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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-creation brings the unique blend of ideas from direct customers or viewers (who are not the direct users of the product)which in turn gives a plethora of new ideas to the organization.
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 process of Co-creation
The process of co-creation essentially involves 2 core steps:
- Contribution: Submission of contributions by the public to the firm
- Selection: Selection of the most promising and appealing contributions/submissions
Types of Co-creation
Depending on the degree of control exercised by the firm/public over the contribution and selection activities, co-creation may be broadly classified into 4 categories:
- Tinkering: Public exercises control over the contribution activity while the firm exercises control over the selection activity
- Submitting: Firm exercises complete control over both the activities
- Co-designing: Firm exercises control over the contribution activity while the public exercises control over the selection activity
- Collaborating: Public exercises complete control over both the activities
Tinkering is a customer co-creation model that involves procurement of contributions from the public by the firm, a comprehensive and scrupulous examination of the contributions, selection of the most promising and enterprising contributions by the firm and finally implementation of the contributions.For example, Little Big Planet, a puzzle platform video game by Sony Interactive Entertainment allows the gamers to create their own levels in the game.The created levels can then be shared with other gamers or submitted to Sony. Owing to this "Create and Share" feature, this game has the tagline 'Play, Create, Share'.The most promising contributions are incorporated into the final game and the contributors are rewarded.
In the case of submitting, the firm exercises control over the contribution activity by placing constraints on the basic design, contribution size etc. and also the selection activity by selecting the winning contributions.
Co-designing involves placement of constraints by the firm on the contribution activity and selection of the winning contributions by the contributors themselves. For example, Local Motors employs the co-designing model of customer co-creation to develop its vehicles.In 2010, Local Motors developed a car named Rally Fighter in a record 18 months, which is about 5 times faster than what a conventional car manufacturing process takes.By empowering a community of over 2000 designers to submit their designs while still placing some constraints on the basic design, color schemes etc., Local Motors effectively utilized the co-designing model of customer co-creation.The winning designing (By Sangho Kim) was chosen as the winning design by the designer community through voting.
An interesting bit of trivia about Local Motors is that it doesn't even have a design team. All the designing is done by the public itself.
Threadless, one of the leading T-shirt manufacturing brands in America also employs co-designing.
Also known as open sourcing, collaborating involves releasing the source code of the product and making it accessible to the general public.The released source code is then open to modification as per the requirement of the users. Examples like, Mozilla Firefox, Apache and Linux are all based on collaborating.
The Art of Co-creation
The traditional company-centric view says: (1) the consumer is outside the domain of the value chain; (2) the enterprise controls where, when, and how value is added in the value chain; (3) value is created in a series of activities controlled by the enterprise before the point of purchase; (4) there is a single point of exchange where value is extracted from the customer for the enterprise. The consumer-centric view says: (1) the consumer is integral part of the system for value creation; (2)the consumer can influence where, when, and how value is generated; (3) the consumer need not respect industry boundaries in the search for value; (4) the consumer can compete with companies for value extraction; (5) there are multiple points of exchange where the consumer and the company can co-create value. In the customer-centric mass production and marketing of automobiles, for example, suppliers provide raw materials, components, subcomponents, and systems to manufacturers, who create value by assembling these inputs into vehicles. Consumers actively decide what vehicle to buy, but companies decide what their choices will be. Cars are sold by dealers acting as intermediaries for the automakers. For companies reliant on this scenario, value creation is defined solely by extracting profit from end consumers. The Saturn Corporation, billing itself as “a different kind of car company,” has spurned the industry’s traditional ways. In 1985, when the General Motors Corporation launched Saturn, it didn’t just start a new car company, it created a “community.” Saturn works with its customers in the design, manufacturing, and sales processes, and it engages Saturn owners to help continuously innovate and improve its cars. Consumers think about the place of a car in their life — how it fits their budget, their desire for comfort, their need for peace of mind, their aesthetics. Companies think about their competitive strategy and their operations — engineering, differentiation, logistics, pricing, and, above all, revenue and profit. Although these views of value do clash, they’re not irreconcilable. Saturn is a company trying to merge these two ways of looking at value. In the pages that follow, we present a framework — a new value creation paradigm — to suggest how companies can better understand the consumer’s view of value and productively work with them to co-create more satisfying value for both sides.
The four building blocks of interaction
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-benefit||To monitor risk and gaps between customer and firm||Share the risk of product development with guest through communication (In later work of Ramaswamy, this is replaced by "reflexivity")|
|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 towards the idea creation/suggestion.The Y-axis had the selection step for the proposed ideas. 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.
Thus defining the four types of customer co-creation as below:
- Submission – This section has the least contribution in terms of idea submission by the customer and holds a high degree of firm-led selection in the limited ideas proposed by the customer.
- Tinkering – a unique type of co-creation where the customer comes up with a variety of ideas for the organization, whereas the selection is defined by multiple parameters of the firm. In tinkering, the firm usually releases a final product (e.g. Little Big Planet video games by Sony). Although the users create the platform, the firm decides which ones get published and distributed.
- Collaborative – a mix of leveraging both the firm and users to conclude with the final idea. The customer has full liberty to suggest and select the idea along with the combined efforts of the firm. E.g. Apache Server is a completely open source tool available on the web for all customers.
- Co-designing – the customer approach to select the limited ideas given by the customers. Any community forum where customers have to give ideas into defined areas e.g. for the website of any company etc., whereas the final idea is selected by the community forum by liking/disliking the proposed idea. e.g. Threadless-where customer designs the T-shirt with his own innovation and idea, whereas the firm restricts the customer to design only T-shirts and the final selection is done by the firm itself, but customers have a strong voice in selecting contributions that move forward.
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 co-creation 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.
The 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.
Although co-creation is an excellent activity to gather unique and various ideas from the customers, but it brings a lot of challenges onto the table such as:
- Pareto principle-Selection of the ideas from multiple redundant ideas submitted. Only 20% of the submitted ideas out of the all holds value for any firm
- Risk in losing out on the brand image – if the ideas highlight more on the negative scenarios of the firm's products or services.
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