Democracy in product design: Consumer participation and differentiation strategies

Zsolt Katona ()

Quantitative Marketing and Economics (QME), 2015, vol. 13, issue 4, 359-394

Abstract: An increasing number of firms use social media to allow their customers to vote on new product designs. This paper studies the implications of employing such a democratic product design (DPD). A linear city model is used with random locations to capture uncertainty about consumer preferences and to study strategic forces in monopoly and duopoly settings. The results indicate that a monopolist will use market research to resolve the demand uncertainty, unless DPD provides a cost advantage. In a duopoly, an asymmetric equilibrium emerges with exactly one firm using DPD. Commitment to following consumer votes proves to be a strategic advantage, therefore at least one firm promises not to deviate from the product design consumers voted for. A subtle way to influence the outcome of the vote for firms is to generate product candidates instead of soliciting ideas from consumers. Employing such a tactic allows firms to differentiate and they will be more likely to use DPD. Finally, the paper studies the level of consumer engagement in DPD and shows that a monopolist always benefits from a higher positive engagement and is hurt by negative engagement, although to a lesser extent. The results are reversed for a duopolist as negative sentiments can serve as an additional differentiator. Copyright Springer Science+Business Media New York 2015

Keywords: Co-creation; Consumer voting; New products; Strategic differentiation; D72; L11; M31 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11129-015-9164-z

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