Author: Carl Miller, Managing Director, GRIN Labs
Here are few excerpts from our discussion.
Carl: You have had enormous success helping several companies expand into some of the most challenging regions in the world. What are the first steps you take when faced with a project like that?
Kai: I think it is important to realize that different markets may value different aspects of your business. In other words, the value proposition that attracts existing domestic customers may not be the key value proposition in other countries. For example, at Revolve, our US customers love our next-day shipping service. In international markets, we can’t compete on shipping speed with local providers. Even though our service level is quite high — we deliver to Sydney in 2.8 days and Seoul 3.2 days — Samsung Fashion delivers in 2 hours in Seoul and Iconic Australia does next day: levels I can never match. Service level, one of the key advantages domestically, becomes my weakness in other markets. At the same time, we may have a new set of value propositions internationally that do not exist domestically. When I think about value propositions, I start with the basics from business school – the 3 “Cs” – customer, competitors, and company. The most important of these, in my opinion, is always the customer.
Carl: So how do you approach the customer?
Kai: I have the benefit of being able to travel to the countries in which we are doing business. During every one of my trips, I spend most mornings having breakfast with my customers. I always start with two questions: “Why did you buy from me?” and “How did you find me?”. The answers to those two questions will tell you a lot about your customer and how they view your company. Recently, for example, I was in a meeting in Hong Kong with a customer who was showing me a purse that she had purchased from us. She explained that though the brand is sold in Hong Kong, everyone around her is carrying the same product, and she wanted something unique. My site offered a selection that was not available at local Hong Kong retailers; for her, the broader selection was the value proposition. The key focus must be on is why customers love you. In this case, selection was king.
Carl: What about companies that don’t have the ability to reach out to local consumers or that don’t have an established market yet?
Kai: One of the biggest mistakes I see is brands and retailers who assume that their international customer is the same as their domestic customer. There are several clues about entering into a country that can be uncovered from any computer. A great way to check strength of demand for your product or your competitor’s product (for comparison) is to use Google Trends (trends.google.com), which tells you search volume per capita by region. There are several other tools in different regions that can provide more clues about your consumer demand before you commit to your journey. If you are already in-country, you can foster a better understanding of your customer by overlaying your customer address information with socioeconomic data in the region. With customer addresses we can determine rental value, which helps extrapolate income level. By doing some straightforward geo-location analysis, we have sometimes been surprised at who our customers are, but were then better able to understand who was interested in us. Information that directly impacted decision making on targeting our marketing mix and setting price points to maximize conversion.
Carl: Can you give us some more specific examples of different types of value propositions?
Kai: Sure. The most common value propositions for cross-border businesses are accessibility and price. Accessibility means different things depending on industry; if you sell electronics, it means the new Playstation only released in the US and Japan. In my line of business, luxury fashion, accessibility means varieties of brands and styles that customers don’t have access to locally. If a customer can buy the same dress on my site or next door, she will most likely try it on next door, instead of waiting for 3 days to get it from me. It is the dresses that aren’t available next door that bring her to my site. These value propositions define your audience and your customers. In my business, our customers are fashion-forward — they are willing to wait for 3 days to be a trendsetter, rather than a follower. Different countries may add additional twists; in China, for example, one of our value propositions is authenticity.
Carl: So you’re really looking at the local consumer. This makes sense.
Kai: But keep in mind that many retailers make the mistake of ranking their customers from 1-100, and focusing on the top 10 percent. Most of my top 1 percent are celebrities around the world. We are lucky to have them, but we won’t be able to replicate this segment on a large scale. If one is looking for high growth in a market, one has to identify the customer segment that represents the mass majority — most likely the middle of the pack — who also has a much lower average acquisition cost.
Carl: Let’s talk about competition. How do you look at competition in the region when evaluating your entrance into a market?
Kai: Once we understand our customers, we can have more precise definition of competitors. When I think about competition, I often go back to a model I started using 15 years ago in the telecommunications market, which plots players on four quadrants based on product/service offerings and price point. To transform that model to my fashion business, one side of the axis is the number of brands/styles, and the other axis is discount level. Revolve customers are seeking long-tail in-season products; the quadrant illustrating a large selection is the place I focus my marketing resources. If I plot another chart, where the vertical axis is sales volume; the horizontal is products – as shown in the chart below, I focus my marketing resources on the orange portion – that translates to spending more on long-tail paid marketing, as well as developing marketing channels to reach the orange portion.
Carl: When it comes to evaluating the unique strengths or differentiation of your offering versus the abilities and resources of a company, how do you prioritise your activities?
Kai: I always prioritise activities that improve customer experience. We want to make sure we can serve our customers before trying to sell them; we believe as long as we do our best to maximize our customers’ satisfaction, our customers will reward us with more business. This is the fundamental reason we work with regional logistics providers. In Japan, we work with Sagawa, Korea – CJ, ParcelForce in UK; it creates enormous complexity in our logistics operation, but it gives us the ability to put a familiar face in front of our customers. Our customers prefer this way, and we will do it for them regardless how many hoops we have to jump through.
Carl: Any books or sites on your reading list you would suggest around this topic?
Kai: The GRIN website, of course, but I also really like the book “The Long Tail” by Chris Anderson.
Carl: This has been great – thanks for your knowledge, and thanks so much for your time, Kai!