Community first, that is the motto of online purchasing community Massdrop. Through that community, Massdrop and its customers determine the future strategy of the company. Massdrop was founded in 2012 and is an online retailer that specializes in letting its users buy products together.

Business Model

Massdrop’s business model is based on the principle of bulk purchasing power. Users of their website can subscribe to certain “communities”, such as watches, writing equipment, sound equipment or clothing. Within those communities, vendors offer specific products related to those communities for a limited time. These product offerings are called “drops”.  Massdrop users can then commit to purchase the product in that time, joining the “drop” of that product. There is a minimum number of users that needs to commit before a drop actually takes place. Furthermore, once a drop hits a certain target of users that committed to the product, the price is lowered for all consumers. Users can also submit requests for new products to be sold within the community.

 

This surmounts into two distinct advantages for Massdrop. They use the scale of their communities to ensure a minimum sales volume when a vendor sells their products via the Massdrop website. In return, the members of the community receive a discount on the regular sales price.

For every transaction that occurs through Massdrop, Massdrop takes a transaction fee. This fee constitutes most of Massdrop’s revenue. Massdrop also helps design and co-release certain products in collaboration with their top vendors, taking an even greater percentage on those sales.

To summarize, their value proposition in based around a common information strategy principle and two unique selling points.

• Market making: facilitating product purchases through a platform
• Price leadership: Offering unique price discounts for their communities
• Sales Guarantee: A guaranteed minimum number of purchases for their vendors

Value co-creation

Massdrop’s entire business model is based around value co-creation. The company not only utilizes consumers for their purchasing power but also involves them in company decision making. Consumers can actively decide which new products Massdrop should try to get offered via the platform. This is also valuable for Massdrop, as it can gauge which products are in high demand. Using the value co-creation framework of Saarjärvi, Kannan & Kuusela (2013), Massdrop’s specific value co-creation elements can be determined.

 

	“Value”	“Co”	“Creation”
Customer (business partner)	Customer benefit: Price discounts on products that they always wanted to purchase and unique items in the form of Massdrop exclusives	Use of firm resources: Direct communication with Massdrop employees integrating decision making	Integration mechanism: Through polling tools and customer forums.
Firm	Firm benefit: The ability to offer vendors a guaranteed sales volume and the ability to determine beforehand which products consumers will like	Use of client resources: Client commitment and client opinions to successfully attract new vendors to the platform	Integration mechanism: Trough notices of purchase intent, textual feedback and product votes

 

Massdrop is a great example where value co-creation is used to gain unique advantages over completion and offer consumers direct ways to interact and participate whithin a company.

Further reading

Hannu Saarijärvi P.K. Kannan Hannu Kuusela, (2013),”Value co-creation: theoretical approaches and practical implications”, European Business Review, Vol. 25 Iss 1 pp. 6 – 19 Permanent link to this document: http://dx.doi.org/10.1108/09555341311287718

https://www.massdrop.com/

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Co-creation, one of the hottest buzz words in management theory today. In a world where customers continue to become ever more important, why not let your customers help you make your next product?

What the paper examined

The researchers were curious what would drive a company to choose a certain co-creation strategy and how that strategy would impact product performance. They identified three different strategies of customer involvement in innovation: customer involvement as an information source (CIS), customer involvement as co-developers (CIC) and customer involvement as innovators (CIN).

Within CIS, customers have a more passive role in innovation, whilst in CIC they co-develop the product with the company. Companies using CIN let the customer develop the product himself, without any company intervention.

They also identified three different sets of drivers that influence which types of customer involvement companies use. Those were the nature of customer knowledge, the knowledge management strategy of the company and the implementation of knowledge management within the company. Each set had two different components, which can be seen in the framework below.

Afterwards, the researchers determined that the technological capabilities of a company influenced the way newly co-developed products perform. Adding this part to the research led to the following complete research framework.

How they investigated it

The researchers engaged in a partnership with Product Development and management Association. They sent all their members a survey on new product development trough co-creation with consumers. The survey asked respondents to rate questions like “We used customers as a key information source” and “We utilized designs that were created by our customers” on a seven point Likert scale. The researchers than ran a structural equation model to determine the outcomes and implications of the data.

What they found

In the end, they established that the choice for the three product co-creation strategies were influenced differently by the three involvement drivers. A takeaway of the most important results is provided in the table below.

Construct	Results
Nature of customer knowledge	Firms facing heterogeneous needs are more likely to engage in CIC and CIN. Firms facing tacit needs are less likely to engage in CIS and CIC
Knowledge management strategy	Market exploitation is more strongly associated with CIC than market exploration Market exploitation is more strongly associated with CIS than market exploration.
Knowledge management implementation	The effect of interfunctional coordination on CIC and CIS is significantly stronger than that on CIN Strategic flexibility is more important for firms using CIN
Technological capabilities	Technological capabilities of a company significantly influence product performance when a firm uses a CIC or CIN strategy

 

Why it matters

The value of the research is two-sided. Academic literature widely recognizes the challenges of implementing customer involvement, yet very few studies have examined the organizational mechanisms needed to overcome these challenges. Furthermore, the contribution of customer involvement to firm performance is still unclear. This study tries to fill that gap in research. From a managerial perspective, there is much to be gained from understanding what the researchers determine. Firms can look at the nature of their customers’ knowledge and their own knowledge management systems to determine the best way to co-create with consumers. Also, this research can also help predict the performance of those products. This helps in making investment decisions and determining innovation strategies.