Second markets and the Blockchain

Men's wrist watch fashion accessory
Mother and toddler holding hands

With the relationship of brand to owner extended to the life of the product through blockchain, a whole new way of managing second markets emerges.

Luxury brands have always understood how to market themselves to their primary consumers, however this marketing is aimed solely at the first stop on the lifecycle of their products. These products have always had high market worth and are often seen as investments either emotionally or otherwise by the consumer, symbols of success or status that have deep ties to their owners.

Because of the unique relationship with people these products have… either cars, watches, handbags, jewellery et al, the normal consumer lifecycle does not necessarily apply. These items have a life longer than those consumers that purchase them.

Some become heirlooms and are handed down through friends and family as tokens of sentimental value. All have significant resale value and a burgeoning second market, either through independent sellers or authorised resellers.

In both cases the brand relationship does not exist beyond the initial customer. It is here that the blockchain can change the norm. The ability to store a unique, transparent and immutable record of that product and its ownership enables brands to change the game.

This immutable and cryptographically protected data stored on the distributed ledger has huge benefits in the Luxury goods sector.

This immutable and cryptographically protected data stored on the distributed ledger has huge benefits in the Luxury goods sector.

Proof of manufacture creates a quick and easy way to ensure the genuine pedigree of the item, exposing products that are counterfeited at a stroke.

Proof of ownership can also be stored on the blockchain too, combating theft by closing down the ability to “fence” stolen goods through third parties.

Manufacture origin is also another crucial tenant of Luxury brands especially amongst the emerged Millennial market. Here sustainability is a primary concern and brands must respond to this consumer demand in a way that has provenance baked in. It’s no longer enough just to label something… it’s common practice now and consumers are becoming wiser. Millennials require something more substantial, and as the blockchain creeps into shared experience, the expectation amongst this market will increase in equal measure.

And that is just for starters… we haven’t even touched on how to control, communicate to and manage the second market and what that may mean for brands going forward.

Second markets have always traditionally harmed brand equity and profitability because they are beyond the scope of the Luxury market. Take Cartier for example… An excellent example of the lengths luxury brands can sometimes go to, to protect their value and equity.

https://www.theguardian.com/business/2018/may/18/richemont-destroys-nearly-500m-of-watches-in-two-years-amid-buyback-policy

With the relationship of brand to owner extended to the life of the product through blockchain, a whole new way of managing second markets emerges.

Brands can encourage a network of authorised second market dealers who benefit from ensuring that both themselves and their stock are present on the blockchain, by offering genuine authenticity, history and quality to the equation. Marketing departments can engage owners on an individual basis through individual product and ownership identifiers. Building relationships and adding value alongside the item.

Men's wrist watch fashion accessory

All that money invested in building equity and instigating sales keeps paying back over a much longer lifespan.

Hand me downs

Just imagine that the watch, car, or brooch handed down from parent to son/daughter came with a continuation in brand relationship. Then suddenly those emotional strands so often constructed meticulously by these big brands are there immediately. It’s a deeper and more complex topic that could fill a whitepaper on its own, but it really does start to change the game. All that money invested in building equity and instigating sales keeps paying back over a much longer lifespan.

There is also a logistical aspect to second markets… currently there is no way to quantify or control how much stock there is out there, or indeed where that stock is… is it in private hands or is it in the second market? Not knowing this comes with supply and demand risks, do brands really know how much that second market affects the first market? Well with blockchain implementation eventually a much clearer picture will emerge about the movement of stock through these channels, allowing businesses to control release and manufacture volumes to ensure that value is retained.

A world where brands have this clarity in supply and demand across all markets will be a world where brand and business planning are much more efficient and cost effective. It will also be a world where craftsmanship, quality and integrity are more important than they have ever been, where transparency and immutability are rewarded by loyalty, and where brand equity is earnt through lifelong relationships with consumers and their families. Where added value comes in an ongoing personalised brand experience.

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