🎁 Drops
+ 4 modes of product drops
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Welcome back to Consumer Startups.
Recently, I have been researching a lot about product drop strategy, which has become one of the most popular marketing strategies for many companies, especially among consumer-facing startups. I wanted to use today’s post to share some of my learnings.
Last year, I had a chance to speak with Ramin, the founder of Finesse. Finesse is an AI-driven apparel brand that produces fashion lines by using ML and big data. Product drop was the primary launch strategy they used to get the business off the ground. Finesse did their first apparel drop in 2019 and collaborated with an influencer identified by the algorithm - the drop sold out within 4 to 5 hours. They did another drop shortly thereafter and the drop sold out again within two days. These initial successes have given the founder Ramin and his team the confidence to go on to fundraise and build out a team.
Product drop works because it leverages FOMO, social proof, and scarcity to create a sense of urgency for consumers to purchase a product or service. It is especially popular among Gen Z(ers). According to a recent survey done by PVMNTS, 40% of Gen-Z have participated in a drop.
Product drop increases brand affinity - almost 70% of people who participated in a product drop feel more positively about the brand following the drop.
The evolution of product drop
Even though the drop culture has only gained its popularity in recent years, it has been around for a long time. The concept of a limited-time offer (the ancestor of drops) began as early as the concept of coupons, which people can use to get certain discounted items within a short time period. However, the rise of drops is inseparable from the sneaker culture.
The first well-known product drop happened in the 80s when Nike started dropping sneakers with Jordan, combining the concept of scarcity with product release. It became even more popular with the rise of Tokyo’s streetwear culture in the 90s.
Many Japanese labels like Hiroshi Fujiwara’s Goodenough, Nigo’s A Bathing Ape, Jun Takahashi’s Undercover have been the pioneers in this drop culture. Then, the Internet happened, and it has taken the drop culture to a whole new level. Everyone around the world can participate in any drop they desire, and it is easier than ever for people to show off their limited edition hoodies on social media.
In the 2010s, brands like Supreme brought the drop culture to the mainstream. Drop is the core of Supreme’s business model. It introduces new products via a drop every Thursday on their online store and in their physical stores in NYC, London, and Japan. It’s been a vastly successful model. In 2020, Supreme generated over $500M in revenue with a gross margin of over 60% 🤯.
The success of Supreme and other streetwear brands enticed traditional fashion players to enter the drop arena. Luxury brands Louis Vuitton, Burberry & Alexander Wang have started to introduce their own drops. For instance, Burberry introduced a monthly drop. On the 17th of each month, Burberry releases some new products that customers can only buy within 24 hours. The goal is to “excite customers with new deliveries and frequent communication”.
Over time, this drop strategy has expanded beyond fashion and is now a common marketing strategy in many companies’ arsenal, specifically among companies that sell physical products. 100 Thieves, one of the leading esports organizations, does frequent merch drops to engage with its fans. Another example is Nugget, which is a furniture brand for families (they specialize in configurable play couch for kids). Nugget has a cult-like following, and whenever they launch new products, inventory gets wiped out instantly. To manage the hype, they sometimes hand out lottery numbers to customers and only the lucky ones get to purchase their products. They are the Supreme for parents.
Recently, many digital products and services companies are started leveraging drops for their businesses. Cash App dropped a limited time (20 mins to be exact) 99% off anywhere booster for customers that activated a virtual card directly in Cash App during that time. Stir, the money management software for creators, dropped several one-off projects designed to help creators “run great businesses, own their content, and build a direct relationship with their audience”. Party Round is a fundraising platform for startup founders. They did many fun drops to engage with their customer base - founders and investors.
Throughout my research, I found a few distinctions between physical product drops and digital drops:
Digital drops tend to limit the time duration rather than the number of qualifying users since there is no real supply constraint
Digital drops mostly do not generate much if any revenue compared to physical drops (with the exception of NBA Topshot); however, most digital drops are centered around community/brand building, lead generation, and data collection.
Well performing physical drops items can become a long-term product for the company while products from digital drops tend to be more one-off, rarely maintained, and are not meant to be built for scale.
Below is a list of example drops by verticals:
The four modes of product drops
During my research, I found that even though drops can look very similar, they need to be executed very differently depending on the objective. Below are the four types of drops I have found to be the most common, segmented by goals:
Lead-gen drops - drive sign-ups for a new product
Goodwill drops - promote brand equity by adding value to its customer base
Attention drops - stay top of mind
Money drops - make money
#1 - Lead-gen drops
I call the first type of drops lead-gen drop because the main objective of the drop is to generate leads. In this case, the drop is often the trojan horse to get customers to download an app, sign up for a newsletter, or to create an account for a product.
For example, Shake shack launched its mobile app in 2016 and they turned to the drop model to increase app downloads. It has used the app to launch several new items such as Pride Shake and revive some of the old ones. For example, they brought back an old item, the Hot Chick’n sandwich, for one day. Customers had to download the Shake Shack app in order to purchase the sandwich. According to Abbey Reider, Director of Digital at Shake Shack, this drop strategy has served as a reliable turbo boost for app installs and social media engagement.
Cash App had a similar playbook when it launched its virtual card offering. To drive adoption for this new product, Cash App decided to drop a 20 mins, 99% off discount (up to $50). Everyone could qualify for this drop - the only thing they had to do was to activate a virtual card directly in Cash App and use the card to make a purchase. It went viral and received thousands of retweets and tens of thousands of likes on Twitter.
The key for this method is to understand what matters to your customers and create a drop that is so appealing to them, usually either by offering a unique product or a great deal, so that it would be a no brainer for consumers to download an app or sign up for a new product.
#2 - Goodwill drops
I refer to this mode as the goodwill drop because the main objective is to build brand equity by creating one-off products that solve a pain point for the target customers.
There is usually no ulterior motive; however, it can also help acquire new customers if it’s executed well. The two examples are Stir and Partyround.
Stir builds financial products for creators. They have been doing frequent goodwill drops since the very beginning to help creators, even though Stir does not make money directly from those drops.
“We produce one-off projects in pursuit of our mission to enable creators to run great businesses, own their content, and build direct relationships with their audience. We helped one YouTuber [Airrack] reach one million subscribers. The software we made helped him to get 225,000 subscribers in five days.
We built a product called OnlyTweets which allows for anyone to have a premium Twitter account and pay for tweets. We built a drop called MergWith, which brought together 22 different creators to design a COVID mask. We put them into groups of two and split the profits 50/50 to start.” - Joe, CEO of Stir
These goodwill drops have helped cement Stir’s status as one of the leading creator fintech startups due to its consistent effort to help its creators.
Another example is Partyround, a fundraising platform for startup founders. Similar to Stir, Partyround has been doing goodwill drops since the very beginning, even though those drops are outside of their core business. They create one-off projects that are both useful and fun for founders and investors. One of their recent drops is called Big Tech Fellowship - they offered $50K for people working at a big tech job to quit and build a company. They have a playful approach to all the drops. At the end of the Big Tech Fellowship page, they have a resignation letter generator for people to create funny resignation letters.
Another unique part of Partyround’s drop approach is their focus on collabs. They partnered with Mainstreet for the Big Tech Fellowship drop. Most recently, they partnered with Cometeer for a coffee for founders drop. Collabs allow companies to acquire additional exposure and gain more credibility for the drop if you have the partner.
Goodwill drops can be great to build strong brand equity. However, the key to this drop is authenticity. You have to truly care about your customers, understand their needs, and not expect to monetize from the drops.
#3 - Attention drops
The goal of attention drops is to grab customers’ attention and ensure the brand is top of mind. The best example for this model is Dos Toros’ Burrito Time app.
Dos Toros is a burrito chain from NYC. In 2018, it launched an app called Burrito Time to position itself as a “simple and fun.” Dos Toros competes with bigger companies like Chipotle. The app had one simple purpose - free burrito drop. The first 10 people that opened the daily drop notification would receive a free burrito.
According to Marcus Byrd, a marketing manager at Dos Toros. The inspiration for this app also came from HQ trivial.
“I’ve got to give credit to HQ trivia. It’s the idea of owning somebody’s day, where people stopped whatever they were doing to spend time with an app. It’s a way to stay top of mind every day.” - Marcus Byrd, marketing manager at Dos Toros
This approach is most common for consumer brands.
#4 - Money drops
Companies that do money drops usually treat their drops as a key revenue source. Drops could be your core business model (e.g. Supreme) or they could serve as an additional income stream.
One success story for money drops is NBA Top Shot, an NFT marketplace for NBA moments (aka digital sports cards). Collectors can buy different packs, which contain a random selection of moments, during drops. Not only did drops create hype, but also helped NBA Top Shot to amass a ton of revenue.
During its heyday, they were selling 10K+ packs per drop with more than 200K collectors waiting in line hoping to get the chance to buy the drop. According to data crunched by CoinDesk, NBA Top Shot made over $7M in just 8 months from doing drops.
Another example is 100 Thieves. Besides being known as an esports organization with a cult-like following, 100 Thieves has also achieved a lot in the fashion world. They drop branded merch from time to time, and the merch usually gets sold out within minutes just like the Supreme drop. It’s a very lucrative income stream for the organization. According to Verge, they made over $500K in one drop in 2019. Merch drops are unlikely to be their main revenue driver, but they still provide another layer of income stream for 100 Thieves.
Overall, money drop is great but it might not be the best fit for every company. It tends to work well with companies that either have a big existing audience that deeply appreciates and resonates with the brand (e.g. 100 Thieves) or companies that can offer a strong financial incentive (e.g. NBA Top Shot because moments from drops could be resold for a higher price).
Conclusion
Those four modes of product drops are the most common ones I have found, but they are not the only ones. For example, another type of drop is data drop. The company might use drops as a way to collect data for other product offerings. SnackMagic, the corporate gifting startup I am working at, is launching a new product line called Snack Drop, offering limited edition discounted snack boxes as a way to collect data and create leads for other business lines.
Product drops strategy is not a silver bullet. It might not work for many businesses. Most consumers that participate in product drops are Gen-Z and Millennials so there is a chance drops might not appeal to older generations who are not internet natives. Furthermore, product drops tend to work best with cheaper items that are relatively high moving. For example, it might be a lot more challenging to do a house drop since the number of people that can afford to participate in that is a lot lower than that for shoes.
What are some other drops you have seen? Reply to this email because I would love to hear from you.
Leo
I really find this helpful thanks for sharing cos I will try and implement drop on my print on demand brand including the digital download brand too