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Table of contents
1. Introduction 1
2. Contextual background 4
2.1. Literature contributions and adjacent notions 4
2.1.1. Literature review 4
2.1.2. Neighboring concepts 6
2.2. Competitive landscape 8
2.3. Ideological change 9
2.2.1. Traditional view of value creation 9
2.2.2. Co-creation approach to value creation 11
2.4. Inherent advantages 12
3. A customer-centric concept 15
3.1. Participant's motivation 15
3.2. Co-creation implementation 17
3.2.1. Before launch 18
3.2.2. After launch 24
3.3. Customer loyalty 30
3.3.1. Customer experience as the focus of co-creation 30
3.3.2. Empirical data 32
4. Success factors 34
4.1. Prior conditions 35
4.2. Challenges and risks 37
4.3. Guidelines for the implementation 39
4.3.1. Project-related considerations 40
4.3.2. The bigger picture 42
5. Conclusion 48
References 51
Table of figures
Figure 1 Customer database information categories 15
Figure 2 The four dimensions of participant motives 17
Figure 3 Stages of interactive value creation 19
Figure 4 Weight-loss drugs sales during their first quarter (USA) 34
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1. Introduction
In this day and age, expectations of people have changed. Smart, connected and more careful potential customers not only make more informed and researched purchasing decisions, but are no longer satisfied by conventional approaches most firms are following. People are aware of the current techniques of brand communication and see through the sneaky tendencies of marketing, which leads to the dismissal of commercial messages. They wish the companies acknowledge their existence as intelligent and mature consumers who appreciate being listened to and given the opportunity to express their creativity. Being involved in what is created for them would cater to these aspirations. Meanwhile, firms are always looking for new strategies that could be a source of sustainable growth, but they struggle to connect with what their customers value. Client’s needs and desires should lead the way of the market launches, not technology (Bhalla 2010, p.84). Enterprises that no longer see their customers as passive recipients of internally developed offerings have understood the importance of engaging the clients in activities that create additional value for both parties. This emergence of co-creation as a business practice leads to blurred limits between production and consumption as people have the opportunity to participate in the development of future offerings.
Co-creation has been discussed in the literature, but scholars don’t agree on a clear definition of the concept yet. Therefore, we will develop our own definition. Co-creation is the creation of mutual value that results from the voluntary interaction and cooperation with or between customers, employees, partners, vendors, suppliers or other stakeholders of an organization that leads to compelling experiences, in an environment orchestrated by the organization. Most co-creation measures are implemented at one or several stages of the product development cycle, that range from the idea generation phase to customer support after the offering has been launched. The intentional use of the term organization instead of firm intends to explain that co-creation measures can also be implemented by NGO or government agencies. This definition also implies that the organization initiates the co-creation, which is producer-led co-creation, as opposed to consumer-led co-creation. In this paper, “co-creation” will always refer to producer-led co-creation. The term collaboration will be used interchangeably with co-creation. The research field of the paper is the co-creation initiated by for-profit companies with end customers or potential customers in the business-to-consumer market.
The following three research questions will guide the paper.
- How can co-creation be implemented at the different stages of the value creation chain ? Based on an adapted process of value creation, the opportunities firms have to experiment with collaboration are going to be identified and highlighted.
- Why can this concept be used to increase customer loyalty ? The reasons that make co-creation an opportunity to be a part of the marketing strategy will be conveyed.
- What are the success factors involved in notable implementations of co-creation ? Through the analysis of case studies, recurring factors that lead to the success of collaborative measures have been observed.
Even though some short and basic tips are mentioned when the context is appropriate, the paper does not intended to give organizational advice on how to open internal processes and how to adapt the organizational structure. In this regard, most research done on the topic of open innovation applies. The same is true for the implementation of communication to convey a new philosophy throughout the firm.
The next chapter will provide some background on the economy in which co-creation originated and on the concept itself. First, a literature review will show what has already been established in relation to the co-creation principle. Concepts that are close to co-creation, but differ in some ways, will also be detailed. Next, an overview of the current competitive landscape will show in which circumstances companies compete with each other and lead to why firms should consider the implementation of collaborative measures. Because a co-creation approach to value creation considerably differs from the traditional view of the enterprise and the client’s role on the market, both points of view are going to be elaborated. The resulting contrast will provide a better understanding of the collaborative ideology that will be referred to occasionally. The last part of chapter 2 draws the main advantages that co-creation entails from a non-customer centric perspective.
Chapter 3 focuses on the implementation of co-creation. After an overview of the two different types of motives behind participant’s motivation for taking part in collaborative measures, implementation examples for each of the identified stages of the value creation process will be presented. The objective is to insist on the fact that all these phases offer collaborative opportunities. As the amount of information is considerable, this part has been divided in two. The separation is based on when the involvement of the customers takes place; before or after the release of the offering. How co-creation leads to customer loyalty and as a consequence can be part of a marketing strategy, is detailed in the last part of the chapter. Empirical data will follow to highlight the returns that can be expected if co-creation measures are tactfully implemented.
The next chapter is about formulating recommendations for companies, which resulted from the analysis of 35 case studies. Common design considerations for projects, which tend to lead to the success of the collaboration were worked out. It was found to be essential in the context of this paper to develop the prior conditions to be fulfilled within the firm. Without them, co-creation doesn’t have a solid foundation. Even if all detailed guidelines are respected, the project will likely fail due to the oversight of these crucial prerequisites. Furthermore, challenges and risks that enterprises can face with co-creation are mentioned and illustrated with examples, in order to lay the ground for the guidelines.
2. Contextual background
An overview of the current literature regarding co-creation will show what has been the focus of researches in the last years and how the concept has evolved. The following part will describe the competitive landscape that urges enterprises to find sustainable competitive advantages while looking for new ways for differentiating themselves. A potential answer to these concerns that is hard to be imitate, is co-creation. Thereafter, the core principle of co-creation will be contrasted with the traditional view of value creation to underline how co-creative firms have a different theoretical approach to value creation. In conclusion, some of the main advantages of the implementation of collaborative measures from an internal business perspective are going to be outlined in order to have an understating of companies’ motivations.
2.1. Literature contributions and adjacent notions
2.1.1. Literature review
Co-creation was first mentioned in 1999 by Kambil and associates. Their definition of the idea was follows: “engaging customers directly in the production or distribution of value” (Kambil et al. 1999, p. 40). While this definition can be seen as quite narrow because of the absence of other stakeholders like employees and suppliers, it is nonetheless still relevant today. The theme was further developed by Prahalad and Ramaswamy in 2004 in their book The Future of Competition. Their main contribution is to have stressed the customer-centric purpose of co-creation, namely the creation of “unique customer experiences”. The authors observe that customer experience is central to value creation, strategy and innovation. Interaction are defined as a prerequisite for co-creation to occur. Co-creation is defined as “the practice of developing systems, products, or services through collaboration with customers, managers, employees, and other stakeholders”. This is applicable to the private and the public sector.
In 2007, the book Wikinomics by Tapscott and Williams underlines the crucial role of the internet as an enabling tool for collaboration across networks of stakeholders, especially since the web 2.0 era, with platforms like chat rooms, wikis, blogs, peer-to-peer networks, forums, social networks and podcasts. The terminologies peer production and mass collaboration are used to describe the collaborations that take place. Other authors use the terminology interactive value creation to describe this idea (Piller/Reichwald 2009, p. 107). However in the book, some examples illustrate how the web enables new business opportunities, without necessarily collaborating with customers. According to the authors’ implications, the firm’s perspective is to outsource labor globally and therefore primarily use co-creative measures to cut costs, as in most cases participants will not be compensated for their contributions.
Building on The Future of Competition by also insisting on the customer experience, Ramaswamy and Gouillart publish The Power of Co-Creation in 2010. They analyze in what way mutual value is obtained by both the client and the company at different points of interaction in various platforms designed around the customer experience. This publication encourages firms to create entire network of suppliers, partners, employees and customers for collaboration. The authors also stress the importance of the interactions among people inside and outside of the company, because they lead to the generation of insights, learning and innovation. The publication mentions that co-creation has implications for supply chain management and human resources management as well, and repeats that it can be used by NGOs and governments too. The book explores how to transform companies from inside in a managerial perspective.
These books have demonstrated that through better awareness, better information and more creativity, customers are empowered. Communication technologies enables them to not only consume, but co-create by interacting with companies. The implications of this change will be further examined in this chapter (2.3). However, the current literature fails to identify the different stages in the value creation process that can be used to implement collaborative measures. We elaborate what implementation strategies can be orchestrated at every phase. Prerequisites and extended success factors have also yet to be thoroughly identified.
2.1.2. Neighboring concepts
In the introduction, a definition of co-creation has been formulated. However, the concept it often mixed up with neighboring terms and used as a synonym. The purpose of this part is not to formulate comprehensive definitions or give credit to the researches behind these other concepts but rather to explain the difference between co-creation and these other ideas to ensure that the co-creation concept is understood the way it has been intended to.
Companies using open innovation opened up their innovation process to collaborators outside the company, like suppliers or customers, and work together to find new applications. Co-creation is very similar in ideology and therefore, some research done for open innovation applies to co-creation as well. However, it differs in two major ways. First, co-created offerings don’t have to be innovations. The collaborative way in which the offering is created might be innovative, but the offering in itself does not have to be. Second, co-creation has a focus on the experience of the participants and implementation measures are (or should be) designed accordingly.
User innovation refers to people that modify current offerings or create new products or substances to answer their particular need and do so without the assistance of a firm (Financial Times Lexicon). Therefore, user innovations can be created without any form of team effort. Their original intent is not to sell an idea to a producer, but to create something that they need for themselves, because it does not exist otherwise. The mountain biking industry originated this way in the 70s (Bhalla 2010, p. 7). Early users were the producers and the customers of their own creation. Today, it has become a $100 billion global industry. A key difference with co-creation, is that user innovation is user-driven while with co-creation, the firm is the one initiating the collaboration.
Crowdsourcing is an open call for solutions to a specific problem intended to volunteers. The word is a combination of outsourcing and crowd. The tasks that have once been executed by employees are being outsourced for financial or creative reasons. Under certain conditions, crowdsourcing is an example of a co-creative measure. If the company uses it to engage its customers in order to create a relationship and if the participants’ experience has been carefully considered, then it is collaboration. However, in the majority of instances this is not the case. The Amazon Mechanical Turk is a suiting example. It’s a platform where enterprises can posts little jobs (HITs for Human Intelligence Tasks) that computers can’t do, like transcoding audio into text, attribute keywords to pictures, or fill out short descriptions for videos. On average, these tasks are compensated less than half a dollar for an hour worth of work. No interactions take place. There is an impersonal one-sided flow of information from the participant to the firm. No offering is being created based on a firm-customer collaboration. This extreme case illustrates the wide range of application scenarios for crowdsourcing, not all of which are co-creation measures.
Large number of people working together, but independently, on a single project, is called mass collaboration. The projects are divided into smaller tasks, so that participants can work in parallel without having to wait for each other. Open source initiatives fall under this category. The project can be outsourced to by a private company. In co-creation measures, customers interact, but rarely work with each other on ambitious projects. In addition, no actual content has to be created with co-creation, as the concept focuses on perceived value.
Dialog marketing uses measures that try to make the prospect react to the ad he or she sees, by including a means of contacting the company. This can be an internet address, a flyer that encourages to share the home and Email address or a phone number. The manifestation of the prospect is called direct response. In dialog marketing, no actual conversation is taking place between the company and its customers. The information the firm collects on its customers enables it to concentrate on showing only ads, sending magazines or coupons that are relevant to the customer, based on past purchases and geographical profiling data. This individualized approach doesn’t offer the opportunity for an in depth exchange to take place yet alone include the client in some operations. After having been occupied with the subject of co-creation, seeing dialog marketing being defined as an interactive communication with the target group surprises.