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20/08/2020by EOS Intelligence EOS Intelligence No Comments

Beyond the Low-cost Price Tags – the Real Price of Fast Fashion

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Gone are the days when consumer bought a pair of jeans and wore it for years. Fast fashion culture has conditioned consumers to expect a constant stream of new clothing that feeds their desire to buy more in order to keep up with the changing trends. Owing to fast fashion, affordable clothes are being manufactured at a warp speed, worn, and quickly discarded, making clothes disposable commodities rather than keepsakes. About 100 billion clothing items are manufactured globally each year and consumption has increased by 400% in the last two decades. Fast fashion has undeniably democratized high fashion by providing affordable apparel for everyday shoppers but it comes at an enormous cost, not reflected in its bargain-basement price tags.

Fast fashion is the fashion now

Selling large quantities of inexpensive clothing has made fast fashion a dominant business model in the garment industry. Another reason for its popularity is the taste of luxury clothing that it offers to shoppers without paying the full price. Fast fashion brands, such as Zara and H&M, are able to produce low-cost mimics of high-end fashion brands. The moment a model walks down the ramp wearing clothes of luxury brands such as Louis Vuitton, fast fashion brands mass produce replicas of a similar design and sell them at astonishingly low prices.

While established luxury clothing brands take months to design and distribute a clothing item, Zara is able to design, produce, market, and distribute a new piece of clothing to its stores located across 93 countries in mere two weeks. This enormous efficiency in producing mass clothing at an economical format provides an edge to fast fashion companies that traditional clothing brands will always struggle to replicate.

Fast fashion has transformed dynamics of the whole fashion industry, changing the traditional four-season fashion calendar to 52 micro-seasons. Fast fashion companies such as Missguided launch about 1,000 new products monthly, while Fashion Nova rolls out 600 to 900 new styles every week.

The blindingly fast pace at which clothes are being manufactured and discarded has its consequences. The manufacturing process is environmentally damaging and speedy supply chains depend on underpaid and overworked factory workers.

Environmental cost of fast fashion

The environmental menace linked to manufacturing and consuming fast fashion is hidden across the lifecycle of each piece of clothing. The production process is tremendously polluting to begin with, as factories indiscriminately dump toxic chemical-laden wastewater into rivers and tonnes of greenhouse gases are emitted while manufacturing – about 1.2 billion tonnes of CO2 is emitted annually by the global textile industry, which is more than aviation and shipping industries combined.

Even the choice of fabric for manufacturing fast fashion garments is posing environmental risks. Proportion of synthetic materials, such as polyester in our clothing has increased two-fold since 2000, rising to 60% in 2019. These fibers are oil-based and a single polyester shirt has 5.5 kg of carbon footprint, as compared to 2.1 kg from a cotton shirt. Moreover, polyester generates vast amounts of greenhouse gases, sheds microfibers that cause plastic pollution in oceans, and when disposed, it does not naturally decompose, compounding the waste problem.

A major ramification of fast fashion is that clothes move from consumer’s wardrobes to garbage as fast as they are manufactured. It is likely that within 7-8 uses, a jeans or shirt would be discarded for clothing that is newer and trending. The shorter lifespan of garments is not only generating enormous amount of waste but is also putting strain on production resources such as water that is extensively used in the manufacturing process.

Globally, about US$ 400 billion worth clothing is discarded prematurely and 21 billion tons of textile is sent to landfills annually. The ecological cost associated with these garments is tremendous – 3,000 liters of water is required to manufacture one cotton shirt and a pair of jeans needs about 8,000 liters of water, almost the amount of water an average person drinks over two years is utilized in production of garments that will be quickly discarded.

Social cost of fast fashion

With rise of globalization, supply chains have become international, which has led to increased outsourcing of textile production to countries that offer low-cost labor. Fast fashion’s low price tags largely depend on even lower production costs. Hence, countries such as USA produce only 3% of its garments, while the rest is outsourced to developing countries, such as Bangladesh, India, Vietnam, etc.

Low-cost production means factory owners need to cut down costs, which is usually done at the expense of safety and results in providing appalling working conditions for factory workers. Fast fashion production uses 8,000 synthetic chemicals, several of those chemicals are carcinogenic affecting health of factory workers. Moreover, workers are constantly exposed to fumes of toxic chemicals, which pose serious threat to their lives.

Fast fashion frenzy has led retailers to indulge in unfair labor practices in an attempt to keep production costs low and simultaneously increase production. About 85% of textile factory workers are women, who work overtime and are highly underpaid. Lack of regulation has given way to exploitation of labor in countries such as Bangladesh, where retailers pay as little as US$ 2-3 per day to garment workers, a larger portion of them are engaged by fast fashion brands. Even in developed economies such as the USA, companies such as Fashion Nova have been found to pay employees far below the minimum wage – the brand was reported to pay US$ 2.77 an hour to its workers in Los Angeles.

Additionally, cases of child labor have been registered in countries including Bangladesh, Brazil, China, India, Indonesia, Philippines, Turkey, and Vietnam.

A move towards sustainable production

In the past decade, changing consumer attitudes associated with sustainability and corporate transparency have propelled fast fashion retailers to rethink impact of their production processes.

Notable steps have been taken by some of the largest fast fashion brands such as Zara and H&M. Zara aims to use 100% organic, sustainable or recycled material in its clothing line by 2025. Also, it has plans for its facilities not to produce any landfill waste by 2025. Currently, Zara has a sustainable clothing collection, Join Life, which uses sustainable raw materials such as organic cotton, tencel (cellulose fiber), or recycled polyester.

H&M also has a similar vision of using 100% sustainably sourced or recycled materials in its garments. It also aims to reduce water consumption and CO2 emissions in production processes. The company already has a clothing line, Conscious, which uses sustainable materials for manufacturing garments.

Both companies also claim to be striving to provide better working conditions for workers and pay fair wages.

EOS Perspective

Thanks to fast fashion, for many consumers, what used to be a thoughtful and occasional purchase, has turned into a series of impulse buys at shorter intervals. The rate at which garments are being produced is not environmentally sustainable and putting profits ahead of workers’ welfare has led to abuse and exploitation of laborers globally.

Fortunately, the number of eco-conscious consumers is on the rise, a fact that has pushed fast fashion retailers to reevaluate strategies and focus on sustainable production. However, a question still remains how much of those sustainability pledges and greener production goals actually hold true.

Can fast fashion really be sustainable?

The fundamental problem lies in the business model of fast fashion that is based on selling more products. The industry’s profitability hinges on luring consumers to fresh stream of new clothes and designs that are launched almost weekly. A business model that is based on over-production is far from being sustainable.

Fast fashion companies are often criticized for greenwashing and distracting consumers from their harmful practices. For instance, H&M’s recycle program encourages shoppers to donate their old clothes, which H&M claims to recycle to create new textile. However, only 0.1% of all collected clothing is believed to be actually recycled, while the rest is most likely dumped in landfills. H&M’s clever marketing tactics make shoppers believe that it is a green company, but in reality, H&M offers discount vouchers to shoppers in exchange of their donated clothes, which pushes consumers to buy even more clothes.

Claims made by fast fashion companies on using 100% sustainable fabric have been questioned by various experts and critics, as all fabrics utilize enormous amount of natural resources and energy in the production process. Fast fashion companies might be shifting to fabrics with lower environmental profile but it cannot be completely sustainable, as claimed.

Moreover, H&M and Zara’s sustainable clothing lines, Conscious and Join Life, have been called out for misleading consumers with vague sustainability claims. It is unclear to consumers why these companies are labelling their clothing lines as sustainable. The companies have never defined terms such as ‘sustainably sourced’ or ‘sustainable materials’, used to describe their clothing lines. Hence, it is ambiguous how they source the materials, what is meant by sustainable materials, and what portion of garments they actually constitute.

While making an effort to use environmentally-friendly materials is definitely a step towards better production practices, it is not enough to compensate for the overall damage that fast fashion companies impose on the environment, hence, consumers also need to do their part.

Time to slow the fast fashion

Fast fashion thrives because companies create demand for clothing. To curb this demand, consumers need to make changes in shopping behavior to reduce their own environmental footprint.

A conscious choice needs to be made to purchase less clothes and to use the existing ones for longer time period. Solely wearing a garment for nine months longer can reduce carbon footprint of that garment by 30%.

Buying used clothes is another way to reduce environmental impact. Wearing used garments is a sustainable way to recycle clothes which would otherwise be discarded in landfills. If every shopper purchased one used item in a year, it could save CO2 emission equivalent to pulling out half a million cars from roads for a year.

Nonetheless, if consumers make mindful choices and fast fashion brands commit to doing business differently, we would be able to produce and consume less.

05/05/2020by EOS Intelligence EOS Intelligence No Comments

Influencer Marketing Redefining the Fashion and Beauty Industry

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Social media users are increasingly reliant on and influenced by what they see online, particularly, when it comes to marketing done by fashion and beauty brands. Social media provides immense marketing opportunities to the fashion and beauty industry by allowing them to closely interact with customers and influence their buying decisions like never before. To tap such opportunities, about 78% of global fashion brands incorporated social influencers in their marketing strategy in 2017, according to a survey conducted by Launchmetrics. Influencers are slowly becoming an integral part of marketing campaigns for fashion and beauty brands – for high-end brands such as Becca Cosmetics and Yves Saint Laurent, as well as affordable brands such as Maybelline, for whom influencers have been pivotal in driving sales.

Why beauty and fashion brands are adopting influencer marketing?

In the past, to launch new collections or promote products, fashion/beauty brands invested heavily in celebrities and television models gracing magazine covers, billboard and television advertisements, among others. These efforts were effective but as technology progresses, fresh marketing tactics are born. While most of the traditional forms of advertising are still being used, brands have started to realize how laborious it is to employ traditional methods in promoting products, hence, majority of brands are going digital and starting to work with influencers.

How influential is influencer marketing?

Undoubtedly, influencer marketing is one of the fastest growing digital marketing tools, providing unparalleled access to real-time word-of-mouth targeting. For marketers, today’s social media influencers are yesterday’s celebrities and socialites, only with a more persuasive voice and greater power to reach audiences.

Beauty and fashion industry has understood the power of influencer marketing quite well. Cosmetics brands such as Smashbox have completely abandoned the use of traditional print media for advertising while luxury cosmetics companies such as Estee Lauder have significantly reduced spending on traditional media to focus on digital.

Fashion and cosmetics brands are using various types of influencer campaigns to promote products, foster brand awareness, and boost sales. For example, Maybelline (an American cosmetics company) in China used the influence of beauty bloggers and 50 celebrity influencers to do a 20-minute livestream video for a newly launched lipstick in 2016, which led to sales of 10,000 lipsticks in two hours.

On the other hand, Olay (an American skincare company) introduced a skincare campaign, Olay 28-day Challenge, which urged influencers to document their four-week experience of using company’s products while updating their followers simultaneously across various social media platforms. Influencers also gave away free samples and offered discounts to followers to encourage them to buy the products to join the skincare challenge. In 2018, the campaign was able to increase engagement rate by 20% and there was a significant increase in Google searches for the brand name.

There is no end to innovative social media campaigns that brands are launching. For example, in 2018, H&M (A Swedish clothing retail company) engaged in conversation with consumers on Instagram to come up with new designs for its brand Nyden, which is targeted at millennials. H&M worked with nine influencers, who used Instagram stories’ polling feature to understand followers’ preferences for certain designs, such as using zippers versus buttons, among others. Over a period of two weeks, the polls attracted more than 425,000 viewers and generated 35,000 votes.

For brands such as Fashion Nova (an American fast fashion retail company), with 14 million Instagram followers and ranked as the most Googled fashion brand of 2018, marketing through Instagram has been pivotal in its rapid ascent in the fashion industry. Fashion Nova is known for betting big on Instagram and use of celebrity influencers – as of December 2018, the company had worked with 3,000 influencers on Instagram. Using celebrity influencers, it claims to have generated sales up to US$ 50,000 per post and selling out a whole collection of clothing line within 82 minutes. With about 20 to 30 posts per day on Instagram, Fashion Nova knows how to keep its audience engaged and generate brand awareness.

What challenges are obstructing growth?

Influencer fatigue

Influencer marketing is not as impeccable as it sounds to be. With more and more businesses adopting influencer marketing, threat of influencer fatigue increases, which could result in disengaged audiences and reduced impact. According to a study conducted by Bazaarvoice in 2018, about 47% respondents claimed to be fatigued with repetitive influencer posts on Instagram.

Promotional content is already beginning to clutter consumer’s news feeds. With beauty and fashion influencers recommending every other product that enters the market, audiences will eventually lose trust in them, feel disengaged and overwhelmed. Consumers, after some time, are bound to get tired of having their buying behavior manipulated. Just like people started using ad-blockers when websites became loaded with advertisements, there’s a probability that they may also turn away from beauty/fashion influencers.

Absence of standard metrics/parameters to determine success of campaigns

There is uncertainty regarding what constitutes a successful influencer marketing campaign and how to calculate ROI on marketing spend. Beauty and fashion companies are unable to accurately calculate profitability of influencer campaigns. According to a study published by Celebrity Intelligence in 2018, 46% of respondents (from the beauty industry) faced challenge in evaluating ROI of an influencer collaboration.

Driving purchases is not always the key objective of influencer marketing, rather it focuses on softer goals like growing brand awareness or boosting engagement, which makes ROI far more complex to determine.

Influencer marketing does not guarantee results in terms of sales, brand reach, or number of clicks. No standard metrics have been set for the industry to measure success, instead brands end up speculating whether the campaign was successful or not. Some beauty and fashion companies monitor the comments or number of likes on the posts, while others determine views on videos or track campaign hashtags, all of which are not very effective methodologies.

Fraudulent practices

Much like other industries, beauty and fashion market has also fallen prey to influencer frauds. According a report published Points North Group in 2018, cosmetics/skincare companies suffered losses due to fraudulent engagement – 46% of Raw Sugar Living’s influencer marketing budget was squandered on fake followers, Clarins lost 45% of its budget on influencer frauds, while L’occitane blew 24% of its budget, among various others. Such deceitful practices have taken a toll on marketers, who invest in influencers to drive brand awareness and sales, but their campaigns fail to reach the actual target audience.

Another inauthentic social media activity plaguing the beauty and fashion industry is staging fake promotional posts by aspiring influencers. Companies want to see promotional abilities and references of past campaigns of influencers before hiring them to do paid sponsored posts. Hence, aspiring influencers, particularly from the beauty and fashion industry, have started to publish posts with brand hashtags and captioning it in a manner such that it seems to be a promotional or sponsored content. While this leads to free publicity for brands but most of them complain that this also results in inferior quality sponsored content posted without approval, which could harm brand’s reputation.

EOS Perspective

If there is any market that qualifies to be an early adopter of influencer marketing, it is the beauty and fashion industry. It is an extremely dynamic industry and to stand out from competitors, brands need to constantly evolve, be creative, and promote products extensively – all of which is easily achieved through influencer marketing.

Equipped with social media savviness, influencers have the power to eloquently persuade consumers to make purchases. There is no limit to the creativity that they bring to the table – fashion/beauty influencers design compelling marketing campaigns for the brands by reviewing products, conducting polls and contests, offering huge giveaways, sharing their experiences of using products through videos or photographs, attending events organized by brands and promoting such events, among various other tactics.

Is influencer marketing here to stay?

There is no doubt that influencer marketing is becoming the mainstay of beauty and fashion industry, far from a passing fad. The personal nature of influencer campaigns is one of the reasons why it is proving to be effective for the beauty and fashion industry. According to a survey conducted by Celebrity Intelligence in 2018, 98% of beauty companies believed that influencer marketing is effective for the industry while 68% thought beauty segment has a natural affinity with influencers. Even though difficult to calculate, surveys have determined that influencer campaigns could also provide high ROIs – for every US$1 spent on influencer marketing, brands received average ROI of US$10.7 in 2017. Fashion and beauty brands have gauged the power of social media and know that with the right influencer endorsing to the right community/audience, it can translate into clicks, conversions, and actual sales.

Find out more about drivers and challenges in influencer marketing adoption here

For fashion and beauty brands, influencer marketing has become a multi-million-dollar investment, with considerable portions of their budgets dedicated to influencers. For example, Estee Lauder (a US-based cosmetics company), in 2019, revealed that 75% of its marketing budget will be spent on digital marketing, particularly on influencers, while Shiseido (Japanese multinational personal care company) increased its influencer marketing budget by 50% in 2019. On the other hand, in February 2019, Benefit Cosmetics (a US-based cosmetics company) formed an in-house dedicated influencer agency in the UK to streamline influencer marketing operations and manage influencer relationships. In the future, it plans to expand the in-house influencer agency to other locations as well.

Undoubtedly, influencer marketing has dramatically changed the fashion and beauty industry, by allowing real people to narrate a brand story, demonstrate product, and provide honest and credible product reviews. In order to make it a sustainable marketing strategy, measures are being taken to overcome some of the existing challenges. In pursuit to engage with authentic influencers, beauty brands are adopting more sophisticated, data-led approach to selection process. According to Celebrity Intelligence survey, in 2018, about 67% of beauty brands identified social media analytics (including audience insights and engagement metrics) useful to choose authentic and suitable content creators.

Another ongoing challenge is to accurately determine success of campaigns, which some companies (including lifestyle and cosmetics brands such as Daniel Wellington, L’Oréal, and Olay) are tackling by providing influencers with a unique URL or a discount code, which followers can use and brands can easily track conversions. If the campaign does not entail discounts, various metrics can be used to evaluate ROI such as traffic driven, social reach, social media impressions, engagement rate, cost per impression, and cost per engagement, among others.

Nonetheless, opportunities that influencer marketing provides for the beauty and fashion industry outweigh all downsides. While brands have achieved success with sponsored posts and brand hashtags on social media, there is still a lot more for them to explore and innovate through influencer marketing.

16/04/2020by EOS Intelligence EOS Intelligence No Comments

Influencer Marketing: A Powerful Marketing Tool on the Rise

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Influencer marketing, until fairly recently a new marketing tool, is now on the frontier of becoming a mainstream marketing channel. The real, relatable, and reaction-stimulating content created by influencers, distinguishes this form of marketing from traditional marketing channels. Influencer marketing offers effective means for brands to communicate and engage with customers on social media, a fact that is driving its popularity. Laden with potential to drive sales and grow brand awareness, the influencer marketing market is likely to reach US$22.3 billion by 2024. However, certain challenges do exist in the market, and if not addressed, they can potentially hinder market growth.

Influencer marketing started shaping up around 2005 with mere video blogs on YouTube, but quickly grew in prominence as marketers took notice of its potential. Growing at a CAGR of 28% between 2019 and 2024, the industry is becoming a marketing mainstay for brands across various markets. This is driven by the fact that influencers generate a sense of proximity with their audiences, which helps in molding their shopping behavior under discrete suggestions and recommendations.

What is driving adoption of influencer marketing?

Consumers, especially millennials, are embracing a different approach to making purchasing decisions. Consumers are relying on Instagram models, Twitter personalities, and YouTube influencers to seek recommendations or to understand which brand or product is trending in the market. This has resulted in brands endorsing products through various social media channels using influencers.

Moreover, it is a proven fact that word-of-mouth marketing leads to twice as high sales as paid advertising, and influencer marketing is nothing but a form of word-of-mouth marketing. Studies also suggest that shoppers purchasing product through word-of-mouth have a 37% higher retention rate, another reason why brands want to reach their consumers through influencer marketing.

Additionally, the way that we consume media has changed. Social media boom is slowly driving consumers away from traditional forms of advertising and marketing. More than ever, social channels are becoming means to start a conversation with consumers and build direct relationships with them. With traditional advertising being sidelined by consumers (about 65% of people skip ads posted during or before online videos), influencer marketing has become an integral channel to connect with them.

How have influencers assisted companies to increase sales and grow brand awareness?

Engaging with influencers is proving to be an effective way of getting a sale, hence, brands are investing considerable budgets in influencer marketing. Brands are partnering with influencers to launch various types of innovative campaigns, with primary focus on increasing brand awareness (84%), reaching new audience (71%), and generating sales (64%), according to a survey conducted by Mediakix in 2019.

For example, YouFoodz, an Australian food chain, used Instagram to promote the launch of its 2017 winter menu. It collaborated with 81 influencers, who posted 162 Instagram stories and 176 pieces of content, which reached 1.5 million Instagram users. The campaign was a huge success, generating 70,000 direct engagements and over 500,000 impressions (number of times particular content is displayed, regardless of if it was clicked or not).

Relying on influencer marketing, Bigelow Tea (an America tea manufacturer) was able to showcase healthy aspects of drinking tea and promote its product to a large audience. Influencers incorporated Bigelow tea into their content in various ways. Culinary influencers developed different recipes to use tea in innovative ways, while craft bloggers turned packaging into DIY arts, for example, creating flower pots from the tea packaging. The campaign led to more than 44 million impressions and increased sales by 18.5%.

Further, M&M (a product of US-based confectionary and food company, Mar Incorporated) launched an innovative campaign in 2016 to let audience decide its new peanut flavor (a choice between Honey Nut, Chili Nut, and Coffee Nut) by running a mini-election. It partnered with a television personality and a team of influencers to encourage people to try the flavors and cast their votes. Finally, coffee nut flavor was selected, and the campaign generated 269 million impressions, 216 influencer posts, 14.4 million social engagements, and more than 1 million votes.

Is influencer marketing cost effective?

Influencer marketing has proven to be quite budget friendly, allowing large brands and small start-ups to launch compelling marketing campaigns. Traditional forms of advertising campaigns, through television commercials, magazines and newspaper ads, etc., require substantial investment.

On the other hand, influencer marketing is cost effective and simpler to execute. Companies with limited budget can engage with micro (comprising 1,000-5,000 followers) or nano (comprising less than 1,000 followers) influencers and still achieve remarkable results without spending a fortune.

In fact, according to a study conducted by Takumi, micro and nano influencers can generate high engagement rates – influencer with up to 1,000 followers could generate about 9.7% engagement rate, while influencers with 1,000-4,000 followers could provide 4.5% engagement rate. Micro and nano influencers tend to build strong trust and authenticity, and are relatable to their audience, which enhances their ability to engage an audience. According to a study conducted by Experticity, 82% of consumers have higher probability of listening to suggestions provided by micro influencers than those provided by influencers with large number of followers.

Moreover, surveys have determined that influencer marketing could yield a decent average ROI of US$ 5.20 for every dollar spent, which makes it an appealing option for marketers.

What challenges are hindering growth?

Lack of stringent regulations leading to poor compliance with guidelines

Current regulations and guidelines pertaining to influencer endorsements are not stringent or comprehensive, leading to malpractices. In the USA, the FTC (Federal Trade Commission) requires influencers to provide disclosure in case of sponsored content, however, no fines are applied for violations. As a result, most influencers do not adhere to the endorsement regulations, either due to lack of knowledge or in fear of losing followers. In 2018, out of 800 Instagram accounts from UK, USA, and Canada, only 25% fully complied with local regulations pertaining to sponsored content, according to a study released by Inkifi.

Such misleading conduct on influencer’s part could raise questions on their authenticity and lead to mistrust among their followers, who demand transparency. Moreover, large corporations such as Unilever (a consumer goods company) have strictly refused to work with influencers who indulge in fraudulent activities. Influencers are at risk of losing trust of their followers as well as of companies if they continue to indulge in misleading activities.

Fraudulent engagement

Typically, brands use the number of followers on an influencer’s account to estimate campaign results in terms of ROI, engagement rate, brand awareness, earned media value, among others. To seem more appropriate or popular, some influencers purchase their followers using bots – software designed to automatically like, comment, and share posts, increase views on videos, and inflate number of followers on accounts. Influencers have also started to fake their engagements by joining a community of real users to trade likes and comments. Despite these followers being real people, they are not likely to be interested in influencer’s content. Consequently, brands fail to meet the desired campaign result or reach the target audience.

In 2019, fraudulent activities were estimated to cost brands US$1.3 billion, about 23% of allocated budget for influencer marketing. Fraudulent practices are inhibiting market growth, as brands are increasingly becoming cautious of investing in influencer marketing – as of January 2019, about 53% of brands stated that fraudulent impressions were obstacles to increasing digital advertisement budgets.

EOS Perspective

Influencers are no longer an extra asset to marketing campaigns instead they have become a critical element of storytelling and building direct relationship between brands and customers. Influencers have positioned themselves as authentic gurus rather than simple advertisers, with 92% of consumers making purchasing decision based on influencers’ posts in 2018. Their relentless savviness to promote brands is what keeps audiences engaged and brands coming back for more.

Nonetheless, challenges do persist but the industry is continuously evolving and coming up with solutions. Measures are being taken against inauthentic engagements. Platforms such as Instagram have started to strictly regulate fraudulent activity and began to threaten offenders with fraud penalties, account suspension, and brand reputation damage. Companies have also become mindful and vigilant while engaging with influencers and started to thoroughly vet them to check for fake followers or use of bot to increase followers. On the legal side, a New York Attorney General has stated that selling fake followers on social media will be considered as an illegal activity in the state.

Further, in November 2019, FTC launched guidelines for sponsored content under ‘Disclosures 101 for Social Media Influencers’ that encompasses when and how influencers should disclose their engagement with brands, regardless of whether or not it includes payment. FTC has not made any major changes in the guidelines but the new guide is more user-friendly with abridged language, and photos and videos illustrating the correct way to endorse products on social media.

Find out how influencer marketing is reshaping fashion and beauty industry here

According to the guidelines, when partnering with brands, disclosure is mandatory when there’s a financial, employment, personal, or family relationship with a brand. Disclosure language should be simple and clear, and the disclosure should be hard to miss (for example, disclosures on Instagram are required to be placed at the beginning of the post’s description and before the ‘more’ button). FTC’s aim is to foster transparency in sponsored content by placing more liability on brands and influencers to explicitly reveal their relationship while recommending products.

Influencer marketing has well-established itself in the advertising industry and is moving towards becoming a mainstream marketing channel, and such measures taken by regulatory authorities, social media platforms such as Instagram, as well as the brands will further strengthen its position as a marketing channel. In future, not only will influencer marketing continue to grow in popularity, but is also likely to become a more purposeful and effective way to communicate and engage with audiences. Allured by endless opportunities, brands will continue to collaborate with influencers and the industry is poised to grow.

16/05/2019by EOS Intelligence EOS Intelligence No Comments

Sharing Economy in the GCC: A Success Story Waiting to Happen

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The current landscape in the Gulf countries is believed to show solid scope for sharing economy platforms’ growth. On the other hand, the region still lacks consumer engagement as well as updated and adequate regulations, which may cause these platforms to stumble and fall on their way to growth.

The concept of sharing economy has been spreading with great velocity worldwide with the advent of new technologies and connectedness. It emerged as a recognized concept around 2008-2010 with the arrival of successful players such as Uber and Airbnb offering P2P platforms that allowed financially strapped consumers to earn extra income. Global sharing economy was valued at US$15 billion in 2014 and is expected to reach US$335 billion by 2025.

GCC’s good foundations and latent potential

In 2016 alone, PwC estimated that consumers in the Gulf Cooperation Council (GCC) spent US$10.7 billion within five sectors of the sharing economy platforms – household services, accommodation, business services, transportation, and financial services.

The spending in sharing economy was of course lower than spending on similar services acquired through traditional avenues – for instance, in 2016, hotel revenues were expected to hit US$24.9 billion in the GCC, a considerably higher sum than accommodation revenues in the sharing economy that totaled to US$1.29 billion in that same year. This indicates latent potential, and with part of the traditional service revenue possibly taken over by sharing economy, the scope for growth is very promising, underpinned by favorable characteristics of the GCC countries.

Young and technologically-participative population

Sharing economy platforms do not hire employees directly but work with self-employed service providers instead. The essence of these platforms is to enable people – mainly young, dynamic, and technologically-participative – to use them as a way to exchange goods or services for money.

The appeal of the GCC for sharing economy platforms is exactly that – the diversity and demographic profile of the region’s population allows sharing economy platforms to reach a large pool of young, tech-savvy consumers and service providers. In 2018, 60% of the GCC population was under the age of 30 – considered key demographic to interact and use sharing economy services on both the demand and supply side.

Large immigrant pool willing to engage

Another market growth driver that is somewhat unique to the region is the large percentage of non-nationals living and working in the GCC. Between 2016 and 2017, 51% of the Gulf region total population were non-citizens, who, according to a 2016 PwC survey, were active users of the sharing economy services, largely due to relatively low incomes and limited (if any) access to other ways of improving their financial standing. The region’s large volume of immigrants has always been a steady trait that is very unlikely to change in the future. Due to this, high numbers of expatriates participating in the sharing economy platforms on a daily basis is likely to ensure a long-term steady growth of these platforms in the region.

(Slowly) growing women’s economic inclusion

Another appealing aspect of the GCC market is that all six countries have been changing (alas, slowly) their attitude towards women’s economic inclusion, fueled by shifting cultural norms that traditionally imposed limitations on women’s ability to work and earn.

This change is likely to allow them to participate more actively in the workforce, and a ride-hailing app company could be a good option to provide transportation to and from work to female workers, since in some GCC countries they are not allowed to drive by themselves, while in others they customarily do not often do it. With women representing around 40% of the GCC population, higher financial independence places them in the group of potential consumers of sharing economy goods and services for their transportation as well as household services needs.

Eagerly-consumed fast connectivity

Regardless of the gender participation mix at both supply and demand side, the sharing economy players are certainly set to benefit from fast adoption of technology by local consumers in the GCC. In 2017, 64% of the population owned a smartphone and, by 2018, 77% of the GCC population were mobile network subscribers. Such rates seem to give strong foundation for sharing economy platforms to grow.

Moreover, the GCC highly tech-savvy youth seeks new technologies and faster mobile connections. In response, the Gulf countries aim to become global leaders of 5G deployment (all markets planning to launch 5G by 2020), a major contributing driver to the sharing economies growth in the region. High-speed mobile connections plus a growing pool of eager-tech young adults willing to engage in P2P platforms are likely to become a major driver for their growth.

Nonetheless, despite these favorable foundations, there may be roadblocks representing a threat for the success of sharing economy platforms in the Gulf region.

Large immigrant pool refrained from joining the platforms

One of the key obstacles is the cultural-legal environment prevalent in the region. While the region has long been characterized by large share of immigrants in local populations, their way of working is controlled by Kafala, an outdated sponsorship system carried out by the GCC. This system allows immigrants to work in the region only for their sponsor, who is legally responsible for them during the time of his or her stay.

Kafala system does not allow for self-employment, nor does it allow for second employment beyond the job given by the sponsor. Since sharing economy companies interact mainly with freelance service providers, there is a large portion of expatriates working in the GCC who will find it difficult to be able to freely join the platforms as service providers.

Explore our other Perspectives on sharing economy

Lack of legislation and consumer protection

Lack of a dedicated government entity to oversee sharing economy services in the Gulf countries may cause consumers to be wary of using these platforms, ultimately hindering market growth.

According to a 2016 survey conducted by PwC, GCC users put considerable emphasis on trust and transparency when dealing with online providers, two factors that can influence their purchasing decisions.

In sharing economy, users need to be able to trust platforms’ screening process for providers before they deal with them. As a result, if the states do not establish bodies and laws governing sharing economy services, the platforms could witness weak demand from both consumers and services suppliers who are cautious about protecting themselves.

Limited awareness and lack of need

Lack of consumer awareness and simply lack of need for the sharing economy services is also an issue for the market growth since not all GCC nationals seem to be aware about the existence of the sharing economy platforms.

According to the same PwC survey, an average of 21-35% of respondents were not familiar with the sharing economy concept. This could be attributed to the fact that many households in GCC countries have traditionally enjoyed high income levels, a fact that resulted in no need for shared services and allowed them to afford services of expatriate workers hired directly and for long term (e.g. employing a household driver or cleaner, rather than using external providers as needed).

Consequently, local consumers may not see the need to use an online platform dampening the success of sharing economy platforms. This might change, as households’ incomes growth stagnates and sharing economy could help stretch that income.

EOS Perspective

The GCC countries could be a promising landscape for sharing economy platforms to dock successfully. The region offers growing population, continues to be characterized by a solid base of young, tech-savvy users, as well as females and non-citizens available to participate in the sharing economy market.

However, despite the current growth, these platforms could nosedive unless local authorities deal with regulatory deficiencies. A dedicated supervisory entity is required to allow local authorities to regulate sharing economy companies, which will also provide support to consumers through consumer protection and better screening processes of services providers. Local customers clearly manifest their need for such a protection, and the lack of it is likely to dampen the demand and thus market growth.

The update of labor policies such as the Kafala system is also required for sharing economy platforms to witness a continuous growth. This growth can only happen through allowing a good share of the readily-available pool of expatriates to work under a more flexible scheme these platforms require. This is something for GCC states to consider, as there region is increasingly facing the requirement for economic diversification and stimulation of its sluggish economies. Creating labor policies that allow people to work for sharing economy platforms legally (at least as a secondary employment, as it is increasingly allowed in Dubai) is likely to create employment opportunities across the region, spurring consumer spending and generating tax revenues.

While there also are other obstacles in the GCC sharing economy market, it is the lack of appropriate regulation and supervision of the industry, as well as the current form of the Kafala system that are the two key challenges to the market’s accelerated growth. Considering the nature of these challenges, it seems that the potential of this market is unlikely to be realized without active facilitation by the local governments. However, it is uncertain to what extent the governments will try to understand the potential economic benefits of fully embracing sharing economy, and change the deeply-rooted, long-standing, archaic labor laws.

23/08/2018by EOS Intelligence EOS Intelligence No Comments

Venezuela – Economic Crisis Strikes Consumers and Companies

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Venezuela, a country considered as a role model economy for other Latin American countries a few decades ago, has now fallen into deep economic, social, and political crisis that seems to never end. Venezuela’s economy, highly dependent on oil exports, witnessed a steep decline when global oil prices dropped dramatically during 2014-2017, followed by the government ill-treating national funds, and a massive reduction in import of goods. Under this scenario, several multinational companies, such as PepsiCo, Palmolive, and Coca Cola, chose to reduce or temporarily cease production in the country, which has led to increased unemployment. As a result, many Venezuelans started to flee the country in search for a better life quality, while those who chose to stay face low salaries, hyperinflation, empty supermarket shelves, and increasing violence as political turmoil is deepening amid opposition and criticism of the current government of Nicolas Maduro.

The root of the problem

Venezuela’s deep social and economic crisis is driven mainly by mismanagement of national funds and lack of investment in industries of national importance. For several years, the Venezuela’s government-established projects involved providing social aid for households with low income, and these programs were supported by revenue generated through oil exports. Therefore, as gas and oil sector revenue accounts for 25% of the country’s GPD, a steep plunge in global oil prices from US$85 in 2014 to US$36 in 2016 deeply affected Venezuela’s social projects turning them unsustainable.

Venezuela’s deep social and economic crisis is driven mainly by mismanagement of national funds and lack of investment in industries of national importance.

In addition, Venezuela did not invest in its oil industry, one of the main pillars of the country’s economy. Petróleos de Venezuela S.A. (PVDSA) the Venezuelan state-owned oil and natural gas company has witnessed limited investment, causing Venezuela’s crude oil production to decline from 2.7 million barrels per day in 2014 to two million in 2017, expected to further crumble to 1.4 million barrels per day in 2018. This also translated into a decrease in oil exports revenue by 64% during 2010-2015, deepening scarcity of funds and progressing economic instability in the country.

Plummeting imports in import-dependent economy

Venezuela has been highly dependent on imported goods and raw materials such as food staples and medicines, among other goods. After the fall in oil prices and decrease of crude oil production, Venezuela redirected a large percentage of the remaining revenue from oil export to repay foreign debt, drastically reducing import volume of goods. As a result, imports severely dropped from US$58.7 billion in 2012 to US$18 billion in 2016, leaving the country with shortage of wide range of goods, including pharmaceuticals, sugar, corn, wheat, etc.

Soaring inflation and unemployment

In addition, Venezuela established strict price control regulations as a way to counterbalance hyperinflation, which directly hindered production of goods by multinational companies. Consequently, several key market players reduced or partially stopped operations in the country as a way to avoid losing profits. In February 2018, Colgate Palmolive, a US-based consumer goods company, stopped production for a week after the government demanded that the company reduces the price of its products, which resulted in a large loss in profit for the company. Subsequently, the reduction of multinationals’ operations in Venezuela greatly increased the unemployment rate to 30% as of 2018, causing Venezuelans to opt for unreported employment or to flee the country looking for job opportunities. It is estimated that between one to two million Venezuelans will have migrated by the end of 2018.

EOS Perspective

Throughout 2017, the ministry of urban farming encouraged people to grow food, e.g. tomatoes and lettuce, at their homes and to start eating rabbits as a way to prevent starvation as a result of massive shortage of basic goods. Meanwhile, as a way to ease the situation, Venezuelan authorities sell a monthly bag containing corn flour, beans, rice, pasta, dried milk, and some canned foods at VE$25,000 – this is less than a dollar. These bags with food are distributed only among people registered in the communal councils and those who possess a Carnet de la Patria, a home registry system in order to receive the food. Additionally, president Maduro decided to open 3,000 popular meal centers as part of a nutritional recovery scheme seeking to feed hungry Venezuelans. However, none of these measures have clearly had enough impact to aid in the difficult situation amid the deepening crisis in Venezuela.

Migration to neighboring countries in Latin America has been the way many Venezuelans have found to escape the crisis. Argentina, Chile, and Colombia, among other Latin America countries, have received over 629,000 Venezuelans in 2017 alone, which is 544,000 more Venezuelans than in 2015. The mere number of fleeing people indicates the scale of the issue, yet the socialist administration of Nicolas Maduro refused to accept any help, aggravating the already strained political relationships with his Latin American counterparts. Further, Venezuela also refused to accept any aid from international institutions such as the WHO, which would help as a short-term solution or at least a relief for starving Venezuelans.

Moreover, Venezuela seems to be continuing to drown, as South American trade bloc Mercosur – one of the most important commercial blocs in the region, suspended Venezuela’s membership indefinitely in 2017. Such a measure translates into further reduction of imports into Venezuela from the bloc and, potentially, Venezuelans banned from legally migrating to any of the countries from the Mercosur bloc. So far, South American countries have welcomed waves of Venezuelans, but the dormant prohibition could negatively affect a considerable volume of the population seeking to flee from the crisis.

Venezuela seems to be continuing to drown, as Mercosur suspended Venezuela’s membership indefinitely in 2017. Such a measure translates into further reduction of imports by Venezuela from the bloc.

In addition, the USA issued an executive order banning any American financial institution from investing in Venezuela, that same year, which restricted the inflow of capital and increased the financial isolation of Venezuela from the North American markets.

This dramatic situation, both in Venezuela’s domestic as well as international arena, calls for president Maduro to reevaluate and encourage reforms that should empower small domestic producers, e.g. coffee makers, agricultural producers, among others, in order to reactivate internal consumption and counterbalance shortage of food and other supplies. Further, it is high time that the country’s leadership opens their borders to external help, however this seems unlikely to happen, considering that this would mean an acknowledgment that the socialist political management of the country has failed, and this in turn would play into Maduro’s opposition’s hands to easily overturn his government.

10/07/2018by EOS Intelligence EOS Intelligence No Comments

Commentary: Truck Drivers’ Strike amid Brazil’s Recovery from Recession

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In May 2018, Brazil witnessed a nationwide strike conducted by 200,000 truck drivers, which managed to paralyze the entire country for over 10 days and caused major issues such as shortage of food, death of poultry, and unavailability of public transport, among others.

In 2017, Brazil’s Oil and Gas Company, Petrobras, tied its fuel prices to float with international prices. This was following years of being exposed to high prices paid by Petrobras for refined fuel in international markets and the company’s inability to pass on these higher costs onto the customers domestically, due to existing price controls. The decision to float the domestic prices was further sealed by Petrobras’ attempt to seek recovery of profits after the company’s share prices fall due to a corruption scandal.

The floating price mechanism brought an increase in domestic fuel prices, which greatly affected truck drivers whose earnings were gradually slashed, in a scenario where the Real, Brazil’s official currency, weakened by 17% against the US dollar between May 2017 and May 2018. As a result, truck drivers decided to take their demands for a fuel price control policy to the streets, paralyzing many activities and sectors of the Brazilian economy, and exposing some of Brazil’s main weaknesses.

Brazil greatly depends on the truck industry for distribution

The strike caused substantial fuel shortage as oil trucks were not delivering petrol to gas stations, which affected delivery of other goods across the country. Subsequently, disruption in the distribution of food and other products translated into a visible shortage of items on supermarket shelves and a general hysteria that made people over-purchase what was left. The strike also exposed Brazil’s over-dependency on road distribution system for various sectors to operate (instead of using a balanced mix that would include other means of transport, e.g. cargo trains). Most importantly, the strike, in which truck drivers blocked main road arteries within the country’s 19 states, caused great losses, including (but not limited to) US$826.8 million worth of poultry during those 10 days.

After several attempts by the Brazilian government to reach an agreement with truck drivers, both parties settled to pause the strike – initially for 15 days although now for unlimited time, despite truck drivers’ reservations about the government eventually meeting their demands. The potential of the strike being resumed is still looming on the horizon of the Brazilian economy. The persistence of this conflict and the threat of a longer strike could lead to longer interruption of businesses and industrial activities, which is detrimental for a country that is recovering from one of its deepest recessions of 2015-2016.

Consumers’ purchasing power and confidence may decline

Consumers’ purchasing power is expected to slightly decline due to price increase after the temporary food shortage. According to the price index released by the FIPE (Economic Research Institute Foundation) during the strike, general food prices rose by 1.82%, resulting in a 0.62% increase above what was expected when compared to the same period of 2017. Price of half-finished goods (e.g. poultry) rose by 8.43%, while dairy products prices increased by around 5.85%. In some cases, such as with potatoes, the price increase was of 50.3%. Further, a spread hysteria among consumers led to over-purchasing of products, even at a higher value, meaning Brazilians’ disposable income was reduced for the month of May.

Inflation in May reached an unexpected 3.22%, an atypical increment for a month with usually low inflation rate. In a country overcoming a two-year deep economic recession, uncertainty about food availability and low disposable income have affected consumers’ confidence, which has fallen 4 percentage points in June, potentially translating into reduction of expenditures and hindering Brazil’s economic growth.

Investors’ trust may also fall

The 2015-2016 recession weakened local demand, however, Brazil managed to register a trade surplus and a low account deficit due to positive exports volumes and foreign direct investments (FDI) entering the country. Since the government and the truck drivers are still in talks to reach an agreement, the threat of another strike of similar nature is real. Experts agree that investors may become wary and cease to invest further, if political unrest and economic instability were to continue in the country. As a result, Brazil may not be capable of improving, or even maintaining, its low deficit in the account balance. In 2017, investments reached US$70.3 billion and, before the strike happened, experts believed FDI would register US$80 billion in 2018.

Brazilian president, Michel Temer, offered Petrobras US$274 million as compensation for losses it would incur by cutting oil prices. Though this may offer a 60-day solution to the worried truck drivers, it is only a short-term compensation which Brazil does not plan on extending forever.

EOS Perspective

It should come as no surprise that the strike was conducted only a few months away from Brazil’s presidential elections. Analysts believe it to be a strategy to weaken the image of president Temer, and shed some positive light on the Worker’s Party, of which Lula Ignacio Da Silva, former Brazilian president, is a current member. Despite Lula’s conviction in January 2018 for corruption, its party requested Brazil’s Supreme Court to grant a “suspensive effect” to the conviction, which would eventually allow him to run in the next presidential elections.

Regardless of who will be elected president, the strike has certainly stirred the economic and political scene, and has uncovered several of Brazil’s vulnerabilities.

08/05/2018by EOS Intelligence EOS Intelligence No Comments

Infographic: China Going Cashless – What Does It Mean for Consumers, Trade, and Economy?

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China is heading fast towards a cashless society. The immense adoption and use of smartphone apps that provide mobile-payment services for buying goods and services have transformed how payments are made, eliminating the need to carry cash and reducing the dependence on credit and debit cards, which are already close to scarce in China. Easy access to smartphones and lack of alternative non-cash payment options, low penetration of credit cards and tedious debit card payment process that includes authentication via messages and codes, have led to the growth of online payments in the country.

This cashless payment revolution is expected to continue and grow, thus impacting the way businesses function, consumers shop, and China’s economy rolls.

09/03/2016by EOS Intelligence EOS Intelligence No Comments

Succeeding in Myanmar’s Fragmented Grocery Retail Industry

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In recent years, several reports have talked about how the rapid economic growth, expanding middle class, and consumer spending have fueled growth in Myanmar’s retail industry. Although the growth potential is very lucrative, retailers should also look closely at the industry challenges that currently exist. These challenges must be carefully assessed and addressed in order to capture the growth opportunities and succeed in Myanmar.

Myanmar’s rapidly improving growth indicators and demographics have attracted the attention of several investors as well as business consulting firms globally. The country’s growing urbanization, middle class population, and rising disposable income point towards tremendous retail opportunities for players looking for new growth markets.

In the past three years, companies such as Coca-Cola, Carlsberg, PepsiCo, KFC, etc., have already entered and started their business operations in Myanmar, while several others are looking at ways to enter the nation’s lucrative retail market, and to be the part of its growth story. Many industry experts remain upbeat on the nation’s future economic growth prospects, and have projected the retail industry to grow at a strong pace in the future.

EOS Perspective

Rapid economic growth, urbanization, and growing purchasing power, along with consumerization of IT are bringing bigger exposure to international brands for Myanmar’s rising middle class. This is expected to boost the demand for fast moving consumer goods. In addition, the evolving buying preferences of young and aspiring middle-class population, who are looking to spend their rising incomes on bigger and better brands are set to trigger improvements in the range and quality of retail products and services.

Recent FDI reforms and the influx of foreign capital are likely to dramatically change Myanmar’s retail industry landscape in the coming years. International retailers are expected to spur industry growth by creating more jobs, improving supply chain networks and infrastructure, bringing cutting-edge technologies, processes, and management best practices. Furthermore, the increased competition between local and foreign retailers is likely to promote market efficiency, which might also result in better portfolio of grocery products and services on offer.

For foreign players, Myanmar’s retail industry still remains relatively unknown. As the market remains highly fragmented with lack of structured data on consumer preferences and market segmentation, companies need to spend time to study the market.

The best strategy for foreign retailers should be to form a joint-venture with the right local partner, who has comprehensive understanding of the market and its consumers’ buying behavior. Joint ventures remain the preferred strategy for many multinational retailers to enter Myanmar’s retail industry. With the help of trade fairs and road-shows, companies can identify and engage with potential partners. This will help them conduct due diligence, at the same time gain better understanding of the industry as well as first hand market insights. Many companies from Japan and Singapore have successfully reaped the benefits of this approach.

Proven as very challenging, retailing in rural Myanmar remains untapped. There are plenty of growth opportunities for grocery retailers as consumer and market dynamics are expected to continuously improve in the long run. By offering value added services such as bill payments, mobile recharge and top-up cards, and postal services, retailers can truly create a competitive advantage. Retailers can start investing in partnerships with wholesalers and independent retailers to grow their current network. Once the opportunities become ripe, retailers can scale up their operations by acquiring these partners, and thus expand their footprint in new geographies.

In order to succeed in Myanmar’s grocery retailing, foreign and local players will have to form strategic alliances and create a win-win relationship through exchanging technologies and global best practices with sales network and market intelligence. Furthermore, retailers must be agile, flexible, and adaptable enough to seize market opportunities in Myanmar’s fragmented retail sector. Succeeding in Myanmar’s grocery retailing requires unique solutions tailored to meet the evolving demands of various consumer segments.

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CONSUMPTION

Beyond the Low-cost Price Tags – the Real Price of Fast Fashion

Fast fashion is the fashion now

Environmental cost of fast fashion

Social cost of fast fashion

A move towards sustainable production

EOS Perspective

Can fast fashion really be sustainable?

Time to slow the fast fashion

Venezuela – Economic Crisis Strikes Consumers and Companies

The root of the problem

Venezuela’s deep social and economic crisis is driven mainly by mismanagement of national funds and lack of investment in industries of national importance.

Plummeting imports in import-dependent economy

Soaring inflation and unemployment

EOS Perspective

Venezuela seems to be continuing to drown, as Mercosur suspended Venezuela’s membership indefinitely in 2017. Such a measure translates into further reduction of imports by Venezuela from the bloc.

Commentary: Truck Drivers’ Strike amid Brazil’s Recovery from Recession

Brazil greatly depends on the truck industry for distribution

Consumers’ purchasing power and confidence may decline

Investors’ trust may also fall

EOS Perspective

Infographic: China Going Cashless – What Does It Mean for Consumers, Trade, and Economy?

Succeeding in Myanmar’s Fragmented Grocery Retail Industry