MaRS (eCommerce Meetup) - More on creating value in eCommerce

I recently attended an eCommerce meet-up hosted by MaRS.

The speaker who intrigued me the most was CEO of Frank & Oak Ethan Song who provided a wealth of information on how they took a product as widely available as mens clothing and created a unique value proposition.

What had always defeated me in the eCommerce field was how to create value with products as widely available as say glasses, groceries, hair e.t.c

The answer according to Ethan Song is to stop thinking of the individual product unit and start thinking of values and user experience. 

  • What values do you stand for in building the brand? (e.g. What values do your customers stand for that you want to project in your brand/product offering?)
  • Build a community around those values 
  • Deliver the best user experience possible to that community

image

These points all combine to create a unique product. Never mind that you can buy a shirt from anywhere, even a grocery store. Chances are, it’s not from Frank & Oak.

"the value proposition isn’t limited to the monetary worth of the shirt materials, the value spans across all levels of customer engagement: from browsing online to wearing the actual product. The beauty of this model is that a customer who has gone through the purchasing experience feels like they are wearing a garment that should have cost them 2 or 3 times more than they paid. Ultimately, it’s not about the garment you wear, it’s about how you feel wearing it and the story of how that garment came into your possession." ~ QUORA

Also remember that to deliver these value propositions and exceptional user experience requires hard work on the back end technology, supply chain, product manufacturing e.t.c.

The future online grocery shopping experience

The grocery wars are heating up, and my local grocery (Loblaws) is going ecommerce, which means times are about to get more exciting. 

WHAT’S WRONG WITH THE GROCERY STORE?
Grocery stores are essentially warehouses that sell raw materials (meat, vegetables, fruits e.t.c). The function of acquiring groceries is to create an experience (food that looks good, tastes great and makes people happy).

The problem is that most of the value of grocery shopping lies in the end experience (the food we make from the grocery) which grocery store’s leave up to individuals and others.

We live in an era where value means delivering experiences, not simply selling product. 

WHAT CONSTITUTES AN EXPERIENCE?

image

Restaurants and fast-food chains capitalize on the “experience” end of grocery shopping by specializing in:

  • Serving quality “restaurant grade” meals
  • Offering a wide array of delicacies for discovery and inspiration 
  • Fast-food specializes in food you can eat now 
  • Many fast-food’s as-well as restaurants compete on delivering you these experiences at affordable prices 

These are the experiences grocery shoppers hope to replicate at home by going grocery shopping. The fact that they can’t is a problem that once solved will separate the new grocery shopping experience from the old. I believe that groceries in Canada like Loblaws are well positioned to exploit this market which I will detail further down.

THE MODEL FOR A NEW GROCERY SHOPPING EXPERIENCE EXISTS
The past 3 years have seen the rise and growth of “meal delivery” services that deliver pre-portioned meal ingredients with recipes to cook restaurant quality meals. I love this service for multiple reasons:

  • It teaches and inspires you to cook quality food (empowering)
  • It enables you to discover and try new things
  • It structures your eating habits 
  • It’s fun and exciting and the meals are supposedly quick to make (30 minutes or so)

The main problem I have with these services are that they are structured as an alternative to eating out. Whereas the main purpose of grocery shopping is to acquire enough food to last X number of days, weeks e.t.c. I believe this model only scratches the surface and grocery stores like Loblaws have the potential to exploit it’s full potential at a greater scale.

HOW CAN GROCERY AND ECOMMERCE WORK TOGETHER?
The promise of ecommerce is that it enables you to develop experiences that you couldn’t before. It is therefore necessary to develop proprietary experiences in order to maximize value to consumers. Andy Dunn, CEO of Bonobos mentioned four strategies to create value in ecommerce: proprietary pricing, proprietary selection, proprietary experience, and proprietary merchandise.

Proprietary Experience
Meal delivery services such as Plated and Blue Apron are wonderful experiences that groceries should expand on to control the grocery shopping experience of their customers (Except I prefer a pickup model). Most individuals eat 3 meals a day and shop at-least once a week. How amazing would it be to acquire an entire week’s worth of meals at once, rich with choices of different breakfast, lunch and dinner meals for each day at a price that is sustainable every week.

Proprietary Selection
“Proprietary selection is a strategy about being narrow and deep for a particular audience.” This is where a lot of opportunity resides, segmenting customers by lifestyle. 

image

Experiences are usually built to support and enhance existing lifestyles. Fitness for example is a lucrative group of consumers who are religious about their eating habits. They usually structure their meal portions and eat only certain types of foods. A proprietary meal service experience would be very lucrative and energizing for this lucrative market.

Proprietary Merchandise
It’s hard to differentiate in the grocery industry because a majority of the inventory carried by a given retailer is also carried by another. A meal service model mitigates this problem by creating it’s own proprietary merchandise in the form of branded meals/recipes. This exclusivity builds an ecosystem of dependance where you don’t have to compete with other grocery retailers directly. This would allow a grocery retailer to control their costs and overall margin.

Proprietary Pricing
When your business model is engineered to deliver an experience, pricing becomes an art. Of course competing on price is a losing game, but the way you price your products determines the type of experience you wish to deliver. These days I’m a fan of a one price model for a given group of product regardless of differing design, variables, attributes e.t.c. (e.g. Warby Parker $95 for all frames. Blue Apron $9.99 per any meal). This model reduces friction in the customer’s discision making. It changes the conversation from what can I afford to which one do I want. Most of all it promotes structure, especially for a meal service that would feed someone for a week.

WHY LOBLAWS IS WELL POSITIONED TO EXPLOIT THIS NEW MODEL
I believe that Loblaws is well positioned to exploit this new model because:

  • As Canada’s largest food distributor, they operate at a scale that would make a meal service that provides an affordable weekly meal plan economically feasible.
  • Loblaws looks to already have an ecommerce infrastructure that can support this model as well as a dedicated ecommerce team
  • Their move to launch a click-and-collect model will aid in getting customers accustomed to purchasing groceries online (very big problem to overcome)
  • Ecommerce data will provide a wealth of information 
  • Loblaws’ ecommerce site already provides recipes and other meal inspirations but lacks a call to action. A meal service would act as that call to action which will move inventory

Overall, I’m interested to see how the meal delivery model evolves and excited to see how Loblaws’ ecommerce initiatives take off. 

Great storytelling creates eCommerce value

I have recently been stressing hard trying to answer the question, What is value? How is it created?

This is all heavily inspired by new up and coming value driven eCommerce business model’s that purpose to delivering value to their customers.

Example - Warby Parker & Sunglasses, Luxyhair & Hair Extensions, Blue Apron & Grocery; the list goes on.

What confuses me is that;

  • You could always find quality sunglasses for less than $100 dollars before Warby Parker
  • There are several places to purchase quality hair extensions at a price that either matches or is lower than Luxyhair
  • The grocery store contains all the ingredients you would ever need to create any meal offered by Blue Apron (In fact, it is more expensive relying on Blue Apron for your meals than traditional grocery shopping)

So what value do these nextgen eCommerce startups offer that has their customers (Including myself) so excited?

For now, my answer is that they create value by being great storytellers. Great storytelling requires you to eliminate noise, create an amazing user experience, have great customer service, maximize focus and simplify choice.

The 3 startups I mentioned achieve this by;

  • Focusing on a singular product. A customer never has to think hard about what they are there to get
  • Noise is further eliminated when you get down to product details
  • Eg. Luxy Hair only sells one product hair extensions, one length 20 Inches, Only one main differentiating attribute (volume)
  • You never have to consider multiple quality variations from Luxy Hair, Theres on one quality - The highest grade Hair available
  • Noise is eliminated in the pricing structure to aid in simplifying choice.
  • Eg. Warby Parker only has one price ($95) Regardless of frame, color, prescription e.t.c. So does Blue Apron
  • These all add up to an amazing user experience thanks to focus, noise reduction and simplified choice which in my view is valuable

Please note that to deliver this much value, a lot of work goes into the backend (e.g. manufacturing, supply chain, logistics e.t.c) to make it happen.

Some Examples of OLD vs NEW

NOISE

image

GREAT STORYTELLING

image

NOISE

image

GREAT STORYTELLING

image

NOISE

image

GREAT STORYTELLING

image

Technology and the Beauty Industry

Technology is disrupting everything these days, and it’s main targets appear to be stagnant, boring industries full of inefficiencies. 

Eg. Prescription Glasses > Warby Parker, Grocery/Restaurants > Blue ApronSuits > Indochino etc.

I have recently picked up an interest in the women’s beauty industry (literally this week), specifically the black beauty market.

From what I have learned crawling the web for information, watching documentaries and talking to friends, this is an industry in desperate need of disruption.

Some facts:

  • Black women (a minority) spend over 10 Billion annually on hair (80% more than the general population)
  • Black women spend anywhere from $50 - 1000 dollars for weave/hair extensions (per weave - This is replaced frequently depending on the person)
  • They spend anywhere from 3 - 8 hours at the salon waiting and receiving service (Mostly bad service I hear)
  • Pricing varies from one hairstylist to another (I’ve seen anywhere from 100-300 on average)
  • These price variations point to one of the most inefficient industries thriving today (I cant believe hair cost’s this much)

Theres a lot more but this is enough to be appalled and excited about the opportunities this industry holds as technology extends its reach.

I know nothing about women’s hair but, I know for a fact the next time I attempt a serious startup, this is the industry i’ll be targeting.

FREE vs DISCOUNT, Which Dilutes Brand Equity?

Discounts and Free Giveaways are both highly effective promotional tools that have been successfully executed in a number of ways (Flash Sales, Groupon, e.t.c). The problem with both is that brands, especially those that consider themselves to be high-end fear diluting their brand equity by utilizing these promotional tools.

I tend to think that discounts do in fact dilute brand equity whereas a free giveaway does not for the following reasons.

With a Discount

  • You artificially devalue your product
  • By doing so, you make it more accessible to a broader market
  • With time, consumers expectations come to view the discounted price as the norm
  • I got it for a discount but would find it difficult to resell at full price if everyone else could have acquired it for the same price.

Free Giveaway

  • You cant artificially devalue your product by not setting a price.
  • The value remains even if you did give it away
  • Most Importantly, the product remains scarce
  • I got it for free but if someone wanted to buy it from me, they would have to pay full price (Or whatever highly inflated price I set)

Pricing is an Art

Artwork by Mattahan

Note: This article speaks within the context of eCommerce Brands

Pricing: Is it an Art or a Science? This is an age old question to which my subjective view is, It’s an Art.

WHY IT IS AN ART
Value cannot be dictated to the market. Regardless of product cost, or pricing objective, every fixed price tries to align an arbitrary valuation to a segment of the market that agrees. In other words, the market sets the final price.

The purpose of pricing then should be to try to sell to different consumers at the maximum that they are willing to pay for a given product. This, is an Art.

HOW THEN SHOULD PRICE BE DETERMINED?
Pricing should be participative, A perpetual Push and Pull entanglement between a Brand and its customers.While Brands attempt to Push the highest valuation they can onto consumers, they in turn Pull at thier willingness to pay. This I believe would result in:

  • Greater Pricing Efficiency: Why set a fixed 70% Discount when you could variably discount based on volume demanded with participative pricing? (More Profit)
  • Price at True Value: While market forces currently prevent a Brand from pricing at max value due to competition and consumer price sensitivities (except luxury), With Participative Pricing, Push your Highest valuation while customers Pull at theirs. Meet at a point where both are happy.

PERFECTING PRICING AS AN ART
Art is Emotion, Engaging, Enchanting, It’s an Experience.I believe that Brands should look to pricing as a point of engagement and experience with their customers. Participative pricing is like awarding customers a non-equity stake in your Brand, a form of empowerment that breeds a deeper more meaningful and lasting relationship. This is necessary especially for product categories such as fashion and art which require emotionally engaging experiences. The friction-less nature of participative pricing creates raw purchase intent among customers leading to increased social sharing and market intelligence (And more dollars spent).

It changes the market dynamic away from price-competition and toward value delivery which cannot be replicated anywhere else.

It makes buying as friction-less as a Facebook or Instagram Like.

It allows for creativity in marketing,pricing and selling e.g.

  • Given an exclusive, high demand yet scarce product, The law of supply and demand dictates that consumers will race upwards with price.
  • Test the demand for your product before even producing it.
  • I can think of a dozen innovative ways artists could exploit this model.
  • And many more…

Through participative pricing, Brands could form perpetually engaging, rich relationships with their customers and perfect the art of pricing.

Note: The above model I presented is not “PWYW”. That to me is wishful thinking for products with a marginal cost.

Pricing Art Ecommerce Brands

The Internet is Full of Ghettos

Two months ago, a VC at Union Square Ventures sparked off an interesting debate on twitter. I intended to expand on it but got lazy. I’ve had a resurgence of interest in the topic so here we go.

Gentrification: The restoration and upgrading of deteriorated urban property by middle-class or affluent people, often resulting in displacement of lower-income people”. In other words, turning ghettos into affluent neighbourhoods. 

I will focus on Facebook’s Ghettos where gentrification has already happened and I believe will continue to happen.

View High Resolution

image

As you can see from the above, Twitter Gentrified Status Updates, Instagram Gentrified Photos, and Pinterest Gentrified your Likes and Interests. What’s interesting to note is that, they did not just take what where once features and made them better. Instead they created whole new experiences that solve specific problems and each with their own “Pull Factors" (An overwhelming value proposition that empowers customers and coerces their interest and engagement)

i.e. Twitter allows you access to the pulse of all human conversation while Instagram empowers anyone with the ability to capture photography rivalling professionals.

WHERE GENTRIFICATION IS HEADED
But there remains further gentrification to be accomplished which i presented in the form of a problem my friends and i had during school. We occupied the 4th floor of a student apartment building and needed an efficient way to invite the entire building population into room 401 for parties without having to knock on everyone’s door.

THE SOLUTIONS
The Facebook solution couldn’t work because we were not connected or did not have mutuals with anyone in the building (We weren’t that cool).

The twitter solution was inadequate because the follower network it requires to get the message across to everyone is too complicated to even think about and did not exist. On top of that, there is no such thing as trending topics for hyperlocal settings like an apartment building.

My genius solution was to change our WiFi name to broadcast Party@Room401 but, WiFi range is limited and no one gets news from WiFi domain names. 

GENTRIFICATION OF TWITTER TRENDING TOPICS & FACEBOOK EVENTS
The solution to this problem i believe requires the gentrification of twitter’s trending topics and Facebook’s events. Trending topics are the pulse of human conversation but the problem is, only Global, National and City Wide pulse is captured by twitter. Events on Facebook are tied to your social graph and are therefore somewhat closed networks. While Facebook gave you access to news and conversation within your social circle, Twitter enabled access to global news and conversation. But there remains a need for a platform that enables access to news and conversation from hyperlocal settings like a building, neighbourhood or local events because they are more relevant and actionable.

Nextdoor is an interesting idea. It seeks to create private social networks out of hyperlocal settings such as neighbourhoods. Combined with a hyperlocal trending topics then I’m convinced the stage is set for the next big thing in social media. Although preferably, the social ecosystems should be open like twitter and not private like Facebook.

SocialMedia Gentrification Internet SocialNetworks

Image Consulting and Value Added Retail

Traditional retail is being disrupted by ecommerce and it’s being echoed everywhere. When it comes to online retail, Brands are increasingly taking control of their own product distribution to establish direct relationships with customers. But there is also a tertiary trend where once online only Brands/Retailers are establishing a physical presence. This is in recognition of the fact that certain customer relationships can only be established in the physical space and cannot be replicated by technology. The pressure is on retailers to develop a new value proposition if they are to continue to exist.

THE PROBLEM: RETAILERS TAKE MORE VALUE THAN THEY GIVE
The value of retailers has historically been geographic reach and proximity to consumers. Investor Lawrence Lenihan noted in this article (And this presentation) that the world has become smaller and flatter because of the Internet. Geographic aggregation of customers (The function of retailers) no longer makes sense because everyone is connected making the entire global market within near instantaneous reach. This is why many Brands are vertically integrating, because they can:

  • Reach any customer in any market with speed and efficiency
  • Focus: Target customers based on specific interests, values and aspirations
  • Manage customer relationships
  • Transfer cost savings of an efficient supply chain onto customers in the form of lower prices for quality goods

Paying retailers to sell products and manage customer relationships no longer makes sense, because technology allows Brands to do the same but better and with efficiency. But there remains immense value in maintaining physical relationships with customers, which is why many online brands (e.g. Fab, Warby Parker, Indochino) are establishing a physical presence to better connect with customers.

Traditional retailers are well positioned to produce immense value to customers by remodeling to a customer relationship focus as opposed to just selling. Image Consulting is a way in which they can achieve this – something that cannot be replicated by technology in the fashion field. 

IMAGE CONSULTING
Image Consulting is an inconspicuous industry to most consumers (DISCLAIMER: I have little knowledge of it myself), but the problem it attempts to solve is gigantic in scale yet small and personal in scope.

Put simply, an Image Consultant is a professional who advises others on visual appearance, and verbal and non-verbal communication. Of course the practice is a lot more extensive and complicated than that but for the purposes of this article I will focus only on the visual appearance aspect.

THE PROBLEM: ACCESSIBILITY & FRAGMENTATION
From the little that I gathered, the practice of Image Consulting appears to be a luxury service. Consulting fees could cost clients anywhere from hundreds to thousands of dollars. This makes this type of service “relatively exclusive” to a certain income level. This is understandable considering the independent nature of the business and the immense value image consultant’s provide their client’s, which cannot be understated. But in an age where everyone is becoming image/fashion conscious, everyone needs image consulting. Someone has to meet that need.

Most business to consumer services have consolidated in some way forming market places were all parties could benefit from marketplace synergy. Image Consultants tend to be professionals who work independent of any organization making the industry highly fragmented.

I believe that the lack of accessibility to ordinary consumers and the fragmented nature of the industry leaves Image Consulting ripe for disruption. Bringing Image Consulting to mass consumption would be the very definition of disruption.

HOW IMAGE CONSULTING CAN REVOLUTIONIZE RETAIL
This deserves it’s own article which I will discus next

Fashion ImageConsulting BusinessModels Retail

"Evolution of the retail industry"

I recently came across this presentation by Lawrence Lenihan, An Investor with a focus on e-commerce at the venture capital firm FirstMark Capital. It is an insightful and eye opening presentation showcasing the way the internet has fundamentally changed the whole retail landscape.

This presentation shows why many brands are increasingly vertically integrating (controlling their entire supply chain by designing, producing and distributing their own products) and the value of being focused and engaging with customers.

FullScreen for more screen real estate

Brands eCommmerce Retail

The Visual Web and Effective Content Strategy for Ecommerce Brands

They say a picture is worth a thousand words: well Facebook’s acquisition of Instagram is empirical proof that it could also be worth a billion dollars. The rise of the Visual Web has brought with it demand for new standards on how ecommerce brands produce and present visual content pertaining to their products. In this article, I present the concept of the visual web, and illustrate how brands can leverage it in order to effectively market and sell their products through social mediums.

THE VISUAL WEB AND HOW SOCIAL MEDIUMS ARE ADAPTING TO IT
The visual web represents the shift away from text-based digital media to a more vibrant visual experience. Put simply, visually compelling images are the primary way in which people are consuming information as opposed to text. Facebook’s acquisition of Instagram and Pinterest’s rapid rise to prominence pioneered this shift. It is a shift in the utilization of visually compelling content as the primary method of information consumption and as the driver of user engagement. Engagement metrics such as ‘likes’, ‘comments’ and ‘shares’, have been proven to increase dramatically when users are presented with rich visual content. Most social mediums - and some ecommerce sites - have now moved to predominantly visual layouts in recognition of this change.

image

image

WHAT IT MEANS FOR BRANDS AND SOCIAL COMMERCE
Ecommerce represents the most powerful form of photo sharing because its underlying value is a tangible product that consumers can acquire. This makes commerce-based photo sharing the most monetizable form of photo sharing on the web. In order to best monetize commerce-based photo sharing in the visual web era, brands need a fundamental shift in content production and presentation strategy.

1. Produce rich compelling visuals that are worth sharing
Photos are visual manifestations of the products that brands use to attract consumers because they are directly correlated with consumers’ perceptions of a product’s value. It should then be expected that the same amount of effort brands put into creating products should be directed to visual production.

Photo sharing naturally demands visually compelling images which can best be described as visual storytelling. Some of the most effective users of visual storytelling are Gucci and Burberry. A simple glance at their product images captures both the luxury of their products and the value of the brands themselves. These brands are known for their strong visual storytelling, which compels consumers to engage in brand/product conversations within their social circles through social sharing.

image

2. Present products within the context of use to entice consumer engagement
One of the biggest mistakes most ecommerce brands make in executing a social selling strategy is maintaining the traditional presentation of products. Product images against dull backgrounds or images of clothed mannequins is not a useful strategy and does not entice users to readily share these product images with their social networks. This strategy produces a visually non-compelling image that is relatively static, dull and leads to little or no consumer engagement.

                  image   

As I previously mentioned, though product imagery needs to be visually appealing, just as important it must be presented within the context of use. In my previous article, I alluded to consumer interests being derivatives of their friends’ or other people’s interests. I believe this to be true because psychologically, most of a product’s value is derived from seeing it within the context of use by others (tastemakers, trendsetters etc.), which presents consumers with a variety of ways to use the product. I believe that this form of presentation is the most effective in penetrating social mediums because it induces the most engagement, generating ‘likes’, ‘comments’, ‘shares’ and eventually the most valuable consumer engagement – purchasing. Below, I present examples of some of the most effective utilizers of ‘context of use’ visual product presentation and the resulting consumer engagement.

image

HOW TECHNOLOGY PLATFORMS CAN AID BRANDS IN EFFECTIVELY LEVERAGING THE VISUAL WEB
Producing strong visual content comes at the cost of time, assets and resources, which is why I think it’s important that technology platforms aid content creators (eg. brands) with tools to create more visually compelling content. Instagram is an obvious pioneer in this category because their filters allow anyone to produce vibrant visual experiences with ease of use. I believe that more innovation along this line is necessary. 

Another innovative approach I find quite compelling is Airbnb’s use of local photographers to capture interesting imagery of their hosts’ homes, in order to achieve better visual storytelling in their marketplace. This underscores the importance of rich compelling visuals so much so, that a collaborative consumption marketplace such as Airbnb expends capital in order to produce it free of charge to the host.

Finally, a simple yet groundbreaking and underutilized piece of technology is PicStich’s use of multiple images in a single framed picture. This is an effective way to produce more immersive and storytelling photos to induce engagement. It is also a more practical way of showing multiple perspectives of a single product, making it easily more digestible and shareable, than having multiple individual photos of the same product.

image

Brands SocialCommerce VisualWeb Startups

Brands, Social Media and Retail Disruption

Earlier this year Marc Andreessen, founder of the venture capital firm Andreessen-Horowitz, predicted the death of traditional retail to eCommerce innovation. While I don’t hold the same degree of enthusiasm, simply because the $350 billion dollar North American eCommerce industry still only represents 5% of retail, I do agree that traditional retail is due to be disrupted. In this article, I attempt to break down the inefficiency in the traditional retail supply chain in order to demonstrate how technology exploits will eventually lead to a major disruption of the industry. 

The Retail Supply Chain & It’s Inefficiencies

imageProducts moving through the retail supply chain are usually marked up 2 to 3 times before eventually reaching customers. Retailers order in bulk in order to receive discounted prices before marking up to retail prices. Even brands that sell exclusively online maintain this model of outsourcing, selling to other online retailers despite the inefficiency in this model. This inefficiency results in reducing consumer surplus and it isolates a product from its producer, thereby hurting the brand.

Efficient Pricing with Technology
Ecommerce innovators are constantly producing fundamentally better and more efficient ways to sell products to customers. The ‘flash sales’ and ‘daily deals’ models have pioneered ways for consumers to purchase in groups, thereby allowing merchants to sell in volume directly to consumers. It can be said that these models are more efficient than the ‘retail supply chain’ model because the surplus can be transferred directly to consumers. As I illustrated in my previous article on fixed pricing, I strongly believe that innovation in this space will continue, especially in delivering new ways for consumers with similar interests to aggregate demand for specific products, while allowing brands to dynamically price their products.

What makes eCommerce Different
A few months ago, I watched a friend of mine scale Pinterest in search of ‘nice’ things. When she saw a nice jacket she wanted, it led her to a blog where a fashionista had written an article about the same jacket. Finally, her search led to a retailer who happened to be out of stock of the said jacket. There was no mention of the underlying brand, and therein lay the problem with the traditional retail supply chain, which unfortunately, brands have exported to eCommerce.

Social Mediums as the new Retail Channels
At any given moment, there are hundreds perhaps thousands of social conversations perpetuating across countless social mediums, over a brand’s products. The essence of social commerce and its promise is that consumers are more likely to make purchase decisions based on recommendations from people in their social networks or interest groups. Because of this, consumers are highly exposed to a brand’s products through third party mediums such as social networks, blogs, and even email. These social mediums represent what I call socially enabled retail channels, because with technology they can fulfill the primary function of traditional retail (geographic reach and proximity to customers) on a much larger scale and with much more efficiency.

image

The picture on the left is a pair of jeans by fashion brand J Brand and can be found on their site. To the right is the same pair of jeans worn by Kim Kardashian. While the picture on the left is a product picture, the ones on the right represent the thousands or perhaps millions of conversations around the same pair of jeans, lending social context to what would otherwise be a static unit of inventory. That is the essence of social commerce - leveraging social conversation to drive sales because consumers’ interests are derivatives of their friends’ interests or other people’s interests. The only thing currently standing between brands and their exploitation of these socially enabled retail channels is time. I believe eCommerce innovation will eventually allow it.

The Social Commerce Supply Chain

imageIn the above chart, I posit the ideal social commerce supply chain in which consumers are actors as opposed to reactors. The traditional retail supply chain focuses on brands pushing products onto consumers in the hopes of creating demand (consumer reaction). The ideal eCommerce innovation will enable the consumer market to pull demand from various social mediums so that brands can react in time to meet demand and fulfill it. This process would require the elimination of intermediaries such as wholesalers and distributors because it necessitates a direct consumer-brand relationship. It is a more efficient process for brands because they can produce exact quantities demanded instead of the usual arbitration of projecting demand.

Brand Management
In order to build a sustainable business, the lean start-up model postulates that the science behind company building is the ‘Build »> Measure »> Learn’ feedback loop, where you’re initial product is a hypothesis that is live-tested in the market with various metrics, allowing you to learn about your potential customers and the market. I believe that these theories should apply to consumer product development which requires that a brand have absolute control over every aspect of their product’s supply chain in order to measure their customer’s every point of interaction with the product. This would allow brands to collect invaluable information that would lead to the creation of improved products that meet their customers’ expectations. This theory requires a perpetual relationship between brands and their customers, which can only be achieved with the social commerce supply chain, and therefore cannot be outsourced to retailers and other intermediaries. This consumer-brand relationship is what will eventually lead to a major disruption of the retail industry.

SocialCommerce Shopping Startups Brands SocialMedia Retail

The Problem with Shopping: Fixed Pricing

I believe that the ideal marketplace is one that incorporates a ‘Name Your Own Price (NYOP) mechanism in order to deliver the ideal online shopping experience to consumers. Fixed pricing presents many challenges and trade-offs for brands. For any given product, there are two sets of customers that exist: those customers who would purchase a product at a lower price, and those who are willing to pay more for the same product. In both cases brands are losing out on potential sales revenue. 

How Brands could benefit from NYOP 
Dynamic Pricing by way of NYOP presents a way in which brands could capture the purchase intentions of consumers. Psychologically , given the ability to NYOP consumers would be driven to showcase their purchase intentions for every product they desire, regardless of whether it leads to acquisition or not. The trade-off brands currently face from fixed pricing is that the only way of knowing the demand for their product is from actual sales. This is a result of purchases from those consumers who desire the product and are able to afford it, however, the potential to maximize sales not only rests in the hands of those consumers who acquired the product but would have willingly done so at a much higher price, but it also rests in the hands of those consumers who desired the product but were unwilling to purchase at the brand’s given price. 

The Ideal NYOP Mechanism 
The recent economic downtown brought with it a series of innovative new eCommerce business models from flash sales, to daily deals all focused on highly discounting products and services in order to create demand. These business models allowed brands to sell products fast and in large volume, but sooner or later it proved to be unsustainable for many. On one hand, brands get to sell a lot of their inventory; however, on the other hand, these business models focus on liquidation of excess inventory. The result is that brands face a trade off between volume selling and profit maximization. Consequently, the ideal NYOP mechanism is one that allows a brand to acquire customers, liquidate excess inventory and or increase inventory turnover, and maximize their profit while delivering products to their customers at a price they are willing to pay. 

                        Hypothetical uses of NYOP for brands 

A small new brand looking for customers 
Consider a small brand that’s relatively new and has no customers. Their focus would be on customer acquisition in order to increase both their mailing list and  brand recognition. By offering NYOP pricing, they would generate  excitement among potential customers because price would no longer be a barrier, and this would build social conversations around their product, which would go viral across all social networks. 

brand looking to increase inventory turnover 
Given the ability to NYOP, customers would generally opt for a price lower than that stated by the brand(if one is stated). For a brand looking to increase the speed at which they sell their products, the buzz and excitement around NYOP would increase the demand for their product allowing for much faster sales. With NYOP, a brand could potentially sell its products at a fraction of the time that they ordinarily would. Even if a brand were to end up selling their product at a discount, they would make up for the loss through the faster turnover rates depending on how quickly they can meet the new and much higher demand. 

brand looking to maximize profit 
Last year NIKE released the Air Yeezy 2 Kanye West’s ego infused line of sneakers - at a retail price of $245. Because NIKE only produced a limited quantity of the shoes (apparently only 3,000-5,000 pairs), demand was obviously high. The shoes resell value averaged around $2,750 with the highest bid ending at $90,000. In the same year, NIKE caused uproar by suggesting a $315 price for their Lebron X line of sneakers, which was a $135 increase for a line of sneakers that retailed at $170 in the previous year. 

The demand around these shoe releases would make any company seek to maximize profit by increasing price, even while frowned upon by consumers. With a dynamic pricing platform utilizing NYOP pricing, in theory NIKE could have maximized its profits and reduced the pricing criticism that ensued since after all, the consumer would have had the ability to name their own price. Although again, hypothetically this would have further widened the gap between those consumers that were willing to pay any price no matter how high, and those consumers who would have paid only the stated price, thus taking the shoes out of the reach of many consumers. However, that would be more of a marketing problem than a pricing issue. 

For Consumers, This is a Great new Experience 
NYOP creates a great new shopping experience for consumers because they are intrinsically empowered with the ability to acquire products at a price they are able and willing to pay. This gives them the sudden impulse to attempt to acquire anything they desire because price is no longer a barrier, which puts everything potentially within their reach. NYOP would compel consumers to make impulse purchases due to its frictionless nature and they would gladly share their experience within their social networks, igniting social conversations on their new found purchasing power 

Name Your Own Price’ + Supply and Demand + Great Marketing + an Empowered Consumer = UNLIMITED POTENTIAL 

SocialCommerce Shopping Startups Brands

The Problem with Shopping: Friction

PRODUCT SEARCH
If a given customer just so happened to love 100 different brands, they would have to find their way to 100 different websites through search engines. Once there, chances are they would have to create 100 different accounts containing their credit card and fulfillment details - This is obviously not a great user experience.

The solution that has prevailed over the years has been the marketplace model. Marketplaces seek to connect buyers and sellers in a single medium. By consolidating as many brands as possible onto a single medium, critical mass is attracted which drives sales to brands while simultaneously decreasing a lot of friction found in product search on the consumer end. Obviously the key players in this space are Ebay and Amazon. The former operates more as a peer-to-peer marketplace facilitating transactions between buyers and sellers while holding no inventory whereas Amazon combines elements of both peer-to-peer aswell as a gigantic retailer with multiple fulfilment centers and an unmatched logistical operation wing.

While they are great at what they do, they are unfit for the seismic shift that has been happening with the advent of social commerce which is the consumer shift from product search to product discovery. Amazon and Ebay cater to the consumer state of mind of “I know precisely what I’m looking for” whereas increasingly consumers are out to make impulsive purchases because they want something but don’t know exactly what it is. 

Several startup models seek to mitigate this problem through social curation and developing what has come to be known as the Interest Graph (In the same way Facebook’s Social Graph centers around you and your social connections, the Interest Graph connects people based on shared interests). Pinterest allows users to curate images of the things they find interesting from around the web whereas Wanelo focuses on products.

CONSUMER BRAND RELATIONSHIP
The multitude of middle-men in commerce (retailers, distributors etc.) results in a lot of inefficiencies. While Social Commerce seeks to leverage an individual’s social graph to drive conversation around a given product in the hopes of generating sales, Brands cede a lot of that potential when they outsource their products to middle-men. There is then an inherit lack of connection/intimate consumer brand relationship to help a brand release a product that better mirror’s what it’s customer base wants.

This is evident whenever a consumer completes a transaction in a marketplace setting such as Amazon, rarely is there any connection made with the underlying brand behind the product.

image

View High Resolution

Kickstarter I believe comes closest in providing a solution model for this problem. Every project on Kickstarter is by the original maker. Customers feel a deep connection with the brand and product because they are involved from conception to distribution with their collective input holding a lot of leverage especially since the product cannot exist without their funding. Because of this conversations organically build around said product onto social and interest graphs leading to more exposure. This model shows the power of an effective Consumer-Brand relationship so much so that of the 68,929 backers of the Pebble smart watch, 2615 pledged an amount that yielded no economic value in return.

image

I will provide further ideas on this problem when i discuss fixed pricing in my next article.

eCommerce Startups SocialCommerce Shopping Brands

The Pull Factor Value Hypothesis

I have a theory that successful business model’s are those whose success can be attributed to a single decisive "Pull Factor". The 'Pull Factor' is an overwhelming value proposition that empowers customers and coerces their interest and engagement. It can be a tangible feat of engineering (such as Instagram’s filters) or an intangible consequence of causality (i.e. all your friends are on Facebook).

At the outset this sounds like the very definition of competitive advantage. While I view competitive advantage as a firm’s grasp of resources and abilities unique to itself allowing it to leverage (or Push) its core value proposition to the broader market, The Pull Factor IS the value proposition in itself and the degree to which it leverages itself to Pull the interest and engagement of customers.

I will explain this concept within the context of 3 widely successful business models (Facebook, Twitter & Instagram). Where for the purposes of this article, a Business Model is defined as the means with which an organization creates, delivers and captures value (Paying no attention to revenue; Instagram has none).     

         image       image

  • Facebook - I first joined Facebook in 2008 not out of any interest for the        platform itself but due to the coercive force that was the presence of all my friends engaging in social networking on the platform.
  • Twitter - I was pulled onto twitter as a result of the 2009 Iranian uprisings following the allegedly rigged election. Because of my interest in Middle Eastern geopolitics and at a volatile time when media censorship ran high, the idea of being able to get a first hand account of transpiring events live from the revolutionaries themselves in the form of thousand of tweets per second was so coercive and transcending an interest-value proposition that the U.S. State department intervened in stopping a scheduled twitter maintenance that would have shut down the service at a crucial time.
  • Instagram I still don’t have Instagram (stuck with a BlackBerry), but the Pull Factor is all too conspicuous. Instagram’s filters empower anyone with the ability to capture photography rivalling professionals while coupled with an unmatched photo-sharing experience.

Immediately there is a correlating theme among the three. They all purpose to intrinsic empowerment of the human physche as opposed to appealing to materialistic want. By empowering people to consolidate all their friendships onto a single platform, have access to the pulse of every human conversation and turn ordinary photos into extraordinary pieces of art, these Pull factors act as enablers in achieving even greater things. Instagram for instances utilizes their filters to enable the best photo sharing experience on the planet while twitter eliminates countless information barriers that used to exist between the far away and elite in society (celebrities, public officials, people on the other side of the world) with the common man. 

The VRIO framework lays out 4 criteria an organization must possess to create a sustainable competitive advantage. Value, Rarity, Inimitability and the Organizations ability to exploit its resources and capability. Judging from the framework, Facebook, Instagram and twitter only possess two of those attributes from my perspective. Their Pull factors are indeed valuable and their respective organizations possess the capital resources and technical prowess necessary to further exploit the value they deliver.

Yet with Social media I find that nothing is truly rare. All you’re friends are on Facebook sure but chances are they are also on twitter and Instagram. Almost everything is technically imitable. Twitter for instance is adding an Instagram-like filters feature to its photo sharing service. So What’s the big deal? Infact from my perspective, these 3 organizations vertically disrupt each other (Or twitter disrupts FB’s Status Updates and Instagram disrupts Facebook & twitter’s weak Photo sharing experience). Here’s a graphic I created to show what I see: View High Resolution

imageYet they still maintain unique identities why? Because Pull factors are not competitive advantages, they are enablers in delivering different forms of empowerment, value and user experience.

Business Models Startups Social Media