A highly personalized selection of clothes for you to try on in the comfort of your home. Keep what you like and return the items you don’t in the same box you received with a prepaid return shipping label.
Very easy and very successful.
But Stitch Fix’s success in its new way to sell gets a boost from an extremely old human social quirk.
The company, through your personal stylist, sends you a box of clothes, a “Stitch”. The clothes are based on your pre-determined preferences and refined over time through your feedback. But the refining process does not rest solely on your personal stylist.
Stitch Fix employs its own algorithm to help your stylist determine which clothes you would like best and which ones you are most likely to buy. The data points feeding this algorithm get as granular as to the shape of the shirt’s chest pocket. And probably even more granular than that.
But the customer doesn’t see or interact with the algorithm nor the fulfillment center that puts the clothes in the box.
The customer interacts with their personal stylist.
When a customer receives their “Stitch” it comes with a personal note and styling options. The implication is your stylist put a lot of time and effort into personalizing your box. (They probably did. I don’t know their full work process)
From your perspective, your stylist did a big favor for you.
whenever receiving a favor, you too feel an immense need, almost an obligation, to pay it back in kind.
The most obvious way to repay your stylist is to purchase the majority of the clothes they sent you.
And probably buying more than you initially said you would.
New Clients Spend the Most
The amount of “spend” from a new Stitch Fix customer occurs in the initial six months of joining.
The cohort data also shows that client spend has, on average, been higher the first six months of a client relationship than the second six months, and that the spend during a cohort’s first year is higher, on average, than the second year.
Stitch Fix goes on to say that they think the slow down in spend after the first 6 months and the first year is due in part to stocking. The customer has a lot of clothing needs when they first sign up. Then demand drops as their immediate wardrobe needs are filled.
I would add that the reciprocation bias, the feeling the customer has to repay their stylist, has worn off.
The customer realizes it is a business transaction, not a favor. The client becomes pickier about what they’ll keep. They’re more willing to send the majority of the clothes back.
Currently, Stitch Fix has high repeat purchase rates with an 83% rate in 2016 and a 86% rate in 2017. The bulk of Stitch Fix’s clients, 1,327,000 out of the current 2,194,000 active, have been added within the last year.
I am interested to see how Stitch Fix’s repeat rate trends over time as client acquisition rates slow down, as each yearly cohort ages, and the reciprocation bias wears off
The concern with AbbVie’s blockbuster biologic Humira is the lost of patent exclusivity in the U.S. and Europe over the next two years.
The worry is revenue from Humira will drop off a cliff as generic drugs enter the market.
This would be a logical worry if Humira was a small molecule drug. A generic small molecule drug simply has to prove it is the same chemical formula as the branded drug. No new safety and efficacy trials needed.
Humira is a biologic, a large molecule, that is synthesized from living cells. The process to synthesize and isolate the biologic is the drug. A small change in the process can yield vastly different results.
A biosimilar is a company’s effort to reverse engineer the original process to create their own biologic. The new biologic should be similar to the original.
Because it is a new and different process, the biosimilar has to undergo safety and efficacy trials. This drives the cost up to produce the biosimilar.
Recent biosimilars are coming to market at 15-25% discounts to the original because of the extra costs. Unlike generic small molecule drugs that are 50, 60, 70% cheaper than the branded drug.
Biologics have some switching costs built into them.
If you are taking a biologic and your illness is under control with little or manageable side effects would you switch to a biosimilar? Knowing that it may work less effectively or not at all? And your side effects could increase to save 15-20%?
If you’re a doctor and your patient is responding well to the branded biologic will you suggest switching to the biosimilar? Knowing that it isn’t the exact same drug and it may not treat your patient as effectively or may increase the adverse side effects?
The Real Threat
The real threat is a new patient trying the cheaper biosimilar first and responding favorably to it. Then there is no reason to switch over to the more expensive original biologic.