel), CEO of Voice, writes, “Say what you want about the metaverse and the way it seems to become a part of every conversation lately, but it’s here to stay.” And he believes that CPG companies are going to find value in using NFTs in the metaverse. He explains, “Every brand should explore NFTs and how they fit into your business. That doesn’t mean you need to be building virtual real estate, launching a coin or mass-producing JPGs of a certain animal at scale. But if you’re going get into NFTs, you’re going to need a strategy. Aren’t we all looking for new and impactful ways to engage with consumers? NFTs power that, in a way that has never existed before.”[5]

 

Like Unilever, companies need to be innovative in their use of NFTs. Zalatimo writes, “Consider using NFTs to amplify already active channels like ticketing, digital merchandising, community empowerment, fundraising, etc. If you are looking for one singular piece of advice, it’s to build an NFT strategy that aligns with your brand value. … The opportunities to get started are endless and easier than you think. Preparing to launch a new initiative? Offer rewards via NFTs to incentivize participation. Or distribute your next round of merch as NFTs — a move that can have a lower carbon footprint and can be a lot easier to execute. No matter how you choose to get into NFTs, remember to do so in a way that speaks to your brand’s mission and audience interests.”

 

Concluding Thoughts

 

Like with any new technology, there are reasons to be cautious when first dipping your toes into the NFT pool. Some platforms only allow payments in cryptocurrency and obtaining that cryptocurrency can come with a considerable mark-up in price. Rather than promoting goodwill and brand loyalty, unreasonable prices in the metaverse can make consumers feel like they are being ripped off. The future of NFTs, and how CPGs can utilize them, is still being written; however, Unilever has demonstrated they will likely play an interesting role in promoting brands in the years ahead.

 

Footnotes
[1] Shawn Lim, “Unilever’s Closeup creates NFT marriage certificates for couples in any relationship type,” The Drum, 30 March 2022.
[2] Pamela Tatam, “NFTs What, Why, and How,” Porch, 1 February 2022.
[3] Staff, “Origin of ‘one man’s trash is another man’s treasure’,” StackExchange English Language & Usage.
[4] Colin Smith, “‘Closeup City Hall’ Will Immortalize Marriages on the Blockchain,” Trendhunter, 29 March 2022.
[5] Salah Zalatimo, “Yes, Your Brand Needs to Get Into NFTs,” Adweek, 25 February 2022.

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