Next Coast Ventures co-founder Michael Smerklo will be moderating a panel on digital native disruption featuring PHLUR CEO Eric Korman during this year’s SXSW conference. The panel will focus on how the rise of digital consumers has upended many industries that were previously dominated by brick and mortar. Eric discusses what the audience can expect from the panel and how PHLUR, a Next Coast portfolio company, has come so far since last year’s SXSW conference.

Eric Korman, CEO of PHLUR

You’ve had a unique road to entrepreneurship spending the majority of your career in the corporate world, why was your idea for PHLUR the one that made you take the leap?

I started reading Fortune when I was 13 years old while other boys my age were reading Sports Illustrated, so the history of brand and branded products were always interesting to me. Many of the business ideas I had before PHLUR were easy to poke holes in or were coming to me at a time I was fortunate enough to have rapid career progression in the corporate world. But in the corporate world I was able to work on projects that were entrepreneurial in nature, constantly asking me to reexamine: ‘How does an existing business go back to market?’ I think the biggest difference this time was where I saw the internet as it related to brands. Prior to social media, the only brands that were created online were media brands like YouTube or Google, or aggregator brands like an Expedia, or Amazon. But with social media we saw digital first brands like Warby Parker emerge, and being a brand guy, that got me very excited. So I leveraged my 20 years of e-commerce experience with a brand background, and my interest in consumer products, and decided: well, maybe now’s the time.

Selling fragrance digitally was a radical idea, how did you paint the picture to investors?

There are so many reasons why big companies don’t innovate. For fragrance, considering to sell online is hard and it’s non-obvious how the experience should work. The hard and non-obvious didn’t feel like such a tremendous barrier for us, because I’ve seen watched so many different e-commerce verticals successfully shifted online. For instance, 15 years ago there were a lot of doubters that anybody was ever going to buy shoes online, and now Zappos is obviously a huge business, but shoe brands have been built digital-first like M.Gemi and others. So part of painting the picture for investors is to point to similar moments where there was a tremendous amount of doubt being able to shift online – and yet those few who did believe were able to create a lot of value. We’re also not the first company into the sampling economy, we’re leveraging the behavior that’s been built from the last five to six years, so we knew it would be something natural or comfortable for consumers.

As you develop your products and digital marketing strategy, what has been the best source for feedback? How did that change your business?

The biggest part of the feedback loop for us is the high level of engagement we get through Instagram and Facebook, it has provided us crucial insights early on. From the beginning, we took a specific approach to how we formulate our fragrance with clean ingredients and sustainable packaging, but our initial research concluded that “clean” messaging would not be a primary hook. Instead, our research said what will convince consumers will be the design of our packaging and the initial sampling experience. So we didn’t hide the fact that we removed a lot of the harmful products from fragrances, but we certainly weren’t leading with that message. But when we went to market. what we immediately heard from through our social channels completely contradicted the research. The commentary from the community was that they loved the transparent messaging, that we’re non-toxic, etc. That feedback pivoted early on how our brand message. So while it didn’t change how we were making the product – that was a core value – it changed how we communicated our value set.

What metrics did you look at once you launched to improve your business strategy?

A key part of our model is the percentage of customers that buy a full bottle after ordering our sample set. Originally, we had a two-fragrance sample, and while full bottle conversion was good, obviously we wanted it even better. So we started examining sample set behavior in a variety of ways. We realized people that were buying two sample sets were converting at a higher rate than those that were buying just one sample set and we dug in with those customers to understand why. That led to us relaunching with three samples in a box. It turns out, humans – from a behavioral perspective – are much better with three choices in front of them than two. It’s true across almost any category. So it started with the community speaking to us through their behavior, and I’m not kidding literally from the first day we launched three samples in a box, we saw the full-bottle conversion rate increase.

What do you see the role of social media influencers playing in your digital marketing strategy?

The influencer space is a challenging one and one that is always rapidly evolving. Five or six years ago brands that launched and were very influencer-savvy benefitted from a tremendous amount of really organic media. Now, paid influencers can be expensive because the market is highly competitive, with very large brands paying for influencers at scale – and now the largest influencers even have agents. So what worked for those brands a few years ago is not relevant today. Emerging brands have to build up a community and do a good job of organizing that underlying group in an effective way. That means identifying the collective thread of an audience that can be mobilized and get them excited to help spread a message on the brands behalf. Some of these influencers will have 50 followers while others will have 50,000. It’s a lot of work because you have to understand the underlying groups and it takes real man power to create programs like these. Organic doesn’t just happen organically.

What has been your biggest surprise in marketing to digital natives?

So there are plenty of historical precedents of a new generation rejecting the values, morals and behaviors of the parents. What’s interesting with digital natives is that’s certainly true, yet at the same time digital natives are influencing upwards – meaning their brand decision behavior is being mimicked often by the parents. As a result, we see strength with millennials, but also with an older audience as well. For example, we see moms with young kids very active in social media and being a very vocal proponent of our brand, doing selfie videos and posting them on Facebook. There’s a stereotype that all influencers are millennial, but age is not what determines someone’s influence per se.

About Eric

Eric is the founder and CEO of PHLUR, a vertically integrated fragrance retailer and Next Coast portfolio company. He is the former president of Ralph Lauren Digital and Global E-Commerce where he was responsible for the company’s digital businesses. Prior to Ralph Lauren, Eric was president of Ticketmaster Entertainment Inc. where he was part of the management team that drove the successful public spin-off of Ticketmaster from IAC (InterActiveCorp) in 2008. He later helped lead the merger of Ticketmaster with Live Nation. Previous to Ticketmaster, Eric was a strategy and corporate development executive at IAC. Eric has served on the Board of Directors of Points International (PTS), Active Network Inc., BET Digital and OpenTable Inc. (OPEN). He received his MBA in finance from the J.L. Kellogg Graduate School of Management at Northwestern University and his B.A. in economics from Emory University.

Eric Korman, CEO of PHLUR

E2E stands for “entrepreneur to entrepreneur”