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Why sell branded virtual goods? Advertising or ecommerce revenue? August 20, 2008

Posted by jeremyliew in advertising, business models, digital goods, games 2.0, mmorpg, virtual goods, virtual worlds.
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Yesterday’s WSJ noted that retailers and manufacturers were increasingly selling their branded virtual goods inside virtual worlds:

Retailer Kohl’s Corp. this month launched a new line of apparel, but the plaid skirts and printed T-shirts won’t be sold in its 957 stores. Instead, it’s selling them on Stardoll.com, a virtual community for teens and tweens where kids can fork over “Stardollars” — purchased online at a nominal sum — to buy apparel for their online characters…

This month, casual-wear maker K-Swiss Inc. and lingerie and swimwear designer Eberjey rolled out virtual clothes on There.com. And in late July, retail pioneer Sears Holdings Corp. opened its first online boutique featuring back-to-school apparel and dorm-room furniture on teen site Zwinky.com

Virtual Worlds News noted a few other brands also participating on There.com

… music merchandiser Bravado, and the Country Music Hall of Fame and Museum are now peddling their virtual wares in There.com. Each will establish specialty shops to sell branded goods for There.com avatars. There.com has sold virtual goods as part of brand campaigns before, most recently for NaCo, but has also popular for large, branded environments, such as those for Scion, Coke, and CosmoGIRL!.

So far the brands seem to be getting good results; according to Virtual Worlds News:

Yesterday’s Wall Street Journal article on apparel marketing in virtual worlds reports that the Zwinky boutiques “logged 750,000 visitors and sold 850,000 virtual items during their first 16 days through mid-August.” Meez CEO Sean Ryan followed up on his personal blog that 700,000 Sears items have been adopted so far by his users. There’s likely some overlap in users, but that’s over 1.5 million branded items distributed in just two of the properties. The campaign will run through the end of the month

However, these retailers and manufacturers are not selling virtual good for the revenue. Rather they are doing it for the promotion and advertising. Says the WSJ:

“It’s really a way to get shoppers to test-drive your product,” said Carlos Mejia, chief financial officer of Eberjey, a maker of lingerie, swimwear and sleepwear. The brand, which largely sells to women ages 20 to 45, hopes to attract teenagers with its virtual line.

Penney decided this year to put back-to-school outfits on Yahoo after learning that, during a seven-week experiment last summer, 1.5 million avatars wore its clothing on Yahoo and 5 million Penney outfits were tried on. “It casts a very modern, current light on the brand with teens,” says Mike Boylson, Penney’s chief marketing officer. Before Penney’s presence on Yahoo, “perhaps J.C. Penney wasn’t on their radar before,” he says.

Sears is marketing its virtual boutiques on billboards in the virtual world, and is hosting daily fashion shows on the site promoting its products through the end of August.

Adds Richard Gerstein, the Sears CMO:

Teens and tweens are making more and more of the purchase decisions, or at least influencing that decision. Mom already knows that Sears provides trusted value and quality, but we need to prove to the teens and tweens that we have the apparel and styles to help them “arrive” at school this year with confidence…. And as we continue to expand our outreach to the tween demographic it is increasingly important to expand our marketing strategy to include the mediums where tweens are spending most of their time.

The focus on marketing can create a tension within virtual worlds about how to price these virtual goods. On the one hand, to drive revenue and create value in the brand, you want to price these items at a premium. On the other hand, to get the broadest possible reach and trial, you want these items to be at the free tier. Online trial will hopefully lead to more real world sales. Anecdotally at least, it seems to be working:

The online pitches are striking a chord with Jen Rediger’s daughters, 13-year-old Tyler and 9-year-old Kenzie. In the first week that the Kohl’s store opened on Stardoll, they spent about 70 Star Dollars, or $7, on virtual skirts and shoes. Ms. Rediger, 32, an interior designer who lives in Hoschton, Ga., says she doesn’t mind her daughters being exposed to such marketing because “it’s not worse than what they see on television.”

Tyler has already asked her mom to take her to Kohl’s to buy the real versions. “They look really cool on my doll,” she says. “It’s my style so I think I’ll wear it a lot.”

Facebook has already taken this approach with its branded gifts. I suspect that we’ll see the model move more firmly in the direction of advertising, with most branded virtual goods being made available for free.

Comments»

1. nic mitham - August 20, 2008

I actually think the reverse will happen and more brands will a) move into the virtual space and b) charge for virtual items.

the demand is certainly already there, particularly for fashion and apparel (across the age ranges) and you then apply real world mechanics such as ‘wanting to look cool/have the latest clothes’, therefore facilitating a price point.

sure, in the short-term most plays will be giving away for free with outward links (in some cases) to real world currency based e-commerce.

but, if the demand is there and the category is right for the target market in-world then (medium-term), of course we’ll see companies charging for virtual items.

and just think:

a. 100% (or close to) margin with no manufacturing cost or cost of sale
b. no storage costs (i.e. in a warehouse)
c. rich metrics in terms of who uses the item and how

2. Joey Seiler - August 20, 2008

Thanks, Jeremy! I just wanted to comment on the last paragraph: “I suspect that we’ll see the model move more firmly in the direction of advertising, with most branded virtual goods being made available for free.”

I think a lot of these items are available, essentially, for free. Some require real cash (or virtual currency purchased with cash), but others take virtual currencies that users earn for free through regular activities and games, like Zwinky’s Zbucks. I believe users can buy Zbucks, but also earn them.

I’d imagine (though I’m not an expert here) that there’s extra emotional attachment to shirts and caps you’ve had to earn or work for instead of just pick up. That’s the benefit, or one of the benefits, of using avatars for marketing. They’re already filled with emotional investment, and it seems like, especially in the youth worlds, users are happy to work or put in time/effort if it means getting something rarer to round out their avatars.

Sears is also flat-out giving away some goods and hosting free virtual events as a part of the campaign. I think that’s good to raise awareness and reach some users who wouldn’t want to work to buy a t-shirt. However, I don’t think switching to an advertising model for branded goods necessarily means completely free branded goods, and I’m not even sure it should.

3. Joey Seiler - August 20, 2008

Nic’s comment came while I was writing out mine, but I’d agree wholeheartedly. At the very least, almost every avatar community and virtual world developer tells me they hear similar sentiments from their users.

4. csven - August 20, 2008

As more companies finally begin to grok the potential of virtual goods as vehicles for tangible product promotion, perhaps it’s finally time to restart discussion of “futures product placement” ( http://blog.rebang.com/?p=577 ); or perhaps, “true reverse product placement” ( http://blog.rebang.com/?p=1365 ).

5. Robert Brackenridge - August 22, 2008

Joey. Did I just hear you flip? Damn… The US gymnastics team could have used that sort of talent.🙂

It appears that there is an apparent value to virtual goods. At this point in the business development curve, it makes sense for companies to choose to offer the good in exchange for membership, community and in some cases brand loyalty. Why? Look at the ultimate business goal…

And with online marketing still being a bargain, companies are able to experiment.

Ultimately, there will be online brands that figure out what they represent to the purchasers of their wares and the appropriate value. And many will be able to extract a premium. The top designers will be handsomely rewarded for their creativity. But, there are still costs involved.

Online video is currently exhibiting this same sort of behavior. And according to many of the analysts’ forecasts, online video is about to make a break towards monetization. Perhaps virtual goods are headed toward a similar fate?


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