Information Acquisition Through Customer Voting Systems

41 Pages Posted: 21 Dec 2012 Last revised: 20 Sep 2013

See all articles by Simone Marinesi

Simone Marinesi

The Wharton School, University of Pennsylvania

Karan Girotra

Cornell Tech; Cornell SC Johnson College of Business

Date Written: September 20, 2013

Abstract

We study the use of customer voting systems that enable information acquisition from strategic customers to improve pricing and product development decisions. In these systems, the firm presents customers with a product design and gives them the opportunity to cast a vote on this design, a vote that has costs and benefits. For example, voting may be cumbersome, but those that vote in favor of a design may be eligible for a discount if and when the design gets developed. Customers vote and the firm interprets the voting outcome to discern customer interest in the product, and to advise on further development and/or pricing of the product. We model the interactions between the rm and strategic customers in such systems as a game of incomplete information with voting embedded as a subgame. Our analysis shows that the design and effectiveness of a voting system depends crucially on the intended use of the acquired information. When the acquired information is used to advise on development decisions, where rm and customer interests are aligned, voting systems that reward voters with discounts on subsequent purchase of products, in effect incentivizing voting in favor of products, can elicit information from customers and improve profit. On the other hand, when the information is used to set prices, a decision where firm and customer interests are misaligned, such systems are ineffective. In these cases, voting systems that effectively incentivize customers to vote against products or those that partially limit the firm's future price flexibility should instead be used to acquire information. While both solutions improve firm profit, the former is preferred for high-value products, while the latter is preferred when voting involves less effort. Based on data for two representative products in the home decor industry, we find that these systems may increase gross product profits by up to 50% for development and by 20-30% for pricing.

Keywords: Customer Voting Systems, Information Sharing, Crowdsourcing, Crowdvoting, Strategic Customers, Open Operationstions

Suggested Citation

Marinesi, Simone and Girotra, Karan, Information Acquisition Through Customer Voting Systems (September 20, 2013). INSEAD Working Paper No. 2013/99/TOM. Available at SSRN: https://ssrn.com/abstract=2191940 or http://dx.doi.org/10.2139/ssrn.2191940

Simone Marinesi

The Wharton School, University of Pennsylvania ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Karan Girotra (Contact Author)

Cornell Tech ( email )

111 8th Avenue #302
New York, NY 10011
United States

HOME PAGE: http://www.girotra.com

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

HOME PAGE: http://www.girotra.com

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