Consumers 3.0 & The Engagement Economy
By Dessy Levinson
What do avatar skins, dainty gold rings, and face sticks have in common? And how can understanding their success help you win the market at viral speed? Aside from impressive margins, the above examples are all part of the whirlwind third act of digital consumerism. We are moving beyond wondering what to buy or what it says about us, and onto using purchases as set-dressing while we broadcast one identity after another from our Insta stage. The question is no longer “Who are you wearing?” but rather, “How radiant does my life look with that Cha Cha Matcha by the open Moleskine?“
Brand cachet is nothing new, of course. We can trace the first two acts of consumer marketing throughout the last century as product innovation became commoditized, resulting in a transition from feature-based to narrative-based advertising. Then something momentous occurred in the oughts: we built a more abstract digital reality — one that delivered unprecedented access and convenience at scale while holding a magnifying glass to human behavior. The rise of social media encouraged everyone to lead a dual existence: decloaking to gather maximum attention, while also living vicariously through the lives of others. Add in the disintermediation of traditional retail by direct-to-consumer brands touting near-unthinkable personalization, and you’ve got synchronicity of acquisition and actualization.
To understand these tectonic shifts, we at 645 Ventures have been considering how marketing continues to evolve in this digital-first century, as focus between brand and consumer moves from broadcast to conversation, and then further to collaboration. We believe emergent consumer behaviors signal a transition from the attention economy of the twentieth century, past the experience economy of the last eighteen years, and into a new engagement economy that will shape Consumer 3.0 trends through the next decade. It’s no longer enough to be part of a narrative — now consumers also want to be writing, performing, and directing their stories. Instead of looking to Madison Avenue to tell them whom they should aspire to be, they are defining themselves as the heroes and heroines of their own adventures.
We use marketing here to denote the process through which creators of a product or service communicate to potential customers: “this is for you.” Their message can be visual, social, or direct, but it generally targets impressions of belonging (“people you like like this”) and aspiration (“the person you want to be uses this”). Psychologically, this parlays the human desire for esteem into an intent to purchase so as to achieve either others’ esteem (to safely belong) or our own (to move toward contentment). Below, we share how the best new consumer brands market not at but with the customer, promoting greater attachment and encouraging individuals to internalize value propositions and reflect them as their own.
Marketing has traded on esteem for over one hundred years; however, a skillset that once took years of professional training, expensive tools, and closed channels of distribution is now at the fingertips of every digital denizen. The past two decades have resulted in a new generation of consumers who matured right alongside digital modes of marketing, becoming as technically and psychologically effective as the professional marketer. Add in a culture steeped in high-production reality shows and their user-generated cousins on YouTube, and you have the right petri dish for the formation of the performative consumer: a person who is not passively receptive but actively engaged in the act of consumption, as well as deeply interested in influencing others’ choices.
We’re moving ever closer to an alignment between consumers’ reason for being and their reason for buying. While we may often hear that Millennials and Gen Zs are choosing experiences over objects, it’s easy to overlook the merging of the two, as the integration of objects into narratives curated and broadcast via Instagram, Facebook, Twitter, and Snapchat become experiences unto themselves. We can view engagement then not as an outright replacement of the experience economy, but as its evolution.
What does this mean for the founders of new digital brands, and how can they best participate in this engagement economy? Product and service creators must recognize that buyers now possess not only decision-making power but narrative agency as well. It’s no longer sufficient to tell them who they’ll be when they purchase your product. It’s far more effective to listen and respond to how they integrate that product into their digital lives, and to allow them to express themselves independently through your product.
Over the past year, we’ve identified three main drivers of consumer engagement. Performative engagement causes consumers to want more than the memory of an experience; they hope to be seen engaging with the experience in order to impress others (or themselves). Altruistic engagement, on the other hand, is about something greater than the ego — be that saving the environment, utilizing clean ingredients, or serving social causes. Lastly, transformative engagement is motivated by the need to outgrow or escape one’s current reality. Naturally, each has its own benefits and drawbacks, and all three play a major role in how the current generation consumes.
Performative engagement is the heart of viral marketing.
“Picture yourself in a boat on a river” has become “picture this boat as a frame in your Insta.” Some of the best new consumer brands—particularly those in fashion, lifestyle, and luxury—are being built with a shutter-click in their DNA. While YouTube unboxing videos contributed to the early success of Casper, Ipsy, and Scentbird, other entrants such as Mejuri, Otherland, and Goldbelly* arrive as filter-ready material with purposes beyond their look, smell, or taste. These brands encourage customers to imagine their social streams with the products already in them (and further, to imagine them grouped with like-minded performative brands). Consumers then respond by purchasing and creatively styling the products, then eagerly sharing the message as their own.
Benefit: Leveraging organic marketing by consumers and decreasing customer acquisition cost
Altruistic engagement builds tribes.
The modern consumer makes purchasing decisions while witnessing a world in environmental, political and economic chaos. This has created a generation that is politically, environmentally, and socially active, demanding transparency in the supply chain, production, and ethical leanings of brands. The sharing economy has blossomed in this space (Lyft, Airbnb, FatLama*), as have simple-ingredient brands such as Glossier, AllBirds, and Lola. These are the companies who create purpose-based communities by openly engaging with the well-being of the world and each other, not just with their bottom line. Done well, this can create incredibly powerful consumer engagement that is less price-sensitive and resistant to churn.
Benefit: Increasing margins and lower churn
Transformative engagement allows us to either escape or advance ourselves.
Unprecedented access to knowledge means that we have to live with the burden of knowing it. This has created new levels of anxiety and a desire for both mindful and escapist solutions. Wellness brands like Calm, Peloton, and DailyHarvest all endeavor to give consumers agency over crafting their best self. If that doesn’t work, Fortnite, HighFidelity, and Roblox offer cool avatars awaiting inside immersive worlds with greater excitement and fewer consequences. As evidenced by Fortnite (and more generally social gaming), these types of products can elicit immersion regardless of whether they are 2D or 3D environments. The greatest variable for escapist engagement proves to be not veracity but how many of your friends are waiting once you get there.
Benefit: Increasing network effects and potential for mass scale
Lest you think this engagement economy is a foolproof recipe for market domination, as with all powerful tools it comes at a cost. Here are a few lessons to heed:
Performative engagement needs real utility if you want long-term customers.
As Blue Apron has demonstrated, customers idealize the image of their future selves over their convenience. While many of us would swear we’d love to prepare a healthy, homecooked dinner together with loved ones, the reality is that after the first week (or month) the sheen wears off and fatigue sets in. Our willingness to perform the role we’d like for ourselves — in this case, that of a healthy person who crafts each meal from adventurous ingredients and recipes — becomes subsumed by the reality of long workdays and the not-so-cheap ingredients languishing in the fridge.
Drawback: Failing to efficiently address a pain point can result in high churn
Altruistic engagement requires real transparency.
If you promise to do good in the world, you have to stick to your word. Uber and Facebook have recently learned this lesson while being dragged through the court of public opinion. While both companies have largely maintained their valuations and continue to operate at dominant scale (at least for now), consumers no longer believe that either brand has the good of the worker or the good of the community at heart. As a result, these companies face steep PR spend and uncertain prospects of rehabilitating their image.
Drawback: Prioritizing growth at all costs is misaligned with serving the greater good
Transformative engagement demands flawless experiences.
Friction is the enemy of magic. Unfortunately for those of us still holding our breath for an actual holodeck, transformative engagement necessitates technology that enables rather than clouds the experience. The HTC Vive and Magic Leap are examples of amazing technology where the current friction makes engagement too difficult for the average consumer. We hope this is temporary.
Drawback: Futuristic offerings must align an exceptional degree of capital, talent, and patience
So, how do you pick the correct engagement paradigm for your brand? And for that matter, what caused us to sort the above examples into one category over another? Eagle-eyed readers have likely observed that there’s more than one fit for some of the best brands. In fact, Airbnb gathers all three engagement types: performative (pretend to live another’s luxurious life), altruistic (share homes and experiences), and transformative (enrich your reality by encountering someone else’s home or knowledge). We would argue that it’s no coincidence that Airbnb is also the most profitable of the pre-IPO consumer brands we’ve mentioned thus far.
Don’t assume you must only pick one engagement type! You can (and should) go after all of them, provided you can do so authentically. In our experience, the most successful Consumer 3.0 brands are crafted to fit all three spheres of engagement. M.M.LaFleur*, one of our highest-performing portfolio investments, also showcases performative, altruistic, and transformative characteristics. Take a look:
If you need help fitting your brand into the diagram above, below are some DOs and DON’Ts to mind at the early stages of building a consumer company. We’d love to hear your experience of what works and doesn’t.
DO: Understand how your target consumers curate and engage with media
DON’T: Follow a particular Instagram fad or assume that your customers will
DO: Listen to their dreams and find ways to augment them
DON’T: Tell consumers who they should want to be
DO: Figure out your objectives and values beyond profitability
DON’T: Pretend to believe in values that are at odds with your business model
DO: Authentically engage with causes important to your customers
DON’T: Lie or compromise your integrity
DO: Show customers how they can become something more/different
DON’T: Expect customers to quickly adopt a change-driven product
DO: Listen to where they want to go and help them get there
DON’T: Mistake outliers for existing large markets
We’ve delved into the evolution of behavior, but what about the evolution of technology? We believe that as our digital media move from 2D to 3D representations of information (from screens to spatial computing), the opportunity for crafting personalized settings and broadcasting identity-play narratives will increase exponentially. That’s a whole other (even more exciting) story, which will be the next part in our discussion of the Consumer 3.0 market.
In the meantime, we think it’s telling (and perhaps poetic) that our amygdala — the area of the brain that activates in response to external threats — also lights up when perceiving belonging cues. The antidote to fear and distress appears to be, at least neurologically, a tribal engagement that signals safety and belonging. This has been the case for eons, and won’t change anytime soon. Whether you’re selling products integral to well-being, ones that add a bit of sparkle, or digital goods with catchy emotes, it’s helpful to pave a path that reaches from attention to connection and then finally to engagement. Characteristic of the best consumer brands we’ve seen, such an approach enables user-driven digital footprints that initially outpace revenue, then directly correlate to outsize returns. Unicorns, it seems, really do ride rainbow filters.