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Articles

Customer Loyalty and Recommendation Agents

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Recommendation agents (RA) are giving online customers recommendations for the past few years. Although the first main function of RAs was to reduce information overload, now it’s also used to increase sales.  More and more information is gathered through the internet and especially social media, to improve personalized preference-based recommendations. At the same time, these systems show success measured by online sales and user satisfaction.

Customer loyalty is considered to be a source of competitive advantage and is useful for long-term business success. Research has shown that there is a strong relationship between customer loyalty, firm’s profitability and stock returns. Returning customers are more profitable than new customers and thus good for business. The aim of the study is to identify the effect between various independent variables (e.g. RA Type, Recommendation Quality, Customer Satisfaction, Product Knowledge, and Online Shopping Experience) and on the dependent variable customer loyalty.

Recommendation quality is based on the preferences of the user and the perceived value of the recommended products. This is the outcome of the type of RA, which could be either content-filtering or collaborative-filtering. Also, the impact of the moderating variable Product Knowledge and shopping experience will be measured. When having expertise in a product, this could negatively affect the customer satisfaction when being advised by a recommendation agent. Shopping experience is also hold in account because the more shopping experience a customer has, the more likely the customer is familiar the interaction with RAs, and the more likely the customer is able to use a RA effectively.

The main reasons for the study is that from marketing perspective, the adopted cognitive-affect-conative-action framework of customer loyalty has not been empirically tested in the context of RAs. This framework states that customers become more loyal when going through multiple stages. Every stage represents some sort of loyalty. There has also been done little research assessing the effect of increasingly higher customer expertise on customer loyalty in the presence of RA usage. Thus, central in this research are the moderating effect of product knowledge on the relationship of Recommendation Quality and Customer Satisfaction.

The results showed that the collaborative filtering RA has a higher recommendation quality than a random RA. The recommendation quality has a positive effect on customer satisfaction and customer loyalty. Also, customer satisfaction is positively related to customer loyalty. The results also show that the impact of recommendation quality on customer satisfaction is negatively moderated by customers’ product knowledge. Thus, product expertise negatively affects the perceived value of the outcome of a RA. Shopping expertise does not have an effect the relationship between customer satisfaction and customer loyalty.  70% of the variance in customer loyalty can be explained by customer satisfaction. This research has shown that an effective use of RA positively influences recommendation quality which in turn positively influences customer satisfaction. When users will have increasing levels of product knowledge, it will negatively influence the customer satisfaction with the website.

The increased knowledge about RAs and how it will increase customer loyalty towards your website is interesting for businesses to retain customers. However, retaining customers are likely to get an increased level of product knowledge. Thus, RAs should always be innovated more and more.

References:

Yoon, V. Y., Hostler, R. E., Guo, Z., & Guimaraes, T. (2013). Assessing the moderating effect of consumer product knowledge and online shopping experience on using recommendation agents for customer loyalty. Decision Support Systems, 55(4), 883–893.

Business Case

Introducing The World’s First 3D printed Electric Vehicle – The Strati

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One of the world’s most exciting open source co-creation initiatives is Local Motors. Part online platform, part physical business, Local Motors combines co-creation and micro-manufacturing to bring hardware innovation to market at unprecedented speed. The platform consists of a global co-creation community made up of enthusiasts, hobbyist innovators and professional. Besides the online platform, the organisation operates an international network of so-called micro-factories.

The way it works is as follow. On the Local Motors Platform, users are able to share and evaluate ideas, prototypes and projects for motor vehicles with a global community of like-minded innovators. Through a voting process, users decide what projects get continued and developed. If a prototype is chosen, it will be produced in a micro-factory in low volume. As it is brought to market for sale, Local Motor’s sales team and e-commerce platform help to sell the product. Finally, if successful, each one’s contributions get rewarded. A percentage of sales revenue for each co-created product is paid to the community members who made a contribution to the vehicle.

The use of micro factories is revolutionary in its own right. A micro-factory refers to a small factory able to produce small dimension products. Such micro-factory’s main advantage is to save great amount of resources in terms of space, energy, materials, money and time. Micro-factories are highly automated, containing automated systems such as tools, assembly systems, quality inspection, replacement and material input. Each of Local Motor’s micro-factories is a place where innovators could develop their own projects and consumers are welcome to visit, watch progress and potentially buy their products.

Local Motor’s motto is “We make the coolest machines together.” And hell, they do. In 2015, the company is expected to launch the world’s first 3D printed electric car, named the Strati. As the company puts it, “There is nothing conventional about this car, the way it’s made, or the company behind it.” First to note is that the Strati is fully functional and is aimed for (small) production for the road. The car is developed according to Local Motor’s principles of designing and developing open source with a global community. It is made from ABS plastic in combination with carbon fiber. In order to get the material right, the company has been through a process of extensive material testing, sponsored by SABIC. All car parts that could be brought down to a single material piece have been 3D printed, including the frame, the exterior body and interior features. Mechanical components such as batteries, motors and wiring, however, come from the electric powered Renault Twizy. Currently, the Strati takes about 44 hours to print, although the organisation aims to bring printing time back to 24 hours. As soon as the Strati is cleared by US regulations later this year, it will enter public roads.

LM_Strati_4

The Strati is an amazing outcome of open source co-creation. The automobile shows that a global community of innovators could complete the design and development of complex products. Interestingly, the business model of paying royalties according to one’s role in the development process works motivating enough for engineers to participate in these projects. One wonders what this may behold for the future.

What else will we be co-creating in the future according to Local Motor’s principles?

Articles

Make money in the supermarket!!

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Are my products placed in the right shelves? Is my in-store activation plan executed perfectly across all super markets? These are questions marketers of major brands face on a daily basis, and Roamler may have found the most innovative solution to answer them so far!

Major consumer goods enterprises have always relied on field teams to evaluate whether their designed marketing strategies were well-executed in-store. A rather time and resource intensive endeavor, seeing as these would have to travel between all different supermarkets present in our country. The Dutch start-up Roamler noticed how this was causing a problem for major brands and thought up a creative solution to simplify the process. Seeing that most people have smartphones with cameras these days, why can’t we let consumers themselves do the work?

Roamler has made smart use of a number of trends including the power of crowdsourcing, the mobile trend, the trend of gamification and the fact that apps can now operate location based.  These features are built into a slick looking mobile interface in order to bring the concept of value co-creation to the retail industry. In principle, Roamler allows for consumer goods organizations to ask questions or set out tasks to users of the platform. The users closest to the task’s location will get an update and may opt to complete the task in return for either money, points or badges. Typically, such tasks will include evaluations of the shelf backed up with a photograph.

According to Saarijärvi et al. (2013) it is important in any value co-creation effort to have a clear picture of what value is created for whom. In this scenario it is the information that is of value to the companies. Companies can use this real-time information to quickly assess where the retail execution could be improved, and mobilize their field employees to make quick adjustments accordingly. For the users it is the monetary reward as well as the possibility to ‘level up’ and unlock new features that creates value to them. In short, the company quickly gets the information it needs, while the user earns some instant benefits for a minor effort. A classic win-win scenario.

Not surprisingly, this simple but effective use of co-creating value between consumers and consumer goods brands was not left unnoticed. In 2011, the year Roamler started, the start-up won the Accenture Innovation Audience Award in the category Media, Communication & High Tech.

Having read about this easy way to earn some extra cash, you may have already whipped out your smartphone and opened up your appstore. Unfortunately, Roamler follows a rather strict entry program and only users who have received a personal invite may participate. Such an invite can only be sent by Roamler users who have at least reached ‘level 3’. When selected, Roamler offers a training program which the new user needs to complete before being sent out on real tasks. This way, Roamler tries to build an exclusive community of high quality Roamlers which can be chartered to participate in tasks of the various clients.

http://www.accenture.com/Microsites/innovation-awards/2011/mcht/Pages/index.aspx

http://www.marketingfacts.nl/berichten/20120120_roamler_altijd_toegang_tot_een_mobiele_workforce

http://www.roamler.nl/Join

Saarijärvi, H., Kannan, P., & Kuusela, H. (2013). Value co-creation: theoretical approaches and practical implications. European Business Review, 6-19.

Business Case

IKEA & co-creation

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IKEA, the Swedish furniture company calls itself the Life Improvement Store. They want to reach even more consumers with their different solutions and demonstrate the unique ideas they have to make everyday life at home better.

Talking openly about co-creation with customers is a main driver for product innovation and creativity. Values as a constant desire for renewal or providing solutions to problems are rooted in their history and how they have evolved as a brand and as a company. Those values have provided a perfect environment for IKEA to “dare” relying on consumer insights to drive marketing and product ideas.

With the Home Tour, which is an initiative to send five American employees on a yearlong road trip to provide families with makeovers that use merchandise from local IKEA stores. This experience will provide many conversations to understand participants needs and desires that can ignite new product developments. The campaign is being made in a documentary series to be produced by creative employees within the IKEA head office. It is published on a special YouTube channel.

This way IKEA is studying people, getting close to them, going into their homes, having conversations, and reading reports. They try to understand and fulfil the needs of consumers, dreams and desires. Through the Home Report they have the opportunity for consumers to tell what is going on in their life and how they can help them. All that information can feed back to communication, to product development, to a store, an online experience.

“For me, it comes back to co-creation, collaborative effort between co-works, consumers and the brand” – Rich D’Amico, Deputy Marketing Director at IKEA USA

The fact that consumers are co-creating the value with IKEA through their involvement and work only seems to enhance the service experience, and thus make it easier to develop these relationships. It is in the successful management of these relationship building interactions and experiences that IKEA appears to excel.

I think IKEA is doing a good job by interacting with consumers to better understand their needs, dreams and desires. Especially when the company is visiting consumers’ home the company can understand the consumers and anticipate on it. Customers construct the furniture themselves, so it must be easy and practical to stay competitive to other furniture companies. With the inspiration of customers this can be accomplished, because other customers will also benefit from the improvements. A lot of what IKEA is doing drives marketing is co-created with consumers. And what they do in terms of product development is co-creation with consumers.

Sources:

http://www.co-society.com/ikea-prefers-call-co-creation-product-development/

http://www.psfk.com/2014/04/ikea-home-makeover-tour.html

http://www.psfk.com/2014/07/ikea-brand-strategy.html

News, Opinion

Radio Rent-out!

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So after looking around on the web in search of some interesting customer co-creation contests and products, I found this (quite interesting, yet not good-looking) website (http://www.co-creatornetwork.com/index.htm) in which you could ‘buy’ your own airtime, and create a radioshow.

For 85$ a week you get an one hour show. Although the theme at this point is your general enlightenment, and transcending your earthly state, it’s an interesting idea to transfer this idea to mainstream radio. If for example you are a fan of techno music, only listening to your radiostation, because it really fits your taste of music but you miss certain songs, or think you could do a better job. It might be an idea for radiostations to rent out hours, or give them away in a competition (in which listeners give either creative suggestions, or Continue reading Radio Rent-out! →