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How to achieve scale amid fragmented consumer communities
Welcome to the Sociology of Business. The Sociology of Business offers a paid membership program, for the members of this community who want to be the first to access everything from sociological explorations to the Web3 brand-building to the new business models and emerging creative formats. Since its inception, the Sociology of Business has been the source code for many other analyses, strategies and brand-building approaches. Members will now have the front-row seat. If you are not yet subscribed, join the community by subscribing below and joining the Sociology of Business Discord. You can find my book, The Business of Aspiration on Amazon and you can find me on Instagram and Twitter. For those new here, in my last analysis, Web3 Strategies for Brands, I shared the three scenarios for integration of the new Web3 technology into the brands’ current production, distribution, marketing and sales.
The only thing humans have in common is our uniqueness. This belief led marketers to overemphasize consumer psychographics. For example, my sister-in-law lives in an affluent suburb of Chicago. She owns a piece of Away luggage and gets newsletters from Everlane. On the surface, she is a HENRY, but in reality, she is a middle-aged married mother of three who now has both brands because they relentlessly pursued her through direct mail discounts until she finally gave in. People buy same things for wildly different reasons: there’s a discount, they are in different moods at different times, other people have this same thing. Psychographics also ignore the fact that people are social creatures that are susceptible to social pressures and influences. We may watch a show not because we like it but because our friends are watching it, and so that we discuss it with them. We drink flax milk not because we like it or are environmentally conscious, but because we want to send social signals of being enlightened. Regardless of this behavioral tendency, marketers love to assign every consumer choice with meaning. (A lot of unnecessary innovations came out of it, like a robot bartender or a new Coke).
Instead of focusing on individuals, there’s a collective dimension of consumer behavior. Political scientist Benedict Anderson coined a term “imagined community” to describe horizontal bonds between people who haven’t met and don’t know each other, but have similar affinities, beliefs, interests and attitudes. Social media platforms like TikTok or streaming platforms like Netflix or Spotify create a sense of community, where streaming the same music or entertainment creates a temporary bond among strangers.
These temporary bonds reshape the geography of influence, taste, and communities towards micro. The big, sweeping planes of culture that asked for big, sweeping products and personalities are replaced with many micro cultures, each with their own niche products and personalities. Our concepts of “cool” and “iconic” are forged in the intimacy of our own taste communities.
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There are several scenarios for brands can capitalize on these taste communities. These scenarios all revolve around some form of membership, aimed at overcoming decline of the traditional loyalty programs and growing privacy considerations. This new membership paradigm is based on first-party data collection and creation of a complete customer profile - a single consolidated customer view - connected to a unique ID, across data sources and channels.
This is how it works:
Start small and create building blocks. There’s a famous anecdote about David Brailsford, coach of British cycling team, Team Sky. Team Sky has not won a single major cycling tournament since 1966. Far from discouraged, Brailsford approached the task by breaking down every single thing he could think of that goes into riding a bike and then improved it by one percent. The nutrition of riders, the pillows that cyclists slept on, the gel they used for their massages, the ergonomics of a bike seat, the weight of tires: Brailsford improved it all, just by a tiny bit. By putting all those 1% margins together, or by "aggregating marginal gains,” Brailsford ended up with a remarkable improvement. Today, there are independent bookstores, niche magazines, impossible-to-get-in clubs, private communication apps, “Close Friends” sharing on social media and rise of localized neighborhood outposts of national chains (IKEA has a local store in Paris, as does Target in NYC). All of them are the opposite of the “bigger is better” model. We seem to want to shop, entertain, and socialize in the same way we did 100 years ago, before mass media. For modern brands, the winning strategy is to start small, and continue focused. Apple underwent product transformation shortly after Steve Jobs returned to the company in 1997. Jobs called a meeting and asked his employees, “You know what’s wrong with this company? The products suck. There’s no sex in them anymore.” This meeting is rumored to have inspired the invention of the iMac, and Apple’s return to profitability. iMac is today one of Apple’s building blocks. Every brand, no matter what products it sells, should create building blocks. Even fast-food restaurants have signature products. McDonald’s has the Big Mac, McNuggets and fries. It wasn’t always so. In the early 2010s, McDonalds struggled because it attempted to expand its menu to appeal to a larger audience. In 2015, McDonald’s cut its menu offering and focused on price and quality. Since its focus on core products, McDonald’s market value has nearly doubled.
Grow through the niches. Consumers are not a monolithic group. They are an aggregate of subgroups and niches. Our job is to define these subgroups, and personalize the look, feel, tone of voice, and membership benefits for them. Netflix is already doing it: the Netflix brand isn’t shows, it’s personalization. This positioning allows Netflix to create a global market made out of micro-communities with their niche tastes. This approach allows Netflix to grow a brand distinction as it scales, and to avoid the reverse network effects as it grows. Everyone has their own version of the brand. Zalando, a global apparel platform, is doing something similar, with hyper-personalization of its landing pages, promos, and merchandise, so each customer sees a slightly different version of the interface. Streetwear brand Supreme also mastered the art of distinction through drops and collaborations, with a large part of its audience owning unique brand products and limiting the number of people who own the exactly same thing. In the traditional economy, brands did the opposite. In order to grow and scale, they had to appeal to as many people as possible, and to cater to as mass and generic taste as possible. Today’s brands grow through a clear aesthetic combined with the product and service personalization. Bored Ape Yacht Club has a clear brand aesthetic: 1980s hardcore, punk rock, and nineties hip hop. This aesthetic allows Bored Ape Yacht Club to sell a lot of items without diluting their symbolic value.
Create many doors in. Netflix’s taste clusters divide the platform’s hundreds of millions of global viewers into 2000 groups based on people’s movie and TV show preferences. At the same time, Netflix content is extensively tagged. Based on these tags and their connections, content is divided into micro-genres. Micro communities and micro genres are then matched up. The Yes, a fashion marketplace, is built on extensive product taxonomy. The algorithm translates shoppers’ preferences into a personalized feed. Shein, a global fast fashion retailer, offers each customer a scrollable feed of products powered by a real-time recommendation algorithm, informed by multiple data points across social media. Zalando relies on cloud computing to process in real time customer data collected across channels, in order to match customers with products right for them. But Zalando and Netflix personalize more than movie recommendations. Zalando is doing something similar, with personalization of landing pages, promos, and merchandise, so each customer sees a slightly different version of the interface. Netflix personalizes promo images for their shows and movies. This hyper-personalization is applicable to packaging, email, social. The more diverse creative execution is, and the more it emphasizes different aspects of the product, service, or brand, the wider the potential audience will be and the chances of conversion will be higher.
Consumers as co-owners. Looking ahead, taste communities evolve into group buying and shared ownership. Group buying refers to a number of consumers purchasing an item together at a discount, as pioneered by Chinese retailer Pinduoduo. In the US, versions include buying concert or event tickets together with Fevo or Pacasa, which offers fractionalized ownership of second homes. There is a number of group buying scenarios for premium and luxury brands, where buyers become asset investors or item co-owners. In the co-ownership scenario, an item like a handbag or a piece of jewelry can be rotated among the members of the group or treated like an investment asset to be later resold at a profit. At scale, a distributed ownership platform might look like Friends with Benefits, a self-described “headless media community lifestyle brand” network, in which members have different levels of access and governing power depending how many tokens they’ve earned or bought on the collectively owned platform. Telfar, a fashion brand, is already doing a version of the consumers-as-investors model. Its Bag Security Program ensures that everyone can get a bag (waiting only makes it more desirable, and owning it more rewarding), without resale markups. Bag Security Program also ensures that Telfar can manage its production in a profitable way, giving the brand independence: “Last year we messed up the fashion industry and the bots with the Bag Security Program - letting you get what you want, without the stress - and keeping Telfar Black Owned and 100% independent. You are our investors - and together we are making history again.” Restocks and shipments are regularly announced to the community on Telfar’s Instagram account and Telfar TV. It’s a DAO, but simple.