No. 294: Brands must hack culture

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NEW YORK — In just a few short years, Fab went from a $1 billion valuation to a $15 million fire sale.

Across eCommerce, success is more unpredictable than ever. When it comes to culture-driven products, things that worked in the past often do not work in the future – the sheer number of Avengers sequels notwithstanding. But despite the inherent unpredictability of our tastes and the complex way they interact, venture capital still places a heavy bet on pattern recognition. These patterns: be it a proprietary product, low-cost customer acquisition tactics, or the ability to reach scale fast – are hardly reliable predictors of success.

For example, Harry’s proprietary product is manufactured in its German factory. Insourcing manufacturing was a great initial way to differentiate their razors from Gillette’s low-quality but expensive razors. But, superior product quality has since become table stakes in the shaving market, with a number of startups all offering the same key features. Five years and $375 million venture dollars later, Harry’s has only 5% market share in the traditional retail sales market. It is a distant third in the online manual shave market. Not until Target provided its massive distribution muscle, did Harry’s growth begin to tilt upwards. To stay competitive in this mass market, Harry’s now needs to worry about the shelf space and brand marketing – just like the incumbent. 

Dollar Shave Club, with 21% of the online market share, was not profitable when Unilever bought it in 2016. Its media-beloved Youtube ad was viewed more than 25 million times since 2012. Social media was responsible for Dollar Shave Club’s awareness but that form of media also undid its staying power. The main lesson: awareness doesn’t equal conversion and fast user growth doesn’t mean profitability.

To hack growth, startups have to – first – hack culture.

In addition to the usual signals, venture capitalists should look into whether or not a company has roots in trend or subculture. A subculture is made up of people who are more informed and passionate about a topic than anyone else. They are likely to be beta-testers, source material, and advocates for a new product or service. Cycling brand Rapha started from cycling obsessives. Apparel brand Patagonia started from the subculture of social responsibility. A deep subculture entrenchment ensures that a company can maintain and enhance its difference as it scales. Long-term defensibility has more to do with whether a company can believably connect with a community through the shared things. This takes precedence over a proprietary product or its acquisition channels.

Success also has to do with what Japanese call kuuki wo yomu or, reading the atmosphere. In the October 2013 article titled Yes, Real Men Drink Beer and Use Skin Moisturizer, Bloomberg magazine quotes Mintel’s data on the 5-year rise in the global sales of personal-care merchandise geared to men. Harry’s was founded earlier that year, Dollar Shave Club two years prior. Both of them capitalized on the shift in the culture of modern masculinity, but neither of them invented it.

The shift was already happening. As sociologist Duncan Watts notes in his research on social influence: if a society is ready to embrace a trend, almost anyone can start one. But if it isn’t then almost no one can. The success of Harry’s or Dollar Shave Club didn’t have to do much with a spiffy video or on the German factory-produced razors. It had more to do with how susceptible men already were to the idea of grooming and how easily persuaded they were to invest in it.

Social influence is often mistaken for disruption.

The dynamics of how trends spread are shifting from (1) brands, media, and retailers pushing ideas to (2) mass market exploitation to the (3) networks of niches and taste communities. Both startups and VCs have to consider social processes that ultimately define success of their inventions.

In addition to engineering products and services, startups then need to engineer social influence in their market. The fastest way is to piggyback on the already existing social influence, and amplify it through go-to-market strategy that emphasizes social activity among a company’s initial following. This social activity then serves an ad for a product or service aimed at the mass audience. Luggage brand Away’s initial community of travelers – and their stories – became an ad for its products; rides of the Rapha’s Cycling Clubs are the ad for Rapha’s gear.

Social activity in a market accumulates social capital. How a social currency is going to be created and exchanged is the inherent part of business plan. It’s a business’ core value unit. And whether a company has the potential to build and trade in social currency should become part of venture capitalist’s evaluative criteria. Beauty brand Glossier’s currency is beauty preferences of its fans. Glossier’s currency is so strong that this brand is now creating the entire marketplace around it. Social currency builds scale, defensibility, and network effects.

To prevent social currency from being devalued due to the reverse network effects, companies need to maintain and grow their distinction as they scale. The best way to do this is through product and service diversification. A brand is an umbrella for a portfolio of unique products. Streetwear brand Supreme mastered the art of distinction, with a large part of its audience owning unique brand products. Product diversification increases the number of bets, reduces risk, preserves social currency, and organizes a company around the inherent unpredictability of people’s tastes.

The ultimate irony of the popular disruption narratives is that they venerate a deeply anti-social attitude. They celebrate an outsider and a renegade who “moves fast and breaks things.” But without social influence that creates the susceptible mood and allows the new products, services, and ideas to spread, there is no “disruption.” Instead of applauding the world’s outliers, we should direct our attention to the society that makes them thrive. There should be a sociologist among engineers.

Read the No. 294 curation here.

By Ana Andjelic| Edited by Web Smith.  About Ana: named to Forbes CMO Next list, Ana was most recently the Chief Brand Officer of Rebecca Minkoff. She has earned her doctorate degree in sociology and worked at the world’s top advertising agencies. She’s also a frequently published author, public speaker and writer. She lives in New York City.

Contributor: The 4C’s of Digital Branding

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Pictured: Ana Andjelic

NEW YORK — For every GOOP, there are many failed online retail ventures in the celebrity brand space. Do you remember Blake Lively’s Preserve

When it comes to online retail, success is more unpredictable than ever. This is because much of today’s commerce currency is derived from social influence: the undeniable effects that individuals have on strangers’ purchasing decisions. We almost never make decisions independently of one another. Faced with the abundance of choice, we rely on others to influence what to buy, read, wear or even how we are entertained. We also conform to the tastes of others, less out of actual merit. More so out of allegiance to that individual’s opinions. 

Consumers adopt a business because other people are already there.

Glossier did not succeed because of product alone. It succeeded because women wanted to enjoy the benefits of sharing their choices, preferences, and looks with like-minded consumers. For digital retailers, more often than not – a product, brand, or technology is the substance but not the reason behind the success. Consumers adopt a business because other people are already there. Kylie Cosmetics does not win on the merits of eCommerce alone; there are better storefronts on the web. But technology hardly ever deters her fans.

More than ever, success is then a matter of cumulative advantage. Something becomes popular mostly because a lot of people like it, not just because it is superior. And because a lot of people like what they think others like, community doesn’t just reveal our preferences. They actively shape our preferences.

The quest for the next GOOP or Glossier will remain elusive as long we fail to look beyond technology and towards the social activity as the source of an online retailer’s value. This social activity is an amalgam of what I call the 4C’s: community, content, curation, and collaboration. They critically impact how a company launches and markets its products and creates, captures, and delivers value for its customers.

Community: A retailer needs to encourage social connections among its customers. These social connections will become its primary source of value and a key driver of competitive advantage. Social connections work best when created around an audience’s pre-existing passion, hobby, or interest. High-design ride wear brand Rapha positions itself as a “vibrant ecosystem for road riders around the world.” Its belief that cycling transforms lives translates into the series of local Rapha Cycling Clubs, where cycling enthusiasts can gather for events, rides, races and to bond with others. Rapha is at risk of losing its positional advantage by ending many of these programs.

Content: Content created by a retailer generates value even before a single product purchase or use of service. California-based fashion apparel brand Dôen creates social network around its proprietary content. The brand prides itself on selling “thoughtfully designed clothing by women, for women.” This community of women is Dôen’s value proposition, and it consistently delivers through its product design, events, and Journal. There, Dôen profiles the extraordinary stories of community members and becomes a source of continued conversation.

Curation: A retailer’s new customers can lower the value for its existing customers. To prevent reverse network effects and maintain a high signal-to-noise ratio, retailers need strong curation and personalization. In order to ensure that its products and services are relevant and valuable to its best customers. For example: Adidas introduced Creators Club, a membership program that gives customers access to exclusive events, products, and special offers.

Collaboration: Ask what else your customers are wearing, reading, listening, experiencing, and talking about. Relevance of a retailer for its target group is greater if it is culturally amplified. IKEA’s collaboration with a streetwear brand Off-White aims at designing the affordable furniture collection for millennials to help them create their first home. More importantly, it reflects a broader taste for the aesthetic of their joint audience.

No one knows who the new GOOP is going to be. Instead of projecting the next success story, we can create one by making our technology inherently social. To increase the odds of creating a cumulative advantage once the product or service is in the market, retailers must build 4Cs into their core. In the complex and unpredictable world of online retail, designing for social influence is a brand’s best bet.

Read the No. 291 curation here.

By Ana Andjelic| Edited by Web Smith.  About Ana: most recently the Chief Brand Officer of Rebecca Minkoff, Ana has earned her doctorate degree in sociology and worked at the world’s top advertising agencies. She’s also a frequently published author, public speaker and writer. She lives in New York City. 

Member Brief No. 15: The Subscription Economy

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Subscription models are replacing legacy commerce models throughout the industry — from eCommerce to digital media to fashion retail and grocery — the benefits to this model have been welcomed by both businesses and consumers. Business has evolved into the subscription economy and adoption is only going to increase. One of the foremost issues in this new economy will not be acquisition (CPA), it will be retention (LTV).

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