There has been a lot of recent excitement around startups focused on the subscription eCommerce model. The VC money has...
We are an innovative marketing channel helping you to cut through the advertising clutter and reach our curated and exclusive community of engaged consumers that will use, evaluate, and keep your products for free in exchange of their relevant and honest feedback, and thus we will build brand awareness and product loyalty, we’ll create word of mouth driven sales, and we’ll help you to acquire, convert and retain customers in the long run.
Again, because of our interdependent customers, we have two profiles to fill. First, let’s portrait our community of consumers (future samples recipients and reviewers): people living in Romania, with unlimited internet access, that spend online at least 2-3 hrs/day; actively use social networks and e-mail services; feel the need to belong to a club/community that grants them access to exclusive products or services; are interested in deals and hunt discounts; use the online available tools to compare the price and the specs of products they are interested in; write, read and trust online product reviews.
According to the available statistics (I don’t know how accurate they are), Romania has 8.578.484 Internet users as of Dec 31/2011, equating to an Internet penetration rate of 45.1% across the country (at a population of 19.042.936 people as of 2012). Of this number, 41.5% use the Internet daily, 5.3% use the Internet “a few times a week” and 10.9% use the Internet “several times a month.” The most popular social networks are, as of Dec 2011: Facebook, Trilulilu (a sort of Romanian YouTube), TPU (Romanian version of Answer.com or YahooAnswers), followed by less popular LinkedIn, Twitter, Netlog, Neogen (Romanian social network) or Hi5 (who used to be no.1, but the users massively switched to Facebook in the past years). Facebook is still growing, with 4.675.780 users (24.55% penetration of the total population), which makes it #32 in the ranking of all Facebook statistics by country. Instant messaging is dominated by Yahoo Messenger, the most popular e-mail providers are YahooMail and Gmail, and the most used forum for discussions is SoftpediaForum. Based on Pando networks content delivery service released on September 2011, Romania has the second fastest Internet speeds on the world at 15.27 Mbps, slightly behind South Korea at 17.62 Mbps (Romania surpassed Bulgaria, Lithuania and Latvia on the top five, while the United Stated was only the 26th). Cell phone penetration (of which smartphones count for 15,2%) has reached saturation point: there are more than 24.5 million active cell phone SIM cards in use in Romania, against a human population of 19.0 million, giving a penetration rate in excess of 128%. Returning to Facebook users, let’s add more detail to their profile: the male/female ratio is 51/49 and the user age distribution looks like this: (18-34) counts for 62%, (13-17) 16%, (35-44) 15% and (45+) only 7%. Regarding their incomes, studies show that 27.2% are under medium wage, 28.9% earn under 450 euro/month, 22.7% earn less than 650 euro/month and 21.2% earn around 1000 euro/month or above. Aggregating the previous data with the Romanian Internet users by occupation statistic (Employee with a university degree – 38%; Scholar, student – 22%; Executives – 11%; Self Employed – 8%; Qualified worker – 5%; Homemaker – 3%; Pensioner, Unemployed, Farmer, Unqualified workers and Others – 1% each), we can guess that our future user will likely be an under 45 city dweller, lower middle class, employed or with a stable source of income, with ongoing or already completed university degree, that has a Facebook account, masters at least a decent level of English language, owns a mobile phone & a PC, and has full access to high-speed internet. That means a pool of around 4 million people… If we can gather 10.800 engaged followers from this pool (0.27%), we have a winner.
Serving 2 types of interdependent customers, we’ll have multiple promises - one for our community of engaged consumers and one for the marketers. Doug insists that the business proposition must be a simple and concise sentence (at least it’s longer that the max. 3 words mantra suggested by Guy Kawasaki) that says you solve a very clearly defined problem (or fulfill a well known desire) that your customers know they have. In our one-sentence proposition we must identify who delivers the value (are we working alone or as part of a team), what the company does (are we selling products created by others, manufacturing products that others will sell to people, delivering personal services, etc) and who our customers are. So, let’s give it a try:
- the proposition for the marketers: We give marketers and local producers the most innovative and effective sampling services in Romania + the slogan: Innovative effective sampling!
- the proposition for the consumers: We offer Romanian members of our online club the chance to discover the shop where everything is free + the slogan: Exclusive priceless shopping!
I have enrolled in a very interesting year long training and mentoring program for entrepreneurs: Doug Richard’s School for Startups. Our first bootcamp was on March 8th in Bucharest, focusing on the 10 essential questions for evaluating a business idea. I’ll try further to briefly answer those 10 questions (I feel - and I hope - that the following 10 posts will be heavily and repeatedly edited in the future):
Having described in our previous post our future community of engaged consumers (willing to receive free of charge products and in exchange providing their valuable feedback), it’s time now to see who will actually supply the stock of free products and in the same time pay our fees for the service? Obviously, the ones who need an efficient and innovative marketing tool for their products: the marketing agencies handling the big brands + the small producers that market themselves.
Now let’s expand a little bit on the needs and concerns of our above described customers:
We will be in fact a platform, mediating the two parties involved: on the one hand, those in need of a clever marketing tool for their products (be it the marketing agencies or the small producers that handle their own marketing); on the other, consumers willing to receive and use free products in exchange of their personal opinions and relevant feedback. As in any platform business, living on brokerage fees, the parties involved are equally important - one cannot function without the other. Our customers are the one who pay money (marketing agencies/small producers) and provide the products, but our business would not exist without our other customers, those who pay with their time and attention, i.e. our community. So I think it’s time to briefly expand on our two types of customers.
In this post, we’ll concentrate on the first half: the community of consumers. Why a community, instead of a nondescript crowd (as in the case of traditional corner street sampling)? Because, for their opinion and feedback to be relevant on a sociological and marketing analysis level, they have to provide at least minimal personal data: sex, age, location, education, income and so on. The more detailed their profile, the more relevant their feedback. But the people are often reluctant to provide personal data (even anonymous) and, when they’re asked to, they sometimes provide incorrect, incomplete or made-up random profile details. But the data must be accurate, so that’s the no.1 challenge that we’ll have to find an elegant solution to. Furthermore, they have to be part of some sort of an exclusive club, in order to catch their attention and engage them in the process. A member only club, with easy and free registration, would make sense. Please notice that I dived again in the concept of Free: unlike the SampleStore and the SubCom models, where members have to pay ‘at least a penny’, I think we should provide free of charge membership to all our club members. The monetary loss would not be significant - in both business models previously analyzed, the revenues from the membership fees don’t count for more than 10% of the annual turnover. Free has it’s appeal, but then we’ll want to match the ‘penny gap’ attention grabber with some equally effective tool. And that’s our challenge no.2. Being a newness driven experience, there is also the challenge no.3 : to retain the customers and keep them involved in the long run, that is to grow a loyal community. And, of course, to match the loss of membership/subscription fees with some other equivalent source of revenue - challenge no.4. Answering those challenges would have been extremely difficult a couple of years ago. But in the meantime these things happened: cheap broadband internet access; mobile internet (wireless, 3G), smartphones and tablets; and, last but not least, social networks. So it makes complete sense that our community must be online, taking advantage of all these technology developments. Let’s address now all our challenges, one by one:
OK, that’s all for now, I’ll be back with some ideas about the Real Customers (the hard paying ones).
So there was the first innovation I did - not inventing a new model, but creating a twist in an existing business model. Of course, I did a lot of search on the internet about ‘pop-up sample stores’, and it seems it’s a new idea, not yet executed anywhere in the world. It’s a good start, although we all know that when an idea is really good, there are at least 10 people in the world already developing it. Perhaps they’re not that visible (or perhaps it’s not a good idea). Who knows?
But, back to this great site I already recommended (be sure to check out also Springwise.com, the companion site of Trendwatching.com), I discovered the Tryvertising trend that is really hot at the moment. What is this about? It’s actually about a marketing set of tools that encourages customers to ‘try before they buy’. It’s what the sampling industry was all about, so where’s the novelty factor? ‘The challenge has always been a certain lack of relevance: there’s no guarantee samples are tried out at the right time, in the right spot, and by the right target audience’. So actually it’s about product placement - creating the right moment in time and space for you to try the right product: no more bachelors to receive diapers in the mail, no more bald guys to receive volumizing shampoo samples and so on :). But, even more than that, to catch the consumer attention, to add value to the samples. Do usually people appreciate product samples placed in the mail or received together with the glossy magazines? Probably not - they’re treated as junk, or worst, spam. Because they’re unsolicited! So the big challenge was to make the consumers want the samples: make them in full product size (or at least in a decent, usable one), make beautiful packaging, etc. but more than that, make them scarce! When you create artificial scarcity, suddenly people will want those products with limited availability. And not only do they want the samples, but sometimes they’re even willing to pay for them! Not too much, but when you are willing to pay even a penny for some samples, then you instantly give them value and it’s more likely that you’ll use them. It’s called ‘the penny gap’. So what are the assets needed in order to convince someone to pay (attention, or even money) for product samples? Give customers relevant products, in real size and with real packaging, with some sort of newness factor related to them + a surprise and exclusive retail experience.
How about effective distribution channels? There are two main ones: the sample stores that I’ve already talked about and the SubCom industry, which is booming at the moment. SubCom, in fact a hash tag for ‘subscription social commerce’, is a business model that functions like this: the members of an exclusive online community pay a minimal subscription fee in order to regularly receive nicely packaged giftboxes by mail, containing a curated selection of products or (and here is the catch) a surprising collection of product samples (usually in regular product size). I’ll focus on the second model, where members actually pay to receive the samples. In order to unlock the next month giftbox, they’ll fill simple online surveys and questionnaires asking for their feedback on the products previously received. It works well when the giftboxes address a general audience (Matterbox - UK, SampleShowcase - USA), but it works particularly well when working with niches: starting with skincare and beauty (and Birchbox is the pioneer and most successful subcom for this segment) all the way to clothing and accessories, art, books, organic food, coffee, wines, snacks, necessities and God knows what else. Basically, all the customer segments that have a magazine dedicated to may be the subject of a subscription giftbox business. What are the sources of revenue for all these subcoms? Producers and marketers that supply the samples pay the ‘box space’ and buy the feedback data collected from the subscribers + obviously, the subcoms cash in the subscription fees paid by the members of the community. So there are quite the same sources of revenue as in the ‘sample store’ model, but the two business models, although sharing a lot of features, have a few important differences. The advantages of SubComs are those of the e-commerce over the traditional retail: immense addressability (no barriers of time or distance); the surprise effect; a more relevant audience (closer to the intended target group); the effective tracking of consumer behavior; no physical vending space required; no stock (supply on demand); less time and personnel required to complete the business processes. But there are also a few drawbacks: the limitation in size and weight of the products in the giftboxes (you wouldn’t send by mail a 2l bottle of a this new sparkling minera water, wouldn’t you?) + the noninvolvement of consumers (in fact, unlike in a sample store, they’re not actually engaged in the experience of shopping) that cuts the actual act of choosing one product over another in front of a shelf + the shipping and handling hustle and expenses (we don’t have in Romania any third party to provide the expertise and infrastructure helping small e-commerce businesses, such as Amazon Marketplace; more than that, the couriers on the market are very expensive and they negotiate their fees only for very, very big orders).
In the end, I think that the winning formula is DOING BOTH: Mailing samples in a box + Pop-up sample stores, for our curated community of engaged consumers.
As I’ve promised, I am going to expand a little bit on the theme of ‘popping up’.
I am an occasional reader of Trendwatching.com, a great resource for identifying and describing in detail hot global trends. A couple of years ago, they first covered the Pop-Up Retail trend, which was back then a great novelty: temporary stores with a limited existence (from a couple of hours up to one year), popping up in surprising locations and guaranteeing some of the things customers like most when it comes to shopping: intense excitement (because of the surprise and the inherent newness factor) and exclusivity (because of the limited time span). After all, human appreciation for an event or experience that is temporary is always higher than it is for something that is always around. Thus, by bringing a festival atmosphere to shopping, the pop-up retail phenomenon went huge in just a couple of years, especially when related to high fashion or design related industries.
Rei Kawakubo, the designer behind the avant-garde couture house COMME des GARÇONS, was one of the first to understand that the content and the products now counts for more than the polished image usually associated with fashion concept stores, and so used the (very effective cost cutting) pop-up store strategy as a global expansion tool for her brand. She named her temporary boutiques ‘Guerilla stores’ and she even made up some rules for the franchisees to follow (in the spirit of Dogme95 danish cinema movement): 1) The guerrilla store will last no more than one year in any given location, 2) The concept for interior design will be largely equal to the existing space, 3) The location will be chosen according to its atmosphere, historical connection, geographical situation away from established commercial areas or some other interesting feature, 4) The merchandise will be a mix of all seasons, new and old, clothing and accessories, existing or specially created, from COMME des GARÇONS’ brands and eventually other brands as well, 5) The partners will take responsibility for the lease and COMME des GARÇONS will support the store with the merchandise on a sale or return basis. Not only did this innovative retail concept matched very well the anti-fashion philosophy of the brand, but from a business point of view it was pure gold: you minimize the renting cost (by moving away from established shopping areas), you eliminate the interior design budget, you cut the advertising costs for the new venue (such an interesting and novel concept will actually market by itself, through word of mouth) and, more than that, eliminate the risk of a new location that may not be successful because, after all, it will close soon anyway. With such a limited budget per location (dedicated in fact for organizing different events), the company succeeded with minimal costs to open guerilla stores all around the world, from Warsaw to Reykjavik and from Cologne to Athens. There were of course some other brands using pop-up stores, but the Comme des Garcons strategy was pure genius, and it proved to be immensely successful.
So is it actually something to learn from that? What I’ve learned is that if you have a product with an extraordinary appeal to the customers (be it great design or a hugely attractive price), and if you match the product’s appeal with an intense discovery driven retail experience (combining surprise, newness and exclusivity), then you can: skip the high cost of securing: a superb retail location, great interior design, signage or traditional advertising + you can cover more with less (addressing a bigger crowd of customers not by opening more stores, but by simply moving the store again and again in different locations for a limited period of time). Like the circus that’s coming into town, stay open for a couple of days, moving in another town and then coming back to you. You thus eliminate the risk of investing a lot of money into a location that may or may not be successful, and you get the chance to continually test and improve your locations, seeking the best market you can get. Of course, there will be a lot of location-hunting expenses, transportation costs, lodging costs, the handling fees for moving the stock from one space to another, etc. but overall the budget cuts will be extremely significant.
OK, so when I’ve read about the stores where everything is free, I had an Evrika moment: it’s the perfect match of enchanting content (every product is free!) + discovery driven retail (you don’t know what exact products you will find - in fact some them will probably be yet unreleased elsewhere - thus being more exciting to go and find out) + the urgency driven intense experience of temporary stores + substantial budget cuts. Wow!
What about timing? It’s perfect as well, because we are living (and that may be a paradox, but it isn’t) in times of both abundance (we are in the EU, so securing the really basic needs is not a problem for at least most of the people, and thus the consumption of the experience - the thrills of shopping - prevails) and recession (a lot of businesses went bankrupt, so suddenly there is a lot of empty retail space; potential employees are ready to work more for less salary; a general bootstraping atmosphere exists for most families, more conscious about their shopping). So, with sales going down for most products, marketing budgets going down also, lot of empty retail space, consumers willing to invest more time and attention in finding the right products at the lowest possible price, I think we have a winner: POP-UP SAMPLE STORES WITH FREE MERCHANDISE, in a place near you.
Actually, one of the business models analyzed by Chris Anderson in ‘Free - The Future of a Radical Price’ seemed so perfect, yet highly disruptive, that it caught my attention: there is this store in Japan where you can make an appointment, visit it once a week, try different products (it even has a powder room for women to try makeup and other beauty products) and even take home (for free!) a limited number of the products you’ve liked. All that in exchange of a very small membership fee and some compulsory 5 question surveys you’ll have to answer. As a customer, you’ll recoup your investment in the membership fee from the value of the products you’ve taken home right from the first visit. Great, but how it actually works? The producers that subsidized your products value by supplying the free stock are actually paying shelf space to the store and, more than that, pay the store owners for getting the results of the surveys you’ve asked. So it’s a win-win-win situation: the producers get visibility for their products, get help in product development (from your feedback) and they hope to acquire, convert and retain you as a paying customer once you are hooked on the product you initially picked for free; the shop owners get revenues from selling shelf space, from providing valuable marketing data self-generated by the consumers and from the annual membership fees; the consumers pay little to nothing for the chance to get a lot of free products (usually new and exciting, because they’re yet unreleased on the general market) that come in real size, they can engage and influence the product development through their feedback, and most of all they ‘try before they buy’ the products they are interested in (so no more disappointments when the thing you’ve bought doesn’t match your expectations generated by different forms of advertising). The business was a huge success and has transformed itself in a global franchise with such innovative retail spaces opening in Dubai, Hungary, Brazil, China and so on. And, because of the successful and surprising business model, copycat businesses started popping out all through the world: SampleandTry (India, UAE), SampleU (USA), SampleTrend (UK), Esloultimo (Spain), ClubeAmostraGratis (Brasil), SampleClub (Belgium), etc.
But about popping out, some other time :)
So let’s start by introducing myself: I am D., a 31 yrs old architect living and working in a small town in the northern part of Romania. Together with my wife and fellow architect A., we run our own architecture & urban planning office, that has kept us busy for the past 7 years. As a family business we’ve been quite successful, managing to position our practice in the top 5 architecture offices from our region. Right from the beginning, we tried to cover every possible commission, regardless of size, program or technical complexity, and on top of that we offered full design services (we like to call it the ‘All Inclusive’ strategy) - at first by collaborating with partner offices, and now mainly through our own engineers. And boy, you can’t imagine how stressful and time consuming that may be. For the last 7 years, we were on a 24/7, 10-12 hours a day working schedule. We didn’t get rich, nor we won the highest appraisals from the architecture community - we simply did our best to get a decent living as a medium-class hard-working family. And medium-class is written on our forehead: we drive a German car that it’s neither Audi, BMW or Mercedes; we’ve furnished our big flat from a certain Swedish manufacturer; we enjoy our holidays on the sunny beaches of southern Turkey; that kind of stuff. After the 2009 economic crisis, with the real-estate industry buried alive, the architecture & urban planning business faced a huge decline and, sadly, is today at the bottom of the famous U-graph. So now we have free time again!
After rediscovering the 8 hrs. working schedule and the free weekends, I was faced with afternoons and evenings waiting to be filled with the things I always enjoyed doing: spending time playing with our son, watching movies and reading the enormous pile of unread books waiting on my bedside table. And in that pile of books, between hardcore architectural theory and the latest masterpiece of Houellebecq, stood a nice hardcover entrepreneurship book written by a Romanian businessman I knew from a national TV reality show. Although we’ve been on our own for quite some time, I never regarded our small enterprise as an actual business - you know, with a naming strategy, business plan and a lot of .xls balance and forecasting sheets. So I’ve read that book (which I highly recommend by the way) and it got me hooked - I suddenly wanted to know more about startups, marketing, bootstraping, leadership and all of the things I have neglected so far. And, after a rigorous online research about the best business books available, I came about Guy Kawasaki’s ‘The Art of the Start’. It’s a superb reading material from a guy that used to be the chief evangelist of Apple and who is now a VC and a successful speaker at business events. It’s both inspiring and highly motivational. I suddenly wanted too to start a business that will change the world and be enormous fun running (and make us filthy rich, of course). So various ideas came popping in my head. Some actually very good, except they were all related to the architecture domain… which I am addicted to (all my friends are architects, all websites I regularly read are about architecture, 80% of my discussions to everyone are about architecture) and, really, I need a break from architecture - it’s the perfect timing for a sabbatical leave after all!. So, while sketching various business models, I’ve read some more business books (Seth Godin & all) and I’ve watched intensively business related lectures (Fora.tv is a great resource for that). Two speakers really blew my mind - Dan Ariely (you can watch his behavioral economics talks at TED, then you can read his wonderful book ‘Predictably Irrational’) and Chris Anderson, one of the editors of Wired. In the brackets, I tell you that I’ve downloaded all the books from avaxhome/ebooks or other illegal sources, read them during office breaks and only after that I bought them in nice physical copies from my favorite online bookstore (I honestly didn’t even believe these were translated in Romanian, but it seems that Curtea Veche, Publica and Bizzkit publishing houses are doing a great job). What fascinated me at Ariely and Anderson is that they expanded on the concept of Free, as in free of charge. Free has such an instant appeal to everybody, and finding out that there were a lot of business models built around Freeconomics (consumers are now given something for free, in order to get them buy at a later date), Freemium (give something for free and sell the premium version of it) or simply Free? (receive some product or service for free, that a third party is actually paying for - think web pages or free newspapers, that are subsidized by advertising). So I immediately knew that if I was to start a new business, it had to be deeply immersed in the FREE pool of thinking.
P.S.: This is my first and my last post related in any way to architecture. Cross my heart!