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Executive Summary
Companies have recently begun to use the Internet to integrate their customers more actively into various phases of the new product development (NPD) process. One such strategy involves empowering customers to cooperate in selecting the product concepts to be marketed by the firm. In such scenarios, it is no longer the company but rather its customers who decide democratically which products should be produced. Consider the following examples from practice: Threadless, a Chicago-based fashion start-up, markets new T-shirt designs on a weekly basis. Unlike many other firms, it is not the company that determines the specific designs to be marketed but rather its customers. Threadless has built a strong user community who rates the attractiveness of new design ideas online every week. The highest-rated T-shirts finally make their way to the shelves. Similar initiatives have been implemented at companies across various industries, including Mountain Dew, where consumers voted at DEWmocracy.com to decide on a new flavor for its soft drink to be sold on a permanent basis; Dell, where consumers put forth a request for Linux at Ideastorm.com and Dell responded by providing the Linux operating system on certain models in its PC fleet; M&M’s, which succeeded in recruiting more than ten million consumers to vote on the new M&M’s color in 2002; and Fiat, which successfully launched a new model of the traditional Cinquecento car, involving customers from the definition of its design options to the creation of the advertising campaign. The rationale behind such “empowerment-to-select” strategies—in tandem with empowerment in various other phases of the NPD process, including idea generation—is obvious: They should enable companies to develop better products at lower cost and risk.

The authors provide the first set of empirical studies that highlight the important psychological consequences of this power shift. In studying the product categories of apparel (T-shirts) and food (breakfast cereals), they find that customers who are empowered to select the products to be marketed will show stronger demand for the underlying products, even though they are of identical quality in objective terms (and their subjective product evaluations are similar). The authors operationalize demand with various measures, including the consumers’ willingness to pay (WTP) using real auctions. As a result, the dependent variable is not hypothetical but constitutes real economic behavior, thus preventing any “cheap talk” responses. Because empowerment increases WTP by nearly 50%, the size of this effect can be considered substantial. This seemingly irrational finding can be observed because consumers develop a stronger feeling of psychological ownership of the products selected. In exchange for giving up a certain degree of power to consumers, companies can not only reduce the risks associated with new products but also generate benefits from increased demand. Finally, the authors also identify two boundary conditions for this empowerment–product demand effect: It diminishes (1) if the outcome of the joint decision-making process does not reflect consumers’ preferences and (2) if consumers do not believe that they have the relevant competence to make sound decisions.

Biography
Christoph Fuchs is Assistant Professor of Marketing in the Aarhus School of Business at Aarhus University, Denmark. He earned his PhD at the University of Vienna (2008). His research interests include the integration of users in the innovation process (e.g., customer empowerment, the value of user communities), consumer decision making, branding from a consumer perspective, and measurement theory. A list of recent publication is available at http://research.asb.dk/research/fuchs_christoph(45174)%7Cpublications?AnonymousLoginFilter_language=sec.

Emanuela Prandelli is Associate Professor of Management and fellow at KITeS and DIR, Bocconi University, Milan (Italy). She earned her PhD in Management from Bocconi University (2000) and served as a Research Assistant at the Kellogg School of Management at Northwestern University (1998–1999), where she was a visiting professor in 2001. Her research interests include the impact of information and communication technology on firms’ innovation processes and the study of collaborative innovation (direct customer involvement in new product development activities). She won the 2001 Accenture Award for the best paper published in California Management Review in 2000. Her recent publications are available at http://didattica.unibocconi.eu/mypage/index.php?IdUte=49042&idr=2340&lingua=eng.

Martin Schreier is Associate Professor of Marketing at Bocconi University, Milan (Italy). He earned his PhD (2004) and habilitation (2007) at the Vienna University of Economics and Business (WU). His research interests include new product development, marketing of new products, consumer behavior, and behavioral decision making. His current work focuses on active customer involvement in the design of new products (e.g., customer empowerment, user design, user toolkits for innovation, innovative user communities, lead-user research) and its implication for new product management and marketing. His recent publications (including working paper downloads) area available at http://didattica.unibocconi.it/mypage/index.php?IdUte=94002&idr=5984&lingua=en.

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