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How Brands Are Making Margins and Loyalty Grow With Digital Goods
According to OSF Digital’s 2023 Omnichannel Retail Index (ORI), retailers have increased their investment in content and loyalty program capabilities during the past year. Compelling content can help retailers engage, educate, and entertain customers.
Brands have an opportunity to turn content into digital goods (products and services that are completely delivered using information technology) to get closer to consumers, create communities, and develop an additional revenue stream.
A Bar Above, a provider of premium bar tools, equipment, and education for home mixologists, craft bartenders, and restaurants, is on top of the digital goods trend with their online content portfolio.
The company started with a blog and YouTube channel and quickly grew to include a podcast, online courses, and a series of blogs. While some content is freely available on its digital channels, A Bar Above has created and packaged premium content into courses, which it sells online to cocktail lovers and pro bartenders alike.
“Our mission is to make craft cocktails accessible to everyone, and because we started out creating great online content, it felt natural to start packaging our more advanced training into chargeable offers,” said Julia Tunstall, co-founder of A Bar Above. “We produce and sell a wide range of digital courses, from bar basics and craft cocktail workshops to advanced mixology training and certification courses.”
A Bar Above began designing and manufacturing a custom line of professional-grade bar tools based on feedback from customers and market opportunity. Products are sold online, often in combination with their digital assets.
The combination of physical and digital assets delivers a unique value to consumers. Shoppers are presented with a full range of products through upsell and cross-sell offers during discovery and checkout as well as post-purchase discounts for “digital delivery” items.
Deloitte’s Global State of the Consumer Tracker estimates that digital goods and services make up 2.9% of surveyed consumers’ total wallets and that U.S. adults spend $120 to $130 per month on digital products and services. While most of the current spend is on streaming media (movies, music, and publications), bundled services, and gaming, innovative brands are developing digital products and services designed to appeal to consumers, particularly Millennials and Gen Z.
High fashion and apparel brands are leading the way, experimenting with metaverse and Web3 technologies to launch non-fungible tokens (NFTs) collections and other digital apparel offerings. Gucci was the first major luxury brand to build a digital world in the metaverse platform, which features games and NFTs showcasing the brand’s history that are available for consumers to purchase.
While digitized goods have the potential to disrupt retail in the future, and the jury is out on consumers continuing to buy virtual merchandise long term, brands have the opportunity to monetize content and package up tangible offerings that consumers will find valuable today. A great example of this is how A Bar Above creates promotional offerings for gifting.
“Our special occasion Gift Boxes contain a themed package of bar tools, access to our bestselling courses, easy-to-follow recipe cards, and recommendations for ingredients,” commented Ms. Tunstall. “The ability to offer both virtual gift certificates and digital courses offers our last-minute shoppers great giftable options without the delays associated with holiday shipping.”
Digital goods are being developed at a very quick pace, and while it’s too early to tell which of the digital environments and tech tools will deliver lasting value, it’s clear that there is an opportunity for brands. Digital assets increase the company’s range of offerings, raise margins, and increase average order value. Brands in any line of trade can develop a portfolio of digital goods to complement their product portfolios and create a competitive advantage, long-term relationships with customers, and ultimately a more profitable business.
Discussion Questions
DISCUSSION QUESTIONS: Are brands, especially those that want to appeal to upcoming generations, doing enough with digital goods to grow business and loyalty? How can other brands onboard their customers into their communities as effectively as A Bar Above has with its training courses and other digital products?
Poll
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Ten years ago Customers had to demonstrate their loyalty to the brand, but it is now nearly 180º different. Sharing digital content has been a major tool for brands in the past few years to demonstrate they care about customers and want them to get the most from the products or services sold – but offering value-added content. This is important because digital goods enable the embedding of emotional triggers that create a deeper bond. If the content is good enough, it can generate new revenue streams as A Bar Above has demonstrated. People want meaningful relationships and digital content can be very effective at creating such relationships at scale.
Really good lesson here in how to differentiate a retail business. How about a podcast from your butcher on what steaks to buy for certain occasions and how to choose them? Or a blog from a styling consultant on how to mix and match accessories? Consumer electronics and home & hardware retailers are already doing some of this with great impact (I just watched a Home Depot YouTube video on replacing the toilet fill valve and saved myself $150 plumber charge). The key is subtle cross merchandising that really shows the value of the product or service behind the content. This builds trust and loyalty over time.
EXCELLENT comparison, Ron! I’ve done the same many times. It’s incredible the amount of loyalty and bond I feel with the brand for elevating my understanding. If I want to have the “budget experience,” I can do it myself; when I find myself wanting the BEST experience, I go to them.
Now that the metaverse, & similar digital initiatives, have been declared dead in favor of all things ChatGPT/AI, it feels like the perfect time to invest in digital experiences that create brand equity, create differentiated engagement, & provide consumers a reason to shop w/ your brand on a regular basis.
Having worked on the merchandising side of content businesses, the key is combining goods (digital and physical) which complement the total value of both. If the brand provides the why behind the need for the content, the benefit is appreciated by the consumer and can provide a competitive advantage which in turn can improve profit. Whether the consumer believes that digital information is worth paying extra for is the challenge for the brand.
I’ve been watching home-made ‘fix-it-yourself’ YouTube videos for a long time now (car, toilet, shower, flooring, etc). Some are quirky, but many are fantastic and tell you exactly how to resolve a problem with minimal cost. I’ve probably saved up to $2k-5k over the last several years that I would otherwise would have paid to professionals. If brands can create a community with high-utility assets that keep the brand top of mind with consumers, there will be profits to be made.
We’ve seen this work effectively with brands that are specific to certain enthusiasts. Sur La Table with its recipes + classes, REI with its Expert Advice section. Both cross-sell very effectively. This is absolutely replicable in many retail environments and should be done to add ‘stickiness’ to the brand.
Great examples, Dave!
Digital training courses and subscription services to online instructional videos are a great way to drive incremental revenues with high margins. For example a golf retailer that has multiple professional trainers can record a series of golf tips and offer the videos as a subscription service. This would provide incremental revenue and increase demand for personalized instruction that is based on individual needs.
Subscriptions are a great way for brands to create a community. The key is making the content compelling enough that customer are willing to pay for it.
Extensions to the brand are always beneficial. The question is to what extent can the brand deliver compelling digital goods on a sustained basis. Is it a nice to have or something that is core to the value the brand delivers to its fans. Paying for content or NTFs is a proposition that must be researched thoroughly with top tier customers. Select categories have the greatest potential to deliver assets or content that is valuable and can be kept “fresh” quarter to quarter. Lifestyle brands, entertainment, luxury all make good sense. Leveraging this effort to improve customer identification is a key benefit besides new revenue generation.
This is a growth opportunity for many brands looking to extend the value of physical goods with more data intelligence or provide training for brand fans who want to maximize their experience.
Data products can be extensions to the physical product to provide additional data services so customers can be smarter when using these products. Examples of this include smart toothbrushes which measure frequency, and type of use and can inform customers, or smart tennis rackets that can help tennis players understand their play, the speed of the racquet, and use the data to improve themselves.
Whether it is embedding IOT into intelligent products or building more digital instruction and coaching to grow their communities, building data products is a key area to investigate to expand into new areas profitably for brands and retailers alike.
Digital goods, specifically content, are fantastic for building a community and fostering greater loyalty. This is exclusive value, and a closer relationship with customers- a win for both parties.
The opportunity is to engage mobile-first digital consumers both in person and online, through meaningful content, loyalty programs, etc. The key to driving engagement and revenue lies in the value of the information — entertainment and education are the best forms of digital content to engage consumers. I particularly like the combination of physical products with digital content that A Bar Above leverages. To work, the content must be personalized or not easily accessible on the web otherwise.
Digital content that both educates and informs can be an essential tool in today’s marketing growth and loyalty development. As the article notes, there are several points of reference from niche examples (A Bar Above) that are interesting, but nothing more than this. Major examples and more of them is what is really needed to give digital products better definition and fortitude.
Differentiating through unique & engaging digital experiences makes a lot of sense as part of an overall engagement strategy. Its the tailored content that brings out the brand that is most meaningful regardless of how clever the channel is. Last year it was the metaverse, this year its all ChatGPT/AI, & next year it will be something different. Its the content & expertise that will continue to bring shoppers back for more.