How the customer and firm can co-create value together to both get what they want.
In 2020, customisation and giving the customer exactly what they want is becoming the norm. How do we give customers exactly what they want? One way is by letting them co-create value.
This week’s article explores the co-creation of value as a strategy and how this approach creates unique value for customers, creating a competitive advantage.
What is co-creation?
Co-creation is the actions of more than one person or party, bringing something into existence.
In business, it is a strategy and process focusing on the joint creation of value by customers and company. An interactive relationship, customers and staff function as active participants. It is becoming more common for service providers to let customers co-create value — this mutual creation of services enhancing the consumption experience of customers.
The co-creation of value is an application for a product and goods-based businesses as well as services and experiences. Marketing helps facilitate this mutual creation and enjoyment of value — business has moved away from the traditional model of customers purchasing goods or services — now, customers can engage in dialogue with suppliers during each stage of product design and product delivery. Value co-created at multiple points of interaction.
“Co-creation is about joint creation of value by the company and the customer. It is not the firm trying to please the customer.” (Prahalad & Ramaswamy, 2004)
Characteristics of co-creation include:
- Allowing the customer to co-construct personalised service experience to suit her context
- Joint problem definition and problem-solving
- Creating an experience environment in which consumers can have active continuous dialogue and co-construct personalized experiences
- A variety of unique customer experiences
- Innovative experience environments
Co-creation of value vs co-created experiences
The is two distinct categories of firms who use co-creation as a strategy: co-creation of value and co-created experiences.
The co-creation of value
Encouraging active involvement from the customer, co-creation of value from products or services is on-demand and made-to-order. It is a collaborative effort and customers help make it happen to reach their goals. Customer experiences and perceptions influence their considerations of value and highly informed consumers are willing to pay more for businesses who can meet their requirements.
Customers and other stakeholders such as suppliers are actively involved in the problem-solving process; participating in suggesting ideas, designs, concepts and solutions for products and services. This can be throughout the entire process, from idea generation to the end-user.
Unilever is an example of a brand embracing co-creation of value. Their Open Innovation platform communicates their specific challenges to the public and encourages people or businesses to submit responses for potential solutions.
“Marketing should be viewed as a set of processes and resources with which the company seeks to create value propositions. Processes include the procedures, tasks, mechanisms, activities and interactions which support the co-creation of value.” (Storbacka, 2007)
Inviting and encouraging active involvement and participation from customers, Co-created experiences are unique and value-rich. An interactive relationship between the customer and the experience, the focus on facilitating the co-creation of diverse experiences that consumers enjoy.
An example of a co-created experience is concerts. The audience can choose whether they have a seat, or whether they stand near the stage and their active involvement as a community in activities such as singing and dancing. Staff are also actively involved to co-create this customer experience.
“…Involving the customer in the service system more broadly and in various stages and functions of the service value chain.” (Oertzen, Odekerken-Schröder, Brax, & Mager, 2018)
From a product to customer-focused strategy
Co-creation is becoming a more central focus in the management and marketing of services. Value creation for customers has evolved from a product-centric focus to a consumer-centric approach. The 21st century has seen a mindset shift and customers now recognised as active collaborators, and co-creation efforts became emphasized competitive strategy.
The customer and their experiences with the firm now dictate much the decision-making process. Service providers should ditch their product-centred approach and instead focus on helping customers to co-create their desired personalised experience.
“Companies must escape the firm-centric view of the past and seek to co-create value with customers through an obsessive focus on personalized interactions between the consumer and the company.” (Prahalad & Ramaswamy, 2004)
Acknowledging the customers’ point of view should help to define the design of experiences, and therefore businesses should be active in understanding consumer trends, desires, and preferences.
Often, the quality of the consumer experience depends on the nature of their involvement. Rather than playing a passive role, consumers are wanting to take more of an active role in co-creating experiences. Consumers want empowerment to co-create a personalised experience. That is where the real value resides to customers.
Experiential marketing emphasises emotional benefit to consumers rather than the utility of the goods or service itself.
“The experience is the brand. The brand is co-created and evolves with experiences.” (Prahalad & Ramaswamy, 2004)
Prerequisites of co-creation
There is a multitude of terms discussed in the marketing literature as being either synonym for co-creation, or prerequisites. Whether they sit alongside co-creation or are fundamental in creating co-creation is probably irrelevant — in any case, co-created experiences are collaborative, with customer involvement, engagement and participation. Co-design, co-development, co-production, co-consumption are also discussed as types of co-creation.
Application and management of co-creation
There are many diverse applications for the co-creation in business. With the rapidly evolving nature of technology, this provides new opportunities and breakthroughs in allowing consumers the opportunity to co-create value.
Interaction and exchange of information is a key component of co-creation — series of two-way interactions between the customer and the provider.
Businesses utilise the knowledge of customers to improve innovation with the co-design and development of new goods and services and customers can customise products or services to fit their exact needs.
Processes and resources are set in place for customers to manage their experience to fit their requirements. The amount of information, knowledge, skills and other resources available to consumers will influence their ability to co-create value. One example of this is self-service, where there is a transfer of labour to the customer. The interactive screens at McDonald’s where customers can customise their order for example.
Online, businesses can use “social media as a real-time interactive channel to co-create value with consumers and develop authentic engagement” (Buhalis & Sinarta, 2019). The use of online communities helps businesses to engage in digital co-creation to improve customer support, facilitate meaningful relationships with customers, and develop innovative ideas.
Goals are set and strategies put in place for both customer and the provider on how to create shared value. Each industry and customer group will have their preferences and opportunities to co-create value, so this process is ongoing to evaluate the unique situations. Every interaction between makes a cumulative contribution to co-created value.
In the case of co-created experiences such as live sport, the theatre or a concert, the aim should be on creating an atmosphere concurrent to high involvement from customers. Create an environment where different audience types can successfully immerse themselves. In this context, there are three co-creators of the experience: the artist/athletes, the servicescape (venue) and the audience.
“Organizations require a long-term view of customer relationships, which does not fit well with the short-term financial goals that tend to drive Western capital markets.” (Payne, Storbacka, & Frow, 2008).
The benefits to customers of co-creation
Co-creation provides unique experiences for customers. Customers are expecting more personalised and customised services where they can choose how they interact with the firm.
Co-created value can provide financial benefits to customers, as it can be cheaper for them to design a custom offering rather than paying more and receiving some features or services they do not want or need.
The biggest benefit to customers of co-create is that it makes them happier.
The enjoyment of the consumption of experiences increases the wellbeing of those individuals. The collaborative activities of these experiences provide both hedonic wellbeing and eudaimonic wellbeing through the co-creation process. Hedonic wellbeing comes from a sense of pleasure, where eudaimonic wellbeing coming from a sense of meaning. The social benefits from connecting with other people during an experience can provide both these benefits (See Hopper, Costley, & Friend, 2015 — YES! That is me).
If consumption experiences become ‘extraordinary’ (See Arnould & Price, 1993), consumers experience personal growth, self-renewal and heightened feelings of pleasure through the co-creation of this optimal experience. Through ritualised practices, emotional intensity, and interaction with like-minded others, co-creation becomes a part of an authenticating act. This feeling of authenticity contributing to consumers’ happiness — a reward for consumption-related behaviour.
The benefit to businesses of co-creation
There are several benefits to businesses who managing value co-creation with their customers.
Some of those benefits include (See Oertzen, Odekerken-Schröder, Brax, & Mager, 2018):
- High-quality interactions resulting in improved efficiency and effectiveness in operations
- Improved relationships and enhanced customer loyalty
- Maximise the lifetime value of desired customer segments
- New sources of competitive advantage
- Enhanced knowledge and skills to develop new offerings and improve existing ones
- Shorter time-to-market for new offerings
- Increased financial performance of profit margins and sales of new offerings
- Improved working environments and teamwork