Flourish managers came to us to develop a strategic recommendation to help enhance their brand image by entering into emerging digital platforms. Our analysis focused on two key decisions: whether to invest in metaverse presence and virtual goods/NFTs and whether to launch an augmented reality (AR) storefront with a curated product mix of physical and virtual goods. These investments aimed to position Flourish as a forward-thinking, modern brand while still maintaining their exclusivity and authenticity essential to luxury companies.
Flourish leadership wanted to determine whether these investments in digital platforms would increase and strengthen the brand's image in a way that justifies their cost and risks related to brand presence and image. In the luxury market, brand perception typically outweighs direct revenue, so our analyses prioritized Brand Impact (BI) score over financial returns related to the investment.
Our model assumed Flourish's performance benchmark for internal projects is a BI score of 800. Therefore, we developed with Flourish management, the Brand Image Coefficient (BIC) to translate traffic and conversion rates into measurable impact on brand. This BIC was based on customer sentiment, digital engagement, and innovation metrics. In our model key uncertainties related to customer behavior (conversions and traffic) and how different product mixes influence overall brand image.
Decision 1: Metaverse & Virtual Goods
In the first challenge, we modeled the business decision to enter the metaverse with branded virtual goods. We conducted an analysis on conversion rates and brand impact score. We use distribution models to understand how conversion rates impact overall BI score. Our findings indicate that moderate to high conversion rates result in a BI score above the threshold. However, there is a chance of seeing low conversion rates that result in a very low BI score. Flourish should consider the potential risk of very low conversion rates in a new market where there is still little historical data to fully understand consumer shopping behavior in the metaverse. However, the probability of the investment resulting in a BI score above the threshold appears to be very stable and we recommend moving forward with the investment. Our simulation analysis reinforces our recommendation as we found that in more than 50% of the simulations, Flourish should expect to see a BI score above 800, aligning with their brand image objectives. And finally, a value of information analysis suggested whether Flourish can obtain perfect information to better understand their conversion rates in the space.
Decision 2: AR Storefront & Product Mix
In our second challenge, we analyze entering the augmented reality (AR) market with a Flourish AR storefront. However, this decision is dependent on the results in decision 1; we recommend moving forward with the AR store only if the metaverse digital market proves to increase overall BI score. We completed regression analysis to model what independent variables are impacting overall conversion rates in the AR storefront to better understand. Ultimately, we found product type (physical or virtual) does have statistically significance on conversion rates. Therefore, we wanted to analyze how the decided product mix influences conversion rates, which contributes to our BI score model. Additionally, we completed a sensitivity analysis indicates how the product mix and recommendations can change dependent on the expected conversion rates and traffic.
Summary
Overall, there are several strategic opportunities for Flourish to increase its brand image with luxury consumers with digital innovation. Flourish can monitor traffic, conversion rates, and brand image metrics prior to investing in the metaverse and AR storefront and afterwards to understand effectiveness and refine their strategies. They can optimize the AR product mix and presentation by further analyzing customer feedback and consumer sentiment. Additionally, as the digital commerce market evolves Flourish can gain better insight into and better forecast consumer behavior as it relates to expected traffic, conversion rates, and overall brand image impact.
In conclusion, our analysis results show there is a strong likelihood of seeing positive brand impact outcomes from investing in both the metaverse and AR projects in conjunction - while prioritizing a 80/20 physical to virtual product mix in their AR store. Leadership at Flourish should consider continuing marketing efforts that hit their target market in a new digital space and continue gathering data in these rapidly evolving digital markets to best adapt with shifting customer expectations and demands in the luxury market.