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Co-creation is a management initiative, or form of economic strategy, that brings different parties together (for instance, a company and a group of customers), in order to jointly produce a mutually valued outcome.
Co-created value arises in the form of personalized, unique experiences for the customer (value-in-use) and ongoing revenue, learning and enhanced market performance drivers for the firm (loyalty, relationships, customer word of mouth). Value is co-created with customers if and when a customer is able to personalize his or her experience using a firm's product-service proposition – in the lifetime of its use – to a level that is best suited to get his or her job(s) or tasks done and which allows the firm to derive greater value from its product-service investment in the form of new knowledge, higher revenues/profitability and/or superior brand value/loyalty.
Scholars C. K. Prahalad and Venkat Ramaswamy popularized the concept in their 2000 Harvard Business Review article, "Co-Opting Customer Competence". They developed their arguments further in their book, published by the Harvard Business School Press, The Future of Competition, where they offered examples including Napster and Netflix showing that customers would no longer be satisfied with making yes or no decisions on what a company offers.
Within the study of Prahalad and Ramaswamy, they defined co-creation as “The joint creation of value by the company and the customer; allowing the customer to co-construct the service experience to suit their context” (Prahalad and Ramaswamy, 2004, p. 8).
The four building blocks
Prahalad and Ramaswamy suggested that in order to apply co-creation, the following fundamental requirements should be prepared in advance.
|Dialogue||Interaction between customer||Two-way connection instead of one-way selling strategy|
|Access||Allow customer to access the data||Create value with customer; beyond traditional value chain process|
|Risk||To monitor risk and gaps between customer and firm||Share the risk of product development with guest through communication|
|Transparency||Information among business is accessible||Information barriers should be eliminated to certain degree in order to gain trust from guest|
In their review of the literature on "customer participation in production", Neeli Bendapudi and Robert P. Leone found that the first academic work dates back to 1979.
From 1990 onwards, new themes are emerging: John Czepiel suggests that customer's participation may lead to greater customer's satisfaction. Scott Kelley, James Donnelly and Steven J. Skinner are dealing with productivity but suggest other ways to look at customer participation: quality, employee's performance, and emotional responses.
Although not reviewed by Bendapuli and Leone, the groundbreaking article by R. Normann and R. Ramirez suggests that successful companies do not focus on themselves or even on the industry but on the value-creating system.
Michel, Vargo and Lusch recognize the influence of Normann on their own work and acknowledge similarity between the concepts of co-production and co-creation: "his customer co-production mirrors the similar concept found in FP6". The authors suggest that Normann enriched the S-D Logic particularly through his idea of "density" of offerings.
In a letter sent to the editor of the Harvard Business Review in reaction to an article by Pine, Peppers and Roger ("Do you want to keep your customers forever"), Michael Schrage argues that not all customers are alike in their capacity to bring some kind of knowledge to the firm.
Wikström sees the role of consumers changing.
Firat, Fuat, Dholakia, and Venkatesh introduced the concept of customerization (which is a buyer-centric evolution of the mass-customization process) and stated that it enables consumers to serve as "the co-producer of the product and service offering". However, Bendapudi and Leone (2003) concluded in an empirical paper that "the assumption of greater customization under co-production may hold only when the customer has the expertise to craft a good or service to his or her liking".
At the turn of the century, Prahalad and Ramaswamy (2000) produced another important piece of work and built further on Normann and Ramirez's ideas.
In 2004, Prahalad and Ramaswamy kept working on their original idea published four years earlier. At the same time, Vargo and Lush (2004) published on the service-dominant logic of marketing. The process of value creation is dealt with in FP6. Opposing the goods-dominant logic and the service-dominant logic, the authors state: "the customer is always a coproducer". FP6 will be later (Vargo and Lush, 2006) altered in "the customer is always a co-creator".
In the same book, Kalaignanam and Varadarajan (2006) also follow Prahalad's comments and elaborate on the IT implications on coproduction. As the authors put it "developments in information technology [...] enable customers to create value by collaborating with the firm". The main contribution of the authors in this article is a conceptual model of the intensity of customer participation as function of product characteristics, market and customer characteristics, firm characteristics. In their conclusions and directions for future research the authors deal with three promising topics. First they propose to study supply-side issues and how increasing communication, participation from the customers and the emergence of communities enable customers to interact between them, sometimes leading to new creations. Second they see the "locus of innovation" as of interest and in particular how the shift of firm-centric networks to user-centric networks can lead to increased innovation capabilities. Third they wonder whether demand-side issues may not result in negative consequences on satisfaction. The third issue is already mentioned by Bendapuli and Leone: "A customer who believes he or she has the expertise and chooses to co-produce may be more likely to make self-attributions for success and failure than a customer who lacks the expertise. A customer who lacks the expertise but feels forced to co-produce [...] may make more negative attributions about co-production".
In the early 2000s, consultants and companies deployed co-creation as a tool for engaging customers in product design. Examples include Nike giving customers online tools to design their own sneakers. At a MacWorld conference in 2007, Sam Lucente, the legendary design and innovation guru at Hewlett-Packard, described his epiphany that designers can no longer design products alone, using their brilliance and magic. They are no longer in the business of product and service design, he stated; they are really in the business of customer co-creation.
During the mid-2000s, co-creation became a driving concept in social media and marketing techniques, where companies such as Converse persuaded large numbers of its most passionate customers to create their own video advertisements for the product. The Web 2.0 phenomenon encompassed many forms of co-creation marketing, as social and consumer communities became "ambassadors", "buzz agents", "smart mobs", and "participants" transforming the product experience. Other examples of co-creation can be found in arts.
Digital era : Types of Customer Co-creation
According to recent research conducted by Aric Rindfleisch and his former doctoral student, Matt O'Hearn customer co-creation was categorized into four different types based on a two-by-two matrix. It was based on two key steps in the customer co-creation process.The X axis had the contribution step.The Y-axis had the selection step. And each of this axis had both a high and a low degree of customer control over each process. Under contribution, the first box was fixed, which means that the customer has very little control over the contribution process and the firm will fix the types of contribution that it wants. On selection , under the firm-led process, it was largely the firm that does the selection activity and the firm pick the winning submissions. In the customer-led category, the firm relies more on the customers to select the winning submissions.
During the mid-2000s, these innovations in customer engagement and collaboration expanded and morphed into global economic trends including the co-created development of products and services. Authors published bestselling books developing theories influenced by "co-creation" and customer collaboration. Major concepts included crowdsourcing, coined by Jeff Howe in a June 2006 Wired magazine article, open innovation, promoted by Henry Chesbrough, a professor and executive director at the Garwood Center for Corporate Innovation at Berkeley, and consultant Don Tapscott's and Anthony D. Williams's Wikinomics: How Mass Collaboration Changes Everything, a book that popularized the concept of corporations using mass collaboration and open source innovation.
Of this rapid morphing of co-creation, Ramaswamy and his co-author Francis Gouillart wrote: "Through their interactions with thousands of managers globally who had begun experimenting with co-creation, they discovered that enterprises were building platforms that engaged not only the firm and its customers but also the entire network of suppliers, partners, and employees, in a continuous development of new experiences with individuals."
The rise of customer co-creation
The rise of cocreation could be attributed to three distinct issues as suggested by O'hern & Rindfleisch (2010).
- The information asymmetry between customer demands and manufacturer capability
- Customer empowerment
- The advent and widespread application of digital technology
Successful co-creation requires two key steps.
Contribution of ideas: A firm must convince its customers to submit their ideas (i.e., to contribute). However, receiving contribution is actually quite hard because most customers are quite busy and hardly care about the company's call. Unless customers are incentivized in an attractive way they are reluctant to participate and benefit the company. As a result, most co-creation efforts fail because they don't get many submissions.
Selecting the viable ideas: After receiving the contributions, the firm must then select the most profitable, viable and implementable ones. The challenge of the selection process is that most submissions are not very useful, impractical and difficult to implement. Firms have to deal the submitted ideas in a very subtle way as throughout the process they don't want to reject customer submissions and risk of alienating them which may eventually lead to customer disengagement.
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- (German) von Tobias Theis