Co-creation is a form of Economic strategy that emphasizes the generation and ongoing realization of mutual Company-Customer value. It views markets as platforms for firms and active customers to share, combine and renew each other's resources and capabilities to create value through new forms of interaction, service and learning mechanisms. It differs from the traditional passive consumer market of the past.
Co-created value arises in the form of personalised, 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. Value will be increasingly co-created by the firm and the customer, they argued, rather than being created entirely inside the firm. Co-creation in their view not only describes a trend of jointly creating products. It also describes a movement away from customers buying products and services as transactions, to those purchases being made as part of an experience. The authors held that consumers seek freedom of choice to interact with the firm through a range of experiences. Customers want to define choices in a manner that reflects their view of value, and they want to interact and transact in their preferred language and style.
From co-production to co-creation
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 1979 to 1990, papers and studies focused on a firm-centric approach, examining customer participation as a source of increased productivity.
In the late 1970s and early 1980s, scholars were mostly concerned with productivity gains through passing on tasks from the firm to the consumer. The self-service model was at that time popular. We observe, however, a slow shift starting in the mid-1980s: the participation of the customers begins also to be understood under the perspective of less-accounting-type metrics. Mills and Morris (1986) see the customers as partial employees and Goodwin (1988) realizes that customer's participation may help increase quality.
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. Song and Adams (1993) suggest that customer participation should not be examined under the aspect of cost-minimization. Instead it can be seen as an opportunity to differentiate.
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. This idea is actually pretty close to that developed by Vargo, Maglio, Akaka (2008), i.e., that of "service systems". As already mentioned earlier in this paper, Normann and Ramirez disagreed with Porter's[clarification needed] ideas and proposed that the linearity of the value chain be replaced by "value constellation". In this context, the authors define the task of companies as the "reconfiguration of roles and relationships among this constellation".
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. In his letter, he uses the word "co-creation" and states "at the core of collaboration is co-creation: customers aren't just customizing; they're collaborating with vendors to create unique value".
Wikström sees the role of consumers changing. When she writes "the customer is no longer regarded as a passive receiver but is coming to be seen as an active and knowledgeable participant in a common process", she echoes Normann's and Ramirez's metaphor on theater and their saying that the customers are coming "on stage". She is also one of the first researchers to define co-production: "I define co-production (collaboration, consumer co-operation, etc.) as company-consumer interaction (social exchange) and adaptation for the purpose of attaining value".
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". Particularly interesting within the framework of customer-perceived value is the conclusion that "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".
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. They see the roles between firms and consumers shifting and the relationship changing. Using again the metaphor of a theater, they wrote that customers are taking active roles. Although the authors do not identify its origin, they suggest that changes in the business environment accompany the transformation of customers from a passive audience to active players. They ask companies to harness the competencies of the consumer and suggest that this be done along four axes: engage in dialogue with customers, mobilize communities, manage customer diversity and co-create personalize experiences with customers. In particular they write that "personalization is about the customer becoming a cocreator of the content of their experiences".
In 2004, Prahalad and Ramaswamy kept working on their original idea published four years earlier. In this other groundbreaking paper, they use extensively the wording "value co-creation". Once used sporadically by other authors (for instance Schrage in 1995), we can therefore say that the official debut of "value co-creation" takes place 2004. The authors recognize that the unilaterality of the marketing offer can not be sustained. According to them the origin of this shift is to be seen in the increasing bargaining power of buyers due to the emergence of communication between customers.
The authors see the co-creation of value as an initiative of the customers who are "dissatisfied with available choices [and] want to co-create value and thereby co-create value". The co-creation of value is conceptualized thanks to a model called DART (for dialogue, access, risk-benefits, transparency).
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".
At the base of the shift that Vargo and Lusch's groundbreaking work created, is the opposition between the Goods-Dominant Logic (GD Logic) and the Service-Dominant Logic (SD-Logic). The customer is seen as separated from the value offering process in the GD Logic because it requires maximum "efficiency" (which means maximum output in this logic) and thus makes no "space" for customer interactions before the sale actually happens. The authors stress that "the consumer is always involved in the production of value. Even with tangible goods, production does not end with the manufacturing process; production is an intermediary process".
Prahalad commented in the same issue of the Journal of Marketing on Vargo and Lusch's FP6 and found that the authors did not go far enough. He associated customer engagement to coproduction and found five ways leading to coproduction. However, he wrote that "although work and risks increasingly are shared, the firm decides how it will engage the customer", which is for him a piece of evidence that this coproduction process stays firm-centric. Prahalad identifies increased connectivity, convergence of technologies and globalization of information as opportunities to "escape the firm and product-/service-centric view of value creation".
From 2004 onwards, publications on value co-creation tend to flourish because of the resonance of Vargo's and Lush's ideas. The next wave of research was concentrated in Vargo's and Lusch's book "the service-dominant logic of marketing: dialog, debates and directions" published in 2006 which was a collection of papers. Jaworski and Kohli somewhat answer Prahalad's critics of 2004 and propose guidelines to "co-create the voice of the customer". The assumptions made by the authors are seducing and the context rightly chosen, but the model proposed ends up in being a series of very theoretical guidelines which may be difficult to apply in B2C markets. One of the major assumptions made is indeed that the customer is looking for a dialog with the firm. Although this may be true in B2B (because it is made necessary by the procedures), one may doubt that the majority of the B2C customers will see dialogs with firms as a priority in their lives. Moreover, following the authors' statement that "a common premise underlying many approaches to uncovering needs/wants of customers is that they know what they need or want", one may wonder whether focusing the dialog on those consumers who seek it may not result in a bias. The purpose of the firm should indeed be to fulfill the needs of a majority of consumers and not dialoging with the silent majority may result in biased conclusion as far as needs and wants are concerned.
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".
Last but not least, Oliver (2006) also proposes his view on V&L's FP6 and suggest that customer's expectations on the firm should be counterbalanced by firm's expectations on the customer. The underlying idea is of course that consumers should be seen as a co-creative part of the firm and the latter should therefore get something in return and set expectations. Although nicely put, Oliver's idea is not really revolutionary. It says basically that the firm should monitor the customer co-creation and therefore set KPI's on it.
Further important developments were published in 2008. Grönroos (2008), after more than two decades of co-production and co-creation debates, asks "if customers are co-creators of value, what is the role of the firm? Are firms the main creator of value, or what are they?". The important underlying question is that the debate around co-creation has somewhat blurred the "entity" at the origin of value. Following the ideas of V&L, Grönroos thinks that value-in-use is superior to value-in-exchange because customers add skills, knowledge, processes when using a good and therefore transforming it into a service. For him "if value is created in customers' value-generating processes and should be understood as value-in-use, and if value-in-exchange for the suppliers is dependent on whether value is emerging or not, the customers have to be the value creators". The view that customers are co-creators only (and not creators) results from the confusion between the customer and a production resource (the idea of the customer as a co-producer).
After Schrage (1995) stressed the need for "tools to analyze co-creation" Payne, Storbacka, and Frow proposed a framework around value co-creation in the context of S-D logic. The framework is based on processes which the authors see as central in value co-creation. It consists of three components. First are customer value-creating processes where the value relies on "practices", i.e., routinized actions, the value of which can be enhanced by the supplier. Second are supplier value-creation processes based on co-creation opportunities (through technological breakthrough, changes in industry logics, changes in customers preferences and lifestyles), planning, implementation and metrics. Third are encounter processes.
Early applications of co-creation
The introduction of enterprise social software may have functioned as an enabler of this change in how companies evolve to business networks, and how both large and small companies cooperate. But Prahalad and Ramaswamy stated in their published work, as other practitioners have affirmed, that co-creation is about far more than customers co-designing products and services.
Co-creation is at the heart of the open-source-software movement, where users have full access to the source code and are empowered to make their own changes and improvements to it.
Co-creation can be thought to have its roots in the work of Herstatt and Von Hippel at Hilti, where they worked with "lead users" on innovative products.
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.
Co-creation and corporate management
After the publication of The Future of Competition, companies applied the principles of the Prahalad-Ramaswamy research to a broader range of business activities. Companies engaged customers in the delivery of their experience, including Harley Davidson (bikers riding together and customizing their motorcycles), Scion car dealerships (customization of cars at the dealer and dealer events) or Apple Inc. (exchange of play lists through iTunes). Co-creation played an even bigger role at companies such as Cisco and Goldcorp where executives involved outside resources, such as researchers, academics, and customers, to actually change and redesign the ways things are done inside the firm. Customer-facing functions such as sales or customer service were also opened up to co-creation at companies including Starbucks and Dell Computer.
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 Center for Open 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.
User innovation was coined by Eric Von Hippel, a professor and head of the Innovation and Entrepreneurship Group at the MIT Sloan School of Management. He argued that in many industries, new product and service ideas come from lead users – that is, customers who utilize the product or service in extreme conditions and effectively help the company co-create new offerings as a result. After being recognized for his work on this customer-driven innovation, Von Hippel moved on to writing about communities jointly developing new products and services, in the Linux and Apache mode.
Co-creation became global, as practices reached senior managers at companies in Europe and Asia including Linux (open software), Procter & Gamble's Connect & Develop (dramatically improved research productivity through reliance on global collaboration platform with people outside P&G), and InnoCentive (a research collective in the pharmaceutical industry).
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."
Third stage of co-creation
Ramaswamy and Gouillart now advise companies on a third stage of co-creation that seeks to improve how companies operate throughout their organizations, and in all their systems and processes. This "full theory of interactions" goes beyond the existing forms of co-creation of the customer experience and co-creation of products and services. Transforming traditional corporate practices such as training, performance management, and communications into co-creative interactions, sparks innovation, cuts costs, increases employee engagement, and generates value. Examples of companies at various stages of transformation through co-creation include Nike, Nokia, IBM and Credit Agricole. Leveious Rolando, a co-creation facilitator, says traditional media such as radio and television in their heyday heralded the ability for families to come together and experience consumption as one entity. The decentralizing of technologies of entertainment and consumption from the business sites into the physical site of the body has meant new forms of configuration in design and convergence. The iPod as the descendant of the Walkman phenomenon celebrates both the body and movement while stressing the elements of individualization and personalization of content whereby the moving body can create a library of sounds and content unique to itself. Capitalist enterprises have recognized the criticism of mass reproduction leveled at the culture industries by emphasizing the remaking of individuals through technology and have stressed the personalization of technology on a mass scale. The personalization of technologies has become a major marketing tool for mobile technologies. More importantly, many mobile technologies, such as the iPod, are designed to speak to other new media technologies and constitute part of a new media ecology in which individuals can customize their content and have the agency to transgress the boundaries between a producer and consumer. So co-creation is just a natural evolution of this on-going convergence and rapid speed of personalized applications. Co-creation is seismic shift in thinking from the industrial age mind set to people engagement mindset.' Leveious Rolando asked a question in Wired Magazine Blog that Co-creation that Early 2013, consumers have become primary drivers of content, of product and of brand. Able to upload user-generated video to YouTube and broadcast affinities to Twitter fans, consumers have overturned the traditional model where a business builds a product in silo and offers it up to consumers. Sound archaic? Leveious says the Danish coined the new word Co-creation and methodology The Need for Co-creating UX
With the internet reaching masses and the smart phones usage increasing exponentially, and the industry leaders getting a run for their money from competitors who are trying to reach the masses and at a much lower cost, there will definitely be a need for more and better experiences to be created. Moreover this is not just going to be limited to one geography or medium, but a global community spread across platforms.
The UX community today is subjected to close discussions with the Technology and Business teams also. It is these other teams who are also playing a crucial role in the Co-creation process.
Companies like InnoCentive, NineSigma, Spigit, Local Motors are providing the services and the platform to collaborate to innovate with people beyond the traditional four walls of the enterprise. Rolando made the point at a co-creation European conference that www.trendwatching.com words "user manufacturing" coined by Trendwatching perfectly describes symbiotic relationship developing between people and companies as result customers are becoming not only co-designers, but also manufacturers, using only the infrastructure provided by specialized companies.[clarification needed]
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- Co-Creation on p2pfoundation
- Harvard Business Review on Co-creation
- 90:10 Group Co-creation Consultancy Blog
- World Co-Creation Day
- The Dark Side of Co-creation: a presentation given at the European Marketing Academy Conference in 2010
- Why do customers help firms? A journey into Lead-Users' motivations. Presentation given at EMAC2010
- Video showing Best Practice Examples of Co-Creation with Consumers in New Product Development, 2011
- (German) von Tobias Theis