Building A Better Business Model Through Creative Crowdsourcing

July 18, 2017
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With their rapid growth and widespread popularity, brands like IKEA, Spotify, and Facebook  have shown us that an innovative business model can take a brand from humble beginnings to a household name. The question is, how do you come up with one of these great new business models? How do you know when you’re onto something that could change an industry, or maybe even the world?

It turns out that some of the best contemporary business models (including the ones I mentioned above) share some interesting similarities that helped take them from good to great. By understanding these business model mechanics, you can build a better business just like the pros!

Crowdsourcing isn't the only way to build a better business model

           Switching costs, like crowdsourcing can help build a better business modelRecurring revenue, like crowdsourcing can help build a better business modelScalability, like crowdsourcing can help build a better business model

We’ve already discussed keeping your customers engaged with switching costs and how to create sustainability with recurring revenues, so today we’ll turn to a new topic: crowdsourcing.

In order to succeed, a business has to do two things very well. First, the business must create value for customers then they must deliver that value to those customers. While this might sound easy, any business expert will tell you that these two “simple” tasks involve many smaller steps the business has to complete.

To be successful, a business must create value and deliver value to customers... but they don't have to do it themselves

What would happen if a business didn’t have to do it all themselves? What if a brand could creatively crowdsource some of the processes that make them successful? How would that work for them? What if some of the biggest brands were already doing it? We’ve got the answers to all of these crowdsourcing questions and much more! By the end of this article, you’ll see why, when it comes to crowdsourcing, it really is the more the merrier.

Today we'll answer what crowdsourcing is, provide examples, and explain how you can start crowdsourcing today

 

What Does Creative Crowdsourcing Look Like?

There’s a big difference between outsourcing and the kind of strategic crowdsourcing we’re talking about here. Outsourcing is when a business hires someone else to take care of part of their value chain instead of completing it themselves. This is usually done to reduce costs because it is often more efficient to allow a specialist to complete a task rather than using resources to attempt it yourself.

Outsourcing is a practice used to reduce costs by transferring portions of work to outside suppliers

While outsourcing is also a valuable business practice, today we’ll be exploring crowdsourcing specifically.  The main difference between the two is value: while outsourcing is all about reducing costs, creative crowdsourcing is more concerned with creating value. I know it might seem counterintuitive to think that a brand can actually create more value by letting others do the work, but we’ve got the examples and explanations to back it up.

Brands Like Instagram and Facebook Crowdsource Content Creation

We live in the age of social media -  an age where friends from all around the world are only a click or a tap away. Yet with the average adult spending more than 5 years on social media over the course of their lifetime, our social tech can consume us just as easily as it connects us. What makes these platforms so engaging? Well, as media masters Instagram and Facebook will show us, the secret lies in a little creative crowdsourcing.

When you log into Facebook what do you see? A sprawling timeline filled with funny videos?  Pictures of your friends from their vacations? Maybe even a political post or two? Now ask yourself: how much if this content does Facebook actually create?

Facebook's crowdsourced content is what makes the site interesting. Without our photos, videos and thoughts the site would be very boring.

That’s right - the very thing that makes Facebook worthwhile isn’t made by the brand itself but rather by you and me! Our photos, thoughts, and videos are what make Facebook the 3rd most popular site on the planet, and without them Facebook would be a pretty boring place. They’ve crowdsourced their value creation and it’s worked wonders for them.

Instagram is another great example of content crowdsourcing, but possibly to an even higher degree. Much like Facebook, the true value of instagram is in the beautiful photos and clever captions that users can browse and contribute. The thing is, Instagram doesn’t spend half an hour getting the perfect lighting for a #SundaySelfie or rack it’s brain for witty captions that are sure to impress. Instagram doesn’t make the social platform valuable - users do.

Instagram's crowdsourced content often takes a lot of effort from the platform's users

If you think I’m exaggerating about the amount of time and effort that goes into a successful Instagram post, I can assure you I’m not. The internet is full of detailed guides on how to create winning Instagram content, and all of this user effort just makes Instagram a more valuable platform.

The key factor here is that Facebook and Instagram have created extremely powerful incentives for their users to create value on their platforms. Good social content gets liked, it gets shared, and it gets praised. This social proof is a motivator for anyone who is active on social media whether they’re a high school student sharing a picture of their meal or a marketing manager launching a new ad campaign.

Facebook and Instagram aren't the only brands that crowdsource content, Google and Wikipedia do it too

While using social proof as a motivator might not work for every brand, that doesn’t mean that there aren’t other incentives that you can use to help outsource part of your value creation. As you can see, the benefits are numerous: more content, higher quality, and higher engagement await brands who can figure out how to effectively crowdsource their content.

Brands Like Amazon and Tupperware Crowdsource Marketing

While Facebook and Instagram might be the big players in social media, when it comes to ecommerce there’s no bigger name than Amazon. Almost everyone on the planet has heard about Amazon and even if you could escape the brand, you’d have a much harder time escaping their products. If you’re trying to understand how Amazon achieved such widespread marketing reach their crowdsourced advertising might be a good place to start.

At the heart of Amazon’s marketing strategy is the Amazon Associates program, or “the web’s most popular and successful affiliate program” as Amazon calls it. The process is simple: Amazon allows individuals to advertise Amazon products on their own websites, and if a customer ends up making a purchase Amazon pays a portion of the earnings back to the referring site.

The Amazon Associates program helps Amazon crowdsource their marketing efforts

Essentially, Amazon has crowdsourced the advertising part of its value delivery process by allowing any site on the internet to become a referral portal to the brand. Now bloggers, internet personalities, or anyone with a website can provide expertise on topics that matter to them, recommending the best Amazon products while making some money on the side.

Tupperware parties help Tupperware crowdsource their sales efforts

Crowdsourcing your marketing isn’t just a strategy for ecommerce giants, though.  You might be surprised to hear that Tupperware has been crowdsourcing its marketing since the 1950s! It’s true: Tupperware invites individuals to host “Tupperware Parties” where they can invite friends and family to their home to peruse and purchase a wide range of Tupperware products.

Much like Amazon, Tupperware also compensates the party hosts for their successful sales. Through these parties, Tupperware has been able to mobilize a sizable portion of its customer base as a key part of the brand’s sales efforts.

By compensating hosts for successful sales, Tupperware has been able to turn their customers into an acquisition army

The benefits of this kind of crowdsourcing are twofold. First, by crowdsourcing their marketing brands like Amazon and Tupperware are able to enjoy direct promotion for a fraction of the cost of regular advertising or sales expenses. A percentage of the sale is nothing compared the the rising costs of pay per click ads on search engines and social media, and they pale in comparison to the costs of hiring, training, and compensating members of a sales team.

Additionally, these brands also enjoy a unique level of trust that comes from recommendations instead of advertisement. When Amazon or Tupperware tells you how great their products are, you listen but you take it with a grain of salt because we know that a brand’s advertising is biased in their favour. However, when this recommendation comes from a friend or an expert we’re much more likely to take it to heart. That’s the power Amazon and Tupperware have tapped into with their crowdsourced marketing.

Amazon gives its affiliates a percentage of the sale when they successfully refer a purchase

We discussed how Facebook and Instagram use a very strong incentive system to nurture their crowdsourced initiatives and while Tupperware and Amazon both provide incentives to their crowd marketers they also provide something else: prestige. In both of these examples the crowd marketers are given a chance to be experts, helping guide others to the correct answer. The prestige that comes with these programs is a powerful motivator that shouldn’t be overlooked if you’re thinking about crowdsourcing part of your marketing.

Brands Like IKEA Crowdsource Assembly

When I think about furniture, I always think of IKEA. It’s a connection that’s been forged from many years of putting together dressers, tables, and the odd TV stand. I’m not an overly handy person, but when I see those easy-fit pieces and an all-pictures instruction booklet I know I’m going to be okay. That right there is the magic of IKEA. Their products bring out the handyman in all of us, but they also require you to assemble them yourself.

IKEA isn't the only brand crowdsourcing assembly. Build-A-Bear and dinner kits do as well

By shifting the task of assembling new furniture to their customers, IKEA has effectively crowdsourced part of their production process. Customers can visit IKEA locations and get help deciding which pieces to buy, but they know that when it comes to assembly they’re on their own. This crowdsourcing strategy obviously allows IKEA to cut costs when it comes to assembly/installation employees, but there are a couple more benefits that the Swedish retailer enjoys.

First, IKEA is able to pass their cost savings on to their customers in the form of affordable prices.  This makes them a more accessible furniture retailer for many shoppers and helps differentiate their brand in a fairly commoditized industry. Crowdsourcing their production also ensures that IKEA continues to design products with the end consumer in mind. After all, their furniture isn’t just used by their customers - it’s built by them, too.

The IKEA effect is a cognitive bias in which consumers place high value on product they partially create

The final component of IKEA’s crowdsourced production actually comes to us from the field of psychology. It turns out that IKEA customers place higher value and satisfaction on their products because they helped create them. This phenomenon is called the IKEA Effect, and has been studied rigorously over the years. One of the more popular explanations for this effect is that humans create a link between effort and value.  As such, we place higher value on things that have taken personal effort (much like the sunk cost effect).

In summary, by selling customers an “incomplete” product and giving them responsibility for its assembly, IKEA has actually managed to create higher customer satisfaction, better competitive differentiation, and lower prices for their customers. If that’s not building a better business model, I don’t know what is.

Themes like the IKEA effect are discussed in our reward psychology Ebook

How to Creatively Crowdsource with a Rewards Program

We’ve gone through a few strategies for creative crowdsourcing that are brought to life by a variety of brands in different industries. However, even with all of these examples you might still be wondering what the best way to put creative crowdsourcing to work for your brand is. Turns out that a rewards program just might be the answer you’re looking for.

A referral program is a great reward strategy that allows brands to crowdsource their advertising and turn their best customers into marketers, just like Amazon and Tupperware. When a customer provides a referral to a friend or family member they become the knowledgeable one, and that prestige can be a very powerful motivator that helps spread the word about your brand. Now the effect leveraged by big brands like Tupperware and Amazon can help you reduce your customer acquisition costs, too.

Rewards program cal help you crowdsource but you'll want to make sure you get the one that's right for you.

Another great reward strategy is the classic points program, which can help you harness the power of incentives like Facebook and Instagram. These brands showed us that you can motivate customers to create value on your behalf by providing them with satisfying rewards in return. A points program can help you crowdsource many valuable actions (like referrals and social sharing) by compensating your customers with points that lead to valuable rewards. Since customers have to “work” for these rewards, they’ll value the products they redeem their points for even more - just like the IKEA effect.  This is a bonus feature of points programs that any business can benefit from.

 

When it Comes to Crowdsourcing, the More the Merrier

Some of today’s biggest brands haven’t gotten where they are by themselves. Instead, they’ve used the help of their customers and creative crowdsourcing to create business models that have flipped whole industries on their heads. By thinking a little outside of the box and using a strong rewards program, you too can get your customers involved in your value chain and enjoy the benefits of a crowdsource model.

So what are you waiting for? When it comes to crowdsourcing, the more the merrier!