Dropships and Marketplaces - What's the Smartest Thing?

Two of the smartest people we've ever had the pleasure of interviewing join the show this week! In our main interview, Mike Lackman, CEO at Trade Coffee joins the Future Commerce team to talk about how subscriptions and curation are driving user adoption and repeat business at Trade Coffee. In our "what's new and what's next" segment at the end of the show, Hitha Herzog, retail analyst and author of 'Black Market Billions' joins us to talk Nike's Amazon Exit, Coty's $600MM Kylie acquisition, and the effect of counterfeits on the marketplace during Holiday 2020.

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Show Notes

Main Takeaways:

• Mike Lackman, CEO of Trade Coffee joins Brian and Phillip on today's episode and he brings with him a coupon code.

• Trade Coffee is bridging the gap between a marketplace and a retailer, and are making quite the disruption in the process.

• Educating customers not only makes them happier with their shopping experiences, but also moves the success up the production funnel. 

• Hitha Herzog, retail analyst and author of Black Market Billions, joins us to take us through the acquisition of Kylie Cosmetics and other happenings in the world of retail. 

Coffee and Vocabulary: Empowering Coffee Consumers:

• Phillip was at a hipster songwriting circle in Nashville and four of the ten circle participants said that Trade Coffee was inspiring them recently. 

• Mike says that Trade Coffee does two things very well: it connects consumers to the country's very best roasters and craft coffee and it also helps roasters across the country reach consumers in a way that has never been done before. 

• In their research, Trade Coffee found that consumers are completely lacking in the vocabulary that enables them to decide the way they want their coffee to taste.

• If people are more aware of their choices, they are going to be in demand of certain things that craft roasters will then be able to supply.

Unexpected Outcomes: Breaking the Mold:

• All the CPG professionals that assessed Trade Coffee early on said that it was going to be a tasting journey in which consumers would find their perfect coffee and then have that coffee be delivered repeated. 

• In actuality, more than 95% of Trade Coffee's consumers have expressed an appetite for continual discover of new coffees rather than the ability to repeat a single SKU. 

• This consistent desire for discovery is the key to Trade Coffee's business.

• Spotify and music streaming services have trained us to go find new things all the time, and that training is extending into consumer goods. 

The Coffee Calling: How It Started:

• A failed Latin teacher by training, Mike was excited by the small team at Trade Coffee when he first found the brand. 

• Trade needed someone who not only understood the digital marketing business but also someone who understood the hard operations side of the business. 

• Mike was also a very frequent drinker of coffee who knew nothing about it and the curistic process of getting to know the Trade Coffee team really highlighted the problem that needed to be solved. 

• Brian met Mike at Grocery Shop where they discussed marketplaces and the role of a niche marketplace in today's economy.

A Niche Marketplace Hybrid: Blurring the Lines:

• The lines between what makes a retailer and what makes a marketplace are getting blurry. 

• Mike thinks of Trade Coffee more of a retailer because all of their product is made on demand, but there are definitely some marketplace-like dynamics.

• Having differentiated inventory with reasonable availability that is unlocked by curation and matching is what Trade labels as the keys to their success.

• The coffee drinker who is making coffee at home is likely a grocery shopper that shops at a brick and mortar location, so how do you convince that shopper to buy online?

Changing Habits: Taking Coffee Buying Online:

• Trade's mission is to turn coffee drinkers into coffee lovers, not to be the coolest, hip store for people who already know a lot about coffee. 

• For the first year, establishing credibility to match consumers with their ideal coffee and removing the risk from that has been a focus.

• Going one step further, being able to show the way they interpret (with granularity) the answers to the questions that Trade asks is also important.

• The story of the roasters, the art on the bag, and the testimonials are all icing on the cake to get people to start trusting their coffee purchases to online retailers.

The Customer Relationship: What Does the Future Hold?:

• One of the big trends that Brian and Phillip called at the beginning of the year was guided selling and the education of the customer, something that Trade is excelling at. 

• By adding what is traditionally considered friction to the purchase process, Trade has broken the mold regarding educating their customers, and they are looking to add even more friction in the future. 

• If you're figuring out how to partner with great merchants that can make your insights actionable, then all of the data you are collecting won't be used to its full potential.

• Trade tests their product extensively so that they provide credible recommendations.

Choose Your Own Depth: Similarities to Spotify:

• A lot of comparisons are drawn between Trade Coffee being like Spotify, but Phillip thinks it's more like Stitch Fix.

• You can choose how deep you go into Spotify; you can either just push play or you can  dig into any of the additional features as well as the artist biographies.

• Trade Coffee has customers that run the whole spectrum of involvement of the information at their fingertips.

• You have to carefully select what group of customers you design experiences for. 

Mistakes Along the Way: Personalization Woes:

• With so many different flavor profiles and customer types, one of the first mistakes that Trade made was when they tried to be too exact with their product matches. 

• Customers like covering as much ground as possible within a tight enough circle and don't necessarily want the same type served to the over and over again. 

• Trade can use the data they have garnered along the way to empower roasters to create high quality product. 

• One of the most important forms of feedback that Trade can get from their customers if they keep buying product. 

Subscriptions and Partners: Defining Important Roles:

• Subscriptions are a tool and not a model and being non-discretionary is imperative to Trade Coffee.

• Trade takes the role of matchmaker and the role of the craft coffee producer is to do what they're great at: producing amazing artisan coffee.

• You have to recognize the limitations of the matchmaking model; Trade can't use Instagram in the way that others do because photos do not explain what they do. 

• Recognizing where you fit in the business model and tackling those limitations are keys to success.

Finding the Perfect Fit: Which Model Works for You?:

• If you are not upsetting things from a channel conflict perspective at least a little bit, you're probably not trying hard enough. 

• Mike brings up that he listened to the episode with RXBAR CMO Victor Lee and says that for the consumer that wants different stuff every time, Trade is a very good fit, just like RXBAR fits so well into the grocery store model.

• Trade is happy to empower their customers with their power to make their own decisions and doesn't force them to stay in the channel. 

• Rent the Runway is a great analogous example to what Trade Coffee is trying to do.

Armed With Knowledge: The Power of the Smart Customer:

• Consumers don't have a way aside from artwork and buzzwords to differentiate between what coffees are good and which are not. 

• If Trade can empower their customers to determine what is good for them based on the way it tastes, then growers are roasters are able to distribute their product based on quality of taste in the eyes of the consumer.

• You have to move value up the supply change, and educating your customers does just that. 

• Trade tries to base decisions based on behaviors and not on demographics. 

The Millennial Boomer?: Or the Baby Millennial?:

• Baby Boomers are starting to adopt practices and habits that they might have turned their noses up towards a few years ago. 

• The Millennial design aesthetic has become a stamp of approval for brands in regards to what customers are seeking out.  

• Brands are finding success in older generations by catering towards millennials. 

• How do you bridge the gap between generations?

The Next Five Years: Predictions for the Future:

• Mike predicts that grocery is going to encounter some of the same disruption that retail and other industries have seen. 

• The model is not going to be disrupted by putting more product on shelves and letting customers sort it out themselves. 

• By continually improving their processes, Trade is going to be able to deliver consistently enjoyable shopping experiences to their customers. 

• It all depends on the market and what consumers want, but if you bundle everything under the umbrella term "grocery", you're probably on the wrong path. 

Unabashedly Opinionated Opinions: Meet Hitha Herzog:

• For the closing segment Brian and Phillip are joined by Hitha Herzog, retail analyst and author of Black Market Billions.

• Phillip can't believe that Hitha doesn't like Jerry Seinfeld.

• She would take Larry David over Jerry any day. 

• Hitha is here to talk us through some huge news in the world of online makeup sales. 

Coty Acquires Kylie: A Makeup Giant Acquisition:

• Coty, Inc. acquired a 51% stake of Kylie Cosmetics for $600 million dollars, valuing the cosmetics company at $1.2 billion. 

• Kylie is the most followed person on Instagram and the revenue from the makeup company was estimated at $117 million.

• Kylie and her team have organized scarcity with their product which has led to an enormous demand. 

• When the products first launched, the Kylie Cosmetics Lipkits drove a sense of urgency by only releasing a set amount of product. 

A Giant Departs: Nike Leaves Amazon:

• Nike is about to stop selling on Amazon. 

• Nike is moving to a more direct to consumer model and cutting out the middleman.

• They have the ability to reach and directly market to the consumer base that is buying their product. 

• Getting off of Amazon also mitigates the possibility of counterfeit product being sold through the platform. 

Changing Models: How Shopping Has Evolved:

• 20 years ago, shopping was a destination so it was an effort to shop, but today, the mall is as close to you as your phone. 

• We no longer have to go to edifice to buy our stuff. 

• Brick and mortar is now much more geared toward experiences as opposed to the actual purchasing of products. 

• Nordstrom just opened a flagship store in Columbus Circle that is all about the experience of shopping. 

Brands Mentioned In This Episode:

• Trade Coffee

• Spotify

• Stitch Fix

• Rent the Runway

• Coty, Inc.  

• Nike

As always: We want to hear what our listeners think! How can you educated your customers to make them warriors for your brand and increase LTV?

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