Non-Fungible Tokens (NFTs) as digital brand extensions: Evidence on financial performance and parent-brand spillovers

Fueled by new technologies, such as blockchain and Web3, brands are increasingly extending into the digital space. One such novel extension is the non-fungible token (NFT). Numerous examples indicate that brands’ market performance with NFTs varies widely in terms of short-term revenues and spillovers to the parent brand. However, little is known about the factors that are associated with a successful performance. The goal of our research was to identify those factors. Regarding short-term revenues, we empirically tested the value of several possible success drivers; these drivers reflected a combination of the most important success factors for physical brand extensions (e.g., extension fit, brand equity) and value drivers for NFTs (e.g., added NFT utility, number of NFTs in the campaign). Using a novel dataset of 450 NFT campaigns, we document that both types of variables help to predict financial revenues from brand-related NFTs. Going beyond the short-term financial results of NFT campaigns, we also report experimental evidence that shows such campaigns may create negative spillovers for the parent brand. Overall, this research demonstrates (i) which value drivers correlate with a brand’s NFTs success, (ii) which brands are the best fit for NFTs, (iii) in what ways brand managers need to adapt their brand-extension strategies from the physical to the digital environment if they want to succeed with NFTs, and (iv) the risk that brand extensions with NFTs may hurt customers’ attitude towards the parent brand.