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July 05, 2023

A skeptic’s guide to Web3

Three smart bets for retail and consumer goods brands on Web3 technologies in an economic downturn.

When it comes to Web3, people fall into one of two camps: enthusiasts or skeptics. Unsurprisingly, many retail and consumer products executives are among the latter camp, with some C-suite leaders identifying — perhaps even proudly so — as Web3 cynics. According to a report by The Verge, even Apple CEO Tim Cook has tempered his enthusiasm, claiming “the average person” can’t accurately define the metaverse, let alone spend large portions of their lives there.

As retail and consumer goods brands contend with pressing “real world” issues like inflation, rising commodities costs and labor shortages, investments in Web3 and related technologies may have shifted to the back burner. Executives don’t have time, energy or resources to commit to emerging technologies and platforms that don’t appear to have a clear link to business results.

But our argument is that Web3 can drive a direct impact to the business, so long as initiatives are designed and executed strategically.

Amid the swirl of skepticism, we attempt to break the Web3 hype cycle by presenting three real, high-value use cases showing how retail organizations can use this platform to improve operations, drive loyalty, build community and enhance transparency — all in the name of fueling growth during a downturn.

What is Web3?

Web3 is a decentralized version of the internet. It is based on the idea of democratizing information and decentralizing asset ownership using distributed technologies like blockchain, cryptocurrency and NFTs.

Is Web3 the same as the metaverse?

No. While the Web3 and the metaverse are related, they are not synonymous, and these terms shouldn’t be used interchangeably. The main difference is that Web3 is a decentralized version of the internet, while the metaverse is a more narrow application that centers on virtual worlds.

Three high-value applications of Web3 technology for retail and consumer products

1.    Deploy NFTs to build community, drive loyalty and fuel growth

Remember collecting and trading baseball cards, pogs or Pokémon? Even if you didn’t engage personally, you probably remember the excitement of people who did.

Non-fungible tokens (NFTs) — a unique, digital asset authenticated via blockchain — have similar potential to bring people together. Except, with NFTs brands aren’t limited to any physical area. Instead, companies can engage a vast community anywhere in the world, building loyalty through shared experiences and meaningful connections.

For example, Nike created .SWOOSH, a digital community that allows members to “co-create the future” of the brand. Members can display and trade Nike Virtual Creations or wear them in video games or other immersive experiences. Members also have special access to real-world experiences, product launches and pre-orders.

What makes .SWOOSH such a great example of the power of Web3 is that Nike is using this technology to advance the brand. They viewed NFTs through the lens of what matters to the business, which is building loyalty. The brand effectively uses digital to create an online and virtual community, but then also expertly weaves those elements into physical events and experiences, compounding the return on their investment.

In this example, we see a step-wise relationship between community, loyalty, evangelization and growth. As brands and retailers like Nike activate their customer base through digital communities, they increase “stickiness” and build individual loyalty. Over time, loyal customers turn into brand evangelists, which can help fuel growth in a natural way.

Figure 1

2.    Use blockchain to improve transparency within the supply chain

Web3 isn’t just a consumer-facing technology. Beyond blockchain, crypto and NFTs, one of the most powerful enterprise use cases is in supply chain management.

With transparency and sustainability increasingly important to consumers, especially younger shoppers, retailers and brands face pressure to better track and report on how products are sourced, manufactured and delivered. This requires sharing data among partners in the supply ecosystem and creating an immutable ledger where users can essentially trace the product from source to shelf.

For example, one of the world’s most renowned diamond companies, De Beers, developed Tracr, a distributed traceability platform to track the source and course of every diamond the company mines. This allows the company to verify the authenticity of its stones and directly address consumer concerns about ethical sourcing and environmental practices.

Nestle has similarly invested in blockchain to improve transparency and traceability across its supply chain. In 2019, the company claimed to be the first major food and beverage company to allow consumers to “track their food right back to the farm.” To do this, the brand partnered with OpenSC, a platform that uses blockchain technology to track ingredients throughout the supply chain.

In addition, using blockchain to manage the supply chain enables companies to track and measure sustainability goals, such as containing scope 3 emissions.

3.    Bridge the physical/digital divide and create emotional connection with tokens

Web3 experiences aren’t meant to replace physical products or experiences. Instead, it should be seen as another channel by which brands can engage people and build deeper, more nuanced relationships.

For example, when a shopper purchases a beauty product, can they use a token on the packaging to unlock access to an online community where they can watch tutorials or learn more about how the product was designed?

In one real-world example, jewelry brand Tiffany’s made a splash when it issued a limited release of TiffCoin, engraved and numbered coins meant to resemble the brand’s historic Tiffany Money, coins that could be exchanged for Tiffany’s jewelry. Tiffcoins, however, serve as tokens that can grant exclusive access to physical and virtual events.

Four steps to effectively leverage Web3 today

From dismissing Web3 as a fad to failing to integrate initiatives within the wider growth strategy, there are a host of mistakes and missteps brands and retailers can make with Web3. Here are four basic steps to help companies build the right mindset to embrace this technology and draw value from their investments:

  1. Accept the skepticism. While many executives may still have the instinct to dismiss Web3 and surrounding technologies, we would argue that the numbers suggest they shouldn’t: The metaverse is expected to grow at a compounded annual growth rate of 39% over the next 10 years, with a total market valuation of $678B by 2030. Likewise, the global Web3 blockchain market is estimated to swell to $44.2B by 2031, growing at a rate of 44.13%. Maintaining a healthy skepticism with this technology is wise, but executives must accept that Web3 is already playing an indisputable role in our daily lives — a role that will be steadily growing in the coming years.

  2. Design Web3 initiatives to solve business problems. Initiatives that leverage technologies like NFTs, blockchain and crypto should not be executed for the sake of doing something new and exciting, but because they have a clear connection to a business goal, like building loyalty or increasing supply chain transparency.

  3. Test and learn—while aligning to a common strategy. As with any emerging technology, one of the most effective ways to build momentum within the organization is to develop and execute a relatively simple high-value use case. Learnings from early projects should be applied to later, more complex programs. While the world of Web3 is rapidly changing, companies should have a clear sense of their overarching strategy for these technologies and how programs both relate to one another and fit into the broader business plan.

  4. Iterate and innovate. One of the most exciting aspects of Web3 is that it is evolving so quickly. What was true six months ago may not be true today. A year from now the world will have changed again. Companies need to embrace the “fail fast” approach to ensure they don’t get left behind. Likewise, companies must constantly iterate on current initiatives to incorporate the latest digital capabilities and ensure that their investments are primed for impact.

Contending with Web3 hype with eyes wide open

In our rapidly changing world, we recommend that brands and retailers meet in the middle, between enthusiasm and skepticism. Companies need not take a stand on Web3 so much as find ways to simultaneously embrace the opportunity while maintaining a healthy skepticism about how and where to apply this technology. This is the key to using Web3 in a meaningful way and ensuring that value is drawn from investments. And that’s something everyone can be enthusiastic about.

For more information about practical ways your organization can harness the power of Web3, watch our recent webinar Smart Bets on Web3 in an Economic Downturn.

This article was written by Duncan Roberts, Senior Manager in Cognizant Research, and Alexis Scobie Anderson, Insights and Strategy Lead in Cognizant’s Digital Experience practice.

Cognizant Insights Team

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