Building a Marketplace for Millennials

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\"RR_BuildingThrough all our coverage of millennials at the The Robin Report, one thread has stuck out constantly: millennials’ decisions about purchasing are complicated.

Millennials want to belong to focused interest groups that make up a greater community of shared values. One emerging trend is the technology allowing marketplaces to be built into a preexisting online communities with an e-commerce framework provided by an involved third-party. The result is that millennials are becoming the buyers, curators, and sellers of the goods they want.

Luxury Reboot

As luxury brands continue to find ways to cater to the next generation, the motivation to buy needs to be redefined as aspiration. Luxury brands have always catered to the perception of exclusivity and status. Purchasing from them was meant to be about more than the product, it is, rather, a buy-in with a group of customers with shared values and taste.

Millennials are lowering the bar to entry in the luxury market through their aspirations. Luxury is no longer about the super high end, it’s about buying from brands that let them connect with a network defined by a unified ethos. Purchases become the badge to experience the way of life these luxury sub-groups represent, even if the millennial customer has not achieved that level of financial success.

This approach is clearly in conflict with the traditional ways luxury brands have marketed. Instead of representing the end goal for millennials, they have to try to fold their values into these connected networks to remain relevant and sustainable. Let’s look at the marketplaces that have sprung up on top of the brands to uncover key clues to succeed

The Marketplace

So how does it work? Marketplaces are quite simple. Technology has made it even easier to connect large groups of people who want the same thing. The host of the marketplace monetizes by taking a small percentage, allowing anyone to create their own e-commerce site to connect with likeminded consumers. What has become interesting is that many of consumers represent both the buyers and the sellers, extracting value from both sides of the transaction. This results in a nice virtuous cycle:

Individuals browse, looking for things that they love, make a purchase, sell old purchases (based on shared browsing taste), and use the money to buy more. This allows consumers to buy and sell quickly—letting them tap into higher price points secondhand, so they can then reach beyond their means with luxury products.

Case Studies

The following three examples highlight the power of building a marketplace on top of an engaged community.

1. Called a “community marketplace for men’s clothing,” Grailed launched in 2011 to help make great clothing more affordable. Founded by Arun Gupta when he was only 26, Grailed has a beautiful interface (he wrote most of the code himself), and a disturbingly simple selling process that makes it easy for consumers to benefit from both sides of the transaction: selling and buying. Focused on contemporary streetwear brands (think Our Legacy, Rick Owens, A.P.C), its expert curation is thanks to the shared taste of its community. Its genius lies in making expensive, reach purchases accessible by letting its community sell in-demand items to buy the in-demand items they want. Being able to enjoy both sides of the marketplace encourages a tight group of engaged users to rack up even higher revenue.

What makes this better than other open marketplaces? It’s the shared interests of that tightly knit community and the personal curation they provide. It also allows room for experimentation and mistakes. When consumers reach up towards price points in luxury territory, the chance for consumer letdown is huge. One bad experience with a reach purchase early on can turn you off the brand forever. A marketplace like Grailed lets you try brands you have had your eye on safely. If you don’t like it, you can sell it back for what you paid for it, and then try something else.

Right now Grailed doesn’t charge a percentage fee for transactions—trying to return as much value to the end user early on. Luxury brands take note: if you can create a safe way for millennials to enjoy your clothing, those first forays can produce longtime customers with huge lifetime value.

2. Launched in 2005 and now with stores on both coasts, Flight Club moved into the competitive space of collectable sneakers early on. Capitalizing on the high price points and absurd demand, Flight Club made it easy for collectors to get the coveted items they were looking for, and sell off what they had so they could pay for them. Most importantly, it solved a serious problem for consumers: authenticity. With fakes running rampant and people forking over considerable amounts of money (upwards of $500 for sneakers), Flight Club’s marketplace offers standardized selling practices and the assurance that people get what they are looking for.

And unlike a lot of other marketplaces, they do all the work for you. Just drop off your shoes, they will photograph them, clean them up, get them ready for auction, and ship them off to buyers. For this they charge 20 percent, a price consumers are willing to pay Flight Club to deal with the murk and inconvenience so they don’t have to.

Flight Club was a forerunner of many of the key marketplace principles for success. They let their niche audience handle curation, supply and demand, and marketing. They also listened to the problems of their community, and validated that a large group of people were willing to pay them to overcome the obstacle of authentication of the products they are buying.

And like Grailed, many of their buyers are also sellers, creating that coveted dual-value proposition that adds a multiplier on the value of every customer. When the world of fakes and knockoffs is big business, it’s great to see a company with the dedication to ensure authenticity and a customer who will pay for this premium.

3. Soylent, launched in 2013, is a community of people who are interested in using science to hack their food routines and create a more sustainable food source. Creator Robert Rhinehart developed Soylent to combat the disproportionate amount of time and money (both to grow, distribute, and ultimately purchase) nutritionally complete meals. So what is it? Essentially it’s a kit you purchase that has everything you need to eat healthy in one pouch (like a super milkshake). The product is treated like a piece of software; each iteration is launched to its avid community, who digests and discusses it amongst themselves. This feedback is pumped directly back to the Soylent team who iteratively improve their product and prepare the next “launch.”

The amazing thing about Soylent is that it raised $20 million, led by Andreesen Horowitz, not for the potential revenue, but rather for the power and commitment of the community.

Soylent is not a product, it’s a group of people who care about what they eat, and strive for a better future. And this community is active; their forum is a hotbed of debate and conversation surrounding topics like the difficulty of getting a well-balanced, affordable, healthy meal outside of affluent neighborhoods, as well as what constitutes a healthy meal in the first place.

Soylent offers a glimpse into what top-level VC funds will pay for a community-driven retail company. It reminds us to never underestimate the power of a small group of people who all share a worldview, belong to a community, and want to support a company to solve a problem they can’t solve themselves.

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