Add to Cart: 26th August
Like an Amazon product feed, there are millions of pieces of retail-related content released each week. Every fortnight I write about the stories I found most valuable, to keep in the back pocket.
NOTE: Reading online isn’t like reading a book. For those who want to skim and get the main facts I do a ‘TLDR’ and a ‘binge’ deep dive for those who want more.
CATEGORY: That’s a later problem
Last week, Aussies were graced with another 48-hour online retail sale — launched by homegrown buy-now-pay-later powerhouse, Afterpay.
Afterpay launched their first sale event in 2017 to celebrate 1M users. Now, with ~3.3M users, Afterpay has a few more reasons to celebrate (just look at their recent earnings report).
Afterpay Day is a twice-yearly event, and its most recent sale saw participation from over 1,000 retailers.
Last year ~100 retailers took part meaning merchant participation has grown a whopping +900% YoY.
Beyond this growing sales event, BNPL services present a number of implications for retail.
TLDR
- Last year, 1 in 10 Australians used a BNPL product (projection: 1 in 5 Australians by 2023)
- BNPL growth is slowing credit card adoption, with 86% of Aussies aged 23 to 36 linking their Afterpay account to a debit card.
- Experts have noted the generational shift in payments, “Credit cards may become the new Seniors Card, as youth stick with debit.”
- Afterpay argues is is not a payment service, rather, a platform to serve retailers much like Facebook, Amazon and Google do.
- Afterpay Day has been presented as an example of this; it helps drive leads for merchants- adding value to both the start and end of a purchase journey.
- BNPL platforms are distinctly branding themselves to attract specific customers, offering more value to retailers via segmentation.
- Retailers should consider impact of delayed payments on retail calendar & role of BNPL apps in driving customers to site.
Here’s a pretty nifty graph showing BNPL is bringing debit back:
BINGE
Interest-free repayments are not new to retail.
As one of the biggest advertisers in retail, Harvey Norman has certainly familiarised Aussies with the concept.
BNPL platforms like Afterpay have refreshed a long-standing retail strategy, converting the confusing small print of a traditional interest-free repayments into a seamless and simple model for consumers.
The result? A generation of shoppers increasingly comfortable and familiar with flexible payment options. And a retail landscape increasingly reliant on payment ‘platforms.’
Three key takeouts:
- Power to the platform
Why is Afterpay running a sale? Because (as they company will tell you) it’s not a payment service, it’s a platform.
Afterpay refuses to be grouped in the same bucket as Mastercard or Amex. It prefers to sit with the ‘cooler’ kids; Facebook, Google and Amazon.
Why? Some further context:
- The RBA’s review of ‘Retail Payments Regulation’ is currently assessing the future of BNPL services (the final review has since been postponed to 2021 due to COVID).
- To put it simply — BNPL services make money via merchant fees. Currently, these merchants are not allowed to pass on those costs to customers (Afterpay and Zip don’t allow this).
- The RBA will need to be persuaded that the BNPL providers are offering more than a payments service to allow such clauses to stay in place.
Afterpay has been pushing this for a while, claiming it shouldn’t be viewed alongside traditional payment providers, rather, its merchant fee structure should be compared to the higher costs that Amazon, Facebook and Google charge for business referrals.
It is vital that Afterpay operates as a “platform” rather than a payments service by generating leads for retailers, especially from those ‘hard to reach’ millennials.
Afterpay Day is a clear example of a platform in action. In a letter to the RBA earlier this year, Afterpay founder Anthony Eison highlighted the benefit of its retail sale events and argued that said its online store directory drove 48 million referrals last financial year.
This also means bigger things are coming.
Afterpay will broaden its benefit to retailers as a way to justify the fee it charges. My guess: BNPL platforms will expand lead-generating activities such as customer loyalty programs, events and partnerships.
2. The checkout takes the lead
How you pay is no longer a ‘later’ consideration in the e-commerce journey.
When BNPL platforms own a sales event, they aggressively put payment methods top of mind before a purchase is made.
Launching Afterpay Day in August is genius as it lands right before major Q4 sales events (Singles Day, Black Friday), co-ercing Aussies into even sweeter discounts. This also means retailers can consider repayment cycles and how they can adapt their promotions to extract maximum value.
While fortnightly payments are most common, Afterpay flights their March sales event to optimally fall after 4 x Christmas repayments to start the cycle again.
While it has long been the rule that the app is the centre of the banking universe, the app is increasingly the center of the retail journey too.
If you have a payment solution in your mind before you start browsing (either through a sale event or by browsing through a specific app like Klarna), your payment option is already secured leaving you open to a greater range of goods at greater value.
This also has the benefit of enticing consumers/merchants to consider bigger ticket items (average cost of an Afterpay transaction is $153). The added benefit is a wave of new online shoppers who have already been forced outside their comfort zone in the pandemic. Trying BNPL seems like a small risk (and a pretty solid option) in the midst of a global pandemic.
3. Credit isn’t that cool anymore
Credit card companies have undeniably built brands around exclusivity. From ‘platinum’ cards to Amex lounges, accruing debt is made to look remarkably sexy.
What’s fascinating to witness are services like Afterpay and Klarna doubling down on modern exclusivity; building a brand that signals its place in the new wave of tech-focused solutions.
Just look at their logos. Last month, Afterpay redesigned their logo, with a ~fresh~ mint green (in honour of its Bondi origins). I immediately vibed this new logo update because it looked clean, young…and familiar.
Minimal (and predictable) logo designs are a simple way to signal a brand’s inclusion in the startup economy. They don’t need fancy logos because the brand is their service.
I couldn’t help but notice the pattern of homogenisation in BNPL services; all of which are actively signalling to a different type of consumer. In my opinion, this brand play conveniently aligns with their respective retail partners:
- Afterpay & eBay → for the cool millennial
- Zip & Amazon → for the slightly nerdier deal-seeker
Long term, this means retailers can look to segment consumers based on which type of BNPL service they’re using e.g. new players like Zebit are going after customers that can’t get credit elsewhere.
In summary, the pandemic is cancelling more than our social lives: since March, 400,000 personal credit cards have been closed (1 in 2 Aussies have a credit card, but this is declining at 7% YoY). COVID will undoubtedly accelerate the use of BNPL as payment deferral and debt come into focus for financially strained Aussies.
Main takeout: expect BNPL to operate less and less like traditional payment solutions, and more like the cool Silicon Valley platforms. It’s where they want to belong, because their survival depends on it.
CONSUMER: Death to millennials
Aggressive headline I know, but stay with me.
Credit should go to Bob Hoffman, who went on yet another rant about the absurdity of ‘generational uniqueness’ in his weekly newsletter and linked this recent BBH study, which I’ll summarise below.
- UK based BBH Labs recently released a study called “Puncturing the Paradox” (read here) in which they created a “Group Cohesion Score” to calculate the single-mindedness of a group of people.
- A high Group Cohesion Score = greater similarity in beliefs and behaviours.
- Somewhat unsurprisingly, there were no high scores amongst generations (Boomers, Gen Z, Millennials etc)
- The study concluded that generations are but “random collections of people who share no special connection beyond being born within two decades of each other.”
- BBH found that nut eaters, introverts and ‘people who floss’ are more statistically significant than a boomers or millennials (see chart below)
BINGE
Boomers, Gen Alpha, Millennials.
For me, these words conjure the same cringe that comes when you hear outdated slang (e.g. “that’s lit”).
They’ve surpassed the point of novelty.
Criticism of generational labels isn’t new. Many have written about the varying lengths of generations and lack of evidence about their predictive value.
Why is this interesting?
BBH introduces the study with a comparison of Prince George and Lil Pump: members of the same generation, who arguably have nothing in common (although we don’t 100% know that George hates Soundcloud rap…). While this is taking two of the most extreme examples, you get the point.
The study points out alternative factors that generate a higher group cohesion score than just generations including readers of different newspapers (Financial Times having high cohesion vs Daily Mail having low). One of the greatest sources of discordance is socioeconomic class.
In Australia, the same problems exist. Even doing a basic data run against generations in Australia’s Roy Morgan database, you can find similarly striking findings. E.g. against all assumptions, Boomers were statistically more likely than Gen Y and Z to consider themselves environmentalists and recycle everything they could.
A serious concern with any group-based data is that they can suffer from what can be called a Within and Between Analysis problem. The problem arises comparing big groups (i.e., generations) to each other when individuals within the groups vary a lot. In any form of audience analysis, we are plagued by averages but also don’t want to risk hyper-segmenting.
What does it mean for retail?
Retail is not immune to this narrative, and the study offers a timely reminder that phrases like ‘millennial shopping trends’ can sometimes be about as meaningful as the word ‘yeet.’
One of my favourite sites is Thou Shalt Not Commit Logical Fallacies, because it presents a very useful set of reminders as to how we could be making the wrong calls. Generational analysis is prone to what the site calls the ‘Texas Sharpshooter’ bias, i.e. we take clusters and assume a causal relationship.
In retail, we should continue to be cautious to segment by demographic alone, instead seeking to cut audience data in multiple ways. By considering alternative data we could expose richer insights re shopping habits, e.g. distinctions in bargain hunters vs splurgers? Conservatives vs lefties? And maybe even nut eaters vs non-nut eaters.
CULTURE: Join the (fan)club
Pornography has always been a hotbed of digital innovation.
From pop-ups to deepfakes, we have porn to thank for many widely used technologies.
OnlyFans is the latest porn-related offering to make its mark on the world. For $4.99 per month, fans can subscribe to receive exclusive content from creators. This has predominantly been used for explicit photos and videos, however its growing in use outside the adult-only community.
OnlyFans is further evidence of digital substitutes filling the void of IRL experiences. It’s also evidence of a creator-first, subscription-only model, with implications for retail.
- Launched in 2016, OnlyFans was originally set up for influencers (think fitness instructors & comedians) to monetise exclusive content.
- Forbes reports that over 3.5 million accounts have been created since March worldwide, with the platform gaining traction as a fun way to diversify revenue while the pandemic wreaks havoc on jobs.
- In Australia, OnlyFans traffic is up +135% since March, with close to 1 million unique users last month.
- As Sophy Vanner Critoph notes, OnlyFans signals a shift from DTC to DTF (aka ‘direct-to-fan’…not the other incredibly relevant acronym)
- OnlyFans currently encourages creators to make their own Amazon Shopping lists, signalling the potential for product and brand partnerships.
- Invaluable consumer insights can be generated by OnlyFans messaging services, as well as exclusive partnerships and product drops.
BINGE
OnlyFans’ growth signals an increased need for one-to-one human connection, facilitated by digital alternatives.
With so many people locked down in the pandemic and lacking in IRL experiences, a digital subscription fills a void and gives users a more ~intimate~ connection to content they desire.
Why is this interesting?
If we put the porn element aside, OnlyFans represents a wider change in behaviour in users, most notably the growth of the subscription economy and DTF (direct-to-fan) engagement. OnlyFans make money by charging viewers a subscription fee of $4.99/month to see exclusive content, but also gain access to one-to-one messaging with fans.
Creators can set up live streams, exclusive DMs and receive monetary tips from fans via OnlyFans’ messaging service. This is of course similar to the function of Patreon and Twitch, in which fans can send monetary support, allowing them to actively contribute and give feedback to the creator’s output.
It worth noting that OnlyFans is going after creators outside adult content, providing step-by-step guides on their site for athletes, musicians, chefs and fashion influencers. They also promote a range of genres such as beauty, teaching & wellness, comedy, gaming and acting.
What does this mean for retail?
If we consider the direct-to-fans business model OnlyFans offers, there are unique opportunities for brands to a) collaborate with superfans and b) source invaluable insight to increase product sales or drive brand affinity.
I’ve identified four broad implications for retail:
- Exclusive gifts to purchase
OnlyFans already encourages creators to set up their own Amazon Wish Lists to link in their account so fans can see what their creators are eyeing. Many fans already want to send gifts of appreciation to creators, and OnlyFans actually recommends gift lists via Amazon gift lists to facilitate this.
While influencers can already do this across other social channels, it points to a larger opportunity for exclusive product partnerships and product promotions.
Almost half of OnlyFans referrals comes from Twitter, followed by Instagram, with many influencers switching strategies to take control of their content stream. If product lists are embedded within accounts, retailers can receive exclusive recommendations from creators to a supercharged fan base.
This naturally creates potential for exclusive product drops (to selected accounts) or one-off releases launched to a community of fans. For fashion, beauty and luxury, a ready-made exclusive community and space is ripe for the picking.
2. Close contact collaboration
In many cases, consumers want to see the humans behind their products. As Adam Waytz writes for Harvard Business Review, retailers that refocus products/services on the ‘power’ of human interaction can create enormous social and economic value:
When customers experience an interaction with a business, they want to feel as if their interaction was the result of human agency rather than some abstract automation.
OnlyFans facilitates this on a whole new level. Known as the ‘effort heuristic,’ consumers appreciate products more when they learn the effort that went into its production.
Exclusive product knowledge, behind the scenes footage and collaborative feedback discussions between fans and creators could introduce a wave of new products and designs that generate significantly stronger attachment to a brand.
3. Surprise and delight (every month)
Finally, and somewhat obviously, the world is a pretty dark place.
Having a monthly ‘surprise’ content via subscriptions is a consumer behaviour across multiple categories (the global subscription economy has grown 750% over the past 7.5 years).
A popular form of product subscription is the gamble of the ‘box’ shipped to the door each month. It’s an industry set to be worth $2.5B annually in the US (growing 100% in the past year) and Australian businesses are also getting involved. Similar to gambling, the success of the box model is not knowing if you’ll have a positive or negative experience.
With OnlyFans paid subscriptions there is some level of expectation about what you’re getting, but also potential for consumers to be signed up to both content streams and deliveries that serve the same ‘surprise and delight’ function.
This all means that NSFW OnlyFans content could indeed facilitate some SFW retail conversations. If we can extract the explicit energy of the platform and assess the consumer behaviour at play, opportunities are endless.
If you’ve made it this far, thank you.
Shoot me any feedback or comments camille.gray@rufusww.com
Until next time, time to check out.
