Watch out for your next competitor – your consumer
Be wary of your consumers, new research from UCL School of Management warns, because digital innovations have enabled them to become competitors.
The study, published in the Journal of Knowledge Economy, examined the rise of ‘prosumption’ – the increased involvement of consumers in production processes. In studying the trends, it suggests that companies can use prosumption to their advantage and identify challenges they may face.
Previously, prosumption and user innovation were generally initiated by firms and carried out under their full control, but digital technologies have progressively made consumer innovation ubiquitous and unavoidable in many markets.
“Technological advances mean that user innovations have taken place independently from firms – sometimes against the firm’s will – and the number of consumers directly competing with companies, known as ‘prosumers’, has sharply increased,” said Professor Ludmila Striukova.
In particular, the researchers found that digital technologies like mobile networks and 3D printing have enabled prosumption to reach the world of physical objects, as illustrated by the increasing importance of consumer-made goods and of the ‘sharing economy’, peer-to-peer sharing of access to goods and services.
In order to understand or foresee any disruptions to their market, the team from UCL and Novancia Business School says that companies must understand prosumption and the challenges it may cause.
“Users are manufacturing or selling improved versions of existing commercial products or items complementing products, like mobile phone accessories. Digital technologies have also disrupted the service industries – Uber and Airbnb, for instance – that allow prosumers to supply services in direct competition with businesses, by renting out their cars, flats, expertise, or any other asset they might own,” added Professor Striukova.
The team say that most successful business models integrate some form of prosumption and involve consumers beyond an idea’s conception. For example, when customers watch videos on Netflix, they provide data which is used to improve the site’s recommendation algorithm.
But they warn that there’s a fine line between benefiting the firm and undermining it. There needs to be a shift to where consumers are no longer seen as a “captive herd”, but as legitimate competitors.
The researchers will now investigate how firms can change their business model in order to encompass this new source of creativity and competition.