Challenges in the sharing economy
Despite its growth and appeal, the sharing economy is not a utopia. Collaborative consumption faces significant challenges:
- Customer demands: Relying on the goodness of human nature is not enough to succeed in the sharing economy. Many outfits have gone bust—Ecomodo, Crowd Rent, Share Some Sugar, Thingloop, OhSoWe and SnapGoods, to name a few.[20] Customers demand efficiency, good experiences and savings.
- High risk: Potential customers love the concept of the sharing economy, but they’re slow to adopt.[21] For some, sharing big-ticket assets is too scary.[22] Traditional options offer less risk.
- Regulations: Regulations are meant to protect customers and level the playing field for all businesses. Some traditional businesses support choking out sharing upstarts—which may be slow to follow the rules—with regulations.[23]
- More than sharing: The act of sharing has given way to renting, and “the gig economy” has been used to describe firms—including Uber and TaskRabbit®—that use third-party contractors.[24], [25], [26] Because the sharing economy includes non-sharing activities, potential customers may greet so-called sharing businesses with skepticism.
Opportunities inspired by the sharing economy
Regardless of whether they actually share, successful sharing economy organizations have done three things exceptionally well:
- Sharing economy activities (buying things, hiring people, etc.) are integral to their business models.
- They’ve reduced risk for their customers.
- They’ve optimized their products and services.
This style of business is growing, and so is the technology around it. If you are considering putting the sharing economy to work for you, first apply collaborative consumption in a way that makes sense for your organization.
Create a profit center:
Conventional brands can use sharing economy activities as another profit center. The Home Depot® rents tools, and Walmart® sponsors a marketplace for selling pre-owned electronics.[27], [28] Rentals and peer-to-peer selling help traditional businesses better serve customers and tap into the cachet of the sharing economy.
Go old school:
Borrow strategies and tactics from sharing brands. But successful sharing brands also borrow from traditional brands as well:[29]
- Do your homework: Some now-shuttered peer-to-peer platforms (SnapGoods and Share Some Sugar, for example) struggled with imbalance. They had more lenders than borrowers (or vice versa). The rental market was hot for certain items but cold for others. The solution is to research demand and supply for various products and to double-down on what works.
- Execution matters: In the end, “the most successful ‘sharing economy’ startups ended up being those that made the process as efficient and transactional as possible.”[30] Consumers want stuff quickly. Predictable and fast delivery always is appreciated.
Ways to reduce risk
Reducing risk increases participation and helps the reward outweigh the risk.
- Don’t be a stranger: Everyone wants to do business with someone they know. Name recognition builds trust, and there’s security in buying from a brand with whom you are familiar.[31] Established businesses can leverage brand equity—an asset missing from the war chest of startups in the sharing economy. If people know you, use it to your advantage.
- Be a good matchmaker: Successful peer-to-peer platforms know their lenders and borrowers. Boat rental facilitator Sailo meets most boat owners in person. This helps Sailo make the best matches with boat borrowers.[32] Intimately understanding customer and supplier needs reduces the risk that either party is disappointed.
- Provide assurance with insurance: Along with making the perfect match between lenders and borrowers, Sailo also offers insurance—property damage and liability—to reduce risk for its users.[33] Providing peace of mind with insurance is another way the sharing economy builds trust. Make sure you have a way to make users whole again.
- Live and die by reviews: Online communities and testimonials also can reduce risk. For technology-driven sharing economy companies, the Web, through user reviews, is the best place to build trust.[34] Candor about experience attracts new users and weeds out bad users (because no one wants to work with them).
- Make things right: The community around a sharing economy business becomes an asset—or a liability. Negative user experiences damage a sharing brand more than a conventional brand.[35] Addressing subpar experiences mitigates brand damage.
Ways to optimize products and services
If you want to offer product in the sharing economy, choose or develop something that’s made for sharing.
- Find a good fit: Peer-to-peer rental works best for assets that are expensive and not fully used.[36] This being the case, it’s easy to see why Airbnb has caught on. You pay for all the square footage of your home, whether it’s in use or not.
- Get personal: In the sharing economy, customers embrace products that can be customized and used in whatever quantity they please. Businesses such as Etsy® and TaskRabbit follow this best practice.[37] Delighting customers is made easier when you deliver tailor-made wares.
- Ask for help: You can increase interest in your goods by talking about them in the right way. In collaborative consumption, requesting help is more powerful than announcing you can help. Requests are more shareable on social media.[38] Consider reframing your product messages with this I-need-assistance mindset to improve amplification.
- Deliver it now … The technology that powers the sharing economy drives yet another nickname: the on-demand economy.[39] Customers use apps to get what they want, when they want it. The on-demand economy is “changing what customers expect from all businesses.”[40] Consumers have adopted the new technology of the on-demand economy and will abandon organizations that insist on doing things the old way.
- … Or deliver what an app can’t: We’re all consumers who crave the immediacy promised by the on-demand economy. The technology that makes this possible, however, may be detaching us from the communities in which we live.[41] Out of this comes an opportunity for the local businesses. In-person service in a convenient location may stand up against on-demand but virtual customer service.
Influence of the sharing economy
No matter what you call it—the sharing economy, collaborative consumption, etc.—the experience of using peer-to-peer platforms and the technology that makes communication possible are shaping consumer demands for all businesses.
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