By Anas Alshanti
We’re witnessing a major shift in climate change caused by CO2 and other harmful greenhouse-gas emissions that are increasingly trapping heat in the atmosphere, as a result; raising global temperatures. In other words; our planet is becoming hotter!
The main gases responsible for the greenhouse effect include carbon dioxide, methane, nitrous oxide, natural water vapor, and fluorinated synthetic man-made gases. Over 2000 chemicals are used to process textiles, chemicals like mercury, lead, formaldehyde, and chlorine.
The global apparel and footwear industry produced more greenhouse-gas emissions than Germany, France, and the UK combined in 2018, totaling 2.1 billion metric tons of CO2 emissions, that’s approximately 4% of total global emissions.
Without significant action, the figure could rise to around 2.7 billion metric tons a year by 2030. The international fashion industry must urgently cut emissions by 50% to reach a 1.5 °C target. If the fashion industry continues to embrace decarbonization initiatives at its current pace, it will cap emissions at around 2.1 billion metric tons a year by 2030, says a new report from McKinsey & Company and the Global Fashion Agenda.
To put this in perspective, a single pair of jeans requires 1 kilogram of cotton, which requires about 7,500-10,000 liters of water, that’s about 10 years’ worth of drinking water for one person, according to UN estimates.
Jeans manufacturer Levi Strauss assesses the environmental impact of producing one pair of their iconic 501 jeans, it equates to 33.4 kg of carbon dioxide – about a 69 miles drive in an average US car, not to mention the amount of water it requires to wash over its lifetime.
Today, 76.4 million tons of clothing are produced annually worldwide. This corresponds to the weight of almost 55 million cars.
Greenhouse gas emissions are causing extreme weather events including, heat waves, hurricanes, floods, droughts, rising sea levels due to melting glaciers, as well as air pollution. This poses a direct threat to us, to plants, and to all wildlife.
We must act now to reduce carbon emissions. The entire value chain from farms, to factories, to policymakers, to brands, investors, and consumers, all must actively and responsibly participate.
All key participants in the fashion industry can play a significant role in decarbonization and the stabilization of climate change. However; The collective mindset and actions of all fashion industry participants must be aligned with the goal of reducing carbon emissions. The question is; are participants fully aware of the urgency and the dire not-so-distant outcomes for not taking responsible and immediate actions? What strategies, technologies, and sustainable business models brands can embrace? Where do they start? In this article, we’re going to shed light on crowdfunding & pre-orders as effective sustainable business models.
CROWDFUNDING & PRE-ORDERS
There are numerous advantages for fashion brands to embrace crowdfunding & pre-orders into their business. It helps brands build more efficient, sustainable, and scalable businesses that align with the goal of reducing carbon emissions.
WHAT IS CROWDFUNDING?
There are few types of crowdfunding models: reward-based, equity-based, donation-based, and debt-based. In the fashion industry, we’re mostly talking about physical products, therefore, we’ll focus on reward-based crowdfunding & pre-order models.
Rewards-based Crowdfunding is the process of funding the launch or initial production of a new product by raising capital collectively from individuals (Backers). In return, backers get a special deal on a limited or exclusive product that they expect to receive at a later stage.
WHAT IS A PRE-ORDER?
A pre-order is a way to allow customers to place a reservation for a product prior to its scheduled release date. It’s a form of securing a must-have item before it sells out. A pre-order can be partially or fully paid upfront or when the item is ready to ship.
A SUSTAINABLE COMMERCE JOURNEY — LESS IS MORE!
Crowdfunding and pre-order models are types of campaign-based commerce, both are part of a 4-stage sustainable commerce journey; Crowdfunding, Pre-order, Commerce (online & offline), and Recycling.
Starting with the right model depends on the product development stage and product type. You could start with crowdfunding as a way to initially assess demand and get your idea into production, and if your crowdfunding campaign is successful, you can start taking pre-orders to fund multiple rounds of production, and with more demand, you could continue taking regular orders online or offline. And when demand decreases, you could run a flash-sale campaign to deplete your stock. Finally, you may also consider offering an inbound recycling service on your website.
To summarize; crowdfunding is a way to support early-stage product development; to take an idea or a design concept into production. The second phase is pre-order where you can fund multiple rounds of production. The third phase is the standard online or offline commerce model, and finally, inbound / closed-loop recycling as a way to encourage your customers to meaningfully engage in the recycling process.
The majority of fashion brands who follow the traditional retail route, tend to directly go for the commerce model, skipping over crowdfunding and pre-order models. This traditional retail route results in overproduction; wasting materials, exhausting manufacturing resources, and causes inefficiencies in warehousing, transportation, distribution, and recycling.
But, there are alternative smart online solutions that focus on the core of the problem; Overproduction!
Those online solutions are; Crowdfunding, Pre-order, and Recycling.
WHY CROWDFUNDING & PRE-ORDER?
One of the fundamental challenges that fashion brands face is validating and assessing the demand for a new product or a collection, and how this demand converts to sales, subsequently to produce or order exact quantities, better manage cash flow, and avoid production waste.
The way brands generally assess future production volumes is through forecasts and best guesses, but those predictions and assumptions are in most cases challenged by actual customers’ demand. Attempting to understand and analyze customers’ behaviors, tastes and preferences is a highly complex endeavor, it’s expensive, unpredictable, and requires large data collected over extended periods of time, the type of data that isn’t particularly available to startups or small and medium-size fashion businesses.
However, recently, especially during the coronavirus pandemic, the number of agile brands embracing crowdfunding and pre-order models directly on their online stores has increased.
Here are a few examples of sustainability-conscious brands that use pre-orders to help our environment take less waste.
Let’s have a look at some of the benefits for both; crowdfunding and pre-order sustainable models:
PHASE 1 – CROWDFUNDING MODEL BENEFITS
- Assess and validate product likability and demand before committing to production.
- Break into the industry fast and without wasting resources.
- Build up initial hype for new products and collections.
- Collect and understand customer’s needs and preferences to improve product design and to quantify product demand on variant level.
- Enhance customer segmentation and targeting.
- Drive traffic to your own website and improve marketing funnel conversions.
- Raise capital to fund an initial production round.
- Understand the challenges that come with the first production run.
- Lower cost of production, lower prices for customers, and increased profit margins.
PHASE 2 – PRE-ORDER MODEL BENEFITS
- Iteratively scale production volumes based on actual demand.
- Healthier cash flow and control over production cycles.
- Eliminate overproduction by producing the right amount of the right product to the right customers.
- Promotes the use of sustainable eco-friendly materials.
- Less seasonal production pressure, more agile, and timeless production.
- Get to know your winning products fast.
- Build stronger relationships with your manufacturers and suppliers by managing their production’s volume & time expectations.
- Negotiate better prices and lead times with manufacturers and suppliers.
- Less warehousing, insurance, and transportation costs.
- Helps build awareness and contribution to sustainability.
- Better understand customer behavior and preferences over extended periods.
- Build momentum and hype, funnel more traffic to your online store.
- Increase customer engagement, trust, and loyalty.
- Slows down impulsive purchase behavior and increases awareness.
With all the benefits that come with the pre-order model, there are a few challenges;
PRE-ORDER TYPES – CHALLENGES & SOLUTIONS
There are two types of pre-order methods: Pre-order & Pay Now! and Pre-order & Pay Later!
- Knowing which pre-order type is more suitable, depends on a number of factors;
- How confident you are in your product.
- How many and how well you know your customers.
- The strength of your relationship with your manufacturers, suppliers, and delivery partners.
- The stage of production and when the product is expected to be ready.
- How well you manage your cash flow.
PRE-ORDER & PAY NOW!
Most brands collect pre-order payments in advance from their customers, this method is commonly used to cover the cost of production and operations. But there are a few challenges to this method:
- Customers are not necessarily excited about paying upfront for pre-orders, especially when delivery estimates and expectations are not communicated clearly, or if the brand is new in the market.
- Delays beyond the estimated delivery window force customers to cancel their pre-orders, ask for refunds, and dispute chargebacks. Issuing refunds can take up to 10 days to be credited back to the customer, which causes more friction and increased pressure on the brand’s customer-service resources.
- Mismanaged pre-order campaigns can have a long-lasting negative impact on the brand’s reputation.
- Refunds should be avoided to maintain a healthy record with the payment processor and online store solution provider.
- E-commerce solutions typically provide a capture payment setting that allows brands to capture payments instantly, or to capture payments manually later (Authorizations). There are several benefits to manually capture payments later, like preventing fraud, the stock isn’t available yet, and avoiding refunds. The problem however is that authorizations expire typically between 5 to 10 days for most payment providers, and beyond that period, the hold on those payments will be released and the payment can’t be captured. The 5-10 days period isn’t enough time to effectively run a pre-order campaign and be in the safe zone at the same time. This brings us to the Pre-order & Pay Later method.
PRE-ORDER & PAY LATER!
The Pre-order & Pay Later type is geared towards solving the problem of customers’ hesitation to pay upfront. In other words, an alternative solution to Pre-order & Pay Now! This method allows customers to reserve a product and pay later when the product is ready for delivery! This method amplifies customer’s confidence and trust and eliminates possible friction. And for any reason the campaign is canceled before collecting payments from customers, no harm is done and no refunds to be issued.
Customers generally prefer to place a product reservation first and pay later when the product is ready for immediate delivery! However, there are a few challenges to this method:
- The 5 to 10 days authorization period allowed by payment providers isn’t enough to effectively run pre-order campaigns. To overcome this, you may want to consider Split Crowdfunding or Split Pre-order method described below.
- Between the time of pre-orders and the time of collecting payments, brands should provide a good incentive for their customers to increase conversion, this incentive can be a combination of a limited payment window, a limited number of products, a good discount, a special offer, or free shipping.
- To accurately assess the demand for this type of pre-orders, product variant choice and quantity should be collected along with the customer’s email, so that you know exactly what they’ve reserved.
To learn more about how credit card payments are processed click here:
AMPLIFY PRE-ORDER ENGAGEMENT
As a brand, there are a few things you can do to increase customer acquisition and engagement before, during and after taking pre-orders:
- Share with your customers your true story, tell them about the ‘Why’ behind your product design, explain to them how pre-orders help with sustainability, make them feel that they’re part of your brand’s sustainable journey, and amplify the value of their contribution to the environment.
- Create a unique well-structured pre-order page with eloquent language and beautiful photography that clearly communicates your product features.
- Clearly show an estimated delivery window, and make sure it’s as accurate and transparent as possible.
- Customers need to clearly see how the pre-order process works step by step on the pre-order campaign page.
- Engage with customers and add value; keep them excited and informed for the duration of your campaign; offer them relevant good-to-know information, sustainability insights, and even go further by providing them with relevant gamified experiences.
- Create urgency by running your campaign for a limited time, or for a limited number of pre-orders or products.
- Add value to your pre-orders by offering a special deal price for early-bird customers. Offer a gift or a discount code that customers can use on your website.
- Add a prominent Pre-order button instead of an Add to cart default button.
- Engage with your customers; chat with them online when they’re on the pre-order page, ask them about their preferences, and answer their expectations.
- Create buzz through influencers, offer them samples to help them build awareness and excitement with their followers.
- Drive traffic through social media to your pre-order campaign and keep a consistent momentum.
- If possible, charge customers when stock is ready for delivery.
SPLIT CROWDFUNDING / PRE-ORDER MODEL
The goal of the Split Pre-order or Split Crowdfunding model is to extend the duration of a pre-order campaign and to overcome the limited 5-10 days payment authorization period.
A split crowdfunding model splits the campaign into two phases, the Commits (Reservation) phase, and the Pre-order phase. During the commits phase, emails are collected, and during the pre-order phase, payments are collected. The Commits phase duration can therefore be extended accordingly, and the pre-order phase can take advantage of the authorization period.
The Split crowdfunding / pre-order process helps brands answer the following questions and concerns;
- Is my new product design or concept desired?
- Is my product fit for this market?
- Is there enough demand? How much?
- Who is my true audience?
- How can I improve my product?
Accordingly, brands can make better decisions about their future production and easily manage the expectations of their customers and partners.
RECYCLING — CLOSED-LOOP MODEL
By design, a circular fashion economy aims for a highly efficient and sustainable way for sourcing, producing and recycling clothing and accessories.
Many brands feel that part of their commitment to reducing the impact of textile waste on the environment is to recycle products they produce, this is done by inviting customers to send back to the brand the products they no longer want for the purpose of recycling. As an incentive, customers will receive a discount on their next purchase or a personalized social recognition for their contribution. It just makes sense!
Sustainability is a journey of agile adaptation, commitment, conscious and consistent actions. Technology makes it possible for brands at every level to achieve the goal of a better sustainable future.
Author – Anas Alshanti