What is it called when a company uses consumers to develop and market products?

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  Inhaltsverzeichnis Show

  • Two Approaches
  • Computer Software
  • Bakery Products
  • When Will Users Innovate?
  • Identifying Customer-developed Products
  • Finding Innovators
  • User Stimulus Strategy
  • User Analysis Strategy
  • Acquiring Products
  • Legal Considerations
  • Summing Up
  • Which term refers to using consumers to develop and market products?
  • What is the term for consumer willingness and ability to buy products?
  • What is the name for the collection of activities in which businesses sell things to buyers?
  • What is the marketing term for something which is given up to obtain a product quizlet?

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What is the most effective way of creating new products? The process is supposed to center on manufacturers who see a need, develop a product, and market it.

However, in many business areas users rather than manufacturers are often the actual developers of successful new products. And manufacturers are acquiring such products despite the conventional wisdom and a dearth of marketing research strategies to pinpoint the items.

This article begins the task of developing marketing research strategies tailored to finding valuable user-developed products by (1) considering two examples of such methods, (2) exploring conditions under which customers can be a valuable source of new products, and (3) presenting general methods for identifying and acquiring such goods.

Two Approaches

Two widely disparate businesses—one a consumer products company and the other an industrial products company—convey a flavor of two possible approaches for identifying and acquiring user-developed products.

Computer Software

Computer companies recognize that customers develop some software packages that other users would find valuable. Some producers ignore these sources; others set up a relatively passive, and low-profit, software exchange service for customers. A few companies, though, have devised approaches to seek, evaluate, and market user-developed software products—and make money in the process. At IBM, for example, the Installed User Program department (IUP) coordinates the effort of acquiring user-developed programs designed to run on its medium and large computers. The IUP learns of promising programs developed outside the company from either the customers themselves or from IBM field representatives. Potentially worthwhile programs are referred to the relevant IBM division, which applies its own criteria to evaluation. When IBM decides to acquire rights to a particular program, the company negotiates an agreement (usually a one-time, flat-fee payment) with the developer.

The success of the system in IBM’s case is clear: approximately one-third of all the software IBM leases for use on large and medium-sized computers is developed by outside users.

Bakery Products

Many companies know that consumers develop promising new products but do not know how to find these innovations. The Pillsbury Bake-Off provides an example of how this can be done. Established in 1949, this annual contest publicizes Pillsbury’s flour and other bakery products. Entrants develop recipes for specified types of baked goods, each incorporating certain Pillsbury products. Tens of thousands of entries are received and evaluated. Winners receive prizes and have their recipes published.

Although intended primarily as a publicity vehicle, the Bake-Off has brought forward several user-developed products that Pillsbury has commercialized. Pillsbury derived one of its four cake-mix lines and several variations of another directly from the recipes of Bake-Off winners.

When Will Users Innovate?

The role of users in developing new products varies widely according to the business field. For example, users developed 67% of the new process machines used by the semiconductor industry and 80% of the new instruments manufactured by scientific instrument companies. Yet plastics additives are typically not developed by users.1

Under what conditions will customers develop items with commercial potential for manufacturers? Businesses and individuals engage in new-product development when they find it financially attractive. Consumers are no exception; they will develop commercially attractive new goods when their return from using the product is high enough to justify it and they cannot get, or do not want to get, a product manufacturer to develop the item for them. Such conditions are likeliest to occur when two common situations prevail.

First, manufacturers may be aware of a need but consider the market too small or too risky to justify the investment required. If, in these circumstances, users need the product enough to justify developing it themselves, they will do so. Later, when some of these products turn out to serve or build markets that are of commercial interest, manufacturers will get into the act and make the products.

Many commercially successful items have evolved in such a manner. For example, users developed and built most new computers during the 1940s and early 1950s until manufacturers began to realize their commercial potential. Similarly, teenagers built their own customized light vans for years before automakers decided to enter the market.

Second, both the consumer and manufacturer may find a product commercially attractive enough to justify development. An innovating user sometimes hides the need from the manufacturer and secretly generates the item alone—because it is more profitable to have exclusive use than to induce a manufacturer to work on the needed product for sale to the user and competitors. For example, a manufacturer of electronic products will often build the integrated circuits that give its products a competitive edge rather than ask semiconductor manufacturers for design help. Similarly, users of process machinery often develop their important process machines in-house to gain an advantage over competitors.

Identifying Customer-developed Products

Products developed by users obviously represent a bargain to product manufacturers only when the search-plus-acquisition cost is significantly less than they would spend for in-house development and field testing of a product with an equivalent chance for commercial success. Since investigating costs money—a researcher’s visit to a consumer’s field site costs at least as much as a sales agent’s visit—the success of the entire process depends on efficient search. This in turn flows from the thoughtful application of appropriate methods.

An appropriate strategy for identifying commercially promising products must recognize two key characteristics of user-developers. First, a large user population develops relatively few products, of which only a small number will be commercially promising; and, second, user-innovators often have no incentive to take innovations beyond their own companies.

Finding Innovators

Two general strategies can address these obstacles. The first creates incentives that cause users to screen their own items, bringing the most promising to the manufacturer’s attention. The second analyzes the self-screening and self-identification behaviors of users.

User Stimulus Strategy

Finding promising user-developed products via this strategy requires three steps:

1. Define the desired product as precisely as possible.

Companies often specify their needs vaguely—and then are critical of users for inappropriate responses. For example, companies seeking user-developed software frequently complain that the software they are offered is poorly documented. But the companies usually fail to specify the level and type of documentation sought. Users should be given criteria by which to screen their ideas, which will result in fewer but more appropriate responses, reducing in-house screening costs.

Do not hesitate to specify precisely and technically what you require. If you need a recipe for a food product with ingredients customarily used by the commercial food processor rather than the home baker, say so. Or if you want a home handyman tool designed to be mass produced entirely out of stamped steel parts—no forgings, please—say so. Not all consumers will understand the specification, but some will. After all, expert computer designers, home economists, and engineers are also consumers.

2. Specify an appropriate reward.

First, and perhaps most important, don’t be a piker. If it would cost you $10 million to design a computer in-house, you can well afford to offer perhaps $5 million for an appropriate and complete design from users. Of course, experience will suggest how much you need to offer to stimulate users to provide the product you want. As every gambling authority knows, a million-dollar prize will induce all contenders taken together to spend much more than one million dollars in aggregate to obtain it.

Second, offer your reward in an appropriate form. Cash prizes are often best for individual consumers. Pillsbury, for example, offers cash awards to the winners of its Bake-Off. When companies develop the products, though, designing an appropriate inducement is more complicated. Any offer of payment to a group or individual in the user company is obviously unacceptable. At the same time, any offer of payment to the company as a whole might not motivate the right individuals. Thus, for instance, in a search for commercially promising instruments that researchers at universities and other institutions might develop, Technicon offered the inducement of a research grant.

3. Inform likely innovators only.

Targeting need and reward messages to only the most probable user-innovators offers two types of economy to the manufacturer. It saves advertising expenses as well as in-house screening costs by reducing the number of inappropriate responses.

The notion that users will innovate if and as it pays will aid attempts to identify the categories of users most likely to develop appropriate new products. Thus, a company interested in identifying user-developed mass-production grinding equipment might find it productive to begin the search by identifying categories of user companies for which quality mass-production grinding is essential, such as razor blade and ball-bearing companies. Similarly, IBM would choose its own customers as a likely source of IBM-compatible software.

Note that the companies needing an item most—and thus most likely to develop it—are not necessarily within a vendor’s own customer base. Thus, an auto fastener manufacturer might well determine that those users with the greatest need for reliable fasteners are aerospace companies. Further, one can refine the search as a function of particular product attributes. While the auto fastener manufacturer might well look to aerospace companies for more reliable mechanisms, it might more usefully explore toy makers if it is primarily interested in keeping costs down.

User Analysis Strategy

Sometimes a user-innovator is already generating signals that an interested manufacturer can adapt economically to the task of identifying promising user-developed products. In such cases, a user analysis strategy can help meet a need for confidentiality or address a lack of user awareness.

When confidentiality is paramount.

Sometimes a manufacturer does not want to inform others—particularly competitors—of its interest in a user product. Consider, for example, a manufacturer of scientific instruments. It knows that users develop 80% of these instruments and wants to tap into this rich source. At the same time, the company does not want to signal its product plans to competitors.

The manufacturer should know that many users who make promising scientific instruments will quickly report this fact, along with the instrument’s application, in scientific articles. Through computerized data bases, the manufacturer can quickly and economically identify all such references.

User analysis can also address very precise needs. Consider the embarrassing problem facing one manufacturer of a complex form of industrial sewing machine. It wished to quietly identify user-developed solutions to a machine failure problem that was painfully common in the field—but which couldn’t be replicated and solved in the lab. Company officials therefore chose to approach the problem with a user analysis rather than a user stimulus strategy. The signal was that each machine failure of this type resulted in an order for a certain repair part from the manufacturer. Officials concluded that users who ordered few such parts might have solved the problem. Since the manufacturer had a computerized record of customer orders, it quickly identified and contacted a few such users. And some of these had indeed solved the problem.

Unaware innovators.

Sometimes users with an innovation of potential interest to a manufacturer are simply unaware of what they have done. Consider the case of a midwestern manufacturer of prefabricated housing that wanted to make its housing more energy efficient. Actual energy usage in houses strongly depends on the living patterns of occupants and thus cannot be well simulated in a lab.

Users frequently modify their houses—often for reasons besides energy efficiency—and may create an energy-efficient result without even being aware of it; for example, they may alter room layouts and inadvertently create airlocks that help retain heat in winter.

One signal of a house’s energy efficiency is the amount of fuel it takes to heat it in winter. The housing manufacturer could obtain oil bills on the houses sold and thus determine which houses might be worth inspecting for possibly interesting user-developed heat-conserving modifications.

Acquiring Products

Of course, not all user-developed products have sufficient commercial promise to interest a manufacturer. Therefore, candidates should receive the same marketing scrutiny as product prototypes developed in the manufacturer’s own laboratories. Using this analysis, the manufacturer may decide that it is best off adopting only some aspects of the user-developed product. Thus, a process machinery manufacturer may want to adopt the operating principles and basic design of a new user-developed machine but will also want to modify some details.

Once a manufacturer decides to commercialize all or part of a user-developed product, the company must acquire the item. Fear of legal problems seems to make many businesses reluctant to solicit and analyze such products, when in fact users frequently welcome the manufacturers’ interest. Moreover, even ill-disposed users are often unable to cause significant legal difficulties for manufacturers who deal honorably with them.

Industrial users generally welcome the manufacturers’ interest in such products because both parties usually benefit. The customer’s gain may come from fees—or simply from having some other company assume the production task. A manufacturer can often provide its customers a cheaper, perhaps better, version of the new product than the one the user was building in-house.

Even if the user originated the product to obtain a competitive advantage, this advantage often fades over time, perhaps because the secret has leaked to competitors or because competitors have independently developed equivalents. The innovating customer can then benefit from helping a commercializer and thereby ensure compatibility of the commercial version with the internally developed product or process rather than with a version developed by a competitor.

Legal Considerations

The two legal mechanisms that an innovator may be able to call on are patent law and trade secrecy law. Both cover only very limited kinds of innovations and usually offer minimal protection.

Patents.

Patent grants offer innovators the temporary legal right both to control who may use their knowledge and to charge for its use. Patent protection is offered only to explicitly described technical means to achieving a useful end, given that the means is of sufficient novelty and usefulness to be legally deemed an invention.

Thus, patents cannot be used to protect valuable products that do not include a technical aspect deemed sufficiently novel to constitute invention. Patent protection may not apply either to the user-developed product or to the particular aspect of the product that a manufacturer is interested in. Even if it does, and even if the product at issue is patented, both user and manufacturer should be aware that the real-world protection which patents afford is often quite imperfect.

United States patent law places the burden of detecting and prosecuting an infringement on the patentee. The practical benefits of a patent are often only realizable by spending considerable time and money in its defense. Also, patents awarded by the United States Patent System are more often than not found to be not valid, or not infringed, by U.S. courts. Because of these constraints, plus the likelihood that imitators can invent around the particular means protected by the patent, innovators in many fields do not rely very much on patent protection.

Trade secrets.

Users can attempt to protect products they develop from interested imitators by keeping their knowledge secret. Trade secret legislation allows user-developers to keep relevant information entirely secret or to make legally binding contracts with others in which the secret is revealed in exchange for a fee or other consideration and a commitment to keep the information secret. A trade secret possessor may take legal steps to prevent its use by others if they can be shown to have discovered the secret through unfair and dishonest means such as theft or breach of a contract promising secrecy. But if a manufacturer discovers the secret by legal means, the innovator has no recourse.

Manufacturers must know when they are dealing with innovations that might be legally considered trade secrets (for example, even unsolicited suggestions from outsiders can sometimes be seen as trade secrets) and establish an appropriate legal procedure for dealing with them. In general, the best approach is for the manufacturer to clearly establish a strong legal position and make sure user-innovators understand their own legal position as well.

Summing Up

User-developed products exist in categories ranging from consumer goods like egg shampoos to industrial products such as light bulb manufacturing machinery. Manufacturers who deal in categories where users are active need not consider whether they will adopt user-developed products; they usually already have some, albeit unrecognized, in their current product lines. Their real choice is whether to continue to allow the adoption process to proceed haphazardly and inefficiently or whether to recognize and systematize it. Systematizing involves making the difficult admission that some products were developed elsewhere. But companies that persist can profit handsomely by making their—and America’s—innovation process more efficient.

1. See my articles “The Dominant Role of Users in the Scientific Instrument Innovation Process,” Research Policy, vol. 5, no. 3, July 1976; “The Dominant Role of Users in Semiconductor and Electronic Subassembly Process Innovation,” IEEE Transactions on Engineering Management, vol. 24, no. 2, May 1977. See also Julian Boyden, A Study of the Innovation Process in the Plastics Additives Industry, unpublished thesis, MIT Sloan School of Management, June 1976.

A version of this article appeared in the March 1982 issue of Harvard Business Review.

Which term refers to using consumers to develop and market products?

What is the term for consumer willingness and ability to buy products?

What is the name for the collection of activities in which businesses sell things to buyers?

What is the marketing term for something which is given up to obtain a product quizlet?