Case study: Threadless’ use of co-creation and brand community. Is there a moral line?

Today, just as it has before, technology has changed the way producers interact with consumers. In fact, the change has been so enormous that the border between producer and consumer seems to have blurred. In some cases, as this essay will show, the consumer has become a ‘prosumer’, a term that juxtaposes the roles of both the consumer and producer, and that has recently prevailed with the evolution in new technologies (Humphreys & Grayson, 2008).

This piece will begin by reviewing the literature on relationship marketing and brand community, and identify the ways technology has enabled a change in these fields. It will then compare these techniques through a case study of Threadless, an American-based t-shirt manufacturer that uses consumers’ work to create an offering and community. The comparison of both literature and practice will then be used to form a recommendation for the brand.

Literature review and critique

Relationship marketing: from consumer to producer

Since the dawn of trade, marketers have always had a relationship with their customers. Yet such a relationship has waltzed in proximity with the evolution of technologies. Prior to the Industrial Revolution, relationships between the two parties were close as they traded directly on a regular basis (Sheth & Parvatiyar, 1995). Yet such close knit relationships evaporated, in part, due to the advancement in technologies, which led to the introduction of the middleman (Sheth & Parvatiyar, 1995). However, in recent years, new theories have emerged with regards to the role external factors play in the innovation of offerings.

One such theories is the Open Innovation theory (Chesbrough, 2006) which states that companies who attempt to innovate solely from within will have a much harder time than those who seek external sources. Chesbrough (2006), the author of the theory, argues that organizations should forge partnerships in order to share their resources and risk. Though Chesbrough’s (2006) work has been pivotal in the way marketers research and develop offerings, his theory merely promotes open innovation on a strategic level without identifying some of the tactics which can execute open innovation. One of the most effective open innovation tactics, which has evolved since Chesbrough’s (2006) work, is co-creation, or the notion that the consumer has evolved into a ‘prosumer’ (Humphreys & Grayson, 2008). Such theories believe that marketers should partner not only with other organisations but with their customers as well. This notion of co-creation has largely been made possible thanks to the evolution of technology, which has yet again waltzed consumers and producers to close proximity. Having said that, co-creation as a principle remains quite vague as there are several ways of interpreting the concept: some see it as an specific participation between both parties (Grönroos, 2011), while others argue that co-creation takes place as soon as a customers consumes an offering (Vargo & Lusch, 2004). However, beyond technicalities, the concept of co-creation has largely taken off in the practical field of marketing.

The evolution of Open Innovation and co-creation have led to a world where the consumer can be intrinsically involved in the research, development, and even the execution of an offering (Humphreys & Grayson, 2008). In fact, businesses have also used co-creation to reduce costs, going so far as to replace full-time workers for customers willing to co-create for a fraction of the cost or no remuneration at all. As a result, the fast paced evolution of innovation has left many questions and concerns unanswered. Highest of all are the ethical implications of co-creation — are marketers exploiting the ubiquity of the consumer and worker? Such questions bring us back to the beginning of the twentieth century when Frederick Taylor (1911) sought to change the worker-manager dynamic. Taylor (1911) believed that the ‘men’ (as he called them) in his organization were “soldiering” (Taylor, 1911: 5), which is what he identified as workers refusing to work above a certain level in order to secure the employment of the entire workforce and render no one useless. However, Taylor (1911) saw it as the worker exploiting their employer. Interestingly enough, when Taylor (1911) sought to correct this dynamic he introduced Scientific Management, which later helped cement the Industrial Revolution, for it required workers to execute their duties following strict guidelines; hence, optimising the efficiency of his workers. But by introducing this program, Taylor (1911) paradoxically did the same thing he was accusing his workers of doing. In other words, Taylor (1911) wanted to minimise input (soldering) while maximising output (exploiting).

Taylor’s (1911) simplified vision of a “fair” dynamic between worker and manager is similar to the one that is seen today regarding co-creation. Zwick et al. (2008) use Marxist theories to label this kind of dynamic as exploitative. They explain that when a customer’s creation is sold (and often to the same group of co-creators), that, “corresponds to the expropriation of surplus value from consumer labor.” (Zwick et al., 2008: 179) In other words, the customer who co-creates, no matter how voluntarily, is exploited.

Vargo and Lusch (2004) have arguably presented one of the most respected definition of co-creation, which states that a consumer adds value to any offering by consuming it, and as a result, co-creates. However, that notion of co-creation is by far too vague and should rather be treated as a continuum, for there are times, as this case study will show, where co-creation goes beyond the consumption of an offering, and in fact goes so far as to have the consumer research and develop an offering.

Though a debate seems to have formed (Ritzer & Jurgenson, 2010; Zwick et al., 2008), what remains unanswered through the review of literature on co-creation and relationship marketing, is a clear understanding of fair compensation in exchange for co-creation.

Brand community: the new relationship marketing?

Brands have always sought to be deeply rooted in the emotional qualities of consumers (O’Shaughnessy & O’Shaughnessy, 2003). Relating to Ancient Greece, O’Shaughnessy and O’Shaughnessy (2003) argue that no consumer is ever purely rational, and though some aspire to be more than others, the consumer tends to be driven by his or her emotional needs. One of such needs is the need for belonging, finding refuge in the similarities that bond individuals together (Bagozzi & Dholakia, 2002; Kim et al., 2008). This has become increasingly possible, in part, thanks to the evolution and spread of the internet, which has enabled like-minded individuals to form online communities (Wellman & Gulia, 1999; Kozinets, 1999). As Wellman and Gulia (1999: 6) explain, “emotional support, […] providing a sense of belonging […] are often possible to provide from the comfort of one’s computer.”

Literature on communities have become limitless, yet the focus of this review is on the way brands use these communities in order to churn value. Such brand communities, can often be seen as incubators of innovation and enablers of various degrees of co-creation (Füller, Matzler & Hoppe, 2008).  In that respect, while relationship marketing tends to follow a business-to-consumer (B2C) dynamic, the concept of brand community relates to a consumer-to-consumer (C2C) dynamic (Zhou, et al., 2012). In fact, one might argue that the key attribute to a brand community’s success is the C2C interaction, as consumers are more likely to be influenced by individuals than by organizations (Trusov et al., 2009). Therefore, in order to foster a successful brand community, one must insure interactions are deeply rooted between consumers, for fear that consumers would back away if they felt any pressure from the organization. In fact, past case studies (Lakhani & Kanji, 2008) have shown the success of brand communities take place when the product, rather than the brand, is the focal point. While organizations might fear the loss of control, research has found that such brand communities generate commitment towards those brands (Kim et al., 2008).

However, many organisations, like the one which is the subject of this case study, have chosen to create and host brand communities. These organizations then have the responsibility to foster an open and free environment where any form of opinion is welcome and accepted (Kim et al., 2008). Performing the opposite by, “exerting too much control over communication contents in online communities can cause the loss of interest” (Kim et al., 2008: 415).

As a result, the success of brand communities are often related to the lack of focus brands put on themselves. The focal point must be the quality which brings individuals together; the quality which gives individuals the sense of belonging. In a sense, one should be able to remove a logo or a brand name and still be able to generate a community. It’s the one criterion that differentiates relationship marketing and brand communities — the ability to allow the customer to take control, or in other words, to become the company (Chafkin, 2008).

Case study: Threadless

“Why wouldn’t you want to make the products that people want you to make?” (Nickell in Chafkin, 2008: 93) Such are the words of Jake Nickell, the co-founder and CEO of Threadless, a t-shirt company that print their most popular entries to the very people who voted for them and designed them. Putting it the way Nickell did makes the notion of business seem quite simplistic, and in fact to Nickell it is. Having never completed his undergraduate degree to pursue the growth of Threadless, Nickell and his co-founder, Jacob DeHart, never expected to build a business — let alone, one of the most innovative businesses since Web 2.0 was coined.

Such diffidence — or naiveté — is something Nickell doesn’t hide. He gives off the impression of being as much of an entrepreneur as the designers who submit their artworks to his company. Maybe it’s an illusion he puts up to foster a sense of authenticity and hipster-like lifestyle that many of his designers relate to, or maybe he’s honest and built a formula for his business based on what he thought people wanted, not what was expected.

Regardless of Threadless’s intentions and aspirations, the company that started off in a small apartment in the windy city of Chicago, a mere 14 years ago, has now become a model to some of the biggest corporate leaders around the world (Chafkin, 2008). This case study will attempt to show how it’s been able to do that in relatively little time.

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The producer-consumer dynamic

The idea of including the consumer in the creation of a t-shirt came to Nickell in 2000 when, with little to no skills in design or its softwares, he took part in a London-based design festival (Lakhani & Kanji, 2008).  Nickell, who won the prize, was invigorated by that concept, and decided to commercialise it. By November of the same year, Nickell and DeHart founded a company based on that very idea and called it Threadless, a play on words between the thread of fiber used to make garments, and the thread also known to be a discussion on an online community.

At the beginning, the duo asked their friends and former co-workers to submit their designs and ideas to the website. Not knowing which designs to pick when they started flowing, they asked the newly minted community to decide. The scheme has since survived, and though it has evolved in the years since, the concept stays very true to its origin.

Including the customer in every step of Threadless’s DNA renders it a perfect example of co-creation. The co-creator, or to borrow Humphreys & Grayson’s (2008) term, ‘prosumer,’ has evolved into an intrinsic and relatively inexpensive part of Threadless. In fact, according to Chafkin (2008), only 5% of the company’s customers were not prosumers. In other words, 95% of Threadless’s customers have not only bought an item, but have also either voted, commented, submitted or participated in any way.

As a result, the company relies heavily on the satisfaction of its customers to maintain itself. Thus, such a conclusion would lead one to believe that compensation be based on fair dividends. Yet, until recently, the notion of fairness, where we associate fairness with equity (Zwick et al., 2008), didn’t always reign true at Threadless. The company used to buy the rights from their co-creators’ works in exchange for USD 2,500 in cash and store credit. They would then print and sell them for USD 18, generating, in 2006 alone, USD 18m in revenue including USD 6m in profits (Chafkin, 2008).

In exchange, artists, who often spend countless hours across several weeks sketching their designs, had to give up any royalty rights to the company. This meant that regardless of a design’s success or failure, the artist’s commision would be unaffected. Such a formula, in theory, presents itself to be a risk for either party. However, in its 14 years and 6,359 printed designs (Threadless, 2015), Threadless has never witnessed a single flop (Ogawa & Piller, 2006). The reason is quite simple: the company uses crowdfunding techniques, meaning that, on top of receiving enough votes, designers must be able to garner enough financial investment from other consumers to reach the minimum funding limit (Threadless, 2015). Therein practically guaranteeing Threadless a 100% success rate.

Looking at this model, which the company used for over 14 years to distribute its profits, it seems unlike any definition of fairness, and far from Zwick et al.’s (2008) interpretation of Marx’s labor-theory-of-value definition. In fact, one could argue that until Threadless changed its revenue distribution policy in February 2015 (Nickell, 2015), they had been exploiting their prosumers.

Brand community: feel the power

It would seem bizarre, in theory, that a company so at odds with the definition of fairness find so much success in a capitalistic environment. One might argue that what’s most striking, is that a company which exploits its prosumers so much, not only succeeds, but generates a thriving brand community. That notion is quite interesting, but it’s not until one analyses Threadless a little closer that one can understand such nuances.

Looking for information on how much artists are paid on Threadless’s forum, one will often be greeted by bitter messages calling for the separation of art and money. A forum thread titled, “how much is the pay for a winning design” (Threadless, 2013) garnered a frenzy of shrewing comments such as, “how about you design something cos [sic] you love it, instead of for some monetary reward? […] Threadless is not a get-rich-quick scheme.” The latter part of this comment is what’s so intriguing, because arguably, Threadless has become, the epitome of the “get-rich-quick scheme.” But arguably, it has become so for businesses and their owners, not for the prosumers who co-create the value.

So what has led to such blind respect and admiration for a company, which as this case study observes, offered ludicrous returns? And why has Threadless been able to build a prospering brand community, while thousands before and after it failed?

To answer these questions we must look at the root of Threadless’s brand community. There we will find that the community has in fact built itself around the level of passion and commitment of its users. This passion wasn’t always centered around Threadless, and in fact arguably still isn’t today. The prosumers’ sense of belonging, which is intrinsic for any successful community (Bagozzi & Dholakia, 2002; Kim et al., 2008), is their sheer passion for design. That feeling is so strong they are willing to do it for free. And Threadless knows that better than anyone — Jeffrey Kalmikoff, the Chief Creative Officer (CCO) and one of the company’s first employee explained that Threadless saw itself as an enabler for their customer’s passion. In fact, he rightly believes that, “the community would still exist if they stopped buying shirts.” (Kalmikoff in Lakhani & Kanji, 2008)

nickell

Threadless co-founder and CEO, Jake Nickell

What’s more, in a continuing attempt to show itself as an enabler of community and creativity, Threadless has made sure to take as many steps back from their website, and more specifically, their forum, as possible. A medium which has been renowned for its strict rules, Threadless’s forum has absolutely no moderators, often known in the forum-world to act as vigilantes. Though all members of staff actively take part in forum discussions none hold any different privileges than other users. The power, in essence, is solely in the hands of the user, in keeping with Kim et al. (2008) research which showed loss of interest stems from too much control from the organisation.

One sees several various examples of power in Threadless’s prosumers. In fact, it serves as yet another example as to how the brand acts as an enabler of community building and shows how the larger pictures paints a portrait of a self-serving and -interested individual. For example, when the brand announced they were opening their first retail store in Chicago, reviews were mixed, and while some welcomed the opening, many were tepid. One particular comment begged the company not to open other stores as he believed it would lead to, “everyone on every other block […] wearing the same shirt. It kinda [sic] takes away from being genuine.” (Threadless, 2007) That very sentiment reflects most of the community desires, individuality, and in a way, superiority. Threadless has been able to use these traits in order to grow its success. The use of gamification is one of such tactics: creating a competitive atmosphere based on the most votes, submissions, comments, and prints. And though they act as a community, the sense of individualism and self-interest lies prevalent, as the user, or any human for that matter, yearns for superiority (Wilcock, 1993).

The sense of power and ownership, the perceived authenticity and uniqueness, all these are characteristics of passion. They’re the same ones we find in hobbies, which is often defined as work for our self (Gelber, 2013). These all result in the loss of rationality, and in doing so, Threadless is able to tap into their customer’s emotion and control it.

Conclusion

There’s no such thing as a free meal. The saying has always sang true to the capitalistic society we live in today. You must create value if you want to earn a living. Yet, the fascination with Threadless is that they arguably challenged that ideal, and got away with the exploitation of their labor. That’s why when Nickell and Kalmikoff were invited (Chafkin, 2008) to speak to an audience of Fortune 500 executives, every one listened. Intently.

But Threadless isn’t the huge, evil corporation of which my words seem to paint the picture. When one listens to Nickell or any member of the Threadless team, you easily feel emerged in the beauty of their work. It may be naiveté or great persuasion, but either way one comes out believing Threadless isn’t an evil, exploitative corporation.

However, if that’s really the case, Threadless owes it to itself and its prosumers to truly invest in the people who make it great, as they pertain to have done over the past 14 years. That path begins with fairness — with the redistribution of profits. So if you make a profit of USD 10 on every shirt you sell, you give half to the designer. Whatever the profit or unit of profit, fair dividends must be distributed.

In doing so, Threadless will not only continue to be a co-creation model of success, but will also show the thousands to come that passion, value and fairness can lead to success.


This essay was written for Brand Management, a module for my masters in marketing. It was awarded a first-class distinction.

References

Bagozzi, R. P., & Dholakia, U. M. (2002). Intentional social action in virtual communities. Journal of interactive marketing, 16(2), 2-21.

Chafkin, M. (2008). WINNERS’ CIRCLE. Inc, 30(6), 89-96.

Füller, J., Matzler, K., & Hoppe, M. (2008). Brand community members as a source of innovation. Journal of Product Innovation Management, 25(6), 608-619.

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Grönroos, C. (2011). Value co-creation in service logic: A critical analysis. Marketing Theory, 11(3), 279-301.

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Nickell, J. (2015). Announcing A Massive Increase To Artist Earnings! – Threadless Blog. Retrieved April 1, 2015, from https://blog.threadless.com/announcing-a-massive-increase-to-artist-earnings/

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Threadless (2007). Announcing the Chicago Threadless Store Grand Opening and Grand Opening Party!! – Threadless Blog. Retrieved April 1, 2015, from https://www.threadless.com/infoblog/249263/announcing_the_chicago_threadless_store_grand_opening_and_grand_opening_party?page=3

Threadless (2013). How much is the pay for a winning design. Threadless. Retrieved April 1, 2015, from https://www.threadless.com/forum/post/974964/how_much_is_the_pay_for_a_winning_design/

Threadless (2015). Design Challenges. Threadless. Retrieved April 1, 2015, from https://www.threadless.com/make/submit/

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Zwick, D., Bonsu, S. K., & Darmody, A. (2008). Putting Consumers to Work: Co-creation and new marketing govern-mentality. Journal of consumer culture, 8(2), 163-196.

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