[Featured Research] Study Backs Long Term Claim with Hard Data: User-Generated Products Make More Profit
Since years we argue that customers / users not just have good ideas for new products & services, but that products with roots in user innovation are actually more profitable and superior to inhouse-developed products. There has been some anecdotal evidence to prove this claim, and lots of case studies, but not hard data. But now a study provides hard evidence:
User-generated versus designer-generated products: A performance assessment at Muji, by: Hidehiko Nishikawa, Martin Schreier, Susumu Ogaw, in: International Journal of Research in Marketing (2013)
Our colleagues Hidehiko Nishikawa (Hosei University), Martin Schreier (WU Vienna University) and Susumu Ogawa (Kobe University) show that user-generated products perform better
on the market than their (professional) designer-generated counterparts. Their idea is to systematically compare actual market performance of user-generated products with firm (designer)-generated ones.
The authors present a unique data set gathered from the Japanese consumer goods brand Muji, which has drawn on both sources of ideas in parallel in recent years. They demonstrate that user-generated products in the furniture category, which are found to generally contain higher novelty outperformed their designer-generated counterparts on key market performance metrics.
Specifically, in the first year after introduction, sales revenues from user-generated products were three times higher and gross margins were four times greater than those of designer-generated products.
These effects also increased over time: after three years, the aggregate sales revenues of user-generated products were, on average, 1.25 billion yen (approximately 16 million dollars) higher, or five times greater, than the sales of designer-generated products. The corresponding average margin was an impressive 619 million yen (approximately 8 million dollars) higher, or six times greater, than the margin for designer-generated products. Finally, user-generated products were more likely to survive the three-year observation period than designer-generated products (i.e., were still on the market three years after introduction).
These findings clearly favor the paradigm shift identified in marketing research and appeal to managers considering the integration of user ideas into the process of new product development. In their paper, the authors discuss the study’s limitations and identify important avenues for future research.
I find this study especially interesting as MUJI is world-wide admired for their great inhouse design team! Also, the study shows that this is more than a novelty effect: Customers did not know whether a product was user designed or not, they just liked (and purchased) the product!