Why do consumers and companies engage into the process of co-creating value?

Written by  Patrick Breuling

1.    Introduction

1.1 Motivation

Empowered by digital innovations, such as social platforms, the consumer of today not only designs its own Burger in cooperation with McDonalds but also co-determines TV Spots as it was the case in this year’s Super Bowl commercial of Coca Cola (Brown, 2012). These examples illustrate that consumers and companies successfully engage in the co-creation of value, making the idea of co-creating value more and more popular (Bell, 2011). Since co-creation, is moreover perceived as a mean to generate a competitive advantage, this paper will discuss and analyze why consumers and companies engage into the co-creation of value (Ramaswamy, 2008). The paper thereby helps companies to understand why consumers engage in the co-creation of value and it illustrates what companies can gain when they engage in co-creation.

1.2 Purpose

The purpose of the paper is to illustrate how digital innovations in combination with the changing role of the consumer paved the way for consumers and companies to engage in the co-creation of joint value. Furthermore it will define the term co-creation and examine, both theoretically and practically, the advantages of co-creation for both parties.

1.3 Approach

First of all, in order to achieve the above mentioned purpose, it will be shortly illustrated how digital innovations have enabled both parties to engage in co-creation and how the role of the consumer has changed. As a next step co-creation will be defined and the advantages of co-creating value for both participants will be theoretically analyzed and stated. Last but not least two case studies will be examined to illustrate the advantages for both the consumer and the company.

2.    Theory

2.1 New role of consumer & consumer empowerment

Triggered by digital innovations, the media landscape drastically changed in the early part of the 21st century (Winer, 2000). These innovations and the introduction of new media such as Facebook, You Tube and Google, led to the fact that the relationship and the interaction between consumers and companies has changed (Deighton and Kornfeld, 2008). Whereas the relationship between the consumer and the company was based on one-way communication from the company to the consumer, the communication now flows in both directions and is also determined, managed and shaped by consumers (see Graph1)(Prahalad and Ramaswamy, 2004).

Additionally, empowered and enabled by digital innovations such as social media platforms, consumers no longer want to be passive bystanders, but are eager to take active roles in various forms of interactions with companies such as creating and sharing internet content (Kietzmann et al.,2011; Hanna et al., 2011; Seraj, 2012). Furthermore consumers demand to co-create a personalized experience around them (Prahalad and Ramaswamy, 2004a).

Graph 1: From one way to two communication (Winer, 2009)

Graph 1: From one way to two communication (Winer, 2009)

Confronted with this new self-image and role of consumers, companies need to act (Wind, 2008). As a reaction to the changing role of the consumer, Prahalad and Ramaswamy (2004) recommend companies to no longer exclude consumers but to integrate them, when it comes to designing new products or when creating new marketing messages. Consequently, companies increasingly consider social networks and platforms as a way to create joint value with consumers (Sawhney et al, 2005).

After having illustrated the new role of consumers and how consumers have been enabled to engage in a two-way communication and cooperation with the companies, the term co-creation will now be defined. Afterwards the advantages of co-creation for both the company and the consumer will be analyzed.

2.2 Co-creation

The conventional value creation process took place inside the firm and was firm-centric rather than customer-centric (Prahalad and Ramaswamy, 2004; Sawhney et al, 2005). Furthermore, the role of the consumer was passive (Sawhney et al 2005). However, as a consequence of consumers becoming more and more empowered to engage in a two-way communication with companies, and as a result of consumers demanding to be engaged in the process of creating a personalized experience, companies integrate and engage their consumer in the process of co-creating value (Ramaswamy, 2005; Zwass 2010; Prahalad and Ramaswamy, 2004; O’Hern and Rindfleisch, 2010).

Co-creating joint value aims to trigger innovations based on collaborations with consumers (Lusch et al., 2007; Kristensson et al., 2007). In the co-creation process, companies use the market as a forum in which the consumer is an active participant in creating joint-value such as product innovation or product improvement (Sawhney et al, 2005). Moreover the concept of co-creating value is based on a continuous two-way communication between the consumer and the company (Sawhney et al, 2005; Prahalad and Ramaswamy, 2004). Whereas the conventional value creation process was based on the individual firm knowledge, co-creation relies on social and experiential knowledge (Sawhney et al, 2005). Additionally it is important to mention that the premise for co-creating value is the experience a consumer has gained using a product or service of a company (Vargo and Lusch, 2004).

Taking into consideration the premises for co-creating value such as two-way communication, social knowledge and active participation it can already be concluded that the above mentioned emergence of new technology and the increasing engagement of consumers as a consequence thereof, paved the way for companies and consumers to engage in co-creating value (see Graph 1)(Zwass, 2010).

Graph 2: Factors that lead to the emergence of the process of co-creating value

Graph 2: Factors that lead to the emergence of the process of co-creating value

2.3 Advantages of co-creation for the company & the consumer

First of all the advantages of co-creation for companies will be examined. According to Ramaswamy (2008), co-creation can be perceived as a new competitive advantage for companies. The resulting advantages for companies can be summarized in two major categories. The first category consists of all the advantages that provide the company with new strategic capital (Ramaswamy, 2008). Based on the fact that consumers, enabled through the internet, have an immense information access, a global view, share insight in social networks and experiment with and develop products, co-creation provides companies with the ability to get insights and learn directly from the consumer (Ramaswamy, 2008; Prahalad and Ramaswamy, 2002; Blazevic et al.,2007). Furthermore, co-creation allows companies to rapidly benefit from ideas generated by consumers (Ramaswamy, 2008). Additionally co-creation has the potential to create deeper relationships with consumers which also allows for the generation of trust (Ramaswamy, 2008; Roser et al., 2009). Moreover studies found that co-creation increases brand loyalty, customer engagement and individual commitment (Gentile et al., 2007; Biedenbach et al., 2010; Sawhney et al, 2005; Antorini et al., 2012).

The second category includes all the advantages related to the economic value a company can create via co-creation. By utilizing co-creation, companies can for example not only reduce their marketing expenditure through potential positive word of mouth promotion, but also benefit from a reduced risk of product failure (Ramaswamy, 2008). Furthermore co-creation decreases the risk that companies do not meet the needs of the market and thus reduce the risk of consumer dissatisfaction (Ramaswamy, 2008; Hoyer et al., 2010).

As a next step the advantages of co-creation for the consumers will be analyzed. First of all, consumers can gain technology knowledge when taking part in forums or development groups for companies (Hoyer et al., 2010). Moreover consumers can not only experience social recognition within forums and platforms, but they can also benefit financially from co-creating with companies via for example profit sharing (Hoyer et al, 2010). Furthermore consumers can improve their personal experience with regard to a certain product or service. These improvements can be both functional (increased productivity of the consumer) and emotional (Ramaswamy, 2008).

3. Case study

In order to illustrate the advantages that can occur for both the consumer and the company, when engaging into co-creation two cases will be utilized. The cases will describe the advantages of the co-creation process for Ducati Motor and Nike.

These specific cases were chosen, since Ducati and Nike early realized the potential of co-creation. Furthermore, both perceive customers as an asset in the development of new products and ideas (Sawhney et al, 2005). Ducati on the hand side engages into the process of co-creation of value by combining various channels among others forums, virtual challenges and online surveys to best benefit from the co-creation of joint value and to enable consumer to engage in two-way communication facilitating them to practice their new role (Sawhney et al, 2005). Nike Plus uses an online platform where users can document their running and can share experiences and routes with other runners.

In order to align the practical with the theoretical part and to guarantee consistency, the advantages that Ducati and Nike gains from their co-creation process will be categorized according to the categorization of the theoretical part (“new strategic capital” and “economic value”). The advantages of co-creation for both the consumer and Nike and Ducati are depicted in the table below. Even though the advantages seem to overlap there are some differences.

Table 1: Advantages of Co-Creation by the example of Nike Plus and Ducati 

Table 1: Advantages of Co-Creation by the example of Nike Plus and Ducati 

First of all it will be illustrated what new strategic capital both companies gained. As it can be seen above, both companies benefit from an increase in customer insights. Whereas the customer insight for Nike is based on customer behavior and running preferences, Ducati benefits from technical insights such as design and innovation proposals. Ducati’s insights are rather product based, whereas Nike collects insights with respect to its customers. Furthermore both companies benefit from an increase in brand loyalty and engagement due to the fact that both companies strengthen the bond with their customers via social and internet platforms.

As a next step the benefits with regard to the economic value will be described. Both companies benefit from reduced marketing costs due to positive word of mouth promotion which is a result of the increased customer engagement. Moreover by getting regularly feedback about the product (running shoe and motor cycle), both companies diminish their risk of customer dissatisfaction. Finally both companies have a higher chance that their new products will fit the market needs since they collected customer insights.

Last but not least the benefits of co-creation for the consumer need to be discussed. Whereas Nike Plus rather focuses on satisfying customer’s wants and needs for social recognition, emotional satisfaction and connection with like-minded people, Ducati’s forums mostly concentrate on facilitating the customer to share technological knowledge. The benefits for Ducati’s customers are rather functional for example on how to repair one’s own Ducati while the benefits of Nike Plus are more of an emotional nature such as social recognition.

Even though the theoretical findings are in line with the practical ones, it becomes obvious that not all benefits discussed in the theoretical part could be achieved simultaneously via the measures chosen by Ducati and Nike. Taking into consideration for example that the customer of Nike Plus rather focuses on an emotional benefit, it is crucial for Nike to recognize this and therefore shape its co-creation process in a way that fits the particular needs and wants of its customers. This implies that even though co-creation provides companies and customers with a lot of advantages, these advantages are not per-se given and that companies need to shape the co-creation process and experience for customers in a way that provokes the expected outcome for companies.

4. Limitations

The paper discussed why companies and consumer engage in the co-creation process and what factors lead to the emergence of co-creation. It, however does not analyze the best-practices of how to shape the process of co-creation and it also does not take into account the challenges of co-creation. Therefore it must be taken into account that the co-creation process is not solely beneficial to both parties and that efforts need to be made in order to implement platforms on which co-creation can take place.       

5. Conclusion

The paper illustrates, that the digital innovations and the new role and self image of the consumer paved the way for the process of co-creation. By depicting the advantages of co-creation for both consumers and companies the paper additionally answers the question why consumers and companies engage into the co-creation of value. Knowing what motivates consumers, or in other words what advantages consumers aim to gain when they engage in the co-creation of value can be crucial for companies. Being able to activate consumers to participate in the process of co-creation will become more and more important, since most companies try to include consumers in the process of value creation and thus competition for active consumers will intensify.

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