DISTRIBUTION CHANNEL FOR MOROCCAN ARTISANS
By
Zyad El Jebbari
M.Sc. Science and Executive Engineering
Ecole des Mines ParisTech, 2010
SUBMITTED TO THE ENGINEERING SYSTEMS DIVISION IN PARTIAL
FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF
MASTER OF ENGINEERING IN LOGISTICS
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DISTRIBUTION CHANNEL FOR MOROCCAN ARTISANS
By
Zyad El Jebbari
Submitted to the Engineering Systems Division on May 8th, 2015
in Partial Fulfilment of the Requirements for
the Degree of Master of Engineering in
Logistics
Abstract
The handicraft sector in Morocco represents more than 9% of the nation's GDP and
employs 2.3 million people. However, despite their talent and expertise, Morocco's artisans
are struggling to reach markets other than local regional or national markets. The main
distribution model used so far has been the classic retail distribution model, which does not
add value to the artisans' work, with most downstream actors playing the role of the
middlemen. Other Ecommerce models such as the marketplace model or the crowdfunding
model did not solve all the issues faced by artisans and customers. This paper provides the
framework for a new distribution channel for Moroccan artisans to improve the efficiency
of the value chain linking them to the American consumer by eliminating all unnecessary
steps, overhead, and overall inefficiencies of the current distribution models. We first
identify the models that are currently used to bring the artisans' crafts to the end consumer
in developed markets: the market place (used by the platform Etsy), the crowdfunding model
and the classic retail distribution model involving middlemen. We assessed the benefits of
all the models by developing a new framework allowing to score each one of them. We then
switched our focus to a hybrid model: a crowdfunding platform where the company partners
with the artisans to align the different stakeholders' interests. To the extent of our knowledge,
this model has not been used yet. It was found that our methodology could help artisans
access international markets more efficiently. We finished by determining the optimal
strategy using social media to market this platform and engage more efficiently potential
customers.
Keywords: handicraft, supply chain, crowdfunding, retail, social network marketing
Thesis Supervisors:
-Dr. Edgar Blanco: Research Director, MIT Center for Transportation & Logistics
-Dr. Tauhid Zaman: Assistant Professor of Operations Management, MIT Sloan School of
Management
2
Acknowledgments
I am appreciative of those individuals who have assisted with my thesis research. I am
indebted to the following people:
To my family for their support and encouragement.
To the Moroccan Minister of Handicraft and Social Solidarity Economy Dr. Fatima
Marouan for her support and commitment to the project.
To Dr. Bruce Arntzen for encouraging me to pursue an independent thesis project based on
my interest in global supply chain.
To the management team and staff of the Legatum Center, Dr. Fiona Murray, Dr. Iqbal
Qadir, Elizabeth Henry, Julia Turnbull, Anna Omura, Kwadwo Poku and my mentor Ajit
Janghiani for their support of and collaboration on my thesis project.
To Mrs. Kathleen Campbell, purchasing director of Ten Thousand Villages for generously
offering her time and insights on the crafts market in the United States and improving my
understanding of the mission of a Fair Trade retailer such as Ten Thousand Villages.
To my MIT ORC and EECS colleagues Krishnan Rajagopalan and Sourav Das for their
thoughtful input on my research.
To Dr. Sinan Aral for generously offering his time, insights and support to improve my
understanding and application of his methodology to flexibility in digital marketing.
And especially to my thesis supervisors, Dr. Edgar Blanco and Dr. Tauhid Zaman, for their
invaluable advice and guidance during many hours of discussion throughout the academic
year. It has been a great pleasure to have had the opportunity to work with you both over the
course of this thesis project.
Thank you.
Table of Contents
A b stract...........................................................................................................................
2
Acknowledgments.....................................................................................................
3
L ist of Figu res .................................................................................................................
6
L ist of T ab les ..................................................................................................................
7
1. In trodu ction ................................................................................................................
8
1.1. Artisans' platforms and current distribution .....................................................
9
1.2. Motivation & Contribution ...................................................................................
12
1.3. Thesis Outline .....................................................................................................
13
2. Literature Review ...................................................................................................
15
2.1. General Supply Chain Management Processes and Physical Flows:................ 16
2.2. Funding and financial flows in the supply chain ................................................
18
2.3. Information flow and relating to the seller/content............................................
19
3. Meth od s.....................................................................................................................
22
3.1. Artisans' platforms background ........................................................................
22
3.2. Hybrid platform building and proof-of-concept...................................................
24
3.3. Social network experiments: ..............................................................................
24
4. Evaluating Traditional Supply Chains for Handicrafts........................................
26
4.1. Data collected from interviews on the Retailer model....................
26
4.2. Data collected from surveys on the Marketplace Etsy ...................
28
4.3. Data collected from surveys on the crowdfunding model .................
30
4.4. Initial scoring of the traditional models .............................................................
32
4.5. The customer survey sent to understand customers' preferences .................... 33
5. The Hybrid platform ..............................................................................................
37
5.1. Description of the model......................................................................................
37
5.2. Proof of concept on Kickstarter ........................................................................
38
5.2.1. The Supply chains............................................................................................
39
5.2.2. Main challenges.................................................................................................
43
6. Evaluating Social Network Impact in the MoroCrafts Hybrid Platform............ 44
6.1. Introduction to Marketing and social networks ................................................
44
6.2. The Social network experim ents ........................................................................
45
6.2.1. The m ost efficient strategy...............................................................................
45
6.2.2. Causal relationship between gender and engagement on social media.......... 50
7. D iscussion..................................................................................................................
52
7.1. Scoring of the different m odels .........................................................................
52
7.2. Selection of the right supply chain .....................................................................
53
7.3. Relevance of Facebook Ads ................................................................................
53
7.4. Best strategy on social networks for social engagement ....................................
54
8. Conclusion.................................................................................................................
57
8.1. Summ ary ................................................................................................................
57
8.2. Further research ..................................................................................................
59
Appendix.......................................................................................................................
61
References .....................................................................................................................
71
List of Figures
Figure 1 The classic retail distribution model ..........................................................
Figure 2 The four types of crowdfunding models ...................................................
Figure 3 Flows between suppliers and customers in a supply chain (source
clerm iston .com ) ............................................................................................................
Figure 4 The eight essential supply chain management processes...........................
Figure 5 Differences between existing artisans' models...........................................
Figure 6 How buyers heard about Etsy (source Etsy).............................................
Figure 7 Breakdown of items bought on the Etsy platform (source Etsy) .............
Figure 8 The number of crowdfunding platforms in 2012 (source
Corw dsourcing.org)..................................................................................................
Figure 9 Breakdown of the different crowdfunding categories in terms of number
platform s (source M assolution).................................................................................
Figure 10 Scoring of the first 4 different models......................................................
Figure 11 Some articles offered for sale during the campaign/pilot test .................
Figure 12 Share of revenues and profits per SKU..................................................
Figure 13 Breakdown of costs and margins for each SKU ......................................
Figure 14 Scoring of the different m odels..................................................................
10
12
15
16
23
29
30
31
of
32
33
39
40
42
52
List of Tables
Table 1 Price point and number of items sold for each SKU...................................
39
Table 2 Breakdown of costs and margins for each SKU.........................................
41
Table 3 Description of the accounts and actions performed during the social network
48
experim ent on T w itter ..............................................................................................
Table 4 Results for social experiment 1: most efficient strategy............................. 48
Table 5 Logistics regression analysis .......................................................................
50
Table 6 Results for social experiment 2: influence of artisan gender ...................... 50
Introduction
1. Introduction
According to the Ministry of Handicraft and Social Solidarity Economy in
Morocco, 20% of the population is represented by the artisans who are living in poverty
with no access to the main necessities of life (Ministry of Handicraft, 2012). The Moroccan
handicraft industry represents 9% of the total GDP, which is considered a high percentage
given that more than 20% of the country's population works in the handicraft industry
(Ministry of Handicraft, 2014).
There has been an increased demand for authentic handmade products recently due
to consumers' awareness of global handicrafts items and their seeking to explore new
cultures. Even though the products are widely available in Morocco and there is high
demand for them, there is no linkage between the supply and demand.
According to a report from the Moroccan Ministry of Handicrafts, the handicraft sector has
historically focused its activity on three pairs of products/customers:
-
Crafts targeting domestic retail consumption, which generates a revenue of $30
million.
-
Crafts targeting domestic and international tourist consumption, which generates a
revenue of $1 billion, mainly from the domestic Moroccan customers.
-
Crafts with a strong cultural content production to be exported outside the country
(Moroccan Ministry of Handicraft and Social Solidarity Economy, 2007).
This last category has not being able to exceed $70 million in revenue despite its
great potential for both local and international customers and a strong global demand for the
items relating to Moroccan civilization, art, and culture. In 2007, the Moroccan government
put in place a strategy to multiply the revenue generated from exported crafts by 10 by 2015,
but this objective will not be achieved. Because the market is inherently fragmented and
Moroccan producers are not organized, structured or developed enough to adapt to new
distribution channels and access international markets, the Ministry accepted help from
"reference actors" (big companies producing crafts items), which intended to drive
international exports. But this strategy was not successful because these companies lacked
the necessary technology and operations expertise to access the American market: the
revenue from exporting crafts to the US market remained the same, at around 10 million
dollars (Moroccan Ministry of Handicraft and Social Solidarity Economy, 2012).
1.1. Artisans' platforms and current distribution
In the classic retail distribution model that the reference actors used (Figure 1), the
consumer had to pay a very high price compared what the artisans earned because of a lack
of supply chain and technology optimization in the process. It is a rather fragmented model
with actors that try to transfer (inventory and financing) risk to each other: artisan, Moroccan
wholesaler, exporter, US wholesaler/importer, retailer. At best, it was found that in general
the final retail prices paid by consumers for artisan crafts represented, on average, 5 to 6
times the initial price paid to the artisan. This is explained by the fact that each actor is taking
a risk (e.g. inventory risk, capital risk, assets deployed, demand risk) and a profit margin for
that risk
We took the example of Ten Thousand Villages to illustrate how a fair trade retailer could
improve the typical retail model by cutting some unnecessary middle men in the chain.
Today, Ten Thousand Villages is a nonprofit fair trade retailer that markets handcrafted
products made by disadvantaged artisans from more than 120 artisan groups in more than
35 countries. It was founded in 1945 by Ms. Ruth Byler, who began a grassroots campaign
among her family and friends in the United States by selling handcrafted products to help
reduce poverty among artisans. Ten Thousand Villages' model eliminates the Wholesaler
and the Wholesale Distributor in Figure 1. Ten Thousand Villages is the importer, the
wholesale distributor and the retailer (they also wholesale to other retailers). Some of their
product are shipped directly from artisans and they connect to some artisan workshops
through in-country fair trade organizations that help them communicate design, organize
shipping and transfer funds. These single organizations would cover the functions that have
been broken out into two actors of Wholesaler and Exporter.
Artisan
Wholesaler
(
xotr$
Importer
WholesalerI
Dsrbtr
Retailer
Figure 1 The classic retail distribution model
The other widely used distribution model is the marketplace model illustrated by
Etsy. Etsy is an e-Commerce website focused on handmade or vintage items and supplies,
as well as unique factory-manufactured items. The items include art, photography, clothing,
jewelry, edibles, quilts, and toys. Etsy is modelled after open craft fairs that give sellers
personal storefronts where they can display their goods. The company charges artists a flat
listing fee (20 cents per item), and takes a commission of 3.5% from all items sold. Etsy
charges also payment fees through direct checkout: 3% + $0.25 fee on total sale price
(including sales tax and shipping). Since its launch in June 2005, the site has continually
added new widgets and features, and has seen corresponding growth. However, as a
marketplace, Etsy does not take care of the shipping and logistics, which are left to the seller,
who might not have expertise in this area. While it has been extremely successful at
providing access to markets for artists, Etsy does not address some main concerns: financing
costs should be paid upfront by the artisan, there are no quality controls in place, no "artisan"
background checks are done (sometimes wholesalers use it while claiming they are artisans),
and it does not "emotionally" connect buyers with the artisans' stories.
A final model used is the reward-based crowdfunding model whose early success
came from sites like Kickstarter and Indiegogo. Kickstarter is a global crowdfunding
platform based in the United States. Kickstarter was launched on April 28, 2009, by Perry
Chen, Yancey Strickler, and Charles Adler (Wikipedia). The app is aimed at users who
create and back projects and is the first time Kickstarter has had an official mobile presence.
Kickstarter is currently open to projects based in the United Kingdom, Canada, Australia
and New Zealand, Denmark, Ireland, Norway, and Sweden. Kickstarter has reportedly
received more than $1.5 billion in pledges from 7.8 million backers to fund 200,000 creative
projects (Wikipedia, 2014). There are 4 main categories of crowdfunding: reward based,
lending based, equity based and donation based (Figure 2); one of the most popular is
rewards-based crowdfunding (the kind used on Kickstarter and Indiegogo).
-1
Figure 2 The four types of crowdfunding models
Rewards-based crowdfunding has been a source of funding for small businesses.
Businesses and non-profits of all sizes post projects looking for funding on a crowdfunding
portal, targeting a certain amount to raise. In return for a donation from backers, a business
or non-profit gives some type of incentive for participating (Lambert and Schwienbacher,
2010). However, this model is only present in the US and Western Countries since artisans
from the rest of the world (especially Africa) do not have the connection or credibility to
leverage the platform to reach users. The crowdfunding market is essentially American
(72%) and European (26%), the rest of the world sharing the remaining 2%. The reason is
certainly above all confidence in online transactions and possible legal remedies
(Crowdsourcing, 2012).
1.2. Motivation & Contribution
The motivation for this thesis is to develop a new model of distribution for Moroccan
and African artists to help them access international markets. We will use a hybrid
crowdfunding platform that we will call "MoroCrafts" to better link artisans to markets by
providing customers with authentic handmade products. This platform aims at increasing
the artisans' profit margin and improving their quality of life. This project will be used to
explore the supply chain and social media dimensions of this business.
The results of this research directly enhance the distribution models used to export
art and craft items in the context of a global supply chain. When the prepayment of items
through a crowdfunding platform is combined with an efficient internal supply chain, both
artisans and consumers will be more satisfied. The scoring framework we developed during
our research can be applied to assess the efficiency of distribution channels for all sorts of
items that countries would like to export to international markets (e.g. traditional cosmetics,
accessories, authentic home decor). In addition, social media strategies can be used within
this new model to target and engage the right audience. Using the tools developed for
MoroCrafts on Twitter to spread the word and build a linked community, the analysis
highlights strategies that can be expanded to other social network tools such as Facebook,
Instagram or Pinterest.
1.3. Thesis Outline
Chapter 2 presents the literature review, which provides an overview of the
frameworks used to assess supply chain efficiency and performance. It also provides
research done in the field of social media and digital marketing in the field of the handicraft
and e-Commerce. Chapter 3 describes the methodology applied in the research, specifically
the methodology for evaluating and scoring the current distribution models for art. We also
present a new hybrid crowdfunding model and address the issues identified within this
scoring framework. We implement a pilot test to assess the score of the platform through
the framework and see if this hybrid model performs better than the current models in place.
We will finally experiment various digital marketing strategies to engage e-Commerce
customers.
Chapter 4 examines the results of the data analysis. Chapter 5 presents the
recommendations based on the findings in terms of the potential implementation of the
model and the use of social network strategies in the e-Commerce space. Chapter 6 concludes
with a summary and suggestions for further research.
Literature review
2. Literature Review
Previous research has tried to solve the problems described in chapter 1 separately
(i.e. reducing the financing and inventory risks, eliminating the middlemen, funding) but no
study has focused on providing a comprehensive solution for e-Commerce supply chains
linking artisans in developing countries to international markets.
We will focus on the three supply chain main flows: the materials flow, the
information flow, and the cash flow (Figure 3). In the next section, we will review the
research done in the area of efficient processes in the supply chain and the physical flows.
In section 3, the classic retail distribution model is evaluated in the context offinancialflows.
In section 4, we will outline the challenges of the informationflows within the context of
the e-Commerce channel, particularly in relation to the emotional linkage between artisans
and customers.
MATERIALS
INFORMATION
CASH
Figure 3 Flows between suppliers and customers in a supply chain (source
clermiston.com)
2.1. General Supply Chain Management Processes and Physical Flows:
One of the most prominent articles specific to streamlining the supply chain in the
classic business model and cited numerous times by other researchers is by Douglas Lambert.
The article outlines the "eight essential supply chain management processes" to efficiently
manage a retail distribution channel (Lambert, 2004).
AK
VI
Figure 4 The eight essential supply chain management processes
These processes span from the customer relationship management, where the
company should focus on the segmentation of customers, to product development and
commercialization (Figure 4). Within that framework, the product returns management
should ideally focus on product quality to minimize item returns and use promotions to
ensure products will be sold and avoid obsolescence. However, in internet supply chains,
inaccurate demand forecasting often leads to larger volumes of product returns for eCommerce retailers (Rabinovich & Knemeyer, 2006). Lambert focuses on including
customers and suppliers in the same ecosystem to be sure to maximize the value for
everyone (make the pie bigger) and the importance of coordination between all the
stakeholders of the system.
Some important actors in the Internet Supply Chains are the Logistics Service
Providers or LSPs (Rabinovich & Knemeyer, 2006): LSPs are intermediaries who help
internet sellers add value to their supply chains by consolidating orders and finding lower
transportation rates. The last mile delivery can then be outsourced to FedEx or UPS.
Rabinovich & Knemeyer studied the operations and economics of the Supply Chain
specifically pertaining to the optimization of product delivery to meet customer needs. In
situations where the product demand is high, it is crucial for the business to maintain a large
enough product inventory as to ensure efficient and time-sensitive product processing and
delivery as Rabinovich found that the majority of customers are time sensitive.
From the demand side, in order to maximize revenue by optimizing the cost per
product, the supplier must maintain high product demand. A lack of demand can induce high
costs to pick, pack and ship small orders and impact the client's willingness to buy the
product. Rabinovich's research has also shown that a new company can gain a competitive
advantage through asset specificity by using outsourcing and LSPs at three levels: company
and strategy level (Netflix), transaction level though segmentation (FreshDirect.com), and
product level with the distribution of niche products (seasonal products such as flowers).
However, outsourcing to LSPs is not recommended for sellers with high asset specificity
(LSPs are reluctant to make specialized investments) and high uncertainty (the seller needs
to take control of its logistics network). These conclusions suggests that additional research
needs to be done for our case.
2.2. Funding and financial flows in the supply chain
Another problem that can arise for small artisans and cooperatives is the lack of
financing (Ibrahim and Verliyantina, 2012). High transaction costs incurred by the credit
procedures makes this bank loan instrument not very well adapted for the small
businesses. An alternative is to get rid of these funding risks by using the fair trade model
that provides the artisans 50% of the initial funds to start the production. The microfinance
model is also available to artisans but interest rates are very high (between 20% and 30%
and sometimes even higher). As far as the fair trade model is concerned, it is still a
middleman model involving many intermediaries where the artisan only receives a small
percentage of the proceeds.
An alternative to mitigate the inventory, funding and financial risks is the
crowdfunding model: "Crowdfunding involves an open call, essentially through the Internet,
for the provision of financial resources either in form of donations or in exchange for some
form of reward and/or voting rights in order to support initiatives for specific purposes"
(Lambert and Schwienbacher, 2010, p. 6). This model of raising capital can take the form
of donations, sponsoring, pre-ordering/pre-selling, and as a result, the complexity of
processes varies greatly.
The idea of Community Driven Development (CDD) for individual and group-based
microfinance can be implemented using the crowd funding mechanism that has already been
proven as an established way to fund social and/or not-for-profit projects, particularly in the
Third World (Hemer, 2011). Organizations which have a long tradition of fundraising for
social and/or not-for-profit projects (e.g. the Red Cross, Oxfam, NGOs and other
organizations for development aid) already employ the crowdfunding model extensively.
Ibrahim and Verliyantina propose a crowdfunding system that serves as a bridge to link
the different stakeholders of the project/business: crowdfunders, field partners, coaches and
non-profit organizations, which work together to screen, supervise, and manage the use of
funds. His proposed solution/model provides a comprehensive solution to the financing
problem for Small and Medium Enterprises (SMEs). Such a system could be leveraged in a
web-based ecosystem that exploits the capabilities of social networks, especially the "viral
networking and marketing" functionalities, but the study in question did not assess the
impact of the physical and financial flows, which will be part of our distribution model. In
addition, trade-offs between transportation costs, lead time, product variety and customer
service should be assessed as well (Trent, 2004).
2.3. Information flow and relating to the seller/content
The process of crowdfunding also relies on social and viral marketing to encourage
people to back and fund a project/business. Research has found that single men were more
influential than married men/women with regard to spreading the word regarding a topic
(Aral, 2011). This remark is challenging in our case, as we will show later that people who
usually buy crafts online are mostly female. Aral explores how companies can incentivize
users to recommend on their behalf. The more "generous" shared-incentive model
(discount/promo offered to both the sender and receiver of the sharing) generates more sends
than the "selfish" single-incentive did. In fact, people shy away from spamming their friends
unless they can pass a benefit, promo, discount along to the friends with whom they are
sharing the idea/concept. These results are very much in line with the sociological notion of
a "gift economy," in which generosity confers status. Also, passive broadcast in social media
(generating automated notifications to peers) is found more efficient at recruiting new users
globally than active personalized techniques of word of mouth (personalized invites) in the
case of a Movie App company (Aral, 2012). This finding will also need to be tested and
further studied in the case of real assets. One should also the performance of these tools as
way to acquire customers or early adopters through social network since they could be
overestimated by homophily features (Aral, 2009). Homophily is the tendency of individuals
to associate and bond with similar others. When assessing an efficient strategy to engage
users in the internet, we should make sure that our strategy is the real driver that grows the
audience and is not only due to the "birds of a feather flock together" effect.
Lambert talks about the information flow needed between a regular company's
suppliers and customers for its supply chain to work smoothly and efficiently (Lambert,
2004). However, although e-Commerce appears to be an emerging sales channel, only
limited sales are occurring through it (Stoddard et al, 2012). This finding may be attributed
to the hedonic nature of arts and crafts consumption (appeals to emotions). Indeed, an artistic
product may not exist to fulfill a market need, a utilitarian concept, but rather a want, a
hedonic concept. It makes arts, crafts, and cultural product marketing different compared to
other types of products, and thus creates some marketing challenges (Colbert, 2003).
Various studies have shown that tourists are important consumers of crafts (e.g.,
Stoddard, Evans, & Dave, 2008): 60% of craft artisan retail sales are tourism. In 2008, Etsy
posted the results from a customer profile survey. Results from the survey of 30,000
customers indicated that Etsy's online buyers tended to be young (32 years old on average),
predominately female (96%), and highly educated (63% graduated from college, 17% still
in college). The survey also found that online users were mainly from the United States
(82%), but their international user base was growing. They had "registered users" from 172
countries by 2008. The profile for these consumers is enlightening since other studies have
found traditional arts and crafts consumers to be older, highly educated females with high
incomes (e.g., Evans et al., 2006). Perhaps these findings suggest an emerging segment of
arts and crafts consumers who feel more comfortable with electronic purchases. Evans'
results also indicate there is a strong connection between retail craft galleries and shops in
tourism destinations, which suggests that an effective marketing strategy for craft sales
should reproduce this experience online so that people can connect emotionally with the
artisans and the products.
The literature review showed that some processes such as returns management,
supplier and customer relationship management used in the regular distribution channels
could be used in our particular case, especially when it comes to managing the physical
flows from the suppliers to the end customers. However, the classic retail model does not
optimize the returns for the artisans, especially if one needs to carry and manage the
inventory risk to set up a responsive supply chain (Fischer, 1997). Outsourcing some risk to
LSPs in internet supply chains is not recommended for products that exhibit high asset
specificity. On the other hand, the crowdfunding model developed by Ibrahim and
Verliyantina for a microfinance platform could be used as a starting point to manage more
efficiently the financial flows to fund the artisans. This aspect should be further studied in
the case of an international supply chain which deals with real assets. Finally, even if the
classic information flow within the whole supply chain (as described by Trent and Fischer)
plays an important role in internet supply chains, arts products are rather different from
regular consumer products in the sense that they appeal to a hedonic concept rather than a
utilitarian concept. We may need to study more in depth the dynamics that could help
connect the consumer with artisans through the user experience on the platform and see how
likely a consumer is to stay engaged in the community (Aral, 2009). Studying the lead time
incurred by the latency of the crowdfunding model will be essential in our project. To the
best of our knowledge, no holistic research has been done to optimize a crowdfunding
distribution channel from artisans to end consumers in the developed markets.
Methodology
3. Methods
Based on our initial findings and literature review, we argue it is important to
develop a new hybrid model that improves the way artisans' crafts are distributed to
American clients. In this section, we will focus on three major points. First, we collected
data for existing platforms and compared them on the basis of profit margins, lead time,
financial risk and trust. We then explored how to design a hybrid platform to optimize these
parameters and target the right customer segment (e.g., Evans et al., 2006). Finally,
experiments on social networks were conducted to attract these potential customers on the
platform.
3.1. Artisans' platforms background
The first step in our methodology was to analyze the features of each of the models:
the classic retail distribution model (e-Commerce website or fair trade organizations), the
marketplace model, and the crowdfunding model.
We then evaluated and scored them using 6 criteria taking both the artisan and the customer
perspectives:
-
On the artisan's side: we assessed access to funding, profit margins, and access
for artists in developing countries. In December 2014, we conducted interviews
with the artisans during a field study in partnership with the Ministry. These 3
issues were identified as the top 3 challenges for artisans to get access to
international markets.
-
On the customer's side: we evaluated supply chain and logistics management,
emotional link and trust, and lead time. We also conducted customer surveys
with potential buyers and retail stores and these issues were also mentioned
several times as the top 3 criteria for a client to buy crafts coming from Morocco.
Figure 5 shows an example how of how we will score the different models based on
these 6 criteria from a scale of 0 to 2.
irSloan
At
Reasonable
Margin
Ameesi for
Emotnl link
and Trust
cfe
LIly Cn
Lead timne
Figure 5 Differences between existing artisans' models
Depending on the model, data was collected through different means. First, we
interviewed the purchasing director of Ten Thousand Villages to get a sense of the different
tradeoffs between trust, lead time, supply chain control and profit margins for a fair trade
retailer.
Second, we relied on the existing literature and print sources from customer surveys,
such as the one published on the Etsy's website, to gather additional data on the dynamics
of the marketplace and crowdfunding models such as Kickstarter.
3.2. Hybrid platform building and proof-of-concept
After we scored the different models, we developed a new model that will solve the
issues of the current models to import/export artisans' crafts. This hybrid model will be a
crowdfunding platform that will display existing and new features to help artisans access
international markets. The platform will reduce the inventory and financing risks, and
increase the artisan's profit margins. A pilot test of the model has also been conducted
between Moroccan Artisans and American consumers on Kickstarter, and we collected data
concerning the market segment (sex, income, degree of study), conversion rate and cost of
acquisition to target them more efficiently on social networks.
In addition, a market study was conducted in collaboration with the Moroccan
Ministry of Handicraft and a consulting company (Jola) to better assess the customer
behaviors and tastes. A survey was sent to 12,000 customers across the United States (the
survey can be found in the Appendix).
3.3. Social network experiments:
Once the right audience is identified in the prototype phase, we will develop the
platform and try to build the community around the project. To do so, we will use
experiments on social networks and especially Twitter and Instagram. Twitter is an online
social media platform where users can post 140-character segments of text to share with
friends. These "status updates" can contain both original text passages as well as links to
other sites.
There are a few ways to engage with fellow users on Twitter:
1) When one "follows" another user, the status updates of the followed user, or the friend,
get displayed on the homepage of the following user.
2) When a user wants to endorse another user's the post, he can re-post, or re-tweet, the
original status.
3) A user can also reference a fellow user in his post by mentioning the other account name
or directly replying to a post.
In this experiment we investigated the efficacy of 3 different strategies: following,
retweeting and replying, and measured the incremental benefits of combining 2 strategies
(following and retweeting, following and replying).
Once the successful strategy is identified, we used it to determine whether there is a
causal effect between the gender of the artisan and the number of followers acquired. Indeed,
from the interviews and initial research we conducted, potential are women and we want to
test the hypothesis whether they are more likely to get interested in buying a craft because
a woman or man produced it. We will run the same experiment for one more week by a male
artisan and female artisan using the strategy that has been identified as being the most
efficient.
Chapter 4 will present the main results following the same organization as chapter 3.
Evaluating Traditional Supply Chains for Handicrafts
4. Evaluating Traditional Supply Chains for Handicrafts
The question we try to answer in this thesis is the best distribution channel and
supply chain to distribute the Moroccan artisans' crafts in the United States. In this section,
we first highlight the main differences between the different models existing to export
artisans' crafts in the American market based on the interviews and customer surveys we
conducted or found on the internet. Second, building on these insights, we built a framework
for a new hybrid platform optimizing the main 6 parameters identified in the previous
section: access to funding, profit margins, and access for artists in developing countries on
the artisan's side, and supply chain and logistics management, emotional link and trust, and
lead time on the customer's side. A proof-of-concept has been carried over and existing
crowdfunding platform and we collected some interesting metrics. That means that we used
an existing crowdfunding platform called Kickstarter to run a campaign in January and
February, 2015 to test the logistics and the customers' preferences. Finally, experiments
using social networks (essentially Twitter) were implemented in March and April, 2015 to
develop the best strategy to build a community around this hybrid model.
4.1. Data collected from interviews on the Retailer model
We interviewed Ms. Kathleen Campbell, the purchasing director of Ten Thousand
Villages as part of our research study to learn more about the brick and mortar retail model.
We learnt that the organization made around $28M in revenues each year, purchases account
for $7.2M and 650 new items/year are added to the portfolio including jewelry scarves, hair
accessory). They hold around $9M in inventory in their warehouses, which means that the
items remain around 4 months in the warehouse (Inventory Turn=3).
Ten Thousand Villages uses 2 channels to reach their customers:
-
Retail stores: 38 stores and 40 independent franchises under contract.
-
e-Commerce /website: $2M revenues and 17% growth year on year. Ms.
Campbell confesses that she still has some difficulty conveying the story of
artisans through this medium: people do not spend enough time to create the
connection and experience as is the case in the store. Clients usually spend more
time on the store than online and can learn more about the artisan's story and the
culture of the country where the craft has been made.
The suppliers are not individual artisans but rather coops or organizations (spanning
from a few to hundreds of artisans in Bangladesh, for example). Designers usually attend
workshops to get a sense of the new trends and colors, artisans provide samples, and
designers/buyers (4 buyers who spend 6-8 weeks traveling in their respective region) guide
the artisans without constraining their creativity. The advantage of the approach is that the
organization gets an immediate feedback from stores. However, the design process needs to
begin 14-16 months ahead of the next season. The production begins 6-8 months later and
shipping takes around 2 months.
Concerning financing, 50% paid in advance to artisans and 50% at the time of
delivery. Providing this upfront payment to artisans to help them buy the raw materials they
need is a requirement for every Fair Trade Organization. Invoices are sent to artisans'
communities separately. The exporter consolidates the items to be shipped to the United
States from the supplier and the bill of lading is then sent to him. 90% of the time, products
are packaged at the origin.
The inventory risk is carried by Ten Thousand Villages ($9M in inventory in
warehouse). UPS manages domestic logistics. There are very few product returns (less than
2%). In terms of pricing, some products are price sensitive (unique products fall in this
category) and discounts do not affect the sales volume. Other products, such as ceramics for
example, are not very price sensitive (offered at WalMart or Target at lower prices). Gross
margin is around 55% to 60% and the price in the store represents 4 or 5 times the initial
price in order to get a 10% margin bottom line for the organization. This data allows us to
quantify 2 criteria in our scoring model: margins and logistics management.
4.2. Data collected from surveys on the Marketplace Etsy
In 2008, the website Etsy ran a survey with more than 30,000 participants. A similar
survey was realized in 2010 as well. Almost 46% of the participants were buyers, whereas
the other 10% represented sellers, and 39% did both. Ninety-six percent of Etsy's users are
highly educated females. Both buyers and sellers are a highly educated group, with 63%
graduating from college and 17% still in college. Buyers, on average, are 32 years old and
sellers are slightly older, averaging 35 years old. The customer base is mainly from the
United States: 82% of buyers and 86% of sellers are from the United States even though the
website registered users from more than172 countries. Many buyers find out about Etsy
through blogs: 26% find out about Etsy on blogs and 17% find out about the handmade
products they buy on blogs. More than 50% of the sellers who responded to the survey
participate in blogging, which seems to be the best way to get attraction.
The most frequent way buyers find out about Etsy is through a friend (33%) (Figure
6), so word of mouth and networking are of paramount importance: 72% of buyers and 78%
of sellers have a profile on at least one social networking site. This suggests that Facebook,
Instagram, Twitter or Pinterest pages may be a great marketing tool.
How buyers hear about Etsy
Where buyers learn about handmade products
Friend3%
50%
Oine
C r1%
Web seapr
19%
Other
8%
14%
Frienids
6%
Social networkig site
9
Craft Fairs
Is%
%
Mawim
Craft Fai or other event
2
.G-q.stoms
Mag14nus
6%
4%
AdVerisementM
Television
rA
*| l wraN
Figure 6 How buyers heard about Etsy (source Etsy)
Buyers shop on Etsy primarily to find unique items, because they value handmade
goods and they want to support independent artists. Figure 7 shows that the major items
bought on the Etsy platform are jewelry accessories.
Top ten categories for sellers
Top ten categories for buyers
JNWBy
ipry
Topre
17%
PqIWG.S
ZM
Cmb"
f
st
-
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t
caegkowe fo buyes bTgopo te
ten ateorie(soreesy
21%ramework
P
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bottlenc
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afr.Iti
simtdta
Figure 7 Breakdown of items bought
-4
on the Etsy platform (source Etsy)
Esy makes
ilo
eri
esfo
Buyers, who represent 80% of all respondents, are also willing to pay more for high
quality, well-crafted items. A recent article in Business Insider raised some concerns about
the authenticity of crafts on Etsy. While Etsy started as a way for artisans to get access to a
larger market, scale became an issue over time since supply of handmade crafts became a
bottleneck for the platform. It is estimated that Etsy makes $47 million a year in fees from
sellers. It's the fifth most-visited marketplace in the world, after Amazon, eBay, Best Buy,
and Wal-Mart. Many items offered for sale are made wholesale imported from other
countries, which does not align with the original mission anymore and may hurt their brand
image in the future. All this data allow us to score the model according to the 6 criteria pf
our framework.
4.3. Data collected from surveys on the crowdfunding model
In 2012, the company Crowdsourcing LLC conducted a research study concerning
the crowdfunding platform in the world. The global crowdfunding market has reached 6
billion in 2013 (vs. 500 million in 2009), a growth rate of 88%. According to a study by the
World Bank, it is estimated that the global crowdfunding market will reach $ 1,000 billion
in 2020. Now, the crowdfunding market is essentially American (72%) and Europe (26%),
the rest of the world sharing the remaining 2%. The reason for this geographic concentration
is certainly the tax exemption of contributions devices (friendly regulations) and above all
confidence in online transactions (Figure 8).
N S"
NUMBER OF CFPs, 2012
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SOL rcF: Eased
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asoourcir.g.org Directory
of Sites as of Apr 201.2
Figure 8 The number of crowdfunding platforms in 2012 (source
Crowdsourcing.org)
The reward-based model that a platform such Kickstarter uses represents 62% of the
whole market (Massolution, 2012). Figure 9 shows the split between the different models
and we can clearly see that the Kickstarter model is the largest in terms of number of
platforms represented. It is also the category that experienced the highest growth in the past
few years.
143
41% cAGR
DOWAnONBASED
79% CAGR
REWARDBASED
3.
21
U50%
CAGR
LENDING-BASED
114% cAem
EQUITY-BASED
2007
2005
2009
2010
2011
Figure 9 Breakdown of the different crowdfunding categories in terms of number of
platforms (source Massolution)
Project launchers need to have a bank account in the countries where Kickstarter is
present. African and Asian artists are excluded. Kickstarter applies a 5% fee on the total
amount of the funds raised. Their payments processor applies an additional 3-5% fee.
4.4. Initial scoring of the traditional models
Based on the interviews, each model received a score of
-
0 (no sign): no access to free loans, no reasonable margin for the artisan, no
access for African artists, no emotional link and trust for the customer, no reliable
shipping and logistics management by the platform, long lead time to the
customer.
-
1 (one X): adequate access to working capital, relatively good margin for the
artisan, relatively good access for African artists, adequate emotional link and
trust for the customer, relatively reliable shipping and logistics management by
the platform, relatively short lead time to the customer.
-
2 (two X): good access to free loans, reasonable margin for the artisan, good
access for African artists, good emotional link and trust for the customer, reliable
shipping and logistics management by the platform, short lead time to the
customer.
The following table sums up the different findings (Figure 10). The retail model has been
split between the classic online retail model and the fair trade retail model.
Online Retail
Fair-Trade
Model
Reail Model
Marketplace
CrowdFunding
MoroCrafts
Mods
Hybrid
Priterh
Reasonable
Emotional link
and Trust
cusler
X
X
XX
XX
X
X
XX
xx
X
X
X
Lead time
Xx
Figure 10 Scoring of the first 4 different models
4.5. The customer survey sent to understand customers' preferences
In collaboration with the Ministry of Handicraft and a consulting firm, a survey was
sent to over 12,000 consumers across the United States.
The consumers surveyed for this report purchase home furnishings several times a year.
They usually buy home accents more often than any other category, but also seek out and
purchase more practical items such as furniture and lighting. They buy these items at home
decor retail stores more often than anywhere else, but make frequent online purchases as
well.
- 58.5%purchase home furnishings several times a year
- 25% buy home decor when making a purchase
- 68% shop in home accents stores
- 47% shop online, too
They are inspired by visiting retail stores and by shopping online. Nearly 90% have
purchased home decor online. Social media also plays a role, but shelter magazines barely
register. They love Pinterest. Seventy-one percent go to retail stores for inspiration. Sixtyseven percent go online to get ideas. Once online, nearly 90% make purchases and 29.5%
use social media to get information on products 76.5% love Pinterest. There is a growing
interest in handcrafted home decor. A majority of these consumer have purchased artisan
products, and a significant portion would pay more for such goods because they believe
artisan products have more value. Most of these purchases were made in gift stores.
- 70.5% have purchased artisan or fair trade products in the last 12 months
- 38% would pay more for such goods. Of those, 54.5% would pay up to 20% more
- 73% believe that artisan products have more value
- 49% of purchases were made in gift stores
- 24% were made online
The majority of these consumers had not purchased Moroccan products. They are more
interested in price and design than in provenance. A little more than half would be hesitant
to purchase from a Moroccan company without a US presence, and in general, they were
not interested in learning more about Morocco.
- 22.5% have purchased Moroccan products
- 71.5% have not
- 20.5% say it is important that Moroccan design is made in Morocco
- 43% would purchase from a site that shipped directly from Morocco
But only 22% are interested in learning more about Morocco. In spite of that, when asked
for their impressions of Morocco and Moroccan design, the most prevalent words and
phrases were as follows: Exotic and unique, Bright and colorful, Rich culture, Beautiful,
Warm and inviting
Only a small number of those surveyed had visited Morocco. Of consumers who
have purchased Moroccan products, most did so at retail stores. A smaller number did so
online. For future purchases, they are most interested in home decor and jewelry. A
significant number are also interested in rugs. Only 3.5% had visited Morocco 14.5% want
to in the future
Of those who have purchased Moroccan products, 70% did so at a retail store 23% did so
online. From these customers:
- 67% are interested in buying home d6cor products
- 61% are interested in jewelry
- 36.5% are interested in rugs.
The initial results suggest that the average consumer surveyed is an active customer
of home decor products. They like to shop in retail stores and online. They are responsive
to social networks such as Pinterest and Twitter. They are willing up to 20% more for
authentic handcrafted, artisan-made and socially responsible products, only if the design and
the price are right.
The Hybrid Platform Design and Results
5. The Hybrid platform
5.1. Description of the model
Based on our preliminary study, we imagined and designed the requirement of a new
platform that solves the issues of the current models in place to import/export artisans' crafts
as described in the methodology section.
The platform reduces the inventory and financing risks, and increase the artisan's
profit margins. Given the nature of the crowdfunding model, artisans produce only crafts
requested (and paid for) by consumers, which allow us to put in place a low-to-no inventory
model and increase the artisans' margins. Artisans cannot afford holding inventory and
taking on the risk that is associated with it and find themselves at the bottom of the supply
chain, being squeezed by middlemen/retailers who can take on that inventory/financing risk.
Also, given the structure of the crowdfunding model, the artisans are not
disconnected and far removed from the end-users as they are able to align their production
with the customers' tastes, preferences, and behaviors. As a result, the demand and offer
will meet at the "right", optimal price.
Additionally, the platform gives the artisans a means to share their stories and
emotionally connect with their users in a beautifully designed environment such as Pinterest:
it offers a visual discovery, collection, and sharing channel emotionally linking and
connecting the craftsmen and buyers (which allows users/buyers to travel and discover
remote areas of the world through the platform). That proximity will be even more stressed
with users having the option to customize the crafts they are requesting.
To solve the marketplace model issues, specifically the lack of background checks
and quality control, we are partnering with community managers. These managers constitute
another line of defense with regard to quality controls and partner with and handhold artisans
to improve their processes, design, and administrative duties. This way, the artisans can
focus on their core strength: building beautiful products for buyers across the world. The
community managers assist artisans optimizing the lead time (from sourcing to end
consumer) through a reliable direct Supply Chain.
The business model is rather simple: we set up a visual discovery/sharing,
crowdfunding platform and a commission is taken on crafts sold by artisans to customers.
The artisans are managed by community managers and costs are limited to the investment
in the platform, community managers' salaries and marketing to grow user base if needed.
The platform that we will call "MoroCrafts" on the rest of the study will rely heavily on
social media and viral marketing to grow that part of the business and solve for that side of
the equation.
5.2. Proof of concept on Kickstarter
We started with a pilot test between Moroccan Artisans and American consumers
and sold 18 items or SKUs as if they would be sold in our platform. Figure 11 shows some
of the articles we offered during this campaign: teapots, candleholders, mini tagines,
traditional leather bags, silver necklaces and bracelets, rugs, lanterns...
35$ Connect with the
Artisans!!
'350$ Rug-Rug Made by
Middle Atlas Tribes
12$ Fez Medina Bag
(Small)
-
67$ LANTERNE BOIS BLEUE
I lue Maeoelle Wood Lantern 14f5 in) with aplionto
color:le, ack,Whle I
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Talk direcly to wastan.a
Size: 7 ft33 ft.
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Connect with Us!
- - - - - -- --- -
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95$ Silver
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25$ Marrakech Evening
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*Silver bracelet with Arabesque
-opaving anddeeigo
Figure 11 Some articles offered for sale during the campaign/pilot test
5.2.1. The Supply chains
After one month, we could raise $10,212 on Kickstarter from 91 different backers.
$1,996 were donations without any counterparty while $8,216 were items bought by
customers. If we exclude the website fees of 8% and the donations, the average amount
purchased for this campaign was around $53. Table 1 shows the price point for each SKU
Item
Rugs
Bracelet
Necklace
Quantity
Retail Price
350.00
110.00
70.00
6
8
4
$
15.00
25.00
14
12
Large bag
Mini Tagine
Bougie bois petit
$
$
$
30.00
20.00
34.00
8
36
10
Small bag
Medium Bag
$
$
$
$
Bougie khmissa metal petit
$
34.00
4
Teapot colore petit
$
45.00
10
Teapot point petit
$
45.00
12
Petite lanteme bronze
$
60.00
2
Bougie bois carre grand
Bougie khmissa metal grand
$
$
65.00
65.00
4
4
Teapot colore grand
$
65.00
2
Teapot point grand
$
65.00
6
Lanteme bois bleue
$
67.00
10
Lanterne bois bronze moyenne
$
95.00
2
Table 1 Price point and number of items sold for each SKU
as well as the number of items sold while figure 12 shows the percentage of revenues and
profits for each item:
Share of revenues and profits per SKU
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
0
U Share
O
'\
of Revenues
06
'
C
0 Share of Profits
Figure 12 Share of revenues and profits per SKU
We can notice that there are only 3 items that represent more than 10% of profits and
revenues: rugs and bracelets which are high value items and the mini tagines which are
affordable (they are the ones that were bought the most in terms of volume. We could
consider them as A items.
In general, revenues and profits are pretty much correlated expect from the small bags and
the blue lanterns that were underpriced by comparison to other items.
We used two different supply chains for these products:
-
A direct supply chain for expensive and bulky items such as rugs through FedEx.
Lead time was less than 2 weeks and logistics costs were around 15.3% of the
final retail price.
-
An indirect supply chain for customized and smaller items: we sent them by bulk
to the fulfillment center to reach a critical mass and then sent them back to
customers via the regular US domestic post office. Lead time was significantly
higher (more than 6 weeks) and logistics costs were around 26.4% of the final
retail price. (Written after items sent to customers next week).
Figure 13 and Table 2 summarizes the breakdown of production cost, shipping costs and
margins per item:
Item
Rugs
Bracelet
Necklace
Small bag
Medium Bag
Large bag
Mini Tagine
Bougie bois petit
Bougie khmissa metal petit
Teapot colore petit
Teapot point petit
Petite lanterne bronze
Bougie bois carre grand
Bougie khmissa metal grand
Teapot colore grand
Teapot point grand
Lanterne bois bleue
Lanterne bois bronze moyenne
Average
Share Production cost Share shipping cost
15.3%
35.0%
36.5%
5.0%
35.0%
8.6%
47.6%
36.7%
32.7%
22.0%
30.6%
18.3%
12.8%
30.0%
13.5%
29.4%
29.4%
13.5%
27.2%
17.8%
27.2%
17.8%
29.8%
36.7%
12.6%
55.4%
12.6%
55.4%
37.7%
15.4%
37.7%
15.4%
29.9%
38.8%
29.5%
26.3%
28.3%
25.8%
Margins
49.7%
58.5%
56.4%
15.7%
45.3%
51.1%
57.2%
57.1%
57.1%
55.0%
55.0%
33.6%
32.1%
32.1%
46.9%
46.9%
31.3%
44.1%
45.8%
Table 2 Breakdown of costs and margins for each SKU
Breakdown of the price for each SKU
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
o
quo
%Q
e
0
Share Production cost
N Share shipping cost
0 Margins
Figure 13 Breakdown of costs and margins for each SKU
Again if we exclude the commission fees from the Kickstarter website, on average,
margins were around 45.8% (small bags had a very low margin, suggesting a misprice),
production cost were around 28.3% and shipping cost were around 25.8%. We can notice a
difference between the first supply chain were shipping cost represent 15.3% of the final
retail price and the second supply chain where they represent 26.4%. Inside the second
supply chain, we notice differences as well since the jewelry items that are quite light benefit
from the economies of scale from the bulk order: shipping cost represent only 5% or 8.6%
of the final retail price for these items. Shipping prices are very high for bigger candleholders
because they are on average much heavier than the rest of the items (2.6 kg vs 0.8 kg on
average).
5.2.2. Main challenges
Mainly delays appeared because we faced technical difficulties when customizing
products by engraving initials of the customers. We also needed to wait for artisans to send
their items from different regions of the country to a consolidation point where the
community manager was based. As for rugs which were sent directly to customers, the
process was much smoother and clients were generally satisfied.
The goal of the campaign was also to better assess the customer's tastes with regards
to crafts, artisans' stories and shipping/delivery preferences. People who received their items
quickly were extremely happy while answers were mixed with people receiving their items
with a higher lead time. This will encourage us to focus on a few products that will be offered
in the crowdfunding section (rugs and jewelry), while we will build some inventory for
smaller and cheaper items.
Evaluating Social Network Impact in the MoroCrafts Hybrid Platform
6. Evaluating Social Network Impact in the MoroCrafts Hybrid Platform
6.1. Introduction to Marketing and social networks
The worldwide home furnishing industry is expected to reach $700 billion by 2015,
according to research figures from Global Industry Analysts in 2014. Home improvement
has always been an area consumers have showed a need, interest, and passion for but new
marketing/information channels coupled with the growth of the interior design industry and
a move towards sustainability and socially responsible consuming habits have made
residential and industrial spaces remodeling more popular than ever. Some estimates from
the same Global Industry Analysts Report have measured the home decoration market to be
approximately $65 billion each year in the USA.
According to the customer research and hypothesis validation we have done via our
proof-of-concept on Kickstarter, we are targeting the 60 million travel and tech savvy
American women ages between 25 and 65. The Kickstarter campaign confirmed this finding
since 76% of our backers were women. The only way we had to track the customers
visiting the campaign was thanks to the number of people watching the presentation video
on the landing page. Hence we decided to use this action (watching the video) as a proxy to
quantify the conversion rate CR with the following formula CR=Number of buyers/Number
of people watching the video. The final conversion rate was 12.4% (91 buyers over 730
people who watched the video).
Those demographics are in-line with the Pinterest user base and that is why our
design and user-experience is set up to mimic the Pinterest user experience to achieve the
users' connection and growth we are targeting. We used several methods to reach that
audience via: PR (articles on the MIT News Office, Morocco World News), bloggers
(Nomadic Decorator, Twitter posts...), and targeted Facebook ads. We spent around $90
on a Facebook ad campaign and acquired 3 customers, which sets up the cost of
customer acquisition at 90/3= $30. Each customer spent an average of $120 per purchase,
which was more than the average amount spent by a customer on the website ($53).
6.2. The Social network experiments
6.2.1. The most efficient strategy
As mentioned earlier, there are 3 ways to engage with fellow users on Twitter apart
from posting the original status: "following" another user, "re-tweeting" a post, or
"mentioning" the other account name and replying to a post.
In this experiment we will investigate the efficacy of these different strategies and
measure the incremental benefits of combining 2 strategies together.
We will use three items:
1) Six different Twitter accounts with Twitter applications
-
OmarCobaga: a male artisan producing candleholders and teapots.
-
AzizCobaga: a male artisan producing candleholders and teapots.
-
HamidCobaga: a male artisan producing candleholders and teapots.
-
ChafikCobaga: a male artisan producing candleholders and teapots.
-
AichaCobaga: a female artisan producing rugs.
-
JamilaCobaga: a female artisan producing rugs.
2) One text and pictures bank of original content about artisans products
3) One text bank with supportive/directive phrases to us in mentions, like, "nice post, etc."
We also have five major controls to replicate a natural human behavior:
1) Robots will tweet at random times with inter-arrival times between robot actions drawn
from an exponential distribution with rate 5.333 hours per action, i.e. each bot should act,
on average 3 times during the time it is awake.
2) Robots will all have similar names, screen names, and user profile descriptions about
artisans' products
3) Robots will sleep from 11 pm EST to 6 am EST
4) Different robots will not interact with the same user or with each other
5) One robot will have no interaction with other users on Twitter, posting original content
exclusively: control robot which constitutes our base scenario
For each robot, we define a valid tweet as one that has not been used as a base for a retweet
or mention by it or one of the other robots. For each robot, we define a valid user as one that
has not interacted with any of the other robots.
We will use eleven major steps within our experiment:
1) At 6 am EST, each Robot or Artisan will query the Twitter API for search terms such as
#morocco #Africa #ryad #social #impact #travel #craft #crafts #art #artisan #artisanal
#handmade #jewelry #teapot #silver #rug #rugs #bracelet #necklace
#candle
#candleholder to target the relevant tweets and people.
At the end of each day, the number of followers is recorded and we determine which
strategy is the most efficient to advertise the platform to the target audience in terms of
number of followers acquired. The experiment will run for 1 week.
2) For each tweet found, the Robot will pull the user description for the user that posted the
tweet. If the description contains the strings described previously, it will save the tweet, else,
it will discard.
3) The "original-content bot" JamilaCobaga will pull a tweet from its text bank and tweet.
4) The "follower-bot" OmarCobaga will check the first tweet it has saved. If it is from a
valid user, it will follow that user. Else, it will move to the next tweet. It will move through
the saved tweets until it has followed 10 users.
5) The "retweet-bot" AichaCobaga will check the first tweet it has saved. If it is a valid tweet
from a valid user, it will retweet the post. Else, it will move to the next saved tweet and
check. It will move through the saved tweets until it has retweeted 10 times.
6) The "retweet-and-follow-bot" ChafikCobaga will check the first tweet it has saved. If it's
a valid tweet from a valid user, it will retweet the post. If it is not currently following the
posting user, it will follow him.
Else, it will move to the next saved tweet and check. It will move through the saved tweets
until it has retweeted 10 times.
7) The "mention-bot" AzizCobaga will check the first tweet it has saved. If it is a valid tweet
from a valid user, it will reply to this tweet, adding a comment from the text bank of replies.
Else, it will move to the next saved tweet and check. It will move through the saved tweets
until it has made 10 replies.
8) The "mention-and-follow-bot" HamidCobaga will check the first tweet it has saved. If it
is a valid tweet from a valid user, it will reply to this tweet, adding a comment from the text
bank of replies. If it is not currently following the posting user, it will follow him. Else, it
will move to the next saved tweet and check. It will move through the saved tweets until it
has made 10 replies.
9) If it is before 11 pm EST, upon tweeting, each bot will pull random tweet inter-arrival
time from its exponential distribution. It will sleep for this many minutes and repeat its tweet
process.
10) At each hour, we will pull the timeline for each bot and save followers count, total
number of mentions, and total number of retweets.
11) If it is after 11 pm EST, it will clear its saved tweets queried from the API and sleep
until 6 am EST.
The same approach can be used for Instagram (manual) and Facebook (algorithm).
Table 3 shows a description of the different accounts used as well as the different actions
performed. The comparison between Omar, Aziz, Jamila and Aicha accounts will help us
determine which strategy is more efficient: posting pictures/original content, following,
mentioning tweets or retweeting. Second, the comparison between Chafik and Hamid
accounts will help us identify if combining 2 strategies will help increase the strategies
performance and quantify it as well. It will also give some information about the influence
of the gender on the engagement of potential customers.
Name
Twitter handler
URL
Password
Gender Age Craft produced
Jamila
@JamilaCobaga
@OmarCobaga
@AzizCobaga
@AichaCobaga
@HamidCobaga
@ChafikCobaga
https://twitter.com/JamilaCobaga
https://twitter.com/OmarCobaga
https://twitter.com/AzizCobaga
https://twitter.com/AichaCobaga
https://twitter.com/HamidCobaga
https://twitter.com/ChafikCobaga
123Qwaszx/
123Qwaszx/
123Qwaszx/
123Qwaszx/
123Qwaszx/
123Qwaszx/
Female
Male
Male
Female
Male
Male
Omar
Aziz
Aicha
Hamid
Chafik
31
31
42
27
32
32
Married Children Action on Twitter
Rugs
Candleholders and lanterns
Teapots and lanterns
Rugs
Teapots and lanterns
Teapots and lanterns
No
Yes
Yes
No
Yes
Yes
0
2
3
0
3
3
posts pictures/original content
Follows
Replies
Retweets
Replies and retweets
Follows and retweets
Table 3 Description of the accounts and actions performed during the social network
experiment on Twitter
After 1 week, we obtained the following results compiled in Table 4:
Number of actions
Number of Retweets Number of Favorites Number of Friends Number of Followers Number of Mentions
0
2
0
0
0
Original Jamila
11
FollowOmar
19
0
0
147
23
1
Reweet Alcha
16
11
24
21
0
0
0
0
0
0
0
7
2
195
3
22
8
24
168
17
5
Reply Aziz
Reply and follow Hamid
Retweet and follow Chafik
0
10
0
Table 4 Results for social experiment 1: most efficient strategy
-
The original strategy was the worst acquiring only 2 followers.
-
The retweet strategy is better than the reply strategy as it acquired 7 followers
and 2 mentions vs 3 followers and 8 mentions.
-
The simple follow strategy acquired 147 friends, 23 followers and was
mentioned once.
-
The reply and follow strategy acquired 195 friends, 22 followers and was
mentioned 24 times whereas the retweet and follow performed actually less
than the simple follow in terms of followers, but not in terms of mentions.
We do not really see an incremental change if we combine reply and follow in
terms of followers but the strategy actually increases the numbers of mentions: this is the
most efficient strategy if one wants to achieve a maximum number of followers as well
maximize the number of mentions.
We also used the data from our experiment to build a logistic regression model
that gives the probability that a user follows the Twitter bot as a function of seven
features: the number of followers the user has, the number of friends the user has, the
number of followers the bot has, the number of friends the bot has, and the way the bot
engaged the user (follow, retweet, reply, etc.). We used a logarithmic transformation of
the friend and follower counts. The variables that described the type of engagement
(follow, retweet, and mention) were all binary indicator variables. We define Xi as the
set of features of user i and the bot during the engagement and define the probability
that i follows the bot as p(Xi). We assume that p(Xi) has the following form:
7
log - x)-=
lg p(X)
7
k= 1
Xik.
We performed a logistic regression on our data and show the results in Table 5.
Feature
Intercept
log(User Friend Count)
Follow
log(User Follower Count)
log(Bot Follower Count)
Retweet
log(Bot Friend Count)
Reply
8
-10.9644***
3.4066***
1.6365*
-1.9575***
1.4605
-0.7689
p-value
1.31e-08
6.28e-10
0.0211
1.03e-05
0.2883
0.1096
0.2954
-0.9330*
0.7634
0.0238
Table 5 Logistics regression analysis
The significance codes are ***: 0.001, * : 0.01, and *: 0.05
The discussion about the regression will be given in the section 7.
6.2.2. Causal relationship between gender and engagement on social media
Once the successful strategy is identified, we used it to determine if there was a causal
effect between the gender of the artisan and the number of followers acquired. This is to test
the hypothesis if the customer base which is interested in crafts is more likely to buy a craft
from a female or a male artisans. We ran the same experiment for one more week by a male
artisan and female artisan (Hamid and Jamila) using the reply and follow strategy.
After another week of experiments, we obtained the following results compiled in Table 6:
Number of actions
Reply and followJamila
Reply and follow Hamid
513
587
Numberof Retweets Number of Favorites
86
81
Iadditional
0
0
Number of
Friends
513
550
Number of additional Number of Mentions
Followers
72
99
I
Table 6 Results for social experiment 2: influence of artisan gender
21
37
Overall, the results in terms of engagement are quite the same and slightly higher for Hamid
who obtained more followers and mentions than Jamila.
Discussion
7. Discussion
7.1. Scoring of the different models
Thanks to the information collected in the previous sections, we gained a better
understanding of the different models in place and we could score the different models based
on 6 criteria we agreed on in the methodology section. Each model received a score of 0 (no
sign), 1 (one X) or 2 (two X). The following table sums up the different findings (Figure 14).
x,
x
Reasonable
xx
xx
xx
Margin
x
*
xx
xx
cfe
Emotiona link
and Trust
x
Supply Chain
Lnagemt
Lead time
xx
IM
xx
xx
x
xx
xx
xx
x
x
x
Figure 14 Scoring of the different models
It appears that the Hybrid model we called "MoroCrafts" achieved the highest scores
based on the 6 criteria we set up. The main disadvantage of this model is the lead time that can
take up to 2 months based on the proof-of-concept we implemented on Kickstarter. The eCommerce and retail fair Trade model developed by Ten Thousand Villages arrives second
with only a weakness in margins given to artisans (due to additional inventory held in
warehouses) and emotional link conveyed through the online e-Commerce platform (less time
spent on the website to know the culture and artisans story). The crowdfunding model arrives
third with a lack of access for African artists, lack of control in the supply chain and longer
lead times. The marketplace model is ranked number 4 at the same place as regular eCommerce platforms such as Amazon. While e-Commerce mainly focuses on the satisfaction
of the customer, the Marketplace focuses more on the supplier: they do not focus on both sides
of the supply chain.
7.2. Selection of the right supply chain
As seen in the previous section, the direct supply chain with rugs is very efficient and
transportation cost represent only 15% of the total price. High value items such as rugs or silver
jewelry could benefit from such pull system using the crowdfunding feature. Reducing the lead
time could enable the platform to achieve a perfect score.
On the other hand, lower value and higher weight item are not very suitable for such a
supply chain and not even for a pull system as customers could get unsatisfied because of
longer lead times. What we suggest is to segment products and use the direct airfreight supply
chain and a pull system for high value items such as rugs and silver jewelry, while we could
use a push system building inventory and using ocean freight for lower value items such as
candleholders or lanterns.
7.3. Relevance of Facebook Ads
We have seen in the previous section that by spending $90 on a Facebook ad
campaign we acquired 3 customers, which sets up the cost of customer acquisition at $30.
Each customer spent an average of $120 per purchase, which was more than the average
amount spent by a customer on the website (around $53). With a 45.8% margin on average per
purchase, the net profit for the strategy with the Facebook campaign was $25 while the profit
for a regular purchase is $24.3. The Facebook ad campaign does not bring a high added value
in terms of profits, but increases revenues.
We might need to calculate the retention rate for such customers as well how much they
spend over the long term during the next campaigns or when the platform is launched and
generalize it to a larger number of customers by allocating more budget to get significant results.
7.4. Best strategy on social networks for social engagement
Based on the number of followers we attracted, the best single strategy is clearly the
follow strategy. It outperforms the reply strategy by 20 more followers and the retweet strategy
by 16 more followers (almost the same number of actions performed: 20% more or less actions
performed). The benefit of adding a retweet or reply action does not add more followers: this
may be attributed to some noise since the sample is not big enough. This might also be
attributed to the lead time not taken into account in the compilation of results since people react
later to a friend request.
However, what is interesting to notice is that the reply strategy engages people much more than
the retweet one since the messages posted by the artisan have been retweeted 10 times (it did
not happen for any of the other strategies). In addition, the artisan was mentioned 24 times,
which is 3 times higher than we had with the single reply strategy. This was achieved by
performing only twice the number of actions. The retweet and follow strategy is in line with
the other follow strategies in terms of followers attracted , but it does not necessarily engage
them more in the conversation (5 mentions).
The results of the logistic regression from Table 5 indicate the user's friend count, the
user's follower count, and the actions of replying and following are significant, with the user's
friend count and the user's follower count being the most significant. The follow probability is
increasing in the number of friends of the user and decreasing in the number of followers of
the user. This makes sense intuitively, as we would suspect less "popular" users on Twitter to
follow more readily than "popular" users. The coefficient associated with the action of
following illustrates the idea that a user is more likely to follow back if followed. The
coefficient for the action of replying also indicates what we described earlier in that replying
is not the strongest tactic to gain followers and thus decreases the likelihood that a user will
follow back. It only allows people to engage you in a different manner through mentions.
Although the follower and the friend counts of the bot are deemed insignificant, we suspect
that this is due to an experimental shortcoming of not being able to significantly change the
bots' follower and friend counts during our period of experimentation. We plan to see how the
significance of these features might change by more drastically changing friend and follower
counts of the bots in subsequent experiments.
There is definitely more value combining the reply and follow strategy as we can attract
both more followers and engage more people in the conversation. Of course, this strategy is
riskier than the simple follow and retweet one as we need to upload a predefined set of
sentences that should match the content we retweet to other people, but the payoff is bigger in
terms of engagement.
We might have to test the marginal/incremental benefit of performing 3 actions at the same
time in a future experiment: follow, reply and retweet
The second gender experiment suggests that followers are equally likely to follow back
a female artisan using the follow and reply strategy. The slightly higher results for the male
artisan Hamid in terms of engagement (followers acquired, mentions and retweets) could be
explained by the fact that this person already had a more followers than Jamila and people
trusted him more. In that sense, our experiment was somehow biased, but overall we did not
see a real causality effect between the artisan gender and the customer engagement on social
networks. This does not confirm the hypothesis that women who represent the main part of our
customer base are more likely to engage with similar female artisans.
Conclusion
8. Conclusion
This final chapter provides an overview of the work covered in this thesis paper. A
summary is provided, followed by suggestions for further research.
8.1. Summary
The handicraft sector in Morocco represents more than 9.0% of the total nation's GDP
and employs 2.3 million people. However, despite their talent and expertise, Morocco's these
artisans are struggling to reach markets other than the local regional or national markets. The
main distribution models used so far did not optimize the value added for both the artisans and
the consumers.
The main objective of this project is to assist the Moroccan Ministry of
Handicraft and Social Solidarity Economy in answering the following question: can we
develop a scoring framework that will help us assess the efficiency of each model from both
the artisan's and consumer's perspectives? If such a methodology is possible, will it be possible
to implement a new model that can optimize these Key Performance Indicators, and how can
we leverage the latest social media techniques to make it more engaging for the customers?
The motivation for this thesis was to 1) study and refine the three main existing distribution
models according to a framework we developed, 2) evaluate a potential hybrid model allowing
to better serve artisans and consumers , and 3) improve the engagement of potential customers
thanks to social media strategies.
Following a summary of past research, we described the 3 distribution models used to
export crafts: retail model, marketplace model and reward-based crowdfunding model. We
developed our own based framework to score these models according 6 criteria: 3 criteria on
the artisan's side (access to funding, profit margins, and access for artists in developing
countries), and 3 criteria on the customer's side (supply chain and logistics management,
emotional link and trust, and lead time). None of the models was totally satisfying, so we
developed and tested a hybrid crowdfunding model.
Based on the proof of concept results we obtained from the campaign we ran on
Kickstarter, this model achieved the maximal score and allowed us to select the right supply
chain and the right products to reach our preferred customer base. Hence, we designed social
media experiments on Twitter to reach potential customers and engage them on a more efficient
way. It was found that the best strategy to use on Twitter was to follow and reply to social
media users interested in arts and crafts. We could not draw a causal relationship between the
artisan gender performing this strategy and the engagement of potential crafts buyers.
Based on the research, existing distribution models were successfully modified to come
up with a new reward-based crowdfunding platform, directly linking the artist and the customer
through an adapted supply chain and a unique user experience allowing the customer to learn
more about the country, culture and story of the artisan (Pinterest like platform). It does solve
for the funding and margin problems faced by the artisans, as well as the trust and emotion
conveyed to the end user/buyer. The finding that Facebook advertising is not necessary to
increase profits for the platform is quite interesting. Engaging potential customers by following
them and replying to their comments is also insightful as it changes the paradigm that the more
a company spends on their marketing budget, the more it attracts potential customers.
Finally, based on the successful application of the scoring framework put forward in
this thesis, we could apply it to many other areas in the e-Commerce field. A successful, social
media strategy can be designed and tailor made to engage-more customers on this new and
high growth retail channel.
Moreover, recommended refinements to the existing methodologies were proposed.
Ultimately, the research in this thesis paper meets the goals set out in the introduction of this
paper and achieves the objective: to determine the best platform for artisans to get access to
international markets, specifically the American market.
8.2. Further research
This thesis applies, for the first time, a scoring framework to assess the efficiency of
artisan platforms from the perspective of both the artisan and the consumer. Further
opportunities exist to test, extend and improve the methodology applied in this thesis, as
follows:
-
Further evaluate and refine the methodology put forward in this thesis through its
application to several other platforms such as furniture e-Commerce stores such as
Ikea or Wayfair....
-
Extend the scoring measurement methodology by including other criteria such as
access to illiterate artisan using forms and shapes, reduced prices for customers ...
-
Test the incorporation of inventory holding cost in the second supply chain strategy
used for lower value items in the context of the hybrid platform
-
Run the pilot for a longer period of time and with a higher budget for advertising to
determine if advertising increases the profits for such hybrid platforms.
In addition to that, we also added the social network aspect that is extremely important
nowadays to build a strong community of followers around the platform. Further opportunities
exist to test, extend and improve the methodology applied in this thesis, as follows:
-
Extend the experiment to other social network such as Instagram or Pinterest.
Assess the incremental value added by combining more than 2 strategies.
Run the experiment for a longer period of time and assess how we can mitigate the
effects of lead time when potential targets follow you back after a certain period.
Use the initial results on customer engagement to model a probabilistic approach on
how likely a potential user will follow or mention another one based on inputs such
as number of friends already acquired, number of followers, number of common
friends, type of action (follow, retweet, reply or favorite) ...
Extend and tailor the experiment to other e-Commerce retail channels in order to
engage potential customers on social media and increase revenues without having
to spend extra money on marketing campaigns.
Appendix
Customer survey from Ministry study in collaboration with Jola
Consumer Survey
01 How frequently do you make home
dMcor purchases?
100%
80%
20%
D%
once ser
Ista Om
am: a par
taos
sp
Once a teak
Several
r
Once a week
gurs a VW
MAunwer C30am.
tiOn an* a year
Le
Once
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S.AM
5C*a Yom
15.32%
a anwth
11MSS
Onew a mael
Q2 What will your next home dMcor
purchase be?
40%
0Cos4
UgeFg
who
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Mlor
wvwt
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Oter
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tes buls
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DOM. VOWe
43%
2"*0%
U
-
-ii
PfNUFr
kno
03 Where do you go to find Information
about home d6cor products? (Feel free to
choose more than one.)
43
W%
sUder
magn
Aneer Clae
SCeaI
e
niS
etaraS
media
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11e1
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y
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e
3.32%
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flue
-*o
Favonte
13A7%
97.W%
OeWa eta
't2e,%
ings
Ralar
ftin
10404%
Q4 Where do you typically shop for
furniture and home dicor? (Feel free to
choose more than one.)
100%
90%
40%
20
eme
OiS
inv
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ft
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i
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OW
Q5 Which social media sites do you use to
got inspiration for your home? (Feel free to
choose more than one.)
'00%
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Q6 What percent of home d6cor products
do you buy *n-41no?
100%
40%
20%
0%
mmon
m --=
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10fn25%
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--
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7n%
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'%
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4444%
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t 751
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7&4
Q7 Have you purchased any handmade
products In the past 12 months?
10%
40%
0%
No
7I
05%
Q8 If yes, what type of store did you
purchase the handmade product In? (Feel
free to choose more than one.)
1IM
40%
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2&.01%
01Op
Ow
Q9 Would you pay more for a handcrafted,
artisan-made or fair trade product?
10%
0%
Ye
bowls
=
cfirtflus
Depuds
No
kn,
Resposes
Answer CmuSo
yre
47 11%
0egon0
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010 If so, how
much more?
4001
UVO%
ip
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up to
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O
20%
100%
m
oam
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s Upeb n%
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Q1 1 Did the product you purchased have
any association with a certain culture or
region and was that part of the appeal?
00%
40%
Ts
N
I Nanim
Yes
N0)
Q12 Do you feel that handmade or arsanmade products have more value?
100%
a"%
A"%
Vs*
b
N.aezams..
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ILTUW.
Q13 Have you every purchased Moroccaninspired home dbcor or clothing?
Biat
40%
Yes
"a
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Q1 4 Does It mafter to you if MoroccanInspired design Is made In Morocco?
vYs.
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04
10%
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00%
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ND09 dewd quetY am0 impoom1t fd oei
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ser Itwn
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to le
Q15 Are you interested In leaming more
about Morocco, Its culture, Its artisans and
its products?
sat
sot
291%
YrSn
DWnI'N ma
ft
Mummer Obkess
YOS
2l.l%
42.51%
016 Would you buy from a sit that
shipped directly from Morocco rather than
from a US internediarylsupplier?
100%
4D%
20%f
0%
No
Too
hammer C~tms
Vms
t0
IL
-
017 What typeslcategories of products
would you be likely to buy from Morocco?
(Feel free to chose more than one.)
100%
90%
90%
40%
20%
Ow.
ma.
toa
Fow
-oem2
Furaium
CS1q
.awwey
PameinW
aemamt
Ms
easpewme
ammer CielSma
13A%
Fteii'mre
6.54%
COdhing
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019 What Is your Impression of Morocco in
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Q20 Have you visited Morocco?
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