Bigger Is No Longer Better When It Comes to Consumer Brands

Bigger Is No Longer Better When It Comes to Consumer Brands

For a century now, mass-market consumer brands have been convincing us to desire the stuff everyone else has. We’ve been buying products — Starbucks coffee, Gap jeans — designed to appeal to as many people as possible and to give consumers around the world the exact same experience.

But we’re done with that. We no longer want to settle for what everyone else has, and technology is making it so we don’t have to. Upstart companies, such as personal stylist Stitch Fix and 3D printing service Shapeways, are helping to define a new era aimed at giving each of us exactly what we want: products and customer experiences built for one, not for many.

“The demand for personalized goods — and the need for mass customization — is a trend with staying power,” says Vicki Holt, CEO of Protolabs, an on-demand production company. “At a time when businesses need to differentiate their products, command premium prices, and establish their relevancy with consumers, mass customization makes as much sense today as the standard black Model T Ford did at the dawn of the industrial age.”

This shift in consumer markets is part of a larger trend that venture capitalist Hemant Taneja and I identify in our book, Unscaled. It’s not just that startups are disrupting established firms. It’s that AI and a wave of AI-propelled technologies are allowing small, hyper-focused innovators to effectively compete against broad, old-school economies of scale. We call this “unscaling.” Because AI learns about individual customers, it allows small companies to profitably make products that address very narrow, passionate markets — even markets of one.

The old strategy of beating competitors by owning scale — big factories, massive distribution networks, shelf space in stores — has in many cases become a liability and a burden. In the razor and shaver markets, for example, Procter & Gamble, with all its magnificent resources, has lost market share to more nimble upstarts such as Dollar Shave Club. By renting capabilities from vendors and contractors, getting to market quickly, and targeting a narrow segment with an entirely new user experience, the direct-to-consumer players can steal significant share from incumbents.

Stitch Fix offers a glimpse into how a more personalized consumer experience can work. The company, founded by Katrina Lake in 2011, melds AI and human input to offer customized style to anyone. The products Stitch Fix sells are mass-produced, but the style and fit are tailored to individual customers.

New Stitch Fix customers start by filling out an online style profile, telling the service their size and shape and a bit about their lifestyle, answering questions such as “What’s your occupation?” and “Are you a parent?” Then the company sends out five clothing items chosen by a stylist, based on that profile. Customers buy the ones they like and send the others back — and that act of choosing teaches the company’s AI more about their style. Every few weeks (users set the interval), Stitch Fix sends a new batch of clothes, which are again either purchased or sent back. Through these transactions the software comes to know individual preferences and, over time, can better guide the stylists so they send exactly what each customer likes.

Now, reviews of Stitch Fix are mixed. On customer review website Sitejabber, Stitch Fix receives only two and a half stars out of five. On Facebook, it gets 3.6 stars out of five. But even if it’s not a perfect model, Stitch Fix is an example of customization at scale. The clothes may not be bespoke, but the experience is. The company’s goal is to get to know its customers and send them products they might not know they’d want. In the past, the only way to do that would have been through labor-intensive means, like employing a personal shopper. AI and data make it possible to create a personal relationship without there actually being one — which is what allows the concept to scale.

Another example of how unscaling consumer products might work involves 3D printing. The technology is embryonic now. But it’s possible that, within a decade, when you order a new pair of shoes or a chair, the items might not come from a far-off mass-production factory. Instead, many companies might custom-produce items in small batches as they’re ordered.

Shapeways, founded in 2007, has raised more than US$100 million based on this vision, including $30 million earlier this year. For a fee, the company offers its 3D printing services to anyone with a design or helps them with the design. Shapeways next wants to help niche creators package and market their products and provide customer service, too. “We believe that the future of mass personalization is in the hands of independent creators,” Shapeways CEO Greg Kress told Xconomy in April 2018. “3D printing is simply the production technology that drives this possibility.”

Combining AI, data, and 3D printing allows companies to learn about individual consumers, and then offer or build products specifically for them. If you were able to choose between a product created especially for you or a product created for everybody, which would you choose?

An April 2018 strategy+business article referenced PwC research (pdf) in pointing out that “Today’s consumers — particularly younger ones — are abandoning the deeply entrenched practice of ‘satisficing.’ That was economist Herbert Simon’s term for shoppers’ tendency to settle for ‘good enough,’ because physical access and insufficient information made it impossible to find the ‘absolute best.’ No more; the new goal is maximizing rather than satisficing. These days, the absolute best often seems within reach.”

As this “unscaling” trend continues, powerhouse companies such as Starbucks, Gap, and Apple will have to adjust. The advantages of being big are waning. In this new era, small, focused companies that put individual consumers and the consumer experience at the center of everything they do will have a greater chance of beating undifferentiated mass-market operations.

Published at Wed, 29 Aug 2018 05:00:00 +0000