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Business News/ Companies / How businesses should use crowdvoting
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How businesses should use crowdvoting

Crowdvoting allows companies to ask self-selected website visitors to vote on which prospective new products they would buy

Oculus VR, a virtual-reality-headset maker, used crowdfunding platform Kickstarter early in its life, collecting votes in the form of pre-orders at $300 or more. Photo: BloombergPremium
Oculus VR, a virtual-reality-headset maker, used crowdfunding platform Kickstarter early in its life, collecting votes in the form of pre-orders at $300 or more. Photo: Bloomberg

New product launches are fraught with danger. Aside from facing potential manufacturing, logistics, and marketing flops, companies risk losing millions of dollars if what is expected to be a hit disappoints.

In recent years, businesses have been tapping the internet to cheaply and simply survey a large base of potential customers. This “crowdvoting"—a spin on crowdfunding and crowdsourcing—allows companies to ask self-selected website visitors to vote on which prospective new products they would buy.

But while asking your customers’ opinions might seem simple and straightforward, crowdvoting requires astute decision making by market researchers, according to Victor Araman of the American University of Beirut and Chicago Booth’s René Caldentey. Among other things, the process can take time, a consideration firms have to weigh against the appeal of getting quickly to market.

Araman and Caldentey developed a model to help businesses choose when to end a crowdvoting campaign. For many firms, this means closing the polls either by a certain date or at a set number of votes. But the model—which takes into account that some crowdvoting systems get into crowdfunding territory, allowing voters to essentially vote by pre-ordering products—suggests that a rolling target based on various factors can pinpoint the optimal time to launch, or abandon, a product.

Some firms may already have a strong sense of how many people might buy a new product, or may be looking for a confirmation of their hunch. Others may be accepting pre-orders, to raise cash to fund the product launch. The researchers say these are the firms that would do well to end a voting period after receiving a set number of votes (or orders).

For other firms, waiting for a certain number of votes can lead to lost opportunities as potential revenue is delayed. This can be the case when a firm has little idea of the demand and no plan to offer advance sales—or suspects that people who vote for a product might not actually buy it. Here, setting a deadline for voters would be wise.

There are also cases in which demand is unclear but opportunities for pre-selling are high. Oculus VR, a virtual-reality-headset maker, used crowdfunding platform Kickstarter early in its life, collecting votes in the form of pre-orders at $300 or more. In a month’s time (August 2012), it raised almost $2.5 million from 9,522 people, 10 times its goal. Facebook acquired Oculus in 2014.

Oculus set a deadline for voters. The researchers didn’t study that or any particular case, but their model shows that a dynamic stopping rule determined by factors that change as the polling progresses can significantly increase crowdvoting’s effectiveness in certain cases, such as the one Oculus faced. For example, as votes accumulate, they may raise or lower the firm’s expectations of a product’s market potential. This might change the date, or vote tally, at which it makes sense to stop voting and launch the product. If voting signals low risk that the product will flop, delay reduces immediate revenue potential. Pre-empting various risk levels yields different recommendations.

On the other hand, relying on a fixed date or number of votes may lead a firm that’s trying to decide if and when to launch a product to decide either too soon, diminishing pre-selling opportunities and the ability to forecast market potential, or too late, delaying the product launch and revenues that come with it and increasing the chances that customers will forget to buy the product they’d voted for weeks or months earlier. © 2017 Chicago Booth Review. All rights reserved.

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Published: 21 Sep 2017, 11:28 PM IST
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