NOAH LEVIN

I found a series of article reviews that I wrote for the course, Social Web, taught by Professor Robert Kraut. This is the first of those that I’ll be uploading, which is a review of the paper: Reducing the Risks of New Product Development.

Summary

In this paper, Susumu Ogawa and Frank T. Piller analyze current market trends in the development of new products to determine what they believe to be the most successful and innovative tactic: Collective Customer Commitment. While there are variations in the implementation of this strategy, I think it is best explained in a general step-by-step manner:

1. Select customers (typically experts) develop a new product design
2. Community (and manufacturer) evaluate and suggest refinements to the design
3. Best concepts are presented and become available for ‘preorder.
4. Once enough preorders have been made (‘min lot size’), the design becomes mass distributed
5. Rinse and repeat

By using the case study of Threadless.com, a trendy t-shirt company that uses Collective Customer Commitment to release new shirt designs, Ogawa and Piller discuss how the tactic allows companies to reduce risk of product failure. As it turns out, not one of threadless’ 100+ designs have ever flopped, which makes the product strategy an interesting research topic. Ogawa and Piller go on to explain that Threadless thrives in part because of their ability to target specialized customer segments in a fast-paced industry. While many companies are failing due to ‘faulty understanding of customer needs’, companies like Threadless that use Collective Customer Commitment do not waste money with unwanted products. Rather, they do not spend a dime until enough preorders and crowd support has been reached, leaving them with the knowledge of how many units to order ahead of time (a very difficult number to forecast for most companies).

Another interesting thing about Collective Customer Commitment is that companies do not simply select the highest rated products and release them. They often employ a risk management check on the products first to make sure there are no copyright infringements, that the design is original and timeless, and that it fits in well with the rest of the company’s products (no overlap). So for example, as a result of these checks not all of the winning designs on Threadless are chosen to go into production.

Ogawa and Piller also discuss two other tactics of ‘reducing the risks’ of releasing a new product. However, the paper emphasizes the high cost of these two strategies due to less efficient processing and explains that they are less widely implemented:

• Postponement: Generic ‘parts’ of a product are built to stock, then the company determines more information about market demand to assemble the parts in the most efficient manner. (e.g. Dell Computers)
• Mass Customization: Customers co-design their own products, THEN they are manufactured on demand. (e.g. salesforce.com)

Comments / Questions

Ogawa and Piller definitely convinced me that Collective Customer Commitment is an effective way to market new products. The case studies of Muji and Threadless were very compelling and well documented. However, I feel that Ogawa and Piller skim over the high cost of these products and higher-class market base. While companies have been very successful implementing this strategy, it is clearly not for everyone. They mention cases where it works well, but what about the challenges faced by the tactic? The authors wait until the last paragraph to mention that the method works well for fashion wear, household utensils, sporting goods, home appliences and consumer electronics; essentially the ‘wants’ of people of high economic standing. I am curious to see if wall mart, for example, would ever release a product using Collective Customer Commitment, where they would have to wait a while before releasing a product.

What do you feel are the downsides of Collective Customer Commitment? What other factors may have contributed to Threadless’ success? Is it possible for this tactic to work for (or expand to) any audience?

Another topic that I feel Ogawa and Piller skimmed over pretty quickly is the privacy concern of company’s using Collective Customer Commitment. That is, by releasing the designs to the public well before they are launched (product transparency), companies run the risk of having designs stolen and released quickly. I would argue that the reason the privacy issue is not too hazardous is because the companies seem to have a pretty devoted fan-base who would be less likely to look (or buy) elsewhere. If you look at threadless.com, they attract a very unique crowd of people who tend to purchase from them regularly.

What makes people so committed to these sites? The article mentions that you feel more connected to a product if you played a role in its development, but is that all?

Why haven’t other companies succeeded in stealing design concepts from companies that use Collective Customer Commitment?