Category Archives: Sales

False Economies – if it’s cheap, there must be a reason!

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When I was 7 or 8 years old, I asked my parents to buy me a specific brand of toy as a birthday or Christmas present. With the best of intentions, they chose instead a close approximation of the real thing – presumably because it was cheaper, and to them it was exactly the same. Of course, being cheaper, it was badly designed, poorly made, and was nothing like the toy I had asked for. From memory, it only lasted only a few months before falling apart.

This was my first lesson in false economies – cheap and cheerful can quickly become cheap and nasty, rather like some cheaper brands of peanut butter, which are bulked out with sugar, oils, fats and other additives (instead of containing 100% peanuts).

Many years ago I had some shirts made in Shenzhen, because they seemed like a bargain. Sadly, another false economy – after I got them home, I realised the cut was all wrong, and I’m sure they had substituted a cheaper fabric to the one I had chosen. They were unwearable. On the other hand, some jackets I had made in Hong Kong lasted nearly twenty years, because I had paid a bit more to go to an established tailor.

I’m not saying that more expensive branded goods and so-called luxury items are always “better” – but as a general rule, when doing like-for-like comparisons, you get what you pay for. When an item costs more to buy, it invariably lasts longer because of the materials used, the better design, the superior manufacturing and the overall higher quality.

I appreciate that in the current economic environment, consumers are even more cost conscious, and are looking for value for money, if not actual bargains. But just because something is cheap, doesn’t mean it’s the better option. Look at the true cost of fast fashion, fast food, fast money…

Next week: The Law of Diminishing Returns….

Crypto House Auction

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Earlier this month, through my work with Brave New Coin, I was lucky enough to attend the first live property auction to be conducted in cryptocurrency. Although the property was passed in on the day, the event generated enough interest and PR value that it will surely be only a matter of time before more large ticket assets are transacted in this way.

Image sourced from LJ Hooker

Let’s not forget that it’s nearly 9 years since Laszlo Hanyecz paid 10,000 BTC for two pizzas (then valued at about US$41).

Although we may not yet be paying for our morning espresso with Bitcoin, a growing number of merchants are enabling customers to pay for goods and services with crypto, via payment platforms and intermediaries such as Living Room of Satoshi, and TravelbyBit. And services such as Coin Loft and CoinJar make it easier to buy and sell the most popular cryptocurrencies without having to set up accounts on multiple exchanges.

Meanwhile, the house in Casuarina, on the northern coast of New South Wales, was passed in at 457 BTC (A$3.4m). The property was listed by LJ Hooker, and the auction was facilitated by TrigonX and Nuyen, while Brave New Coin supplied real-time market data convert the crypto bids to Australian dollars.

Next week: Demo Day #1 – Startupbootcamp

 

Startup VIC’s Retail & E-Commerce Pitch Night

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As with the same event last year, this pitch night was again hosted at the Kensington Clik Collective. Going by the audience numbers, the retail tech and e-commerce start-up sector continues to generate widespread interest, despite (or because of?) the fragile state of most bricks and mortar retailing in Australia, and the onslaught of global online shopping from the likes of Amazon and eBay.

The four pitches in order of presentation were:

barQode

According to the founder, it all started with a scarf… and how he might have paid more for the item at the time he wanted it (but less than the retail price), compared to the eventual discount price a few months later. If only he had been able to bargain on the spot. Enter barQode – a location-specific app that enables customers to make an offer on an in-store item, and retailers to match or counter the customer offer.

To be clear, this is not (yet) a price comparison tool or even an on-line platform – it’s an app aimed at specific, location-defined, in-store purchases.

While simple in concept, the app does require a huge behaviour change by shoppers. Australians are infamous for being “price sensitive” buyers (not the same as being “cheap”, as one retail consultant once corrected me). Cost plays a huge role in purchasing decisions, especially as choice is often limited in a sector dominated by an oligopoly of brands, and a traditionally restricted market in terms of parallel imports and geo-blocking.

But barQode requires Australians to get comfortable with the notion of haggling, and that is quite a culture shift. Yes, some retail brands offer price matching against their competitors, but as this pitch pointed out, this is all about in-store purchases and prompting a more emotional engagement.

Most of the questions from the panel of judges focused on the competition, customer acquisition and market entry. Using a combination of platform fees and analytics services, barQode claims to be cheaper than the competing platforms, which also risk dis-intermediating retailers from their direct customers. Costs of acquisition were not disclosed, since the app is only in very select beta. The founders appear to be targeting discount retailers rather than selecting a specific category launch. This raises the prospect of only attracting bargain hunters who are already tempted by stock clearance offers (a race to the bottom?) – rather than engaging with select brands who can afford to yield some margin while potentially securing a new customer base.

The team claim to have a patent pending (they are working on image recognition, rather than simply relying on bar codes and other inventory data), and is seeking $350k in seed funding prior to a $1.5m Series A.

Epic Catch

Under the banner, “The social collective – date differently”, Epic Catch claims to be fostering organic connections via shared experiences for singles.

I have seen this start-up pitch couple of times before, where the initial emphasis was on being a new kind of dating service. But now, presumably with more experience and more market research, it claims to be addressing the “loneliness epidemic” – despite all the so-called “connections” people have via social media (and given recent events at Facebook, how much longer will that particular trend run?)  there is actually less and less personal engagement in the world.

According to data cited by the founders, in Australia, 35% of households consist of single people, a figure expected to reach 60% by 2036. At the same time, single people (neither age nor other demographics were defined) each spend an average of $12,000 a year on social activities. (It would have been interesting to see a breakdown of this spending pattern by consumer category, season, age, gender and location?)

The business model relies on a mix of subscriptions, commissions and affiliate fees, via a business partner model, member fees and booking fees. The founders are looking to raise $1.5m, primarily to fund marketing costs, as customer acquisition has mostly been organic, word of mouth, and SEO. To help them on their journey, the founders have appointed a solid advisory board, in their quest to counter the “fast food culture of dating and matching apps”.

Winery Lane

Winery Lane is a curated online market place, servicing independent wineries. Currently engaged on an equity crowd funding program (to raise $900k in return for 18% equity), the founders suggest that the $7.5b wine industry suffers from too many brands. A few large names dominate the market (by supply and by retail consumption), and a long-tail of boutique and specialist wine makers struggle for recognition (even though they often have a superior product). The biggest challenge is: producers can’t control the end distribution, especially small producers.

Winery Land has identified three core personas of wine lovers: geek, aspirational, and seeker. Their goal is to connect independent wine makers with this target audience, by removing the risk for sellers – through enabling them to share their wine-making narratives, and only charging a success-based commission on sales.

The business model is to target 50-60 independent wineries, and charge a 30% sales commission, while offering a 20% discount to customers on 12 or more bottles.

Asked by the panel (which included a representative from Vinomofo) about potential competitor Naked Wine, the founders claim they operate in different segments – in particular, their focus on selling genuine wines (and not running private labels).

Behind the platform is a data acquisition component – by “pooling” their mailing lists, participating wine makers can actually reach a larger (pre-qualified) audience. The judges felt that marketplace models for wine are still to be proven, and wine makers are naturally very protective of their customer lists, to whom they can usually pre-sell their normally small vintages.

[As a piece of random market research, the next day I spoke to one wine-seller representing a boutique producer at a pop-up market in the lobby of a CBD office building. He claimed that by participating in a growing number of these pop-up markets around Melbourne over the past 12 months, he had increased the size of their customer list 10-fold. When I asked whether his sales and marketing strategy included using platforms such as Naked Wine, his opinion was these services were often more like marketing software. They may also require producers to discount too heavily, that they resemble something of a bulk distribution model, and that it was akin to a “pay to publish” model for wine makers – based on the cost of getting stock on to the inventory. And while it isn’t perfect, MailChimp was good enough tool for building, engaging with and growing their customer lists.]

Postie

This SME marketing platform highlights a major paradox:  small brands engage better than big brands, but social media and e-mail engagement are both declining.

Using Instagram-based campaigns, Postie has doubled average campaign engagement to around 42%, and tripled typical click-thru rates to 6%. Postie has also reduced the time to create a campaign from 5 hours to 8 minutes.

While there is some template flexibility, there are limited options, as Postie draws on the Instagram design aesthetic.

According to the founders, there are 15 million brands on MailChimp, and 8 million brands on Instagram. What makes Postie different is that it owns its e-mail campaign client, and brands get to control their own retail inventory management.

Despite some of the challenges in SaaS marketing solutions, Postie has seen success with some specific verticals such as hairdressing, but admits that is hasn’t quite got the right product-market fit. As a result, and as a means to scale growth, Postie is starting to train users, to become more of a self-serve solution.

Somewhat surprisingly, the judges voted Epic Catch the winning pitch – I guess it is hard to ignore the founder passion, and the decision to pivot away from being a “traditional” dating platform. Meanwhile, the people’s choice (based on Twitter votes) was for Postie, and by a large margin – I suspect because many start-up founders, entrepreneurs and SME owners in the audience would welcome such a service for their own business.

Next week: The fate of the over 50s….

Building a Global/Local Platform with Etsy

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In a recent and very informative fireside chat, Linda Kozlowski, COO of Etsy was in conversation with Sarah Moran, CEO of Girl Geek Academy. Key themes of the discussion included the challenges in building a “global/local” platform, making sure you are addressing the right audience needs, and in a two-sided market place, knowing how to balance the interests of sellers and buyers.

etsyOrganised by StartupVic and hosted by inspire9, it was yet another example of how fortunate Melbourne is to attract and host so many leading global figures in the startup world, willing to share their insights (as well as learn more about the local startup scene – which probably does not get as big a rap as it should, especially in mainstream media).

With previous operational roles at both Alibaba and Evernote, Linda brings a strong combination of experience in tech and market places, and describes her current position as covering “CX and revenue from end-to-end”. Her primary focus is on product development, global expansion and addressing sellers’ problems.

At Etsy, the aim is to develop a global product platform that is culturally diverse. There is a natural tension between fully localised customisation (which can be costly to maintain – translation, version control, managing updates), and a “best of breed” model that can serve most users (which can lead to too many compromises). So instead, Etsy pursues a strategy of locally originated products and features, combined with open APIs.

Etsy has also identified sellers as their core audience. This means that so much of the CX is actually determined by sellers’ needs, to whom Etsy then serves up customers to the platform via social media, content marketing and SOE. Etsy sees this as a point of differentiation when considering traditional retailers who often end up squeezing their suppliers on pricing and margins.

In balancing the needs of two-sided markets, again Etsy focuses on the seller first – because buyers want to see depth of inventory and a range of quality products, so get sellers on-board and the buyers will come.

Asked how Etsy avoids buyers going direct to suppliers, Ms Kozlowski commented that it all really depends on where transactions happen: make the CX is so sticky that sellers want to stay on the platform, offer great seller features, and bring in quality buyers. On the other hand, it’s a healthy market place, so there is no mandating or exclusivity – because of course, successful sellers will sell in multiple places.

Etsy believes in investing in the right technology and the right marketing at the same time. For example, although the business was started in 2004, Etsy only began brand marketing in 2016. The types of marketing deployed include storytelling, identifying key differentiators, understanding customer influences, extensive content strategy, plus performance marketing (site traffic, SEO) to see what else customers may be looking for. According to Ms Kozlowski, a retail site should spend about 20-30% of revenue on marketing, otherwise you are buying traffic and customers (red flag to investors!) Alternatively, establish some ROI goals for marketing costs, especially performance marketing, and during the startup phase (up to 1 year) begin with 15-20% of revenue.

At the heart of Etsy’s business model is an evolving technology and e-commerce platform that allows micro-businesses to run at scale. The USP is a community of network effects: 1.7m sellers, 27m buyers, 40m products, 12,000 “teams”, whose “captains” recruit other sellers. (Australia is actually in Etsy’s Top 5 markets.) In addition, Etsy aims to act with integrity in respect to dispute resolution and addressing fraud – they use machine learning to detect rogue sellers (although often, buyer disputes are a reflection of seller inexperience, rather than fraudulent behaviour). Etsy also offers training and support to resolve disputes, and the community is very good at policing itself.

What are some of the unexpected challenges of market places? When it comes to distinguishing between commodity items and unique creative products, technology will under-price and displace commodity goods that are easily made. It’s also important to build human-to-human connections, and to have a global perspective – for reasons of quality and diversity, and not self-limiting your business, especially when it comes to managing different market and economic cycles. Remember to “follow the data”, and anticipate demand and trends. Among some of the technology challenges, dealing with different devices in different countries can be an issue.

In conclusion, Ms Kozlowski offered some advice for anyone thinking of launching a market place:

First, consider why there are very few local e-commerce markets in Australia (from my personal perspective it’s a complex mix of retailers getting burned in the dotcom boom/bust, cosy market duopolies, and perpetual geo-blocking…). But let’s not forget that Alibaba has just opened its Australian & New Zealand HQ in Melbourne, likely to ruffle a few feathers in the retail sector.

Second, embrace a local/global mix (for the reasons mentioned above)

Third, don’t price too low (although Australia is notorious for being a “price-sensitive” market…).

Finally, the conversation ended with a tantalising glimpse of “the future consumer” (Gen Z) where makers connect directly with buyers.

Next week: Spaceship launches the future of superannuation