The importance of the raw idea in innovation: Testing the sow’s ear hypothesis

How important is the original conception of an idea-the "raw" ideato an innovation's success? In this article, the authors explore whether raw ideas judged as "better" fare better in the market and also determine the strength of that relationship. The empirical context is Quirky.com, a community-driven product development company for household consumer products. The data include descriptions of the raw ideas as originally proposed, the ultimate product designs that resulted from those ideas, and sales figures. In addition, they contain two measures of idea quality: those from online consumer panelists and those from expert evaluators. The authors note the following findings: First, online consumer panels are a better way to determine a "good" idea than are ratings by experts. Second, predictions with samples as small as 20 consumers are reliable. Third, there is a stronger predictive link between raw ideas and consumers' purchase intent of final product designs than there is between those intentions and market outcomes. Fourth, the commercial importance of the raw idea is large, with ideas one standard deviation better translating to an approximately 50% increase in sales rate

Optimal Referral Bonuses with Asymmetric Information: Firm-Offered and Interpersonal Incentives

Referral bonuses, in which an existing customer gets an in-kind or cash reward for referring a new customer, are a popular way to stimulate word of mouth. In this paper, we examine key firm decisions about such bonuses. Others have studied referral bonus programs; a key difference is that we study the role of recommendations not just in spreading awareness (as they do) but also in providing assessments. We start with the idea that people have a variety of reasons for making product recommendations, including placing a value on a friend's outcome with a product they recommend. We apply that idea in a context of asymmetric information: A customer combines his knowledge about the product and his familiarity with friends' tastes, making him more informed than the friends. Thus, the recommendation is a signal about the value of the product to the friend. In this setting, we consistently find that the greater the concern for others' outcomes, the higher the referral bonus should be, as long as the firm cannot more efficiently motivate recommendations with a lower price. Moreover, if price is the more efficient lever, the optimal bonus is zero, and the optimal price is low. We also show that greater concern tends to reduce firm profit and, in some cases, actually reduces consumer welfare as well.word of mouth, reward programs, pricing

Opportunity spaces in innovation: Empirical analysis of large samples of ideas

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