Securing authenticity and provenance was always a given when introducing Blockchain to the sales process of luxury goods, but the new opportunities it brings to develop more meaningful relationships between brands and consumers are only just beginning to be understood.
By Alexander Koppel
Verifying the provenance and authenticity of many products is a growing concern as supply chains grow ever more impenetrable and complex. One of RIDDLE&CODE’s missions is to address this with our unique approach to using hardware to interface real-world objects with any blockchain. In this blog, I’ll address just the specific issue of luxury goods with a typical price tag in thousands of Euros.
A new-comer to the world of luxury would be excused for expecting brands to put a strong focus on combating counterfeit products. The reality is subtler. Of course, brands are aware of fake products, but fighting them isn’t always their primary concern. The blockchain brings a secure digital existence to luxury goods, which is indeed advantageous concerning security. However, the blockchain’s potential for creating new disruptive experiences around products will often overshadow its better-known ability to tackle the issue of counterfeits.
I’ll first describe the challenging environment in which luxury brands must promote their authentic goods. Physical retail can no longer ignore the Internet. I’ll then show you some exciting features we’ve been developing with one of Europe’s most prestigious luxury brands. Looking at the security the blockchain can already offer in 2019, but also at the improvements it can bring in customer relationships beyond.
The resistance of luxury goods sales to the online experience is waning
The US Cosmetics maker Coty scored a landmark legal victory at the end of 2017 in Europe’s top court, to protect the image of luxury brands and prevent retailers such as Amazon and eBay from selling their products online.
Amazon alone represents half of the online shopping experience: half of the online shopping searches start directly on their various portals where they capture almost half of all the online spend in the US.
Most luxury brands don’t currently have plans to sell their timepieces on Amazon because:
there is no distinction between authentic and counterfeit products
most Luxury brands believe that an online experience cannot replace that of an exclusive upmarket boutique
of fear of cannibalising their current direct and indirect distribution
of fear of price transparency
Amazon does not want to play Internet police at this point. Amazon’s platform is very heavily branded by Amazon itself, making it hard for luxury brands to shine the way they are used to in their exclusive boutiques. The Silicon Valley giant also lacks the specific skills required for luxury. So, despite the enticingly rapid growth of the luxury segment, it seems that the cost-benefit of removing counterfeit products from its platform is not yet favourable.
Despite these restraints, a few luxury brands have started selling via Amazon like Prada for example. We believe that thanks to secure cryptochips like those we have brought to market, luxury brands can get Amazon to identify and remove unauthorised channels.
With 12bn $ in revenues, Richemont is the second largest luxury brand after LVMH. The French group acquired Net-a-porter to take better control of its online luxury retail and generated another 2,8bn EUR in just three years with this strategy.
Online luxury is one of the fastest growing sectors in retail, according to a by Bain & Co the global luxury goods market will exceed $300 billion by 2020. Currently, just 9% of luxury goods sales are made online, and over the next decade, Bain expects that physical stores will still account for 75% of purchases.
Apple now sells more of its eponymous watches than the entire Swiss watch industry combined.
Specific challenges for manufacturers of luxury watches include:
Unauthorised dealers such as Jomashop.com, AuthenticWatches.com, Chrono24.com or IconicWatches.co.uk that discreetly buy the stock that authorised dealers have failed to sell, and offer them at a lower price, often with an equivalent warranty.
The grey market has come to account for about 20 per cent of the global market for timepieces that retail for above $5,000
The only way to avoid products entering the grey market is to buy back unsold stock from dealers (Note: for example, Burberry has done that in recent years)
Looking beyond today’s stakeholder positions and technical capabilities
Luxury brands can have an ambivalent attitude towards fake copies of their products, as they can see this as promoting the demand for original products.
According to Gartner’s L2S Amazon Intelligence report, approx. 33% of product listings by third-party vendors have at least one review containing the word “fake” or “counterfeiting”.
One could imagine various kick-backs from the brand for buying an authentic item rather than a fake, but for this blog, I’ll state the obvious: there still needs to be an easy way for consumers to authenticate the real deal.
We believe that despite legitimate caution, luxury brands must proactively look into the online opportunities. The Bain report described above projects that 25% of luxury sales will be online by 2025. Luxury is about scarcity and brands need to manage volumes as well as the retail / online balance. Some may need to use their online presence while others may start to rely more on other channels like Amazon. I’m sure some will test the waters with special editions of their products, available online only. In all cases, the miniature cryptochips we have developed allow luxury brands to overcome many of the online challenges and provide them with tools to at last police the grey market. They can differentiate their authentic products from counterfeits. They can trace and identify illegal sales, and finally, the blockchain will offer evidence for legal action.
Embedded cryptochips are the only way to authenticate luxury goods securely
We’ve been busy in the lab but also at our clients R&D centre designing then developing a specialised blockchain interface for timepieces worth many thousands of Euros.
We have just finished the first phase of the project that included the integration of one of our miniature cryptochips and together with our client, that became our partner on this project, a specially designed antenna was designed to fit within a high-end watch. High-end goods can now be uniquely registered on a blockchain.
Fully operational timepieces and a prototype smartphone app are now being used internally by our internal client, to brainstorm a blockchain-enabled future for their products. Read on, and you’ll see, beyond mere authenticity, how the blockchain enables a new era of trust between consumers and brands, that in turn will strengthen customer relationships with exciting new opportunities.
But first things first, let’s start with the added security blockchain brings.
The built-in antenna and microchip that has a blockchain identity ensure that the product, at any time in its life-cycle, is uniquely identifiable and its provenance guaranteed.
Given enough motivation, counterfeiters will always find a way to circumvent existing tag-based solutions, often by creating fake tags that are indistinguishable from the real ones.
An internal cryptochip linked to the blockchain is the only way, today, to fully guarantee authenticity.
Any person with the right app on their smartphone can check if a product is original if the scan the cryptochip.
During the acquisition, usually, in-store, the new owner receives an ownership card with an embedded cryptochip. A salesperson will probably assist in using an app to first confirms that the product is indeed original, then use the buyer’s details to register the happy buyer on the blockchain as the first owner.
Note that the level of data exposed is controlled and privacy is maintained, adapting to specific regulations for different territories. The owner of a costly watch probably won’t want their acquisition to be in the public record. Several solutions exist for this on the blockchain as illustrated by the wrath of privacy-oriented cryptocurrencies.
Transfer of ownership
To transfer ownership of a timepiece, for example, the previous owner must use the original ownership card. The original manufacturer can supply a new one if the authenticity card is lost.
The app used to transfer ownership will write the new information into the blockchain.
Consumers want to know more than just where a product comes from. Brands are eager to regain trust, engaging consumers in a meaningful and lasting way. The potential upside of this vision completely overshadows the risks posed by the counterfeit economy.
A luxury item such as a unique timepiece has a special place in its owner’s life. Special moments in life where the object played a role are recorded with images and text that can be uploaded and linked to the blockchain entity corresponding to the timepiece. Of course, only the owner can do this.
Magic moments will stay with the owner and can be transferred to new owner only if desired, typically when giving it to a child for example Access to the private gallery is only possible via the registered app and by scanning the wearable luxury item.
This sort of new capacity is innovative, meaningful and adds a digital feature to an otherwise analogue object, enhancing the emotional consumer-product connection.
Heritage data, personal memories and dedicated messages are directly connected with the luxury wearable, securely preserved and made accessible for generations.
Access a world of exclusivity
Most consumer associate luxury goods with a particular lifestyle. The new crypto-chip enabled luxury items can provide owners with a smart-key feature, giving them exclusive access to dedicated events, or special partner programs worldwide. The luxury brand can use this with notifications so valued customers can receive private invitations to unique experiences. Notifications can, of course, be turned on or off at all times. By showing a branded luxury wearable at an entrance, automatic access is granted to a fashion show associated with the brand. The identity of the owner remains private.
Luxury brands can develop unique differentiators by adding this kind of digital function to an analogue device. Customers wearing a high-end timepiece can, for example, be rewarded with seamless access to experiences and services, increasing product value and brand awareness.
A new level of aftersales communication with customers can be invented by brands to delight consumers with a new range of experiences rekindling trust between the brand and consumer.