Why brands should pay attention to collaborative consumption

The collaborative economy is hot. Uber is valued at $3.3 billion. Airbnb is worth $10 billion. Forbes claims that total revenues of collaborative economy sector exceeded $3.5 billion in 2013, with growth going upward of whooping 25 per cent. The Economist got so smitten that it proclaimed 2013 “The Year of Collaborative Consumption.” Mary Meeker, the queen of internet trends, decided that sharing economy was one of the trends for 2012. Some go as far as to predict that collaborative economy is potentially a $110 billion market.

In collaborative economy, built around sharing of human and physical assets, consumers are lauded as winners, monopolistic corporations and stale governments as losers. The reasoning goes, capitalism has finally moved away from private ownership to shared access. A combination of value-seeking, convenience, instant gratification, quality control and a less-mass, more unique experiences are taking consumers away from brands and toward each other.

The celebration of the ever-growing benefits of collaborative economy, however, often masks its shortcomings. Venture capitalists and entrepreneurs who are behind collaborative economy companies are maybe even the bigger winners than the consumers themselves, making significant profit by encouraging our own frugality. Uber’s and AirBnB’s untaxed revenue creates a dent in cities’ budgets, depraving them of income that they may have used for homeless shelters or public transportation. Collaborative economy doesn’t seem to be for those who may benefit from it the most, like economically disadvantaged citizens and neighbourhoods. Instead, it’ for convenience-seeking young affluents with high disposable income.

Collaborative economy distributes resources among those who have them in the first place, just like any other consumer-facing company. This doesn’t make it less scary for brands.

It’s hard for brands not to wonder if they’re going to become the next music industry.

“I think brands are desperately trying to figure out what works these days,” James Cooper, head of creative at Betaworks, says. “They know that traditional methods don’t work anymore so doing something collaborative is one of the things that they will try. I am not sure any of them strictly believe anything is going to work, but more will try it because they have to try something.”

Colin Nagy, executive director of Media at The Barbarian Group, a digital agency behind the famous Pepsi TaskRabbit “Extra Hour” campaign focuses on the business impact: “The sharing economy might cause established brands to re-evaluate their core business models, or potentially roll out new offerings or services.” Remi Carlioz, global head of consumer communications at PUMA, agrees, “I don’t think brands have a choice here,” he says. “It’s not about jumping on the bandwagon, as a marketing trick, it’s about asking yourself what value do you provide as a brand. It’s a different value.”

A different value is where digital technology can help brands. “The day I’ll be able to print my IKEA Billy bookshelf at home, or this missing screw without having to go to the store on a Sunday morning, maybe IKEA will be as relevant to me as yesterday, but in a different manner,” says Carlioz. “I feel like the value chain will actually change for the best, focusing among other things on intellectual property and consumer experience.”

Collaborative economy startups have value chains that optimise a marketplace. Uber created a flexible incentive system for drivers to go out on the road, which created much of public backlash, but actually very effectively solved the problem of supply-and-demand in the taxi cab marketplace.

“There is no reason that big brands can’t play in this world,” says Nagy. “It would be arrogant to think it is exclusively the domain of bootstrapped startups.” Indeed, if a brand adds an already existing marketplace to it, it will make its traditional, legacy business more valuable to consumers. TaskRabbit is a marketplace for time, skills and knowledge, and, not accidentally, the most popular task there is assembling IKEA furniture. Many people fear and loathe IKEA manuals. They would rather pay someone to go through the ordeal. Right therein lies an opportunity for IKEA. IKEA should own the “IKEA-assembling skills” marketplace on TaskRabbit. The option of having a TaskRabbit individual should be part of every online and in-store order, all bidding already done by IKEA. The retailer then delivers to your door both the furniture and the person who will assemble it. Nagy offers another example. “What sort of things does Hertz need to do to compete in a world where people are circumventing rental cars altogether and using UberX only for a 3-day trip in LA?” he asks. “Does a Marriott need to re-think their 3pm check-in and noon check out in a world where I can rent a residence for half the price?”

A brand is going to be more valuable to consumers if it creates some sort of new value that did not exist before. And therein is a potential new role for agencies, too. “If I was at a big brand,” Nagy says, “I’d be surveying the space and trying to figure out where a new business could be created, or an extension of an existing, trusted brand.” Or they can hire an agency to do it for them. New value usually comes out of connecting supply, provided by the brand, with customer demand in some new way. A few years ago, Peugeot unveiled “Mu,” a rental service available in 70 European cities. Peugeot rents its customisable vehicles, along with scooters and bikes. This car manufacturer realised that its customers are engaging in car sharing behaviour, with this brand or without it. In a savvy move, it adjusted its supply to its customers’ shifting demands.

In a slightly different vein, Patagonia partnered up with eBay to create a redistribution market for its pre-owned jackets, fleeces, gear, shoes, sweaters and other outdoors items. Patagonia customers can sell their ski pants, or buy a ski helmet on eBay, under Patagonia’s brand. By expanding its product offerings into pre-owned goods, Patagonia effectively expanded its market, reached more consumers, and encouraged more economic transactions around its products. Since then, retail brands are starting to embrace the trend: H&M and British retailer Asos created their own online marketplaces.

A brand is going to become critically valuable to consumers if they invest their own time and resources in it. That’s is where the future value resides, claims Carlioz: “What if tomorrow the value is no longer with sneakers you sell for $80, they would be free, but value is elsewhere, in the service you provide, running courses and coaching sessions? What if users provide better open source instructions and designs to print your sneakers at home? Where does your value lie?” he asks. In this scenario, consumers define their brand experience by making brand product and services more according to their own needs and likes. Big, upscale US retailer Nordstrom partnered with TOMS shoes to inspire its customers to design new TOMS. Nordstrom attracts affluent customers who are looking for something more than just mass-produced clothes. They seek unique, elevated designs that are going to set them apart from their peers. Intimate knowledge of its customers allowed Nordstrom to come up with the initiative that responds to their needs in the best possible way. Nordstrom inspired its customers both to express their creativity through shoe design (and to own it), and to feel good about being part of a larger, meaningful humanitarian initiative.

All these new branding directions are aimed to one, single-minded goal: amplify the customer experience. Make it better. Make it more complete, A to Z. Close the value loop. Provide consistent quality. Put customer convenience first. Be useful. Be interesting and stay clear of one-size-fits all experiences. Allow people to share (people love sharing!). Add value in every customer interaction. Focus on unmet needs, and be one step ahead. Nagy, who is behind Pepsi’s “Extra Hour” campaign, sums it up: “In the case of Pepsi, it was a simple equation of audience insight plus desire for brand generosity plus new platform equals ‘Extra Hour’ campaign.”

Brands who implement this kind of thinking have nothing to fear in collaborative economy. They already behave according to its principles of generosity, transparency, sustainability and utility. Marketplace, design and disruption are the new branding playbook, and with it, collaborative economy can only make your brand grow.

The article was originally published in The Guardian, on May 8th, 2014