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Looking Beyond the Hype: Beauty and Web3 Opportunities

January 3, 2023
January 3, 2023
cottonbro studio

Web3 and NFTs were all the rage this time last year, but in light of recent events, there’s a growing skepticism around web3, crypto, and blockchain in general. As a beauty marketer turned brand strategist who has spent the past 12 months working in web3, I’m confident these emerging technologies are here to stay, primarily because they have so much power to create positive change for brands and  consumers.

Most of the major cosmetics companies have already started to explore the potential of web3, blockchain, and AI technology to enhance their operations and offerings. From improved marketing and customer relationship management to increased sustainability and transparency, these web3 and blockchain technologies offer a range of opportunities for beauty brands to encourage interest, drive sales, and cultivate stronger customer relationships.

Despite these “test and learn” activations, for many of my beauty industry colleagues the major blocker for web3 adoption, beyond the skepticism brought on by the scandals and rug pulls, is how this technology can drive meaningful impact within their organizations on a daily basis―not just as a one-time PR play. The reality is that this technology is so nascent, it’s still too early to implement at scale.

But there are things that brands―especially smaller, more nimble ones―can do in the short term to capitalize on this innovation, which is actually just a new foundational layer of technology that can better enable the things brands and marketers are already trying to do (conversion, retention, efficiency, transparency, etc.)

Here I’ll explore some of the less hyped, more practical applications of the technology―so that you, the marketer, can actually test them out. And remember, you don’t know everything going on underneath the hood of your car―so you don’t need to know exactly how blockchain works  to use it.

So, You Jumped into the Metaverse Headfirst

In recent years, we've seen a surge of beauty brands flocking to the metaverse, with the hopes of capitalizing on the buzz surrounding web3 technology. Estée Lauder sponsored Metaverse Fashion Week. L’Oréal even partnered with Meta to launch a beauty metaverse-focused web3 accelerator. However, this rush to join the metaverse may be misguided.

Stats show that traffic in metaverse lands like the Sandbox and Decentraland is low, with fewer than 100 visitors per day, and most virtual real estate plots going unused. This suggests that consumer interest in the metaverse as a platform for beauty brands may not be as high as some companies believe. Additionally, it highlights the need for a more thoughtful approach to the development and adoption of web3 technology. Rather than simply jumping on the latest trend, companies should prioritize finding solutions that truly meet the needs of both their business and their consumers.

If Not the Metaverse, Then What? 

Here’s where it gets interesting. When we rule out the metaverse as the go-to first approach, it opens up a lot of possibilities. The only way to narrow down those possibilities is by aligning your objectives with the relevant tactic. Marketers are always looking for new levers to pull, and there are relevant web3 applications across the entire conversion funnel.

Start by Partnering Up

You don’t need to embed blockchain into your strategy to capitalize on web3. Partnerships are an easy way to drive interest and recruitment by tapping into a mission- and values-aligned community. Take BFF, an NFT project launched by a group of women leaders including Jaime Schmidt, founder of Schmidt’s Deodorant, which boasts a community size of over 100,000 members. They recently launched a “Perks” store where holders of their NFTs can get access to products at a discounted rate. Partnering with communities like this is a way for brands to test the waters safely, with hyper-engaged and relevant audiences, without significant investment in technology.

Mobilize Power Users to Drive Your Product Pipeline

You may have heard the acronym “DAO”—Decentralized Autonomous Organization. Reminder: don’t get hung up on the jargon. As a brand, you have power users. A lot of these users want to influence product decisions. Imagine if you could organize them asynchronously in a way that they could start rapidly ideating and then iterating on your behalf because they knew they’d get a share of the profits. That’s a DAO. Yes, there are important nuances and some legalities, but if we don’t get hung up on those details, a DAO makes a great incubator/innovation arm of an organization.

NYX launched a DAO earlier this year to encourage digital artists to create 3D looks inspired by their products; another exciting possibility to engage your community in co-creation.

Automate Digital Perks

Many brands have dabbled in launching a digital twin to physical goods. The problem is the brand is then responsible for maintaining the relationship with the holder of that digital collectible; otherwise it loses value. Why hold onto it if there’s nothing to be earned, no additional perks, or exclusive rewards? A lot of brands aren’t ready for that type of commitment and launch digital twins in the form of NFTs without realizing the long-term commitment they’ve made and then promptly abandoned.

But there are tools that can manage this entire process if you recognize the requirements. For example, the app Geneva (dubbed the Discord for “hot people” and used by brands like Topicals) is helping brands create NFTs that enable gated experiences and exclusive perks; this is just one of many examples.

Launching NFTs into an abyss is pointless. The entire benefit to an NFT is that it’s a way to regularly connect with and reward the holder―creating value for it and for the holder, so if they ever decide to sell it, both can earn.

“For beauty brands looking to scale, these technology platforms are quickly becoming a ‘must-have’ rather than a ‘nice-to-have.’ We’re about to enter the golden age of consumer-driven transparency tools used across the industry.”
By Maggie Spicer, founder, Source Beauty ESG

Join the Club 

As we’ve seen acquisition costs skyrocket in recent months, the blockchain is a welcome tool for creating new methods to drive retention. Blockchain makes it possible to implement a completely decentralized rewards program with automatic distribution of rewards and incentives to customers, such as discounts and exclusive access to new products. Blockchain also makes it possible to implement referral programs that reward customers for referring friends and family to the brand by using smart contracts to automate the distribution of rewards.

Toki helps brands skirt the development of a complicated points-based rewards system by allowing customers to earn tokens and then convert them for use elsewhere. It’s an easy-to-use Shopify app that makes consumers feel like they are building a brand's business with them by receiving branded tokens for feedback, engagement, and spreading the word―which they can then exchange via Toki for use across other brands. Although still nascent, it’s an easy way for brands of all sizes to reward a wide range of customer activities.

Provide Proof of Provenance

As consumers become more obsessed with transparency, blockchain makes it possible to reassure them and encourage conversion rates. It also provides customers with transparent and verifiable information about the ingredients and sourcing of the company's beauty products.

Companies like Provenance and Novi are using innovative technologies to enhance sustainability and transparency across the beauty industry, with brand partners ranging from Credo Beauty to Cult Beauty.

For example, Provenance provides a blockchain-based platform for beauty brands to share verifiable, real-time information about the origins and sustainability of their products. This not only helps to build trust with consumers but also provides a valuable resource for companies looking to improve their sustainability efforts.

Meanwhile, Novi offers a development platform that acts as a B2B marketplace connecting buyers, suppliers, and manufacturers of sustainable ingredients and packaging. Novi uses AI to ingest proprietary chemical information from chemical manufacturers and offers a publicly available screening tool that checks ingredients against various standards.

“For beauty brands looking to scale, these technology platforms are quickly becoming a ‘must-have’ rather than a ‘nice-to-have.’ We’re about to enter the golden age of consumer-driven transparency tools used across the industry,” says Maggie Spicer, founder of Source Beauty ESG.

While we are still in the early days of web3 and blockchain technology in the beauty industry, the possibilities they offer are expansive.

Wild, Wild West of Legal Issues

With all  the options available for beauty brands to test out these new tech disruptors in the marketing, authentication, and content creation space, we would be remiss not to point out that we are in wild, wild west days when it comes to the legal and regulatory ramifications of these shiny new objects.

The number of states in the U.S. recognizing DAOs as a limited liability entity is in the single digits, meaning most states treat them as general partnerships with joint and several personal liabilities to its members. The U.S. Patent and Trademark Office and U.S. Copyright Office jointly issued a notice for written comment and public roundtables to discuss the impact NFTs have on intellectual property rights holders. Questions still arise as to whether an NFT can be a security.

This isn’t to say you should hold off on any of those plans to test out the web3 waters. Instead, it highlights the benefit of working with legal counsel early should you have any questions as to regulatory compliance or legal risk. “Similar to prior surges of technological advances of the past, our legal and regulatory landscape has to work through growing pains in order to integrate these new protocols into existing systems. Being prepared in all areas―technological, operational, legal―will help prime your launch for success,” encourages Kassi Burns, Senior Attorney with King & Spalding, LLP.

The Moral of the Story

Although it’s still early,  there are ways brands of any size can dip toes in these waters without getting overwhelmed. Overall, the use of web3, NFTs, and blockchain technology in the beauty industry can provide a range of tangible benefits, including improved efficiency and transparency, enhanced customer experience, and increased trust and loyalty with consumers. Brands that don't start learning and experimenting now may find themselves left behind as the industry continues to evolve.

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