Determinants of Success
in Customer Co-Creation
Name: Merijn Goris Student number: 1431722
Groningen, June 2012
Supervisors:
Abstract
Preface
This report is the result of my graduation project for the Master of Science degree in Strategy & Innovation at the University of Groningen. This graduation project was partly performed at SNS Reaal.
The realisation of this project would not have been possible without the help of several people. I would like to use this preface to thank them for their support. First, I would like to thank my colleagues at SNS Reaal who have contributed to this project through discussion sessions and feedback on presentation. Thanks, you made my stay at SNS Reaal a very valuable learning experience.
In particular, I want to thank Gertho Elzenaar (SNS Reaal) and my supervisor dr. Thijs Broekhuizen. Gertho was always available for questions that kept progress in my project and provided valuable feedback. Thijs, thanks for your valuable input and feedback and for your
extreme patience. Without you it was impossible to complete this study. I have felt inspired by your enthusiasm and enormous support! I would also like to thank Pedro de Faria for his time and effort spent in evaluating my master thesis.
Finally, I would like to thank my family, friends and girlfriend for their support throughout this final phase of my study. Thank you so much for your encouragements.
Table of contents
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1 Introduction
6
... 1.1 Introduction 6 ...1.2 Objectives of this study & research question 6
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1.3 Managerial and academic relevance 7
... 1.4 Outline 7
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2. Literature study
9
... 2.1 What is co-creation? 9 ...2.2 The benefits and costs of customer co-creation 9
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2.2.1 Customer perspective 10
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2.2.2 Company perspective 11
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2.2 Streams of research: perspectives 13
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2.2.1 Literature on New Product Innovation (NPI) 14
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2.2.2 Literature on communities of creation 16
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2.2.3 Relationship management from company perspective 16
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2.3 Forms of co-creation 17
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2.3.1 Model 1: O'Hern & Rindfleisch 17
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2.3.2 Model 2: Lawer 21
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2.3.3 Model 3: Pater 23
... 2.3.4 Overview types of co-creation based on occurrence in value chain 24
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2.4 Contextual factors that influence co-creation 26
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2.5 Customer and company readiness 30
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3 Methodology
31
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3.1 Introduction 31
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3.2 Research approach: in-depth interviews 31
... 3.3 Data collection 32 ... 3.3.1 Interviews 32 ... 3.3.2 Selection of experts 32
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4 Results
34
... 4.1 Development 34 ... 4.2 Production 36 ... 4.3 Assembly 38 ...4.4 Marketing and delivery 39
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4.5 Cross-case analysis 41
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5. Conclusion & discussion
43
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5.1 Discussion of main findings 43
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5.2 Theoretical implications 44
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5.3 Managerial implications 45
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5.4 Limitations & further research 46
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References
48
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Appendices
53
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Appendix I: Interview Martijn Staal, TNO 53
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Appendix II: Interview Marius Woldberg, Achmea 56
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1 Introduction
1.1 Introduction
In 1972, McLuhan and Nevitt suggested in their book “Take Today” that with electronic technology, consumers would become producers. Toffler (1980) predicted that the role of producers and consumers would begin to blur and merge and called this type of consumers/producers ‘prosumers’. They both predicted that customers would become a partner of the company in creating value. More recently, Levine, Locke, Searls & Weinberger (2001) stated that "markets are conversations" with the new economy moving from passive consumers towards active prosumers. Prahalad & Ramaswamy (2004) subscribe to this view, “as value shifts to experiences, the market is becoming a forum for interactions between consumers, consumer communities, and firms”. Traditionally, markets where seen as an aggregation of consumers where a firm trades goods and services with the consumer. Consumers get involved only at the point of exchange and the market was a “target” for a firms offering. In the value creation process, customers where outside the firm and value creation took place inside the firm. More recently, the changes in competition, technology and customer demand have fundamentally altered the way businesses operate, in which consumers also create value (Zhang, 2008).
The emergence of connected, informed, empowered, and active consumers challenge the traditional way of doing business. Consumer-to-consumer communication and dialogue provides consumers an alternative source of information and perspective. “Armed with new tools and dissatisfied with available choices, consumers want to interact with firms and thereby co-create value” (Prahalad, 2004).
Little is known about the concept of co-creation, what factors shape the degree to which the concept can be implemented. This study focusses on determining the success factors of customer co-creation and shedding a light on this relatively under-researched topic.
1.2 Objectives of this study & research question
focus on customer creation in general, while the second part will focus on in which forms co-creation will be feasible.
The research question for this research will be:
What factors determine the feasibility of customer co-creation?
The sub research questions of this thesis are:
-What is co-creation; what are its forms and the stages within customer co-creation can take place? -What are the benefits and costs of customer co-creation from the consumer perspective?
-What are the benefits and costs of customer co-creation from the producer perspective? -Which contextual factors influence company willingness & ability?
-Which contextual factors influence consumer willingness & ability?
1.3 Managerial and academic relevance
This research will provide an insight into the determinants of the feasibility of customer co-creation. Co-creation seems to be a ‘buzzword’1. Consultancy firms like TNO and Favela Fabric involve
co-creation in their consultancy-activities. This study will provide information for companies involved in co-creation projects and helps to improve managerial decision making regarding co-creation projects. It will help to find out where and how to effectively use co-creation.
Theoretical information regarding the determinants of success in customer co-creation is limited. This research tries to unite different streams of research into one model. A unifying perspective is necessary, because most of the researches have been conducted in an ad-hoc manner, thereby hampering knowledge creation about co-creation.
Currently, the existing literature does not focus on the circumstances under which co-creation can be successful. Different studies mainly focus on forms of co-co-creation, not on the success-factors. Furthermore, research has been conducted in an ad-hoc way, there is no “overarching framework” thus far. As a result, this study adds to the existing literature and might steer for further research.
1.4 Outline
Chapter 2 discusses several co-creation related topics appearing in the academic literature. It will discuss co-creation in general, the benefits and costs of customer co-creation from a customer and a
2. Literature study
This chapter will discuss co‐creation related topics appearing in academic literature. First, co-creation will be defined. Furthermore, the benefits and costs of customer co-co-creation for customers and companies will be discussed. The third part of this literature study focuses on the different forms of co-creation and finally, contextual factors that influence the feasibility of the co-creation concept will be mapped.
2.1 What is co-creation?
Prahalad & Ramaswamy (2004) define co-creation as the ‘"the practice of product or service creation that is collaboratively executed, by both the firm and customer, together at multiple points of interaction within experience environments to create mutual value". ‘Firms and customers together’ implicates the there are no other companies involved, co-creation takes place between a company and customers. Generally the company initiates the co-creation project, they offer a platform (offline or online) where they can get in contact with customers. Successful examples of co-creation are Dell Idea Storm, an online community where consumers can add new ideas for Dell products and discuss about the existing Dell products and Lego Mindstorms which has an online platform where consumers can come together to discuss about Lego, but can also upload new designs that can be taken into production.
The significance of the role of users (or consumers) in the development process of new products and services was already recognised by Adam Smith in 1776. He pointed out the importance of the invention of a great number of machines which facilitate and abridge labour, and enable one man to do work for many. A great part of the machines were originally the invention of common workmen, who, being each of them employed in some very simple operation, naturally turned their thoughts towards finding out easier and more readily available methods of performing it (von Hippel, 2004). Many of the most important and novel products and processes in a range of fields have been developed by user firms and by individual users.
2.2 The benefits and costs of customer co-creation
2.2.1 Customer perspective
The literature has described several reasons or benefits for customers to participate in a co-creation activities. Hoyer (2010) states that the reasons to participate can be classified according to 4 categories:
- Financial benefits - Social benefits
- Technological benefits - Psychological benefits
Financial benefits. Some consumers are motivated by a financial reward to engage in a co-creation project. A financial incentive can be directly obtained through monetary prices or profit sharing from the firm that initiates the co-creation, or indirectly, obtained through the intellectual property that they can receive.
Social benefits. Hoyer (2010) states that social benefits of co-creation comprise increased status, social esteem, ‘‘good citizenship,’’ and strengthening of ties with relevant others. Formal recognition, such as an expert-status in an Ubuntu-forum, can be a source of pride. Relative uniqueness compared to other consumer can be a motivation to participate in co-creation projects. Etgar (2008) states that creative pursuits of co-creation are likely to enhance pride.
Technical benefits. A desire to gain technology knowledge (the acquisition of technical knowledge) can also be a motivator to participate. Contributors might have important cognitive benefits of information acquisition and learning. Hoyer (2010, p.288): “Blackberry, Lenovo Thinkpad, and many other brands have forums that attract consumers who participate in all stages of the co-creation process and gain technology knowledge themselves from exchanging ideas and inputs from others in the community”.
Psychological benefits. Consumers may also participate in the co-creation process for psychological reasons that remain poorly understood (Hoyer, 2010). Csikszentmihalyi (1996) and Etgar (2008) state that creative pursuits of co-creation are likely to enhance intrinsic motivation and a sense of self-expression. Acting creatively enhances positive affect and enjoyment of contributing (Nambisan and Baron 2009). Another motivation can be the high involvement or dissatisfaction with the current product (Nambisan and Baron, 2009).
freely share effort in the post ideation stages of co-creation. Furthermore, Von Hippel and Von Krogh state that besides self-provision, consumers are also motivated by the learning opportunity, the enjoyment of participation and a sense of ‘ownership’ and control. The reasons addressed by Von Hippel and Von Krogh (2003) have many similarities with the motivators mentioned by Hoyer (2010).
The ‘costs’ of participating in co-creation projects for consumers can also be classified into categories used by Hoyer (2010). A time/effort expenditures decision can be classified as a time and effort drawback, co-creation is in fact a make-or-buy decision. If the time and effort invested is too high compared to the outcome, consumers are likely to make a buy-decision and not participate in a co-creation project. Risk of failure, a psychological risk, can be classified as a psychological drawback. If consumers have the feeling that they are not competent enough, risk of failure will be perceived as high and the willingness to participate will be low.
2.2.2 Company perspective
One of the most cited reasons for companies to stimulate co-creation is that co-creation helps a company to better understand customer needs. Successful, innovative companies need to have a deep understanding of consumer needs and product development efforts that meet those needs. Understanding consumer needs and translate them into products or services is difficult because these needs are often complex and may not always be identified through traditional marketing research methods (O’Hern, 2009). The inability to adequately assess and fulfil consumer needs is often a key reason for new product failure (Ogawa, 2006). By involving customers in this process, new product ideas can be generated, which are more likely to be valued by consumers, which increased the likelihood of new product success. Thus, firms that manage this process effectively will ultimately achieve a sustainable competitive advantage over the competition, because of cost savings, better management of NPD and higher customer loyalty (Prahalad and Ramaswamy 2004). Table 1 provides the benefits and costs from a company perspective:
Sustainable Competitive Advantage Outcome Authors
Creative stretching of existing products, services and skills to
generate additional revenue and efficiency Sharma et al. (2002) Lower the costs of new product development by using
Sustainable Competitive Advantage Outcome Authors Improved market sensing capabilities and enhanced customer
relationships O’Hern & Rindfleisch (2008)
Shorter loop of learning errors (learning) Sawhney and Prandelli (2000b) An ongoing process and this continuous product
improvement process can enhance customer welfare.
(learning) O’Hern & Rindfleisch (2008)
Higher innovation potential, effectiveness and predictability; creating more innovative new products
von Hippel (1982;1986;1994) Gibbert, Leibold and Voelpel (2001)
Faster customer access to knowledge about, and resolution
of, customer service problems Sawhney and Prandelli (2000a)
Validate the knowledge already accumulated in the organisation
Gibbert, Leibold and Voelpel (2001)
Expanded market share Sharma et al. (2002)
Higher perceived customer switching costs arising from the
customer’s ongoing knowledge investments in the firm. Sawhney and Prandelli (2000b) A greater ability to sense emerging market opportunities
before the competition
Anderson and Narus (1991); Nonaka (1994); Nonaka and Takeuchi (1995)
More effective “unlearning” of established assumptions and practices through open-mindedness, shared vision and an enhanced commitment to market experimentation and organisational learning.
Anderson and Narus (1991); Nonaka (1994); Nonaka and Takeuchi (1995)
An enhanced ability to co-create mutual value on an ongoing basis; value in the form of personalised, unique experiences for the customer and higher profitability and growth through
higher levels of customer loyalty for the firm Prahalad and Ramaswamy (2004)
Table 1: a literature overview of sustainable competitive advantages of co-creation from a company perspective
Several ‘costs’ of consumer co-creation from a company perspective have also been identified. One of the difficulties of consumer co-creation is that it needs a fair amount of transparency of the company, since it involves the disclosure of information to consumers about new product development trajectories and ideas that might otherwise have remained secret much longer (Prahalad, 2004). As a consequence, firms that rely greatly on secrets to protect proprietary knowledge in their NPD process are less likely to engage in intense and wide-ranging co-creation activities (Liebeskind, 1997). Concerns about secrecy are likely to be highest in the product development and launch stages of the co-creation process.
From the firm’s perspective Sawhney and Prandelli (2000b) describe that:
They should be able to recognize the value of customer knowledge, sense and incorporate it within the firm.
- Organisational sharing capacity emphasises mechanisms for integrating customer and organisational knowledge and organisational knowledge assets and then reproducing them internally. Sawhney and Prandelli (2000b) state that when strategy becomes interactive (more dialogue and collaboration with customers), there must be a wider dispersion of information and decision throughout the organisation.
- Deployment capacity deals with how firms act upon customer knowledge. In traditional organisations there is often a “R&D knows best” mentality. Firms need to overcome this bias when they want to move from passive involvement of customers to active co-development with customers.
Another impediment of co-creation is that it can yield large volume of customer input, which can lead to an information overload, as Hoyer (2010) explains: “Runaway success in the ideation stage of co-creation can itself be a burden since screening millions of ideas is no easy task. In other words, the ‘‘wide end’’ of the NPD funnel becomes many times wider in NPD contexts in which co-creation is involved” (Hoyer, 2010, p. 289). In a similar vein, many of these ideas may be infeasible from a production standpoint (Magnusson, 2003). Idea generation from consumers may be difficult to transform into practical solutions.
Furthermore, questions around the ownership intellectual property may arise. Although some consumers might have no problems with handing over the fruits of their skills and knowledge without any acknowledgement, some people might expect to retain full ownership over intellectual property. A lack of consistency in intellectual property policies might create perceptions of unfairness among consumer contributors (Hoyer, 2010).
Finally, involving customers in the NPD-process will increase complexity in the production process and there will be fewer economies of scale in production (Companies rather have to rely more on economies of scope; e.g., using the customer knowledge in multiple new products).
2.2 Streams of research: perspectives
2.2.1 Literature on New Product Innovation (NPI)
Thomke and von Hippel (2002) describe the use of co-creation in the process of product innovation. In their article they describe that R&D has been a costly and inexact process for a long time and that some companies are trying a radically new approach, giving customers the tool to design and develop their own products. The development of new products is an important driver of profitability and corporate growth (Wind and Marajan, 1997). Several studies have investigated what would be the best way to organise and manage new product development (NPD) (O’Hern & Rindfleisch, 2008). These authors argue that NPD is essentially an internal, firm-based activity. “The idea that novel products and services are developed by manufacturers is deeply ingrained in both traditional expectations and scholarship” (Von Hippel, 2005). New product development is a challenging pursuit if you take into account the high failure rate of NPD projects. Balachandra and Friar (1997) stated that almost 90% of products introduced did not reach their business objectives. Schilling and Hill (1998) quoted that between 33% and 60% of all new products that reach the market in North America fail to generate an economic return. Furthermore, Cooper (2005) found a 33% failure rate of NPD projects. It is safe to say that making NPD projects successful has been a major challenge for companies last decade.
products.
According to von Hippel (2004), successful NPD requires two types of information: (1) customer need and context-of-use information and (2) generic solution information. Customers know the most about the first type of information, whereas manufacturers have the most knowledge about the second type of information. This disparity creates a condition of information asymmetry (von Hippel, 2004). It is not easy to bring those two types of information together, because both need information and solution information are often very “sticky”- which means that it is costly to move from the site where the information was generated to other sites (von Hippel, 2004, p.11). Users have a more accurate and detailed model of their needs than manufacturers have, while manufacturers have a more detailed model of the solution approach in which they specialise than the consumers (users) have. Von Hippel (2004) states that when information is sticky, innovators (producers) have the tendency to rely largely on information they already have in stock.
As a result consumers (users) tend to develop innovations that are functionally novel, require a great deal of user-need information and use context information for their development, while manufacturers develop innovations that are improvements on well-known needs and that require a rich understanding of solution information for their development (von Hippel, 2004, p. 11). The information asymmetry is traditionally managed by engaging in various forms of market research, like focus groups and test marketing, to map the customer’s needs. Co-creation can also take away the information asymmetry.
Ogawa & Piller (2006) reported that, as a result, most new product failures are attributed to a firm’s inability to accurately assess and satisfy customer needs. It has become more difficult to map consumers’ needs due to consumers’ quickly changing preferences, the heterogeneity of their demands and the resulting micro-segmentation of many product categories. “Many new products fail because not because of technical shortcomings, but because they simply have no market” (Ogawa & Piller, 2006, p. 65). The high failure rate of NPD projects supports the idea that the traditional market research is not capable of mapping the actual or latent needs of the consumers. The alternative, according to Ogawa & Piller (2006), is that companies integrate customers into the innovation process, for example by soliciting new product concepts from them and pursuing the most popular of those ideas. Integrating customers into various stadia of the NPD process can help companies avoid expensive product failures.
Rindfleisch (2008, p. 11) confirm this: “Firms can engage in customer co- creation by releasing control of either the contributions made to the NPD process and/or the selection of these contributions.”
2.2.2 Literature on communities of creation
The second related literature part of co-creation is communities of creation. Sawhney and Prandelli (2000) state that the knowledge required for companies to compete in technology markets is becoming more diverse whilst at the same time, firms are increasingly narrowing their knowledge base in an effort to specialise and focus. This situation makes that firms can no longer produce knowledge autonomously but have to cooperate with their customers and partners to create knowledge. As a result, the process of learning and innovation will be more distributed and this requires new innovation governance mechanisms, like communities of creation.
There have been several studies on the reasons why talented people are willing to contribute voluntarily. Shah (2006) summarises and argues that participation is driven by users’ desire to satisfy their own needs (Franke and von Hippel 2003, Kuan 2001). Other studies mapped career concerns, learning, and reputation as leading factors (Hann et al. 2002, Lerner and Tirole 2002). Reputation and status within the community is according to Raymond (1999) a reason to contribute. Affiliation and identity are according to Hertel et al. (2003) drivers of participation and Gelernter (1998) and Ghosh et al. (1998) describe that enjoyment and creativity are also drivers of contribution.
2.2.3 Relationship management from company perspective
Sheth, Sisodia and Sharma (2000) link the use of co-creation to relationship marketing. 'Co-creation marketing involves both the marketers and the customer who interact in aspects of the design, production, and consumption of the product or service' (p. 62) According to Sheth et al., co-creation marketing can enhance customer loyalty and reduce the cost of doing business. Vargo and Lusch (2004) wrote about the ‘service dominant logic of marketing'. The main idea behind this logic is the following shift: emphasis is placed on “marketing with customers” instead of “marketing to customers”. Whereas the relationship with a customer have traditionally been viewed as “one-way as firms import knowledge about customers within their boundaries, in the networked world, firms can establish two-way relationships based on new mechanisms for direct co-operation in knowledge and value creation”(Lawer, 2005, p. 6)
management perspective. Customer knowledge refers to the understanding of the customers’ needs, wants and aims and it is essential for a business to align its processes, products and services to build real customer relationships. Sawhney and Prandelli (2000b) provide an analysis of capabilities for customer knowledge creation from a customer and firm point of view . They argue that co-creation requires certain skills and attitudes from customers:
- Customers must be able to speak the same language as the firm. This means that a customer first need to absorb a firm’s specific knowledge and to understand its meaning before the customer can contribute their knowledge.
- Customers must deeply trust the firm. The information shared by customers must not be used against their own needs.
- Customers must be motivated to take part in the knowledge creation process. This could be done by emphasising the relevance of their knowledge contribution or from incentives.
2.3 Forms of co-creation
The rise of co-creation garnered considerable attention from researchers and practitioners. In this section, three different forms of co-creation will be discussed.
2.3.1 Model 1: O'Hern & Rindfleisch
O’Hern and Rindfleisch (2008) state that co-creation can be classified into 4 categories; collaborating, tinkering, co-designing and submitting. O’Hern and Rindfleisch (2008) describe that firms can engage in customer co-creation by releasing control of either the contributions made to the NPD process and/or the selection of these contributions. The degree of customer autonomy across these two activities forms the conceptual basis for the four forms described by O’Hern and Rindfleisch (2008).
Submitting. Compared to the other three types, submitting represents the lowest level of customer empowerment. Submitting is defined as a process in which customers directly communicate ideas for new products to a firm. The firm decides which concepts to further develop, test and eventually launch.
Benefits of submitting: A significant reduction in the time required to develop a new
relationships.
Challenges: Is submitting truly innovative? The empowerment of customers is low.
Empowered customers leads to autonomy and as a consequence this will lead to more intrinsic motivation & examples psychologic ownership. This facilitates creativity by making the creative task more enjoyable and rewarding (O’Hern, 2010). Companies could have problems to get a mutually satisfying bidirectional relationship.
An example of submitting is the “Design your Dream Ducati” of the Italian motorcycle manufacturer Ducati Motors. They encouraged Ducati enthusiasts to submit innovative artistic and technical ideas to an executive team, which then selected the winning contributions.
Co-designing. Co-designing is a “process in which a relatively small group of customers provides a firm with most of its new product content or designs, while a larger group of customers helps select which content or designs should be adopted by the firm” (O’Hern and Rindfleisch, 2008, p. 19). In this approach, customers create new designs or content and submit this to a central place where the other customers evaluate these submissions and select their favourite. With this information a company can decide whether or not to adopt an idea. The company usually dictates the precise format which has to be followed by the contributors. Examples of successful co-designing are www.threadless.com and www.digg.com.
Benefits of co-designing: it reduces the cost of development. Firms should reduce cycle
times and launch new products more quickly. Co designing is an approach in which high (design) and low (selecting) skilled customers can participate.
Challenges: It is a challenge to attract a critical mass of designers to obtain enough high
quality content (O’Hern, 2008). Novelty of being able to submit your own ideas may quickly wear off. Furthermore it is easy to imitate, so perhaps there could be a lack of distinctive core competences.
and medical devices (www.designthatmatters.org).
Benefits of collaborating. Open source software empowers customers to make fundamental
changes in the program’s source code. This freedom gives consumers the possibility to design their contributions to their own specific needs and they can select the new product improvements they find most valuable. With open source software developments like Linux and Firefox, the underlying offering is based on open standards that grant all customers the ability to fully customise the product to better satisfy their own unique needs. Giving autonomy to the consumers will have a positive effect on the creativity of the consumers, because it is largely believed that autonomy leads to high levels of intrinsic motivation and psychological ownership, which facilitates creativity by making the creative task more enjoyable and rewarding (Csikszentmihaly, 1996). Besides generating effective and successful new products, collaborating can also lower the costs of new product development by using voluntary customers instead of salaried employees. Another advantage of collaborating is that it is an ongoing process and this continuous product improvement process can enhance customer welfare.
Challenges: collaboration seems to suits best to information rich applications and will be
challenging to implement efficiently in more traditional industries. Moreover, collaborating needs at least a small number of contributors that obtain a high level of skill and knowledge, which could discourage lower skilled customers from participating in the innovation process. Furthermore, with successful collaboration a firm needs to give away managerial authority over the new product development which loosens their control over their intellectual property. It is a challenge to strike the right balance between control and openness. Shah (2006) also states that firms should hesitate to set restrictions on the use and distribution, “because developers feel entitled to use and share code they helped develop. This restriction deters developers and thereby decreases the size of the community and the likelihood of future product improvements and feedback” (Shah, 2006, p. 1012).
Examples of collaborating are open source software initiatives such as Linux, Apache, and Firefox. In contrast to commercial software, which places considerable restrictions on consumer usage, open source software empowers users to make fundamental changes to a program’s basic structure (source code).
control over the selection of the contributions of the customers. Collaborating and tinkering are similar in terms of allowing customers a relatively high degree of autonomy over their contributions. Tinkering differentiates from collaborating because with tinkering companies will retain more control over the selection process. According to O’Hern and Rindfleisch (2008) tinkering is most visible in the computer game industry. Modifications of the users are not only tolerated, but sometimes also actively encouraged. An example of successful tinkering is the computer game the Sims. 90% of the content of this computer game comes from modifications of users (Nieborg, 2005).
Benefits: One of the benefits of tinkering is that tinkering could provide a basis for product differentiation in crowded markets with similar offerings. According to O’Hern and Rindfleisch (2008), companies can also benefit from tinkering in terms of enhancing customer satisfaction and extending their market reach. By offering a platform where small adjustments can be made, firms help customers to fulfil their own needs and share this with customers who could have similar needs.
Challenges: A challenge of tinkering is that tinkering mostly requires a considerable
Figure 1: Four types of customer co-creation (O'Hern and Rindfleisch, 2008)
2.3.2 Model 2: Lawer
O’Hern and Rindfleisch (2008) used a different classification an differentiate types of co-creation on the differences in contribution activity and selection activity. Lawer (2008) mapped the following 8 styles of co-creation.
1. Product finishing. In this form of co-creation the consumer is only involved in the product-
finishing details, the final actor in the value chain. IKEA is an example of product finishing. The contribution activity of the customer is fixed and the main benefit seems to be a cost advantage.
2. New product design and development (lead user). In this type of co-creation a number of lead
users (or expert customers) are invited into the firm to contribute to the development of new products and services and share their knowledge. A company which successfully uses lead users in their new product design and development is Nokia2. Nokia shares new ideas and asks lead users how to further improve the products.
3. Existing product adaptation. The difference between ‘existing product adaptation’ and ‘new
product design and development’ is that the company actively asks customers for feedback about existing products. They are not involved in the process of new product design and development. Microsoft designed a platform, Microsoft Knowledgebase, where customers can give feedback on their products or report bugs, and with this information Microsoft can improve their existing product-line.
4. Mass customisation. Mass customisation can use modular components to provide the customer
customise a standard product or service template (Lawer, 2008). This form of co-creation combines the cost advantage of mass production with the flexibility of individual customisation. Successful examples of mass customisation are NikeID, where customers can design their own shoes, and Dell PCs.
5: Open community ideation and product design and development. Well-known examples of this
type of co-creation are Linux, Firefox and the Lego Mindstorms project. This type of co-creation differs from other forms because it is more distributed and firms give more control to the community of users and creators.
6. New service design. Lawer (2008) distinguishes this type of co-creation from NPD because “services tend to involve more consumers in the innovation process and are also easier to test in markets than products through experimentation, probe and learn approaches” (Lawer, 2008, p. 3).
New service design takes place when consumers need different service than the one being provided by the firm. When consumers provide the service ideas to the company and the company decides to implement the new service, the consumers are willing to help in the design process of the service.
7. Real-time marketing and service adaptation. This form of co-creation is characterised by high
levels of customer dialogue and interaction, enabled by digital technology. With modern IT/ERP systems it is possible for companies to operate more flexible. For example, Fedex allows large corporate customers to change package transit times and destinations in real-time.
8. Personalised experience value and knowledge co-creation. The last form of co-creation
Figure 2: Eight forms of co-creation (Lawer, 2008)
2.3.3 Model 3: Pater
Pater (2009) also defines four different types of co-creation based on who is participating. The four types of co-creation he describes are based on two central dimensions:
• Openness: can anyone join in or is there a selection criterion somewhere in the process? • Ownership: is the outcome and challenges owned by just the initiator or by the contributors
as well?
Figure 3: Four types of co-creation (Pater, 2009)
It is important to notice that Pater (2009) based his differentiation only on the source of co-creation (how to cooperate), not on the content, like the other authors.
Crowd of people is a form of co-creation which is also described in Surowiecki’s book ‘Wisdom of Crowds’(2005). Anyone can join and the idea behind this type of co-creation is that for any given challenge there will be someone in the crowd with a brilliant idea that deserves considering. Threadless is an example of making successful use of the ‘crowd of people’ strategy. This is an online platform where contributors can send in and rate t-shirt designs. People are triggered to contribute because it could be good for their design-portfolio and the profits of sold items are shared with the designer.
The second form Pater (2009) describes is ‘club of experts’. This form is closely related to ‘new product design and development’ through lead users of Lawer (2008). The company initiates a meeting where lead users are asked to think about the development, together with the company, of new products and services.
Community of kindred spirits refers to form groups of people with similar interests that can
come together and create. Pater takes Linux as an example of this type of co-creation. O’Hern (2008) classified the Linux- type of co-creation as collaborating.
Coalition of parties refers to the form in which each of the parties brings a specific asset or skill to the group. Successful examples of a coalition of parties are the Senseo coffee machine (Philips and Douwe Egberts) and the ‘Beertender’ (Heineken and Krups). Because customers are not involved in this kind of co-creation and the used definition of co-creation explicitly states that
co-creation is the ‘the practice of product or service creation that is collaboratively executed by developers and customers together’, this form does not fit with the definition used in this research.
2.3.4 Overview types of co-creation based on occurrence in value chain
Co-creation initiatives can take place through all the phases of the value chain (Pine, 1993). The four stages described by them are development, production, marketing and delivery. In this research a small adjustment has been made to the value chain of Pine. The four phases used in this research are:
1. Development: consumer involved in idea-generation process
2. Production: consumer involved in the process of producing (e.g., open source software)
customisation).
4. Marketing & delivery: customers are involved in the marketing process, ‘creating fans instead of customers’. Delivery is also part of after-sale/ client support.
This research tries to map the forms based on the occurrence in the value chain.
All three typologies are based on different dimensions and are made from different perspectives. O'Hern and Rindfleisch (2008) differentiate their four types of co-creation on:
1: degree of control in selection process 2: degree of control in contribution process.
Lawer (2009) differentiates the 8 types of co-creation on 13 factors. All these 13 factors are about the role in the contribution process and Lawer does not mention the role of consumers in the selection process. Taken into account the types of information which are required for successful NPD (firstly, need and context-of-use information and secondly, generic solution information), Lawers model would be more useful if the 'degree of control in the selection process' would have a more prominent place in his research. Furthermore, Lawer (2009) describes ‘mass customisation’ and ‘product finishing’ as forms of co-creation. Von Hippel (2005) disagrees with this view because mass customisation does not sufficiently incorporate customer input into the actual creative process. O’Hern and Rindfleisch agreed with this view and have not incorporated these forms of co-creation in their framework. The third model (Pater) gives an overview of the different forms and focusses solely on form, not on content. The model of Pater (2009) is made out of a company point of view, which makes the fourth form of Pater, coalition of parties, not useful because it does not involve the customer into the process.
Development Production Assembly Marketing & delivery
Submitting
Collaborating Collaborating Collaborating Collaborating
Co-designing Co-designing
Tinkering
Product finishing Product finishing New product design &
development
New product design & development
Development Production Assembly Marketing & delivery Mass customisation (hard) Mass customisation (hard) Mass customisation (soft) Open community ideation and prod design & developm
Open community ideation and prod design & developm
Open community ideation and prod design & developm New service design New service design
Real time marketing and service adaptation
Table 2: overview of forms of co-creation based on the occurrence in the value-chain.
2.4 Contextual factors that influence co-creation
The literature pays little attention to the contextual factors that may make the co-creation perspective more or less appropriate. In this chapter the factors that influence the degree (& success of co-creation) will be discussed. These are:
- consumer factors - product factors
- industry/market factors - company factors
In every category different factors will be discussed. For each factor it will be discussed in which phase it occurs: (1) development , (2) production, (3) assembly or (4) marketing & delivery.
2.4.1 Consumer factors
Consumers often vary highly in their interests, knowledge and skills to participate in co-creation activities. O’Hern and Rindfleisch (2009) state that even among firms with millions of consumers, only relatively few will have the willingness or the skills to be fully engaged in the co-creation process. Knowledge about the product and the process are determinants of success. The degree to which consumers have knowledge about the product and the process influences the willingness to engage in the co-creation process. (relevant for all phases)
assembly stage (phase 2 &3), because the effort of consumers is relatively high in this stage. The development phase does not have to be more expensive, it could even be cheaper. With mass customisation products can be delivered at ‘mass produced prices’. It is however likely that co-creation makes the production and assembly stage more expensive, and the needs of the consumers are better filled, and they are willing to pay a price premium.
In the marketing and delivery stage (phase 4), community aspects are important. The reasons why individuals participate are often vague and poorly understood. Creative pursuits of co-creation are likely to enhance intrinsic motivation and sense of self-expression and pride (Csikszentmihalyi, 1996; Etgar, 2008). Participants often get a reward for participating in a co-creation process. Having a visible expert status on a forum is an example of a reward. Besides behaviour that is driven by explicit rewards, there is organizational citizenship behaviour (occasionally phase 1, mainly phase 4 ). Organ (1988) defined organizational citizenship behaviour as “. . . individual behaviour that is discretionary, not directly or explicitly recognized by the formal reward system, and that in the aggregate promotes the effective functioning of the organisation'”. There is a variety of specific dimensions of organizational citizenship behaviour. Stamper and van Dyne (2001) give an overview of the dimensions: altruism, conscientiousness, sportsmanship, courtesy, civic virtue, obedience, loyalty, advocacy participation, social participation, functional participation, helping and voice. Organizational citizenship behaviour is important in the development and the marketing and delivery phase.
A final consumer factor that influences the success of a co-creation project are privacy concerns. (It is likely to occur in phase 4, as the personal information is not publicly shared it does not have a negative consequence on phase 1) To what extent does a consumer needs to contribute privacy sensitive information. The more concerned they are, the less willing they are to exchange their information/knowledge. This seems to be important with ‘personal products’, like banking or personal care products. This is partly dependent on product factors, these will be discussed in 2.4.2 2.4.2 Product factors
(relevant for all phases). The degree of conspicuousness is an important aspect. Conspicuous products are important for the image of the consumer. If the co-creation outcome contributes positively to their image, it is likely that they will participate. Related, but slightly different than conspicuousness, is visibility of the product. The willingness to talk about visible products is higher (phase 2,3 and 4). For example, it is more attractive for a customer to talk about clothing than semiconductors. In the example of semiconductors, product complexity makes it also more difficult to co-create value. The more complex the product is, the smaller the potential co-creation crowd will be, because a lack of technical knowledge (relevant for all phases, the co-creation processes are only for those who do not lack the technical knowledge).
For personal products, privacy concerns can also be an impediment for the co-creation process. Consumers are not eager to share personal information. Personal products, like an insurance or another financial product, are difficult to share. To convince consumers to co-create, it has to be obvious that sharing is more interesting than not sharing (similar to consumer factor privacy concerns: phase 4 and sometimes 1).
Purchasing frequency is another product level characteristic that influences the co-creation process. When an object is purchased on a frequent base, consumers are more willing to participate in a co-creation process. It enables producers to learn from their customers and build a ‘learning relationship’. A learning relationship enhances customer loyalty. If a customer wants to start a new relationship he/she must first re-educate the new provider in areas where the original provider is already familiar (Peppers and Rogers, 1997). This can be perceived as a barrier to switch to a new provider, so they are willing to stay at the provider and the more loyal they are, the greater the chance that they want to co-create (relevant for all phases, phase 1 can be stimulated because the feedback can be given frequently and there are more product innovations because companies can continuously learn from the feedback from all customers, phase 2 and 3: companies can learn on a individual basis from the customers and can adjust the products on an individual basis. Phase 4: frequent purchasing behaviour stimulate a bond, consumers may reciprocate by helping the firms customers.
2.4.3 Market/industry factors
The degree of competition influences the decision process to start with co-creation or not. High competitive pressure result in the need to create more customer value. If a company wants to create more customer value, it has to deeply understand customer needs. One of the most cited reasons for companies to stimulate co-creation is that co-creation helps a company to better understand customer needs. Successful, innovative companies need to have a deep understanding of consumer needs and product development efforts that meet those needs. If co-creation leads to creating more customer value, companies will be eager to adopt co-creation at all levels (relevant for all phases).
Another aspect that influences co-creation is legislation/regulation. Several industries are in a high degree regulated to ‘protect’ the customers. In the financial industry in the Netherlands, for example, companies need to take into account the rules of the AFM (Authority for the Financial Markets). In the automobile industry, producers need to do several tests (e.g. crash test) before they can bring their car to the market. Such regulations make it more difficult to co-create with consumers, because consumers are often not aware of the content of the regulation/legislation. (relevant for all phases, in 1,2 and 3 it restricts the company to benefit from the ideas of the customer, the usefulness of their ideas may be less. Phase 4: community behaviour is not really restricted by law, nut privacy laws may restrict the use of certain customer data)
2.4.4 Company factors
Several company factors have influence on the success of co-creation. A company needs to develop a set of resources/skills to increase the chance on success.
flexibility of the logistics and distribution system needs to be optimised (phase 2 & 3). The information or knowledge management system needs the possibility to absorb an huge amount of information. Especially in the development phase (idea generation), customer participation can lead to an enormous amount of ideas/information. A good information and knowledge management system needs to capture these ideas and gives the participants information about the process. Furthermore, analyses of interactions between consumers give valuable insights for improving products/processes. These interactions on forums, blogs and twitter can be monitored to generate ideas for improving a product/process (relevant for all phases)
2.5 Customer and company readiness
A combination of the in 2.4 mentioned factors will determine the success of co-creation. These factors are rather specific. Meuter et al. (2005) gives a more general description on factors that will lead to success. According to Meuter et al. (2005) success depends on customer and company readiness. Readiness is a condition or state in which a consumer or company is prepared and likely to do something for the first time (Meuter et al., 2005). Readiness can be divided into willingness and ability. Ability reflects the consumer’s and company’s knowledge and understanding of what to do, willingness reflects the motivational aspect. Willingness and motivation both reflect the desire of a customer to participate in the process. Meuter et al. (2005) differentiate between intrinsic (e.g. pleasure, personal growth) and extrinsic (e.g., money or time savings) motives to be activated to engage someone in the process. So success of co-creation is a influenced by consumer readiness (consumer willingness (CW) and consumer ability (CA)) and company readiness (organisational willingness (OW) and organisational ability(OA)).
3 Methodology
3.1 Introduction
The goal of this research is to explore circumstances that influence the success of co-creation. These circumstances are not presented in literature yet and as a result this research will be mainly explorative. This research will lead to hypothesis-building and practical guidelines for co-creation with customers in the financial sector. As a consequence, according to Ghauri and Gronhaug (2002), such a study needs detailed, holistic and complex information. The best method to gather this type of information is through qualitative research. Qualitative research focuses mainly on in-depth information, while quantitative research focuses more on breadth. Baarda & de Goede (2006) state that through a qualitative research method the behavioural and cognitive aspects can be studied.
In a qualitative research data is often collected via observations and interviews. This data will be interpreted to come up with findings or theories written down in a report. Qualitative research is more unstructured and flexible compared to quantitative research. Qualitative research also offers so called 'thick descriptions'3. Thick descriptions means that there can also be looked at
the context of situations or behaviour.
Furthermore it is important to select a representative group of respondents. Baarda & de Goede (2006) point out that qualitative research is not interested in finding generalisations, but rather focuses on the interpretation of information.
Finally, the vagueness of the concept of co-creation made it necessary to ask additional questions for clarification when needed.
3.2 Research approach: in-depth interviews
Face-to-face interviews will form the core of the empirical part of this research. Ghauri and Gronhag (2002) state that 'interviews are often considered the best data collection method'. There are several types of interviews. In a structured interview there is a standard format that is used for all participants. When most of the questions of the interview and the direction are determined it is called a semi-structured interview. In an unstructured interview the respondents have the possibility to discuss opinions, reactions and behaviour according to their own wishes. The type of interview that is most suitable for this research is a semi-structured interview. With semi-structured interviews the interviewer has the possibility to enrich the date by adding sub-sequent questions. In explorative research this is an advantage because a whole new area of science has to be discovered.
Another advantage of an unstructured is that it will enable the interviewee to discuss reactions, opinions and behaviour according their wishes.
3.3 Data collection 3.3.1 Interviews
The empirical part of this research will consist of semi-structured interviews with carefully selected experts in the field of co-creation. Semi-structured interviews can provide on the one hand interviewees perspective on the topic, and on the other hand can confirm insights and information gained in the theoretical part of this research (Eisenhardt, 1989). The interviews will start investigating whether the definition of co-creation out of the literature will be the same as the definition of practitioners. After this orientation-phase the core of the matter, answering the research question will start. Face-to-face interviews with two experts will take place. These interviews will be recorded and transcribed afterwards. The data out of the interviews will be used to answer the research question.
The transcriptions of the interviews can be found in appendix I, II & III. During the analysis of the interviews, several themes were identified to answer the research question. The interviews had the following structure.
1. General introduction 2. Definition of co-creation
3. General aspects that are important for co-creation
4. Specific stages (development, production, assembly, marketing & delivery)
Afterwards the interviews were labelled by themes out of Meuter et al. (2005). These themes are: - consumer ability - consumer willingness - company ability - company willingness 3.3.2 Selection of experts
experts in this field of expertise. The following three interviewees can be described as experts because they have a considerable amount of experience with the topic of co-creation:
• Martijn Staal (Staal), Innovation Management consultant on Co-creation & New Media at TNO ICT.
• Marius Woldberg (Woldberg), Innovationmanager at Achmea department Direct Distribution.
• Renske Brands (Brands), founder of Bank Natural, a co-created initiative in the financial sector.
4 Results
In this chapter, the most important findings are presented per phase. These phases are Development, Production, Assembly and Marketing & Delivery. Every phase will be evaluated by four themes: consumer willingness, consumer ability, and company willingness, company ability.
Willingness and ability together define ‘readiness’ (Meuter et al. 2005).
4.1 Development
The development stage consists of all the events that occur before the actual production starts. This is a wide range of events including market research, idea-generation and concepting. Examples of co-creation in the development stage are Dell Ideastorm and Battle of Concepts.
According to Staal and Woldberg and Brands, the main co-creation aspect in the development stage is idea-generation. It can be seen as a novel approach to the traditional market research techniques, such as focus groups and in-depth interviews. It is about mapping the needs of the consumer (Staal) by using the help of customers/consumers.
4.1.1 Consumer willingness
According to Staal and Brands, one of the stimulators of participation in the development phase is the availability of a need. If a co-creation process contributes to a better fit between supply and demand, consumers will see the benefits and are more willing to participate. According to Brands, dissatisfaction with the current situation is also an important reason for consumers to participate. If the outcome of the co-creation process is perceived as better than the alternative, it is more likely to be chosen and because of the relative advantage that the co-creation brings. Brands: ‘when consumers are dissatisfied, they are more eager to try something else.’ Another important aspect, according to Staal, is the (non) existing relationship between the company and the customer. If a company and a customer previously interacted, customers are more willing to help/participate, so previous experience is important. Consumers also need to be taken serious, they should not be seen as cheap labour, but as valuable contributors to the process. Other intentions can work on the short run, but will fail in the long run (Staal).
positive effect on self-esteem. This is an intrinsic motivator. Woldberg: “In many cases, there is a money-price for the best idea(s) in an idea-generation contest. Such a price is only important to attract people. If they are ‘in’, the money is not important anymore and the ‘social rewards’ becomes dominant.” Consumers derive social value from social interaction and status, according to Woldberg.
The image of the company also influences consumers’ willingness to participate. For Harley Davidson it is relatively easy to activate customers, because it is a ‘high interest’ brand, it has many fans/activists that want to interact with the brand (image). When a brand is not as interesting for consumers as Harley is, the relative advantage for the customers becomes more important, according to the interviewees.
The ability to observe and communicate with others about the process is also noted as an important asset. The willingness also increases when it deals with products that are publicly consumed and that have an important role for lifestyle and social identity. Visibility, as it is called, is important for companies like Nike. If consumers get the opportunity to design something for Nike, it is important that they can share this with friends, which has a positive influence on their social image (Staal).
4.1.2 Consumer ability
Although it has overlap with company ability, the complexity of the process or making the product influences consumer ability. A complex product/process will hinder role clarity and ability because it will be more difficult to operate and understand and may also make the benefits less apparent to the user (Meuter et al. 2005). The more complex the product, the more skills or product knowledge is needed from a consumer and the smaller the group of consumers will be that are able to co-create.
According to Staal, many co-creation processes are online, and internet is an important enabler for co-creation. Younger people are often more skilled and familiar with internet. The age of the target group therefore is a demographic aspect that can influence the co-creation process. Staal states that due to technological anxiety ‘older’ people have the feeling that they are not capable or do not understand their role (role clarity).
4.1.3 Company willingness
! The perceived risk for companies in customer co-creation is relatively low in the development stage as compared to other stages. A risk-analysis is one of the pillars on which companies decide to engage in co-creation, so if companies are willing to start with co-creation, it is likely that they will start in the development phase, according to Staal. The possible damage for the company is relatively low. Another important aspect is the willingness of the company to really do something with the alternative solutions and ideas of the consumer (Staal). There has to be senior support, the managers and directors should really want it. I the company culture there has to be some tolerance for mistakes (Brands).
4.1.4 Company ability
Many companies that start with customer co-creation start in de development phase (idea-generation). An important company ability is attracting the right people to co-create with them. Companies also need to be flexible. Staal: “companies need to be able to actually do something with the ideas of customers, so this takes a certain degree of flexibility”. The image of the company is really important. Staal: “companies need to get a human voice. If they only know you from that massive building next to the highway, they are probably not willing to help you.’
4.2 Production
The production stage consists of all the activities around the actual realisation of a product or service. In the production stage it is about the execution and production of the ideas into end products. Almost all examples of customer co-creation in the production stage start online (Staal, Woldberg). Successful examples of co-creation in the production stage are open source projects Linux and Wikipedia. In these examples customers take part in the actual production and have influence on the final result.
4.2.1 Consumer willingness
projects, like Linux and Wikipedia, money is not the stimulator to contribute. Money can complicate things (Staal). Involvement and sympathy for the brand are pillars for success with Linux and Wikipedia, and such involvement cannot be established by (only) contributing money. In these examples there is no visible director who makes millions of dollars (Staal). In these examples the success comes from a combination of relative advantage (better, cheaper product) and sympathy for the brand. These factors made people share their talent, most of the times for free.
Another aspect that fosters the willingness to participate is a shared passion/interest. Staatsbosbeheer4 cooperates actively with Dutch citizens to fulfil their activities. The driver for
participation in this case is most of the times a shared passion: nature.
4.2.2 Consumer ability
Since most of the co-creation projects where consumers co-create on the production level are online, consumers need a certain degree of technological knowledge (Staal). Technological anxiety influences the ability of consumers to participate. High levels of technological anxiety may lead to the avoidance of technological tools. According to Staal, technological anxiety is related to the demographic variable age. Younger people are more familiar with digital technology and are more used to online collaboration/ the use of computers. Older people are more difficult to involve in these projects because they lack technological knowledge about computers (Brands).
4.2.3 Company willingness
It is a challenging task for a company to allow consumers to the production process (Woldberg, Brands). Companies will be less in control as consumers have more influence on the final result and there is less standardisation and end control. As a consequence the perceived risk will be higher. As the perceived risk increases, the likelihood of trial decreases, which has a negative influence on the company willingness. An outcome of allowing consumers in the production process is that it is harder to achieve economies of scale.
Woldberg and Staal state that by integrating consumers in the production process, companies are better capable of mapping the needs of consumers. This may offer a competitive advantage.
4.2.4 Company ability
4Staatsbosbeheer is commissioned by the Dutch government and manages a large part of the nature reserves in the
It co-creation takes place in the production process, the company need to be ordered in a different way, there will be less standardisation. Flexibility is important, because a company needs to respond quickly on changing demands of customers (Brands, Staal, Woldberg). Co-creation in the production process mainly takes place online and because co-creation should be engrained in the roots of a company (Staal), most of the successful examples of co-creation are companies who have started online. Incumbents that operated in the ‘physical world’ have problems to switch to the ‘online customisable world’. Staal: ‘Organisations who co-create have to be organised in a different way and need another culture than traditional companies. Changing the organizational structure and culture is very difficult, that’s why many successful co-creating companies are new companies’.
4.3 Assembly
The assembly stage consists of offering a wide range of modular products where consumers can choose between and in this way consumers can optimise the fit between product characteristics and their own wishes. Consumers are not producing but have the possibility to choose a wide range of modular products which makes it possible to make their own (unique) personalised product. Examples of co-creation in the assembly stage are Nike ID and Dell computers, care and IKEA.
4.3.1 Consumer willingness
Consumers are willing to spent time to assemble their own product if there is a relative advantage. According to Staal, this advantage can be achieved by offering a product that will better satisfy the needs of the consumer or a better price (compatibility). Previous experience is also in this stage an important factor for consumer willingness. It is important to have experience with the assembly process. The previous use will increase perceptions of self-confidence and ability (Meuter et al., 2005). For services like Dell computers, where you can assembly your own personalised computer, customers will perceive a ‘first use barrier’.
4.3.2 Consumer ability
