There has been a lot of recent excitement around startups focused on the subscription eCommerce model. The VC money has...
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!
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).
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 :)