New Community-Based Business Model Powers Retail

Retail businesses are shifting from selling products to creating experiences. This community-based business model drives customer loyalty and increase spending.

There is divergence this separation between companies that provide retail services and companies that make and sell the products. While we have always had that dynamic, over the past few years, there has been a real push by retailers to start to do both.

Retailers starting to create their white-labeled product lines. That has created this dynamic where a retailer is trying to juggle many fronts with promoting in-house and external brands. They are investing time and money into developing a manufacturing supply chain and also creating the experiences that goes along with the products.

Designing products, managing and developing a manufacturing chain, supply chain, marketing those products, and creating a brand persona around those products is the integration that is required for success. This is on top of many customers using price as a determining factor to their purchase decisions.

To differentiate themselves, brands are leaning toward a community-based business model that focus more on experiences, community hubs, and products/services that trigger the human senses.

A community-based business model focuses on building relationships and fostering a sense of belonging among customers, rather than just selling products. It leverages the power of connection to create a loyal customer base and drive sales. Here’s a breakdown of the key aspects:

Core Components:

Shared Values & Purpose: The community revolves around a common interest or passion that aligns with the brand’s values. This could be health and wellness (Lululemon), technology (Apple), or outdoor adventure (high-end outdoor equipment store).

Simple Value Creation & Consumption: The community offers clear benefits to its members, such as educational content, workshops, events, or exclusive product access. These benefits should be easy for members to understand and participate in.

Instead of being transactional, community-based business model integrate the community needs in its quest to achieve marketplace success. While products or services could be copied, experiences catering to the community is not easy to duplicate without significant infrastructure built to collect relevant data.

There are benefits and drawbacks to community-based business model. Before shifting and investing into a new business model, brands should consider the following:

Benefits of the Community-Based Business Model

Focusing on community needs, the benefits of a community-based business model for retailers are primarily improvement in customer management including engagement and loyalty. The betterment leads to differentiation and improved brand perception.

Increased customer loyalty: Stronger relationships with customers lead to repeat business and increased customer lifetime value. Feeling like part of a community fosters a sense of belonging that keeps them engaged with the brand.

Higher customer engagement: Engaged customers spend more and become brand advocates. They follow the brand on social media, attend events, and recommend it to others. The two-way communication fosters a sense of community and active participation.

Differentiation from competitors: Community focus helps businesses stand out in a crowded market. Unique experiences and a sense of belonging create a loyal customer base less likely to be swayed by competitor promotions.

Improved brand perception: Community-based businesses are seen as destinations and cultural hubs, leading to increased brand awareness and a stronger brand image. The association with community creates a more positive perception of the brand and allows brands to show care and support.

Improved stock price: In some cases, there is a positive correlation between stock price, company valuation, and investment in community-focus customer experiences. The additional support that draws brand and customer loyalty which has a positive impact to the basket of goods, upsell opportunity, and return purchase.

Drawbacks of the Community-Based Business Model

It takes time, resources, and leadership to build a community-based business model. The added complexity, commitment and performance measurement delays could deter brands from moving to this business model.

Increased complexity: Building and managing a community requires time, resources, and ongoing effort. It involves planning events, managing online forums, and fostering relationships with community members. This can be more complex than the traditional transactional retail model.

Potential for negativity: While communities can be a source of positive feedback and brand advocacy, they can also be breeding grounds for negativity. The business needs to be prepared to address customer complaints and negative feedback within the community space. Commitment to the community needs to be a long term goal. Taking away community support and care on a whim would have significant negative impact.

Difficulty in measuring ROI: The return on investment (ROI) for community-building efforts can be difficult to quantify. The benefits may be seen in customer loyalty and brand perception, which can be harder to measure directly compared to traditional sales metrics. Also, the time spent to create, promote and measure success could take a longer time frame which may go against specific business strategy.

Not suitable for all businesses: This model may not be ideal for all businesses, particularly those with a narrow product focus or limited resources. It works best for businesses that can build a strong community around their products or services and have the resources to invest in community building activities.

A good example of a retail brand using community-based business model is the movie theater – often seen as a hub or a gathering spot for the community.

The Barbie movie (Retail Mashup coverage) did a great job of creating experiences around that movie with marketing products and experiences. You had photo ops in the lobby of the cinema. There were write-ups on AMC’s websites, for example, that promoted both Barbie, and Barbie history, and Barbie products. It was creating this ecosystem around a community and cultural experience.

Barbie pop-up at a local movie theater (Source: YouTube “Mapleshy”)

Taylor Swift’s ERAS Tour Concert film (Retail Mashup Coverage) achieved an all time record for the genre in its opening weekend and total gross. The hitmaker created a deal with AMC Theaters with exclusive rights and brought scores of “Swifties” to the movie theater chain that was suffering from lack of content in the Fall.

Experiential marketing music in the lobbies of these theaters, QR codes, and pathways back to purchasing Taylor Swift products.

It’s creating this rich community and cultural experience that shoppers are responding significantly to, which is a game changer in the retail industry. There are a lot of companies that are doing things in this area, and they tend to be the companies that are rising above the competition.

Lululemon has a lot of yoga pants and athletic gear, as do a lot of other companies. But Lululemon is still maintaining a market leadership position because they’re also embracing the community. They’re organizing 5K and 10K races in communities. The brand is giving yoga and fitness classes at their stores worldwide.

Lululemon is a leader in building, promoting, and extending its community-based business model through events including ultra marathon runs (Source: YouTube Lululemon channel)

Apple is another great example; they are a community destination. Any Apple store you walk by is going to be swarming with people sitting around, chatting with each other, looking at products and learning. Maybe they’ll take a class or go online for a little learning session. They have become good at creating that community experience.

Inside The First Apple Store showcased the first ever store that was built around the community. (Source: YouTube Apple Explained channel)

Canada Goose, offers cold rooms, and snow rooms for their customers to try out their products. It’s something engaging and people go there for that.

As part of its community-based business model, Canada Goose has a cold room that allows customers to try out coats in different temperatures before purchase. (Source: Canada Goose)

Ritz Carlton, as a hotel chain, enables their employees to spend up trying to impact a guest’s experience. If you see a guest having a bad day, you can send flowers to their room to cheer them up. Somebody’s lost their luggage. You can offer to buy them some clothes or you know, laptop chargers to get them through the hump until they can get themselves fixed up.

Whether it’s bonding with the retailer or bonding with other customers around the community is the new business model that is becoming meaningful and important. Experiences are important because they move would-be customers to buy from the heart. This is going to motivate them to possibly buy the more expensive item or to buy multiple products rather than being that transactional price-driven shopper.

Every brand has an awakening moment right now, especially with inflation continuing to drive down profits and potential traffic. Gucci, for example, reported a 20% decrease in revenue in Q4 2023 primarily due to lack of new products and differentiation against other brands.

Many brands let down their customer by offering products and nothing else. Some are starting to realize that they have the responsibilities to showcase and offer other product components that their customers have not thought about.

For example, a person going to a chain that sells outdoor equipment would trust the brand to tell them about the outdoor experiences that could best use the gears. If this logic holds true, the outdoor equipment brand has the responsibility to market the experiences and destinations (e.g., partnership with national parks) that showcase the gears in use and allow would-be customers to create testimonials.

The stores selling only tents and nothing else through product alignment, engagement, and encouragement would lose out on additional selling opportunities across multiple fronts. The question to address, “What is the customer buying the tent for and how can I make that experience the best one possible?”

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