Develop Value Propositions in The Fashion World Pt. 2/3: How You will Make Money

So, now that you Understand Your Customer (Part 1 of 3 in this series)… let’s figure out how you will make your money!

How Do You Structure Value To Create Revenue ­ “Making Money?”

Understanding the psychological implications of value is extremely important in the creation of your value propositions. But, being that you are either in a business, or on the road to creating one, your focus should remain within the context of generating sales to sustain your endeavor. As Paul Freet, serial entrepreneur and commercialization expert states, “A Business is a repeatable process that makes money. Everything else is a hobby.”

If you believe the former to be true, then you know you cannot think about value, or the needs and wants that lead to its creation, in a vacuum ­ thus, if you hope to develop a sustainable business, it is essential to provide a conduit through which value can be delivered to your customer. In other words, you need to identify a way to put value into a form or structure for which people are willing to pay, and you are able to earn revenue (ie “revenue generators”).

Below is a list of revenue generators (ie ways to ‘package’ value) in the fashion industry and beyond:

Products: This is pretty self­ explanatory, and one of the most familiar forms of value associated with the fashion industry. Products are tangible items or entities (“core benefits”or”consciously perceptible manifestations of value”) that you create and sell for a price higher than what it cost to make. Examples of this include pairs of shoes, jackets, handbags, etc.

Services: ­ This is also fairly common within the fashion industry, and often the operational ‘glue’ that holds the industry together. A service consists of performing a task, action, or offering that helps and/or assists your customer, then charging them a fee for the benefit rendered. Examples of this include fashion stylists, photographers, makeup artist, etc.

Shared Resources: ­ While less common, shared resources can still be a source of value within the fashion sphere. Shared Resources are tangible items or entities that are durable enough to be used by your customers multiple times, repeatedly ­ your customers pay you a fee for access to use these items or entities with repeated frequency. An example of this could be a re-imagining of Fashion Enter in the UK (ie access to available sewing machines, steamers, dyeing equipment etc)

Subscriptions: ­ If you keep yourself informed on the ‘ins and outs’ of the fashion industry, or you like to stay current with trends, you’re likely to have been locked into this value arrangement at some point­ in ­time. Subscriptions offer continuous access to your customers for some type of core benefit in exchange for a recurring fee (i.e. money you get on a periodic basis, whether daily, weekly, monthly, quarterly, or annually).

Examples include: Various Media Publications such as WWD, Vogue, Love, iD Magazine, Purple Magazine, etc.

Magazines
 

Advertising: ­ Media is a major component of the fashion engine. For those companies that have a large audience of readers, viewers, or followers, advertising can be a very lucrative form of value. Advertising is possible when you are able to consistently gain and hold the attention of a group of people with certain characteristics & traits, then sell access in the form of advertising to a third party looking to reach said group of people. Likewise to Subscriptions, many of the same media publications (as mentioned previously) leverage advertising as a form of value. With the rise of the digital age and blogging, advertising has also become the ‘lifeblood’ for many popular blogs such as Le21eme, Bleumode, and The Satorialist ­ creating a path to become successful media businesses for many of their founders.

Reselling: ­ Next to products, this is also one of the most commonly used forms of value in fashion. Reselling consists of acquiring a tangible item or entity from a wholesaler, then selling that item or entity to a retail buyer at a higher price. The business models of multi­-brand retailers such as Collette, Dover Street Market, and Bergdorff Goodman are heavily predicated on this form of value.

Colette Stores
 

Renting / Leasing: ­ Although less common, with the rise of the ‘share economy,’ you may begin to see more scenarios in which a fashion business has leveraged this form of value. Renting / Leasing consists of acquiring a tangible item or entity, then allowing a customer to use said item or entity for a predefined amount of time in exchange for a fee. A prime example of the effectiveness of this form of value is the company, Rent the Runway, whose business model allows for its customers to rent expensive designer clothing for a specific period of time at a fraction of what it would cost to purchase and own the clothing.

Agency Model: ­ For those of you familiar with the ‘behind ­the­ scenes’ talent that helps keep the fashion industry afloat, the agency model will be a clear and viable form of value. The agency model works by marketing and selling an item, entity, or service you don’t necessarily own on behalf of a third party, then, as a fee, charging a percentage of the transaction price agreed upon between you and the person or entity with whom you did a deal. Modeling agencies such as Womens, IMG, Ford, or fashion talent agencies like DeFacto, Agence Saint German, and D+V Management are prime examples of companies that leverage this form of value.

Options: ­ Options may be unfamiliar to many of you, but some of the mechanics behind this form of value are not new to the fashion world. Options enable you to receive a fee for initiating a predetermined action for a fixed period of time. In fashion, this form of value is prevalent amongst PR Firms (i.e. KCD, Frame Noir, PR Consultings, etc.) that charge their clients a retainer fee (ie predefined sum of money, often charged on an on­going basis, for a predefined amount of time), or amongst fashion conglomerates such as Luxxottica or The Warnaco Group for whom buying the licensing rights to certain brands is common practice. For example, Luxxottica purchasing rights to Prada eyewear, and The Warnaco Group purchasing rights to Calvin Klein underwear and other product categories.

Capital Investments: ­ The level of transparency on this form of value has grown considerably with the availability of information relating to the topic. In exchange for purchasing an ownership stake in a business, successful capital Investments allow you to collect a corresponding portion of the profit from said business as a one­time payout or ongoing series of payments (also called a dividend payment) ­ the latter payment type only occurring if you decide to retain your ownership stake in the business. Large fashion conglomerates such as LVMH, Kering, or Richmont serve as prime examples of businesses that have taken ownership stakes in a variety of fashion brands.

Screen Shot 2014-11-04 at 6.24.18 PM

This shows you just how common this form of value is within the fashion world.

Honorable Mentions:

Loans: ­ Loans enable you to lend a certain amount of money to a customer, then collect payment, which typically includes a predefined interest rate over a predefined period of time equal to the original amount of money that was loaned out.

Insurance: ­ With insurance, you cover the risk of some specific calamity or unexpected negative event occurring in the future that could cause great economic harm to the customer ­ this is done in exchange for a predefined (often recurring) series of payments. In this case, “covering the risk” means paying money (usually a predefined amount) to the customer only if the specific calamity or unexpected event occurs.

While it is possible that you may choose to factor insurance or loans into your business model when starting your fashion business, I believe it is far more likely you will not. This is not to say that you couldn’t do it. Many successful businesses have been created by synthesizing or cross­pollinating the attributes of one business model or industry with another, leveraging common forms of value associated with each during the process. For example, you may want to start your own fashion micro loans business to cover small functions (i.e. getting samples made, etc.) for start­up fashion brands and new designers. By all means, challenge yourself to think “outside the box.” But also know that it’s ok if you want to take the “tried and true” path, and structure your business based on values that are more familiar to you.

Your Unique Selling Proposition (USP)

Your USP is essentially the value or set of values that differentiates you from your competition. When thinking about your USP, it’s a good idea to consider the Offcore benefit (“psychological value”) you’re offering to your customers. It can be a feeling, a vibe, or a mood, but, ideally, it should be something that your customers can only get from you ­ and not your competitors.

Today, with ‘marketer­ level informed’ consumers being bombarded by an onslaught of information on a daily basis, it has become vitally important to build marketability directly into your business and value offerings. To become a sui generis, the “remarkability” quality, to quote Seth Godin’s (marketing guru) favorite word, must be an essential building block in your value propositions your customers. This “sui generis” element should also sit at the center of your brand, and be reinforced through messaging on all the relevant channels of communication with your customers (a topic to expound upon for another article). Whatever “it” is, make sure “it” is consistent, and make sure “it” is properly aligned with the belief and/or value system of your target customers.

Perceived Value

Perceived value, as it sounds, is related to perception ­ more specifically, the perception of your customer. Let’s say, for example, you’ve developed a line of five­panel caps. Each cap cost you $10 to make. Using keystone markup (a topic to expound upon for another article) you sell it to a few retail buyers for $20 and they, in turn, (using keystone markup again) sell it in their stores for $40. However,you notice that the caps are being resold by some of your customers on Ebay for $100 or more, and other customers are paying this price to acquire the caps. In this scenario, your cap has a high perceived value. The more valuable your customer believes your offering to be, the more they are willing to pay for it, which can translate into higher margins for you on your “revenue generators.”

How do I Increase Perceived Value?

Below is a list of things you can do to increase the perceived value around your offerings. The more of these you possess, the more perceived value you are likely to engender amongst your customers:

Core Human Drivers (as mentioned in Part 1; Understanding Your Customer): Ideally, you want to satisfy one or more of these drivers to amplify the perception of value in your offerings.

Pictures in Your Customer’s Mind: Make it easy for your customers to frame a vision within their minds, whereby your value offering is associated with a positive state of being. Of course, they likely will not tell you what this is, but you can infer based on your analysis of their lifestyle & personality characteristics.

Friction & Frustration Factor: How well can your offering reduce the discomfort or effort associated with tasks or actions your customers often engage with?

Status: This is extremely important in cosmopolitan environments, which also tend to be critical epicenters for the fashion world ­ places such as New York, LA, Paris, and London just to name a few. The more your value propositions convey to your customers the likelihood of meeting their ideal status level within either their tribe or in relation to other tribes, the more perceived value your customers will assign to your offerings.

 

That concludes part 2 of 3 of this series on developing value propositions.  Stay tuned for part 3, where we will “Go to Market.”

Cover picture taken by Pavan Bahl of @OSFashion at the Welling Court Mural Project in Astoria Queens, NYC.

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Pavan Bahl

Pavan founded Open Source Fashion (OSF) in 2011. He has since emerged as a connector between innovators working in fashion, retail, and related technologies. He's a strong advocate for startups and entrepreneurship, focusing his efforts on uncovering opportunities for the OSF membership base between New York City and Washington, DC.