Tools of the Trade: How to sell the intangible?

So we have established what value Supreme offers. For a business owner it sounds pretty tempting to get a € 400,- markup on a pair of pants by selling something intangible. Isn’t this what every brand wants to do? Turns out it isn’t that easy. Selling an intangible good is much harder to sell than a physical, let’s say piece of bread. How do we successfully sell something that doesn’t exist in the physical world? Selling intangibles is one of the most complicated tasks in business.

At this point we will have to leave behind the old school economists, who have long believed in the rational decision of consumers. It’s been a good ride, but now it’s time to pack your stuff and move into the twisted reality of our consumer’s brain.

Let’s look into “how” brands and Supreme in particular actually manage to sell identity.

Brands have always been selling intangible values. Charging a price markup for intangibles is the standard branding toolkit.

When you bought an early Apple computer, you not only bought the hardware, you bought a “bicycle for the mind.” When you bought an Audi, you didn’t buy just a rolling piece of metal, you bought an advantage that was enabled by technology - “Vorsprung durch Technik”.

POSITIONING

The core skill lies in positioning. This is the understanding of what the brand really stands for, what it believably can represent and how that can be framed in a way that means something for consumers lives. What sounds simple is in reality one of the most difficult tasks to get right. If in doubt, check out the website of a few companies and see how long it takes you to figure out who they are and why they are different. Then look at their competitor sites and try to see the difference.

Like in real life, other people will understand what type of person you are. They will see whether the image fits reality.

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Those who try to be something that they aren’t will loose the trust and interest of others. Who wants to listen to a pretender? The same applies to brands.

Microsoft would have never been able to believably sell you the ‘bicycle for the mind’. Their lack of a design language made us perceive their offering rather as a hurdle race for the mind.

By now, Audi’s sister company Skoda offers similar technology as Audi. Yet, in a time when car ‘technology’ has become commoditised, without Audi’s legacy, Skoda will have a harder time to convincingly argue the ‘advantage’ that the technology provides.

While this business of selling intangible values is not new, streetwear brands have perfectionised the craft. They have taken the toolkit to the next level.

TOOL 1: FENCE IT. EDITIONING

The first tool is scarcity. Scarcity is an enabler when selling identity, but it also brings us back to the basic laws of supply and demand.

We can form identity and belonging to a community only as long as the community is separated from the non-insiders. There is no identity if everyone looks the same. This is one of the reasons why Apple’s 1984 commercial was so powerful in selling Apple’s identity.

For your clothes this means that the moment when everybody starts wearing them they fail to provide identity.

In Munich, one repeating highlight every year is the Oktoberfest. As you are aware, traditional clothes are part of the Oktoberfest. In fact, over the years, the clothes have become a fashion item for the crowds of tourists who visit the Oktoberfest every year. Airport shops in cities across Europe are now selling them to prepare travellers ahead of time.
But here is the problem. These clothes haven’t been as much of a sign of the identity of the Oktoberfest but of the local people from Bavaria. Around twenty years ago I used to live in Munich. Back then, mostly local people were wearing the traditional clothes at the Oktoberfest. This gave them a sense of identity and community, among the thousands of tourists. Over time, as tourists have started wearing them, the clothes lost their identification meaning for locals, and have been turned into a sort of meaningless carnival costume. What I have realised then is that locals often stopped wearing their traditional clothes for the Oktoberfest or turned to new ways of identification.

The same problem applies to streetwear. Once a trend becomes public it is hard to maintain the original exclusivity and scarcity.

From Real to Artificial Scarcity

In the past, if you were a young urbanite, you would have early access to new brands, new music, and cultural signifiers. People outside of your city or community were not aware of these trends for the next couple of years. Back then, information flows were slow. It took time for new trends to spread to outside the city. This helped create a certain scarcity and the discovery of those items helped form the culture of the city and community.

Today, thanks to the internet there is no real scarcity anymore. There are no more exclusive channels. Everyone can find the product with a click. Social Media and magazines like Hypebeast distribute new trends and memes to the remotest places as fast as bandwidth allows.

Industrial style coffee shops are just one example of how this cultural distribution - and equalisation - engine spreads culture across the world.

But even with a dilution of scarcity, brands have other means to create scarcity. Price is still one of them. You won’t see too many Maybach’s on the road. Artifically limiting the supply of a product or of one version of a product is another one. This is what limited editions do in the art world and beyond. Limited editions simply shift the scarcity from a brand- to a product basis. The brand may be known globally across communities, yet specific products of this brand are still not available to everyone.

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Supreme started by making clothes in small runs only. Low supply not only creates demand, but it also provides customers with the feel that they have something unique. Supreme has extended this through clothes that feature the work of contemporary artists, enhancing the aura of uniqueness. After all, artists come from a space where each work is a limited edition of one, the ultimate scarcity.

Tool 2: Pedestralize it. The Drop

The New York Times writes that Supreme “was all about the drop. Fans lined up outside the Supreme shop in London on a Thursday in 2016 to be first in line for new fashions”.

But what is it about drops and why do they work?

Did you recently see young kids lining up in front of a closed door in the centre of some city? None of them looked like they were receiving food stamps? Wondered why they lined up? Turns out they wanted to invest their savings into exclusive sneakers. You saw a drop taking place. At drops, limited editions of new products are launched. Sometimes the location is only known to those who invest brainpower and time to do the research.

Think of it like Art Basel, crossed with a scavenger hunt for a secret location.

Drops have the competitive and social aspect of the hunt to it. Shoppers join other aficionados and connoisseurs on a hunt for the prey, the new limited edition sneaker. Most drop visitors - or shall we say collectors - already know before the drop, which items they want to focus on. Also quite similar to Art Basel.

Before the drop, social media and online forums help create the buzz, as do celebrity endorsements.

Tool 3: Liquify it. Secondary Markets

Now imagine you collect something unique, let’s say stamps. Your aim is of course to collect valuable items. But how do you figure out the value of an item? And what to do when you decide to sell or trade some of your stamps?

What you need is a resale market, also known as secondary market.

Secondary markets provide a push for limited editions of any asset by creating liquidity for this asset. And the more liquidity there is, the higher prices can go, for the simple reason that you have more potential buyers and price transparency available.

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This not only applies to streetwear, but to any other market where assets are traded. The stock market works because owners of shares know they can trade their shares any time. In contrast, in private equity, selling shares requires much more effort and you will have fewer buyers to choose from.

The liquidity of a market has a huge impact on prices in that market.

Let’s say you are fortunate enough to be a majority shareholder in a smaller company that is listed on a smaller stock exchange. The moment comes for you to cash in. But here is the problem. You will come to realise that selling your shares is not as easy as you might have hoped for. The reason is that shares of smaller companies on small stock exchanges are traded less frequently. If you sell your major shareholdings into this low frequency trading environment, the sudden supply of shares that you create will immediately lower the market price.

Now luckily for owners of limited edition streetwear items - and for the streetwear brands that produce them - there are dedicated resale platforms for streetwear. Think of it as a stock market, only that you end up with a real shoe in the end.

The prices that are paid on these resale markets would make quite some young upcoming artists wonder whether he or she has entered into the wrong line of business.

Buying at drops and re-selling on resale markets has become a source of steady income for quite a number of people.

Your stamp collection might not impress your date anymore these days, but your collection of unique sneakers might well do the job.

If you want to gain an indication as to whether Supreme’s brand - or any other brand - remains strong, start by following their resale prices.

Tool 4: Iconise It.

Like Apple, in its famous iPod campaign, Supreme also builds on iconography. They have designed their logo by borrowing the aesthetic of artist Barbara Kruger. The logo now can be seen widely on streets across the globe, on skateboard, bikes, T-Shirts and who knows, may be even on Tattoos. Supreme also has regularly implemented cultural references into their designs.