How crowdfunding helps our environment?
We’re witnessing a major shift in climate change caused by CO2 and other harmful greenhouse-gas emissions that is 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, totalling 2.1 billion metric tons of CO2 emissions — 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. https://unfccc.int/news/un-helps-fashion-industry-shift-to-low-carbon
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 policy makers, 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 can brands embrace? Where do we 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 the 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 ——> Pre-order ——> Commerce ——> Inbound Recycling
- Put it against an image of biodegradable materials
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 Inbound recycling.
Starting with the right model depends on the product development stage and 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. If demand decreases, you could run a flash-sale campaign to deplete your stock. Finally, you may also consider offering 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 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, warehousing, transportation, distribution and recycling inefficiencies.
But, there are alternative smart online solutions that focus on the core of the problem; Overproduction!
Those online solutions are; Crowdfunding, Pre-order, and Inbound 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 to small and medium size fashion businesses.
However, recently, especially during the coronavirus pandemic, agile brands are embracing independent crowdfunding and pre-order models directly on their online stores in support of sustainability and conscious growth.
Here are a few examples of sustainability conscious brands who use pre-orders to help our environment take less waste.
Here are a few other links for brands who are doing a great job towards sustainability
So, 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 demand on product variant level.
- Enhance customer segmentation and targeting.
- Drive traffic to your own website and improve marketing funnels 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 of agile and timeless production.
- Get to know winning products fast.
- Build stronger relationships with your manufacturers and suppliers by managing their production - 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 quality awareness.
With all the benefits that comes 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 many and how well you know your customers.
- How confident you are in your product.
- Strength of relationship with your manufacturers, suppliers and delivery partners.
- Stage of production and when the product is expected to be ready.
- How well cash-flow is managed.
PRE-ORDER & PAY NOW!
Most brands collect pre-order payments in advance from 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 forces 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 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’s 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, stock isn't available yet, and to avoid 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. 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. Which brings us to the Pre-order & Pay Later method.
PRE-ORDER & PAY LATER!
The Pre-order & Pay Later or Reserve & 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! This method amplifies customer’s confidence and trust and eliminates friction. And for any reason the campaign is cancelled 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.
Between the time of pre-orders and the time of collecting payments, brands must provide a good incentive for their customers to increase conversion, this incentive can be a combination of a limited payment window, limited number of products, a good discount, a special offer, or free shipping.
To accurately assess the demand for this type of pre-orders, emails must be collected as reservations.
Customers need to clearly see how pre-orders work 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.
AMPLIFY PRE-ORDER ENGAGEMENT WITH CUSTOMERS
What brands can do?
- Share with your customers your true story, tell them about the why behind your design, explain to them how pre-orders help with sustainability, make them feel that they’re part of your journey, and 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 product features
- Clearly show an estimated delivery window, and make sure it’s as accurate and transparent as possible.
- Create urgency by running your campaign for a limited time, or limit the number of pre-orders.
- Add value to your pre-orders by offering a special deal price for early-bird customers. Offer a special gift, or a discount code that they can use on your website.
- Add a prominent Pre-order button instead of Add to cart.
- Engage with your customers; chat with them online when they’re on the pre-order page, ask them about their preferences and answer to their expectations.
- Create buzz through influencers, offer them samples to help them build awareness, and excitement.
- Drive traffic through social media to your pre-order campaign and keep the momentum going.
- Only charge customers when stock is ready for delivery.
SPLIT CROWDFUNDING - SPLIT PRE-ORDER
The goal of 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 authorization period.
A split crowdfunding model, splits the campaign into two phases, the Commits phase and the Pre-order phase. During the commits phase, emails are collected and during the pre-order phase pre-orders are collected. The Commits phase duration can therefore be extended.
The Split crowdfunding process (Two-phase crowdfunding) helps you 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?
Many brands feel that part of their commitment to reduce the impact of textile waste on the environment is to recycle products they produce by inviting customers to send products they wish to recycle back to the brand. As an incentive, customers will receive a discount on their next purchase.
Generally, if the product returned for recycling is in good condition, it will be donated to local charities, otherwise, it will be donated to textile recycling hubs.
Some brands accept category-specific or material-specific recyclable items regardless where they come from. In return, customers will receive a discount code that they can use to buy recycled products. It just makes sense!