6 Lessons for Product Strategists from the Emerging Cannabis Industry

By Timothy Morey, VP Strategy, frog

New Use Occasions Drive Industry Growth

For many rapidly changing industries, the products, services and use occasions of yesterday, may not be the main drivers for future growth. For example, today, cannabis is mostly consumed as treatment for pain, or to escape and relax. But our analysis shows that there is greater opportunity in new use occasions such as wellness. This new use occasion will require a redesign of products and services, however, as the more traditional form of smoking is seen as inherently unhealthy. Another high potential use occasion is consumption of cannabis to enhance other experiences. We’ve already seen examples of this in emerging activities like cannabis farm tours, cannabis infused fine dining experiences, cannabis hikes, painting classes and so on.

Distribution and consumption models may change

Our research found that only 20% of Americans find the current branding and imagery associated with cannabis to be appealing. Most dispensaries were built around the use cases of treatment or escape and relax, which may not be the best retail environment to attract new customers for new use occasions. For example, wellness customers may want to buy micro-doses of cannabis infused edibles from their yoga studio rather than from a dispensary. Companies such as Eaze are wise to this, and offer home delivery service, but over time we expect to see cannabis sold in grocery stores, pharmacies, gyms and cafes. This shows that there could be real opportunity to reach new audiences in any industry by looking to new modes of distribution and consumption.

Consumers need permission

There is a social stigma associated with formerly prohibited products. In our research, we found that many consumers require some kind of permission granted in order to feel that it is OK for ‘people like them’ to consume cannabis. During prohibition, cannabis experts were limited to people producing and selling the product. Legalization opens access to a wider group of authority figures to grant permission, from doctors and therapists to local government officials, neighbors and colleagues. Outside of cannabis, many industries can benefit from being more deliberate about creating moments of permission granting on a customer journey.

Creating new rituals can lower barriers to product adoption

One way to grant permission and to educate customers on new use occasions for cannabis is to create new rituals. Just as the diamond industry convinced us to spend 15% of our income on engagement rings; champagne makers taught us to celebrate with their product; and in Japan, KFC convinced the public to take home a family bucket of chicken on Christmas eve, the cannabis industry will benefit from deliberately creating and promoting new consumption rituals. Other industries can do the same by developing rituals for their products and services that can be spread through market education and category evangelism.

Innovation thrives in regulatory chaos

From PEST analysis (political, economic, socio-cultural and technological) to variants such as STEER analysis (sociocultural, technological, economic, ecological and regulatory) most of our frameworks pay at least some attention to regulation. When regulatory considerations come into play in strategy making, it is usually seen as a constraint or something negative to contend with. In the emerging cannabis industry, the conflict between state and federal law creates confusion, but it also serves to keep major national and global players out of the market as the uncertainty is too risky. There are no major retailers, agricultural producers, brewers or pharmaceutical firms seeking to dominate the cannabis industry just yet (even though they are all running studies and evaluating the market). This actually gives a little breathing room to start-ups. Lots of small firms are innovating with new products, services and experiences, establishing themselves state-by-state, and building out a loyal customer base. Innovation is thriving in the cannabis market partly as a result of the regulatory uncertainty.

Adoption is driven by word of mouth

The Bass Diffusion Model uses two coefficients to predict the adoption of new categories of products and services. The first is the external influence of advertising and media. With increased legalization, there is a flood of media coverage, but strict limits on advertising in most states. For example, Google and Facebook don’t allow ads for cannabis products. The second, stronger influence is the ‘word of mouth’ effect. Many Americans have friends or extended family members who consume cannabis. We found that 93% of people who know someone who consumes cannabis believe that it should be legal. As people begin to hear from parents and grandparents how cannabis changed their life for the better, or neighbors and colleagues mention their recreational cannabis consumption, it serves as a form of permission granting, reassuring consumers that it is appropriate for ‘people like them’ to consume cannabis. This word of mouth effect, eventually amplified with social media, will likely be the greatest demand driver for adoption.

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frog is a leading global creative consultancy, part of Capgemini Invent. We strive to shape a regenerative future that is both sustainable and inclusive.

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frog

frog is a leading global creative consultancy, part of Capgemini Invent. We strive to shape a regenerative future that is both sustainable and inclusive.