The rise of non-fungible tokens (NFTs) offers brands a revolutionary tool for enhancing consumer engagement and loyalty. By introducing NFTs to consumer interactions, businesses can transform traditional digital assets into meaningful brand experiences. In their article, “The NFT Staircase: How Digital Ownership Benefits Brands and Consumers,” authors Scott Duke Kominers, HBS Sarofim-Rock Professor of Business Administration and Principal Investigator at D^3’s Crypto, Fintech, and Web3 Lab, and Steve Kaczynski, author and co-founder of dGen Network, outline how local, national, and global companies can use the five-step NFT Staircase to build their brands and engage consumers.
Key Insights: Digital Ownership—Redefining Control in the Digital World
“NFTs leverage blockchains to create digital assets whose ownership can be defined and verified independently of any platform or intermediary.” [1]
Digital ownership is the foundational layer of the NFT Staircase, establishing that NFTs offer a verifiable form of ownership through blockchain technology. This functionality allows consumers to own and control digital assets on any platform, and transfer assets, for example, art collections and event tickets between platforms. This “psychological ownership” gives owners the sense of control with digital assets that they could once have only with physical assets, and it creates a digital incentive to continue to engage with the brand.
Key Insights: Utility—Adding Long-Term Value to NFTs
“Utility reinforces the value a person attaches to an NFT, and encourages repeat interaction with the asset, which in turn can inspire brand attachment.” [2]
Expanding the functionality of NFTs beyond mere ownership can increase their value. Many tokens already come with built-in features, such as displaying an image, granting access to events, or enhancing gameplay in online games. And new functions can be added, for example, an online game NFT might provide access to game-related discussions or subscription access to a player publication. Additional utility functions can be enabled by the original creator of the NFT and by third parties on public blockchains. NFT holders can participate wherever they choose and brands can access networks of owners with similar interests.
Key Insights: Identity—Establishing a Digital Identity Through NFTs
“The combination of ownership and ongoing utility drives holders to get a sense of personal value from their NFTs and, eventually, develop a sense of identity around them.” [3]
NFTs give consumers a way to develop and share their digital identities—their personalities, interests, affiliations, and achievements. Users can create profile picture NFTs, also known as picture-for-proof (PFP) NFTs, which can be used to verify digital identities or express imagined digital personas. Users can add nuance and history to their online identities with proof-of-attendance (POAP) NFTs, which celebrate events and achievements (like a “digital ‘I voted’ sticker”). This concept can potentially extend to academic qualifications and health care data.
Key Insights: Community—Creating Shared Experiences for Brand Advocates
“NFTs make it possible for people to find their tribes, and then provide a foundation for them to collaborate upon.” [4]
Community-building is a defining strength of NFTs. By design, NFTs create a network effect that connects holders who share common interests and experiences. This network effect can help brands build communities among NFT holders, fostering collaboration and enabling brands to connect with their audiences on a more personal level. This creates “semi-permeable membranes” where consumers can suggest new ideas that brands can explore.
Key Insights: Evolution—Building Dynamic Digital Brand Ecosystems
“Connecting those people to each other and the brand can lead them to develop in unexpected and exciting ways.” [5]
The evolution stage of the NFT Staircase brings all prior elements—ownership, utility, identity, and community—together. These factors make up a comprehensive brand and community experience that promotes personal engagement, loyalty, and ongoing interactions that help brands develop.
Why This Matters
For business leaders, the NFT Staircase offers a framework for rethinking consumer engagement and loyalty through digital assets. By investing in NFT strategies, companies can establish enduring consumer relationships that go beyond typical consumer and brand interactions and create communities that actively engage with and contribute to their brands’ growth. Adopting this NFT approach can spur new ways to create value for companies, consumers, and communities alike.
References
[1] Scott Duke Kominers and Steve Kaczynski, “The NFT Staircase: How Digital Ownership Benefits Brands and Consumers”, a16zcrypto (February 21, 2024), https://a16zcrypto.com/posts/article/the-nft-staircase/.
[2] Kominers and Kaczynski, “The NFT Staircase: How Digital Ownership Benefits Brands and Consumers”, https://a16zcrypto.com/posts/article/the-nft-staircase/.
[3] Kominers and Kaczynski, “The NFT Staircase: How Digital Ownership Benefits Brands and Consumers”, https://a16zcrypto.com/posts/article/the-nft-staircase/.
[4] Kominers and Kaczynski, “The NFT Staircase: How Digital Ownership Benefits Brands and Consumers”, https://a16zcrypto.com/posts/article/the-nft-staircase/.
[5] Kominers and Kaczynski, “The NFT Staircase: How Digital Ownership Benefits Brands and Consumers”, https://a16zcrypto.com/posts/article/the-nft-staircase/.
Meet the Authors
Principal Investigator of D^3’s Crypto, Fintech and Web3 Lab, a Faculty Affiliate of the Harvard Department of Economics and of the Harvard Center of Mathematical Sciences and Applications. His first book is The Everything Token: How NFTs and Web3 Will Transform the Way We Buy, Sell, and Create.
Steve Kaczynski is a tech entrepreneur, consultant, and commentator who coauthored the first Harvard Business Review article about NFTs with Professor Kominers. He and Kominers wrote The Everything Token, a book about how businesses can authentically use NFTs as a software solution for their business, with one of the world’s premier business publishers – Penguin Publishing.