Every business has customers who are convinced they can design a new product that is better than the product they are being sold. So the question is why not let them? Crowdsourcing is a new and innovative research methodology that allows customers to help design the products they want online. It’s a methodology that is saving companies thousands of pounds on research bills and is proving highly effective because customers are getting the chance to mould and shape the products they are going to be buying. And because products are not being designed by remote head office R&D teams the chances of product flops are greatly reduced.
MIT’s Sloan Management Review recently published a paper, written by Susumu Ogawa, a professor of marketing at Kobe University in Tokyo, and Frank Piller, a professor at TUM Business School in Munich, on the concept of crowdsourcing. This is how these two professors put it “Forecasting the demand for new products is becoming increasingly difficult in many markets. But collective customer commitment (crowdsourcing), a new method to decrease the flop rate of new products, offers a solution by integrating customers deeply in the innovation process and asking for their commitment to purchase before development is finalized and manufacturing starts.â€?
Incredible, can you imagine the benefit in cost savings of getting your customers to design the products they want and then getting them to pre-order the product before it’s manufactured? 

This really is harnessing the power of the “connection economy!�

The professors researched two companies. The first, Threadless, a T-shirt maker. Each week the company receives hundreds of new designs. Threadless posts these to its Web site, where anyone in the Threadless community can assign the design a score. The four to six highest-rated designs each week are put into production, but not before enough customers have pre-ordered the design to ensure it won’t be a money-loser. And the motivation for the designer? Threadless puts the designer’s name on the label of each shirt and £1000 goes to the best designer each week. And the commercial/customer benefits? For designers, it’s a creative outlet and a potential revenue stream. For customers, they get to choose the T-shirts they want from a wide range of choices. From Threadless’ point of view, the company doesn’t have to hire a design staff, and only commits financially to shirts with proven, pre-ordered, appeal.
The other example is Japanese furniture retailer Muji, and competitor to IKEA who has recently been opening stores in the UK and rest of Europe. Through its web community site with access to over half a million people, Muji receives product ideas and then gets members to assess each idea or design. A short list of the best rated ideas is given to the R&D team, who develop the final product specifications. Then rather than conducting expensive focus groups or other traditional research methodologies, Muji determines market demand by the number of pre-orders it gets. Basically, if 300 or more customers pre-order an item online, it goes into production. Muji claims that customer designed products outsell the rest of their models fifty times over!
Now of course, crowdsourcing isn’t for everyone. These two companies manufacture T-Shirts and furniture. But could the concept work as well for say a bank or an insurance company, who’s products are far more complex? We believe crowdsourcing is possible even in complex industries, and potentially even more important for these companies due to the high cost of product production and risk of product failure. Also the younger breed of customers Generation X and Millennials want a relationship with the companies they buy from which is more akin to that of a partnership. New technologies like web 2.0 and wiki’s enable even companies with complex products to engage the customers in product design and development. In my next blog I’ll write about what companies need to do if they want to crowdsource.