Volition: Crowdsourcing Innovation in the Beauty Industry
Meet Volition: democratizing beauty products to cater to a global and diverse community whilst reducing research and product development costs through the power of open innovation.
“Every year research budgets increase at a faster rate than sales. The current R&D model is broken.” (6)
– Larry Huston, VP of innovation, Proctor & Gamble.
With ~70% market share(1), the top five beauty manufacturers (Loreal, Unilever, P&G, Estee Lauder and Shiseido)(2) have dominated the global skincare industry for decades. The product development process of these companies have stayed stagnant, however. Products are manufactured at scale for massive distribution based on select customer feedback, which often may not be representative of true market demand. Volition Beauty, a beauty startup, is looking to leverage the power of crowdsourcing to: a) identify new SKUs by getting consumers to submit product ideas b) pre-test market demand on potential new products through an online voting system and c) use appropriately sized labs to manufacture units based on forecasted demand.
By crowd-sourcing product ideas from future users of the product, Volition is eliminating the effect of Joy’s Law(3) – the idea that continuous innovation is dependent on distributed knowledge that lies outside the realms of an organization. In 1975, Eric von Hippel also found that product users were the best originators of novel innovation, given users experience novel needs well ahead of manufacturers(4). Thus, by taking in new ideas from its core customer set, Volition Beauty is ensuring product development is closely tied to actual customer demand.
Andrew King and Karim Lakhani, through their research on open innovation, highlighted how companies can decide 1) whether to open the idea-generation process; 2) whether to open the idea-selection process; or 3) whether to open both(5). Volition Beauty has decided to crowdsource both idea generation and idea selection by enabling ranked voting on ideas submitted on the portal. This mechanism ensures an idea that may seem niche (such as face masks for airplane travel – pictured below) resonates with a larger mass audience before they are sent to outsourced production labs.
Incentives are aligned by paying the idea generator a one-time fee, which suffices given their position as “tinkerers”(6), individuals who are more hobbyists and less experts on beauty R&D. Money is not the primary motivation, with more intrinsic qualities such as enjoyment, intellectual challenge, reputation and professional identity playing a stronger role to incent the external innovator. Thus, Volition is using aspects of both competitive markets and collaborative communities to drive open innovation(7).
Capitalizing on a distributed crowdsourced labor market, Volition not only saves on employee and product development costs but also sets up the business for easy expansion into the global market. Native innovators will understand the cultural aspects of beauty consumption in their local markets, thus enabling Volition to scale faster internationally in the long-term.
While the power of the connected internet and e-commerce is core to Volition’s strategy, the company also sells its products at beauty retailers such as Sephora and Ulta. Distribution through offline channels poses certain operational challenges that e-commerce does not. For e-commerce, Volition can utilize just-in-time delivery based on digital orders received; for offline the company needs to ship certain levels of SKUs based on retailer order forms in advance. The retailer reserves the right to order more during stock-outs, or less if sales do not meet forecast, leaving the company to produce units in advance of actual consumer purchases. This may result in mis-match of forecasted demand from online voting. Over time, patterns of consumption in this channel will likely emerge and the company can better manage production. To do so, Volition will have to closely monitor and collect such data to optimize future inventory management.
As the company scales, Volition should also be mindful of maintaining strong relationships with the innovators, and ensure idea-generators are continuously motivated to participate. Over time, the company will likely need to provide additional benefits to keep them engaged, given the innovator’s integral role in product development, and ultimately the success of the company. Creating a feeling of community amongst the innovators will be crucial, which the company can accomplish by showcasing innovator stories on platform and by facilitating meetups. To further pull at intrinsic motivations, Volition can give awards to “innovator of the month” for highest number of votes received or most ideas generated. Volition should also consider internal crowdsourcing(8), to enlist ideas from employees passionate about product research and development to open up newer sources of innovation in the long-term. Similar to motivating the innovators, the company will need to encourage constant voting from the crowd, either by offering product discounts on voted items, or via other non-monetary incentives described above.
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(1) Trefis.com, “Size of the global skin care market from 2012 to 2024”, Statista, https://www-statista-com.ezp-prod1.hul.harvard.edu/statistics/254612/global-skin-care-market-size/.
(2) Women’s Wear Daily, “Revenue of the leading 20 beauty manufacturers worldwide in 2016”, Statista, https://www-statista-com.ezp-prod1.hul.harvard.edu/statistics/243871/revenue-of-the-leading-10-beauty-manufacturers-worldwide/.
(3) Karim R. Lakhani and Jill A. Panetta, “The Principles of Distributed Innovation”, The MIT Press Journals, October 18, 2007, Vol. 2 No. 3, https://www.mitpressjournals.org/doi/pdf/10.1162/itgg.2007.2.3.97.
(4) Eric von Hippel and Ralph Katz, “Shifting innovation to users via toolkits”, Management Science, July 2002, Vol. 48 Iss. 7, https://pubsonline.informs.org/doi/abs/10.1287/mnsc.48.7.821.2817.
(5) Andrew King and Karim R. Lakhani, “Using Open Innovation to Identify the Best Ideas”, MIT Sloan Management Review, Fall 2013, Vol. 55 Iss. 1, https://search-proquest-com.ezp-prod1.hul.harvard.edu/docview/1438826527/590C2B186F64B3APQ/1?accountid=11311.
(6) Jeff Howe, “The Rise of Crowdsourcing”, WIRED magazine, Ideas Section, published June 1st, 2006, https://www.wired.com/2006/06/crowds/.
(7) Kevin J. Boudreau and Karim R. Lakhani, “How to Manage Outside Innovation”, MIT Sloan Management Review, Summer 2009, Vol. 50 Iss. 4, https://search-proquest-com.ezp-prod1.hul.harvard.edu/docview/224962173/211B55A29D924BFFPQ/1?accountid=11311.
(8) Arvind Malhotra, Ann Majchrzak, Lale Kesebi, and Sean Looram, “Developing Innovative Solutions Through Internal Crowdsourcing”, MIT Sloan Management Review, Summer 2017, Vol. 58 Iss. 4, https://search-proquest-com.ezp-prod1.hul.harvard.edu/docview/1916720815/E5C26206F3DD4247PQ/1?accountid=11311.
Student comments on Volition: Crowdsourcing Innovation in the Beauty Industry
Thanks for sharing, this is an interesting concept. Having worked in a skincare business (Neutrogena/Aveeno/Clean & Clear) I definitely agree that these types of companies are ripe for disruption. At J&J, partnerships with influencers were in vogue, and I think the idea of crowdsourcing product development is a great one. What will be interesting for Volition is to see how its brand develops – this strategy should succeed in building brand loyalty, it’ll just be interesting to see how many people they can win over from the established players. It makes a lot of sense to be in Sephora/Ulta, will be interesting to see if they stay primarily digital or seek growth via distribution in traditional channels. Wouldn’t surprise me if one of these companies you mentioned gobbles this up in time as they search for growth in their portfolios!
Thanks for commenting, Mike! 100% agree that a lot of this will depend on brand and how consumers identify with it (full loop with 4Ps from Marketing)! It is interesting because the “innovators” also end up helping market the product (thus helping Volition decrease it’s overall CAC) by sharing with friends and family to increase the up-votes, and so embodies aspects of the Kickstarter model too.
As Chris Chen pointed out in her article on Proven, the beauty industry is ripe for disruption. Both her article and this article talk about how beauty products have been mass produced without addressing individualized concerns. While Proven applies machine learning to understand product efficacy given the consumer’s unique complexion, Volition asks the consumer what she wants explicitly. This direct feedback will likely result in better products and further better products more quickly. However, and to your point, I worry about how to incentivize these innovators in the long-term. I think offering monetary incentives may be necessary, but this is not necessarily a bad thing. I imagine it would be more cost-effective than salaried employees.
This is a very interesting approach. In some ways, Volition is relying on market research to build it’s product roadmap. I see both merits and drawbacks to this approach. It’s great to give customers what they want, but the fundamental assumption here is that customers actually know what they want. My concern for Volition is that a purely customer driven product development process can lack direction and clarity. Great call on identifying Volition’s need to keep it’s innovators engaged with the product, and these innovators are a fundamental part of Volition’s overarching strategy. I am curious how Volition plans to maintain these relationships when they are not actively developing new products.
This is really interesting – thank you for sharing! By using this approach, Volition should have an edge in penetrating into new markets/ new countries where beauty can mean different things. However, I wonder how they can appropriately incentivize consumers to give feedback when they entire new markets or when they want to launch a completely new product. For new products in existing markets, they could give samples to their “master innovators/ innovators of the month” – which could also be earned media perhaps. It’ll be interesting to see how they expand to new markets solely using this approach – the importance of internal crowdsourcing in new markets may be more crucial than existing markets. Thanks again for sharing, Tasnia!
Really interesting new business model! I have two concerns over their business model though.
1. Traditional big beauty brands claim their brands and chemical formula as the two most important assets. But when Volition outsource ideas and innovation, what is the competitive advantage and core assets left to Volition? For example, there are many skin care and beauty OEMs in China and Korea with fantastic manufacturing capability and some product innovation capability. Will Volition became more like the OEMs then?
2. A follow-up concern is that the profit margin for transparent products is very low compared with traditional brands. For example, ‘The Ordinary’ sells their products at very low prices because they only sell the functionality not the emotional attachments with consumers.
Just learned a lot form your article! The question that comes to my mind is about that classic marketing discussion: customers don’t know what they want and need someone to lead and tell them what they want (kind of what we discussed during the GAP case). I love the idea of creating my own product but wonder if opportunities are being left out for not using the knowledge of a expert (or how to incentive an expert to also contribute to the process creation).
Tas, love the emphasis on community at the end of the your article. I think what really drives open innovation is the common value/aspiration behind each contributing innovator. After all, they can take the products to any other platforms, so why volition at the end of the day. Also curious that they sell Sephora on its platform. Does this dilute their brand as an innovator?
Love this! Fascinating how Volition is inspiring its customers to drive innovation, which helps them better tie product development to customer demand versus forecasting. I think your ideas on how to further motivate and inspire innovators are fantastic. Increasing incentives will be necessary as the company scales and expands to more retail outlets. I also like how this company can easily scale globally to new markets, as it will only make products that are relevant to that market based on innovator ideation and demand.
Great article and interesting business model (sort of an incubator for cosmetic ideas) which is quite different from other players in the industry! However, I have several reservations around the sustainability of this model given the low barrier to entry/no clear moat, and completely agree with you that it is key for the company to implement incentives to retain innovators on their platform. This will ultimately determine their success. If they are able to do this effectively, I can see them scaling/replicating this model to cover many other adjacent categories (haircare, etc).
Great job, Tas! I thought you did a great job describing this process. A few questions that were spurred in my mind: 1. How do you actually get critical mass to make this valuable? Like most social networks, it seems as if there is a chicken/egg problem of needing lots of people on the platform to make it valuable (sourcing new ideas and voting on them). 2. Do you think this model is sustainable? I question how long this may work for–I like your recommendation to think about how you keep people on the platform. 3. Is there any risk of companies getting unfair benefits/taking advantage of the people? I would guess not, given they would agree on some piece of this, but I wonder if someone who comes up with a multi-million dollar idea and only gets a small fee will try to take legal action.
This is an interesting concept, and definitely something that gives a voice to consumers who feel that they have not been heard. However, my key concern is with the production process for cosmetics. Assuming consumers would like a certain product and it simply hasn’t been developed or is far too expensive to produce – will Volition still pursue it? Additionally, is Volition able to roll out this idea across various parts of the country – or even internationally?
Super interesting read on the beauty industry, Tasnia! I love the idea of crowdsourcing new ideas straight from the consumer. Too often do large companies stand in their own way of innovation by sticking to old inflexible ways. I believe consumers know what they want and they’re willing to tell if you ask the right way. At the same time, I do worry about the company becoming too reactive in their thinking vs. presenting consumers with something they didn’t even know they wanted. As for the channels, Ulta and Sephora continue to be leaders in this space and I agree that to be competitive they need to play here in spite of many challenges. Looking forward to seeing how this company continues to grow!
Open innovation is an interesting concept in product development for the reasons that you mentioned above. I wonder to what extent you are able to control some of the concepts that we have discussed in marketing. For instance, if you wanted to segment your market in a certain way, how do you ensure through this process that you are touching the right group of people. Delving deeper into this concept, the people that will be more involved in this process I suspect will likely be younger therefore if you are interested in an older demographic, how do you reach that population in your product development process?
Very interesting article! Outsourcing idea generation and selection to a broad consumer base can increase the potential for innovation (by increasing the variability). Also from a supply chain perspective, it serves to directly connect the consumer with the supplier reducing time-to-market, mis-information in terms of what consumers want vs. what the company produces etc.
A couple additional thoughts:
i) Like you, I agree on the importance of incentivizing the community of innovators/participants and ensuring it has adequate size
ii) I believe it is important for the innovators/contributors to be a representative sample of the company’s target market (the risk of only having a niche sub-set of brand-obsessed consumers giving input is that the brand may remain niche/not be able to adapt)
iii) Which products are most popular need not be aligned with profitability (does Volition take into account profitability or is it going for an exclusive growth play?)
Awesome article! You know what would be cool? If the company used the crowd sourcing data coupled with the demand data to forecast future demand for the offline retailers! They could potentially capitalize off of two mega trends at the same time. What a dream!
Thanks, Tasnia. Really interesting! I think the point you raise around retaining and supporting innovators is exactly right. I can imagine, for example, that some of the really successful innovators with large product growth will want to break out on their own to start their own companies and capture more of the value themselves. It seems this could lead to a cycle of one-time innovations, with some of the biggest hit innovators leaving the platform after the product takes off. I’d also be wary of this being a fad. We are at a particular moment in time where much of our generation values customization, being different, and being first movers to new and exciting brands. This is certainly the case in beauty, as evidenced by the rapid growth of companies like Glossier which were fundamentally born out of social media. I wonder though whether a company like Volition, with such a broad array of messages and visions, will be able to hold on to a customer after the novelty of up-voting and individual design has worn off. Glossier, though similarly born from the internet, has the benefit of being a highly cohesive brand with a strong message that consumers resonate with. I’m personally skeptical that Volition will be able to achieve the same. Time will tell! Thanks again – really insightful.
Tas – thank you for providing such interesting insights into how Volition is aiming to disrupt traditional players in the beauty industry through crowdsourcing new product ideas and ultimately idea selection. Inherently by going this route, Volition has given up some control in the process but I wonder if they would be better served by reclaiming some of that control through mechanisms to free themselves to pursue alternative product options.
Very interesting business model, thank you for writing about it! Stunning that this company outsources part of its R&D to the crowd and then relies on the crowd as well to select which products to develop. It seems like they make people work for them almost for free! I wonder if the community votes for products do actually turn into sales? It seems to me that there might be a gap between liking a concept and actually spending money buying it.
I think application of open-source development to mass-market products could be done to some extent, but not fully. First, development of a real product requires extensive R&D and investments of time and resources. What Volition does is just an open-source test of marketing concept. For instance, Jetset and Protect mask is not innovative type of mask or cream, it’s just a heavy moisturising cream with the pitch “for long flies”. In many ways this is what beauty companies call “innovation and product development” when in reality they just in a continuous search of perfect pitch for slightly modernised but old product. It’s hard to imagine though that industry will be disrupted through the open-source platforms, because true break-through most likely will come from professional chemists / biologist.
However, I do agree that open-source platforms are great to generate ideas for the next marketing concept and help to build awareness and initial enthusiasm around products which haven’t been produced.
Fascinating article, thank you! I love the method of crowd sourcing ideas to increase the likelihood of discovering a blockbuster product. The process does highlight the authenticity of the brand and helps with word of mouth marketing, but I do worry about scale and engagement.
Open innovation here means there is no real brand identity, and there is a risk of developing a number of products that are not complementary and have no coherent message. Regarding distribution, I also believe there is risk that bargain hunters will register interest online to get the 40% discount, and not turn up to the retail stores to replenish their supply.
This is a really interesting business – thanks for sharing this! I think a crowdsourcing model like this will drive very interesting innovation, however I wonder what the competitive moat around these products will be. Once this company brings something to market, I imagine it will be easy for Big Beauty to replicate the products Volition introduces to the market. Given the capital base / resources of Big Beauty, they are likely able to perfect these products. It’s unclear that Volition can win on product.
Fascinating article Tasnia! I do agree that a key challenge in sustaining this model of innovation is keeping crowdsourced innovators engaged. Also, at what point does it make sense to bring “star innovators” under your proprietary umbrella? While Volition Beauty may enjoy a competitive advantage as the first mover in this space, how sustainable is this advantage? Could other beauty/skincare companies simply poach the key contributors to Volition’s R&D process? Finding the right balance of crowdsourcing from a broad user base and creating the right incentives for that user base to remain engaged in the process will be critical going forward.
Thanks for the great article! I think Volition has a great platform that can disrupt the beauty industry but I worry about keeping users engaged in between purchases in order to collect enough data / crowdsourcing. There are the heavy users that will be constantly engaging in the platform but how can Volition keep enough users consistently engaged so that they get enough data points in order to make informed decisions on what products to innovate? I think this is an awesome concept and look forward to seeing how it develops in the coming years!
Thank you Tasnia! Just learned so much. To Amanda’s point, I’d be curious how Volition thinks about the chemical formula for the products it ultimately creates. If all the decision-making is left to consumers, is the actual manufacturing and the IP of the formula the only thing left that makes the company valuable?
Thanks for sharing such an insightful article, Tasnia. While there is a big challenge in keeping the innovators engaged, are you at all concerned with the company losing it’s “innovator” brand image? My concern is that by going to more direct stores such as Sephora and others, you risk alienating the innovators who view you as an anti “big makeup” brand. The challenge here is not only keeping the innovators engaged in designing new products and providing feedback, but also doing it for your company and not another.
I do really like your idea of innovation from within, to go along with the crowd sourcing component. Over time, your employees are the ones who truly love your brand and value your platform. However, this cannot replace the full effect of large scale input from the masses. Thus the importance of keeping the community connected, as you mentioned will remain crucial as the business scales.
Thanks Tas – very interesting post on a topic I have very little prior knowledge or experience in. I think my biggest question is how they manage the innovators that they use to crowd-source for both idea generation and selection. I think the merits are easy to understand on the generation side and pose very little downside risk, but if the innovator base is open I would think that opening up the selection process to the masses before production phase would introduce the risk that someone steals the ideas first. Also, I’m curious at what point the pendulum switches from “internal innovators” to becoming paid employees, in which case this would operate much more like a traditional R&D function? Lastly, as you alluded, I’m very curious how this would be able to scale or whether this methodology is much better suited for a narrowly defined population.
xo xo GOSSIP GIRL
I really enjoyed reading your piece Tasnia! Open innovation is quite powerful in both it’s product innovation and also harnessing customer relationship. I thought it was quite a clever move from Volition to crowd source their creation to the public. One question that I was thinking about while reading is whether there are challenges for the company around implementing the ideas, since sometimes ideas especially from crowd sourcing are generating without the understanding of perhaps the company’s execution limitations. We share quite a similar interest on open innovation, would love to discuss more!