A recent report in Business Week about our SMR paper on Threadless and Muji's strategy to use early customer commitment to reduce the new product development risk brought us some good feedback and comments on the concept (see the updated original post ). [And of course we are just proud that after The New York Times and Der Spiegel another major publication refers to our work :-)]
Threadless uses crowdsourcing in three ways: (1) To generate new designs, (2) to evaluate submitted designs, and (3) to sell its products via an affiliate marketing system and social network.
But the market is already progressing faster. As you may already have read in other blogs, Spreadshirt, the German T-Shirt Customizer working like Zazzle or Cafepress, just announced a take-over of LaFraise, the French Threadless clone. This will provide Spreadshirt the ability to integrate its users even further in the design process and to supplement its highly flexible, but expensive on-demand printing concept with the business model of screening demand before (mass) production. I am curious to see which innovative business models will be resulting from this merger.
Remember that the key aspect of Threadless' model is the aggregation of commitment of its customers. Threadless does not face the conventional risk of a fashion company whether new design variants will become a hit or miss. This risk is reduced tremendously by the participation of its customer community in the assortment planning process.
The evaluation of new designs by its customers helps Threadless to pick exactly those new designs which find the highest appeal in its community. On top, customers express their informal commitment to purchase a design variant in case it would be selected and printed by ticking a small box. While this works very well, some uncertainty remains for Threadless: Exactly how many t-shirts they shall print, and in which size dispersion. This decision can be only based on forecasting and rule-of-thumb guessing.
Even if t-shirts are a product with high margins and low inventory-cost, the "special sales" periods at Threadless indicate that there are some overstocks of t-shirts which do not sell as well as the customer evaluation predicted, or where Threadless' management ordered too many of the wrong sizes.
This is where Look-Zippy has perfectioned the Threadless business model. At the beginning of the process, these French entrepreneurs crowdsource everything like Threadless: An open design competition captures the distributed creativity of creative users, and the selection of the best designs builds on the evaluation capability of the entire community.
But then the process differs: Instead of scheduling the winning designs immediately for production, Look-Zippy starts selling first by taking binding orders. Selected new designs are listed for exactly two weeks on the web site (a ticker prominently shows the remaining time – Woot.com pioneered this strategy online). Customers can place an order only during this period, once the time is up, no more orders are possible -- and only then production starts.
The result: The shirts are produced in exactly the right volume and size dispersion. This binding commitment of customers allows Look-Zippy to mass produce only the products that really fit their customers' needs – a marketer's dream. This model is much closer to the original model of collective customer commitment which was developed by Elephant Design and Muji in Japan at the end of the 1990s (more info on Muji): The risk of new product development and planning is outsourced to the customers.
The disadvantage for customers of this model however is a slightly longer waiting time/ But this may be counterbalanced by the "limited edition" feeling of the shirts. Also prices should remain low on the long run, as an successful product has not to cover the wrong forecasting of other variants.
Combining the creative talents of the crowd (open innovation), the commitment of a community for a new product (collective customer commitment method), and the limited edition approach of consumer markteters seems like a winning strategy for other industries as well. I am curious to see in which other consumer good industries this model will catch up first. Please leave a comment or e-mail me if you have any candidates or examples!