Module 1: Course Overview And How

Digital Tools Are Changing Product

Table of Contents
Welcome to Marketing in a Digital World ......................................................................... 2
Product Overview .......................................................................................................... 7
Product ......................................................................................................................... 9
Customer Co-Creation (Part 1).......................................................................................12
Customer Co-Creation (Part 2).......................................................................................15
Case Study: Threadless.................................................................................................17
Sharing Economy (Part 1)...............................................................................................19
Sharing Economy (Part 2)...............................................................................................23
Exercise: Ideas.Lego.com 1 ...........................................................................................27
Interview with Martijn Scheijbeler ..................................................................................28
Welcome to Marketing in a Digital World

Welcome to marketing in a digital world, I'm Aric.

And I'm Steve, and we'd like to begin by providing an overview of the course, where we're
going and what we'll learn.

First, let's discuss, Steve, what this course will not cover. This is not an e commerce class,
we will not examine social media analytics, search engine optimization or other digital
marketing tactics. The other courses in our digital marketing specialization will cover these
topics in considerable detail.

This course will be more strategic in nature, broader in scope, and will focus in on how
digital tools such as the Internet, smartphones and 3D printers are changing the marketing
landscape. In essence, these tools are altering the roles and practices of both firms and
consumers. We will examine these tools, introduce some new concepts, and tell some
stories about how firms and consumers are adapting to this changing landscape.

That's right, Steve, this course consists of four modules. Each module will explore one key
foundation of marketing, examine how this foundation is being altered by these digital
tools. Module 1 explores how digital tools are enabling customers to co-create the
products and brands that they consume, this is our product module.

Module 2 examines how these tools are changing the way that product are being promoted
and the role of users in generating content for these promotional activities. Hence, this is
our promotion module.

Module 3 delves into the digitization of product distribution and the changing nature of the
retail landscape, we call this our placement module.

And module 4, surveys the new digital enabled tools and techniques that are empowering
customers to take more control over the price they pay for products they buy, this is our
price module.

We'll examine each of these four modules using a variety of learning modalities, including
interviews, video lectures, case studies, and hands-on exercises.

Now, by engaging in these various learning activities, you should increase your
appreciation for how the foundations of marketing are being reshaped to fit our new digital
world. More specifically, there are four key lessons that we hope you take away from this
course.
First, marketing is a process of value exchange, that is facilitated by the 4 P's, product
promotion, placement and price.

Now, number two is the tools employed in enacting the 4 P's are increasingly becoming
digital and also becoming democratized.

This digitization and democratization are altering the roles of both firms as well as
consumers.

And so, as a result, both firms and consumers need to adopt new practices and change
what they have done in the past.

Finally, this course provides a firm foundation for the rest of the courses in our
specialization.

Are you ready?

I'm ready.
I'm ready, Steve, great.
Let's get started.
Marketing Overview

As you know, this course is titled Marketing in a Digital World. Much of our focus will be on
the latter portion of this title, the digital part. So I wanted to provide some attention to the
earlier portion, the marketing part, by discussing what marketing is and how it influences
the structure of our course.

I've been teaching for over 25 years, and I have found that the term marketing means
different things to different people. For example, some people think of marketing as
advertising, others think of it as sales, and many have a rather negative perception of
marketing as a form of manipulation. Indeed, most portrayals of marketing executives in
movies and television are somewhat unflattering.

Thus, I'm interested in learning what marketing means to you. Please take a look at the
options on the screen and respond to those that you feel best capture the essence of
marketing. We'll examine your responses and hopefully we can discuss them a bit later in
our discussion forums.

In order to gain a better understanding of what marketing is all about, I asked Professor
Steve, "What is marketing?" Here's what he said.

"Thanks, Aric. Hey, here's my definition. Marketing is not just about selling what you make,
but also about making what people want." That comes from Steve Jobs, the co-founder of
Apple.

Thanks, Steve, that was a really great answer. In order to get another perspective, here's
the official definition of marketing, according to the American Marketing Association:

Marketing is the activity, set of institutions, and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients, partners, and
society at large.

In essence, marketing is the enactment of a mutually beneficial exchange between two

parties — a seller and a buyer. We usually think of the seller as a firm and the buyer as a
consumer. However, there are also other types of exchanges such as B2B transactions
between two firms.

Typically, the seller is offering a product. However, a seller could also offer a variety of
other things like a service, an idea, or even an experience. Likewise, we typically think of
the buyer as providing money to acquire this offering. However, buyers also offer other
scarce resources like their attention, time, and energy.
All of this sounds quite wonderful — buyers give sellers money in exchange for valuable
offerings. However, there's more to this story. Two key points are missing.

First, consumers may not fully know what they really want and are often uncertain about
the degree to which a particular product may meet their needs.

Second, there are typically many firms offering competing products. These two factors —
consumer uncertainty and competing offerings — make the marketing process quite
challenging for both firms as well as consumers.

For example, the average U.S. supermarket offers over 100 different types of shampoos. It
would take hours to learn about all their ingredients, potential benefits, and
appropriateness for your hair.

In order to overcome these challenges, marketers have developed a number of useful tools
and techniques. One of the most useful tools in the marketer's toolkit is what is called the
Four Ps.

The concept of the Four Ps was introduced way back in 1960 by Professor Jerome
McCarthy at Michigan State University. Thus, this concept has stood the test of time. The
Four Ps are also known as the marketing mix and provide marketers with a set of tools to
help facilitate exchange.

Let's quickly review each of these Four Ps.

The first is Product. Marketers are likely to be more successful if they offer innovative
products that meet customer needs and exceed their expectations. Another aspect of this
part of the marketing mix is a product's brand proposition, which should be unique and tell
a compelling story. For example, Head & Shoulders shampoo has clearly branded itself as
a shampoo that's specifically formulated to meet the needs of people with dandruff.

Our second P is Promotion. Having innovative products and strong brands is good, but not
enough. Marketers also need to promote their offerings to potential customers.
Traditionally, this has been done via television advertising and sales promotions such as
coupons. For example, Suave shampoo has built a high level of awareness through many
years of television advertising.

Our third P is Placement. Once potential customers are aware of a product and its
benefits, marketers must find a way to physically deliver this product to them. Thus, most
manufactured products are channeled through a set of distributors who deliver these
products to retail stores for convenient purchasing by customers. For example, I
purchased all of these shampoos at a local supermarket located only a mile from my
home.
Our fourth and final P is Price. When customers see products at the store, they must
decide which one they will purchase. One of the main factors that influence this decision is
the price of the various product offerings. Thus, picking the right price is a very important
marketing decision. Marketers can employ a wide variety of different pricing strategies,
ranging from value pricing to premium pricing.

Over the past few decades, by strategically employing these Four Ps, marketers around the
world have been able to effectively facilitate valuable exchanges with their customers.

Recently, the digital evolution has provided marketers and customers with a new set of
tools such as the Internet, the smartphone, and the 3D printer.

In the remainder of this course, we'll examine how these new tools are fundamentally
altering these four components of the marketing mix.
Product Overview

The first of the four P's is Product. A product is really anything that fulfills a customer need
or want. We usually think of a product as a tangible good, such as a bottle of Coke.
However, it could be a service or even an idea.

As we discussed a bit earlier, in most categories there are multiple firms competing for the
same customers. Thus, in order to be successful, a product must have a distinctive selling
proposition. In marketing, we typically refer to this as a product's positioning. This
positioning can be functional, based on actual product differences, or symbolic, based on
how a product is perceived. For example, Coke fulfills our need for thirst as well as our
desire for belonging because it's positioned as being an original and iconic cola. As you
probably heard, "Coke is it."

The product portion of the marketing mix has a number of key concepts, including product
quality, managing a firm's product line, and product service support. In this module, we'll
focus on two fundamental concepts: product development and brand management.

Let's first take a look at product development. Innovation is a critical element for most
products. Firms that are more innovative typically enjoy greater market success. Good
examples of this are firms such as Apple, Google, and Netflix. These firms create both new
products as well as new business models.

In marketing, we refer to these types of firms as examples of radical innovation that

disrupts traditional practices. Since these types of radical innovations are rather unusual,
most firms engage in what is known as incremental innovation, which focuses more on
improving existing products rather than creating entirely new ones. For example, through
its history, Coke has been successful in introducing a number of extensions to its cola line
by launching products such as Diet Coke (also known as Coke Lite), Coke Zero, and Cherry
Coke, among many others. This type of line extension strategy can be quite successful by
helping a firm target different offerings to different segments. For example, Diet Coke is
targeted toward women, while Coke Zero focuses more on men.

To develop these new products, most firms employ a cross-functional team comprised of
managers across different parts of the business, such as marketing, sales, operations, and
R&D.

These team members usually follow a very carefully scripted product development
process such as the stage-gate method, in which the development of a product moves
systematically from conceptualization to launch in various stages. At each stage, data is
collected, progress is monitored, and approval from higher authority is sought. This
process is often quite secretive in nature, and those outside the firm typically have little, if
any, involvement. For example, during the stage-gate process, consumer insights are
sought at only two points: the beginning and the end. Moreover, because this process is
meant to be confidential in nature, only a small number of consumers are asked to provide
their input. Although these new product development processes are well established and
carefully managed, most new products still fail.

Now let's take a look at brand management. A brand is a name, symbol, or design that
differentiates a firm's products from its competitors. This differentiation can represent
both tangible differences, such as better taste, or intangible ones, such as a particular
color. For example, the Coke brand is differentiated not only by its name but also by the
font it uses, the design of its bottle, and the collarette.

Strong brands help consumers decide what to buy and provide them with not only greater
confidence but also a sense of identity. Strong brands are also beneficial to firms by
allowing them to charge higher prices, enjoy greater loyalty, and experience enhanced
profitability. This results in what marketers term brand equity, which is the value of a brand
over a generic product in the same category.

Brand equity is a substantial intangible asset for many firms. For example, Coke's brand
equity is estimated to be worth over $100 billion, which represents over 40% of the firm's
total market value — that's a lot. Given the high value placed on brand equity, most firms
focus on building strong brands by carefully choosing brand elements such as its name,
color, and brand symbol, and also by building strong associations through advertising
campaigns and protecting their brand through trademarks.

Usually, these functions are closely managed by a brand management team whose main
job is to manage the health of a brand over time. As we just discussed, both product
development and branding are typically decisions made by a firm's brand managers with
little input from customers or external entities in general. For example, in the typical new
product development process, consumer input is solicited only at the concept testing
stage and the test market stage. Even then, only a small number of customers are asked to
provide any input at all.

Now, this firm-centered approach is starting to break down due to the rise of digital tools.
For example, the Chicago-based T-shirt manufacturer Threadless has no design staff. All of
its T-shirts are designed and selected by its customers using a web-based platform in
which designs are submitted, viewed, and voted upon by the crowd.

In this new digital marketing environment, we are moving from firm-created products and
brands to co-created products and brands. In this module, we'll discuss how this co-
creation process is changing how firms create products and also manage brands. I think
you'll find this discussion to be eye-opening, and it will likely change the way you think
about this aspect of the marketing mix.
Product

We are here on the beautiful University of Illinois quadrangle, which is the heart of campus
and one of the most beautiful quadrangles of any campus in America. Is that right, Steve?

Perhaps the world.

Perhaps the world. And we're here today to find out what Illinois students, faculty, and
general folks who pass by know and think about marketing in a digital world.

Now, let's get to it, let's find some people.

I like your enthusiasm, Steve.

All right. [LAUGH]

Do you know what the term customer co-creation is?

I don't.

I do not.

Okay.

I do not.

Okay.

No, I don't.

Okay.

That's okay.

What does that sound like to you?

I have no idea.

Customer co-creation—based on the name itself, it sounds like the product owners and
the customers themselves cooperate in the development of the product itself.

You are correct, sir.

So a good example would be Legos.

Okay.

Have you ever played with Legos?

Yes.

All right, have you heard of the site mylegoideas.com?

Yes.

Really?

Yes.

What do you know about it?

My kids love it.

Really?

Mm-hm.

So you do know about co-creation?

I didn't know that was a term, but sure.

Okay.

So, you've heard of mylegoideas.com?

Yeah, if me or my kids or you have a new idea, you can just submit it there.

Yeah.

And if enough people vote on it, Lego might actually make it. And if they make it, they'll give
you some of the money for it.

I didn’t know about it before, so let me try at home.

Absolutely.

Today I will try it.

Okay, so second question is, have you heard of the sharing economy?

No.

Mm-hm.

I'm not.

In a sense, yes, it's separate from the gig economy, but I would say it's—

No.

Have you ever taken an Uber?

I have not, actually.

Really? Or Lyft, or any sort?

No.

Really?

Yes.

Interesting. Have you ever taken an Uber while you're here?

No.

Really? Okay.

Lyft?

No.

Have you ever taken an Uber while you're here?

Yes.

Okay, Uber is a good example of the sharing economy because it's a person sharing their
car to get another person somewhere, right?

You had mentioned Airbnb—that's a great example of the sharing economy.

Customer Co-Creation (Part 1)
Innovation happens everywhere, but there is simply more elsewhere than here, Goldman
and Gabriel. This quote by two former Sun Microsystems executives nicely illustrates the
growing recognition that companies can enhance their innovation activities by leveraging
the knowledge, skills, and resources of external contributors.

This is really the core idea of customer co-creation—the realization that customers can
help companies improve their new product development activities by both contributing
ideas and selecting ideas for possible new offerings. Over the past decade or so, a growing
number of firms are leveraging the power of online platforms to ask consumers to
contribute and select ideas for new products. Thus, in our new digital age, customers are
not only buying products, they may also be helping to design and develop them. This is a
radical departure from the more traditional, internally focused innovation process that
most firms used prior to the digital revolution.

Now, here are three great examples of customer co-creation. Unilever is one of the world's
largest manufacturers of consumer packaged goods and markets a variety of well-known
brands such as Dove soap, Hellmann's mayonnaise, and Lipton tea. It was established
nearly 100 years ago, markets over 400 products, and makes billions of dollars in profits
each year. Despite this success, Unilever actively solicits external ideas through the
Unilever Foundry. This platform posts a number of challenges and invites anyone to
contribute their ideas about how to solve these problems. While many of these challenges
are technical in nature, such as seeking novel ingredients and materials, anyone over the
age of 17 is invited to submit ideas. If your idea is selected, Unilever provides you with a
share of the commercial proceeds.

T-Bo is a new U.S. company that makes and markets men's underwear. Co-creation is a big
part of T-Bo's corporate DNA, and it openly invites men from around the world to
participate in its co-creation community. For example, its customers can apply to join the
T-Bo Tribe by offering ideas for new products. As stated on its website, "As part of the T-Bo
Tribe, you get to decide what your ideal bodywear should look and feel like." Thus, it's a
great example of a company strongly embracing the idea of customer co-creation.

Threadless is a Chicago-based clothing firm that specializes in producing creative t-shirt

designs. It was voted as one of the most innovative companies in America and has
embraced co-creation from the very start. All of its t-shirt designs are created by and voted
upon by its customers—thus, Threadless is essentially a co-creation platform rather than a
traditional clothing company. We'll discuss Threadless in greater depth in our case study
for this module.

Co-creation is defined as contributions made by customers that assist a firm in the design
and development of a new product offering. I'm using the term customers quite broadly—
these contributions may also come from non-customers. These contributions are usually
made via websites and often come in digital form, making them a good example of a new
digital tool.

Customer co-creation is a fascinating topic and comes in many variations. Thus, there are
lots of aspects we should discuss. For the purpose of this discussion, I'd like to focus on
three key things you should know:

One, the steps involved in co-creation. Successful customer co-creation requires two key
steps:

1. A firm must get its customers to submit contributions.

2. The firm must then select a few valuable contributions from a larger set, many of
which may not be useful.

Thus, we can think of customer co-creation as a process of both contribution and

selection. Both of these processes are challenging, but for different reasons.

Contributions are challenging because customers are busy, usually care little about your
product, and have little incentive to spend time providing ideas. As a result, many co-
creation efforts fail because submissions are too low.

Selection is challenging because most submissions are not useful—they may be too
idiosyncratic, too expensive to implement, or may have already been tried. As a result,
firms face the difficult task of rejecting customer submissions, and risk alienating some of
their most engaged customers. Thus, for co-creation to be successful, firms must both
convince customers to submit ideas and then reject these ideas without damaging
relationships.

Two, how to motivate customers to engage in this activity. Research suggests two main
methods for motivating customer participation:

1. Social recognition
2. Financial reward

Most firms that are successful in customer co-creation employ both types of rewards,
usually awarded to customers whose contributions are selected.

For example, customers who submit winning designs to Threadless receive a percentage
of sales for any product using their design, as well as the intangible benefit of having their
name and design featured as a winner on the Threadless website.

Three, different types of co-creation. Customer co-creation is a broad category that

includes various forms. Research by Professor Eric and Matt O’Hearn (now a professor at
Indiana University) identified four different types of customer co-creation, illustrated
through a two-by-two matrix. This matrix is based on the two key steps in co-creation:

1. Contribution
2. Selection

As you can see from this matrix, we outline four distinct types of customer co-creation:

1. Collaboration
2. Co-designing
3. Tinkering
4. Submitting

These four types differ based on the amount of control that firms exercise over the
contribution and selection processes.

Collaborating is the form where firms have the least amount of control, while submitting is
the form with the greatest amount of control.

This matrix helps understand and classify different types of co-creation activity. For
example, Unilever’s co-creation activities fit into the submitting category, while
Threadless’s approach fits into the co-designing category.

Now, here’s Eric to discuss some academic insights about customer co-creation.
Customer Co-Creation (Part 2)

Co-creation is an important area of marketing scholarship and there are many interesting
books and articles in this domain. I'd like to tell you about two of my favorite recent studies
on this topic. This first academic insight is actually a book chapter that I recently published
with one of my former students, Greg Fisher. Greg is now at Miami University in Ohio. This
chapter was published in the PDMA Handbook of new product development. Greg and I
began this chapter by noting that many co-creation platforms by well known companies
such as Dell and Starbucks have recently been discontinued. We point this out to illustrate
the fact that co-creation is a very difficult task. In particular, we identify two key
challenges. First, convincing individuals to contribute ideas to your firm and second, being
able to select the good ideas from the bad. To help firms overcome these challenges, we
offer a number of key success factors which we draw from both our own research in this
domain as well as our review of the work of other co-creation scholars. For example, a key
factor for enhancing contribution is to be able to consistently attract new contributors.
This is important because most successful contributors have only one good idea. We refer
to this as the rule of one. Thus, firms that engage in co-creation need to study inflow new
contributors over time. A key factor for enhancing selection success is to protect
contributors' egos. This is important because in most co-creation platforms, more than
90% of ideas contributed are actually rejected. Thus in order to avoid hurting anyone's
feelings, we suggest that firms try to avoid being viewed as the villainous and instead enlist
the help of the members of its co-creation community to help select these ideas. With this
approach, rejections are likely to be viewed as coming from the crowd rather than from the
firm. We also offer a co-creation readiness scorecard that contains twelve questions that
firms can use to conduct a self assessment of their readiness to engage in co-creation. A
copy of the scorecard is available in the supplementary readings for this module. In this
article, which was published in the 2024 volume of Marketing Science, Professor Jason Bell
from Oxford University and his collaborators asked the question, can AI be used to help
firms screen ideas contributed to crowdsourcing contest?

They did this by creating a series of AI models that they trained on over 4,000 ideas
submitted to over 20 different crowdsourcing contests conducted by Hyvee, which is a
large US grocery store chain. They then compared the ability of these various models to
screen out bad ideas. This approach led to a number of rather interesting findings. Perhaps
the most interesting result was that none of these various models were able to match the
ability of human experts in terms of selecting the best ideas. However, this study also
revealed that AI models are quite effective in terms of screening out bad ideas and on
average can screen out nearly half of the bad ideas contributed to these crowdsourcing
challenges. Finally, this research revealed the most effective AI model for this task is a
rather simple approach called word atypicality that screens out ideas that are described
using atypical or unusual words. In sum, this research suggests that firms that engage in
co-creation can save considerable time, money and effort by employing AI to assist
managers in the idea selection process by screening out bad ideas.
Now that you've learned a little bit about what customer co-creation is and how it works,
here are four recommendations for putting this concept in practice. One, the rule of one.
When firms engage in the new product development, they carefully test their ideas and
concepts to ensure that they appeal to the broader set of target consumers. In contrast,
when consumers contribute their new product ideas, they dont engage in this type of
process. As a result, many of their ideas are idiosyncratic in nature and may not appeal to
others. For example, I prefer tea over coffee. Thus if Starbucks asked me for my ideas, I
would suggest that they have offered more tea and less coffee. This would probably be a
bad idea since most Starbucks customers seem to prefer coffee to tea. As a result of these
types of idiosyncrasies, typically only 1% of all customer contributions are useful enough
to implement. This is a really low percentage. Thus, in order for co-creation to work,
companies need to get a lot of ideas and provide incentives for customers to contribute.

Two, authenticity is critical. In our new digital age, authenticity is becoming increasingly
important and customers are becoming increasingly skeptical and critical. As a result,
customers are much more likely to contribute their ideas, time and energies to companies
that have an authentic need for their help and are not just trying to exploit their efforts for
commercial gain. For example, customers are quite willing to contribute t-shirt designs to
threadless because of its co-creation activity is highly authentic. It started as a co-creation
company. In contrast, customers would be likely less willing to contribute ideas for t-shirts
to a traditional t-shirt manufacturer that employs a large number of designers.

Three, patches and badges, we all like to be rewarded for our efforts. Customers who
engage in co-creation are no exception. Thus, most successful co-creation efforts award
successful co-creators not just financially, but also through some visible symbol of
recognition. For example, the US space agency NASA rewards co creators by giving them a
special patch they can proudly display. In fact, NASA found that this patch was a stronger
motivator than actually financial rewards.

Four, don't be the bad guy. As noted earlier, one of the dangers of customer co-creation is
the possibility of alienating customers by rejecting their contributions. One way of reducing
this risk is engaging your broader customer community to evaluate and vote on these
contributions. For example, LEGO, which solicits customer ideas for its new designs via its
my Lego Ideas website, relies on its customer community to evaluate these ideas. Thus,
fellow customers are rejecting these ideas rather than LEGO itself. This helps reduce the
sting of rejection and avoids making LEGO look like the bad guy.

Eric and I hope that you enjoyed this examination of customer co-creation and that this
concept helps enrich your digital marketing toolkit.
Case Study: Threadless

Many people like to wear t-shirts. They're comfortable, inexpensive, and are easy to clean.
On top of this, t-shirts are also a form of self-expression. Many of us wear t-shirts that
contain a name or image of things we like, places we've been, or causes we support. For
example, my favorite t-shirt contains a logo of the Illinois Maker Lab, the world's first 3D
printing lab in a business school, which is located in the Gies Business Instructional
Facility right here in Champaign, Illinois. Although this is my favorite t-shirt, my favorite t-
shirt manufacturer is a company called Threadless, which is located just a few hours north
of here in Chicago.

If you've watched the co-creation lecture, you already know that the designs that
Threadless prints on its shirts have been co-created by people like you and me. I like lots of
their designs and have purchased several Threadless t-shirts over the years. For example,
here's one of my favorite shirts.

The purpose of this case study is to illustrate and apply the concept of co-creation to an
actual business. First, here's some background. Threadless is an online retailer that sells t-
shirts as well as other types of clothing and accessories that contain unique designs. All of
its designs are submitted and selected by the crowd. The winners of their weekly design
contest obtain the satisfaction of having their design and their name featured on the
Threadless website, and they also receive a small monetary reward. Threadless was
established back in the year 2000 by Jake Nickell and Jacob DeHart. They were both in their
early twenties and had an interest in computers and art. Jake and Jacob started Threadless
because they wanted to provide an online forum for hosting design contests. This forum
was very popular and Threadless rapidly expanded in terms of both sales and employees.
By 2004, Threadless was earning over a million dollars in profits each year, and it began
attracting considerable attention from the business community. Threadless opened up a
retail store in the north side of Chicago in the year 2007 and was named the most
innovative small company in America by Inc. Magazine in 2008. Back then, Threadless
seemed like an incredible success story.

Then, around the year 2014, the Threadless magic began to fade. Sales had slowed and
profits were down. In response, Threadless laid off about 25% of its workforce and closed
its retail store in an attempt to cut costs. Since then, its social media followers have
steadily declined, and Threadless is rarely, if ever, mentioned in the business press. In an
attempt to stimulate greater engagement, Threadless began giving winning designers a
percentage of royalties for each sale.

They also created a new feature called Artist Shops that allows individuals to sell their
designs directly to Threadless customers without having to enter a design contest at all.
Now, here is the key issue in this case. Threadless was one of the first and best examples
of co-creation. However, in recent years it's begun to lose some of its luster. The assigned
reading provides an overview of some of its struggles. Although Threadless is still in
business and appears to be profitable, it hasn't experienced the runaway growth that
many, including me, expected.

In sum, Threadless appears to be at a stage of maturity and is trying to figure out what to do
next. Its business model still relies heavily upon a co-creation strategy. However, it is
unclear if this strategy will enable Threadless to reach the levels of growth that many
anticipated. As you evaluate this case, consider three different constituencies. First, the
community. As discussed earlier, all of Threadless's t-shirt designs come from this
community of designers. Since its inception, Threadless has received nearly 700,000
submissions and printed only around 12,000 of them. So only about 2% of submissions are
actually selected. In other words, 98% of all submitted designs are rejected. Over time, if
an individual's designs keep getting rejected, they're probably less likely to submit designs
in the future. So Threadless needs to keep attracting new designers in order to support its
co-creation model. In addition to designing t-shirts, Threadless also relies upon its
community to help select the winning designs. Thus, maintaining a large and active
community is critical to the success of its co-creation strategy.

Second, competition. Given Threadless's widely publicized success, a number of new

competitors have entered this market and have begun to sell co-created t-shirts, including
companies such as Teespring, TeeFury, and Design By Humans. Several of these
competitors offer comparable products at a lower price. Thus, Threadless is no longer as
unique as it once was.

Third, and finally, customers. Little is known about Threadless customers. However, we do
know that its initial customers from back in the early 2000s are now approaching middle
age. Thus, they probably don't wear t-shirts as often as they used to. On top of this, its
younger customers are likely to view Threadless as just another t-shirt company rather
than an innovative startup. Also, many young people today are quite skilled with digital
design and can easily get their own t-shirts printed through companies such as Café Press.

Given this information, I would like to evaluate Threadless's co-creation strategy by

answering the following three questions. First, what are the strengths of Threadless's co-
creation strategy? Second, what are the weaknesses of this strategy? And third, how could
Threadless improve its co-creation strategy? What tactics or tools could they use to
enhance their success?

Well, I hope you enjoy working on this case study. I look forward to seeing your thoughts.
Thanks for sticking around. Here's a fun bonus fact: Threadless's former Chief Technology
Officer, Harper Reed, left Threadless to become the CTO of President Barack Obama's
2012 reelection campaign. Pretty cool.
Sharing Economy (Part 1)

"Sharing is good, and with digital technology, sharing is easy." This quote by Richard
Stallman, the pioneer of the open-source movement, nicely illustrates that things are easy
to share when they're digital. This is due in large part to the ability of digital tools to connect
individuals like you and me in ways we have never been connected before.
When we think about how new digital tools foster connections, we usually think about
smartphones, texting, or social media. Another important aspect of increased connectivity
is the sharing economy. In essence, the sharing economy connects individuals who have
things they want to share with individuals who need these things.

This new economy has begun to change the way we travel, what we wear, and how we
obtain money. Although most people are probably familiar with the term "sharing
economy" and may have even participated in some form, it is still relatively new. Airbnb
was established in 2008, and Uber was launched in 2009. So, the sharing economy really
wasn't a thing until around 2010, and most people across the world still don’t yet
participate in this new economy.

For example, recent statistics reveal that only around 40% of Americans have tried a ride-
sharing service such as Uber or Lyft. Thus, there is still considerable market opportunity in
this domain. According to some estimates, the value of the sharing economy is increasing
exponentially and will be worth over $700 billion by the end of 2030. Thus, we are still in the
early stages of this new economy.

Since it's still quite new, there are still lots of questions about the sharing economy. For
example, we don't know how profitable this business model will be—right now, many
sharing platforms appear to be losing money. We also don’t know much about how sharing
economy platforms impact traditional businesses, or how those businesses should
respond to this potential threat.

And finally, and perhaps most importantly, the social impact of the sharing economy is a
topic of considerable debate. On one hand, the sharing economy has been viewed as
having a positive effect on the environment by making greater use of existing resources. On
the other hand, it has also been criticized for paying providers low wages and providing few
benefits.

In this video lecture, we’ll take a look at what the sharing economy is and how it works.
Here are three good examples of sharing economy platforms and their business models.

When most people think about the sharing economy, Uber is one of the first examples that
come to mind. Uber was formed in California in 2008 and was the first car-sharing
platform.
Today, Uber has over 150 million riders and 6 million drivers and earns billions of dollars
each year in revenue. In addition to giving rides to passengers, Uber also has a variety of
additional offerings. For example, it recently introduced a very successful food delivery
service, Uber Eats, and provides transportation by motorcycle in countries such as India,
Indonesia, and Pakistan.

If you live in New York, you can rent a helicopter from Uber Copter that will whisk you from
lower Manhattan to JFK airport. Now, most recently, Uber is experimenting with a robo-taxi
service that may one day replace its drivers.
Rent the Runway was launched around the same time as Uber in 2009, but is not nearly as
well known. Rent the Runway is a sharing platform for designer clothing that allows
customers to rent a variety of expensive dresses, sweaters, and jackets for a fraction of the
cost of buying them.

In contrast to Uber, Rent the Runway actually owns the products that it shares, so it
doesn’t rely on external providers. Also, rather than paying on a per-usage basis, Rent the
Runway offers a set of different monthly plans.

Another unique feature of Rent the Runway is that it is not just a digital operation—it also
has a small number of physical retail locations in major U.S. cities such as New York,
Chicago, and Los Angeles.

LendingClub is actually older than both Uber and Rent the Runway. It was founded in
California in 2006 and is the world’s largest peer-to-peer lending platform. In essence,
LendingClub is an Uber for money.

Individuals who would like to borrow money can create a listing on LendingClub's website,
detailing information about the borrower, how much they need, and what they plan to do
with the money. Investors—people like you and me—can fund these loans in amounts as
low as $25 and make money from the interest, which is usually between 5% and 25%.

The average loan is around $15,000, and is usually sourced from hundreds of investors
who all contribute a small amount. By all accounts, LendingClub is quite successful, with
a low rate of loan default and a high rate of return on investment.
There are many different definitions for the sharing economy. The definition we’re going to
use comes from a recent article that Eric wrote on this topic with colleagues from

Boston University and the University of Pennsylvania.

Essentially, in this article, they define sharing economy firms as technology-enabled
platforms that provide users with temporary access to resources that may be
crowdsourced.

Thus, this definition has three key components:

1. They are inherently digital in nature and run on technology platforms.
 2. They grant temporary access rather than permanent ownership.
3. The resources that are accessed are often, but not always, owned by external
individuals.

Deeper dive—there are many interesting aspects of the sharing economy. For the purpose
of discussion, let’s take a deeper dive into each of the three characteristics of sharing
economy firms identified in our definition.

One, two-sided platform. Most firms that we think of as members of the sharing economy,
such as Uber and Airbnb, typically operate via a two-sided platform. In essence, a two-
sided platform is a business model that requires a firm to recruit both customers and
providers.

In contrast, a traditional firm usually only has to attract customers, because they create
their own supply of products and services. Thus, sharing economy firms have to market
themselves to create both demand and supply—this is not an easy task.

Due to this challenge, some sharing platforms have decided to own their own supply of
resources. For example, Airbnb has moved into real estate development, building housing
units uniquely designed for listing on its platform.

Two, crowdsourced supply. Although some sharing platforms own their own supply, most
crowdsource their supply—housing, transportation, or money—from a large group of
external individuals who are not employees.

Because they’re not employees, sharing platforms have limited control over these
individuals. As a result, the quality of the sharing economy offerings is often inconsistent
and harder to control compared to a traditional firm.

For example, if you use a ride-sharing platform such as Uber, you’ve probably had some
really great drivers and some not-so-great ones—I’ve experienced that myself.
To address this challenge, sharing platforms employ three strategies:
1. Careful selection, usually through background checks.
2. Training, giving providers a set of rules and procedures to follow.
3. Rating systems, encouraging customers to rate their providers and eliminating
providers with low ratings.
Three, access is not ownership. The feature most commonly found across nearly all
sharing platforms is that they provide temporary access rather than permanent ownership.

This has several important implications. First, by providing temporary access, customers
can try products and services they wouldn’t normally get or want to own. For example, the
car-sharing platform Turo allows individuals to try out luxury automobiles at a fraction of
the ownership cost.
Sharing economy scholars also suggest that brands accessed rather than owned are less
central to our self-identity and create lower levels of brand attachment.
Thus, brands may be less important in the sharing economy than in traditional markets. For
example, Uber riders have no control over the brand of the car that picks them up, and they
tend to care more about the driver than about the vehicle.
Now here's Eric to discuss some academic insights about the sharing economy.
Sharing Economy (Part 2)

Thanks, Steve. Over the past few years, the sharing economy has captured the attention of
many marketing scholars. I'd like to share two recent academic articles about this topic. I
think you'll find both articles to be quite interesting.

In this first article, Domino Badje from the University of Southern Denmark and his
collaborators examined the influence of social movements upon the emergence of the
sharing economy. This article was published in a journal called Marketing Theory in 2024
and entails an archival investigation into the origins of the sharing economy.

Their investigation suggests that the sharing economy can be traced back to 2009, and that
this emergence had two main influences: First, the sharing movement in the U.S., and
second, the collaborative consumption movement in the U.K.

One of the key voices in this early stage was a 2010 book by Rachel Botsman titled What's
Mine is Yours: The Rise of Collaborative Consumption.

This article also suggests that one of the key premises of the sharing economy is a belief
that capitalism and consumerism may be harmful to society as well as the environment.
Thus, in essence, the sharing economy was promoted as an alternative and somewhat
preferable approach to access the resources we need.

This is an interesting finding. As you may know, a growing number of people are
questioning both capitalism and consumerism and are increasingly concerned about their
potential negative effects. For example, here in the U.S., about 40% of adults have a rather
negative view of capitalism. Thus, a growing number of firms may wish to embrace the
ethos of the sharing economy to appeal to this large audience.

In this recent article published in the Journal of Product Innovation Management, my

doctoral student Erika Lee, myself, and Praveen Kapali, who is a professor at Dartmouth
College, examined how innovation occurs in sharing economy firms. Specifically, we
propose that sharing economy platforms differ from traditional firms in two distinct ways.

First, with sharing platforms, offerings are often crowdsourced from a wide range of
providers rather than coming from a single firm. Second, offerings are temporarily
accessed by users rather than permanently owned. Thus, we propose that sharing
economy platforms can innovate in terms of either how their offerings are sourced or how
users access these offerings.

We apply this perspective to Uber.

We examine around 50 different innovations offered by Uber since 2009. This examination
reveals that the majority of its innovations are offerings that are crowdsourced in nature
and grant temporary access rather than permanent ownership.

Good examples of this include Uber Copter, which is a service that provides customers
with access to crowdsourced helicopters, but only in New York City, as well as Uber Cats,
which allowed individuals to essentially rent a cat.

However, we also found that many of Uber's recent innovations are starting to resemble
traditional innovation practices. For example, they recently launched a service called Uber
One, which is an exclusive membership program similar to Amazon Prime that provides
members with special upgrades such as access to premium support and member-only
services.

In sum, this research suggests that as sharing economy platforms like Uber begin to reach
a stage of maturity, they are starting to resemble more traditional firms.
Now that we've learned a little bit about what the sharing economy is and how it works,
here are four recommendations for putting this concept into practice.
One, leverage your prosumers.

As we discussed earlier, most sharing platforms rely on crowdsourced resources. The

individuals who provide these crowdsourced resources are often called prosumers, a
contraction of producer and consumer.

In addition to providing resources to be shared, prosumers can provide sharing platforms

with a variety of other benefits.

For example, ride-sharing services such as Uber use prosumers not only to provide
vehicles but also to communicate with riders. Likewise, lending platforms such as
LendingClub use prosumers to both provide funds and help screen loan applicants.
Thus, sharing economy firms should carefully think about how they can fully leverage their
prosumers.

Two, employ reverse ratings.

Traditionally, consumers rate providers, not the other way around. However, in the sharing
economy, a growing number of platforms employ reverse ratings, where providers also rate
customers.
Recent research suggests that about 80% of customers approve of this practice and
believe that giving providers the ability to rate customers is a desirable feature for sharing
platforms such as Uber and Airbnb.
As we discussed, most sharing platforms are two-sided in nature. Thus, sharing economy
firms must consider how to acquire and retain not only customers but also providers.
Employing a reverse rating system helps accomplish this goal by giving providers more
information about potential customers, which they can use to determine if they want to
serve them.

Three, ride the surge.

One of the major tasks that sharing platforms need to perform is matching supply and
demand.

During busy times, the supply of providers may be smaller than the demand for their
services. A traditional firm can solve this by hiring and firing workers as needed, but since
sharing platforms don’t have employees, that approach isn’t possible.
Some sharing platforms, such as Uber, tackle this problem by engaging in surge pricing.
In essence, surge pricing is a dynamic pricing strategy in which an algorithm adjusts
current prices to meet current demand.

Surge prices are usually between two to three times higher than normal prices.
A growing body of research suggests that surge pricing is effective at balancing supply and
demand by reducing the number of customers while increasing the number of providers
willing to serve.

Four, position on price.

This last recommendation also focuses on price. Sharing economy platforms are believed
to offer numerous benefits.

For example, since people are sharing resources such as clothing and cars, the sharing
economy is often seen as a more sustainable form of consumption.
In addition, because providers are often prosumers, sharing platforms are also viewed as a
way to build a stronger sense of community. For instance, Airbnb claims that its hosts are
part of a global community creating a world where anyone can belong.
While these things sound great—environmental sustainability and community building—
research suggests that higher-order values are not the main reasons customers use
sharing platforms.

Instead, the key advantage of these platforms appears to be lower price and greater value.

When prices rise, consumers defect. For example, Airbnb has faced criticism for hidden
fees, which often make it more expensive than a hotel.

Likewise, in some places, such as New York, hailing a taxi may be cheaper than taking an
Uber.

As a result, a growing number of consumers are questioning the sharing economy's value
proposition.
Thus, sharing economy platforms should market their offerings as a way to save money,
rather than save the world.

Eric and I hope that you enjoyed this examination of the sharing economy and that this
concept helps enrich your digital marketing toolkit.
Exercise: Ideas.Lego.com 1

If you're like me, you probably played with Legos as a kid — perhaps some of you still do. In
addition to being one of the world's most popular toys, Lego is also one of the planet's
most valuable brands. Thus, this is a great example for our first exercise on customer co-
creation, in which we take a look at a popular co-creation initiative called Lego Ideas.
LEGO was established in Denmark way back in 1949, and since then, it has sold its bricks
to over a billion people across our planet. Many of these folks — perhaps all of them —
have reassembled these Lego bricks into combinations the company never imagined.
Hence, there is lots of untapped creative potential that can be used to generate new
products. That's exactly what the Lego Ideas initiative is all about.
The Lego Ideas platform, officially launched in 2014, allows fans to submit new product
ideas or concepts for new Lego sets. Every month, this website receives hundreds of
submissions from Lego fans all across the world, and it also allows other fans to support
these ideas. If a given submission receives 10,000 supporters, it is then officially reviewed
by the Lego team for possible development as a new product.
On average, Lego launches about ten of these ideas as official new products each year.
Thus, this initiative plays a key role in Lego's product development strategy.
The goal of this exercise is to gain a deeper understanding of how firms employ co-creation
through digital platforms and how people respond to these types of initiatives.

Here’s what you need to do to complete this exercise:

First, please go to ideas.lego.com, or simply type "Lego Ideas" into your web browser.
Second, once you're on the Lego Ideas website, you'll notice a menu bar at the top of the
page. Click on the Explore tab, then under Collection, select Product Ideas. This will allow
you to see all the different ideas that have been submitted to this website.
Just take a look at them and pick three ideas that you like. You will see a description of the
idea and perhaps the inspiration behind it. Please read this description and also take a
look at the comments. Pay close attention to what people are saying about the idea.

Do this for three different Lego Idea submissions — that's it, really easy!
Here’s what you need for your assignment:
1. Record the names of the three ideas you examined.
2. How did this co-creation platform make you feel about Lego in general?
3. What type of co-creation is Lego using in this platform? Is it collaborating, tinkering,
designing, or submitting?
4. What is Lego's broader strategy? What might be the goals of this initiative?
Finally, before we leave, let's check in with Professor Steve.
"My Lego creation is alive, it's alive!"
Interview with Martijn Scheijbeler

Welcome to our first expert insight. In this module, I interview Martijn Scheijbeler. Martijn is
the Vice President of Marketing for a company called RVshare, which is a platform for
sharing recreational vehicles, also known as RVs, and thus he's an expert on the topic of
the sharing economy. Welcome, Martijn, thank you for joining us.

Yeah, thank you so much for having me.

So I am the VP of Marketing of RVshare, which, like you said, is a recreational vehicle rental
marketplace, also known in other parts of the world as camper vans or caravans, or
basically like travel trailers. I spend my days helping to get more people interested in
reaching RV owners to help them rent out their RV to make additional income.

We found in research that about 87% of the year, people who own an RV aren't using it—it's
sitting in their driveway or in storage. They usually take it out for about five weeks a year,
primarily on weekends, but for the rest of the year, they aren’t using it. The problem,
especially with an RV, is that it's a depreciating asset. Unlike a house that might increase in
value over time, an RV loses value. If you compare that to a car, which also depreciates
and which people usually don't keep for ten years, you see a similar pattern.

What we try to facilitate for RV owners is helping them create an additional side income to
help pay off their RV. While they’re not using it—like the 87% of the time—it can generate
income on the site by being rented out.

Owners have the option to either deliver the RV to a campground if they feel more
comfortable with that, so renters don’t need to drive it themselves. Or the renter could
simply pick it up from the owner's house, use it for a few days, and return it. Through that
model, owners can pay for some of the RV’s cost.

As a marketplace, we’re not in the business of owning these RVs, but if we can facilitate
the process to make it easier for others to own and rent them out, that's a great opportunity
we see.

What we provide is the ability to rent out RVs, but I think what you see in general within the
sharing economy is that more and more things are available to rent or share. This is one of
the most extreme examples of how the sharing economy has evolved. It used to be about
renting out your vacation home, and then it moved to cars, and now things like bikes and
more.

What you're seeing now, and what’s already happening, is that more assets that people
own—like your Instapot, a small oven, or big items like RVs or storage units—could be
rented out. So the types of things available to share are becoming much broader. I think
you’ll also see more marketplaces popping up to facilitate this process.

One specific trend we’re seeing is that things are becoming more local, and that’s also
happening with RVshare. The more RVs we have on the platform, the closer renters can
pick them up. For example, people are willing to travel 10 to 20 miles to pick up an RV, but
as we add more RVs to the platform, people could rent the RV sitting in their neighbor's
driveway.

The additional value we provide is helping to professionalize that process. That’s another
trend—there are so many opportunities to professionalize both marketplaces and the
sharing economy overall.

What we just discussed, like helping pay off the RV, can start right from the moment
someone is thinking about buying an RV. We can help them professionalize the rental
process as well.

You'll see this trend in other categories too. Think about how Uber and Lyft have different
categories of drivers—from pool to Uber Lux. There’s a clear difference in service quality,
and that can be influenced by professionalizing parts of the sharing economy.

What we compare ourselves to is the hotel industry, where people expect a seamless
booking experience and that amenities like towels and Wi-Fi are provided. In many parts of
the sharing economy, these standards aren't yet established.

For example, in car sharing, over time, it became an expectation that a bottle of water is
available in the car. I think you're going to see imaginary standards develop in other sharing
economy sectors too—things that will become expected as part of the borrowing or
sharing process. The bar will be raised, sometimes to a normal level, but providers who go
above and beyond could be more successful.

So, I think this ties back to being more local and professionalizing. There will be a higher
bar. Another trend we're seeing is that local sharing will become more important,
especially for smaller assets.

For example, platforms like Nextdoor, Facebook Marketplace, and Craigslist are already
local platforms and part of the sharing economy. I think you'll see a continuation of local
commerce in this space.

A few weeks ago, I needed a circular saw for a backyard project. It didn't make sense to buy
a $200 or $300 tool for one-time use. If I could walk down the street and borrow one from a
neighbor, that would be great. But if my neighbor doesn’t have one, marketplaces will
emerge to facilitate that process.
In that case, I could borrow from someone five streets over whom I’ve never met, and
platforms will help facilitate this connection.

As a final thought, I would say: figure out how you can contribute yourself, whether as part
of the community or by renting out assets—from a hammer to an RV or storage unit. By
contributing, you help build the sharing economy faster, and it pays back—if you need
something later, the community will be larger and more useful. It's also part of making the
world more asset-light.

You can find me on LinkedIn, and I blog irregularly on my own blog.

Besides that, you can find me on most social networks, though I’m not always the most
active user! But feel free to reach out—I’ll try to respond as quickly as I can.