Hot areas in venture capital: customization

Elizabeth Knopf of Sorced recently started a vibrant discussion on Quora on the topic of ecommerce and VC investing trends; “why is ecommerce such a hot area in VC investing right now?”

Here are some excerpts that pertain to mass customization, personalization, and co-creation.

Current landscape and drivers:  Consumer psychology

Design/UX: This is under appreciated but is actually a crucial element in ecommerce. You have ‘transactional’ (ie less experiential shopping excursions through Amazon—where people typically shop due to price or utility). However, an interesting or pleasurable shopping experience has been rare to find on the web. The focus and emphasis on design has only recently taken shape. This is one reason why a lot of brands had not engaged in ecommerce as extensively as one would expect. They need to represent their brand well, and if the medium cannot communicate a brand’s philosophy and potentially compromise its integrity, a brand will most likely not utilize that avenue. This historically was one of the factors for brands staying away from actually having an online presence (this combined with concerns around seeming ubiquitous and thus less ‘exclusive or scarce’). If they get online, the whole world not just a few block radius will see them. Thus, online risks could substantially damage a brand, so the adoption has been relatively slow. . Beyond the brand, sites are making sites much prettier and aesthetically appealing as well as functional. New forms of buyer engagement is taking form . It is no longer browse and buy but rather consuming, creating, and sharing opinions, content and media that surrounds a shopping experience.

Elizabeth Knopf

New business models: Customization

Problem: Uniqueness, fit, personal taste
Ex: J. HIllburn, Zoora , Fitted Fashion, Solosso, Proper Cloth ( Founder – Seph Skerritt), Gemvara , Blank Label, Taylor Stitch

Overview:
Because the web adds a level of ubiquity to the presence of a product and brand, luxury brands need to find new ways to maintain their sense of rarity through customization. This is a bit more complex model. Historically you had Threadless or the white label Zazzle or Cafépress dominate this space.   New entrants such as high end brands like Prada is exploring this.  Luxury goods want to maintain exclusivity, scarcity, and uniqueness.

Opportunity:

  • Uniqueness- Thus, customizing items makes sense. You can create unique or ‘tailor made’ items for your customer. ‘Customized’ always has the value connotation because it is one of a kind.
  • Brand enhancement– This adds a new way to engage with a brand. You are creating a direct relationship with the brand because you have an impact on the product.
  • Traffic- Creating a new experience for a consumer will drive traffic to an otherwise low traffic site. If you can only get this offering on a company’s site, consumer have a reason to go.
  • Experience and Financials- Build-a-Bear is the best example of this. They have been able to create an interesting experience where they actually get their customers to do the work and labor involved in creating the product; kind of genius! They make a commoditized teddy bear more expensive with lower costs to them because they cut out the labor and allow you to have a personal teddy.

Challenges:

  • What will it look like- Sometimes when I go to Cold Stone creamery to make my ice cream, something that in theory would taste good turns out pretty disgusting. Thus, I wish I just chose from a menu because someone else took the risk and figured out the right recipe. Even though you can preview the item before it’s created, there’s always that risk.
  • Effort– I probably will not go and always buy customized X partially because I’m lazy and want to buy what is already packaged.
  • Paradox of Choice- Companies need to make sure the number of choices is just right, otherwise, consumers get overwhelmed.
  • Expensive: This is an expensive model to execute. Thus, to what degree is it custom and how to the costs play into it. There’s a trade off or the consumer to pay extra for the customization, but if it’s just selecting a certain color in a certain place, this value might not be there. However, if the product is completely unique, I might be more willing to pay–but that is more challenging for a company to produce.
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2 Responses

  1. On the ‘brand enhancement’ opportunity:

    One of the most interesting ways customizers will be able to engage with customers to differentiate their brand is through recommendations. As I said in a blog about this [http://bespokeable.tumblr.com/post/5631511352/why-recommendations-will-rule-the-21st-century], recommendations are especially valuable in customized goods because of the sheer amount of choices the user must make. Who better to help you through such decisions than the person who’s actually making the item you are trying to get? What’s more is that the competition simply cannot copy the timely knowledge and expertise that is inside a personalized recommendation. As customization gets bigger, this is going to have an increasingly larger effect on how buyers engage with customizers (brands).

    On the ‘expensive’ challenge:

    I would submit that this is only true for customizers trying to pull off customization on a truly massive level – whether they are a traditional clothing line trying to get into online custom, such as Burberry, or one of these new online clothing wizards such as Blank Label – because they have to utilize factory space, and other overhead. But for independent craftsmen who don’t have this kind of overhead, such as tailors, it’s not a very expensive model to execute. Especially with products like Bespokeable.com, where they don’t even need programming skills to employ a product configurator and get themselves in front of buyers. They can simply work from small studios, or even their homes !

    • I agree with your second point. My company (MakerCraft) got a boost from being accepted into a startup incubator, but I could have run the whole thing out of my apartment. And until we get funding that’s what I’ll be doing.

      The advent of mobile tech and the decreasing costs of development mean that we can offer our products for just about what you’d see in big box stores, with the added bonus of it being personal and unique.

      Check out our site and blog, or you can email me if you’re interested in how we’re doing it. (makercraft.com)

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