New product ideas generated by customers are more successful than products developed by companies’ in-house designers. Ideas generated by communities of users not only tend to be more novel and user-friendly, they also boost sales: A recent study by WU Professor Martin Schreier and an international team of researchers looks at a Japanese enterprise whose sales revenues rose by more than € 10 million over a period of three years thanks to crowdsourced product ideas. Professor Schreier and his fellow researchers also found that products sell better if they are specifically labelled and marketed as developed by customers.

Many companies spend large amounts of money on the development of new product ideas. A recent study shows, however, that in certain product categories, user-generated innovations outperform products developed by companies’ in-house R&D units. Companies that are drawing on their user communities as a source of innovation are still few and far between, though. Together with an international team of researchers, WU Professor Martin Schreier, head of WU’s Institute for Marketing Management, investigated a major Japanese consumer goods company that sells household products, clothes, and food. This enterprise has been working with user-generated ideas for many years. It has a portfolio of over 7,000 products, including both user-generated and designer-generated products.

User-ideated products generate three times the revenues of conventional products

Martin Schreier analyzed the company’s sales over a period of three years. The results show a clear picture: Sales revenues from new products based on crowdsourced ideas were three times higher than sales from designer-generated products, and gross margins were four times higher for user-generated products. After three years, aggregate sales revenues from new user-ideated products were approximately € 10 million higher than the sales of designer-generated products. These stronger sales also meant that user-generated products were more likely to stay in the company’s product line-up over the three-year observation period. In previous studies focusing on the Austrian market, Martin Schreier obtained similar results: For instance, he looked at the case of an Austrian manufacturer of baby products that asked customers to contribute their product ideas, which were then evaluated by a jury of experts. “It was particularly interesting to see that the crowdsourced product ideas were not only good and novel, but that the jury ranked them among the very best products in the segment,” Martin Schreier explains. The designer-generated products only scored better with regard to feasibility.

Social identities as a selling point

The research Professor Schreier and his fellow researchers carried out in cooperation with the Japanese company also yielded another interesting insight: It was already known that user-ideated products sell better than designer-generated products, but the researchers also found out that these products sell even better if they are explicitly labelled as user-ideated products. The researchers conducted two experiments: Two variants of a snack product – one with a flavor developed by product designers (A) and one developed by customers (B) – were sold side by side on the same shelves in Japanese stores. In the first experiment, the crowdsourced products were not specifically labelled. Even in this first experiment, the crowdsourced variant B sold significantly better. When variant B was specifically labelled as customer-ideated in the second part of the experiment, however, sales rose another eleven percent. “People’s subjective perception of articles labelled as ‘developed by customers’ is different from how they perceive other products. Consumers identified with the user-designers who developed the crowdsourced flavor and trusted them to better understand their needs,” says Martin Schreier, explaining this striking effect.

Harnessing the potential of user-driven innovation

“Particularly large online user communities are very likely to include many creative innovators and lead users. It is an important challenge for companies to provide various systems of incentives that motivate these users to participate in product development and contribute their ideas,” says Professor Schreier. Several US-based enterprises are already using the innovative potential of their user communities with great success, and there are also some Austrian companies that are developing new business models which involve active participation of the customer base. However, the latest studies also show that these crowdsourcing strategies do not work equally well for all market segments. Particularly in the luxury segment, customers are looking specifically for designer-generated products.