Retail Buying Has Changed for Good
How Startups can Adapt to the New Retail Environment
This past week, I brought five HAX-funded consumer electronics startups to Minneapolis to meet with buyers from Target and Best Buy. As a former Target buyer myself, I have been in hundreds of sales meetings on both sides of the table- but this week something different happened. As I listened to the pitches and the feedback from buyers, I noticed a trend emerging in the feedback, and it took me by surprise.
For the first time, buyers said they wanted to see how a new product performs on Amazon before they would consider bringing it into their stores. As anyone who has spent time in retail will tell you, this is a stark contrast to the battle for exclusivity that was waged until very recently. During my tenure at Target, it was of utmost importance to seek exclusivity for new product launches. If a product was already listed on Amazon or on Walmart shelves, it was far less likely to be selected. No longer.
So, what’s happening?
First, consumers are discovering new products almost exclusively online. Potential customers are no longer browsing shelves or taking family trips to the local shopping mall. Rather, they are being targeted on Facebook and Google by growth-hackers and ad agencies who are serving up relevant content. A recent survey showed that 76% of U.S. consumers have bought a product that they discovered on social media.
Second, consumers are validating purchases with Amazon reviews. One Target buyer told me, verbatim, “manufacturers who develop strong reviews online run the market.” This same buyer mentioned that a product with 20,000 great Amazon reviews can be dropped on store shelves and instantly be a best-seller. Demand has to exist already, and retailers are no longer taking the risk on in-store discovery to drive sales of third party products. Another buyer lamented that he felt powerless against brands with strong online followings, since the negotiating power was on the brand’s side, not the retailer’s.
Finally, “brand” is no longer important in the classic sense. A customer is now just as likely to trust recommendations by her favorite blogger or celebrity as she is to trust the newest Procter & Gamble product launch. As a result, the use of social influencers who have a direct line of communication to thousands of dedicated followers has skyrocketed. To put it in numbers, Instagram alone saw 12.9m sponsored posts in 2017, which is estimated to double in 2018. Consumers are no longer trusting highway billboards and TV commercials to make decisions.
What does it mean for startups?
Consumer product startups are well-positioned to take advantage of the new retail paradigm. Here are a few ways a startup can best adapt:
- Build your social network from day one: Start a Facebook, Instagram and Twitter account on behalf of your brand and start building followers. Not sure what to post? Pick a favorite brand and emulate the ways that brand engages with its followers. No need to reinvent the wheel!
- Spend on high quality images and content: Your digital imagery is now the primary way you will be communicating with your customers, so don’t cut corners. Hire a photographer to help capture high-quality images and splurge on a quality web developer if needed.
- Hire a growth hacker or digital marketer as part of your early team: Have this person create a dashboard of key marketing metrics (cost per click, impressions, site bounce rate, etc.) for your digital ads and assets and review what is and is not working weekly. Many HAX startups have found great digital marketing talent on Upwork.
- Craft a digital-first sales strategy: Your startup’s goal is no longer to sell product in the maximum number of retail doors in the next 12 months. Rather, it’s to be recognized broadly by your key demographic via effective digital marketing and to receive positive online reviews. Make this the backbone of your plans. Your first sales venue should be your website (where you can send customers via your digital marketing efforts) followed by Amazon once you are confident you will have happy customers.
- Make customer service a priority: Bad customer service can result in negative online reviews for even the best product. Ensure you have a process in place to deal with all levels of customer complaints. Many startups use Zendesk or similar platforms to manage customer service. Your goal should be to convert every angry customer into a fan.
- Use data to make company decisions: The best part of a digital-first strategy is the amount of information you can quickly glean from your customers and followers. You can efficiently estimate everything from which color will perform best to what your next product offering should be, all through digital ads. Pay attention to this data!
Some of the fastest-growing brands have skipped retail channels altogether. The VC fund Forerunner Ventures invests almost exclusively in brands that follow the “new rules” of consumer products (Glossier, Allbirds, Away) and has seen spectacular returns from this strategy. Brands who lead with a digital approach will be the winners in the retail apocalypse.
As the go-to-market playbook for startups has changed for good, the power has truly shifted: consumers and new brands are now leading the way for the first time in recent history. Retail is more democratic than ever before, making this an exciting time to be bringing a new product to market.
Kate runs the HAX accelerator in San Francisco, CA. HAX is the world’s first and most prolific accelerator for hardware and connected devices, with offices in San Francisco and Shenzhen, China. HAX is a program of SOSV, a global venture capital firm with over $300M in assets under management.
