Towards the Future of Retail


It is the end of the season and we all know what that means: time for SALE! Whether we like it or not, many of us are drawn to the shops with the biggest red letters on the window screaming about how they reduced their prices of some of their products to even 70 %… However, shopping during sale periods if often not the most pleasurable time to hit the shops.

As a resort many of us shift to online shopping where products are perfectly displayed on beautiful models and you don’t have to dodge elbows from fellow shoppers while diving into a pile of shirts. Nonetheless, this might not be a perfect customer experience either, as our perfectly displayed dress in the web shop is often disillusioned and the real product leaves us disappointed upon arrival.

Now I hear you wonder… how can we solve these problems and create a better customer retail experience? Do not worry; the answer is radio-frequency identification (RFID). RFID is a technology used to read and/or save information of RFID-tag labelled products such as paper tags. The technology was first discovered in 1945 and has been patented in 1983 by Charles Walton (Barcoding, n.d.). Opposed to traditional barcode techniques, each RFID-tag is uniquely identifiable and can store more specified information for the tagged product. Ever since, the technology has experienced extensive development and is currently used in many industries ranging from security, to advertisement, and mobility to live-stock. In retail environments we for example have already seen RFID-tags to protect valuable products in our local drugstore from being stolen.

As the technology has been growing over time, the price of a simple RFID-tag has been reduced to 10 cents (Barcoding Inc., n.d.). Now that might seem very cheap, however, when all products in a store need to be labelled this will add up to quite a substantial amount of money. So what exactly are the benefits of using these RFID-tags in your favourite retail store?

Example of an RFID tag used to label products.

Security Benefits
For all shoplifters among us, this might be rather a downside than a benefit. With RFIS-tag labelled products, the security systems of stores can be significantly improved to better the customer experience. Normally, when you walk into a shop, you are welcomed by security gates with which shops are essentially saying: Feel free to check out our product, but be careful, we know you might steal!. New technologies using RFID-scanners are able to operate more precisely and therefore capable of scanning products from a bigger distance in a more distinct area. This allows for the development of overhead scanners at the entrance of shop that are nearly invisible for the customer (Nedap Retail, 2019b). Furthermore, the labels will contain more information about the products they are attached to and while checking out information about the sales status can immediately be updated (Nedap Retail, 2019b). Therefore, less security details such as pins need to be added as the label itself can signal immediately if it is being stolen. Lastly, once certain products are identified to be stolen more often, increased security measures can be taken such as giving the product a more prominent display in the store or adding traditional prevention measures such as colour bombs and security pins (Nedap Retail, 2019b). The difference is that this will now only need to be used for products that are frequently stolen rather than every product that shows increased value.  

Example of overhead scanner at the shop entrance.

Recommendation in fitting room
Another benefit comes in the fitting room. With the uniquely identifiable labels, shops might in the future be able to build recommendation systems based on what products customers bring to their fitting room and decide not to buy (GDR, 2019). Once data is more incorporated within the business, shops can create a system in which customers create a profile that collects information about what the customers likes (GDR, 2019). This may start with online browsing behaviour, but can be extended to the fitting room where items can be scanned, and customers can indicate what they liked or did not like. Based on the input information, the system can give recommendations on products with for example a similar colour or a different fit if the customer indicated the product did not fit well. With this, the customer will receive better in shop recommendations without having to scan every shelf in the shop for different yet similar products. In a fully integrated supply chain where shop attendants are able to get the items for the customers once requested through the system, even more efforts for the customer are saved. This becomes especially interesting with the increased development of virtual fitting rooms where products can be tried without putting them on (GDR, 2019).

Example of a virtual fitting room with product recommendations in different colours.

Less stocking and stock-outs
As more date is being tracked on which items are exactly in the store, in the storage and being bought, less items need to be stocked-up within the shopping area. With the exact information which items are being sold in which sizes and of which colours, the personnel can instantly restore the items on display to the optimal level (Bianchi, 2017). This reduces the number of items that need to be displayed and allows for tidier stopping environment, especially during sales seasons. This becomes increasingly easy as the storage of the shop can be scanned quicker as well. With the RFID technology, items can be scanned through their packaging and while they are still in the box on the shelf. Therefore, it reduces time needed to find certain products while they are stored and makes it easier to replenish store displays (Nedap Retail, 2019a). Once more clarity on stock is being reached, more information can be displayed in the online environment as well where information about the current availability of the product in a specific store is displayed and regularly updated. This not only increases informativeness for customers, but the real-time updating of stock levels also lowers the chance of stock-outs when adequately used to organise the supply chain (Nedap Retail, 2019a).

Example of replenishment system working with an application for shop attendants.

All in all, a relatively simple technology such as RFID combined with a sophisticated cloud is capable of changing the retail customer experience. Storing more information in the cloud allows for a friendlier shopping environment that invites people to enter stores and creates clear overview of the products on display. Furthermore, it can compliment the online experience by creating real-time storage updates and improved recommendations both in store as well as online once products are linked to personal accounts. Therefore, the ultimate resort might no longer be just online shopping, as shops will remain tidy and we know what to expect in stores, even during the super sale times.

Barcoding, Inc. (n.d.). RFID FAQs – Barcoding, Inc.. [online] Available at: https://www.barcoding.com/resources/frequently-asked-questions-faq/rfid-faqs/ [Accessed 9 Mar. 2019].

Bianchi, J. (2017). 5 Examples of Innovative Uses for RFID Technology in Retail. [online] Shopify. Available at: https://www.shopify.com/retail/5-examples-of-innovative-uses-for-rfid-technology-in-retail [Accessed 28 Jun. 2017].

GDR. (2019). The changing face of the fitting room – GDR. [online] Available at: http://gdruk.com/changing-face-fitting-room/ [Accessed 9 Mar. 2019].

Nedap Retail. (2019). !D Cloud – Cloud-hosted RFID software – Nedap Retail. [online] Available at: https://www.nedap-retail.com/solutions/id-cloud/ [Accessed 9 Mar. 2019].

Nedap Retail. (2019). iD Top – RFID-based EAS overhead – Nedap Retail. [online] Available at: https://www.nedap-retail.com/solutions/idtop/ [Accessed 9 Mar. 2019].

How to optimize revenues in the sharing economy


What are we talking about?

Over the past decade, online peer-to-peer platforms such as Airbnb or Uber have become some of the most prominent upbringings of the sharing economy. But what is the sharing economy? Defining the concept is quite difficult, but one may define it as “the use of technology to facilitate the exchanged access of goods or services between two or more parties” (Miller, 2018). It is fast-rising and highly popular, with 44.8 million adults in the US using the sharing economy in 2016, and 86.5 million US users expected in 2021 (Miller, 2018).

So, how can those of the 44.8 million adults in the US using the sharing economy who provide services and products make the most out of this economy? The authors of the presented research intend to answer this question.

Abrate and Viglia (2019) argue that the success of products offered on online peer-to-peer platforms is influenced by the personal reputation of the seller, which is often indicated by the sellers’ credentials. This personal reputation increases the quality of the relationship of those involved in the peer-to-peer platform and reduces uncertainty in the transaction. However, the authors argue that to date there limited research available regarding revenue optimization and personal reputation, instead of product reputation. Thus, the authors intend to close this gap in research by disclosing the effects of both personal and product reputation on revenue optimization in the sharing economy.

According to the authors, there are five main concepts involved in the revenue optimization of products and services in the sharing economy. These five concepts are:

  • Shared assets, which refers the product’s physical and service characteristics
  • Product reputation, which refers to online reviews shaping consumers’ perception of a product
  • Personal reputation, which refers to the expertise of the seller
  • Potential revenues, which refers to the revenues which could objectively be achieved from a product or service
  • Achieved revenues, which refers to the actual revenues achieved from a product or service

Based on their literature review, the authors propose the following theoretical framework:

The authors test whether product and personal reputation reduce the gap between potential and achieved revenues and whether personal reputation has a stronger effect on reducing this gap.

How is it measured?

In order to test these hypotheses, the authors make use of data from Airbnb. On Airbnb, hosts can list their accommodations and rent these to guests. Here, the shared assets are the listings and their characteristics, which constrain the maximum revenues a host can achieve. The potential revenues thus depend on factors such as location and number of bedrooms. While the host tries to maximize his revenues, achieved revenues often do not match the potential revenues.

The authors take a stochastic approach to test the hypotheses and build two regression models. Without going into more detail regarding the regression model in this blog post, the authors aim at explaining the difference in potential revenues and achieved revenues with these models. They argue that the difference can be explained by reputational variables in that good reputation allows the host to outperform other hosts and thereby close the gap between potential and achieved revenues. If the host’s reputation is bad, on the other hand, the gap between potential revenues and achieved revenues increases. For both personal and product reputation, this is reflected in the regression models built by the authors.

The researchers then gathered data from the five most popular European destinations, which are Barcelona, Istanbul, London, Paris and Rome. From these cities, the researchers identified all Airbnb listings within a 2-kilometer distance from what general tourism websites determined as the main attractions of these cities. Further, the researchers set a cap at 200 listings per city.

For these listings, the researchers retrieved information on prices, availability, characteristics of the listing and reputational attributes. Personal reputation has been measured in days since registration, profile completeness and the “superhost” qualification, which is awarded by Airbnb to hosts when certain reputation requirements are satisfied. Furthermore, product reputation has been measured by professional photos of the listing and online reviews, in terms of volume and average review score.

After validating the listings, the authors were left with a sample size of 981 listings. The authors then applied their regression models.

What are the results?

The researchers found support for all three hypotheses, meaning that both product and personal reputation reduce the gap between potential and achieved revenues, but that personal reputation has a stronger effect in reducing the gap.

What can we learn from this?

The results of this research have important implications for both scholars, and managers and practitioners. For scholars, this research bridges the gap in existing literature regarding revenue optimization in the sharing economy, which has previously mostly focused on product reputation. This research also offers insights into the importance of personal reputation, stand-alone and compared to product reputation.

For managers and practitioners, this research offers statistical proof as to how to optimize revenues in the sharing economy, especially in the case of Airbnb. Hosts on Airbnb can use these insights to take measures to increase both their product and personal reputation in order to increase their revenues. Through better personal branding and building trust, hosts can increase their personal reputation and thereby reduce uncertainty in the transaction which leads to higher achieved revenues.

Finally, what are the strengths and weaknesses of this paper?

One of the strengths of this paper is that it offers a statistical approach to revenue optimization in the sharing economy. Through regression modeling based on real data from Airbnb, the authors prove the importance of both product and personal reputation.

A weakness of this paper, however, is that reputation, which is a key variable in this research, is difficult to measure. The researchers themselves acknowledge that reputation is very subjective and may not be adequately captured in this research. In future research, this issue should be tackled, possibly by validating the indicators used for assessing reputation in this study by having guests confirm or reject the host’s product and personal reputation .

Sources:

Abrate, G. & Viglia, G. (2019). Personal or Product Reputation? Optimizing Revenues in the Sharing Economy. Journal of Travel Research, 58(1), 136-148.

Miller, D. (2018). What Is The Sharing Economy (and How Is It Changing Industries)? Retrieved on March 9, 2019 from https://www.thebalancesmb.com/the-sharing-economy-and-how-it-changes-industries-4172234

L’Oréal’s use of virtual reality to increase customer engagement


Virtual reality is today a widespread, but still quite novel phenomenon. You have probably heard of VR in the gaming industry, as in the VR headsets. Moreover, VR is being used in healthcare, as in virtual reality diagnostics and virtual reality robotics. Similarly, VR can be used on the work floor, in the military, in sports, education and film. However, increasingly, companies are exploiting VR opportunities to engage their customers. L’Oréal is one of them.

L’Oréal’s Virtual Reality efforts

Recently, L’Oréal acquired Modiface, which is a beauty tech company which uses virtual reality to create augmented reality apps and AR mirrors (Moon, 2018). Next to L’Oréal, Modiface has created apps for Benefit, Sephora and Bixby Vision. By using the Modiface app, people can superimpose beauty products on their face and hair, using an uploaded selfie. As e-commerce is driving the beauty industry nowadays, L’Oréal hopes that once people stop buying their beauty products in brick-and-mortar stores, they will turn to L’Oréal’s VR app, and so, L’Oréal’s own products (Duan, 2018).

Next to acquiring Modiface, L’Oréal is collaborating with Facebook’s augmented reality platform (Lucio, 2018). By using this platform, customers will be able to try out all sorts of make-up by using Facebook’s AR camera. This could become one of L’Oréal’s smartest move, as for L’Oréal, social media networks have become the biggest growth driver of web sales in terms of attracting shopping traffic (Rayome, 2018).

“We are at that magical moment when technologies have matured enough and consumer appetite for using them is growing everywhere. We are very excited about that new step in our long-term partnership with Facebook. One fascinating aspect of this partnership is that it keeps us innovating the beauty user experience.” – Lubomira Rochet, 2018, L’Oréal Chief Digital Office

Efficiency criteria

Buying make-up or trying on a new hair color is not an easy decision. Especially because L’Oréal’s products -which also include many high-end beauty brands, e.g. Lancôme– are quite pricey and therefore not an everyday routine decision. L’Oréal capitalizes on the customer’s desire for knowledge by offering their customers detailed information online, using AR technology. Moreover, by offering live stream make-up tutorials with make-up experts, L’Oréal tries to educate its customers. As such, L’Oréal tries to eliminate product uncertainty and make their customers feel confident and happy about their purchase.

In today’s digital age, customers do not only except detailed product information, but customers are also very sensitive to personalization. More specifically, customers value personalized product recommendations (until a certain extent) (Bleier & Eisenbeiss, 2015). Not only will this lead to better sales, but maybe more importantly, to higher customer loyalty. L’Oréal is playing on this personalization aspect by offering customers’ personalized product recommendations. As such, L’Oréal makes use of content-filtering by the use of cookies and device identification for its personalized advertising on its website. Moreover, it has a skin care consultation tool where customers can get personalized recommendations regarding their skin care routine. Next, L’Oréal is partnering up with different AR technology start-ups to enhance its personalized product recommendations, such as Veleza and InsitU (Forbes, 2017).

However, another important aspect of customer engagement is customer entertainment. AR can help beauty brands entertain customers by including a sense of fun into searching for beauty products. For example, for Cannes Film Festival’s 20th anniversary, L’Oréal used its AR app to entertain users with 64 film-inspired, AR-powered make-up looks (Pezzini, 2018). This way, people could experience the red carpet feeling from home, and interact with L’Oréal’s beauty products. Moreover, by using the Genius make-up app, customers can try on hundreds of make-up looks without the need to actually try on or acquire the products, which may open a world of imagination and wonder, at least for some of us. As a large part of L’Oréal’s customers is still buying its products in-store (Jung, 2018), L’Oréal is not only experimenting with VR online, but also offline. For example, in China, L’Oréal has installed multiple “magic mirrors” in its stores. By looking into a real mirror, people can try on different make-up looks and order those products directly via their Genius app (Hsu, 2017).

Recommendations

Although customers are still taking baby steps regarding the use of virtual reality in the beauty sector, I definitely see a great success story in L’Oréal’s VR efforts. However, the development of the virtual reality apps and platform are just not enough. In order to sustain long-term customer engagement and retention, L’Oréal will need to make some more efforts. One such effort is building a strong community around its virtual reality activities. L’Oréal is on the right way of doing so. As aforementioned, L’Oréal recently acquired Veleza, which is start-up app-based community of beauty lovers which help members find products that match their personal needs. Moreover, people can give each other feedback and rate/review beauty products. However, by using the already established Veleza platform, L’Oréal is outsourcing its community establishment. This inquires an easy set-up and by doing so, it can acquire already existing members from Veleza, which is beneficial. However, this leads to a lower impact on their own brand and L’Oréal may have lower flexibility regarding design (Tsekouras, 2019). Therefore, I would recommend to L’Oréal to establish their own online community. This will not only enhance their brand, but it also directly relates to only their beauty products. To conclude, L’Oréal has the means and expertise to develop its own online community around a strong digital VR strategy, which could definitely lead to an even higher brand awareness and customer loyalty. 

References

Digitising warrantees


We’ve all experienced it – that dreaded moment when a new appliance suddenly stops working. And rather than giving you comfort, the idea that it is still under warranty gives your stomach muscles a twist. Where is the receipt – is it in the trusty old box labelled “receipts & other stuff” in the study; or in the pile of to-be-filed papers collecting on the dining-room table?  And if you are lucky enough to find it, will it be readable or has the ink melted away into the thermal paper.

In this post, I evaluate the concept and technology being developed by a team of South African entrepreneurs to digitise warrantees. By further unlocking the use of block-chain technology (Van Rooyen, 2017), key role players in the day-to-day transaction cycle will be connected to streamline the warranty and warranty-claims processes and eliminate the need for paper-based warrantees. 

What is a digital warranty?

The concept is for manufacturers to create product information, which include the warranty parameters, in an Ethereum  blockchain at the point of manufacture. Retailers will augment this information in the chain with the sales information when the item is sold to the consumer, thereby creating the warranty information. The consumer will then use an app to add their details to the chain which completes the digitised warranty.

How would it work?

Figure 1: Product and warranty information created by manufacturer

Figure 1 shows how a manufacturer would create its finished goods in the chain, including product information (for example, make, model, serial number, etc) and the warranty parameters (for example, term/period, type of warranty – repair only, replace only, repair or replace, service only). The manufacturer will also record when the item is sold to a retailer or distributor to allow for the tracking of items (weather it is in transit, on-floor or with the consumer).

An additional feature for manufacturers would be product placement in the app, once the consumer has completed the steps illustrated in Figure 2 below, using code from one of the readily available open-source recommendation agents. For example, a customer that registers a new 50″ TV can be sent a notification, or shown in the app, what other customers bought in addition to the TV – for example, a sound-bar. Also, on expiry of a client’s warranty, manufacturers can push replacement products to consumers or give the consumer the option of buying an extended warranty.

Figure 2: Digital warrantees from a retailer and consumer perspective

Figure 2 illustrates the process flow once the consumer has purchased the product which, in most cases, is when the warranty is activated. Participating retailers will add a QR code to the printed receipt which the consumer will scan with their smartphones, directing them to the digital warranty app. It is anticipated that large contracted-in retailers will require only a unique code from the customer – their warranty wallet number – to have the purchase sent to their digital warranty wallet, eliminating the need for a printed receipt altogether. Registering on the app can be done through an email & password combination or using an existing social media account. A broadly similar workflow, with different interfaces, will exist for consumers that want to register and manage their warrantees online instead of on the app. Once registered, they can add new warrantees, create an asset register or manage their warrantees – for example, take out extended warrantees – directly on the app or online. Opt-in notifications will send consumers an alert when an item’s warranty is about to expire and offer extended warrantees where these are available as well as advertisements from manufacturers.

Most importantly, because the information in the chain is immutable, consumers no longer need a physical receipt and any claim they make against the warranty will automatically be validated through the entry in the chain. By placing the customer at the centre, various add-on services can be created to manage the claim process on behalf of the manufacturer – for example, courier services to move items to and from the service centre or providing loan items for critical appliances.

Why would people use this?

For the consumer

  • Easy access: Purchase information is stored in one place, making it easy to reference and access when needed in a fast and efficient manner. 
  • Durability: Unlike paper receipts that are often printed on thermal paper, a record created in a blockchain is immutable and permanent. 
  • Acceptance: The decentralised nature of blockchain technology means that the warranty is automatically validated in the chain in the event the consumer needs to make a claim. 
  • Free storage: e-slips eliminates the needfor space-consuming and complex filing systems.   
  • Information security: Personal information is stored only once in the app rather than with multiple retailers, which reduces it’s susceptibility to malicious or accidental disclosure. 

For the wholesaler or manufacturer and the retailer

  • Customer loyalty:  Completing forms, collecting data and hard copy documents are a thing of the past which is likely to improve brand loyalty & increased repeat sales. 
  • Reduction in fraudulent claims: As the authenticity of the warranty is no longer paper-based and dependent on human error, it is expected that the cost of fraudulent claims will reduce. Claims for “fake” or counterfeit products will no longer be an issue as the manufacturer or retailer can track the chain of custody of each product.
  • Increased sales: Product placement and recommendations within the app or making extended warrantees available can generate revenue.
  • Cost reduction: Efficiency in the sales and warranty claims process. Printing and printer maintenance cost will reduce.
  • Reduced carbon footprint: Consumers respond positively and reward retailers with loyalty when the retailer demonstrates awareness of and a reduction in its carbon footprint.

What are the challenges and how will the entrepeneurs respond?

  • Monetising the service: The reality is that, whilst consumers may crave the simplicity of the service, not many will be willing to pay for it. Revenue streams would need to come from manufacturers and retailers who may not see the immediate benefit to them. Emphasis should, therefore, be on creating the ability to track inventory through the entire value chain, quick validation of warrantees when claims are made and increased sales from product placements. An additional consideration is to let consumers experience the service and then implement a pay-as-you-want pricing model for people to contribute toward the service.
  • Scale of the ecosystem: There are many role-players in the value chain which complicates negotiations and, due to the highly competitive nature of the consumer goods market, open discussions are tricky to navigate. Seeking out an advisory board for the initiative that is credible in the retail sector and can offer good connections is imperative, as is an experienced negotiator.
  • Lack of trust leading to low uptake: Whilst consumers, retailers and manufacturers would all appreciate the convenience, online trust is a subjective emotion that is hard to establish for new providers. This is especially the case where a recommendation agent recommend additional products, sponsored by the manufacturer, to consumers. All sponsorships will be disclosed in addition to comments as to why the specific product is being displayed. The choice of initial partners – retailers and manufacturers – is crucial to creating trust and credibility for the service. In addition, electronic word-of-mouth references from retail-industry influencers/stalwarts will increase adoption.
  • Funding: Like all start-ups, the team are looking at different funding options for their business. One of these options is crowdfunding to see if that attracts a suitable investment without having to give up too much of the company’s equity.

Conclusion

The portability of the information collected through this process to other organisations – like short-term insurers and financial institutions – and the actual service to other industries – like motor-vehicle warrantees – are wide-reaching. Whilst there are many and seemingly sizeable challenges to overcome, the benefits throughout the entire value chain and the rather simplistic technical solution to realise these benefits, makes this a no-brainer.

The team of entrepreneurs in South Africa are excited to deal with the challenges and are confident that the various role-players will come together, putting the consumer at the centre, to make this possible. Look out for your electronic warrantee coming soon.

References

Kulkarni, A. (2018). What else could blockchain be used for? Quora. Retrieved from https://www.quora.com/What-else-could-blockchain-technology-be-used-for/answer/Ajit-Kulkarni-4 on 22 February 2019.

Van Rooyen, J. (2017). Real-world applications of blockchain-enabled supply chains. Resolve SP. Retrieved from http://pressoffice.itweb.co.za/resolvesp/PressRelease.php?StoryID=275840 on 22 February 2019.

Impact of Average Rating on Social Media Endorsement: The Moderating Role of Rating Dispersion and Discount Threshold


This is a review of paper “Impact of Average Rating on Social Media Endorsement: The Moderating Role of Rating Dispersion and Discount Threshold” written by Xitong Li (2018)

Facebook launched the “Like” button in February 2009. Since then, more and more social media platforms, such as Twitter, LinkedIn and Instagram, started with introducing this service for their users. This liking function can be of great value for companies using these platforms for advertising. According to a study of Li and Wu (2013), one additional Facebook Like on a sponsor ad averagely will increase the company’s revenue by 215 dollars. It is therefore very interesting for companies to investigate in the motivating factors, that cause people to like and endorse a product since it can be an important extra source of revenue. How to encourage more users to involve in a product endorsement has therefore become increasingly essential to every company in terms of strategic marketing.

Why do people endorse products?

When a user clicks the “Like” button for a sponsored product, the product will automatically be shared to his or her Facebook friends. So the main reason for people to endorse a product is to inform their friends about a good deal. Users are willing to share and endorse a product to friends if they think it is a recommendable product or they want to show their interesting for this product publicly. For some users, social media endorsement is an uneconomical bargain since they should put their self-image at risk and may not get any monetary compensation. For instance, the self-image risk arises when they endorse a product with low quality. It is therefore important for people to make sure that the deal or product they are promoting to their friends is of high quality. A method often used to get knowledge on the quality is the average rating. The research therefore investigates how online reviews about restaurants affect social media endorsement of deal vouchers sold by the restaurants.   

Research Questions

While the average rating had been studied previously, how features of averaging rating will be the cause of social media endorsement were still unclear. Li (2017) attempted to start from the rating dispersion and discount threshold to investigate how these two features affect social media endorsement. To be specific, the author hopes the paper enables to answer the following two questions,

(1) Does a higher average of review ratings about the restaurants increase social media endorsement (Facebook Likes) of deal vouchers?

(2) Do rating dispersion moderate the effect of average rating on social media endorsement?

Previous studies show two possible motivations to drive consumers’ sharing on social media endorsement, which are increasing social capital (Lin et al, 2001) and enhancing self-image (Akerlof and Kranton, 2000). A higher average rating can signal to customers that the product gain recognition from the mainstream market and customers are more willing to endorse it to their friends. However, what a large dispersion of review rating of a product means to customers can have two opposite conjectures. On the one side, a large dispersion of review rating may send a signal to customers that the product has high uncertainty on its quality (Feldman and Lynch, 1988).  On the other side, a large dispersion of review rating may imply the product is unique and niche that is more attractive to customers with well-matched preference (Clemons et al 2006, Sun 2012).

Research design

The author chose the daily-deal businesses as the research setting and the restaurant industry as the object of research. Data of restaurant deals were collected from two sources, a data set provided by Byers et al. (2012) that consists of a nationwide sample of deals across 19 major cities of the United States, and a commercial daily-deal aggregator. To exclude restaurants that may not exist or too small, the author also checked whether the profile of a restaurant can be found on Yelp. Com or not. Finally, a cross-sectional data set that includes 2,545 restaurant deals and 129,129 individual review ratings has been generated. The author regards Facebook likes endorsed for a product deal as the dependent variable and review ratings on Yelp.com as the independent variable of this paper.

Findings

The main findings of this paper are:

•    The average rating increases consumers’ endorsements via Facebook for restaurants with enough reviews.

•    The effect of average rating on social media endorsement is greater for restaurants with more dispersed review ratings.

The first finding thus confirms the expected behavior of consumers which is that a higher review rating is associated with a perceived higher quality. This makes people more willing to endorse the product, since their risk of sacrificing their self-image or their social capital is lower. The second finding is quite surprising, since it indicates that people value more dispersion in a rating over a pure opinion.

Strengths and weaknesses

One of the strengths of the paper is that it takes place in a real life setting and uses real life data. Additionally. the researcher ensures a causal relationship between the dependent and independent variable by using a regression discontinuity (RD) design. Another strength is that, it gives interesting insights on a topic where existing views exist, which can be helpful for firms using social media endorsements. Weaknesses of the paper are that it only focuss on one specific business area, making it harder to generalize the findings to other fields. Next to that the research only uses likes as endorsement measure, however in the current social media era, there are other ways to endorse such as sharing or commenting which are not included.

Managerial implications and research implications

The research generates some interesting insights on the effect of the review rating. It can be valuable to know for company to know what impact their rating has on their social media advertisements, since these advertisements can generate large amounts of additional revenue. It is therefore of great importance for companies to make sure that their average review rating is high. Secondly it generates especially important new insight for companies with niche products, that have a more dispersed rating. For these companies, it is more useful to make use of social media advertising, since they can benefit from the endorsement effect most. It can be insight full to do future research on the effect of review ratings in other business areas and to investigate what other factors can influence the social media endorsement of consumers to test if the research also stands for other services and products.

Reference

Akerlof GA, Kranton RE (2000) Economics and identity. Quart. J. Econom. 115(3):715–753.

Byers JW, Mitzenmacher M, Zervas G (2012) Daily deals: Prediction, social diffusion, and reputational ramifications. Proc. Fifth ACM Internat. Conf. Web Search Data Mining (WSDM’12) (ACM, New York), 543–552.

Clemons EK, Gao GG, Hitt LM (2006) When online reviews meet hyper differentiation: A study of the craft beer industry. J. Man-agement Inform. Systems 23(2):149–171.

Feldman JM, Lynch JG (1988) Self-generated validity and other effects of measurement on belief, attitude, intention, and behavior. J. Appl. Psych. 73(3):421–435.

Li X, Wu L (2013) Measuring effects of observational learning and social-network word-of-mouth (WOM) on the sales of daily–deal vouchers. Proc. 46th Hawaii Internat. Conf. System Sci. (HICSS), Maui, HI, 2908–2917.

Lin N, Cook KS, Burt RS (2001) Social Capital: Theory and Research (Transaction Publishers, New Brunswick, NJ).

Sun M (2012) How does the variance of product ratings matter? Management Sci. 58(4):696–707.

Spotify for Artists — Opening Spotify to independent artists, who Will benefit? The superstars or struggling artists of the industry?


It might not be long before the music industry is revolutionized yet again. Although Spotify’s new feature is still in its beta if it is actually implemented it would allow independent artists to upload their music directly to Spotify, bypassing all the intermediaries that are currently needed. In other words, it would allow anyone to write or produce a song and upload it to Spotify for the whole world to hear, with little to no effort. However, the question remains: who will benefit more from this – the superstars or struggling artists of the music industry?

Over the past two decades, the rise of the internet has changed how we consume, purchase, and think about music, and with that the music industry altogether. First, illegal downloading platforms such as Napster or LimeWire leveraged the internet’s unique sharing capabilities to allow people easy (and free) access to their favorite songs. Then, Apple introduced the world to iTunes an online music store. And now, we have shifted entirely away from buying music to streaming music from streaming services such as Spotify, Apple Music or Tidal.

Although the music industry has undergone great change, one aspect remains unchanged. Record labels are still the gatekeepers of the industry. Artists need to be signed to labels in order to upload their music to a streaming service. In turn, they take a large portion of the revenue generated from the artist’s music. Alternatively, independent artists can upload their music to streaming platforms through third-party digital distributors, again, in return for rather large fees or commissions. The closeness and complexity of such streaming services, thus, restricts and discourages many individuals from sharing their music.

However, there are alternatives to get music to large audiences — through platforms that are open for anyone. A popular example of such an open platform is SoundCloud. Compared to Spotify, SoundCloud allows any artists to upload their music with one click. Consequently,  allowing some of the biggest stars of our generation to emerge, such as Post Malone, XXXTentacion or Travis Scott. Although Soundcloud has introduced per-stream-payments, given the low number of premium users the money to be earned remains very minimal. Therefore, many artists view SoundCloud as a stepping stone. Once their songs go viral, artists tend to sign to major labels and release their following projects to all streaming services simultaneously, in order to get paid sufficiently. Furthermore, on closed platforms record labels or distributors decide what music enters the mainstream. Giving artists the liberty to upload their music independently, shifts this power more to consumers.

Spotify for Artists

Given the great success of SoundCloud, more exclusive streaming services are working on open business models that include and promote more independent artists. An example of this is Spotify’s new beta feature — Spotify for Artists. In September 2018, Spotify launched a feature to their streaming service that opens the platform to independent artists (currently only available to 1000 selected artists). It allows any individual to create an artist account and directly upload their music (of course, only if the rights to the music are owned). Thus, bypassing the need for a major label or third-party aggregator. Although Spotify’s new feature slightly differs to the functions of SoundCloud, at its core both very similar. Furthermore, the feature gives artists full control and direct access to streaming information. Spotify is basically extending its platform to create a more equal-opportunity market to allow for less established artists to compete with the superstars of the music industry. 

How does Spotify benefit from this?

Because Spotify has made only a few announcements and statements about their expectations derived from their new feature, what exactly they hope to gain is unclear. However, generally opening any platform to more user-generated content has two benefits for platforms or online retail stores. Firstly, the volume of products available to consumers increases and secondly, the content is diversified (more niche products) (Barzilay et al., 2018). In the case of Spotify, its users have more artists (and songs) to choose from and a more diverse range of genres and sub-cultures. It can be expected that a more open platform will lure many artists that exclusively (can) upload their content to SoundCloud to switch to uploading their music to Spotify. It might even allow new genres to emerge comparable to the ‘emo-rap’ movement that started on SoundCloud. Currently, these movements do not offer enough potential for labels to sign and promote them, thus, opening a platform gives these sub-cultures a stage. Perhaps even creating more active, identity-based communities on Spotify (Ren et al., 2012). Furthermore, by eliminating the intermediaries (i.e. record labels) more money is left to be earned either by Spotify or the artists themselves. Thus, drastically reducing the influence and role record labels play in the industry.

Spotify can utilize the enhancement of their service to secure a competitive advantage over their competitors, it can be used as a selling point for new potential customers and it can increase customer satisfaction and loyalty for already existing customers. 

What are the risks for Spotify?

For Spotify, the risks associated with opening the platform are limited. Nevertheless, most prominently, Spotify can fail to create an equal opportunity platform. The increase in content made available to users can (1) induce a choice overload effect, where the users are overwhelmed by choices, and (2) decrease the overall quality of content. Both these downsides can introduce a Superstar effect on the platform (Barzilay et al., 2018). This means that opening the platform creates an even greater dispersion between the superstars and the struggling artists of the music industry. In other words, the already established artists receive an even greater portion of the user-generated streams, leaving less revenue to be generated for smaller struggling artists. 

However, it is disputed whether opening the platform will shift the distribution of generated revenue more towards the superstars or struggling artists  (Barzilay et al., 2018). It remains in the hands of Spotify to decide in what direction the distribution shifts. As already is the case now, through their sophisticated recommendation agents and carefully curated playlists Spotify can steer whether to promote the superstars or the struggling artists. These tools are leveraged by Spotify to control what artists or songs come to the user’s attention.

References: 

Barzilay, O., Geva, H., Goldstein, A. and Oestreicher-Singer, G. (2018). Equal Opportunity for All? The Long Tail of Crowdfunding: Evidence From Kickstarter. Working Paper

Ren, Y., Harper, F.M., Drenner, S., Terveen, L., Kiesler, S., Riedl, J. and Kraut, R.E. (2012). Building member attachment in online communities: Applying theories of group identity and interpersonal bonds. MIS Quarterly. pp.841-864. 

How direct-to-consumer brands are revolutionizing the consumer-packaged goods (CPG) industry


From Amazon to Apple, technology has disrupted traditional commerce companies, where technology solutions have enhanced the experience of the product or services for consumers. However, certain industries, such as consumer packaged goods (CPG), have remained relatively stable. In the past, innovation in CPG has been focused on products’ functionalities (e.g., a fast-action dish soap, or advanced whitening toothpaste). Despite CPG’s brand legacy and R&D capabilities, younger consumers are increasingly drawn to emerging micro-brands, small-scale brands tailored to niche markets (The Economist, 2018). In the rise of consumer-technology solutions, how do CPG companies stay relevant in delivering consumer-centric solutions? The answer lies with direct-to-consumer (DTC) brands. 

Overwhelmed with options in your local supermarket

What is a direct-to-consumer distribution?

Direct-to-consumer is the practice of selling to consumers directly, without the need of a third-party retailer or middleman. Adopting a DTC model has numerous benefits, including reducing costs associated with working with a middleman and furthering a company’s brand equity, where companies can further develop their brand relationship with customers on an e-commerce website or brick-and-mortar store. 

Direct sales also allow for a better understanding of customer data (Chonsksi, Caldbeck, and Jordan, 2019). When selling to a third-party store, consumer brands know how much volume they are selling to a store, but they do not know how well a certain product is selling in terms of individual sales. Thus, DTC sales enable greater understanding of sales data and valuable insight for marketing purposes.

An example of a successful DTC company is Warby Parker, the online retailer of prescription glasses and sunglasses. Founded in 2010, the company emerged as an online-only model, where customers received different styles of glasses in the mail to try at home, and purchase the style that best fits them (O’Connell, 2012). Priced at $95 per frame, the glasses were substantially more affordable than glasses in stores. Furthermore, the company established a donation program, where for each pair of glasses purchased, a pair is donated in partnership with the nonprofit, VisionSpring. Thus, consumers associate Warby Parker with affordable styles and social consciousness, messages of the brand that may not be conveyed through a third-party retailer. Warby Parker has also grown its presence to stores across the United States, extending the brand experience.

Warby Parker home delivery

How traditional CPG companies can innovate

While many retailers are adopting a DTC model, it is difficult to see this model applied with CPG brands because they are stapled goods. Household products have become part of ones’ routine, so there is little room for large-scaled innovation as such changes may not be accepted by consumers. At the same time, new “startup consumer brands” are emerging with an emphasis on an online-store or subscription model (Duguay, 2018). 

The shift to e-commerce reflects changing consumer behaviors, where consumers are increasingly attached to their computers and mobile devices. With the rise of grocery delivery services, it is evident that consumers find grocery shopping a hassle. As a result, these emerging consumer brands complement the shift in consumer purchasing habits. 

CPG companies can learn from this model by expanding their marketing channels and service delivery methods. While CPG brands have a presence on television and digital media, many consumers discover products and deals through their local supermarket. As a result, the supermarket plays an integral role in consumers’ perceptions of the brand. A DTC model would give CPG companies greater control of customers’ interaction with the brand. One way to accomplish this is through pop-up stores. For example, St. Ives, the skincare brand under Unilever, launched a pop-up store in New York City, where customers can purchase products and mix customized scents. Similarly, Kellogg’s, the iconic American cereal brand that has stocked grocery stores for a century, has opened a café in New York, where patrons can have a bowl of cereal with toppings. Both examples prove that traditional brands with a long legacy can continue to innovate by directly reaching the customers. 

From cereal box to cafe

CPG brands are also partnering with emerging brands to expand their portfolio capabilities. In 2016, Unilever purchased Dollar Shave Club for $1 billion (Cao & Mittleman, 2016). Although Unilever has an existing portfolio of shaving products, the company was interested in Dollar Shave Club’s subscription model and its capability of developing a strong following quickly. Similarly, Colgate acquired a minority stake in Hubble, an online subscription company for contact lenses, in 2018 (Copeland & Terlep, 2018). With Hubble, Colgate is exploring innovative ways to deliver its legacy products (think a subscription model for toothpaste). With Amazon and Walmart expanding their footprint and capabilities, traditional CPG companies are looking for innovative solutions to remain relevant. 

A $1billion acquisition

Implications for other industries

Aside from CPG companies, it would be interesting to see whether a DTC model applies to other traditional industries such as household appliances and electronics. Unlike CPG brands, there is not a high turnover for the product. You will not go through a washing machine as you would go through laundry detergent. Household appliances and electronics innovate with new functionalities are advancements in their existing technology (think a faster food processor). The challenge is that the average customers are not enticed to purchase the newest model of an appliance item because they are satisfied with a product that serves its fundamental purpose. As a result, household products are not agile to customer needs.            

However, a DTC model can still be applied in this industry. Purchasing appliances is still an experience, and many consumers want to see the product before purchasing it. Similar to Warby Parker, household appliance brands can have dedicated retail stores to showcase their line of the product instead of going through a third-party retailer (e.g., department stores). Another benefit of having dedicated stores is that customers can ask specialists questions about the product. Household appliances can also consider an e-commerce model, where users can test a product at home before committing to purchase the product. The limitation of this proposal is the cost of shipping and greater risks associated with larger products.

Looking Ahead

DTC distribution has proven to be successful, especially for emerging brands that have gained a loyal following. By selling products directly to the consumer, brands can control the messaging of the product. When it comes to CPG brands, there is are a lot of avenues for further growth including launching pop-up stores or partnering with emerging brands. Ultimately, a better understanding of the customer will position CPG companies for greater growth. 

References

Cao, J. (2016, July 21). Why Unilever Really Bought Dollar Shave Club. Retrieved March 8, 2019, from https://www.bloombergquint.com/business/why-unilever-really-bought-dollar-shave-club#gs.0ippbt

Chokshi, S., Caldbeck, R., & Jordan, J. (2019, February 25). A16z Podcast: Who’s Down with CPG, DTC? (And Micro-Brands Too?). Retrieved March 8, 2019, from https://a16z.com/2019/02/15/cpg-dtc-microbrands-grocery-online-offline-commerce/

Copeland, R., & Terlep, S. (2018, July 02). A Toothpaste Club? Colgate to Invest in Online Startup. Retrieved March 8, 2019, from https://www.wsj.com/articles/a-toothpaste-club-colgate-to-invest-in-online-startup-1530537593

Duguay, A. (2018, March 15). If The Consumer Is Strong, Why Are CPG Brands Struggling? Retrieved March 8, 2019, from https://www.forbes.com/sites/forbesfinancecouncil/2018/03/15/if-the-consumer-is-strong-why-are-cpg-brands-struggling/#3bfb3fcb4728

O’Connell, V. (2012, July 19). Warby Parker Co-Founder Says Initial Vision Was All About Price. Retrieved March 8, 2019, from https://www.wsj.com/articles/SB10000872396390444097904577535111565440718

The growth of microbrands threatens consumer-goods giants. (2018, November 08). Retrieved March 8, 2019, from https://www.economist.com/business/2018/11/08/the-growth-of-microbrands-threatens-consumer-goods-giants

Did you receive an unjust traffic fine? Challenge it with a robotic lawyer!


Everyone must be able to use his or her rights. Therefore, Appjection strives to improve access to the law. At Appjection, they noticed that people were too lazy to challenge their traffic fines, even when the fines were unjust. This lead to their idea: an app where people can easily challenge unjust traffic fine on their smartphone.  

In 2016, three students from Leiden University founded Appjection. At the start of their business, they managed to win the ‘De Brauw Legal Innovation Challenge’ in 2016 for which they received €25.000 euros of financial support for their business and free legal advice of De Brauw lawyers (Potjewijd, 2016).

Appjection makes it easy to file an objection against fines and other administrative decisions. According to the founders, only 2.5% of the submitted objections are currently officially wrongly declared (Arag, 2018). However, the actual number of unjustified fines is much higher according the founders of Appjection (Arag, 2018). A possible reason for this, is the lack of knowledge on how to draw up an objection and how to appeal after a rejection. Mostly, people think it is a waste of time and they just pay their fine because they do not think it is worth it to make the effort to object.

How does it work?

By using artificial intelligence, Appjection can handle large numbers of fines. The process starts by people taking a picture of their fine and uploading it to Appjection. The system automatically extracts all the information from the fine that is necessary. This is done by using text recognition from Google Vision (Koot, 2018). The software recognizes the words on the fine which are then converted into digital text. After uploading the fine, the system asks to answer several questions about the fine and the moment it happened. The customer also needs to indicate why he or she does not agree with the fine. Submitting the fine will only take a few minutes. Based on the information provided, the system searches the database for previous similar cases and generates a customized objection for every fine uploaded (Koot, 2018). Moreover, it checks whether there is a reason to make an objection and whether this objection has an actual chance of success. When there is no opportunity of success, Appjection makes no objection. If there is a reason to make a successful objection, the system automatically completes the process and files the objection.

Source: Startupdelta.org

After the system processed the fine, the customer will receive an acknowledgement with the reference number. One of the lawyers of Appjection will tell the customer within a few days whether the objection has a chance of success (Appjection, n.d.). If there is a chance of success, the system will file the objection either digitally or by post. If there is no possibility for an objection or chance of success, they will tell the customer why. As soon as something changes in the status of customers’ objection, they will be informed by e-mail (Appjection, n.d.).

Business model

Appjection is offering their service for free. It does not matter if Appjection wins or loses, the service is always free of charge. This is possible because they receive a compensation from the government when the objection is successful. In the Netherlands, there is a law which states that if professional legal aid is provided, and it is proven that a fine was deemed unjust, a compensation will be provided by the government (Zorab, 2018). The compensation they receive from the government contains a legal costs allowance, which is intended as a compensation for the costs of lawyers who provide legal assistance. Therefore, if the customer would have filed the objection himself, he or she would not receive this compensation (Appjection, n.d.).

Moreover, Appjection also partnered with some companies. This is a good initiative to be able to grow their platform as their business is dependent on the number of customers submitting traffic fines. They started a cooperation with legal assistance insurer Arag and Leaseplan, an international Dutch company that is specialized in car leasing (Arag, n.d.; LeasePlan, n.d.). Because of the cooperation with Appjection, their customers have the possibility to object unjust fines in a simple way.

Efficiency of the Model

The system works well for rather simple fines as the database is filled in manually by the founders until now. However, filling in this database will go automatically in the future through deep learning, where the software learns from the outcome of the cases and automatically updates the database (Koot, 2018). For now, this might be a drawback of the App, as it can mainly be used for rather simple fines.

Furthermore, as stated before, Appjection receives a compensation when they file an objection that turns out to be successful. Therefore, their business model is dependent on the number of fines that are submitted by customers. When customers only submit fines that have no chance of success or when they do not submit fines in general, the business model will not be sufficient. Their business model, or the value they create, is therefore dependent on customers. They create value from customers sending in their fines.

Future Plans

To build a bigger market, Appjection is planning to use the system for other areas as well. One of the founders, states that he sees opportunities in various other categories, such as taxes, UWV and flight delays (Mr. Online, 2017). Right now, Appjection consists of a team of 4 people including a Chief Technical Officer (Mr. Online, 2017). They believe that their business has a high potential to grow, not only in the Netherlands but throughout the whole world. Although the law in the Netherlands makes it easier to gain revenue, the founders do have plans to move abroad (Zorab, 2018). By building new partnerships and getting offered an investment of €100,000 euros recently in a Get In The Ring initiative, they might be able to realize these future plans (Get in the Ring, n.d.). By using this system, customers just need to sit and relax, while a robotic lawyer challenges their fines. What more do they want?

References

Appjection. (n.d.). Onterechte boete? Check binnen een paar minuten kosteloos of je bezwaar kunt maken. Retrieved March 6, 2019, from Appjection: https://www.appjection.nl/

Arag. (2018, September 14). LegalTech startup Appjection slaat met ARAG handen ineen in strijd tegen onterechte verkeersboetes. Retrieved from Arag – Persbericht: https://www.arag.nl/medien/pdf/persbericht_-_onterechte_boetes_aanpakken.pdf

Arag. (n.d.). In beroep gaan tegen verkeersboete. Retrieved March 6, 2019, from Arag: https://www.arag.nl/particulier/reizen-en-verkeer/verkeersovertredingen/bezwaar-verkeersboete/index.html

Get in the Ring. (n.d.). 600k investment offers live on stage at Get in the Ring Netherlands 2019. Retrieved March 6, 2019, from Get in the Ring: https://getinthering.co/600k-investment-get-in-the-ring-netherlands/

Koot, J. (2018, October 25). Robot vocht al 2000 Nederlandse boetes aan. Retrieved from Financieel Dagblad: https://fd.nl/futures/1274924/robot-vocht-al-2000-nederlandse-boetes-aan#

LeasePlan. (n.d.). Informatie voor leaserijders. Retrieved March 6, 2019, from LeasePlan: https://www.leaseplan.com/nl-nl/mijn-leaseauto/

Mr. Online. (2017, November 7). WHIZKIDS BESTORMEN LEGALTECHMARKT. Retrieved from Mr. Online: https://www.mr-online.nl/whizkids-bestormen-legaltechmarkt/

Potjewijd, G. (2016, June 6). De Brauw announces three finalists of its Legal Innovation Challenge. Retrieved from De Brauw Blackstone Westbroek: https://www.debrauw.com/newsitem/de-brauw-announces-three-finalists-legal-innovation-challenge/

StartupDelta. (n.d.). Dutch Tech to Watch – Appjection: Automated Professional Legal Aid. Retrieved March 6, 2019, from StartupDelta: https://www.startupdelta.org/dutch-tech-to-watch-appjection-automated-professional-legal-aid/

Zorab, J. (2018, February 5). Max Heck: Legal Geek of the Week. Retrieved from Legal Geek: https://www.legalgeek.co/read/max-heck-legal-geek-week/

How Unbecoming of You: Gender Biases in Perceptions of Ridesharing Performance


RSM MSc BIM CCDC – Group 11

This blog post aims to provide a review of the research paper “How Unbecoming of You: Gender Biases in Perceptions of Ridesharing Performance” published by the researchers Greenwood, Adjerid, and Angst in 2018. The post concludes with a business case of Uber, which relates closely to the paper’s topic of the perceived gender biases in ridesharing performance.

Paper Review

The main objective of this research is to unravel significant biases that exist when consumers place a review online. More specifically, the researchers decided to focus on the gender biases that might take place on ridesharing platforms. While aspects of the rating process have a role to play, the characteristics of the rater and ratee have been found to have an effect on the willingness to transact. That is, the ex-ante evaluation of quality, meaning how an individual assesses a product or service before actually consuming it. These ex-ante quality perceptions were examined against the post transaction perceptions of quality. A few papers have previously addressed gender as a possible factor that can affect service quality evaluation. However, this paper delivers novel and valuable insights by taking into consideration gender as a plausible factor that could affect user post-consumption evaluation.

The researchers measured the perception of quality both before and after the service and developed three hypotheses to test, namely;

  • (H1) “Female gender status will correlate with lower ex ante perceived quality of service, as compared with men, all else equal.”
  • (H2) “Female drivers will be penalized to a greater degree, as compared with male drivers, for performance shortfalls, all else equal.”
  • (H3) “Female drivers will be penalized to a greater degree, as compared with male drivers, for performance shortfalls when performing highly gendered tasks, all else equal.”

To test the hypotheses, the paper uses an experiment with a 2 (gender) x 2 (race) x 2 (Historical Quality) x 2 (Experience Quality), between-subjects research design. The researchers informed the participants that they represented a new ride sharing service, called Agile Rides. Agile Rides was in the process of being launched and participants’ assistance was required to understand what makes a good rider experience, bringing the experiment closer to a real world setting.

One of the main findings of the paper was that with historic quality being available, gender bias does not penalize women drivers before the service is rendered in a ridesharing context (H1). However, if the service provided by a woman is of a lower quality, worse ratings accrue for females relative to males with the similar performance (H2). Furthermore, when the tasks were considered highly gendered (either feminine or masculine), these penalties were intensified when performed by female drivers than by male drivers with the same performance (H3).

Strenghts & Weaknesses

Although there is no question regarding the relevancy of the paper, multiple strengths and weaknesses do exist. First, one strength of the paper is that gender and quality manipulations are extensively tested in the pre-studies. This allows the researchers to make accurate comparisons of perceived quality before and after the experiment has taken place. Second, the paper delivers high practical implications for services that work with online rating systems. These services can now identify which steps they must take in order to limit how gender bias is affecting the perceived quality of services offered.

However, one weakness of the paper is that the researchers did not account for previous ride sharing experiences of participants. These experiences, either positively or negatively, could have influenced their quality perceptions. One suggestion would be that the researchers should inquire about the respondents’ previous ride sharing experiences. By doing so, the researchers could examine and compare the responses of the respondents with positive, negative, or no previous ride sharing experiences, in order to find out if pre-ride sharing experiences could yield different results. Second, participants were asked to imagine a hypothetical situation, which creates the risk that riders’ behaviour in real life could differ from what they have indicated. According to Ajzen et al. (2004), bias in hypothetical situations exist because individuals imagine that they will act according to social norms and expectations, which is not always the case in real life. The results in a real world setting could therefore differ from the results found in the research. A possible solution to this problem is to implement Virtual Reality (VR) when measuring the quality perceptions of the participants. Instead of only relying on text to imagine a situation, participants can now also experience it with visuals. Situations closer to real life settings can be created and bias can be reduced.

Business Case Uber

An example of a company that outsources driver ratings and has experienced gender bias in their evaluation system is Uber.

Generally, after a ride, a passenger is asked, through an Uber app, to rate the driver anonymously using “1- to 5-star scale” (Rosenblat et al., 2016, p. 3). Leveraging anonymous consumer-sourced ratings, Uber outsources driver evaluation to consumers. Nevertheless, as consumers enter their ratings into the system, algorithms also record the consumers’ implicit biases. A case study on Uber reveals that driver ratings are highly likely to be biased by factors such as race, ethnicity and gender (Rosenblat et al., 2016). In the world, there are laws that protects consumers from direct discrimination such as The Equality Act 2010. However, there is currently no law that handles indirect bias like those generated from consumer-sourced ratings. As such, the authors of the Uber case study propose following ten interventions to limit bias in the consumer-sourced ratings (Rosenblat et al., 2016).

  • First, it is important to track consumer-sourced ratings which enables identification of potential driver bias patterns.
  • Second, it is equally important to disclose the identified patterns to the public in order to propel solutions within Uber. 
  • Third, ratings should be validated in conjunction with behavioural data. For example, if a driver receives a low rating, the speed with which the driver drove should also be assessed in order to justify the low performance.
  • Fourth, each rating should have a different weight to account for potential biased raters, which are found upon statistics. 
  • Fifth, Uber should increase feedback criteria for consumers who provide low ratings, for example elaboration on certain dimensions they were dissatisfied with. 
  • Sixth way to eliminate consumer-sourced biases is to keep the consumer-sourced ratings only for internal uses rather than driver evaluation. 
  • Seventh, Uber can also increase in-person assessments of low-rated drivers. 
  • Eight suggestion is about opening the platform fully to both drivers and consumers. With an open policy, both parties would be able to join the platform, get to know each other and receive the option to select or approve upon each other requests.

The last two interventions prompt to alter the legal aspect of ride-sharing platforms: 

  • Ninth plausible solution could be to turn self-employed drivers into law-protected employees.  
  • Finally, the authors suggest legal bodies to “lower the pleading requirements for claims” that are brought against ride-sharing platforms (Rosenblat et al., 2016, p. 16).

In conclusion, the paper presents novel findings that serve to inform ridesharing platforms, such as Uber, about biases in their evaluation services. Furthermore, this blog post provides ridesharing platforms with ten interventions to limit possible biases in their consumer-sourced ratings.

References

Ajzen, I., Brown, T. C., and Carvajal, F. 2004. “Explaining the Discrepancy Between Intentions and Actions: The case of hypothetical bias in contingent valuation,” Personality and Social Psychology Bulletin (30:9), pp. 1108-1121.

Greenwood, B. N., Adjerid, I., & Angst, C. M. (2017). How Unbecoming of You: Gender Biases in Perceptions of Ridesharing Performance.

Orwellian Social Credit system: myth or reality?


Black Mirror

Everyone who has been keeping up with the offering of Netflix has heard of Black Mirror, the series about dystopian worlds becoming reality. In one of the episodes writer Charlie Booker depicts a world in which every citizen has a social score that everyone can vote on when getting into contact with the person in question. The main character of the episode is at a certain point in the episode denied access to a flight due to her low social score.  A scary thought, but as it turns out very much reality. The Chinese government intends to implement a similar system as portrayed in Black Mirror in which people are assigned a social credit. Main difference is that this score is attributed by the government through big data, not by fellow ‘victims’. In the coming year, 2020, the social credit system is bound to kick off. While the examples of a poor social credit provided in the Orwellian Black Mirror episode approach extremes, some of the scenes will turn out to be real consequences in China. For example, by the end of 2018 more than five million citizens of China have already been denied access to high-speed rail tickets due to having been placed on a blacklist due to debt  (Needham, 2019). Some other implications for citizens once the system initiates are being unable to find a job in civil service, journalism and legal fields or having your children being denied access to high-paying private schools (Botsman, 2017).

Sesame Credit

What if I told you that this social system has been a reality for over four years already? That’s right. Alibaba, the Chinese multinational giant in e-commerce and other sectors, has assigned its customers with a social credit score, commonly referred to as Sesame Credit (Jefferson, 2018). Alibaba is known to have close affiliates with the Chinese government and the Sesame Credit is partially a trial version of the social credit system about to be introduced (Financial Times, 2017).

So what is the Sesame Credit and how does it work? Alibaba collects a ton of data on their customers. Given that they are active in insurance, loans, e-commerce and even dating, it is evident that they have a lot to analyze. The credit system uses data on more than 300 million people and 37 million businesses (Alibaba Group, 2015). To add to this, their ties with the Chinese government provide them with access to official identities, financial records and even messages of Chinese WhatsApp alternative WeChat (Huang, 2017). All this data is gathered by Alibaba and then analyzed to come to a Sesame Credit, which can be interpreted as an indication of someone’s trustworthiness. While the exact algorithm they use to determine a person’s Sesame Credit is unknown, it is known that the heaps and heaps of data collected all amount to a different rating in five categories. Namely, credit history, fulfillment capacity (ability to live up to contract terms etc.), personal characteristics, behavior & preferences and lastly interpersonal relationships (i.e. your friends). Bound together, you get yourself your very own Sesame Credit.

Applications

Now, what to do with your Sesame Credit is a natural next question. A main difference when comparing the Sesame Credit to the approaching Social Credit system by the Chinese government is that the Sesame Credit is about rewarding trustworthy people rather than punishing those that do not have a high rating. Some ways in which the credit score has rewarded customers are when applying for a loan with Ant Financial, a daughter company of Alibaba or when trying to book a night at a hotel. The merit to a high social score there is not having to pay up front due to the high trustworthiness. Baihe.com, a Chinese dating site, has even started to allow users to add their Sesame Credit to their profile as a way to provide better dating opportunities for users (Hatton, 2015). These are just some of the more obvious applications for the Sesame Credit and how it creates value for people with a high rating.

A remaining question is the value for Alibaba itself. Other than being a nice perk to hand out to customers, a first glance at the credit system raises the question as to what the use is for Alibaba. The reason why Sesame Credit or any social credit in China has a lot of purpose for these entities is the way it points out desired behavior. By encouraging people to behave by making them aware of the fact that every move is being monitored and therefore counts, people will start to behave more desirably in order to retain their high Sesame Credit and, consequentially, the rewards that come with it.

Basically, the Sesame Credit seems to be a win-win situation for those people that are, in the most broad definition of the word, decent and Alibaba. By evoking good behavior in people so that their Sesame Credit becomes an accurate reflection of their proper conduct, Alibaba boosts the average trustworthiness of their customers as well as providing their model citizens with proper rewards. Naturally, there are questions as to the ethics of monitoring every step customers take as well as analyzing them and adding a trustworthiness tag to a human being, but all ethical issues aside, the business model seems to merit both the user and the company. It works, and given that Sesame Credit was a trial indirectly executed by the Chinese government, we can look forward to the implementation of ‘the real deal’, the actual social system that will go live in 2020.

Conclusion

In conclusion, the episode Nosedive from Black Mirror has opened the eyes to many westerners which regard to the social credit system that is about to be introduced nationwide in China. Despite this more recent revelation, the Sesame Credit, a predecessor to the big fish by the Chinese government has been up and running for four years already and is deemed a success. Customers get assigned with a trustworthiness score and in return get access to many advantages such as discounts or not having to pay deposits at hotels. If this system will work in a punishing fashion has yet to be discovered, but it will most certainly be an interesting development to keep an eye out for.

References

Alibaba Group (2015) Ant Financial Unveils China’s First Credit-Scoring System Using Online Data. Available at: https://www.alibabagroup.com/en/news/article?news=p150128 (Accessed: 7 March 2019).

Botsman, R. (2017) Big data meets Big Brother as China moves to rate its citizens. Available at: https://www.wired.co.uk/article/chinese-government-social-credit-score-privacy-invasion (Accessed: 7 March 2019).

Financial Times (2017) China changes tack on ‘social credit’ scheme plan. Available at: https://www.ft.com/content/f772a9ce-60c4-11e7-91a7-502f7ee26895?mc_cid=9068154611 (Accessed: 7 March 2019).

Hatton, C. (2015) China ‘social credit’: Beijing sets up huge system. Available at: https://www.bbc.com/news/world-asia-china-34592186 (Accessed: 7 March 2019).

Huang, P. (2017) WeChat Confirms: It Shares Just About All Private Data With the Chinese Regime. Available at: https://www.theepochtimes.com/wechat-confirms-it-gives-just-about-all-private-user-data-to-the-chinese-regime_2296960.html (Accessed: 7 March 2019).

Jefferson, E. (2018) No, China isn’t Black Mirror – social credit scores are more complex and sinister than that. Available at: https://www.newstatesman.com/world/asia/2018/04/no-china-isn-t-black-mirror-social-credit-scores-are-more-complex-and-sinister (Accessed: 7 March 2019).

Needham, K. (2019) China: Big Data watches millions during Chinese New Year. Available at: https://www.smh.com.au/world/asia/millions-are-on-the-move-in-china-and-big-data-is-watching-20190204-p50vlf.html (Accessed: 7 March 2019).

Competing for Attention: An Empirical Study of Online Reviewers’ Strategic Behavior


This is a review of the paper “Competing for Attention: An Empirical Study of Online Reviewers’ Strategic Behavior’ written by Shen, Hu & Ulmer (2015).

Introduction
In 2007, a study by Deloitte found that 62% of consumers read consumer-written online product reviews, and among these consumers, 82% stated that their purchase decisions were directly influenced by online reviews. Shen, Hu & Ulmer (2015) argue that these percentages would be higher if the study were to be replicated today, as consumers increasingly rely on online opinions and experiences shared by consumers when deciding what product to purchase. As such, it is important for companies to understand what incentivizes online reviewers to actually write reviews and what the effects of incentives are on the content of their reviews (Shen et al., 2015).

The authors argue that there is a large body of literature on online product reviews, but that this existing body of literature has failed to look at how online reviewers are incentivized to write reviews (Shen et al., 2015). This includes studies such as by Basuroy et al. (2003), who looked at numerical aspects of reviews and studies such as by Godes & Silva (2012), who looked at the evolution of review ratings. However, the authors note that a large part of existing research simply assumes that reviews are written for the same motives that offline consumers have when they provide word-of-mouth reviews (Dichter, 1966).

With this gap in mind, the authors drew from literature in other contexts, such as motivation for voluntary contributions in open source software and firm-hosted online forums. Building on this literature, the authors propose that gaining online reputation and attention from other consumers is an important motivation for their contribution to review systems (Shen et al., 2015). In order to explore this, the paper “empirically investigates how incentives such as reputation and attention affect online reviewers’ behaviours” (Shen et al., 2015, p. 684).

The Methodology
In order to conduct this empirical investigation, the authors use real-life data of online reviews of books and electronics, gathered from Amazon and Barnes & Noble (Shen et al., 2015). The data was collected on a daily basis and allows for a comparison both across product categories as well as across different review systems (Shen et al., 2015). Amazon and Barnes & Noble were selected because they are the two largest online book retailers and have two distinctly different review environments (Shen et al., 2015). Whereas Amazon ranks reviewers based on their contribution, allowing the reviewers to build up a reputation and consistently gain future attention, Barnes & Noble does not offer any of this (Shen et al., 2015).

The authors gathered a sample that includes all books released between September and October 2010, resulting in a sample of 1,751 books with 10,195 reviews (Shen et al., 2015, p. 685). Additionally, the authors randomly selected 500 electronic products on Amazon in order to allow for cross category comparison with the findings resulting from the analysis of the book reviews, allowing the authors to generalize their findings (Shen et al., 2015).

Based on this data, the authors look at two review mechanisms at two levels, namely the product level and the review rating level.

At the product level, the authors study how popularity (determined by the sales volume of the product) and crowdedness (measured by the number of preexisting reviews for the product) affect a reviewer’s decision on whether to write a review for a product (Shen et al., 2015). Additionally, the model controls for potential reviewers (in order to control for the possibility that an increasing number of daily reviews is due to an increasing number of potential reviewers over time) and the effect of time, in order to control for the issue that reviewers might lose interesting in writing reviews for products that have been out for a while (Shen et al., 2015). The resulting model for the product level can be found below:

https://lh3.googleusercontent.com/wUcjn8yBi79VRix7izp_Li-WSi09cca26nWw4Sx02Vopa8UlFegJ1vpLX9VsGaOBhvnq-tol3oByuZa-EercwfQ_aLaNsplYBvOhUWLfgNG-BgloPMyaBSQ-vuRME-waI37QirgGyr4

At the review rating level, the authors study how reputation status affects reviewer’s decisions on whether to differentiate from the current consensus (Shen et al., 2015). They look at how a target rating deviates from the average rating, indicating how differentiated the rating is (Shen et al., 2015).

Main Results
The main results stemming from this study are that online reviewers appear to behave differently when they have strong incentives to gain attention and enhance their online reputation (Shen et al., 2015). Looking at popularity, online reviewers tend to select popular books to review, as this would allow them to receive more attention (Shen et al., 2015). As for the crowdedness, it was found that fewer reviewers will choose to review a book if the review segment becomes crowded, indicating that reviewers tend to avoid such spaces as they would have to compete for attention (Shen et al., 2015).

Next to this, differences in the results between Amazon and Barnes & Noble indicate that in online review environments with a reviewer ranking system, reviewers are more strategic and post more differentiated ratings to capture attention, doing so to improve their online reputation (Shen et al., 2015). In turn, this reviewer ranking system intensifies the competition for attention among reviewers. Next to these main findings, the authors ran some additional analyses to further understand online reviewers behaviours (Shen et al., 2015).

Running the same analyses on the electronic products dataset yielded consistent results. As such, the authors argue that their findings are robust (Shen et al., 2015).

Adding onto their results, the authors argue that with a reviewer ranking system through which reviewers can build up their reputation, opportunities arise for reviewers to monetize their online reputation by receiving free products, travel invitations and even job offers (Coster, 2006).

Strength & Managerial Implications
The main strength of this paper is in its use of real-life cases and the practical implications for online review systems and companies that make use of these review systems.

As reviewers respond strategically to incentives such as a quantified online reputation, this can be used to motivate reviewers consistently (Shen et al., 2015). An example of this is TripAdvisor’s profiles and contributor badges (as seen in the picture to the left).

Additionally, as reviewers are more likely to write a review for popular but uncrowded products, companies can make use of this by sending review invitations to niche product buyers and emphasize the small number of existing reviews or even by highlighting small numbers of existing reviews in the design of the website (Shen et al., 2015).  As companies have their own specific goals, they may develop their own algorithms for selecting certain groups of reviewers to receive review invitations, rather than sending these invitations to every buyer, as is currently the common practice (Shen et al., 2015).

Lastly, reviewers that consistently offer highly differentiated reviews should carefully be taken into account by companies as these reviewers might simply be trying to game the system rather than serve the purpose of the review of signaling product quality (Shen et al., 2015). This can be through the use of ranks, but also other signals, such as “helpfulness” votes or even altered algorithms for such reviewers.

References

Basuroy, S., Chatterjee, S., & Ravid, S. A. (2003). How critical are critical reviews? The box office effects of film critics, star power, and budgets. Journal of marketing67(4), 103-117.

Coster, H. (2006). The Secret Life of An Online Book Reviewer. Forbes, December1.

Deloitte. (2007). “Most Consumers Read and Rely on Online Reviews; Companies Must Adjust,” Deloitte & Touche USA LLP.

Godes, D., & Silva, J. C. (2012). Sequential and temporal dynamics of online opinion. Marketing Science31(3), 448-473.

Shen, W., Hu, Y. J., & Ulmer, J. R. (2015). Competing for Attention: An Empirical Study of Online Reviewers’ Strategic Behavior. Mis Quarterly39(3), 683-696.

Group 10.

Republic – Promoting Early Stage Investment Accessibility With Equity Based Crowdfunding


Why Crowdfunding?

Being an entrepreneur is not an easy task, and raising capital for your project can be particularly difficult. According to Younkin and Kuppuswamy (2016), a significant hurdle to launching your world changing idea is access to seed capital or early-stage funding. Many will find it quite difficult to raise funds from traditional channels, such as banks and angel investors. The solution? More and more individuals have turned towards crowdfunding platforms for early-stage capital. And it seems the industry is growing stronger than ever before with an annual growth rate of 17% (Business Wire, 2018). In 2016, transactions on reward-based crowdfunding platforms alone were valued at three billion USD and is expected to hit 8.4 billion USD in 2020 (Statista, n.d.).

It should be noted that there are 4 types of crowdfunding (Nibusinessinfo, n.d.):

  • Reward crowdfunding; involves the return of non-financial benefits
  • Debt crowdfunding; involves receiving financial interest on one’s investment
  • Equity crowdfunding; involves receiving shares
  • Donation crowdfunding; involves donating to a project

While equity-based crowdfunding presents a far more accessible alternative for entrepreneurs compared to angel investors or venture capital funds, the same cannot be said for regular investors. As equity-based crowdfunding involves the distribution of securities, it is subject to many regulatory constraints which prevent most individuals from investing on these platforms. Fortunately, in May 2016, the U.S. Securities and Exchange Commission (SEC) enforced Title III of the JOBS Act, which essentially permitted the 97% of US residents to invest in startups (Republic, n.d.). However, the convoluting legal requirements are not approachable to most founders and new investors.

Source: Republic.co/about

About Republic

So what is Republic? According to its website, Republic (n.d.) is an equity-based and SEC licensed crowdfunding platform that aims “to democratise investing and level out the fundraising landscape for founders and investors alike”. It was founded in 2016 shortly after the JOBS Act was enacted. Furthermore, it is part of a group of startup platforms, which includes two household names from the online startup ecosystem: AngelList and Product Hunt. In fact, the former played an essential role in legislating the JOBS Act and several Republic founders are its alumni.

One of the platform’s main objective is to facilitate accessibility to early-stage investment for ordinary folks such as you and me. However, Republic also focuses on another vital issue in the startup community that I have not yet mentioned: minority founder discrimination. According to Younkin and Kuppuswamy (2016), there’s an underrepresentation of minorities among funded ventures. The researchers initially explain this observation with biases towards minority founders from resource providers. By examining thousands of Kickstarter projects and carrying out several experimental tests, they eventually discover that unconscious bias is the main form discrimination driving this outcome.

It is particularly important to mention that while crowdfunding does not eliminate discrimination towards minority founders, the platform does indeed allow for means to address this issue. Republic (n.d.) has recognised this potential and are consequently using their crowdfunding platform to promote minority founders. However, they are not only focusing on minorities, but on other marginalised groups in the startup world. For instance, this includes women, veterans, the LGBT community and immigrants as well.

Their Success

So how exactly does Republic promote these marginalised groups on their platform? As you can see in Image 1 below, projects may be labelled with tags, informing investors about the nature of the project as well as the type of founders running it, ranging from “Minority Founders” and “Immigrant Founders” to “Female Founders”. Similarly, investors can filter through projects based on these tags. However, apart from these features, you won’t encounter any particular differences compared to alternative crowdfunding platforms.

Image 1: Overview of two projects on Republic

Given these simple measure and the platform’s overt support for marginalised founders, one might nonetheless be skeptical about the effectiveness of their actions. However, a report by Republic (2018) revealed otherwise. Image 2 and 3 below illustrates some of their achievements. For instance, 25% of all investments on the Republic platform have gone towards companies with founders of colour, which is far above the national average for traditional VCs. Similarly, the same can be observed for women where 44% of funded projects on Republic included female founders as compared to 13% with traditional VCs.

Image 2. Republic Success Overview With Founders. Source: https://republic.co/blog/the-business-of-diversity

However, they not only managed to close these gaps of underrepresentation for founders, but for investors alike. As they allow anyone to invest with as little as 10$ on their platform, Republic managed to gather funds for projects from women 30% of the time. This is a significant improvement compared to regular VC firms and even Angel Investors (Republic, 2018).

Image 3. Republic Success Overview With Investors. Source: https://republic.co/blog/the-business-of-diversity

It might not come as a surprise to you that such a success has attracted a lot of attention from startups. Nonetheless, according to Christopher (2018), companies need to go through a thorough vetting process to comply with US regulations that aim to protect these newfound investors. Out of 3000 companies that had applied to the platform by October 2018, only a handful managed to get onto the platform. However, once on it, founders are able to enjoy a slew of benefits, such as ongoing support, advice and mentorship, including access to Republic’s extensive network of traditional VC.

The Future Ahead

However, according to Greenberg (2018), there is still much room for improvement. At the time of this writing, current US regulations limit crowdfunding to $1 million. More often than not, this is not sufficient to entirely fund a startup. As a result, founders are required to raise money from several other sources, not only from Republic. Consequently, this may pose a problem to marginalised founders who will undoubtedly re-encounter the same problems they tried to avoid in the first place. Caroline Hofmann, the COO of Republic, mentions that if this limit could be raised to 5$ million, crowdfunding platforms such as Republic could potentially act as a sole source of funding, thus allowing founders to completely pivot away from traditional fundraising institutions.

References

Business Wire (2018). Global Crowdfunding Market 2018-2022 | Social Media as a Source of Cost-free Promotion to Boost Demand | Technavio. Retrieved from: https://www.businesswire.com/news/home/20181203005889/en/Global-Crowdfunding-Market-2018-2022-Social-Media-Source

Christopher, E. (2018). Survey Shows Founders Ignored by VCs Are Succeeding With Equity Crowdfunding. Entrepreneur Europe. Retrieved from: https://www.entrepreneur.com/article/321438

Greenberg, A. (2018). Equity Crowdfunding Is Changing The Landscape For Underrepresented Founders. Forbes. Retrieved from: https://www.forbes.com/sites/amandagreenberg/2018/05/18/equity-crowdfunding-is-changing-the-funding-landscape-for-underrepresented-founders/#e4428b77fbaf

Nibusinessinfo (n.d.). Crowdfunding: Types of Crowdfunding. Retrieved from: https://www.nibusinessinfo.co.uk/content/types-crowdfunding

Republic (n.d.). About. Retrieved from: https://republic.co/about

Republic (2018). Republic Report – The business of diversity. Retrieved from: https://republic.co/blog/the-business-of-diversity

Statista (n.d.). Crowdfunding. Retrieved from: https://www.statista.com/outlook/335/100/crowdfunding/worldwide#market-revenue

Younkin, P., & Kuppuswamy, V. (2016). Is the Crowd Colorblind? Founder race and performance in crowdfunding. Academy of Management Proceedings, 2016(1), 11665. doi:10.5465/ambpp.2016.11665abstract

Engaging Generation Y to Co-Create through Mobile Technology


In an increasingly more competitive product and service environment, the need to have an ongoing service innovation for companies in order to successfully compete in the market has never been bigger (Bugshan, 2014). A McKinsey report identifies several things to be the cause of this increasing pressure to innovate on service companies, such as big data and advanced analytics, the Internet of Things and the rise of the mobile internet with a skyrocketing offering for mobile self-service apps (Duncan, 2015). The last aspect might not simply be a cause for this effect, but it might also serve as a powerful tool that companies can utilize in their quest to increase co-innovation and value co-creation, especially when looking at the tech savvy Generation Y (born between 1980 and 1994). The work of Zhang, Lu and Kizilag (2017) is examining the motivations of this generation to increase their participation in value co-creation to make better products and services and for companies to remain competitive. Engaging this generation is very importance due to them being close to digital natives and representing a very sizable part of the overall population (22% in the US) (Schroeder, 2018). Even though the next Generation Z (1994 – today) is even more tech savvy, the are often not of age and are hence often not the customers of many products due to their young age.

Why Y?

Why should companies focus on engaging Generation Y in value co-creation activities?

Generation Y is/has:

General facts given by Zhang et al (2017)

  • Tech savvy
  • Stable income
  • Entrepreneurial spirit
  • High degree of social interaction and belonging

Additional facts from a background paper by Halliday & Astafyeva (2014)

  • Drive for entertainment and experience (satisfied by chance to have an impact on a company’s value offering)
  • High need for self-actualization (fulfilled by creating their own version of a company’s product)
  • Prestige (gained due to positive exposure their idea gets if used by company)

The research explores how members of Generation Y can be engaged for co-creation through mobile technologies and what the antecedents of the adoption of mobile technology for co-creation are from innovation theory. Utilizing this can become a primary source of competitive advantage, such as in the case of Made.com an e-retail company that puts the decision of what goes from the drawing board into production in the customers hands and was able to grow by 37% in 2018 due to this co-creation strategy (Neerman, 2019).

To establish what influences the co-creation activities of Generation Y the authors use a diffusion of innovation (DOI) framework and analyze the influence of the technical, social and individual dimension on co-creation activities via mobile technology. The analysis of the responses of 689 Generation Y co-creators via mobile technologies revealed that the most important dimension for them is a social community where they are relying on an interpersonal and peer network and on informal communication with the company and other co-creators. The factors that were found to have a significant positive influence on mobile co-creation activities are visualized in Figure 1.

So what motivates Generation Y customers to engage in value co-creation via mobile apps?

Figure 1: Dimensions and factors having a positive impact on value co-creation by Generation Y, based on research of Zhang et. al. (2017)

Interpersonal networks are consisting of the social environment of a person and the findings suggest that the degree to which this network is present in a co-creation context increases the co-value creating activities due to the social response that the people get.

Peer networks within the DOI framework are examining the closeness of the relationships among co-creators and are contributing to co-creation. The better the relationship, the higher the likelihood to share information, increase interaction to co-create with others due to increased trust and willingness to accept other’s recommendations.

While peer networks create a closeness between different co-creators to share ideas, the research finds out that it is equally important to have a frequent and informal exchange of ideas between the potential co-creators and the company with whom they are engaging. Examples of such an informal communication existed at Lego, where customers were given the ability to interact with each other and Lego through the My Lego Network until 2015 (Fandom, 2019).

The individual dimension, in this study measured by the factor of consumer innovativeness, was found to have a positive impact on the contribution as well, showing that some factors might be beyond the influence of a company, should they try to use this research to build a co-creation strategy.

Interestingly out of the three proposed factors of the dimension of technology, only one (ease of use) was found to be important. Ease of use contributes to the co-creation activities of Generation Y due to its role as a facilitator of the adoption of new technologies, such as the applications that were in scope during this research.

How can companies better engage Generation Y?

To improve the engagement of Generation Y there are several useful findings from this research, that companies can utilize. Entrepreneurial spirit of the targeted customer and ease of use of the applications seem to be important enablers of co-innovation without customer engagement does not work. The real art of value co-creation lies in the building of social communities, were this research has provided very interesting further refinements along which a company can build the social environment to ensure a high degree of customer co-creation. To visualize the varying degree of how appealing online offerings are to generate value co-creation and how they can be improved based on this research, two companies LEGO and P&G will be examined.

P&G the Laggard (per Zhang et al):

  • Has an online offering for value co-creation called P&G Development & Connect
  • Gives the customer access to predefined areas where the company would like the customers to submit their ideas
  • Only one-way communication from the company to customer
  • No informal way of communication
  • No community building with regards to interpersonal networks or peer networks

Improve Generation Y-Activity by:

  • Allow customers to chat with the company in (interpersonal communication)
  • Build a community, where equal minded individuals can share and review ideas (peer and interpersonal network building)

LEGO (text book example (per Zhang et al)):

  • Has 6 different communities each serving a different segment (e.g. LEGO Mindstorms for older customers with tech affinity, LEGO Movie Maker for customers interested in directing and editing film, etc.)
  • These communities are separated to allow the peer groups to be even similar and foster social interaction, trust and collaboration
  • Customers can interact via Twitter and chat to get the thoughts of LEGO employees on their ideas
     

As can be seen by the two examples LEGO has built a very differentiated strategy for customers to interact with them, satisfying all the dimensions found by the research of Zhang et al (2017). P&G has some areas of improvement and it appears that this lag might be due to a focus on an older generation and hence the negligence of factors that are important for the engagement of Generation Y. Yet, as stated previously, even large and established cooperation can benefit from value co-creation from Generation Y and a first step towards this would be to consider the dimensions found by Zhang et al (2017).

Room for improvement

Even though this research provides a very interesting first starting point for academics and practitioners, it is of exploratory nature and has some weaknesses. The study was only conducted among value co-creators, so there is no distinction possible to non-creators. Further the dimensions are very broad and future research especially on the social dimension would be very interesting to fully understand the phenomenon that are taking place and gain insights that can be utilized by practitioners and academics alike.

References:

Bugshan, H. (2014). Co-innovation: The role of online communities. Journal of Strategic Marketing,23(2), 175-186. doi:10.1080/0965254x.2014.920905

Duncan, E. (2015, February). Service innovation in a digital world. Retrieved February 27, 2019, from https://www.mckinsey.com/business-functions/operations/our-insights/service-innovation-in-a-digital-world

Fandom. (2019). My LEGO Network. Retrieved February 28, 2019, from https://mylegonetwork.fandom.com/wiki/My_LEGO_Network

Halliday, S. V., & Astafyeva, A. (2014). Millennial cultural consumers: Co-creating value through brand communities. Arts Marketing: An International Journal, 4(1/2), 119-135. doi:10.1108/am-01-2014-0003

Neerman, P. (2019, February 08). Made.com grows by 37%: “We can afford to fail”. Retrieved February 27, 2019, from https://www.retaildetail.eu/en/news/furniture/madecom-grows-37-we-can-afford-fail

Schroeder, W. J. (2018). Generations X,Y, Z and the Others. Retrieved February 27, 2019, from http://socialmarketing.org/archives/generations-xy-z-and-the-others/

Zhang, T. C., Lu, C., & Kizildag, M. (2017). Engaging Generation Y to Co-Create Through Mobile Technology. International Journal of Electronic Commerce,21(4), 489-516. doi:10.1080/10864415.2016.1355639

The Role of Customer Investor Involvement in Crowdfunding Success


This is a review of the paper “The Role of Customer Investor Involvement in Crowdfunding Success” by Philipp B. Cornelius and Bilal Gokpinar (2018).

Introduction

One of the greatest challenges for entrepreneurs is securing outside funding for their ventures. So nowadays, an increasing number of entrepreneurs turn to novel sources of funding for their projects. One of the most prevalent alternative ways of raising money is reward-based crowdfunding, where the project is financed by a vast number of small donations (Kraus et al., 2016). In return for their pledge, funders receive a reward which differs among projects and the size of the backer’s donation – for instance, the reward can be receiving the product before it enters the market, purchasing it at a discounted price, or even an exclusive dinner with the project creators themselves (Mollick, 2014).

The obtaining of funds through crowdfunding is usually done via platforms such as Kickstarter. Kickstarter is the largest reward-based crowdfunding site, and since its launch in 2009, almost 160,000 projects have been successfully funded with the help of over 16 million backers (Kickstarter, 2019). In addition to collecting funds, project creators are drawn to crowdfunding platforms to get access to potential customers, gain an initial impression of demand, sell their goods and gain feedback from funders. Funders on the other hand, in addition to accessing an investment opportunity, gain early access to new or exclusive products, and may feel as though they belong to a community or philanthropic cause (Tsekouras, 2019).

Theoretical Background

Reward-based crowdfunding is characterised by a unique role of customers co-financing the project. In a traditional buyer-seller context, customers purchase a finished product, and the only information asymmetry they need to take into account is an inaccurate or misleading product description. However, when participating in a crowdfunding campaign, as funders, customers support the production of a product that is usually in a prototype phase or does not exist yet. They take on the risk of a product being different than promised, or not produced at all, for a promise of a future reward. As a result, they turn into customer investors – as they invest in a product in order to receive benefit at a later stage – and a buyer-seller relationship transforms into a principal-agent relationship where customers act as principals, and project creators as their agents (Cornelius & Gokpinar, 2018). In this case, it is possible that customer investors actually provide some of the benefits and support received from institutional investors.   However, the effect of this relationship shift remains unclear: do customers, as investors, really impact funding success apart from backing it financially? Can project creators actually benefit from customer inputs?

The Study

This paper has attempted to answer these questions by conducting a study based on 21,491 crowdfunding projects on Kickstarter, both successful and unsuccessful, over a 7 month period. The authors investigate the effects of customer input (measured in number of comments provided in the comments section of the project) on the success of crowdfunding campaigns – i.e. whether or not the funding goal was reached. They also investigate the moderating roles of a project’s team composition and backer’s distant funding experience, as well as the mediating role of the number of project revisions. To account for potential confounders, the authors also included the following antecedents of success as control variables: number of videos in the project description, the project’s riskiness, whether or not the project is run by an incorporated organisation, a project’s funding goal, previous user engagement and project category.

The authors found that customer involvement, measured in number of comments submitted in the comments section, indeed increases a project’s probability of funding success (seen in Figure 1). In fact, they found that as few as 3 messages from customers increase the average likelihood of funding from 8% to 58%. One of the explanations for this may be the fact that incorporating customer suggestions make the product more customer-adapted, therefore pulling more backers to the project.

Figure 1: Predicted likelihood of funding success at different levels of customer input and distance

Surprisingly, this paper also demonstrates that the input of donors with distant funding experience – that is, backers that have also supported projects from different categories – is particularly beneficial for the success of the project (seen in Figure 1). Intuitively, it would be expected that the feedback of experts in a particular area is more insightful; however, this result may stem from the fact that the donor’s novel, out-of-the-box thinking can suggest solutions that experts from the field may not have ever considered.

The authors also found that individual project creators benefit more from backers’ suggestions than teams project creators, because individual entrepreneurs rely more heavily on mitigating agency costs through customer involvement. Lastly, it was found that the positive influence of customer input on project success is greater when the project creator updates the projects description while the campaign is active (seen in Figure 2). Indeed every project revision was found to increase the likelihood of funding success by 40%.

Figure 2: Predicted likelihood of funding success at different levels of project revisions

Strengths

A strength of this study lies in its large, comprehensive and unique data set from Kickstarter. This data set includes 21,491 projects, from 138 countries and all 13 project categories. Furthermore, whereas most other studies in innovation have researched only successful projects, this paper uses a balanced set of both successful and unsuccessful projects, thus reducing selection bias (Singh & Fleming 2010; Chatterji & Fabrizio 2011). A dataset such as this one, increases the generalisability of this study’s findings to a diverse set of industries and entrepreneurs.

Another strength of this study is their inclusion of several control variables and an instrumental variable – the release of the Kickstarter mobile app – to improve the validity of their findings. Nine control variables are deployed to account for confounding factors, which cause spurious associations between independent and dependent variables, to ensure that the effect on funding success is likely due to changes in customer investor input (Skelly, Dettori & Brodt, 2012). Furthermore, the instrumental variable reduces the effect of possible endogenous variables, and helps account for unexpected behaviour between the variables creator ability and project quality (Lousdal, 2018).

Managerial Implications

This study not only contributes to earlier academic literature on crowdfunding, but also has direct implications for entrepreneurs, as the findings demonstrate that customer investors can provide some of the support usually received from venture capitalists or angel investors.

Firstly, given the findings that customer investor involvement and input can improve a projects chances of success, entrepreneurs should be open to customer investor’s feedback and actively listen to their suggestions – as this could be the difference between project success or failure. Additionally, as projects have been found to get better as more customer input is incorporated, entrepreneurs should actively change their product descriptions in response to them. When a funding goal has been reached, campaign descriptions can no longer be updated, so it is imperative that project creators incorporate relevant inputs as soon as they are suggested.

Furthermore, although perhaps slightly counterintuitive, entrepreneurs should value the inputs of customer investors with experience in distant categories, as their heterogenous insights could bring considerable value to the project. Lastly, the findings suggest that individual (as opposed to team) project creators may actually reap more benefit from customer investor input and thus should be more open to inputs when interacting with customer investors on the platform.

Chatterji, A.K. & Fabrizio, K., 2011. How Do Product Users Influence Corporate Invention? Organization Science, 23(4), pp.971–987.

Cornelius, P. and Gokpinar, B., 2018. The Role of Customer Investor Involvement in Crowdfunding Success. Management Science, Forthcoming.

Kickstarter (2019). About — Kickstarter. [online] Kickstarter.com. Available at: https://www.kickstarter.com/about?ref=global-footer [Accessed 1 Mar. 2019].

Kraus, S., Richter, C., Brem, A., Cheng, C.F. and Chang, M.L., 2016. Strategies for reward-based crowdfunding campaigns. Journal of Innovation & Knowledge, 1(1), pp.13-23.

Lousdal, M.L., 2018. An introduction to instrumental variable assumptions, validation and estimation. Emerging themes in epidemiology, 15(1), p.1.

Mollick, E., 2014. The dynamics of crowdfunding: An exploratory study. Journal of business venturing, 29(1), pp.1-16.

Singh, J. & Fleming, L., 2010. Lone Inventors as Sources of Breakthroughs: Myth or Reality? Management Science, 56(1), pp.41–56.

Skelly, A.C., Dettori, J.R. and Brodt, E.D., 2012. Assessing bias: the importance of considering confounding. Evidence-based spine-care journal, 3(01), pp.9-12.

Tsekouras, D., 2019. Customer centric digital commerce: Crowdfunding & Consumer-Driven Pricing [PowerPoint slide]. Retrieved from Blackboard.

Equal Opportunity for All? The Long Tail of Crowdfunding: Evidence from Kickstarter


Introduction

Online crowdfunding platforms disrupted the funding industry by allowing multiple individual investors to contribute small amounts of money to fund campaigns and entrepreneurs. The collection of money happens unbureaucratically, transparently and is fully location independent. While the first crowdfunding website was already created in 2001 with ArtistShare.com,  crowdfunding still does not show any signs of decreasing attraction and is still on the rise (Medium, 2017; Galuszka et al., 2014).

As crowdfunding appears to be  a method for fundraising that is here-to-stay, the accessibility to the platform from both entrepreneurs and backers is crucial. In light of exploring the democratization of access, Barzilay et al. (2018) examined the role of crowdfunding platform policies on the dynamics between players and investment outcomes in their article: “Equal Opportunity for All? The Long Tail of Crowdfunding: Evidence from Kickstarter”. While previous literature on the distribution of online purchases mainly focused on online retailers, Brazilay et al. (2018) investigated a broad range of industries within the crowdfunding context.

Research Question and Hypotheses

More specifically, they inquired the effects of removing entry barriers for investors on the demand for popular and niche offers. As a first step, the authors measured the distribution of the most and least pledged campaigns before any platform policy changes were made. The resulting distribution can be displayed by plotting the popularity of a campaign. The result is a downward sloping curve that reveals that there is a small number of campaigns which receive the majority  of funding and many campaigns which receive relatively small amounts, also known as the “long-tail effect” that was first discovered by Anderson (2006) and is illustrated in figure 1.

In order to find out how entry barriers affect the dynamic between demand and supply on online platforms, Barzilay et al. (2018)  examined the changes that happened after a policy change in 2014 on the Kickstarter platform. This change constituted of the abandonment of the manual evaluation of each campaign request by the company’s employees. The platform became accessible for a wider range of entrepreneurs since the entry requirements were now drastically lowered.

Figure 1: Long-Tail of Crowdfunding Platforms


The authors expected the changes on the demand (campaign) side of the long-tail distribution to either be characterized by the super star- or the long-tail effect (H1). In the setting of our example of Kickstarter, the superstar effect would manifest itself in more funds for the campaigns at the head of the tail and in less funds for the niche campaigns. A long-tail effect, on the other hand, would be observed if the funds for the top campaigns decreased because of a shift to niche campaigns. Both effects are illustrated in figure 2:

Figure 2: Superstar vs. Long-Tail Effect

F

Moreover, the authors expected an increased concentration of the funds, which means that the majority of backers would be drawn to a smaller number of campaigns (H2).

Methodology and Data

To test hypothesis 1, the authors measured the changes of the sum of pledges and the number of backers before and after the opening of the platform. The campaign rank and the share of total sum of pledges were used as independent variables. To measure the changes, the economic concepts: Gini coefficient, Lorenz curve and Pareto curve were used.

For hypothesis 2, the researchers looked at both the campaign- and the backer level. On the campaign level, the  share of pledges, the sum of pledges and the number of campaigns were analyzed. For this purpose mainly descriptive statistics for analyzing the number of backers and the amount funded were used. On the backer level, the top campaign investment rates were tested against the number of previous campaign backings using descriptive statics and a paired t-test.

Findings               

A long-tail effect, which would manifest itself in a shifted demand from popular to niche offers could not be observed. Instead, the study found that platform openness leads to a superstar effect (Elberse, 2008) with increased fundings of top campaigns and an overall reduction of the amount of successful campaigns. This leads to a less equitable access to funds. Paradoxically, the presence of more equal opportunities for entrepreneurs had a negative effect on the number of funded ventures. Even though the backers had a greater selection of options, a smaller number of fundings was now granted.

Practical implications

The findings suggest an adjustment of the governance of online marketplaces. The authors mention changes in recommendation systems, word-of-mouth and filtering mechanisms to be useful tools for mitigating the superstar effect.

Furthermore, platform providers might want to rethink their policies if the goal is to achieve more equally distributed demand. The study has shown that more equal opportunities led to a less equal outcome. Therefore, certain entry barriers that work as a filter for the more promising projects might be used as a useful method.

Strengths

Firstly, the paper examines the effects of a natural extension of platform openness observed on the crowdfunding platform Kickstarter. Not only had the theories of the longtail- and the superstar effect not yet been covered in that particular context. It is also worthwhile to mention that the field of research has a high relevance in today’s day and age since these platforms are still growing in popularity (Galuszka, 2014)

Another major strength of the paper was the fact that a natural experiment was conducted. To ensure generalizability to other similar cases, many variables were checked on potential confounding effects and missing predictability, This resulted in a realistic setting: the participants were real investors and entrepreneurs and the transactions were made with real money & projects. The variable that changed were the entry requirements that were now loosened.

Weaknesses

Regarding the weaknesses of the paper, it is important to mention the generalizability for other forms of crowdfunding. One example in this context would be donation based crowdfunding for charitable causes. In this setting, performance and the quality of a project is less of an issue. This leads to a less pronounced effect due to the more altruistic motivation of the platform’s participants (André et al., 2017).

Another weakness is that the presentation of the campaigns, including recommendation tools, was not taken into account. The algorithms that are being used for recommendations might have led the majority of backers to the most successful ventures, which would only strengthen their position. Further research in that field should not forget about this technology that highly influences consumer decision making.

References

Anderson, C. (2006). The long tail: Why the future of business is selling less of more / Chris Anderson, 1st ed. (Hyperion, New York).

André, K., Bureau, S., Gautier, A., & Rubel, O. (2017). Beyond the opposition between altruism and self-interest: Reciprocal giving in reward-based crowdfunding. Journal of Business Ethics, 146(2), 313-332.

Barzilay, O., Geva, H., Goldstein, A., & Oestreicher-Singer, G. (2018). Equal Opportunity for All? The Long Tail of Crowdfunding: Evidence From Kickstarter.

Elberse, A. (2008). Should you invest in the long tail? Harvard Business Review, 86(7/8), 88-97.

Galuszka, P., & Bystrov, V. (2014). The rise of fanvestors: A study of a crowdfunding community. First Monday, 19(5).

Medium (2017). 12 Key Moments in the History of Crowdfunding (so far). [online] Available at: https://medium.com/@ImpactGuru/12-key-moments-in-the-history-of-crowdfunding-so-far-3f614273d95 [Accessed 20 Feb. 2019].

Using a White Cup for Crowdsourcing: a Starbucks Initiative


As one of the leading players in coffee& snacks retail industry, Starbucks is a well- known brand all over the world today. Holding a market share of 39.8% among all coffee chains in US and 25% in the UK, the firm is the main target of competition for many rivals (Statista, 2016).  For instance, Dunkin Brands, the closest competitor of Starbucks in the US market, has a share of around 25% and many other rivals such as Costa Coffee and Tim Horton’s are closely following Starbucks in terms of share and quality (Geereddy, 2014). Within the North American coffee retail market, the players usually distinguish themselves with specialty and quality of their coffees. This is also what Starbucks had been doing by offering differentiated products such as various flavors of Brazilian, Ethiopian and Arabic coffees in their stores. High- quality service within stores had also been an area of competition among these big players for a long time until very recently. Every specialty coffee retailer in the market is characterized by having trained staff and an efficient way of serving in stores.

The event that changed the course of this game was a campaign by Starbucks in 2014. After seeing that the conventional ways of competing are not effective enough in 21st century, the firm tried and found a gap for improvement in the value they provide to their customers. Considering that coffee consumption was highest among younger generations with increasing trends in previous years (MordorIntelligence, 2018), Starbucks aimed to improve their relations with these customer segments and also benefit from their involvement with the campaign. In order to differentiate their new environment friendly cup, Starbucks decided to benefit from the wisdom of crowds and initiated a crowdsourcing campaign in US and Canada. The firm asked its customers to paint their traditional white cups with any design they want and share its picture with the #WhiteCupContest hashtag (Starbucks, 2014). The business problem in this case was Starbucks’ need for a strategy to contact its customers and run an environment friendly campaign. So, their problem was clear and structured, which enabled them to use crowdsourcing as a means of solving this (Tsekouras, 2019).

To address this problem, Starbucks announced that the winner of this contest would receive a gift card worth $300 and their design would be mass produced and sold at Starbucks stores throughout North America. Starbucks also benefitted from the terms technical and social marginality and how they interact in this project. As described by (Tsekouras, 2019), technical marginality is a solver’s self-assessed technical expertise distance from the problem field, whereas social marginality is a solver’s distance from the social group that is prevalent in the relevant field. Any customer who were confident with a decent level of drawing technique could attend the contest, so the contest only required a basic level of technical marginality. Being common people instead of designers or painters provided them a room for creativity due to high social marginality. With the combination of a basic technical and high social marginalities, the contest provided ideal circumstances for attendants in terms of creativity in crowdsourcing (Tsekouras, 2019). Knowing that most of Starbucks customers already painted their cups for fun during their store visits (Starbucks, 2014), this initiative helped the firm to positively reinforce those in store experiences.

By asking their customers to come up with a design for their white cup, Starbucks actually outsourced the task of designing the cups on their own. Since those cups were to be produced in a way that enabled up to 30 uses, their design was an important part of the initiative. People would of course prefer to use a cup for 30 times when they like its design if not for environmental reasons. Calling for creative and fun designs helped Starbucks to target young adults which represented the early adopters of specialty coffee in terms of age. People at those age usually start adopting their coffee habits, mostly with limited experience on the topic. These age groups represent “the chasm” which is the state of a customer in their journey when they are at the early stage of adopting a product. And according to (Tsekouras, 2019), customers from the chasm is a good source for new ideas to businesses that aim to conduct crowdsourcing. Even if Starbucks was not aware of this, the choice of target customers was correct for the aim of this business idea.

Bottom line: Was this an efficient idea?

As a result of this campaign, more than 4000 cup designs were shared and a 21 years old student from the University of Pittsburgh won the $300 prize. Her design was then printed on the mass produced and reusable white cups Starbucks started to manufacture the following year. The campaign has helped Starbucks to advertise their sustainability efforts with the reusable cup. Afterall, the managers were so happy with the results, they launched the campaign again in 2015 for their store employees (Starbucks, 2015). Considering the efficiency of the idea, these results should not be a surprise. For instance, the idea provided joint profitability by granting customers product utility through giving them the chance to design their daily cups in their own way, and also giving the chance to be the one whose design is used throughout US and Canada. Participating customers received the opportunity to raise their design ideas and receive $300 on top of the feeling of success. On the other end, Starbucks benefitted from advertising their sustainability efforts to the whole North American market and also fostering customer relations by listening what they had to say.

Moreover, the idea was feasible in terms of required allocations; since it did not require any internal arrangements except using their social media accounts for advertising the campaign. They were going to produce and sell reusable cups anyways, so crowdsourcing the design of the cup was actually one less expense entry from the business proposal. Starbucks also did not have any environmental bindings or expenses that would hinder the application of this idea. In fact, they have supported the feasibility of their relationships with environment- concerned social groups with the White Cup Contest. This initiative of Starbucks can be an example for many other retailers which try to incorporate their customers in certain phases of product development.

Sources:

Geereddy, N. (2014). Strategic Analysis Of Starbucks Corporation. [online] Available at: https://scholar.harvard.edu/files/nithingeereddy/files/starbucks_case_analysis.pdf [Accessed 28 Feb. 2019].

Mordorintelligence (2018). Coffee Market Analysis, Share, Size, Value | Outlook (2018-2023). [online] Mordorintelligence.com. Available at: https://www.mordorintelligence.com/industry-reports/coffee-market [Accessed 28 Feb. 2019].

Starbucks (2015). Starbucks. [online] Stories.starbucks.com. Available at: https://stories.starbucks.com/stories/2015/starbucks-white-cup-contest-exclusively-for-partners/ [Accessed 28 Feb. 2019].

Starbucks (2014). [online] Stories.starbucks.com. Available at: https://stories.starbucks.com/stories/2014/starbucks-invites-you-to-decorate-its-iconic-white-cup/ [Accessed 28 Feb. 2019].

Statista (2016). Market share of major U.S. coffee chains, 2016 | Statistic. [online] Statista. Available at: https://www.statista.com/statistics/250166/market-share-of-major-us-coffee-shops/ [Accessed 28 Feb. 2019].

Tsekouras, D. (2019). CCDC Lecture 3.

Discrimination Towards Minority Founders: Is Crowdfunding The Solution?


A Brief Talk about Crowdfunding

Recently, crowdfunding has become one of the most well-known methods for a business owner to get his or her project funded through public contribution. Although, like any other fundraising methods, there are positive and negative sides to crowdfunding. The advantages and disadvantages of using crowdfunding platforms can be divided in two perspectives: firm-level and contributor-level (Tsekouras, 2019).

From a firm’s perspective, utilising crowdfunding platforms can be attractive for several reasons. Crowdfunding enables companies to collect funding in a short period of time. The companies can also tap into a larger pool of potential contributors. The community features offered by crowdfunding platforms (either through social media or its own social networks) help founders with constructive feedbacks for projects and online word of mouth. The tradeoff, though, would be the element of transparency that can disclose not only information about the company, but also personal information about the project creators (through social media). There is also the risk of damaged reputation should the project not meet the public’s expectations.

From a contributor’s perspective, crowdfunding platforms allow people access to exclusive products that better match their tastes more. The community aspect of the system also gives potential contributors a “place to belong”; enabling them to provide feedbacks and improve the projects. However, there are risks for an individual to support projects through crowdfunding. There have been cases of fraud in the past (Rio, 2017). There is also the risk of underperformance by the companies that do not deliver within the expected time frame.

The Minority Problem

Taking a closer look into the matter, with the intention to dig deeper regarding the potential of crowdfunding platforms, Younkin and Kuppuswamy (2016) conducted a research given the fact that there are problems of underrepresentation of minority founders in venture investment markets. This situation is relevant, knowing there is indeed discrimination in entrepreneurship against minorities. There are many examples of this. A research by Freeland and Keister (2014) mentioned that it is more difficult for minority founders to receive credit and another research conducted in 2011 saw that minorities must pay higher interest rates (Pope & Sydnor, 2011). Younkin and Kuppuswamy, relating the problem to several prior studies, explain the possible involvement of several types of discrimination as to why discrimination is prevalent even in the business sector:

1.       Statistical Discrimination: People devalue minorities because they expect that they are less likely to complete projects.

2.       Taste-based Discrimination: Preference to support or reject people of certain races/ethnicities, even if it is not economically efficient to do so.

3.       Implicit Bias Theory: Discrimination is described as subconscious acts reflecting cultural beliefs.

The research then recognises crowdfunding as a possible solution for this minority-founder problem. Crowdfunding, in this case, has several roles: (1) an alternate solution when traditional financial institutions show bias, (2) shifts the focus of funding decision away to the broader population, and (3) facilitates projects that are overlooked by “traditional” experts but valued by the wider population. However, to directly see the impact of crowdfunding on minority founders, Younkin and Kuppuswamy tested whether reward-based crowdfunding platforms like Kickstarter really improve the performance of projects run by black founders. They also attempt to identify which forms of discrimination are involved and ways to mitigate these biases.

Methodology & Results

In their study, the Younkin and Kuppuswamy (2016) combined an analysis of crowdfunding projects with an experimental design. In the former, they had collected a sample 7,617 Kickstarter projects launched between January 2012 and March 2014. Results of their statistical analysis showed that black founders were less likely to succeed as they received both fewer and smaller contributions. Moreover, black founders were not less capable in delivering their project than nonblack counterparts, thus suggesting that discrimination was present.

Subsequently, three experimental tests were conducted to identify the types of discrimination at play for which participants were recruited through Amazon’s Mechanical Turk Service. In the first one, the researchers tested for both types of conscious discrimination by asking participants questions about an example project and its founder. Moreover, subjects were randomly placed into one of four possible conditions with differing salience of founder race. Image 1 illustrates what participants saw during the test. After analysing their data, the researchers found that taste-based bias was driving discrimination.

Image 1. Project Page Example

The goal of the second experimental test was to distinguish between unconscious and conscious bias. This was done by testing whether funders altered their perception of project quality between white and black founder using project quality signals such as “Staff Pick”. Similarly to last time, participants were randomly placed into various conditions with differing degrees of quality signals. Results showed that discrimination was unconscious (i.e. implicit bias), thus invalidating taste-based bias as a driver of discrimination.

In the final experiment, the researchers wanted to test the efficacy of 3 intervention methods in mitigating bias. In particular, they looked at (Younkin and Kuppuswamy, 2016):

  • Debiasing Intervention; involves counteracting stereotypes about how a group acts
  • Group Success Intervention; involves counteracting stereotypes about how a group performs
  • Whitewashing Intervention; involves eliminating any indication of race

The usefulness of each method was once again tested by placing subjects into 9 different conditions. Ultimately, the results of this test reveal that both group success and whitewashing are effective at mitigating discrimination towards black founders.

Strengths

The main strength of this study is its pioneering efforts of studying which forms of discrimination are responsible for the underrepresentation of minorities in entrepreneurship. In particular, the subjective evaluation of investment risk and the capabilities of a founder make it rather difficult to study entrepreneurial settings. As a result, researchers turned towards audit or correspondence studies to assess biases. However, the authors tackled this issue by developing a novel research approach that involves the combination of observational and experimental data.

Managerial Implications

While crowdfunding does not by itself mitigate biases towards black founders, the study lists three methods to mitigate discrimination on the platform (Younkin and Kuppuswamy, 2016). The first two are examples of group success intervention, while the final one is an example of whitewashing intervention. First of all, the authors recommend displaying overt support, such as “Staff Pick”, towards African-American founders. They also advocate showing a list of successful founders on the platform, which includes black founder. Last but not least, they recommend reducing visibility of race on the crowdfunding platform’s project pages.


References

Freeland, R. E., & Keister, L. A. (2014). How Does Race and Ethnicity Affect Persistence in Immature Ventures? Journal of Small Business Management, 54(1), 210-228. doi:10.1111/jsbm.12138

Pope, D. G., & Sydnor, J. R. (2011). Implementing Anti-Discrimination Policies in Statistical Profiling Models. American Economic Journal: Economic Policy, 3(3), 206-231. doi:10.1257/pol.3.3.206

Rio, C. (2017, April 10). 6 Stupid Crowdfunding Scams That Should Have Been Obvious. Retrieved February 27, 2019, from http://www.cracked.com/blog/6-incredibly-obvious-crowdfunding-scams-people-fell-for/

Tsekouras, D. (2019). CCDC.

Younkin, P., & Kuppuswamy, V. (2016). Is the Crowd Colorblind? Founder race and performance in crowdfunding. Academy of Management Proceedings, 2016(1), 11665. doi:10.5465/ambpp.2016.11665abstract

Being “Controversial” Can Be Good for Crowdfunding Projects


A Brief Talk about Crowdfunding

Crowdfunding has become more and more of a common way for business founders to get their projects funded directly by wide population. The emergence of big crowdfunding platforms like Kickstarter and Indiegogo enabled project founders to “engage directly” with their potential customers. At the same time, people were finally able to invest in projects that they actually like. Through crowdfunding platforms, they can find projects from 3D printers to a block of soap that smells exactly like meat (yes, they made it from animal fat. I myself remembered backing a project called “Exploding Kittens” years ago simply for fun (I loved the name) and it ended up becoming one of my favorite games of all time.

Fun memories aside, the existence of crowdfunding platforms is a breakthrough for companies, big and small alike. There are several advantages and disadvantages of utilizing crowdfunding platform for businesses:

Pros:

  • It can be an easy and fast way to raise finance
  • It is a fast method to see potential customers’ reactions, and positive reactions usually result in free marketing (through social media, for example)

Cons:

  • It can be costly if not done right: donation incentives and marketing initiatives often need sound strategy
  • It is difficult to alter the business offerings, since public already has expectations of what the project will be (less flexibility)

Into the “Gray” Side of Crowdfunding

With the market development of this while crowdfunding concept, the “freedom” that crowdfunding platforms provide to individuals as a potential project founder might not always result in what our society’s “social norms” deem as ideal. There are many cases already in which people use the donations from crowdfunding platforms to do illegal activities. The most common form of this is scams: “founders” promise a great project and “run away” after reaching donation target of thousands of dollars. This is commonplace, and there are legal remedies already; but a more interesting case is when a founder raises money for a controversial project rather than an illegal one.

Controversial crowdfunding projects in most cases don’t actually break the law and are not outright illegal. Sometimes, they are just “teasing the boundary line” or not in accordance with acknowledged social values.

Sugarbook: When “Controversial” Meets “Attractive”

A simple example to illustrate a controversial project is to look at the newly established social networking platform Sugarbook. The startup built an app and website on the premise that a decent percentage of online dating puts importance of “having money” before considering moving on to more serious commitment in a relationship. Put simply, the app serves as the bridge to enable “sugar daddies” to meet young women.

The controversial nature of the business’ premise alone was able to attract attention from many places, wanted and unwanted. On one side, there is social unrest: many public officials stated that this app will be “watched” as many fear that this kind of apps tend to attract elements related to keywords like “prostitution”, “exploitation” and “women safety”. But, on the other hand, the attention this business got gained it lucrative funding and customers. The Sugarbook app states that it already has around 10,000 members already in New Zealand. Many other similar sugar dating apps also reflect the popularity of controversial businesses that somehow found their market.

The Business Perspective of Controversial Projects

The example of Sugarbook might provide us some business perspectives on a question that at the moment is perhaps boggling our mind: how does that even work? The first question that might appear is perhaps: “Is the business model any different?”. The answer is yes and no. For projects that gain their funding through crowdfunding platforms, the business model is still the same and separate. Crowdfunding platforms approve projects and get fee from project founders, then “display” the projects for people to see and invest. In our example case earlier, Sugarbook in itself doesn’t have much different business model to other dating and social networking app like Tinder: individuals can join to access networks of other like-minded individuals, and there is usually a premium service version that get the company more fees.

There are several explanations on why controversial-concept businesses work well knowing there are social or even legal consequences that can hinder the business from profitability, or even, sustainability. The first reason would be the attractiveness of being “controversial”. The word “controversial” is often associated with being “different”. And recent social movements encourage the notion that being different is attractive. This association thought-train is what enables controversial anything, including business projects, to gain more attention and traction in shorter time than “normal and boring” ones. Another reason that is still related to the first reason is the prevalence of social media in the spread of information on internet. Facebook, for example, has been reported by many sources that it is prone to spread of fake and controversial contents. With similar reasons that say “controversial” can mean “different” and “attractive”, social media plays a strong role in getting these types of businesses public attention.

Lesson Learned for Future Crowdfunding Project Founders

What we can learn from this is that while crowdfunding might seem to be an easy way out for our project’s financial needs, it isn’t always the case. The competition is already crowded; project founders still need to execute strategies to differentiate from others. Controversial businesses like Sugarbook teaches us that even with a controversial business premise that is seemingly harmful for business sustainability still manages to find its market (and investment to keep it going) and come out the winner of the situation (at least for now). Taking all these seemingly-trivial factors, like in this case, having a different and attractive marketing initiatives, into considerations is important to thrive, when everything is out in the open especially with crowdfunding platform system.

Who knows, maybe even you can be the next sensational founder of the $55,000 Potato Salad project in Kickstarter.

Written by: Theo Cavin Yudianto (495880)

Sources:

https://money.cnn.com/interactive/media/the-macedonia-story/

https://www.theverge.com/2014/10/1/6880201/potato-stock-kickstarter-potato-salad-zack-danger-brown

https://www.techinasia.com/sugar-daddy-app-sugarbook-funding-for-expansion

https://www.msn.com/en-my/news/national/malaysian-sugar-baby-dating-service-opening-down-under/ar-BBTZAeM?li=AAAHftF

https://lawpath.com.au/blog/pros-cons-crowdfunding-business


Nexar – Business case


Making the road safer by using the crowd

Nexar was founded in 2016 by Eran Shir and Bruno Fernandez-Ruiz, two former employees of Yahoo (Tilly, 2016). To develop this application, they have raised 44,5 milion dollars in three founding rounds. The company provides a mobile application that turns your mobile phone in a dashcam that is connected in a vehicle-to-vehicle network (MacVie, 2018). The main focus of the application is making car driving safer and this can be seen as a real need as almost 1,3 million people worldwide die of car accidents (Kouwenhoven, 2018). 

How does it work

All Nexars users are connected in the Open Vehicle Network. By using AI dashcam functionalities Nexars application is able to record the surroundings and identify for example traffic signs, road signs, other drivers, pedestrians, etc. By analyzing this information with algorithms insights can be provided about traffic patterns and infrastructure. All this data is of course anonymized and other parties can subscribe for usage of this data (Nexar, 2019). Nexar also launched ‘City Stream’ in 2017 which by enough users can optimize driving routes, identifying driving infrastructure and finding available parking spots which all together makes a city and driving safer (Nexar, 2019). The Nexar application can therefore be seen as a two-sided platform at on the one hand the drivers that use the application and on the other hand 

Value for multiple parties 

The main focus of the application is to make driving safer by communicating real-time warnings about dangers to prevent accidents (MacVie, 2018). Moreover, when an accident happens Nexar provides her drivers with a detailed collision report including video and images about the accident. Not only for insurance can these recordings be useful, but also for example when somebody cannot communicate what happened to due to injuries. Besides these advantages for individual users it also provides valuable insights for city planners and managers to use for roadway maintenance and infrastructure- and traffic management. Especially, areas that are prone to incidents are important to be identified, so these areas can be redesigned and further accidents can be prevented. Furthermore, third party developers of ridesharing applications can take advantage of this real-time data to improve their applications. Besides the value of all the parties making cities safer benefits all citizen (Nexar, 2019). 

Crowdsourcing 

Besides these application Nexar also makes use of crowdsourcing for finding solutions for problems they face in which people can become co-creators. They have organized for example a competition to find a solution that the Nexar app can recognize the traffic light state in images (Brailovsky, 2017). Another challenge was detecting cars on diverse datasets around the world (Nexar, 2019). These crowdsourcing competitions could also form a new business model for them, as many of these challenges are interesting for companies that are developing autonomous driving as well. Besides the advantages for the company itself it challenges people to find solutions and motivates them to participate in these challenges. In the first challenge the participants were provided with a training and test data set and had two months to come up with a solution. The participant that won the competition got 5000 dollar (Brailovsky, 2017) and moreover the top 5 participants were invited to present their ideas and also invited for an interview that could lead in a job offer at Nexar’s Deep-Learning Team. So not only money was used as an incentive, but also acknowledgement plays a role in the success of the competitions. Also there is a leaderboard to motivate people to participate and the challenges are mentioned on the website of Nexar, so everybody can see who the winners of the challenges are. At this moment there is no competition, but people can subscribe to receive an email when a new competition starts (Nexar, 2019). 

Challenges for Nexar

Challenges that Nexar faces can be that also more accidents occur, because of the use of mobiles in the car. It could be said that instead of warning the drivers for dangerous events it can evoke dangerous situations as the drivers are paying more attention to the application then to the road, this also is an issue with the Uber drivers. Another challenge could be the many other applications that provide optimal routes, parking spot availability and information about traffic jams. Also it is a challenge to have enough users to collect enough data and create valuable insights. This also has to do with network effects, as there should be enough users to attract more users, but also to attract application developers and other parties that like to invest or buy the data. 

Future implications

At this moment Nexar has a very good working business model, but they could develop this business model further. By for example connecting their network to emergency services, so when an accident happens these services are immediately warned. Also their route could be optimized using Nexar traffic data. Another option to develop their smart city solution further is to expand it to public transport. By also collecting data of this area a complete picture of the traffic flows can be provided to city planners and managers, but also people can be provided with advice which transports is the best choice to a specific location. As I mentioned before it would be very valuable to become more of a crowdsourcing platform also for competitions like the two, they have organized before. Especially, for this area and thinking about autonomous driving there are a lot of challenges that we are still facing. Another area of interest could be working together with insurances companies, as with the recordings drivers can prove that they always drive the right speed and follow the traffic rules. All with all in my opinion there are enough possibilities to expand this application.

References:

Brailovsky, D. (2019). Recognizing Traffic Lights With Deep Learning – freeCodeCamp.org. Retrieved from https://medium.freecodecamp.org/recognizing-traffic-lights-with-deep-learning-23dae23287cc

Kouwenhoven, E. (2019). Wereldwijd sterven 1,3 miljoen mensen in het verkeer. Retrieved from https://www.ad.nl/auto/wereldwijd-sterven-jaarlijks-1-3-miljoen-mensen-in-het-verkeer~a9a15e46/

Macvie, C. (2019). 5 Cool Crowdsourcing Platforms You Should Check Out. Retrieved from https://www.fulcrumapp.com/blog/crowdsourcing-apps/

The Nexar Challenge. (2019). Retrieved from https://www.getnexar.com/challenges

Tilly, A. (2019). This App Turns Your iPhone Into A Dash Cam With Machine Vision. Retrieved from https://www.forbes.com/sites/aarontilley/2016/02/12/this-app-turns-your-iphone-into-a-dash-cam-with-machine-vision/#5d2206a41912

Activist Choice Homophily and the Crowdfunding of Female Founders


An infamous adage states “Birds of a feather flock together”. This implies that individuals favor other individuals that are similar to them. This not only applies to one’s personal life, but also to his professional one. As such, with this logic in the workplace people should try to help and promote others that share identical traits to them.  However, is that truly the case? Cohen, Broschak & Haveman, (1998) conclude that when women are numerous in higher-level position, promotion for other women is less likely. The researchers argue that the women managers do not feel the need to push for the advancement of their women subordinates. What motivates such a behavior?

Greenberg & Mollick (2017) chose to investigate this question by further researching homophily and more specifically its underlying mechanisms. The authors defined homophily as the “tendency of individuals to associate with others based on shared characteristics”. While homophily had previously been researched, the underlying causes behind the phenomenon were still unclear. The researchers distinguished between two kinds of homophily: induced and choice homophily. On the one hand, induced homophily is a result of homogenous networks that perpetuate themselves. Thus, the offered opportunities of interaction, such as schools for instance, are homogeneous and led similar individuals to associate with one another (Kossinets & Watts, 2009). Greenberg & Mollick (2017) were interested in researching choice homophily, which according to Kossinets & Watts, (2009) is more related to individual preferences and choices we make as a result. However, Greenberg & Mollick (2017) argue that choice homophily can in fact be further divided into two different constructs that would explain the conflicting results in previous research concerning homophily.

  • Interpersonal choice homophily operates on a personal level and implies that the affinity for similar people is linked to our notion of self-love.
  • Activist choice homophily operates on a group level and implies a certain solidarity facing shared structural barriers that arise from a common social group identity, and a desire to overcome such obstacles.

In order to focus on choice homophily, the researchers decided to conduct their studies in the context of crowdfunding. Indeed, induced homophily is reduced in two ways in this environment. Firstly, there is no formal gate keepers, unlike in venture capitals, and anyone can support a project thus making the opportunities for interaction heterogeneous. Secondly, Internet does not limit the environment in which people interact, which gives them broader choices in terms of who they wish to support.

Various elements motivate individuals to fund projects, such as a philanthropic behavior for donation-based crowdfunding. Nevertheless, it is important for individuals to be aware of their unconscious biases in order to make choices that they truly support. Why did I choose to fund this person’s project? Was it solely based on the project itself or did his gender impact my decision?

To find evidence for their newly defined activist choice homophily, Greenberg & Mollick (2017) conducted two tests. The first one was a laboratory experiment. 399 students at two private universities in the Northeastern US participated. A technology project that had been successfully funded in Kickstarter was chosen, as it is an area in which women are underrepresented and therefore portrays a group-level disadvantage appropriate to test for activist choice homophily. Furthermore, measures were taken to mimic real life circumstances. As such, key crowdfunding aspects such as a description, that are also antecedents for success, were added. The only two manipulated elements were the name and the picture of the founder as they portrayed his gender. The design of the experiment was a 2 (founder gender) × 2 (participant gender) design. That entails that half of the women participants were perceived the founder as the same gender as them and the other half saw him as a male. The same conditions applied for male participants. Several measures were taken to avoid possible cofounds when manipulating the picture and name. Different components measured the both types of choice homophily as well as one’s support for a funder. For instance, respondents were asked how much of $1 they were willing to donate to assess the latter.

A field experiment was then conducted with data on 1,250 Kickstarter projects from 5 categories:

  • Two predominantly male (gaming and technology)
  • Two predominately female (fashion and children’s books)
  • One more balanced between both genders (film)

Restrictions were imposed on the sample, such as eliminating projects that sought less than $5,000. Control variables were defined to assess whether key Kickstarter aspects, such as whether a project was featured, biased the results. Robustness checks were also done to check the scales.

The main results of this study are the following.

  • Results from both the laboratory and field experiments were consistent in showing that women were more likely to fund other women’s projects, as interpersonal choice homophily would suggest (results for men were inconclusive).
  • Female founders in technology are more likely to reach their goal, as they face disadvantage because of their gender which is consistent with activist choice homophily

All in all, this research not only explored a subject that had not been properly researched (aka the underlying mechanisms of homophily), it did so in a very thorough manner. Thus, the results found in the laboratory experiments were confronted to those collected later in the field experiment. This approach guaranteed that the conclusions found were of high external validity and thus were applicable in real life. Moreover, control variables were used to make sure activist choice homophily was responsible for the effect that was observed on donations and funding decisions. In addition, robustness checks were conducted to test the scales.

In conclusion, this paper is not only relevant for consumers to better understand the unconscious motives behind their choice. It also concerns managers. Indeed, implications of this research go beyond a crowdfunding context. Even though the interaction that induced homophily would have with activist choice homophily is tough to assess, the latter also has a role to play in more traditional funding processes, such as a venture capital and even in a workplace in general. As such, to fight against women underrepresentation in technology, the solution has been to increase the proportion of women in related entrepreneurships and venture capitals. Nevertheless, with the concept of activist choice homophily, it appears that activism has an important role to play as well in breaking the constraints women face in such a field. As such, efforts in representation of women should be continued. However, it should be complemented with initiatives to increase identification, mutual support and activism for the individuals of unrepresented groups.

“One for all, all for one!” (Dumas, 2018)

  • Cohen, L., Broschak, J., & Haveman, H. (1998). And Then There were More? The Effect of Organizational Sex Composition on the Hiring and Promotion of Managers. American Sociological Review, 63(5), 711. doi: 10.2307/2657335
  • Dumas, A. (2018). Three Musketeers, The. La Vergne: Dreamscape Media.
  • Greenberg, J., & Mollick, E. (2017). Activist Choice Homophily and the Crowdfunding of Female Founders. Administrative Science Quarterly, 62(2), 341-374. doi: 10.1177/0001839216678847
  • Kossinets, G., & Watts, D. (2009). Origins of Homophily in an Evolving Social Network. American Journal Of Sociology, 115(2), 405-450. doi: 10.1086/599247

Create Value "for" and "from" Consumers