Visualizing Insights : Retailer Loyalty Programs

 

Crowd sourcing and crowd funding: the new way to do business

What is it?

Xiaomi, a startup in China is competing with big wigs like Samsung and Apple. How can a firm with limited resources dare to compete with the big guys? Xiaomi builds loyalty by constantly tweaking its phones with suggestions of its users. “If you give us a suggestion, and we quickly implement the change, you will have a long lasting sense of achievement and ownership. You will tell your classmates, friends and roomates that Xiaomi is good” says CEO Mr.Lei¹. This is the new way of doing business – “crowd sourcing”. Crowd sourcing and crowd funding are going to change the way business gets done, companies will flourish or perish depending on their ability to adapt to this new paradigm.

Crowdsourcing is the act of convincing a large group of individuals to dedicate time, effort, ideas or some skills relevant to the project. An example of a crowd sourced initiative is Wikipedia – users of the website are also contributors and the overall database grows as more individuals contribute their knowledge on various topics. The entire Linux OS can be viewed as a crowd sourced product. Today, Linux is a widely used operating system by both individuals and companies. Crowd funding is a subset of crowdsourcing. It is about getting a large group of individuals to contribute financially towards your project. As defined by Lambert/Schwienbacher (2010),  "Crowd funding involves an open call, essentially through the Internet, for the provision of financial resources either in form of donations (without rewards) or in ex-change for some form of reward and/or voting rights in order to support initiatives for specific purposes".

Crowd funding has its roots in the idea of leveraging the “crowd" to obtain ideas and feedback in order to develop products or services that are demanded by the “crowd”. Today, crowd funding is generally done using social networks, both online (Twitter, Facebook, LinkedIn and different other specialized blogs) and offline. The crowd-funders (those who provide the money) can at times also participate in strategic decisions or even have voting right (Belleflame et all,2010).

Why is it interesting?

Financial Sourcing

Startups and small companies facing challenges with funding through traditional routes can easily adopt a crowd funding approach. It is indeed well recognized that new ventures face difficulties in attracting external finance at their very initial stage, be it through bank loans or equity capital (Cosh et al.,2005). Typically, entrepreneurs get their initial investments through friends, family and close relatives. Still, many ventures remain unfunded, partially because of a lack of sufficient value that can be pledged to investors, partially because of unsuccessful attempts to find and convince investors. Crowd funding may then appear as a useful alternative route. Crowd-funded markets present a unique combination of collective evaluation and crowd-based fundraising. Contributors, by choosing to pledge funds in support of a project, implicitly undertake the evaluation and selection of that project. This interesting aspect of the crowd funding process is compounded with the significant potential for social influence, attributable to the open publication of timing and amounts of other participants’ prior contributions (Ghosh,Wattal et all, 2013). The implications of such sweeping changes in funding behavior would have considerable repercussions on the business model as well as the success rates of these startups. New platforms such as kickstarter and indiegogo have already exploited the tremendous potential in masses of similarly inclined individuals and acted as a launching platform for people with ideas but not enough resources.

Crowd sourcing and crowd funding are still in their infancy. I believe, in the very near future, they will become an inherent part of how startups raise capital. This raises some difficult questions about legislation and ownership of firms. The ease of raising funds would also mean a larger percentage of the population would be willing to give entrepreneurship a shot.   

Product Development

Large and established organizations have traditionally depended on ideas and resources within the company, but in my opinion this is going to change drastically in the coming years. Innovation will more often than not, come from likeminded individuals outside the organization. New products will not have to be tested in controlled environments or with focus groups; feedback will come from enthusiasts of the products who will willingly dedicate their time and effort for no financial gain.

Individuals as well as corporations are just beginning to explore the vast benefits of crowd funding and crowd sourcing.  The widely held belief was that users are not capable of innovating and that large corporations have to invest in marketing research to come up with innovative ideas. On the contrary, lead user innovation suggests that in the beginning of every market, when the market is still very small and undefined, it is the users who innovate and develop specific products for very specialized needs. Catering to the tail ends of a customer spectrum is not as attractive to any manufacturer compared to satisfying the demand from a strong, well defined and stable market. Manufacturers can profit from economies of scale which leaves a gap for the needs of unconventional and unique product or service needs. When a new sport is evolving, for example, nobody knows if that sport is going to be successful or not, so no manufacturer really wants to get involved. At the same time, some users do care passionately about the newly emerging sport. These consumers are the ones who actually develop it and the specialized products used with it. For example, consumers developed the sport of mountain biking and the pioneering designs for the mountain bike itself. Eventually manufacturers come in when the sport and its appeal have become established. (Von Hippel, E 2013)

How does this relate to ‘Customer Insights’?

Gaining insights into a well-defined segment is much easier than looking at a widely scattered group of anonymous individuals who are interested in your project. I want to explore how one can understand and classify the motivations of these crowd funders and how a firm or individual looking to raise capital through crowd funding could capitalize on these insights. What prompts people to want to dedicate time / money / resources / ideas to a project online? Since there are no monetary gains to be had, is it just the feeling of belonging to a greater cause or, the desire to make a difference, the interpersonal connection with the project initiator or just pure enjoyment?

Over the past many decades, marketing has sought demographics and psychographics of their ‘target’ customers. Will just looking at these dimensions suffice the new world companies? It appears a better understanding of your customers / funders/ backers, their needs, their values, their outlook and most importantly their desires is going to be an integral part of every business going forward. Whether it is introduction of a new product or revamping of a sustaining product, no company can ignore opinions and criticisms from the end users. With the advent of internet and big data, even small to medium sized companies can analyze customer behaviors and ask their lead users for suggestions to improve their products or services.

The more I look into the world of high tech products, it seems obvious that most of the innovative products are not able to jump the chasm. It has been challenging to identify which users are the lead users and which ones are just the first adopters who might not be a good indicator of the mass adoptability of the product or service. Looking at the concepts from customer insights and combining it with the concepts of crowd sourcing, I feel like we should be able to identify these ‘lead users’; which will eventually make it easier to determine the probability of success very early in the product development cycle.

Conclusion

Overall, it appears that the traditional way of doing business – be it raising capital, generating ideas for new products or engaging in dialogue with your customers is changing drastically. Customers’ expectations are no longer limited to receiving a product or service for a certain payment, instead they are willing to play a bigger role, they feel a sense of loyalty and ownership with the company that actually listens to their suggestions and implements them. A firm that can gain deep insights into their customer base will always have an edge over their competition.

References

1.    Wall Street Journal (Oct 8,2013): “Xiaomi Takes on Apple in China”

2.    Lambert, T./Schwienbacher, A. (2010): An Empirical Analysis of Crowdfunding. Online: http://ssrn.com/abstract=1578175

3.    Ordanini, A., L. Miceli, M. Pizzetti, and A. Parasuraman (2011), “Crowd-Funding: Transforming Customers into Investors through Innovative Service Platforms,” Journal of Service Management, 22(4), 443-470.

4.    Belleamme.P , Lambert.T,  Schwienbacher : Crowdfunding : An Industrial organization perspective

5.    Ghosh, A, Wattal,S , Burtch, G: An Empirical Examination of the Antecedents and Consequences of Contribution Patterns in Crowd-Funded Markets

6.     Von Hippel, E: User Innovation , Research and Technology Management ; published May-Jun 2013