Three ways to make money on digital product passports

1. Second-hand / resale

The second-hand market is already exploding in several sectors such as electronics, clothing and furniture and is set to continue seeing rapid growth. With a digital product passport, you can make it easy to scan a QR-code and put your product up on a second-hand platform.

Boston Consulting Group notes how DPP is making a branded resale platform cheap to run and noted how the clothing brand, Chloé cut resale time by 60% this way.

Management consultancy firm Bain & Company found that DPP’s had the potential to double the lifetime value of products and that the secondhand market would have a knock-on effect on the primary goods market, particularly for brands that retain value. It will be more attractive to buy a new product if you know it can be sold a few years later for a decent price. Bain’s conclusion was that brands should look beyond compliance today and see DPP as a strategic opportunity.

One Swedish brand we’ve spoken to at Kolla is about to embark on this and believes they can make more money on the second-hand sale than the first hand sale. The rationale is that the first-hand sales requires production, manufacturing, raw materials, distribution etc but the second-hand sale only requires a web platform. The idea is that when a person wants to sell their clothing, they only have to scan a QR-code, claim what condition the item is in and the rest of the information gets imported from the DPP to the brand’s second-hand platform automatically. It gives a consumer transparent and credible information and a consumers can now prove that the product ‘real.’ It’s very transparent and done in an instant. Brands are experimenting mainly with three business models:

1. taking a cut on the resale transaction
2. running a trade-in/buy back system and verify the condition of the product, or
3. offering an ‘authentication as a service’ fee for other resale platforms since the brand is the only part that can verify the passport.

Read our piece on the second-hand market and the opportunities surrounding it

2. Spare parts / repair It’s widely accepted within industries such as bicycles and motorbikes that the original sale might be about 70% of the revenue but the profits are in the aftermarket.

At Kolla, we were recently preparing a battery passport for an e-moped company. The owner just wanted to know how quickly we could get a passport on the moped itself. The spare parts and other aftermarket sales was the reason.

“It’s about 30-40% of our business but profitability is considerably higher in this area,” he told us. This aligns with general market forecasts that say that 40% of the profits are often in the aftermarket even if only 20-30% of the revenue lies there. Spare parts, accessories and repairs are all lucrative businesses. When a digital product passport exists on every product, then this business is made much easier. The aftermarket business now goes straight to the brand and not a third-party and an additional bonus is that the correct parts are sent to match that product.

At Kolla, we’re already helping several clients in the furniture business with QR-codes on their products. The scan becomes a service portal: model-matched spare parts, certified repair shop locator, warranty status, repair-vs-replace guidance.

3. Upsell / cross-sell / repeat purchase

Aftermarket sales is clearly a strong opportunity but there are more opportunities than that albeit less direct.

The American luxury department store company Neiman Marcus Group showed that repair customers are 73% more likely to make another purchase in the next year. In other words, getting your customers to repair their products is not just good for the environment, it also leads to more sales.

In addition, there are countless studies that show that knowledgeable customers drive more brand loyalty. Research in the Journal of Marketing Research shows that consumers who feel confident about a product stay loyal, and that brands can build that confidence. A DPP puts how-to, care and product information on the product itself, at the moment the customer needs it. The trick is to give consumers added product knowledge and that gives them added confidence in your brand and more repeated purchases. Wyzowl is an explainer video company. Their survey showed that 86% say they’re more likely to stay loyal to a business that invests in content that welcomes and educates them after purchase. More than half (55%) have returned a product because they didn’t fully understand how to use it. Their survey only included 216 people so it’s not scientifically valid but the results align with several others regarding loyalty being driven by information.

And quite simply, if you want to upsell, then you need to have a connection with your audience. Digital product passports pave the way for this connection with the consumer.

This is just the start All of these benefits are happening before DPPs have become commonplace. At some point, a QR-code on EVERYTHING is going to be the norm and consumers will understand in advance what they get from scanning that code. That will change the game again. Today, most retail relationships end at the checkout but with DPPs, brands get to stay connected with the actual people who buy and use their products every time the product is used, moved, repaired, or handed to someone else.

Talk to us at Kolla and discuss how you can create passports today that lift you brand.