(1)Value creation and appropriation in the Amsterdam club scene: A case study research

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(1)Value creation and appropriation in the Amsterdam club scene: A case study research. Line up: RAUW, Meubelstukken: Mirik Milan Gelders Voltt / Static, Mojo: Daan Spoek. 11:. Olaf Boswijk.

(2) . Rijksuniversiteit Groningen MSc Business Administration Strategy & Innovation Gijs Johannes Gerhardus Oostendorp S1283189.

(3) Preface Since the first signs of their existence back in the ‘70s, clubs and party concepts got more and more popular among the general public. Over time, an enormous diversity of styles of music and club concepts has been developed. Parallel to this development, the business behind the clubs and the music professionalized, bringing along new challenges. An important interest of this research is on the partnering within the club scene that derived from such developments; encompassing the establishment of vertical ties between clubs and concept party creators. Some of them forge into strategic alliances which allow these firms to specialize. Specializations are formed by the characteristics of resources –and capabilities– owned by the respective organizations; also known as the criteria of assets. This largely affects the way in which value is created –within these alliances with the help of these resources– in order to appropriate value effectively. Value appropriation is analyzed in the light of two effects that ultimately determine the revenues that the respective firm ends up with: horizontal value protection against imitation by competitive firms and the vertical ‘thug of war’ between the industries suppliers and demanders. The latter is known to ultimately determine the margin of the total value that the innovative entrepreneur is able to capture. A brief analysis has led to the impression that clubs most often co-operate with a wide range of party organizations which enables them to offer a variety of parties. These parties differ in their concept, enabling them to meet the variety in the taste of the consumers. This is why this research speaks of so-called ‘concept parties’ owned by external organizations –from the club’s perspective. Apart from the variety in the consumers’ taste that exists next to each other, consumer demands are ever changing in the club scene. Because of this, consumer needs are very dynamic which allows them to co-develop with the variety of musical dance movements. This also affects the uniqueness of each event, in order for it to be a memorable experience. Therefore the concept party continuously has to be changed or improved, within the limitations of the concept. This results in small stylistic innovations. In order to be so flexible, concept creators operate in networks that provide in the flexibility to partner with a variety of organizations. This allows them to (re-)bundle assets to such an extent that the concept party will meet the ever-changing consumer demands. This flexibility allows the concept party to contribute to the evolution of the dance music movement. This research’s interest is on how the created value by party concepts can be protected against imitation, in order to capture value effectively. By doing so, this research also. 2.

(4) explores the equilibrium of the club scene, with respect to its balance between created value and appropriated value amongst value contributors in different stages of the value system. The Amsterdam club scene is a fascinating subject for a case analysis, because it provides. an. interesting. and. under-analyzed. field. of. research.. The. club. scene. encompasses several remarkable characteristics, the combination of which all together is rather unique to the club scene. At the same time, it provides a wider understanding of these subjects with respect to other industries. Due to some of these characteristics, the club scene can be typified as a creative network industry in which small organizations, which (mutually) identify themselves with stylistic movements, closely cooperate. They do so in order to generate continuous stylistic innovations in the form of ever changing experience events. The combination of these characteristics has implications for value creation and appropriation.. 3.

(5) Table of contents 1.1 Introduction ................................................................................................5 1.2 Research Description .................................................................................... 7 1.2.1 Research Goal .......................................................................................7 1.2.2 Research Question ................................................................................. 7 1.2.3 Sub-questions .......................................................................................8 1.3 Research limitations ..................................................................................... 8 1.4 Outline of the research................................................................................ 10 2.1 Value creation............................................................................................ 11 2.1.1 Experience events ................................................................................ 12 2.1.2 Stylistic innovations.............................................................................. 15 2.1.3 Bundling Complementary assets............................................................. 17 2.1.4 Identity, culture & image....................................................................... 19 2.2 Getting Selected ........................................................................................ 22 2.2.1 The need for legitimacy......................................................................... 22 2.2.2 Entrepreneurial experience and objectives for granting legitimacy............... 25 2.3 Value appropriation .................................................................................... 27 2.3.1 Horizontal appropriation: Value protection ............................................... 27 2.3.2 Vertical appropriation: Value capture ...................................................... 30 2.4 Conceptual model....................................................................................... 34 Chapter 3 Methodology ........................................................................................ 36 3.1 Research strategy ...................................................................................... 36 3.2 Primary data collection................................................................................ 38 3.3 Secondary data collection ............................................................................ 38 3.4 List of interviewees..................................................................................... 39 Chapter 4 Results ............................................................................................... 42 4.1 Value creation............................................................................................ 42 4.1.1 Concept owner’s Identity....................................................................... 44 4.1.2 Audience............................................................................................. 46 4.1.3 Promotion ........................................................................................... 48 4.1.4 Artists ................................................................................................ 52 4.1.5 Club venue.......................................................................................... 55 4.2 Entry to Selection System ........................................................................... 58 4.2.1 Legitimacy .......................................................................................... 58 4.2.2 Network Industry ................................................................................. 61 4.3 Value appropriation .................................................................................... 65 4.3.1 Value protection................................................................................... 65 4.3.2 Value capture ...................................................................................... 66 5.1 Conclusion ................................................................................................ 72 5.2 Discussion ................................................................................................. 76 Bibliography ....................................................................................................... 84 Appendix ........................................................................................................... 86. 4.

(6) Chapter 1 Introduction. 1.1 Introduction This research aims to analyze how value is created and appropriated (Gemser & Wijnberg 2001) in a creative industry. Typically for a creative industry, value is often created by stylistic innovations (Wijnberg 2003) and often results into stylistic movements (Wijnberg 2004). These stylistic innovations may seem hard to protect against imitation by competitors because they are often characterized by weak appropriability regimes (Gemser & Wijnberg 2001). As such, intellectual property rights often fail to form an effective mechanism against imitation. Early research has shown that other mechanisms of a more informal nature, such as reputation (Gemser & Wijnberg 2001), seem to be more effective for value protection. The value creation in the club scene occurs in the form of experience events (Pine & Gilmore 1998). Constantly these experiences are renewed through stylistic innovations to keep the experience novel. Because of the increasing importance of experiences in general, an interesting development in the Amsterdam club scene has occurred. Clubs seem to focus more on their core business of services delivery by turning the club into a venue with well adapted facilities. These clubs simultaneously give space to external organizations that are specialized in creative value creation. They seem to be well able to develop experiences that appeal to the ever-changing needs of the visitors of the club. Without the need to overcome the high entrance barriers of becoming a club venue, the externalization of experience development has decreased the entrance for new entrants dramatically. The increased amount of these ‘new creatives’ seems to have a vivid effect on the industry and on the relevant music genres in this market. The increasing need for innovative experiences in order to engage effectively in competition has led to a further specialization of firms that are active in the club industry. The industry seems to be characterized by a network of organizations (Teece, 1986), which offer different forms of value. The value is created by the transformation and/or bundling of assets, which can be evaluated on different criteria (Mol 2005). This analysis sheds a different light upon the co-operation between the organizations and their boundaries. The specialization of firms seem to result in a situation in which an important core-business function of the club –the value creation process of the experience– is being outsourced to a creative organization. This creative organization is the owner of the party concept that provides the experience event. The club as a venue. 5.

(7) seems to be leftover to a more facilitating role, such as providing drinks and staging the experience. These creative organizations are believed to be more able to create a legitimate response (Wijnberg 2003) that fulfils a set of customer needs. They do so in the form of an experience that identifies with a certain stylistic movement (Wijnberg 2004) on a conceptual level that is often close connected to, or inspired by, a musical genre. Since the creative organization innovates on an important function of the club, a high level of legitimacy (Aldrich & Fiol, 1994) is required, from the organization that (re)presents the concept of the experience. First towards the club it co-operates with that selects on how well the concept fits with the club and how many visitors it attracts. Second to the market, that selects on the extent to which the concept (owner) is known for being able to create experiences that fulfils their (latent and articulated) needs. The complexity of consumer needs regarding stylistic innovations by artists, results in the continuous development of music genres . These dynamics have developed opportunities and challenges for clubs all through the years. Consumers seem to look for hip venues and new experiences that attract other consumers they identify with. It is difficult for club venues to always target the right consumers with continuous value without the help of creative concept owners. The absence of such a party has led to the death of some clubs. It seems that they were unable to compete against the other business model. This research is interested in how clubs are able to offer a variety of value to the consumer in order to obtain and maintain a sustainable competitive advantage, through being hip and attracting the right customers. This research offers valuable insights for anyone who is interested in gaining a sustainable competitive advantage through stylistic innovations. This creative industry can be characterized as turbulent, because of the coming and going of hypes, and because of the ever changing consumer needs influenced by these innovations and those created by peers. This ultimately results in a subjective value judgment by the market, experts or peers; to conclude, whether the concept party is regarded as hip or not.. 6.

(8) 1.2 Research Description Most of the time it is unknown to which extent partnering can be described as armslength contracting, real alliance forming or in-house production with an external aspect. Therefore, in this research co-production between partners will also be referred to as an alliance. Better insight in the actual practical role of this and other critical empiric aspects will be gained by a further analysis of findings in the empiric research (chapter 4) based on the theories investigated in chapter 2. Note that the emphasis of the entire analysis of this research lies on the level of the value creation by the creative club concept. This is mainly due to the fact that the research tends to focus on the stylistic innovative value creation that forms the experience. Because of practical reasons, the value creation of clubs –in the form of the service it provides– will not be thoroughly investigated. The club’s role in the partnering process and if relevant, the influence it has on the stylistic innovative value creation will be discussed. Naturally, the division of value will be taken into account. 1.2.1 Research Goal The goal of this research is: To give better insights in the value creation and value appropriation through stylistic innovations by party concepts in the club scene. This increase in understanding yields important insights to managers of these concepts and other contributors to the club scene. These research goals serve both its scientific and practical significance for the club scene. Strategic implications and scientific insights may go beyond the club scene and explain aspects in other (creative) industries that have (stylistic) innovations. The strategic decision whether to attract a partner for (stylistic) innovation or not, addresses the general ‘make or buy’ decision many managers face in all (creative) industries. This case study of value creation and appropriation through strategic partnering in the Amsterdam club scene, forms an interesting case and a relevant subject for thorough analysis. 1.2.2 Research Question In order to serve the above mentioned goal, the following research question is formed: How do concept parties create and appropriated value in the Amsterdam club scene?. 7.

(9) 1.2.3 Sub-questions In order to answer to main research questions, several sub-questions have to be answered: How do concept parties create value? How do concept parties get selected? How do concept parties appropriate value? The sub-questions divide the research question into three separate parts: a selection phase, a value adding phase for clubs and a value appropriation phase. These parts are investigated separately, in both theoretical and empirical manner. 1.3 Research limitations The scope of this research is limited on several clear aspects. The research will be constraint to the creative industry of the Amsterdam club scene. It has to be stressed that although there are several well-known large indoor and outdoor events within the dance industry, these should not be mistaken for club parties or events. These so-called ‘house parties’ are often being held at locations that do not function as a club venue on other occasions. Therefore, they operate under different circumstances that are beyond the scope of this research. They cannot be taken into account within the scope of this research and its conclusions. Although they are both active in the dance scene and both book similar DJs, it is part of a different value creating industry: the (large) event industry. Partnering does occur with a venue, but seen the usual purpose of these venues, often the facilities and permits of these venues are lacking. The concept creator has to obtain additional assets themselves, such as: wardrobes, toilets, bars, surveillance, permits for dispensation, et cetera. The combination of these facts and the enormous scale of the event make the concept creator only able to organize such an event only once or twice a year. Famous events, with a nationwide recognition (or even international) belong to this industry. Examples of these events are: Sensation, Trance Energy, Innercity, Mysteryland, Dance Valley and Awakenings. The first three are examples of The Netherlands’ largest dance event organizer and firstmover in the field of large house party events: ID&T. Although recognized for its innovative events and important role in the dance scene, it will not be taken under consideration, since its activities within the club scene are trivial. Nevertheless, events like these do have similarities with the club scene as they influence each other.. 8.

(10) Awakenings for example, started out as a club event and grew out till a medium-large indoor event in the Westergas Fabriek with four editions a year, one of which outdoor. Club events tend to be much more frequent than large house parties. They attract a smaller audience on a much more frequent basis and demand a higher loyalty from their customer base, charging a fraction of the price. Account the fact that each weekend many club events occur simultaneously, targeting the same customer base. This gives a completely different view on the competitive pressure and fierce competition club events have to deal with. Also large cumulative club events meant to promote the Dutch dance scene, or the Amsterdam club scene, such as the Amsterdam Dance Event (ADE) and Five Days Off are left out of account, since these are annual events and serve other goals. The research has also been limited to a geographical scope. The dance scene is internationally. orientated. and. artists. influence. each. other. all. over. the. world.. Nevertheless, a club and its direct and most prominent market are more city-orientated. All large cities have their own club-scenes which all come with their own ‘rules of the game’. This demands a certain nuance on the findings per city. Within a city, the game has to be played and a sustainable competitive position has to be gained. Within The Netherlands, the city of Amsterdam has the most active and vivid club scene. Therefore it has been chosen as the level of analysis, leaving club events out of this market out of consideration for this research. Finally, the interest of the research lies in innovative club events. This means that the focus will be on several concepts that are regarded as to be innovative and successful. These innovative concepts will be part of the intensive case study in the empirical analysis. The more imitative club concepts, that tend to serve exploitation rather than exploration, will not be part of the intensive analysis. They will be briefly mentioned though whenever necessary for illustration. The findings of this research will therefore be more applicable to the more innovative club concepts and their partnering with club venues. If these findings are to be applied for the exploitation of club events with more commercial intentions, nuances will have to be taken into account with regard to a larger knowledge base of the Amsterdam club scene.. 9.

(11) 1.4 Outline of the research Chapter 1 explains the research in its intentions and gives a broad view of what is to be expected and the relationships between the different aspects of the research in order to make it more comprehensive. Chapter 2 provides the theoretical framework of this research. This chapter offers numerous of theories that ultimately lead to proposition(s). These propositions are meant to offer better insight into value creation and value appropriation, through partnering in the Amsterdam club scene. It starts with a short study on the relation between stylistic innovations and the bundling of complementary assets, followed by three paragraphs on asset criteria. Chapter 3 forms the methodological background on which the case study is founded. Chapter 4 is the case study research of the Amsterdam club scene. The propositions formulated in the second chapter are tested here against the theoretical framework and the empery. The information was gathered by interviewing several people that have a background in the Amsterdam club scene. Four organizations will be taken under close scrutiny, since they are recognized as to be innovative organizations in the Amsterdam club scene. Chapter 5 draws conclusions as a result of the findings in the case study. They are followed by a brief discussion and implications for further research.. 10.

(12) Chapter 2 Theoretical Framework. This chapter provides the theoretical framework of the research. The goal of this chapter is to formulate several propositions, which will be tested in the empirical analysis of the Amsterdam club scene. In order to do so, the chapter is divided in three large sections. Paragraph 2.1 focuses on the creation of a valuable experience event. Paragraph 2.2 focuses on how concept organizations get selected by relevant partners for effective market entry. Paragraph 2.3 focuses on value appropriation in the creative industry that will be under analysis. Since the Amsterdam club scene is the case under analysis and will be investigated in chapter 3, the theoretic construction targets a more generic subject. Now and then the Amsterdam club scene will be mentioned, but will also be referred to in a more general elaboration. This is due to the fact that the problem of value creation and appropriation that this paragraph targets, is applicable to more then one industry. Finally, this chapter will present the conceptual model of the research in paragraph 2.4. 2.1 Value creation In paragraph 2.1.1 a definition of stylistic innovation will be presented and will be discussed in relation to value creation. Paragraph 2.1.2 discusses the bundling of assets in the light of the concept’s variations, in order for it to maintain its unique value as an experience event, which will be discussed in paragraph 2.1.3. Paragraph 2.1.4 shows the importance of the organization’s identity for value creation. In the end of this paragraph a proposition will be presented on the importance of the organizational identity for the creation of a valuable experience event. The previous definition on stylistic innovations stresses the importance of the valuation of the product’s characteristics by the relevant selectors. Mol (2005) makes a distinction between the resources that were bundled for the innovation in their capacity to create the innovation’s characteristics and in their capacity to successfully commercialize the innovation. He refers to these resources with the capacity to create the product characteristics as resources that function according to ‘in re criteria’. According to Mol, “In re criteria describe the value of resources in their capacity to create productcharacteristics that have value according to the relevant selectors.” (2005, p. 130). 11.

(13) He stresses the importance of also having resources within the firm’s boundaries that have the capacity to successfully commercialize the innovation. Paragraph 2.2 and 2.3 further elaborate on how these criteria function and their definitions. Value creating resources that are able to create the innovation’s characteristics will be referred to as resources, or assets within re criteria. 2.1.1 Experience events It is important to understand what type of economic entity a concept party really is, before appointing the resources that are necessary for the value creation of a stylistic innovative concept party. A concept party is best typified as an event with numerous sensations that is aimed at making memorable experiences (Pine & Gilmore 1998) through music, lighting, dance performances, etc. Club or house parties are experience providers, since their owners are part of the event industry. Pine & Gilmore (1998) stress the importance of the memorability of an experience. They emphasize that the essence of the economic entity is not its tangible resources, but in fact a personal valuation of the experience made by its consumers. This is in line with the presented definition of stylistic innovation. Pine & Gilmore state: “An experience occurs when a company intentionally uses services as the stage and goods as props, to engage individual consumers in a way that creates a memorable event.” (1998, p. 98) They distinguish four forms or realms of an experience. Experiences can be categorized by them, but can also encompass aspects of all four realms. A concept party is mainly an escapist experience, but it also has aspects of entertainment, esthetic and even education. An escapist experience is an immersion into a alternative reality that demands a high level of participation. Though club parties seem to have aspects of entertainment, entertainment is less active and the demands a less immersive connection, it’s rather absorptive. The music, lights and video walls of a club event can be valued as an esthetic experience and an educational aspect can be found in the knowledge about the scene, its DJs and music for instance. It is accepted that a concept party is an escapist experience. Pine & Gilmore (1998) underline the individual’s mind and personal taste in the valuation of the experience. Mutual identification of the guests and the theme of the experience seem to occur. This idea is supported by the previous described identification of the concept and a certain stylistic dance music movement. It is likely that the visitors of the club party are fans of the music genre, or at least prefer to dance to it. Therefore it is. 12.

(14) also likely that a concept that relates its ‘theme’ to this movement captivates the customer more completely (Pine & Gilmore 1998). Important factors of demand can thus be related to personal sensations created by the stylistic innovations of the concept. In turn the experience contributes to the stylistic movement that the concept adheres to. The members of a stylistic movement share a common identity, and strengthen the concept or theme of the experience. This enriches the idea of who belong to the club scene: it encompasses anyone who identifies with a certain stylistic movement. Wijnberg (2004) states that stylistic movements consist of members that are active contributors to the movement. Though guests of an experience are considered to be selectors and unless these are peers, market selectors are not considered to be valuable contributors. Pine & Gilmore (1998) nevertheless state that because of its personal nature an experience can only exist in the mind of an individual. This shows the active role of the customer who has to participate in order for the experience to occur at all (Pine & Gilmore 1998). Especially in the case of an escapist experience, since it demands a high level of participation. Regarding these comments, the guest does actively add value to the experience. As the most active and immersive experience, the escapist experience can be regarded as a co-creation of the customer and the stager. It was explained before that the experience as an economic entity does contribute to the stylistic movement thanks to its pragmatic stylistic innovations. The escape to an alternative reality demands a high level of interaction between the staged event (in the form of the club event) and the individual’s state of mind (Pine & Gilmore 1998). This explains why visitors of club events put such an effort to getting in the right state of mind: it results into an even more valuable experience to the individual, then ‘previous experiences from the same category’. This implies that the visitor not only co-creates the experience by active participation, it even also co-innovates on the experience. Visitors can express their appreciation for the staged experience through responding positively to the stylistic innovation of the stager. The stagers can understand their expression as a legitimate response to the visitors latent needs. This response can be of great value to the stager in its role as an innovator. It enables the innovator to understand whether the created value is a legitimate reaction to the selectors’ latent needs or not. It is direct information on the success of the innovation. This vaguely described. interaction. process. between. stager. and. guests. that. influences. the. 13.

(15) innovativeness of an experience, is in practice best felt and recognized in the form of the party’s atmosphere. The feedback role of atmosphere can be regarded as a form of 4th generation R&D (Miller & Morris 1999) in which consumers are being actively involved in the development of the innovation by exploring their latent needs. Ignoring a negative feedback –an atmosphere that does not fit the stylistic movement– can damage the quality of the experience, all other experiences to come if kept ignored and it can even harm the stylistic movement. Therefore it is reasonable to accept that thanks to the atmosphere, the visitor not only co-innovates the experience, but can also contribute to the stylistic movement. With respect to the role of the selectors, Wijnberg (2004) confirms that the selectors coproduce the experience. He states that by doing so they also acknowledge the stylistic movement as an economic entity (Wijnberg 2004). It was explained before that the economic entity under analysis is an experience. Wijnberg confirms that by co-producing the experience, selectors also co-produce the stylistic movement. He underlines the shared identity of the members of the movement and states that the shared identity stimulates collaboration amongst members, by sharing resources without formal agreements and by open interaction. In turn, this can benefit the rate of innovation and the development of the movement (Wijnberg 2004). Nevertheless Wijnberg considers the acknowledgement of the movement and co-production by the selectors, to be the result of the value judgment by the selectors. In order for the selectors to do this effectively, Wijnberg appoints the selectors and the producers as different groups of contributors. For an effective value judgment of the stylistic innovations, the selectors have to recognize the movement as a group of competitors. The more members of the movement that are perceived by the selectors to be in competition for creating satisfying responses to their latent needs, the easier it becomes for the selectors to recognize valuable differences (Wijnberg 2004). This shows a paradox in the identity of the members of the movement: they have to be both competitive and collaborative. The most important added value of the selectors is the interaction of the experience that forms the value determination of the stylistic innovation. It is reasonable to assume that all selectors are members of the club scene, as they all share a common identity and they contribute value to the stylistic movement. Nevertheless, the selectors can differ in their evaluation. They own their personal mind sets and the collective of a relevant group of selectors is able to deliver an atmosphere. Out of this perspective selectors in the form of the audience can be regarded as a human resource with valuable assets. In the case of the club scene this gives a better. 14.

(16) understanding of why club parties use guest-lists on which they ‘select’ preferred visitors. For they are believed to add value with their presence, or are able to positively influence the mind set of others or bring them along. This even puts the value creator in the role of selecting the customers, or actually co-creators. In this sense, a concept party is not a formula for success; rather a half empty concept that needs continuous adjustments, in order to co-evolve with the developments of the stylistic movements, to which it actively contributes. Within this party concept, peers with a shared identity form a collective endeavor on the esthetic problem of creating an alternative reality. This scene in potential grants a membership to all individuals that share the identity of the movement, it encompasses individuals such as DJs, VJs, dancers, (live) acts, all relevant selectors and of course the party concept creator. 2.1.2 Stylistic innovations Value creation in the club scene is strongly affected by stylistic innovations. Independent party concept organizations as an industrial phenomenon, can somewhat be regarded as to be an ‘industrial innovation’ at itself. The specific concept around which a party is invented by the party organization can also be regarded as to be an innovation when it is marketed. This concept is also continuously modified by the party organizer, with small improvements, variations, or innovations, in order to remain its innovative position. All these types of innovations do not originate from a new technology. These are thus regarded as non-technical, or stylistic innovations. This paragraph will elaborate on the relation between value creation and stylistic innovations. With respect to value creation and competition, Wijnberg (2003) states that in order to be successful, producers have to create value and also have to capture and protect that value. He stresses the importance of innovation for value creation. The innovation can virtually be anything (Wijnberg, 2003): from product to a service, an experience, a style or even a new venture by a new entrant. For a successful commercialization to qualify as an innovation, consumers can and will have to determine the value of the new thing through the way that it is ‘presented’ to them (Wijnberg 2003). This ‘presentation’ actually means any form in which the new thing is put to market, or the way that the consumers (or selectors, as Wijnberg (2003) calls them) interact or counteract with the new thing. This is relevant for the club scene, as the selector interacts or counteracts with several new things that are presented in the form of an experience, determining the valuation of the stylistic innovation. Regarding the central role stylistic innovations play within this research, it is useful to examine the definition of stylistic innovation:. 15.

(17) “A stylistic innovation is a product, or a characteristic of a product, which is recognized by the relevant selectors as a new and legitimate response to a set of preferences which the selectors cannot specify in such a way that other actors could perform the actual determination of how far the product satisfies those preferences, and the value of which consists of the very differences the selectors perceive between the product under consideration and earlier and other products from the same category.” (Wijnberg 2003; p. 1422) This definition clearly describes that the valuation of the stylistic innovation is to be done by the ‘relevant selectors’. According to Wijnberg (2003) selectors are (groups of) individuals in a selection system that ‘determine value’ through a selection process that leads to the valuation of something new. In a market selection system, the relevant selectors are consumers (or other (potential) buyers that actually make purchase decisions). Selectors can also be peers who produce a similar form of value and determine the value of their peers’ (new) products. The third selection system consists of expert selectors, who do not buy nor produce, but have certain specialized knowledge or skills to evaluate the innovation. It is the valuation of a composition of such selectors that determine the innovations’ value. The influence of the potential selection systems, on the innovation’s disruptive nature and vice versa, is explained by Wijnberg (2003) in the following. He suggests that the extent into which an innovation can be typified as incremental or radical, can be measured by the increasing importance to which the innovation has an impact on the relative valuations of four counteracting levels: 1. The preference for a certain valuable economic entity 2. The set of preferences itself 3. The composition of selectors 4. The selection system itself The above is an important representation, since an important aspect of stylistic innovations lies on the valuation of the ‘something new’ to a set of preferences and the extent to which it satisfies these preferences with respect to other stylistic products from the same category. This implies a tendency to a incremental nature of stylistic innovations, especially when it concerns stylistic movements (Wijnberg, 2004). Within these stylistic movements the innovators share a group identity for a collaborative endeavor on aesthetic problems, which makes their innovations seem to affect each other (Wijnberg, 2004). It is a widely accepted idea that club music comes in a variety of. 16.

(18) stylistic movements and that concept parties also relate to these movements, or musical genres. Paragraph 2.2 further elaborates on the importance of stylistic movements. It is accepted that a concept party is a stylistic innovative experience event that relates to certain dance music movements. As it contributes to its continuous evolvement, the concept party is a valuable contributor to the dance music genres and a member of the stylistic movement, because of its incremental stylistic innovations. 2.1.3 Bundling Complementary assets This paragraph takes the bundling of assets under close scrutiny in order to show the importance for the Amsterdam club scene. To create the incremental stylistic innovations for effective value creation, the concept owner has to bundle several assets or resources. According to Mol, resources have to be ‘bundled’ “[…] for reasons of competitive efficiency that mainly pertains to optimizing the resource portfolio of the firm in terms of the different resource functions.” (2005, p. 135) Resources for commercialization, both value creating and complementary, are not always within the organization’s firm boundaries and can be controlled by others. This results in the specialization of firms (Mol 2005), as the present resources with different functions – forming the firms resource portfolio– are being optimized for competitive efficiency. Ultimately, innovators need to bundle these specialized resources to successfully execute the commercialization (Mol 2005). Put differently, companies can create value by bundling resources, but they can also bundle them with others. Complementary assets are related assets in order to produce and introduce new products and services, which typically lie downstream the value system, or else vertically (Teece, Pisano & Shuen, 1997). The commercialization of a stylistic innovation needs to be supported by resources that enable the innovator to enter the market and to actually make a profit. Both Mol (2005) and Teece (1986) argue the importance of assets (Teece 1986) or resources (Mol 2005) that complement the value created by the innovation for the successful commercialization of a stylistic innovation. Teece (1986) argues that innovators need to have the necessary complementary assets for a successful commercialization in order to profit from the innovation. Mol (2005) takes this distinction between complementary assets and generic assets even further, by dividing complementary assets into their specialized nature (Mol, 2005; Mol &. 17.

(19) Wijnberg, 2004). Mol (2005) states that the same resource(s) can potentially function in different roles, according to the value it is able to contribute to the successful commercialization of an innovation. Mol distinguishes three potential roles resources might be able to take in their functioning: in re criteria, ante rem criteria and post rem criteria. This paragraph focuses on resources that function according to in re criteria. Both Mol and Teece agree that obtaining the necessary complementary assets for successful commercialization is often hard for innovators. Entrance barriers for obtaining these resources inside the firm are often too high, the entering takes too long or the activity concerning entry lies just too far outside of the innovators core business. Therefore, partnering up through alliances and bundling the complementary assets often seems more realistic (Teece, 1986; Mol, 2005). This is especially the case with small and medium sized companies that are active in a creative industry, in which creative individuals often tend to adopt an entrepreneurial role (Mol 2005). With respect to the infinite variety that can be achieved through numerous potential stylistic innovations, concept owners are faced with continuous bundling, un-bundling and re-bundling of assets. The concept owner needs to do so, in order to evolve along with the stylistic movement. The only consistent factor in this ever changing bundle of assets is the innovators identity that determines all strategic (partnering) decisions, in order for the concept to stay relevant to the scene and the movement. Because of this continuous change in the bundle of resources, the concept owner needs to have dynamic capabilities (Pisano, Shuen, Teece, 1997). Dynamic capabilities enable an organization to quickly adjust to the changing needs, thereby creating value (Teece, Pisano & Shuen, 1997). It pushes the organization to adapt its resource portfolio to such an extent that it is capable of adapting to these changing needs. The close partnering with other organizations that derives from this, blur the organizational boundaries (Teece, Pisano & Shuen, 1997). The formal and informal structures of an organization and reputational assets also determine its dynamics (Teece, Pisano & Shuen, 1997). This is also reflected in the identity of the organization that it shares with its partners, especially if they are regarded to be a member of a stylistic movement. In the case of the concept owner’s organization, the evolution of movements and the experience’s unique varieties make it a hollow organization (Teece, 1986), with a very small resource portfolio. With respect to stylistic movements, it was mentioned that the more producers that seem to compete through stylistic innovations, the more the movement is established as an economic entity and the more differences the selectors are able to experience. This is in line with the network effects that network industries have. The network benefits from. 18.

(20) the more specialized organizations that enter the network industry, as it increases the scope of the created value within the industry. As a hollow organization, the concept owner is completely specialized in creating stylistic innovations that identify both with the stylistic movement and the selectors. As its complementary asset owners are also specialized organizations, the organization is well able to form a variety of bundles of resources in order to form legitimate reactions that co-evolve with the stylistic movement and the rest of the club scene. 2.1.4 Identity, culture & image The described relation between experience and identification is also confirmed by the theory of Hatch, Larsen & Schultz (2000) on the ‘expressive organization’. They elaborate on how the organization itself should actually ‘set the stage’ for the corporate story to unfold in order to enrich the core business of the organization to an experience. Pine & Gilmore (1998) use the term ‘stage setting’ also for the unfolding of an experience and the corporate story shows remarkable resembles with the theme of an experience. They are both meant to captivate the stakeholders or customers, it must drive all design elements, the look and feel of the organization and its actions and its signaling cues, in a ‘unified story line’ for an intense immersion (Pine & Gilmore, 1998; Hatch, Larsen & Schultz, 2000). Nevertheless it’s not just about a tag line, a mission statement or public articulation (Pine & Gilmore 1998), it’s about the organization’s emotional and symbolic expressiveness (Hatch, Larsen & Schultz, 2000). It is the corporate identity that enables all stakeholders to identify with the organization that lies at root of such a corporate story (Hatch, Larsen & Schultz, 2000). With respect to the club scene, it strengthens the idea that the concept of the party is a theme. or. story. of. the. experience. constructed. around. the. concept. owner’s. (organizational) identity. The created experience of the party concept is of great expressive value. It is very well possible that the identity is the most valuable assets owned by the organization. Hatch, Larsen & Schultz (2000) state that: during the interaction between stakeholders and the organization’s members, identity constrains what are deemed to be legitimate response to the signaling cues. With respect to the influence an atmosphere is assumed to have on a stylistic innovation, this shows that the identity really does help to determine which stylistic innovations are a legitimate response in the eyes of the selectors. Regarding the fact that an experience is a cocreation as a process of interaction, it stresses the idea that a shared identity creates the characteristics of the experience.. 19.

(21) The stylistic innovations of the innovator co-evolve with the stylistic movements the innovator identifies with. The selectors identify with the concepts experience, thus it is logical to presume that they also identify with the stylistic movement. Hatches, Larsen & Schultz (2000) describe how a culture forms the contextual backdrop of such mutual identification. This stresses the idea of the club scene being able to have subcultures that unite the members of the stylistic movement and the relevant selectors. The influence these subcultures have on the created value of the concept’s experience is that the identity involves the instrumental use of emergent cultural symbols (Hatch, Larsen & Schultz, 2000). The previous describes how the organization’s identity is in fact an instrument or tool that can be used to create value in such a way that it fits to the identity of the scene. Hatch, Larsen & Schultz (2000) describe how the organizational identity influences all actions undertaken by the organizational members and how it influences all signaling cues in order to create a more ‘expressive experience’. They also state that these cues will eventually be assessed by the relevant stakeholders that form the corporate reputation. This reputation eventually influences the variety of images that selectors have from the organization. Hatch, Larsen & Schultz (2000) describe how identity, image, culture and reputation all influence each other, through actions, signaling cues and assessments. Identity is the only phenomenon the organization has control of and it can be regarded to be owned by the organization. The ownership of the identity make it an asset that involves the instrumental use of emergent cultural symbols, that creates the characteristics that have value in the eyes of the relevant selectors. For a more comprehensive understanding, this research assumes that the described service and goods in the definition of the experience are being delivered by the club venue with the necessary facilities. This stresses the idea of the concept party organization owning very little resources. The party organization obtains all other necessary assets that create the characteristics of the experience through partnering with other organizations. These external assets, such as the club venue and its facilities and DJs, are able to function as resources with in re criteria. Nevertheless very little of these assets really belong to the resource portfolio of the concept party owner. The concept owner can be regarded as a somewhat hollow organization that obtains external resources out of the network industry, through dynamic capabilities in order to bundle, un-bundle and re-bundle, these assets to create innovations with an infinite variety. Paragraph 2.2 will elaborate on this subject.. 20.

(22) In the eyes of the selector, that co-creates the experience, the assets that create the stylistic innovations are the means that make the event memorable. This refers to the selectors’ preferences; a common interest in the stylistic movement. Therefore it’s reasonable to accept the idea that, out of the bundle of assets with in re criteria, the identity is the innovator’s asset that creates the most value to the experience in the eyes of the relevant selectors. The total of these theories is summed up in this research’s first proposition with respect to the Amsterdam club scene. Proposition 1: The identity of the concept party owner for being innovative is the most valuable asset for value creation (in re criterion).. 21.

(23) 2.2 Getting Selected The previous paragraph elaborated on value creation by a concept party in the Amsterdam club scene. It was noted how important the organization’s identity is, for it is accepted that all other assets with in re criteria are obtained out-side the organization. It does so through partnering with organizations that do own the necessary complementary assets. This paragraph elaborates on how the innovator gets selected for partnering in order to commercialize its innovations effectively. 2.2.1 The need for legitimacy The definition of stylistic innovations addresses the importance that the new thing in this case has to be a legitimate response. As will be shown in this chapter, legitimacy is important for granting effective access to the selection system, meaning that it is part of assets with ante rem criteria. An entrepreneur that wants to enter the club industry –not necessarily by owning a club but rather with a new party concept- faces several problems. Most importantly, the entrance barriers of innovating through a new club are seemingly too high. The club owners in the industry own assets that the innovative entrepreneur needs, but he himself was not able to obtain. In order to get selected by the relevant selection system, the innovator must form coalition(s) with the incumbents (Teece, 1986). However, before the concept owner is able to get selected by the market selection system (Mol & Wijnberg, 2003) the party concept owners must first get selected by a different market selection system, which is formed by the club owners. In order to get selected the party concept owners need ante rem criteria. According to Mol, ante rem criteria “[…] describe the value of resources in their capacity to either allow a firm to effectively enter a particular selection system as one of the selected or prevent rivals from doing so.” (Mol 2005) The concept party owner must persuade the club owner that he is the ideal partner for an alliance, since his value best fits the needs of the final consumers. This is essential, because a superficial analysis will give the impression that the final consumer selects upon the level of the concept party and not the club. This means that the level of decision making for the consumer is on the level of the party and not the club; a pull effect. However, to be able to profit from this effect the concept owner still needs to get an alliance first.. 22.

(24) In order to get selected for partnering, innovators need to make their innovations trustworthy, by gaining legitimacy. Aldrich and Fiol (1994) describe legitimacy as: “[…] the extent to which people perceive that it adheres to accepted principles, rules, norms, standards, and way of doing things.” Aldrich and Fiol distinguish between two forms of legitimacy: cognitive legitimacy and socio-political. legitimacy.. They. also. describe. entrepreneurial. strategies. that. the. innovators will have to follow in order to promote the development of their new industry, or as in the case of concept parties: the establishment of a new stylistic movement. This also involves the ever evolving nature of stylistic movements (Wijnberg, 2004). To gain socio-political legitimacy, innovators will mainly have to develop trust, reliability, reputation and institutional legitimacy (Aldrich and Fiol, 1994). The organizational cognitive legitimacy is represented by symbolic language and behaviors. This might be relevant for entrepreneurs with a new concept if they want to form an alliance with a club, since the effectiveness of the selection can be very much influenced by a certain amount of ‘club scene credibility’. Regarding the importance of trust for legitimacy, the party owner needs to have a very clear view of the value that his party will add to the club in the form of a well defined concept. This is why people often speak of the term concept party. It is up to the club to select the partner with the best assets to complement its own assets to serve the customers’ needs. In order to convince future alliance partners, it is very important for the concept creators to present a consistent concept. Aldrich and Fiol (1994) call this organizational socio-political legitimacy. Aldrich and Fiol state that socio-political legitimacy on an intra-industry level can be gained through collective actions. A good example of this for concept parties is the online ticket services. Online actions in general are very important in this industry and transactions have to be reliable. Most parties offer the on-line service of ordering tickets through services as TicketBox or PayLogic. The clubs also have adapted themselves to these intra-industry co operations. This adds up to the collective nature of cooperating with other industries, such as these on-line facilities. According to Aldrich and Fiol (1994), it shows that forming alliances itself is a way of gaining legitimacy, not only vertically downwards but also up-stream. This helps building a reputation through inter-industry co operations. It can be very wise, for example, to. 23.

(25) already have contacted important DJs that add great value to the concept. Previous alliances in an earlier stage of the concept’s life cycle are also a great contribution to the reputation of the concept. These previous alliances show that the partner is reliable; they indicate that the concept has a network of partners and they prove the concept gets selected and has potential to appropriate value. These forms of inter-industrial negotiating. and. compromising. create. socio-political. legitimacy.. This. shows. the. importance of reputation for building a legitimate network through inter- and intraindustry co operations. Another socio-political form of legitimacy can be gained through collective marketing. The best examples are objective internet sites and weblogs that gather information in the form of agendas or pre- and reviews of parties. Well known and very influential websites are Partyflock and djguide.nl. A more classical but also very effective media form is the two-weekly agenda in the free magazine NL20. Nearly all concept owners promote their activities through these channels. Aldrich and Fiol (1994) state that such collective marketing gains socio-political legitimacy on an institutional level. They also stress the importance of collective lobbying. An example of this for the club scene would be demanding more flexible closing times at the municipality, by the Belangen Vereniging Dance. The BVD is an association that unites several (important) players within the dance industry to support the industry’s shared stakes. If one wants to enter the club industry or innovate in it, Aldrich and Fiol (1994) suggest converging around a dominant design. Since this research focuses on stylistic innovation, it is important to understand that the stylistic movement can be regarded as a dominant design to converge to. A stylistic innovation slightly breaks with the dominant design and adjustments to the dominant design (the collective of music or other innovations that form the movement) then have to be made. More important for getting selected is to present the innovation in a way recognizable to the club scene; in this case, the stylistic innovators present their innovations in the form of a concept party. If done right, this means that creating value by innovating within the form of a concept party creates cognitive intra-industry legitimacy (Aldrich and Fiol, 1994) by itself. Another form of cognitive legitimacy can be gained between industries: inter industry legitimacy This can be done, for instance, by promoting activities through third parties from other industries (Aldrich & Fiol, 1994). This can be done through PR or other forms of publicity but also more directly by attracting sponsors with a high brand equity (Keller, 2003). In this way, the new venture gains legitimacy through the secondary brand association of a partner from another industry. Yet another form of cognitive legitimacy is oriented on institutions by establishing linkages on an educational level.. 24.

(26) On a cognitive level, the importance of the dominant design was shown again in the above. Converging around the dominant design as a way of becoming or being legitimate opens an important discussion. It plays an important double role in this research. On one hand, the convergence to a dominant design can be represented by the concept party -as a way of shaping form to an enterprise- and is a well understood way of adding value by the relevant selectors. This means that innovating on the level of a concept party automatically gains legitimacy. On the other hand, it is strongly connected to the paradox within stylistic innovation. A stylistic movement is characterized by followers, which means that if new entrants start acting according to a certain (recently introduced) innovation, this does not necessarily has to be qualified as imitation. Forming a stylistic movement in such a way is also a form of converging into a dominant design. If an innovator is a follower, he gains legitimacy by belonging to the movement. If an innovator is a leader of a new stylistic movement, he gains legitimacy as others follow, since he is stimulating (deliberately or not) others to converge to a dominant design. Through this convergence into a stylistic movement, the initial innovators open doors to other innovators that belong to the same movement. The extent to which converging to a stylistic movement turns into plain imitation or legitimate following is hard to distinguish. Later on in this research a further elaboration on the matter of imitation will be given. In short, cognitive legitimacy informs on what the organization or innovation does (i.e., what does the innovation stand for) and socio-political legitimacy refers to whether or not the organization or innovation is accepted and follows generally accepted rules. Within the club scene, these forms of legitimacy together form the concept owner’s club scene credibility. This allows the innovator to form alliances with partners for complementary assets and is related to its influence within the stylistic movement. 2.2.2 Entrepreneurial experience and objectives for granting legitimacy Mol (2005) discusses the possible ways an entrepreneur can be granted legitimacy with respect to its past and its future. The entrepreneur might have gained relevant experience that largely influences the granting of legitimacy. The entrepreneur can gain this as an effect of prior experience with the founding and management of an organization in general, the club scene as an industry, supplying to a club concept, for example by DJing, or understanding the market and its competitiveness. Apart from the entrepreneur’s prior experience, his objectives also influence the granting of legitimacy. Other than financial revenues the entrepreneur must have intrinsic. 25.

(27) motivations to enter the club scene. Without these, granting the entrepreneur legitimacy will be difficult. The intrinsic motivations are reflected in the innovator’s shared identity with the stylistic movement. Mol (2005) relates the importance of identification and legitimacy in the form of authenticity, which encompasses the selection of an innovator’s truthfulness as a relevant selection criterion. Such truthfulness –for legitimization– is reflected in the club scene as credibility. Without the club scene credibility of being a legitimate member to the stylistic movement, it will be very hard for the entrepreneur to get selected by partners for the necessary complementary assets. Without the complementary assets, the innovator will not be able to benefit from the scope externalities of the network industry. Proposition 2: Club scene credibility, which is based on the concept owner’s legitimacy, is the most valuable asset (ante rem criterion) to get selected.. 26.

(28) 2.3 Value appropriation This paragraph discusses the horizontal and vertical components of value appropriation. The horizontal aspect is concerned with imitation by competitors. The vertical component is concerned with value capture, as a result of the relative advantageous negotiation position of the innovator for commissioning the complementary assets, which were necessary for creating the innovation. In paragraph 2.3.1 the horizontal aspect will be discussed and in paragraph 2.3.2 the vertical aspect will be discussed. 2.3.1 Horizontal appropriation: Value protection This paragraph elaborates on the importance of the protection of the created value against imitation for effective value appropriation. Value appropriation is the ability of firms to secure returns from their innovative exertions (Levin a.o., 1987). As value is created and the innovator becomes successful, the thread of being imitated rises. If an innovation has been introduced to the selection system through assets with ante rem criteria, and it has been selected by relevant selectors, value has to be appropriated with the help of post rem criteria. Post rem criteria make sure that the value presented to the selection system will also flow to the innovator instead of the imitator. According to Mol, Post rem criteria describe the value of resources in their capacity to either allow a firm to engage in competitive imitation of the product-characteristics that have value according to the relevant selectors or prevent its rivals from doing so. (Mol 2005, p. 133) Well-known mechanisms for protection are formal techniques, such as patents or other Intellectual Property Rights (IPR). Although these techniques can be very effective to certain industries, researchers such as Gemser and Wijnberg (2001) have repeatedly discussed the limitations of its effectiveness, especially for non-technical innovations in the cultural industries, for example when it comes to stylistic innovations. The club scene -which can be clearly defined as a cultural or creative industry- also faces these problems. A concept party is very hard to protect by means of IPR. Entrepreneurs are often limited to protecting their brand name. This is what Gemser and Wijnberg (2001) call a weak appropriablility regime. Gemser and Wijnberg (2001) propose another mechanism to deter imitation that is better suited for (non-)technical or stylistic innovations, for example in a cultural industry like the club scene. They suggest that the loss of reputational capital can be an effective deterrent to imitative behavior, whenever having a reputation (for innovativeness) is. 27.

(29) considered of strategic value. This is a type of what they call an informal mechanism for value. appropriation.. Therefore,. having. reputational. capital. (or. a. reputation. for. innovativeness) is an asset with post rem criteria. For a new entrant, this means that he has to earn this reputation first before he can protect himself against imitation. Of course, in the case of a concept owner this is quite hard, because he needs to get selected by a club first. The concept owner needs the club as an alliance partner, because of the lack of ante rem criteria for effective entry to the selection system. Only then is he able to create these post rem criteria. Gemser and Wijnberg (2001) also describe the severe consequences of the loss of reputation in case of network industries. The concept owner risks being cast out of the network and stylistic movement that he economically and socially depends on. Opportunistic behavior is easily noticed in small networks and information is easily spread (Gemser and Wijnberg 2001). Additionally, customers can distinguish between the scene’s imitators and innovators. This illustrates the importance of the loss of reputational capital with respect to the relevant selectors. Therefore, innovations in network industries with stylistic movements are well protected against imitation, due to reputational sanctions. The importance of belonging to a stylistic movement is already described by Wijnberg (2004). Having a reputation for innovation is a post rem criterion that also allows legitimate imitation in the form of following as a legitimate member of the stylistic movement. This brings up a complex paradox on the effect of reputation for innovation as an asset with post rem criteria. Mol (2005) states that a post rem asset can allow a firm to engage in competitive imitation, as well as it can protect the firm against imitation. With respect to stylistic movements, this is reflected by sharing in the identity of the collective that allows both co-innovating and legitimate following (Wijnberg 2004). So if ‘imitating’ encompasses legitimate following by a member of the movement that shares the movement’s identity, this is not followed with a reputational sanction. However, if the imitator does not share the group identity and is not regarded to be a legitimate member of the movement, reputational sanctions will follow. This could mean being cast out of the movement, but most likely the imitator was never regarded as a legitimate member of the movement in the first place, so loss of position is impossible. Nevertheless, the imitator will not earn any reputational capital and its stylistic imitation will not be protected by the effective asset of innovative reputation. The identity of the innovator allows him or her to be regarded as a legitimate member of the stylistic movement (as described in paragraph 2.2), determines all its actions (Hatch,. 28.

(30) Larsen & Schultz, 2000) (paragraph 2.1.4) and forms the theme of the experience (paragraph 2.1.3). This results in the idea that real imitation and legitimate following differ on the role of their identity. A legitimate follower shares the group identity of the collaborative endeavor for an aesthetic problem. It contributes to the movement with its innovations that are meant to explore. An imitator -who is not a member of the movement- does not share the group identity and is mainly interested in exploitation by means of the movement. Hatch, Larsen & Schultz (2000) state that an identity is an organization’s or individual’s asset and therefore cannot be stolen. An image, however, is formed by external stakeholders. It seems logical that imitators can only really imitate the image of an innovator and not its identity. The identity of the innovator is essential to success as it grants membership to the movement and access to complementary assets owned by partners that are legitimate members of the movement. Proposition 3: The reputation of being innovative is an effective informal technique of value protection, since imitators can only copy the concept’s image, and not the concept owner’s identity that it shares with the club scene. The idea of identity being essential to imitation –as it determines all of the firm’s actions (Hatch, Larsen & Schultz, 2000)– is supported by Barney (1991). He states that the firm’s critical success is very much imperfectly imitable, due to the causal ambiguity. Lippman and Rumelt define causal ambiguity as: “[…] the basic ambiguity concerning the nature of the causal connections between the actions and results.” (Lippman and Rumelt, 1982 p. 420) This definition explains the importance for stylistic innovations. Causal ambiguity explains why it is hard to articulate which specific set of preferences would be able to satisfy a possible stylistic innovation (Wijnberg 2003). This is the case not only in advance of the possible satisfaction (since there is no awareness of the latent needs), but even when the satisfaction has occurred with a specific innovative bundle of assets (Wijnberg 2003). It is still also very hard for possible imitators (and other actors) to determine to what extent this set of preferences is being satisfied by which product characteristics. This aligns with another remarkable aspect on the definition of stylistic innovations. Being unable to determine what causes a specific satisfaction makes it hard for imitators to really satisfy the set of preferences to the same extent as the stylistic innovator with a copy-cat imitation. Causal ambiguity protects the concept owners against imitators, as. 29.

(31) visitors perceive that the imitator delivers an inferior copy. This adheres to the imperfection that lies in the imitation of bundling resources. This is what makes the bundle of resources hard to unravel from outside, or to understand the causal ambiguity that relates these resources (Barney 1991). Barney states that defining resources is not enough, because it is not clear which resource results in the sustainable competitive advantage. In this way, causal ambiguity is a very good mean for the protection of value that floats out of a creative process. Other very effective techniques of protection against imitation are: the creation of high capital barriers and continuous product development. The high capital barriers are already generated by the clubs, so if a concept would form an alliance through ante rem assets such as a high developed legitimacy, it would automatically benefit from this asset. Nevertheless, concepts can also introduce this mechanism themselves, for example in the form of booking expensive DJs or making other costs that add value to the concept in the eyes of the relevant selectors. Continuous product development seems to have a double effect in this case. Not only do consumers stay loyal because of new introductions, it is also important to realize that the development concerns stylistic innovations. As the definition of Wijnberg tells us, it is hard to copy a stylistic innovation. So as an innovator keeps introducing innovations, he becomes harder to imitate, since each innovation redefines the dominant design of the stylistic movement. Plus, the reputational effect as an appropriation mechanism –as described above– is a reputation for being innovative. Continuous product development also maintains the reputation of the innovator and stimulates it‘s effect. 2.3.2 Vertical appropriation: Value capture This paragraph describes the vertical aspect of value appropriation, referred to as value capture. If, like other firms, the innovator strives for a ‘maximization’ of its profits, the innovator is also engaged in a ‘tug of war’. This is the bargaining process with the partners and it has necessarily bundled complementary assets with that determines the value captured by the innovator (Mol 2005). The captured value depends on the relative bargaining power that a firm has compared to its suppliers upstream the value chain and its buyers downstream the value chain (Mol 2005) and is therefore somewhat of the ‘margin’ a firm is able to obtain. Again, this bargaining power is also relative to its competitors, who might be able to offer an attractive alternative through imitation (Teece 1986). Therefore, profits are ultimately made vertically and not horizontally (Mol 2005).. 30.

(32) Teece (1986) describes how firms in a weak appropriability regime often need to bundle the complementary resources from a different stage of the vertical value system. In the case of a weak bargaining position towards the owners of these complementary assets, he suggests internalization through acquisition (Teece 1986). In practice, this is often not an option for innovative firms, especially if they are small or medium sized companies (Mol 2005). This is the case of a club concept that is not capable of taking over a club venue. Another alternative for including these complementary assets in the asset bundle for effective commercialization, is partnering (Shane, 2001; Mol, 2005). Nevertheless, the innovator is left with the problem of commissioning these complementary assets, relative to its imitators, for effective value capture (Teece 1986). Teece (1986) suggests that if the innovator is in a weak bargaining position towards the owners of complementary assets, but the innovator is excellently positioned towards commissioning on these complementary assets, relatively to its imitators, the innovator should internalize the owner of the complementary assets. In all other relative positions Teece (1986) suggests forms of contracting the owners of the complementary assets. Regardless of the fact that a club owner cannot ‘internalize’ a club venue through acquisition, this model does not take into account the positive effects of specialized firms and does not distinct between complementary assets with ante rem and post rem criteria. This gives the impression that Teece’s model (1986) on profiting on outcomes for innovators, through the contracting and integration of specialized assets, should be interpreted with nuances. The previous paragraph elaborated on the importance of having a reputation of being innovative for effective value protection. It explained the preferences selectors have for goods that are known for their (stylistic) innovative value. It also elaborated on the danger of being cast out of a stylistic movement or network economy as an effect of reputational sanctions. It is this same reputational sanction that also puts the innovator in a relative better position for commissioning these complementary assets then the imitator (Teece 1986). That is, if the owners of complementary assets consider themselves as part of the stylistic movement or fear being cast out of the network industry (Gemser & Wijnberg 2001). This also implies that if the value creator (i.e. concept owner) is considered to be a stylistic innovator and a member of a stylistic movement that shares a collective identity with that movement, and the owners of the complementary assets also regard themselves to be members of that stylistic movement (or want to become one as legitimate followers), the innovator is advantageously positioned vis-à-vis owners of. 31.

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