Let Someone Else Pay the Freight

Some lucky companies have discovered ways to get other people to carry costs on their behalf. (See “Video #62: How to Improve a Cost Structure” on StrategyStreet.com.)

Twitter is a recent example. Twitter watches what its visitors do with its product and then has its engineers turn these ideas into new features. Twitter is about to release two new features, Lists and ReTweets, that began with users. With Lists, users can create lists of all the tweets written by celebrities or politicians. This innovation helps users save time in deciding whom to follow on Twitter. ReTweet allows a Twitter user to send a posting from another Twitter user to the user’s own set of followers. With these examples, Twitter has off-loaded some of the cost of R&D to its customers.

The shift of a company’s cost to others with no payment is not a new phenomenon. For example, as long ago as 1986, Walgreens decided to reduce its inventory levels by a third. It gave its suppliers the choice to participate in a just-in-time delivery program, or to stop supplying the company. Walgreens shifted the cost of inventory to its suppliers.

Customers can often do more than design new products. The Hilton Hotel chain installed computerized check-in kiosks in lobbies of its larger hotels in 2004. This allowed Hilton to reduce its check-in staffing. (See “Video #55: The Value of Customer Sensitive Cost Structures” on StrategyStreet.com.)

In the right situation, even the general public can help a company reduce its costs. One famous example is NetFlix. It offered a $1 million prize for new software that would predict more accurately whether a NetFlix customer would enjoy a movie based on the ratings of previous movies. A team of software developers won that prize in 2009.

We have found more than 50 examples of companies who shift costs to third parties for little or no payment. You can find them in the Improve/Costs section of StrategyStreet.