Luxury brands are increasingly leveraging technology to reduce uncertainty and enrich experience throughout the customer journey
Luxury brands have begun leveraging blockchain technology to guarantee authenticity of high-end products.
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As consumers become more conscientious about their purchasing decisions, the demand for transparency has become paramount. Knowing where a product comes from and how it is made is a critical factor before committing to a purchase. This shift in consumer behaviour has reverberated across industries, prompting brands to rethink their value propositions in the face of increasing scrutiny.
The luxury sector faces a unique challenge in meeting consumer demands for transparency. Indeed, what makes products luxurious – taste, heritage, prestige – is often difficult to assess. As a result, there is a lack of clarity in how value is generated in luxury markets, how it progresses through various stages of production and distribution and how it is ultimately conveyed to consumers. Such a situation offers favourable conditions for counterfeit products to flood the market, eroding consumer trust and brand reputation.
To address this challenge, luxury brands have begun leveraging blockchain technology to guarantee authenticity of high-end products. This digital ledger that cannot be altered offers customers with a digital certificate of authentication and detailed information about every step of production.
A noteworthy example is the Aura Blockchain Consortium, a coalition of luxury brands including LVMH, Richemont, Prada Group, OTB and Mercedes-Benz. By embracing a unified global blockchain solution, this consortium aims to offer consumers full transparency and traceability.
Another industry that grapples with an authenticity challenge is the fine wine industry, a US$18 billion market. Ambiguity permeates all stages of the journey; from the way the wine is produced to the way it is commercialised through drip-feed distribution. Even taste is shaped through complex social dynamics and expert opinions. Counterfeiting issues in wine and spirits persist due to the struggle to track bottles once they leave producers. This costs the industry at least US$1.3 billion annually. To combat this issue, luxury wine producers are increasingly taking measures to identify their bottles, such as including hidden images in their labels.
[This article is republished courtesy of INSEAD Knowledge, the portal to the latest business insights and views of The Business School of the World. Copyright INSEAD 2024]