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Executive Summary

The purpose of this paper is to clarify the meaning, application and purpose of Co-Creation.
Co-Creation is a relatively new concept that has evolved due to the changing tastes,
preferences and behavior of the modern consumer. It is imperative to first understand the
modern consumer, as this gives us an understanding as to how important Co-Creation will be
in the future of marketing.

Following this we develop an understanding of Co-Creation which will help us in


understanding the concepts which will be explained further. We then explain in detail the
process of Co-Creation and the various types and styles of Co-Creation.

Knowing how to co-create is vital indeed but we should also know where in the value chain
we can co-create. We discuss the various points within the value chain where Co-Creation is
applicable.

Knowing the how and why of Co-creation is not enough for the company. It also needs to
know where it exists in the Co-Creation Matrix and should try to integrate Co-Creation into
its company policy. The paper also focuses on these aspects of Co-Creation.

We then move forward to explain why Co-Creation is sustainable and how it becomes a vital
part of marketing. We conclude by stating that the modern consumer is very demanding due
to his “connected” nature. We can fulfill these demands and be nearer to consumer by
understanding and implementing Co-Creation and channelizing our customers’ energy in the
right direction.
Table of Contents
Introduction
Value does not stem from the physical product or from the communication and IT network
that support the system, and not even from the social and skill network. Value lies in the co-
creation experience of a specific consumer, at a specific point in time, in a specific location,
in the context of a specific event.

The co-creation experience originates in the consumer interaction with the network. It cannot
occur without a network of firms collaborating to create the environment that allows the
consumer to undergo that unique co-creation experience. The network, not owned by any
single firm, multiplies the value of to the consumer. The consumer, by co-creating with the
network, is an active stakeholder in defining the interaction and the context of the event. The
total co-creation with the network results in value that is more personal and unique for each
individual.

In the conventional value creation process, companies and consumer had distinct roles of
production and consumption .product and services contained value, and market exchanged
this value, from the producer to the consumer. Value creation occurred outside the markets.
But as we move toward co-creation, this distinction disappears. Increasingly, consumers
engage in the process of both defining and creating value. The co-creation experience of the
consumer becomes the very basis of value.

A New Frame of Reference for Value Creation

In their book titled “The Future of Competition”, Prahalad and Ramaswamy say that the
Future of competition, however, lies in altogether new approach to value creation, based on
an individual –centered co-creation of value between consumer and companies.

The new starting premise is that the consumer and the firm co-create value, and so the co-
creation experience becomes the very basis of value. The value creation process centers on
individuals and their co-creation experiences new premises inevitably lead to new
implications for business. The interaction between consumer and firms becomes the new
locus of co-creation of value. Since millions of consumer will undoubtedly seek different
interaction. The value creation process must accommodate a variety of co-creation
experiences. Context and consumer involvement contribute to the meaning of a given
experience to the individual and to the uniqueness of the value co-created.

These premises and implication suggest new capabilities for firms. Manager must attend to
the quality of co-creation experiences, not just to the quality of the firm’s products and
processes. Quality depends on the infrastructure for interaction between companies and
consumer, oriented around the capacity to create a variety of experience. The firm must
efficiently innovate “Experience Environment” that enables a diversity of co-creation
experience. It must build flexible “Experience Network” that allows individual to co-
construct and personalize their experiences. Eventually, the roles of the company and the
consumer converge toward a unique co-creation experience, or an “experience of one”.
Notice what co-creation is not. It is neither the transfer nor the outsourcing of activities to
customer nor a marginal customization of product and services. Nor is it scripting or staging
of customer events around the firms various offering. That kind of company-customer
interaction no longer satisfies most consumers today.

The change that we are describing is far more elementary. It involves the co-creation of value
through personalized interaction that is meaningful and sensitive to a specific consumer. The
co-creation experience (not the offering) is the basis of unique value for each individual. The
market begins to resemble a forum around individuals and their co-creation experience rather
than around passive pockets of demand for the firm’s offering.

Co-Creation is an active, creative and social process, based on collaboration between


producers and users that is initiated by the firm to generate value for customers.
The Evolution of Co-Creation
Companies have spent the 20th century managing efficiencies but as the new century
ushers in they must spend it managing experiences.

For more than 100 years, a company-centric, efficiency-driven view of value creation has
shaped our industrial infrastructure and the entire business system. Although this perspective
often conflicts with what consumers value — the quality of their experiences with goods and
services — companies see value creation as a process of cost-effectively producing goods
and services. Now information and communications technology, the Internet in particular, is
forcing companies to think differently about value creation and to be more responsive to
consumer experiences. In fact, the balance of power in value creation is tipping in favor of
consumers.
The disconnect between what companies and consumers value traces back to the early-20th-
century industrial principles. Frederick Winslow Taylor’s scientific management focused on
lowering unit costs of production. The value chain, a concept introduced by Michael Porter in
the 1980s, gave managers an integrated framework to identify and manage costs of designing,
producing, marketing, delivering, and supporting goods or services. And Michael Hammer
and James Champy’s business process reengineering was widely interpreted as implicitly
linking cost reduction and internal efficiencies to value creation.
During the 1990s, notions of the extended enterprise and the boundary less organization
encouraged managers to broaden their search for efficiencies and discover ways of creating
value from their supplier network and beyond. Starting in 1995, the Internet further
invigorated the corporate pursuit of efficiency, this time expanding it to include all the
activities directly involving or affecting the company–customer relationship. Still, throughout
this evolution, the assumption that internal cost efficiency is the source of value creation has
remained unchallenged.
Consumers appreciate and expect efficiency when it improves their experience with a product
or service. But most of the time, managers are so preoccupied with operating efficiently that
they don’t even think about value in terms of the consumer’s experience. Ask yourself: Do
you as a consumer of a digital camera think about the complex sourcing patterns and logistics
that the manufacturer has to deal with, or are you thinking about the fun you will have when
you bring the camera to the beach to record your children’s first ocean swim?
Because companies have historically controlled all business activities involved in the creation
of the things they sell, it is their view of value that is dominant. Indeed, the consumer
typically has little or no influence on value created until the point of exchange when
ownership of the product is typically transferred to the consumer from the firm. This is true
whether the consumer is a company or an individual.
Now consumers are challenging this corporate logic of value creation. Spurred by the
consumer-centric culture of the Internet — with its emphasis on interactivity, speed,
individuality, and openness — the consumer’s influence on value creation has never been
greater, and it is spreading to all points in the value chain.
The 20th Century Consumer

The 20th century consumer is one that is isolated; due to the lack of communication
technology, unaware, passive and one that has limited variety available to her/him. A
consumer whose focus is on obtaining a product that will provide reasonable performance at
an affordable cost. Consumption is the primary motive here. She/he has to choose from a
limited amount of choices that product which will satisfy the need for it. She/he has no place
to find information, verify the contents of the product, compare the product with others in the
same category, a limited social system and limited opportunity to share experiences about the
product.

The Connected 21st Century Consumer and his 5 powers

Before the Internet liberated information, companies could do everything — choose materials
used in products, design production processes, craft marketing messages, control sales
channels — with no interference. Now, consumers exercise their influence in every part of
the business system. Nevertheless, companies should welcome, not resist, the consumer
powers detailed below.
1. Information Access. With access to unprecedented amounts of information, consumers
have knowledge to make much more informed decisions. This is causing companies across
industries to cede control over value creation and develop new ways of doing business.
Consider health care. More than 70 million Americans have reportedly used the Internet to
learn about diseases and treatment options and investigate how to get involved in clinical
drug trials. Consumers now question their physicians more aggressively and participate more
fully in choosing treatments. This is dramatically altering traditional pharmaceutical sales
practices. In the U.S., it is driving consumer-centric “defined-contribution” health-care
reform wherein companies give employees information and ask them to assume more
responsibility for selecting and managing their own health-care benefits.
2. Global View. The Internet is the first single source of information that gives consumers
the ability, 24 hours a day, to see what is happening around the world. That is changing the
rules for how companies compete. For example, multinationals are more exposed to
consumer scrutiny of product price and performance across geographies, which means those
businesses have less latitude to vary the price or quality of products sold in multiple regions.
But it also means companies have more information to sharpen global strategies. New
competitors and potential partners for large companies are also emerging in the global
marketplace. Even poor artisans in Rajasthan, India, can sell high-quality table linen on the
Web for $10 and deliver it to buyers in the U.S. in about a week, and for one-tenth the cost of
comparable linen in the United States.
3. Networking. Consumers naturally coalesce around common skills, interests, and
experiences. The Internet amplifies this by encouraging an unparalleled ease and openness of
communication among perfect strangers. Indeed, “communities of interest,” where
individuals confabulate and commiserate without geographic constraints and with few social
barriers, exist all over the Web. People participating in a chat area may know nothing more
about those they’re chatting with than the interest they share. The power of consumer
networks is that they’re independent and based on real consumer experiences, not what the
company tells them they will experience.
Such networking among consumers turns traditional company-controlled marketing and
advertising upside down. For example, rather than attempt to shut down unofficial Hobbit fan
sites, New Line Cinema co-opted them, to help spread word of mouth and create buzz about
its movie The Lord of the Rings. Gordon Paddison, senior vice president of worldwide
interactive marketing, reached out to the more than 400 fan sites before the movie was
released to communicate with the early influencers and give them insider tips.
Consumer education and feedback sites are struggling to prove themselves as viable
businesses. But this does not diminish their utility as places where consumers can compare
and share information, and places where companies can learn what consumers are thinking.
4. Experimentation. Consumers use the Internet to experiment with and develop products,
especially digital ones. The German research company Fraunhofer Institute for Experimental
Software Engineering released MP3 as a freely available compression standard that
accelerated the transmission of digital audio.
The collective competence of software users has enabled the co development of popular
products, such as the Apache Web server software and the Linux operating system.
The ability of consumers to experiment with each other goes beyond software and digital
products. Cooks can share recipes. Gardening enthusiasts can share tips on growing organic
vegetables. Homeowners can share stories about their home improvement projects. The list
goes on. Companies that choose the path of co-creation can tap into consumers’ creativity for
the development of products and services.
5. Activism. As people learn, they become more discriminating in their choices about what
they buy, and as they network, they become emboldened to speak out. Now consumers
provide unsolicited feedback to companies and to each other. There are hundreds of
“sounding-off sites” on the Web that target specific companies and brands. AOL Watch, for
example, publishes complaints from former and current AOL customers. The Web has also
become an influential tool for social groups focused on such issues as child labor and
environmental protection to get corporate attention and promote reform. Although activism
might seem menacing to companies, it also opens the door to competitive opportunity

Co- creation was born out of these differences in the outlook of the consumers of the 20 th and
the 21st century.
Developing an understanding of Co-creation

(Considering the difference in outlook of the consumers)

A perspective of the firm as an autonomous knowledge creator that learns about customers
and creates value for them is increasingly redundant. Now, firms are exploring alternative
modes and building capabilities to co-create new knowledge and innovate superior and
mutual value with their customers. Such a shift in assumptions about the value of customer-
held knowledge has profound repercussions for how companies innovate as well as the nature
of value itself. Some even argue that the very locus of innovation is slowly migrating from
within to outside corporate boundaries and that this movement demands a new consideration
of questions relating to how firms actively access and deploy the knowledge held by
customers.

In the following twelve statements, we develop a logic that concludes in a lucid


understanding of “co-creation” and how firms may derive competitive advantage by
facilitating co-created value.

1.    Traditionally, customer value has been defined and differentiated by product quality.

2.    Open source product innovation (or “co-production” not co-creation) emphasizes the
technical co-production of new and improved products, their features and attributes with
customer's direct involvement in the idea-generation, concept development stages of the
innovation process; it is limited to the design, development and testing of enhanced
functional “things”, “objects” or “technologies” with individuals or in communities of users.

3.    Increasingly though, value is migrating from products to experiences as customers seek


out personalised value to satisfy their situational needs. (Drivers: demand for better
experiences, technology enablers, enhanced cognition, new sources of knowledge, increased
socialisation, product functional similarity, etc.)

4.    Customers are therefore placing increased value on the quality of the experiences they
have when they interact with firms and their products (and services).

5.    The quality of an experience is determined by how relevant or personalised the


experience is for an individual customer; Experience quality is a combination of the
functional and emotional elements specific to the situational and temporal context of each
customer or context.

6.    The locus of value-creation therefore shifts from product quality and design innovation
to experience design and quality innovation, or service design.

7.    As value-creation is “innovation”, traditional firm-centric innovation processes are


becoming distributed in order to provide the means to deliver ongoing, adaptable,
personalised, unique experiences for individual customers in unique space – time – event
contexts (or “experience environments”).

8.    Therefore, the locus of innovation is shifting towards the individual in distributed


experience environments.
9.    In distributed experience environments, the firm and customers come together to create
value; value in the form of personalised unique experiences for customers; knowledge,
capability for both and revenues and profits for the firm; the by-product of which is know-
what and know-how to continue to deliver and shape that value.

10.   Therefore, co-creation defines the processes of distributed value-creation between firms
and customers or between customers directly, to create personalised experience value and
knowledge, or enhanced cognition defined in the broadest sense.

11.   Markets are therefore forums for the co-creation of personalised experiences; value is
differentiated according to the quality and relevance of personalised experiences for
customers (as in Prahalad and Ramaswamy, The Future of Competition, 2004).

12.   To facilitate co-creation, firms must therefore develop platforms that bear capabilities
for the creation and release of heterogeneous, personalised customer experiences or
distinctive, unique value. These platforms provide the foundation for deriving competitive
advantage arising from enhanced service and experience quality, knowledge capability, and
novel learning mechanisms for developing dynamic capabilities for ongoing innovation
performance.
How to build a Co-Creation Experience

The Process of Co-Creation

The Co-Creation Process is divided into the following steps:

1) Identify and Brief - In this stage we identify the customers that we want to inculcate
into the co-creation process and brief them about the co-creation outcomes desired by
the company

2) Engage and Experience – In this stage the company engages the customer into the
process and asks him to share his experiences and wishes for his suggestions

3) Stimulate the Insight – By asking the customer to speak the company stimulates his
will to give suggestions which give valuable insights.

4) Team Playing and Idea Generation – The company now creates a team of people
including the consumer and employees of the company to develop implementable
ideas.

5) Select and Refine – In this stage the company selects the right idea and refines it so
that it is implementable

6) Pitch and Final Cut – In the final stage the company pitches the idea to the senior
management and makes the required modification to make the idea workable.
Once the process of Co-Creation is understood, we need to know the various forms and styles
of Co-Creation that we can implement in the product life cycle to make it a success.

Co-Creation exists in two forms:

 Implicit Co-Creation

 Explicit Co-Creation

Explicit Co-Creation occurs when customer openly seeks manufacturer’s help to modify
existing product or create something new. This can range from something as trivial as
changing the color of the product to very complex engineering – such as building a nuclear
power plant

Implicit Co-Creation occurs when the customer buys the product and modifies it to suit his
needs. The customer may or may not disclose such modifications to the manufacturer.

Factors that Distinguish the Styles of Co-Creation

 The nature of the value created- What form of value the co-creation primarily
deliver for the customer- whether tangible value in the form of product with a fixed
set of feature and attributes or in tangibles services or experiences with high
knowledge content.
 The explicitness of the customer benefit- whether the customer value benefit is
explicitly stated or rather is an inherent part of the value –exchange process
 The time of value creation- When the value is created is used whether in the design
phase in pre-market testing when in the market in ‘beta’ mode or when in context to
an individual customer’s actual consumption –in –use
 The degree of customer competence- The degree of end-user competence and skill
required
 The intensity of firm- customer interaction and customer involvement- The
frequency and intensity of knowledge exchange between the firm and the customer
 The number and types of customer involved- whether value Co-Creation is limited
to lead user , a single customer at a given point in time or all customers possessing
knowledge or seeking some kind of value
 The customer role in value creation process- whether customer are performing
active or passive role i.e. they are aware they are contributing value to the firm or not
 The degree of customer-customer interaction- Whether Co-Creation occurs in
distributed (usually digital) environments amongst peer user and w\away from the
direct management of the innovation process by a firm
 Who own the intellectual properly created –whether there is no ownership of any
IP or the firm takes ownership for its own purposes
 The degree of adaptability or personalization of the value created –with standard
fixed product at one end of the scale and unique personalized adaptable experiences
of the other

As implicit Co-Creation is uncontrollable and is in the hands of the end-user, explicit


Co-creation is the area that companies should focus on.

Types of Explicit Co-creation

Explicit Co-creation can further be classified into eight styles based on the level of
involvement of the manufacture & the customer.

Style-1: Mass customization


Style-2: Product Finishing
Style-3: Product Adaptation
Style-4: Customized experience
Style-5: Real time customization
Style-6: Open Community Product design & development
Style-7: New Service Design
Style-8: New product design & development

Style-1: Mass Customization

Co-Creation can exist in various forms. Starting with mass customization where every
product is customized for each customer & the products are sold in huge numbers. Mass
customization usually will not have a delivery impact, though there may be a price impact.
Also the range of customization possibilities is limited by the manufacturer.

For example: Dell Inc., can customize every single computer it sells. Dell’s manufacturing
and customer friendly web portal encourage customers to customize their computers. Today,
mass garment retailers such as Levi’s can customize every single pair of jeans sold to each
customer.

In mass customization, the customer involvement is not much apart from giving a set of
simple details. The manufacturer has streamlined the manufacturing process to such an extent
that it requires no managerial involvement to deliver the customized product. There is
absolutely no engineering/pricing analysis needed to deliver the customized product. The
customization is a “push-button” process.

Style-2: Product Finishing

In this type of co-creation, the customer is involved only in the product finishing details. The
customer does not have much say in other details – such as engineering, materials
manufacturing process etc. The level of details that the customer can specify is limited to the
product finishing – but it has price & delivery impact.
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Many manufacturers allow customers to specify the final finishing details. The customer is
free to choose from wide range of possibility and based on the customer specification, the
delivery time and the final price is worked out. For example customers can specify the color,
trim and accessories in the car – but the customer has a wide range to choose from. For
example Morgan Cars allows its customers to choose the colors, trim and all accessories – the
range of choice available to the customer is huge – and it takes time/effort & money to
deliver the customized product. Another good example will be Stretch Limousine builders.
Each limousine is custom made and customer gives the specifications all the finishing details.

Style-3: Product Adaptation

Product Adaptation refers to cases where the manufacturer is actively involved in adapting
the final product to meet the customer requirements. The manufacturer or a third party
service provider will ensure that the product will perform the tasks stated by the customer.
Customer takes the responsibility of providing detailed requirements of the end functionality
and is also deeply involved in the adaptation. The product adaptation requires complex
engineering and has significant cost & time implications.

Typical example of this will be ERP implementation. SAP provides the basic software, but
each customer can adapt the software to meet their specific needs. SAP adaptation involves
several engineers working for several months – all this has a major impact on time taken and
the total cost of using the product. Similarly, there are several software that needs extensive
user adaptation: Oracle’s Peoplesoft, HP OpenView, IBM Tivoli, EMC2 Documentem etc.

In the industrial world, all heavy engineering equipment such as TERRATAC’s tunnel boring
machine, Ransomes & Rapier’s dragline excavator, Westinghouse’s nuclear reactors, BHEL
Generators etc. All heavy engineering equipments are often manufactured as per customer’s
specifications and the company takes the responsibility for its installation to its initial
operation.

Style-4: Customized experience

Here the firm and the customer work together to create a customized experience for the
customer. This is often seen in service industry and in retail sector.

For example, consulting companies such as McKinsey, BCG or KPMG etc., work with the
customer to provide a unique solution. The customer’s involvement will be very high and on
par with that of the firm. Even in retail sector – high end boutiques such as Luis Vuitton,
Valentino, etc., provide a unique shopping experience to each individual customer.

GE’s Aviation business is one of the best examples of creating customized experience for
customers – thus co-creating value with customers. GE commercial aviation services leases
planes, jet engines and other aviation equipment to customers. GE treats each individual
customer separately and structures the lease agreements that best fits the needs of the
customer – thus creating a unique customer experience.

In the recent times, manufacturers are building various service extensions to their products –
with the aim to provide better customer experience. Pharmaceutical firms and Genetic
engineering firms are working on developing medication which is unique for each customer,
and then deliver it though health care providers to create a unique customer experience.

Style-5: Real time customization


With the modern ERP & IT systems it is possible for manufacturers/service providers to have
flexible operations. This enables the firm to offer real time customization: Customers can log
into the systems and change the order specifications. For example, Amazon allows customers
to change the order or the order delivery dates/schedule even after the order has been
processed. FedEx allows its customers to change the delivery time for major customers.
Weyerhaeuser allows its regular customers to change the order at a short notice period.

Style-6: Open Community product design & development

Linux is the poster child for open community development. Following the success of Linux,
companies are now adapting different techniques for open community based product
development. SUN opened up its Solaris OS software; its OpenOffice suite and a whole
range of applications are now made open for general public to use, modify and develop. The
company benefit by consolidating all the community development and thus improving the
product.

A different variation of this approach is to create a user group. The user group may be
sponsored by the firm or sponsored by the individual users. Today, few companies have
successfully exploited this as a venue to interact with customers, take feedback from
customers to improve & develop the product. For example, SNUG – Synopsys User Group,
Harley Owners Group, Land Rover Clubs, Cadence Designer Network.

Style-7: New Service Design

Oftentimes customers often need different service than the ones being provided. In such cases
many customers approach the seller with such service ideas. If the company may choose to
implement these new services – then the customer is willing to help design the service
offering. This kind of new service development is often seen in the financial world where
investment banks develop new service lines based on customer involvement in service
design.

IT services companies or pure play service companies routinely scout their customers for
inputs while developing new service lines. For example FedEx developed a system by which
customers can log in and change the delivery times and the transit schedules on the fly –
when the delivery is being processed. Similarly, Amazon offers its customers to modify their
orders and delivery schedules thought its IT systems.

Manufacturing companies too are jumping into this bandwagon. Caterpillar Inc., launched a
new service line to help the customers lower maintenance costs and also be more
environment friendly by remanufacturing old & worn out parts. See: Caterpillar
Remanufacturing Services .

GE home appliance division has implemented an advanced ERP system which allows
retailers to access GE’s warehouse and view it as though it is their inventory. The retailers
can book orders against the inventory in GE’s warehouse – and GE will deliver it to the end
customer. By tightly integrating the ERP system between the retailer and GE, GE is able to
create a new service for its partners – who in turn can offer better range and prices to the end
customer.
Peter Drucker once said “Customer does not want a 1” drill bit, he wants a 1” hole”. This
statement makes us realize that customers are buying a product to satisfy their specific needs
and that need can be fulfilled by a service. This theory is now being applied in the Software
as a Service model – where customers are opting to buy the service instead of buying the
software. Google Apps, Google Docs are good example of a service design built around the
products.

Style-8: New product Design & development

In rare occasions, customers engage the supplier in developing new products. This is more
common in business-to-business environment – where one business firm wants to develop a
new product and that in turn forces all its suppliers to develop new products. For example to
develop Tata Nano, Tata Motors has to involve several of its suppliers to innovate and create
new products. Rane systems developed new steering wheel systems to meet the price &
performance requirements of Nano. Bosch group had to develop an entirely new fuel
injection system. Similarly, when Apple wanted to develop Apple Air – the ultra thin laptop,
Apple approached Intel to develop a new range of microprocessors.
Co-creation is not without potential problems. The problems are more acute in case of new
product design & development. Customers engage with vendors to develop new products
mainly to serve their own needs. Therefore there will be a strong pull/resistance to ideas from
the vendor if vendor tries to develop a generic product out of the joint efforts. Large
customers can put exclusivity clauses over the usage of the new product – especially if the
customer has enormous power. For example, Apple Inc, used Infineon 3G chip – but forced
the vendor to mask it – void of any marks, and even forbade the vendor from reveling it even
to investors & share holders.

The biggest hurdle in developing new products with the customer is the question of who
owns the Intellectual Property Rights (IPR). Since the customer is also investing
engineering/scientific resources and coming up with ideas, the customer will insist on having
a joint IPR over the new products. If IPR is jointly owned, then the customer can demand &
get exclusive use of the new product. The best way to get around this potential problem is the
have IPR licensing agreements in place before starting on new product development.

Co-Creating new products or new service lines for a particular customer is risky. The vendor
must be willing to take the risk. Customers are often willing to risk on the success of the
program, but not bear the financial risks involved. Therefore, developing a new product or a
service will require a higher level of financial scrutiny and managerial decision making.
Senior management should get involved in managing the co-creation of new product
development or new service development.

Though each style of Co-Creation is unique in itself and offers different levels of consumer
engagement, there are some key elements that should be a part of every style of Co-Creation.

We suggest there are four building blocks for co-creating value. Dialogue at every stage of
the value chain encourages not just knowledge sharing, but, even more importantly,
understanding between companies and customers. It also gives consumers more opportunity
to interject their view of value into the creation process. In short, access challenges the notion
that ownership is the only way for the consumer to experience value. By focusing on access
to value at multiple points of exchange, as opposed to simply ownership of products,
companies can broaden their view of the business opportunities creating good experiences.
Risk reduction assumes that if consumers become co-creators of value with companies, they
will demand more information about potential risks of goods and services; but they may also
have to bear more responsibility for handling those risks. Transparency of information is
required to create the trust between institutions and individuals.

1.Dialogue. Dialogue is creating shared meaning. In dialogues, people listen and learn from
each other; in the most productive dialogues, people communicate and debate as equals.
Dialogue helps companies to understand the emotional, social, and cultural contexts that
shape consumer experiences and provides knowledge companies can use to innovate.
Dialogue with consumers is central to Harley-Davidson Inc.’s being able to co-create a
multigenerational “way of life.” Building a forum for dialogue was how, early on, America
Online Inc. created a community — a group of enthusiasts whose shared interests bonded
them to the service at the same time that it gave the company insights into service
improvements. Dialogue was what kept a loyal community of Macintosh users together when
Apple Computer Inc.’s product development began to wane. And it is dialogue that is helping
the personal-computer manufacturer to recover with the introduction of the new iMac.
Dialogue involves more than listening and reacting. It requires deep engagement, lively
interactivity, empathetic understanding, and a willingness by both parties to act, especially
when they’re at odds. What is happening in the music industry today is the antithesis of
dialogue. If the record labels were listening, they would hear that consumers don’t object to
paying for music. They just want to create their own musical experiences once they’ve paid
for it. People have been packaging their own music for years (in the 1970s, parents of Napster
and MP3 player fans made custom cassette tapes by copying songs from long-playing
records).
While recording companies fight the battle against “illegal downloading” and resist changing
their business models, music sales are declining and sales of blank CDs are soaring. “If the
industry doesn’t change the way we do business, we’re going to be bankrupt,” Val Azzoli,
cochairman of Atlantic Records, told the New York Times in February 2002. The Sony
Corporation shows just what’s at stake. Its music sales are currently about $4.6 billion,
compared to about $40 billion in sales from consumer electronics, including CD burners and
MP3 players.
2. Access. Ownership is the traditional way to look at the transfer of value from the company
to the customer. But you don’t need to own something to experience its value. Indeed, access
without ownership is desirable for consumers and can be very profitable for businesses.
Thinking in terms of access expands a company’s view of potential markets.
Over the past decade, numerous companies serving European and U.S. cities have begun to
offer a novel service for people who want more than just a rental car; they want the
convenience of having a car they don’t own at their disposal all the time. For example, in
Switzerland, people who join Mobility CarSharing receive a personal access device that
unlocks a dedicated pool of cars, which are rented on a pay-as-you-drive basis, making the
service ideal for running short errands, visiting friends in the suburbs in the evening, and the
like. What do Mobility CarSharing and similar companies sell? A new urban lifestyle that is
not only economical and convenient, but also reduces pollution and parking problems.
In the music industry, consumers are not fighting for all music to be free; they just want more
freedom to choose how they access music once they’ve paid a fair price. This is a classic
instance of the consumer being shut out of the value creation process.
The successful coupling of access with dialogue in the computer community’s Open Source
movement has had a significant influence on traditional players in the industry as they see its
benefits. For example, to promote the use of Linux, the open source operating system, IBM is
putting $40 million of its software tools in the public domain. More important, in 2001, IBM
made the largest commitment of any computer maker — about 20 percent of its R&D budget
($1 billion) — to Linux and Apache Web servers.

3. Risk Reduction. The obligations and responsibilities of the firm and consumers for risk
management will always be debated. But it is safe to assume that as consumers become more
involved in co-creating experiences with companies, they may be willing to take on more
responsibility for managing risk exposures, if companies are willing to reveal more
information about the risks associated with the products and services they produce. One key
issue in the Firestone-Ford tire case centered on the amount of knowledge Ford and Firestone
had about risks associated with the combination of vehicle, tire pressure, and driving
conditions.
In a world where good information is widely available, consumers, within the limits of their
technical knowledge, should be able to make more informed choices about risks. Companies
can be a part of that process by being both forthcoming in the discussions of risk with the
general public, and by disseminating appropriate methods for assessing personal risk and
societal risk. Labeling is one way of explicitly passing on to the consumer more
responsibility for risk. But that is not enough. Companies will need to be more willing to
engage in open dialogues with concerned people. Companies should not approach their
communications defensively. On the contrary, proactive risk communication and
management offers new opportunities for firms to differentiate themselves.
4. Transparency. In the wake of the Enron debacle, shareholders are demanding more
transparent, or thorough, financial disclosure; but transparency is also necessary for
consumers of goods and services to become co-creators of value. When companies make vital
business-process information visible to consumers, companies, in effect, relinquish control of
the value creation process before the traditional point of exchange.
The Federal Express Corporation has high levels of transparency in its logistics system.
Customers can log on to its Web site and check the progress of packages in real time using
the same information that FedEx employees use; large corporate customers can also reroute
packages themselves. Individuals have choices they wouldn’t have if FedEx controlled all the
information, and that improves the customer experience.
This same type of information transparency has created a revolution in the trading of
securities. Global agency brokers like Instinet Group Inc. build transparency into their trading
systems so that customers can monitor in real time how much the fund manager’s trading is
costing them.

In June 2001, Eli Lilly and Company launched a new e-business research venture called
InnoCentive LLC. It brings together, via its Web site, companies and researchers from around
the world seeking solutions to scientific problems. Significant cash incentives are awarded to
researchers who offer the solution judged “best” by the company that posted the problem.
InnoCentive represents a bold open source approach to innovation for industries that in the
past have been closed and private.
Sumerset Houseboats, the world’s largest houseboat manufacturer, based in rural Kentucky,
shows how all the pieces of a co-creation model — dialogue, access, risk reduction, and
transparency — can fit together. Imagine interactively codesigning the layout and
configuration of your dream boat, negotiating specs and prices, connecting with the factory to
participate in your boat’s construction, and monitoring its progress in real time. Now imagine
a personal Web page where you can review drawings; access architectural, aesthetic, and
structural expertise; and consult a customer representative. You can see pictures and read the
biographies of the people who are crafting your boat. You can critique design elements and
fully furnish your boat before it is delivered. You can have dialogues with other Sumerset
customers and a wider community of avid sailors.

What is co-created in this process is not just a boat, a physical artifact, but also experiences.
Even before owners set sail, they begin to form an emotional attachment to their boat while
building their stake in the outcome of the value creation process.
The company also benefits. Sumerset and its suppliers learn more about the end consumer
and access new ideas for design, engineering, and manufacturing. Everyone from design
engineers to carpenters gains a deeper understanding of consumer desires and the potential
value trade-offs. This reduces investment risk for the company as well as the risk the
consumer won’t be satisfied.
Opportunities for Co-creation/ Where to co create in the value chain

The point of exchange is often the place where the conflict between the traditional company
view of value and the consumer view of value is most exposed. Although companies are not
inclined to interact with consumers at all points in the value chain, opportunities for
exchanges between the company and the consumer neither begin nor end when a consumer
purchases something from a company. Indeed, the point of exchange need not be restricted to
where the company and the consumer trade money for finished goods or services.
If experience is the critical source of value for consumers, we need to identify the factors that
determine experience. We call these the opportunities for Co-Creation, and they are:

 How transactions are managed.


 How choices are determined.
 How the consumption experience is staged.
 How price and performance relate.

By examining the four basic elements that constitute an exchange, companies can explore
how current management approaches may positively or negatively affect customer
experiences, and discover better ways to create value.
1) Transactions. Companies have been quick to spot emerging technologies that reduce
transaction costs by having consumers perform functions formerly handled by employees
(i.e., customer self-service). Gas stations’ transitioning from full-service to self-service was
an easy win for gasoline retailers and consumers. Companies asked customers to fill their
own tanks and pay through devices on the pump. And what drivers lost in attendant service
they happily traded for the convenience of self-service and, sometimes, better prices.
But most customer self-service scenarios aren’t this smooth. Managers are usually so
preoccupied with the cost advantages of self-service that they misjudge its consequences on
the customer experience. Or worse, they don’t consider the consequences at all. Anyone who
has been foiled by automated multiple-choice customer service over the phone, or who has
been left on hold listening to bad music, knows the limitations of call centers. When
hospitals, laboratories, and pharmacies put health records, diagnoses, and prescription
information online to cut costs, are they taking into account consumer concern about privacy?
On the Web — the ultimate self-service technology — corporate indifference to the
consumer experience occurs constantly. Witness the number of abandoned “shopping carts”;
perhaps shoppers who stop short of purchasing find the interfaces confusing or don’t feel
secure using a credit card online. For the consumer who doesn’t believe a company will not
sell his or her personal data to someone else, giving profile information in exchange for the
convenience of “one-click” purchasing or instant recognition on a password-protected Web
site may not be worth the risk. Companies also have greatly underestimated how differently
older and younger people view issues like privacy and security online.
The key issue in automating transactions is consumer heterogeneity. Customers differ in their
skills, their propensity for problem solving, and their willingness to spend time to learn a new
system, as well as their willingness to trust it. This is true whether it involves the Web or any
other system that is unfamiliar.
Self-service works best when it’s applied by companies that manage their costs and the
customer experience with equal care. Southwest Airlines Company works hard to make sure
its standards for being prompt, accurate, and friendly are the same whether the customer
exchange is made through an automated channel or handled by an employee. Similarly,
Lands’ End Inc. has invested in self-service technology and superior agent training so that the
consumer experience on its Web site is as good as its catalog operation consumer experience.
 2) Choice. Elaborately structured distribution and communications channels allow
companies to control a consumer’s choices. But when companies don’t offer the same
choices across channels, they risk antagonizing the customer. One clothing retailer trying to
optimize inventory management and pricing by channel charged Rs.480 for a shirt online and
marked the same shirt down to Rs.249 in a retail store. Over time, consumers will recognize
such differences, and they might accept them, but only if an explicit policy exists that says
online and in-store pricing (or styles and colors) may differ.
Information technology has opened a whole new opportunity for manufacturers to cost-
effectively offer customized products faster and cheaper. In the computer industry,
companies like the Dell Computer Corporation have an impressive competitive advantage in
build-to-order PCs. Now BMW is offering a “custom” car, delivered in 12 days. For the Z3
roadster, the automaker offers a choice of 26 wheel designs and 123 console options.
Mass customization allows companies like Dell and BMW to offer variety, but who decides
what can be customized? Customization ultimately is a matter of what can be built and
delivered to suit the efficient operation of a company’s value chain. Even in the most
sophisticated mass-customization schemes, the customer chooses from a menu dictated by the
company.
Thanks to the Web, companies can become much more astute about what consumers like and
don’t like, and that knowledge will greatly improve companies’ ability to be innovative and
to anticipate consumer needs. On the Web, consumer-to-consumer recommendations, new
ideas, critiques, musings, and more are having a powerful influence on choice. About.com
(owned by Primedia Inc.), one of the most popular consumer word-of-mouth sites, is host to
discussions about more than 50,000 subjects, from allergies to zebras. Content, organized by
topic, is kept fresh and credible with a thorough oversight system run jointly by About.com
and its community members. Sites like About.com are trying to establish businesses
promoting consumer-to-consumer communication, but thousands of Web sites exist that buzz
with conversations about what consumers value and don’t value. Companies need to listen,
learn, and absorb this valuable intelligence.
Even in the world of drugs for treating life-threatening diseases, consumer advocacy in online
support groups seems to be as influential as company marketing. For example, when Novartis
AG began clinical trials of a promising leukemia drug, word spread so fast that the company
was overwhelmed with demand from patients seeking participation.
3) Consumption Experience. Companies like the Starbucks Corporation and Walt Disney
Company are highly attuned to human behaviors, preferences, and tastes because experiences
are the essence of what they sell. But the fact is, companies that manufacture products bear
just as much responsibility as restaurants and entertainment companies for enhancing or
diminishing the value of consumer experience. For example, most antibiotics are prescribed
to be taken several times a day for two to three weeks. If you forget to take the pills, the
medicine is ineffective, and many people don’t remember to complete the full cycle. The
pharmaceutical company Pfizer Inc. saw this behavior as an opportunity to make it easier for
people to take medicine the way it was prescribed. It introduced an antibiotic called
Zithromax that typically requires an initial dosage of two pills followed by a daily single pill
for only four days. Then Pfizer marketed Zithromax in a blister pack called the Z-pak, which
clearly reminds users of their daily dosage requirement and how much they have left to take.
Pfizer effectively became the patient’s partner in making it as easy as possible for the
medicine to do its curative work.
Zithromax now dominates its market. Consumers like Zithromax’s shorter cycle and the
convenient reminders to take their pill. Doctors, too, applaud these features, because they
make the drug more effective. With the Z-pak, Pfizer has creatively incorporated the
consumption variable into the manufacture and design of the product to increase its value.

4) Price-Performance. The traditional psychology of price setting, largely based on cost


structures, is becoming increasingly irrelevant. Further, the relationship between price and
performance is no longer implicit and controlled by companies; it is explicit and debated by
consumers.
Independent consumer-feedback Web sites, such as Epinions.com, PlanetFeedback.com, and
BizRate.com, allow people to share price information recommendations, reviews, and
comparative price information for thousands of products. Search engines like Google are also
powerful tools consumers can use to collect and compare price and performance data.
Global television and the Internet make it easier for people to see the kinds of products
companies sell in different regions and countries and compare them to what’s offered in their
own market. That is altering consumer desires and raising consumer expectations, especially
in developing countries. Consumers in emerging-market countries (e.g., India, Brazil, and
Indonesia) with annual incomes sufficient to purchase cars, refrigerators, branded clothing,
and other mainstays of comfortable living expect these products to be affordably priced and
to meet global quality standards and local cultural requirements.
The new challenge for companies accustomed to producing lower-priced, and often inferior,
goods for these markets is to raise the consumer experience bar and make a profit. For
example, Hyundai in India is successfully selling its Santro sedan for the equivalent of about
$8,000. The Santro’s driving performance is comparable to that of a compact car sold in the
U.S. for about $11,000, and it has comfort features, such as spacious seating and headroom,
that are highly valued by consumers in India.
Even the world’s 4 billion poorest consumers, who earn less than $1,500 a year, are aspiring
to a better life and demanding more goods and services. This situation represents a huge
opportunity for companies to change their mind-sets and their business models (e.g., “the
poor can’t afford or have no use for consumer products,” or “we can’t make money in this
market”). In 1995, Unilever PLC’s subsidiary in India, Hindustan Lever Ltd. (HLL),
drastically altered the management of its value chain so it could sell a detergent, called
Wheel, to the poor. HLL decentralized its production, marketing, and distribution and quickly
established sales channels through thousands of small storefronts. HLL adjusted the cost
structure of its detergent business so it could sell Wheel at a very low price point and still
make money. Today, Wheel has gross margins and a return on capital as good as, or better
than, HLL’s higher-end cleaning products, and Unilever has used this business model to
create a new detergent market in Brazil.
Patients at India’s Aravind Eye Hospital, the world’s largest eye-care facility, pay about $10
for cataract surgery, compared to $1,600 for equivalent care in the United States. The
hospital, which operates on more than 200,000 patients per year, gives 60 percent of its care
at no cost and still is highly profitable. Between 1998 and 1999, Aravind’s total income was
Rs. 230.6 million (about $5.2 million), with a profit of Rs. 110.1 million (about $2.5 million),
and return on capital of more than 200 percent on surgery and its lens manufacturing arm.
Like Unilever, Aravind is testing this business model in other regions.
How Should Companies approach Co-Creation

Companies trying to incorporate Co-Creation in its policy should most importantly gauge
where they stand in the realm of Co-Creation. The Company Involvement-Value Creation
Model helps companies identify their individual approaches to Co-Creation and helps them
in determining where they are and where they want to be.

The Company Involvement-Value Creation Model

High Value in
Lego MAC
company
Nutella Harley Davidson

Ikea Lego

Harry Potter Starbuck


Low Value in
company Star trek

High degree of Low degree of


company involvement company involvement
The effect of company involvement on value creation in consumer communities

INTRODUCTION
This is a dynamic process where the cooperation can shift from one level to another. It can be
a challenge for companies to allow the consumer communities to be organic and creative, and
at the same time co-operate and co-create with the company. Too little involvement by the
company
could result in serendipitous brand hi-jack where the brand meanings are altered by the
consumers, and given a new image different from the one desired by the company. Too much
control may on the other hand reduce creativity and in worst case lead to negative sanctions
by the community.It is term as the dimension degree of company involvement. This refers to
fan production ,where the company is not involved at all at one extreme, and co-production ,
where the company is fully involved at the other extreme. This dimension is the horizontal
axis in the
figure. The vertical axis refers to how much value the customer production generates for the
company. At one extreme the production generates no value for the company, and at the other
extreme the production is highly valuable for the company. This distinction refers to what
Humphrey et al, (2008), based on Marx (1867), refers to as use value and exchange value.
Use value is when the production only generates value for the consumer themselves.
Exchange value is generated when the production also generates value for the company. I
believe this distinction is important, since achieving better results is the obvious main goal of
a company. In that relation, stimulating the consumer communities to create value also for the
company becomes a main challenge. The figure then illustrates four different types of
cooperation between the company and their fans based on different levels of contribution to
company revenues and cooperation between company and consumers

LITERATURE REVIEW
Co-production
Several researchers have looked at consumers as co-creators of products and value (Prahalad
2000, 2002, 2004, Zhang and Chen 2008, Ueda and Fujita 2008), as innovators (Von Hippel
1977, Thomke and von Hippel 2002, von Hippel and Katz 2002), and as prosumers who both
produce and consume (Toffler 1980, Xie et. al 2007). Common for many of these studies is
that they seem to study the relationship between consumers as individuals and the companies.

The social aspect


Focusing on consumers as individuals only, can lead us to ignore important knowledge. The
link is more important than the thin. Following increased individualism and liberation from
social bounds, the importance of traditional communities like neighborhoods and family is
getting weaker. As a consequence, people try to re-socialize and seek for belonging
elsewhere for example around a common hobby or consumption of a specific brand. Several
studies show how being familiar with these communities can prove to be very attractive for
companies. describe how consumers, as members of a brand community, have a relationship
not only to the brand, but
also to other consumers. McAlexander, Schouten and Harold (2002) take this one step further
and introduce the consumer centric model of a brand community. According to this model,
the focal consumer do not only have a relationship to the brand and to other consumers, but
also to the specific product and the marketer (the company behind the brand.) Following this
knowledge, I believe it is important to take the social aspect into consideration when studying
consumer production.

Co-creation in consumer communities


Previous researchers have studied co-creation in consumer communities where the company
is highly involved. By approaching the snowboard community on the community’s own
terms
and including snowboarders in the product development process, Salomon was highly
successful in launching its snowboard range.There are also several studies describing fan
production, where the production in the communities is unaffected by the company. It
analyze how consumers design Nike basketball shoes. The contributors perceive the design
process being fun and rewarding. Nike is not involved, and the only link between the
designer community and the company is that some of the designers are hoping that their
designs might be discovered by Nike so that they will be offered a job. How Star Trek fans
not only use Star Trek products, or hijack the brand. These fans do also produce products;
episodes, music, radio shows etc. It refers to this as Wikimedia, since many different fans
collaborate to create new media content. The fans are driven by egoboo; public recognition.
As with the Nike-case, the company is not involved. Paramount discontinued the Star Trek
series years ago, and they allow fan production as long as the fans do not earn money from
their products. Common for these studies is that they seem to perceive company involvement
static as either fully involved or not involved. I want to study what the company can do to
become more active, and to be able to shift between different roles in community
involvement.

Typologies of creative consumer communities


There are also studies looking at typologies of consumer communities.It divide online
creative consumer communities into swarms, mobs, crowds and hives depending on how
many individuals are taking part in the production, and whether the innovation is a result of
goal oriented work or can be seen as a by-product of other activities.It divide consumer tribes
in to four categories based on to which degree they play within the norms of the marketplace,
and to which degree they become producers more than consumers. These studies help
expanding our knowledge of different types of consumer communities, but none of them
recognize the company as an active and dynamic player.

Creation of value
Looking at the other dimension, the level of value for the company, is not by itself something
new. The distinction between use value and exchange value was outlined by Marx (1867),
and introduced to the co-creation literature by Humprey and Grayson (2008). Use value
represents the extent to which a product satisfies a person’s wants. Exchange value, on the
other side, is realized only at the point of sale. Thus the use value of a product becomes the
value a product has for the individual consumer. Exchange value is the price the product can
be sold for at the market place, and thereby also the value this product has for the producer.
Humprey and Grayson (ibid) argue that co-creation as such is not something revolutionary.
Consumers performing tasks traditionally performed by the company does not necessarily
represent a fundamental change in the roles between consumers and companies, and does not
have to alter the traditional value chain. If a consumer co-creates a product where the end
product generates increased value only for that specific consumer, the end product does not
generate any extra value for the company. But if the consumers produce not only use value,
but also exchange value, this does represent a fundamental change. Following this logic, a
customer assembling his own IKEA furniture does not produce exchange value for IKEA,
since they will not be able to sell the assembled book-shelf anyway. But for the customer, the
assembled book-shelf provides a higher use value than the un-assembled shelf. In the case of
Salomon , on the other hand, the consumers contributed to generate a product that the
company could sell. This way, they helped producing exchange value for the company.

Creation of value through myths


Consumers do not only create value for the company through co-creating physical products.
In many cases the consumers produce value indirectly through image or myths.It can be
describes in how the outlaw bikers embrace Harley Davidson, and this way generate a link
between the outlaw mystique and Harley Davidson. Harley Davidson is able to benefit from
this image when selling the bikes, since it appeals to many customers in the market for a bike.
At the same time, the company manages to gain and retain customers who not necessarily are
attracted by the outlaw image. Another example is Mac. Enthusiastic fans have an almost
religious relationship to Mac, and have developed several myths to keep the religion alive.
These myths both help retaining existing fans, and recruiting new customers. Both Harley
Davidson and Mac are victim of serendipitous hijack, where the customers seize control over
the brand image, and develop a different image for the brand than the one intended by the
company. In these two cases the serendipitous hijack has helped the company gaining a more
attractive image for the brand, which the company can leverage from. In other cases, a
serendipitous hijack can be destructive for the brand. If consumers built a “dobbelgänger
image” for Starbucks, a negative image different from the one desired by the company. At
first glance, a negative dobbelgänger image could be destructive for the company. But if the
company is able to detect the dobbelgänger image at
an early stage, they can take it as early warning signs, and take action to change the situation.
This way the company can actually gain from paying attention to their dobbelgänger image.
Most examples of brand hijacks are serendipitous hijacks. However, there are also situations
where the company invites the consumers to co-create a hijack. like Ferrero established
forums for a brand community to develop around it’s cream spread Nutella. By controlling
the community Ferrero tries to retain control over the brand and the brand image, and at the
same time establish platforms for customers to discuss and redefine brand meanings and
image. Another example of how a company has tried to take control over their fan
community, is Harry Potter. But unlike Ferrero, J.K. Rowling and company have not
succeeded. Harry Potter fans have tried to take over the character and produce their own
stories, and J.K Rowling have so far answered by suing these fans. This way no exchange
value is generated, and the company risk negative action and attention from their fans. These
studies show that use value and exchange value can be generated in many different ways,
from physical products to image and myths.

THE CASE
The big mistake
In 2003 was Lego’s worst year ever. The company was struggling with dropping sales and
suffered a loss of 1,4 billion Danish kroner (Apprx. $238 million.) Lego had tried to milk the
brand, and did brand extensions far away from the company’s core area. They produced
clothes, computer games and they had expensive licensing agreements, mainly with Disney.
But maybe worst of all, they designed Lego kits that puzzled rather than entertained which
few customers really appreciated.

The fans
At the same time, Lego has more than 75 fan clubs with over 50.000 members from all across
the globe. The Norwegian fan club is called Brikklauget, and has 29 members. These are all
adult fans of Lego (AFOLs), and build everything from extremely detailed cathedrals to
impressively advanced robots. Across the globe there are more than 100 different Lego
conventions, like Brick fest and Lego Fan weekend, where the fans come together to meet
other fans, and to discuss each others’ work. But not all these activities and fans were
appreciated by Lego. It turned out that for their robot kit Mindstomrs, 70% of the cutomers
were adults. Some of these fans started hacking the proprietary code of the robot’s software,
and posted it on the Internet. They also posted their own mindstomrs tools, manuals for
hacking and reprogramming the robots, and even developed an open source operating system
(LegOS) as an alternative to software developed by Lego. Lego first considered taking legal
action against these fans. The company was extremely concerned about their brand image,
and was worried that adults were taking over something that was supposed to be a toy for
children. They also worried that hackers might cannibalize the market for future Mindstorms
accessories, or confuse potential customers looking for authorized lego products. But luckily,
Lego decided not to sue their fans, but to “wait-and-see”.

The turning point


The company realized that they had to do something with their current situation. They halved
the development times, dropped product lines to reduce the number of unique pieces from
12400 to 7000, and they ditched the software division. They contacted National Instruments,
Texas, to develop a more user friendly software, and they even wrote a “right to hack” into
the Mindstomrs software license. But maybe most interesting, is that they decided to work
with their fans and outsource innovation to a panel of citizen developers. Lego executives
started visiting Lego conventions to look for devoted and creative fans. Soon they came up
with the Mindstorms user panel, MUP, consisting of 4 fans. These fans worked closely with
Lego to develop the next generation Mindstorms. They received no paycheck, and they even
had to pay their airfare tickets to Denmark themselves. That Lego wanted their opinion, plus
the opportunity to work with Lego, create something new, and learn from others seemed to be
reward enough.

The success
By working closely with their fans Lego came up with a far more user friendly robot with a
more human and less mechanical character, which became the all time best selling product.
The company also took the necessary action to clean up the organization. The result was an
increase in sales of 23% in 2008, and a surplus of 920 million DKK (approximately $160
million) the first six months of 2009. Lego has now expanded the MUP to 14 members. They
are also working closely with 100 Lego ambassadors, nominated for one year at the time by
their local fan club. The ambassadors do not enjoy the same insider status as the MUPs, but
they get to work pretty close with Lego. Instead of worrying about the spreading trade
secrets, Lego experienced that the cooperation with fans lead to the introduction of a
successful product. Furthermore, Lego was able to develop a tighter and more trusting bond
with their customers, and they managed to create a buzz about their new product.

Points to keep in mind when trying to integrate Co-Creation


By  generating  a  high  degree  of  involvement  and  accessing  diverse  knowledge
domains,  collaborating  appears  to  be  a  highly  effective  means  of  generating
innovative and  successful  new  products.  For example, the open source‐based Firefox  
web browser  competes  successfully  against  Microsoft’s  dominant  Internet  Explorer
and  is  widely  regarded  as  the  MOT  innovative  browser  currently  available  (Vogelstein
2008).  In  addition  to  spurring  innovation,  collaborating  can  also  dramatically  lower
the  costs  of  new products,  by  using  unpaid  customers  to  replace  salaried  employees.
Moreover,  unlike  traditional  NPD  projects,  which  have  finite  start  and  end  dates,
collaborating is  an  ongoing  process.  This quality should help firms stay on the leading
edge  by  providing  a  mechanism  for  continuous  product  improvement  and  enhancing
customer  welfare  by  accelerating  the  pace  at  which  new  innovations  can  be  created
and distributed  to  users  

 Organizational  Culture.  Because  co‐creation  is  fundamentally  different


than  traditional practice,  successful  implementation  of  this  new  paradigm
will  likely  require  significant  changes  in  organizational  culture.  Turning
customers  into  innovators  requires  no  less  than  a  radical  change  in
management  mind‐set.  Specifically,  co‐creation’s  highly  interactive  nature
may  require  firms  to  adopt  an  open  culture  in  which  their  goals,
activities,  and  processes  are  highly  transparent  and  collaborative  
  We broadly  suggests  that  the  success  of  these  collaborative efforts
strongly  depends  upon  the  degree  to  which  a firm  is  able  to  acquire,
assimilate,  and  apply  information  and  know‐how  from  its  partners.  In
sum,  Co-Creation  has  been  largely  viewed  from  the  perspective  of  a
firm’s  ability  to  learn.   
 Customer  co‐creation  adds  a  new  dimension  to  this  emerging  literature
by  suggesting  that success  strongly  depends  not  only  on  a  firm’s  ability
to  learn  but  also  on  its  ability  to  teach.  Specifically,  successful  co‐
creation  rests  heavily  upon  the  degree  to  which  a  firm  is  able  to
enhance  its  customers’  product‐related  knowledge  and  skills  via  such
actions  as  allowing  access  to  its  source  code,  providing  toolkits  that
allow  customers  to  directly  alter  their  products  in  creative  ways,  and
engaging  in  direct,  two‐way  communication  with  co‐creators.  
  Research  on  organizational  dynamics  (i.e.,  stakeholder  theory)  suggests
that  firms  that  are  heavily  engaged  in  customer  co‐creation  could  find  it
more  difficult  to  quickly  alter  their  product  lines  or  radically  change
their processes  in  order  to  respond  to  competitive  pressures  (Donaldson
and  Preston  1995).  In  essence,  co‐creation  initiatives  could  create  a  new
class  of  organizational  stakeholders,  many  of  whom  may  vigorously
oppose  related  changes  that  they  disagree  with.   
  In  essence,  firms  that  succeed  in  establishing  co‐creation  can  gain
access  to  a  rich  external  source  of  co-creation related  resources  and
capabilities  that  can  supplement  their  internal  value  creation  ability.
Thus,  the  emergence  of  customer  co‐creation  suggests  that  marketing
scholars  should  view  a  firm’s  resources  and  capabilities  from  a  broader
network‐based  (i.e.,  embodied)  perspective  rather  than  focusing  narrowly
on  its  internal  (i.e.,  embedded)  assets.  As  with  their  internal
counterparts,  the  value  of  co‐creation‐based  capabilities  is  likely  to
depend  upon  the  degree  to  which  they  are  distinctive  and  non‐imitable.  
 The  emergence  of  customer  co‐creation  is  a  prime  example  of  these
shifting  boundaries,  as  consumers  provide  firms  with  value  both  in  the
form  of  their  purchase  activity  as  well  as  their  production  activity.
Thus,  it  is  possible  that  a  customer,  who  is  an  infrequent  and  low
volume  purchaser,  but  a  highly  active  contributor  or  selector  of  new
product  ideas,  may  be  one  of  the  firm’s  most  valuable  assets.
Unfortunately,  the  worth  of  this  customer  would  go  unrecognized  by
existing  customer  valuation  perspectives,  which  do  not  account  for  the
productive  aspects  of  customer  behavior.  Hence,  the  emergence  of
customer  co‐creation  calls  for  updated  and  enhanced  customer  value
metrics  that  adopt  a  broader  view  of  consumers.  

Co-Creation is Sustainable!

For Co-Creation to be diffused amongst companies it has to be firstly shown to be


sustainable. The following three points prove that being close to your customer is vital for
any business at this time.

1) One  important  cultural  development  is  consumers’  growing  suspicion  and


distrust  of  marketing  communications.  For  example,  a  considerable  body
of  research  suggests  that  consumers  are  quite  skeptical  of  marketing
communication  in  general  and  claims  about  new  product  performance  in
particular
2) In  recent  years,  this  inherent  skepticism,  fuelled  by  increased  news
coverage  of  corporate  scandals  (e.g.,  Enron,  ImClone),  muck‐raking
documentaries  of  big  business  (e.g.,  SuperSize  Me,  The  Corporation),
and  anti‐corporate  websites  (e.g.,  adbusters.org,  spacehijackers.org),  has
ignited  more  active  forms  of  consumer  resistance  such  as  anti‐corporate
blogging,  brand  avoidance,  and  culture  jamming.  Hence,  an  increasing
number  of  consumers  are  engaging  in  direct  action  to  alter  corporate
marketing  activities  that  they  find  objectionable.  This  increased  consumer
agency  represents  a  significant  strategic challenge  and  has  led  several
large  firms,  including  Wal‐Mart,  Nike,  and  McDonalds,  to  be  more
cognizant  of  and  open  to  customer  input.  For  example,  in  order  to
appease  consumer  activists,  Nike  has  taken  steps  to  actively  engage
customers  in  many  facets  of  their  strategic  planning  and  execution
3)  In  addition  to  growing  suspicion  and  heightened  activism,  consumers
also  appear  to  be  increasingly  less  fulfilled  by  the  act  of  consumption.
The  notion  that  material  objects  are  unable  to  satisfy  intrinsic
psychological  needs  has  been  strongly  established  by  consumer
researchers and  these  findings  have  recently  been  disseminated  to  the
broader  public.  According  to  cognitive  psychology,  intrinsic  needs  are
more  likely  to  be  met  via  creative  pursuits.  Thus,  through  their  creative
contributions,  co‐creators  may  reap  psychological  benefits  they  would
normally  be  unable  to  achieve  via  consumption  alone.  Indeed,  many  of
today’s  popular  television  programs  glorify  the  creative  process  (e.g.,
American  Chopper,  Trading  Spaces,  This  Old  House),  and  creative
pursuits  such  as  cooking,  crafts,  and  home  improvement  are  rapidly
growing  in  popularity.  Moreover,  recent  research  on  customer‐led
innovation  reveals  that  users  often  find  this  activity  highly  enjoyable.

These points prove the growing trend of the connected customer and what damage he can
cause to the company. A lot of energy emanates from the 21 st century consumer in the form
of sharing experiences and this energy could be a vital to the success of the business.

What can a business do to channel this customer energy into a positive direction — one that
will power your business rather than sink it?  Here’s the answer:  Engage its customers in
more ways to help you redesign your business, your products, your processes, and your
business models.

You’ve already begun to open the floodgates by giving your customers the ability to do
business with you electronically.  You’ve felt the excitement of working shoulder-to-shoulder
with specific customers to help them solve problems or design new products.  You may have
already empowered customers to solve each others’ problems.  Your executives are immersed
in customer meetings.  You’re sprinkling your organization with customer survey data and
customer loyalty scores.  But that’s drip irrigation.  Now it’s time to turn the showers on full: 
Invite customers to play more roles in driving your business direction. Invite them to Co-
Create.
Conclusion
Consumer focus in the modern era has changed from product quality to experience. This has
happened largely due to availability of variety of products that perform in the same way.
When performance and price of products become similar then the only way to distinguish
between products is the overall experience of a consumer. These experiences existed since a
long time but the consumer was passive due to lack technology and a limited social circle.

Co-creation as a tool has developed due to the changing technological scenario.


Communication between the company and the consumer has changed due to this technology.
Communication as a process itself has changed due to the advent of technology.

Technology has created tools such as internet, social media and interactive television. These
disseminate information in a very simple format and reach millions of people. This
information coupled with more connectivity amongst people in the form of mobile telephony,
video conferencing and internet blogs and chatting has made the modern consumer well-
informed, actionable and wiser. A wise consumer has to be treated wisely to retain him. Co-
Creation is a tool which integrates this wise consumer into the gamut of product
development, implementation, launch and subsequent commercialization.

Co-Creation provides the company with a solution to channelize the consumer energy into a
positive direction. It provides the company with a source of innovation that does not cost and
results in customer retention. It also gives the company a competitive advantage in the market
as co-created ideas are subject to IPR and the fruits of which are enjoyed by the customer and
the company itself.

In this paper we have discussed how Co-Creation has evolved, how we understand it, the
process of Co-Creation, the various ways by which we can co-create, where to Co-Create in
the value chain and whether or not Co-Creation is sustainable. The importance of Co-
Creation has grown with each topic we have discussed. We have come to the conclusion that
if a company wants to survive in the 21 st century then it is highly important for it to be closest
to its customer. As the customer of the 21 st century is shrewder, smarter, more knowledgeable
and demanding than the one in the 20th century, Co-Creation comes across as a vital tool for
the company’s marketing machine to use to create an unbreakable bond between the
customer and the company. One which will reap benefits in a collaborative way, a way which
is highly sustainable and one which helps the company to capitalize on every future
opportunity.
Bibliography
1. The Future Of Competition –Co-creating unique value with customers by C.K. Prahalad,
Venkat Ramaswamy:Harvard Business School Press pg 17,19,21
2. http://mora.rente.nhh.no/conferences/fibe/2010/pro
3. Marshall Kirkpatrick via ReadWriteWeb blog
4. posals/sivertstol-proposal.pdf
5. http://www.theomcgroup.com/omcpapers/Eight%20Styles%20of%20Firm-Customer
%20Knowledge%20Co-Creation.pdf
6. Pralhald, C.K and Venkatram Ramaswamy (2002) “ The Co- Creation Connection”
7. Pralhald, C.K and Venkatram Ramaswamy (2000) “Co-opting Customer Competence”
Harvard Business Review

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