Anita Eising, s1911546 Msc. Thesis IBM, June 2012 University of Groningen
Faculity of Economics & Business Supervisor: Dr. B.J.W. Pennink
Value Co-Creation in the Value Network
Executive Summary
Purpose – This paper is a contribution to the knowledge development of value co-creation in the value network. The purpose is to derive a practical and process based conceptual framework that guides firms towards value co-creation within the value network. The framework is based on the S-D logic.
Methodology – The explorative literature analysis is based on the S-D logic literature and the concept of value co-creation to formulate theoretical propositions. The extended case method is employed by explorative case interviews to identify concepts and factors and to construct a framework.
Originality/value – Literature suggests there is not a lot known by researchers and practitioners about the process of value co-creation throughout the value network. The academic gap compromises the clarity of the concept, and how to bring value co-creation into practice. Scholars find it is time to start with empirical studies on the topic of value co-creation. Some scholars have developed conceptual frameworks and models through theory and concept development which often lack empirical testing.
Findings – The process of value co-creation throughout the value network has been explored within this research. The framework guides firms to value co-creation as it sets three tactics which suppliers implement to increase the opportunity towards value co-creation. The concept of dialogue is the central concept of the framework as it is the method to come to value co-creation opportunities. To stimulate the opening of dialogue, firms take advantage of interaction moments and aim to enhance the interaction quality. Moreover, firms aspire to facilitate a positive relational experience with the purchasing actor. The proposed tactics and actions have the potential result of a unique experience of the purchasing actor, and the reverse, the vision of the unique experience stimulates value co-creation. The cases are generally supportive regarding the S-D logic and emphasise the interactional and relational aspects of the SD logic. The fundamentals of the value co-creation framework are based on these aspects. The findings illustrate that the S-D logic is an extreme approach and not all premises apply to the cases. As it concerns an explorative research, the research is an opening for future research.
Keywords: S-D logic, value co-creation, interaction, dialogue, value proposition, value network
Acknowledgements
Content
1. Introduction ... 4
2. Literature Review... 5
2.1 Value co-creation within the Service System... 5
2.2 Interaction in value creation ... 6
2.3 Relationship marketing ... 7
2.4 Process towards Co-Creation ... 7
3. Theoretical Framework ... 9
3.1 Quality of Interaction ... 9
3.2 Value offerings through co-creation ... 10
3.3 Relational Experience ... 11
3.4 Interactive supporting context... 12
3.5 Value co-creation context ... 12
3.6 Theoretical conceptual framework ... 14
4. Research Protocol... 14 4.1 Method Type ... 14 4.2 Data Gathering ... 15 4.3 Data Analysis ... 16 4.4 Transperancy ... 17 5. Case Descriptions... 18
5.1 WaterWatch: Value co-creation with intermediaries and institutions... 18
5.2 Ultimaking; Value co-creation with end-users... 19
6. Findings ... 21 6.1 Case Comparison... 22 6.2 Constituting a framework... 26 6.3 Narrative Analysis... 26 7. Conclusion... 28 8. Discussion... 29
8.1 Alignment with academic literature... 29
8.2 Limitations and further research... 29
1. Introduction
Value co-creation is a remarkable concept in the field of marketing. Recently marketing practitioners recognise the dramatic marketing change. The marketing approaches of creating awareness and likability make place for relationship marketing which is more customer centred. The customer plays a central role in creating product value and service value. This customer-centred marketing approach is called the service-dominant (S-D) logic. The S-D logic has been identified as a proper philosophical foundation for the progress of the service science the last decades (Vargo, Maglio, Akaka, 2008). This alternative logic embraces the thought that value is not created through goods and monetary exchange but through the exchange of ideas and opinions. This mutual input constructs the opportunity for the supplier and customer to create value together. Traditional marketing approaches have been proven to have diminishing effectiveness for organisations.
The traditional goods dominant (G-D) logic is a static approach. The value proposition of tangible exchange of goods for money plays a central role. The development of the service dominant (S-D) logic brings definition challenges for the concept value proposition since in this approach unidirectional communication gives way to reciprocal communication. The parties involved should be purposefully engaged in working together and learning together (Ballantyne, Varey, 2006). Vargo and Lusch (2004, 2008) propose that competitive value propositions are co-created with the customers. Thus, customers have to get actively involved with the development of value propositions. Therefore, the management question is: Within the S-D logic, how can firms implement the concept value co-creation to capture the market in a sustainable way?
Literature suggests there is not a lot known by researchers and practitioners about the process of value co-creation throughout the value network. The academic gap compromises the clarity of the concept, and how to bring value co-creation into practice. Scholars find it is time to start with empirical studies on the topic of value co-creation. Prior research is often based on theory and concept development which lacks empirical testing. This explorative research is the starting point of empirical testing by the extended case method. The two in-depth interviews with two key persons of value co-creating firms form the basis of the explorative research. The Dutch WaterWatch provides customers online and personalised satellite data services, while Ultimaking provides 3D printers through their webshop. Ultimaking approaches value co-creation through the open source approach. A functional framework can guide firms towards value co-co-creation and therefore clarify the process of value co-creation. The cases are analysed in the light of the premises of the S-D logic. The findings show there are three facilitating tactics to increase the opportunity of value co-creation. The framework has as core concept dialogue. If firms obtain dialogue, they have can translate the acquired information into co-created value propositions. Those are the value co-creation opportunities. The constructed framework guides firms by addressing specific actions to stimulate value co-creation. The framework supports the interactive and relational nature of the S-D logic.
2. Literature Review
In service science, the service dominant (S-D) logic is at the core of relatively new theories. The S-D logic is challenging the prevailing marketing thought and perspective (Ballantyne and Varey, 2006; Vargo and Lusch, 2008ab). The S-D logic implies that customers do not accept one-sided exchange as customers are active participants in co-production and relational exchanges. Customers require to be part of the service system by applying competencies as input during the exchange (Vargo and Lusch, 2004). Grönroos (2011a) argues that the expression of service dominant logic results in misinterpretations. Grönroos uses the term service-based dominant logic or service logic, since all types of resources transmit service and are used as service. Value is created by the application of competencies. To obtain a clear understanding of value the definition of Grönroos (2008: 303) is applied in this research: “Value for customers means that after they have been assisted by a self-service process (cooking a meal or withdrawing cash from an ATM) or a full-self-service process (having diner at a restaurant or withdrawing cash over the counter in a bank) they are or feel better off than before”. Value and value creation are significant concepts in the service science although those concepts remain to be rather elusive (Grönroos, 2011a). Within this research, the S-D logic is taken as research context as the process of value-creation is highlighted within the S-D logic.
2.1 Value co-creation within the Service System
The S-D logic does not describe two clearly separated roles for the supplier and customer but identifies a role convergence. In the traditional goods dominants (G-D) logic, the role of the producer has been viewed as the one who develops and delivers goods and services. The consumer is the one who consumes the product or the service after the delivery. The S-D logic argues that value is created by the two participants involved (Vargo and Lusch, 2004) at time of production and consumption. Value is embedded in the co-creation process between the customer and the supplier. The firm should be seen as participant within the value co-creation process on which the value proposition should be based. Fundamentally, the customer is always a value creator, rather than a value co-creator as Vargo et al. (2004, 2008) and Grönroos, (2011a) propose. Grönroos (2011b) finds the principle role of the supplier being a value creation facilitator. The supplier is a producer of resources which the customer can integrate in the process of value creation. This input is seen as the foundation for value creation (Grönroos, 2011b). Fundamentally, the firm is a value facilitator while the customer creates value (Grönroos, 2011a; 289).
In the S-D logic (Vargo, 2008), value is created by the merged inputs of distinct actors in the value network. The objective of value co-creation is to exchange knowledge of others to better one’s conditions (Lusch and Vargo, 2006). Grönroos (2011a; 285) says that the suppliers aim to supply input into the value-creating processes of the customers. In return, supplier expects input of the customer in a reciprocal way. Prahalad and Ramaswamy (2004a) define the concept of co-creation by many features of the phenomenon such as the joint creation of value instead of a customer focus. The product value is determined by the one who benefits the value, often the customer. Customers need the supplier’s facilitation to co-construct the service experience applicable to their context. According the S-D logic, value is always co-created, jointly and reciprocally, and communicated among providers and beneficiaries. This process takes place when a consumer consumes or uses a product or services. Lusch and Vargo (2006) emphasise that the supplier and customer have the opportunity to create value together through customised and co-produced offerings. This thought is contradictory to Payne et al. (2009), who mentions that value is created from product design to consumption. Earlier research by Ballantyne and Varey (2006) argues that in the time-logic of marketing, exchange becomes open-ended. This means that marketing, and thus value co-creation, does not follow a predetermined time line. Therefore, value may be created from pre-sale service interaction to post-sale value-in-use.
value. It is not the possession that creates value but the consumption outcomes, such as the home creating emotions IKEA decorations cause while furnishing a house. Prahalad, Ramaswamy (2004a) suggests that value creation is embedded in personalised experiences. The customer may invite the supplier to participate in the customer valuation process. The customer no longer acts as a passive recipient but operates as an influential actor (Grönroos; 2000, Prahalad and Ramaswamy; 2000, Vargo and Lusch, 2004). The customer decides what a product or service means to them, and what role it plays in their context. A physical object or a service does not have value until the customer encloses the object or service within the value creating activities (Grönroos, 2011). To successfully co-create value, a recruitment firm needs input of the business client such as candidate requirements and job interviews with selected candidates by the HR manager. This can be called the consumption phase. Without the input of the business client, the value-in-use is lowered. Supplier processes facilitate customers in the value creating processes. The supplier processes may be part of value creation when customers are involved in such activities. These contrasting perceptions of Grönroos, Ballantyne et al., Ramaswamy et al. and Payne et al. do not provide a consistent vision in the value co-creation literature. These contradictory perceptions suggest the need for further investigation of ‘when’ value is created.
According to Payne et al. (2008, 2009), the key to value co-creation is the engagement of both parties in dialogue and interaction during product or service design, production, delivery, and consumption. Co-creation is not about the mass customisation of offerings, which suit the industry’s supply chain, but about the individualised joint problem definition and problem solving. Value co-creation assists the firm to identify customers’ needs and wants and helps firms to look from the consumers’ point of view. In this context, researchers often use the term co-creation to describe the customer-supplier dialogue and interaction (Payne et al., 2009). After evaluating the view of different scholars, this research is able to define conceptually value co-creation within a general value co-creation context. Co-creation is desired to enhance the value the customer experiences. Nevertheless, the customer decides whether or not to invite the supplier to co-create value. Therefore, value co-creation is the value creation process, enabled by the customers’ invitation to the supplier, in which customer and supplier are better or feel better off by reciprocal participation. It embraces the value experiences of joint problem solving, involving the customer and supplier, through different value creation phases without any predetermined time logic’. The absence of time logic implies that there is no strict supplier to end-user value chain.
2.2 Interaction in value creation
capability. Interaction is an important construct within value co-creation as it is “a mutual or reciprocal action where two or more parties have an effect upon another” (Grönroos, 2011; 11).
2.3 Relationship marketing
The importance of interaction may indirectly imply significance of the relationship between suppliers and purchasing actors. The relationship with the customer is essential for value creation within the S-D logic (Grönroos 2011a). The firm and customer are not separated entities but are co-operative. Value creation is interactive of nature. Whenever there is interaction, a relationship exists. Therefore, value co-creation must be studied in a relational context (Vargo and Lusch, 2008, Hougaard, Bjerre, 2009). These scholars presume that the value of relationships is larger than the value of exchange. “Marketing means to establish, maintain and enhance relations with customers in a profitable way to accomplish the objectives of both parties through the reciprocal interchange and keeping of promises” (Hougaard, Bjerre2009; 18). Services have to be inherently customer oriented as value cannot be created in any other way than jointly with the customer. A customer orientation is not artificial, but a customer orientation is natural in the S-D logic.
Marketing is not only about satisfying the customer but must be beneficial for suppliers. Therefore, the term reciprocal value creation is applicable. Reciprocal value creation is about ongoing relationships among market actors. Vargo and Lusch (2008; 8) support the importance of relationships in the concept of value co-creation by proposing the foundational premise (FP8): A service-centred view is inherently customer oriented and relational. Relationship marketing is a relative new discipline, but it seems to enhance the ability to co-operate successfully and co-create value among the supplier and purchasing actors (Karpen, Bove and Lukas, 2012). Not all customers are end-users which is often forgotten in the academic world. According to Gummesson (2008), scholars should accept that marketing is complex which suggests complex relationships.
2.4 Process towards Co-Creation
The S-D logic proposes that value begins with the understanding of the customer value-creating processes and with the discovering how the supplier can support customers’ co-creation activities (Payne et al. 2009). The exploration of value co-creation raises many questions (Grönroos and Ravald, 2011) as scholars do not present consistent findings through concept development. Scholars emphasise there is relatively little known about the way how the customer engages in the co-creation of value (Payne, Storback, Frow, 2008, Bolton, 2006, Schrage, 1995) and the process of value creation (Grönroos, 2011a). The importance of mapping processes towards value co-creation is recognised in the marketing literature (Webster, 2002; Prahalad and Ramaswamy, 2004, Vargo and Lusch, 2004, Ballantyne and Varey 2006). In fact, Vargo and Lusch (2004) argue that marketing is as a set of processes and resources, which are used to create value propositions. Those processes embrace procedures, tasks, activities, mechanisms and interactions. One of the focus areas of international marketing includes framing the processes involved in value co-creation. This process-based research establishes a better basis on which to build managerial decisions.
cope with interactions to positively influence the customer experience. The proposed conceptual model of Payne et al. (2008) is abstract, and the process map seems to ignore relational experiences. The development of an in-depth conceptual and process-based model has additional academic value.
Ballantyne and Varey (2006) developed another value co-creation model based on the exchange principle. This model is abstract, but does include the interactional and relational aspect of value co-creation. Furthermore, it does embrace the concept of knowledge renewal which implies the generation and application of knowledge. Their reflections led to the construction of a triangulated model of value creation. According to these scholars there are three enablers of value creation: “knowing through knowledge renewal, relating through relationship development, and communicating through dialogue and other forms of communicative interaction” (2006; 342). This model is a reflection and needs to be tested with an explorative approach to verify the correctness of reasoning. Frow and Payne (2011) support the idea of developing further the proposal of Ballantyne et al. (2006).
Figure 1: Value co-creation model Ballantyne and Varey (2006)
The academic gap on the topic of value co-creation compromises the clarity of the concept and how to bring it into practice. Little is written about the reciprocal value proposition obtained by co-creation. The service dominant logic is a topic which already has the attention for some 50 years. In contrast, the reciprocal value proposition and thus value co-creation, is a recent academic topic. Researchers and marketing managers tend to comply with the good dominant logic.
The literature is strangely silent regarding the nature of co-creation for stakeholders other than end-users such as intermediaries (Frow, Payne, 2011, Sarker, Sahaym, Bjorn-Andersen, 2012, Vargo et al, 2008). Every business has encounters with various stakeholders other than end-users. Ballantyne, Frow, Varey, Payne (2011) say that more research is needed about the practical implication of the value proposition on stakeholder network level and segment level. Lately Vargo and Lusch (2008, 2011), Frow and Payne (2011) extend their work to a stakeholder approach and recognise the need for such an approach. The former scholars find that value propositions have a key role in co-creating of value among stakeholders.
from this kind of research method to avoid biased results from the abstract theory which is not firmly grounded by preceding scholars. The following rather practical research question has been developed:
From a firms perspective, what should a process-based framework look like to guide firms towards value co-creation within the value network?
Fisher and Smith (2011) underpin that the new marketing approach is very different from a balanced and controlled process. This means that the control and predictability by firms is limited. Therefore, the focus of this research is on how the firm can facilitate and stimulate value co-creation rather than the traditional marketing control of how to control marketing. The next step in this research is the development of a theory-based design of a conceptual framework. The development of such a model is theory-based on existing literature related to value co-creation. Literature research is directed by the prior formulation of research questions presented in the research protocol in the section Data gathering.
3. Theoretical Framework
The following literature functions as a guide towards the identification of concepts. The literature leads to the formulation of the theoretical propositions, which constitute the development of a theoretical conceptual model. The formulation of research questions (section Data gathering) and the formulation of in-depth questions (Appendix 3) facilitate in outlining the topics of interest.
3.1 Quality of Interaction
Echeverri and Skålen (2011) use the perspective of practice theory in which the point of departure is the interaction itself. “Interaction is the locus of co-creation of value and economic value extraction by the consumer and the firm” (Prahalad and Ramaswamy, 2004a; 11). Customers are requiring either differentiated or cost efficient products and services. The firm must not place itself in the centre of business but must obsessively focus on the consumers and personalisation with them. This new focus provides firms the opportunity to co-create value and differentiate with other suppliers (2004a). According to Prahalad and Ramaswamy, high quality interactions make firms competitive. The unique experience which interaction creates is key to success. Value co-creation is about the personalised interaction in a way which each single individual wants to and in which all points of interaction are critical to achieve success. The ultimate marketing concept is one-by-one marketing (2004a; 11). Customers require individualised experiences and personalised offerings, which is linked to the hunt for authenticity (Fisher and Smith, 2011). For the this reason, companies need to develop the ability to identify the desired outcomes of individual customers, which infers an understanding of the resource integration processes (Karper et al., 2012). Echeverri and Skålen (2011) find there are a few practices forcing interaction.
Proposition 1: Interaction is forced by the practices of informing, approaching, delivery, charging and helping. Proposition 2: The quality of an interaction is determined by personalisation which creates a unique experience. Echeverri et al. (2011) find that value creation has the goal to achieve an intuitive understanding of co-creation experiences to co-shape customer expectations and experiences. Suppliers need to have active and rich dialogue with consumers to learn from their customers and acquire information about them. The roles of the supplier and the customer converge by interaction. These new defined roles demonstrate that the market resembles a dialogue platform in which knowledge is exchanged. It is important to realise that co-destruction of value is a significant feature since supplier and customer are also competitors (Echeverri, Stålem, 2011).
product or service. The desired value may lead to the customer involvement in co-creation, but firms need to facilitate and trigger this customer involvement. According to Prahalad and Ramaswamy (2004a), firms facilitate customers to communicate about the desired value through extensive dialogue, granting access, making them share the risk, and providing transparency for their actions. “Dialogue offers a route for understanding and effectiveness that goes to the heart of human beings - the meanings we make and the thinking and feeling that underlies what we do, individually and together.”(Isaacs,1999;12). Prahalad and Ramaswamy (2004) and Fisher and Smit (2011) find dialogue an important factor of interaction. This view is supported by Isaacs as he mentions that firms should not think individually but have to think jointly with the actors in the environment. Individualism is embedded in the society and therefore it is hard for organisations to implement dialogue. Dialogue implies interactivity, deep engagement, and the ability and willingness to act on both sides (Prahalad and Ramaswamy; 2004). Joint problem solving is key in this context. Therefore, it is necessary understand how to get customers engaged in a dialoguing role. Isaacs mentions that dialogue cannot be enforce but one can create conditions to enable dialogue. Dialogue may be restrained by the fact that consumers do not always have access and the transparency to information of the firm Fisher and Smit (2011). In turn, dialogue, access, and transparency lead to the improved ability to assess risks and benefits of the consumer purchasing a certain service or product. Alexander and Jaakkola (2010) find by a case study that access, empowerment, dialogue and ownership are stimulators towards co-creation in a service ecosystem. Proposition 3: The quality of an interaction depends on the interactivity and the engagement level of dialogue between two willing and enabled actors.
Proposition 4: The quality of dialogue is related to the access, transparency and risk/benefit assessment the two actors involved provide.
Proposition 5: Dialogue leads to value co-creation. 3.2 Value offerings through co-creation
Customers and suppliers co-create value propositions initiated by one actor in the network. According to Ballantyne and Varey, value propositions are “reciprocal promises of value, operating to and from suppliers and customers seeking an equitable exchange” (2006; 334-335). Suppliers are value proposing actors who cannot create value for other actors but can make offers (Vargo, Lusch, 2011). Customers are active players in the marketplace in which value is formulated and coordinated (Alexander, Jaakkola, 2010). Other scholars find that customers create value propositions by their construction of customer value (Fyrberg, Jüriado, 2009, Grönroos (2011a). The service provider has the opportunity to contribute to customer’s value fulfilment (Grönroos, 2008). Customers are in charge of value creation by the notion value-in-use, and the service provider is invited to co-create value with the customer. This rejects the FP 6 (Vargo, Lusch, 2004) that the customer is always a co-creator of value. Customers always create value and the supplier co-creates value. Prahalad and Ramaswamy (2004a) say consumers want to interact with firms and consequently want co-create value. Value propositions are included in the S-D logic, but are open to dialogue and are co-created with the customer. The co-created value outcome is unique to the beneficiaries’ situation and context. Service systems are connected through the proposition, acceptance and evaluation of value (Vargo and Lusch, 2008a). A value proposition explains the way an actor may use its resources (Vargo & Lusch 2008b).
engagement is dynamic (Prahalad and Ramaswamy, 2004a). This means joint value creation may occur during service development, design, manufacturing and delivery. In other words, a customer may become co-designer, and as a result the supplier becomes value co-creator in the customer value creation process.
Proposition 6: To get invited for co-creation with the customer, the supplier must open the initiating value proposition for dialogue.
Proposition 7: The initiated value propositions leading to value co-creation may include co-creation opportunities like co-design, co-development, co-production and during consumption.
3.3 Relational Experience
Grönroos (2011b) mentions value co-creation can only occur when there are direct interactions between the firm and the customer. The interaction quality is of great significance and is influenced by relationships between the employee and customer, as well as among customers. Building a relationship is of great significance to obtain value co-creation. Karpen et al. (2012) propose that firms should be capable to connect socially and emotionally with actors in the value network. “The supplier’s role is one of providing experiential interactions and encounters which customers perceive as helping them utilise their resources” (Vargo and Lusch, 2008; 87). When suppliers once shift their practices to relationship experience their focus can shift from marketing communications to seeking dialogue with customers to support their experiences.
One encounters the inter-organisational relationship and the interpersonal relationship, Lusch et al. (2010) support this view. Individual actors have a significant impact on inter-organisational relationships since personal ties may have either a positive or negative effect on firm-level outcome (Haytko, 2004). Newman and Gudergan (2005) propose that interpersonal relationships comprise commercial (individual-to-individual business relationship) and personal (individual-to-individual friendship) driven by similarity, liking, interpersonal trust and interpersonal commitment.
Proposition 8: The quality of an interaction is determined by the experiences of inter-organisational and interpersonal relationships.
Hougaard and Bjerre (2009;20) argue that exchange is the precondition of interaction which refers to social contact by personal communication. Interaction makes industrial relationships complex and difficult to change. In turn, interaction between the supplier and the customer may lead to integration which means that both parties rely on a joint problem-solving strategy. The supplier and the customer need to have a co-operative strategy regarding purchasing and marketing to establish integration. Those strategies lead to interdependence between the two parties involved (SØrensen, 1997), which presumes mutual trust and the inclination to optimise the relationship.
Proposition 9: On an inter-organisational level, a positive relational experience is formed by a joint problem-solving strategy.
Proposition 10: On an interpersonal level, relationships consisting of similarity, liking, interpersonal mutual trust and commitment positively influence the quality of interactions.
3.4 Interactive supporting context
Prahalad and Ramaswamy (2004a; 8) find that co-creation experiences are the basis of value. Successful companies implement the concept of the personalised co-creation experience. This concept does not imply mass customisation. The personalised co-creation experience implies the personalisation by advancing individualised interactions and experience outcomes. These scholars (2004b) argue the focus of the firm must be on innovating experience environments that facilitate diverse co-creation experiences. Customers need to be able to have an active and continuous dialogue with the firm. Prahalad and Ramaswamy (2004ab) believe that co-creation opportunities are created by the networked, active and informed consumer and consumer communities. New communication technologies decentralise the flow of ideas and information. Customers are enabled to obtain a high level of connectivity and interactivity, especially among one another. (Fisher and Smith, 2011). Consumers and consumer communities can initiate a dialogue among themselves as Prahalad and Ramaswamy (2004ab) mention. These scholars find that consumer communities support dialogue among the firm and the consumers as information about the firm, product or service becomes more accessible. Community networks are hubs for marketing information. Firms have to consider that the communities provide not only functional product information, but communities are important for members to obtain the social experience of connectivity and interactivity (Fischer and Smith).
Proposition 11: A firm may facilitate experience environments to help actors to create unique experiences. Proposition 12: (Virtual) consumer communities enable dialogue between supplier and purchasing actor and therefore enhance interaction quality.
3.5 Value co-creation context
It is worthwhile to understand the environment in which value is created, as in this environment various actors are present who jointly create the context in which value gets its collective and individual assessment. Businesses should focus on a system approach instead of a supplier-customer approach to include relational considerations. To observe how a single actor can participate in value co-creation, one must study the context in which more generic actors influence the behaviour of the single actor and the service system. This context includes the networks of resources and resources-providing actors (Vargo, 2009). The usefulness of one particular resource is moderated positively or negatively by other sources. Therefore, the value creating context is of enormous significance (Vargo Lusch, 2010).
Interaction Supplier-Customer Charging Helping Informing Approaching Delivery
Supplier
Consumer Community
Actor C Actor B Actor AFigure 2: Theory based Pre-Design of Conceptual Framework
3.6 Theoretical conceptual framework
The propositions form the basis to establish a theoretical conceptual framework (Figure 2). The point of departure is the interaction itself as encounter moments between the supplier and customer may lead to value co-creation. According to proposition 1 (P1), interaction occurs through the practices of informing, approaching, delivery, charging and helping.
The co-creation experience environment is directly influencing the interaction moment and vice versa. It is important to note is that the co-creation experience occurs during customer’s value creation process. The experience environment is formed by the quality of interaction and vice versa. The quality of interaction is determined by the level of personalisation of interactions (P2), but also depends on the interactivity and the engagement level of dialogue between two willing and enabled actors (P3). Two actors influence the experience environment: the supplier and the purchasing actor. A firm facilitates the experience environments by helping actors to create unique experiences (P11). There is a consumer community motivating dialogue and enhances interaction quality (P12). The customer community forms the value co-creation context. Within the interactive context it is important to identify various actors, thus various purchasing actors, and how they relate to one another. Knowing who your customers are, and how they are related gives insight in value-creation opportunities (P13).
To obtain value co-creation opportunities, suppliers and purchasing actors need to be jointly engaged in dialogue to benefit optimally of interactions. There may exist an experience environment but without dialogue and a positive relational experience, no co-creation opportunities can emerge. Therefore, one may conclude that dialogue leads to value co-creation (P5). The quality of dialogue has to be of a high standard to obtain value co-creation. Accordingly the literature, the quality of dialogue is related to the access, transparency and risk/benefit assessment the two actors involved provide (P4).
Together with dialogue, a positive relational experience forms the link between the concept of experience environment and the concept of co-creation opportunities. There are two types of relationships which are linked to the quality of interaction: inter-organisational and interpersonal relationships (P8). One can state that on an inter-organisational level, a positive relational experience is formed by a joint problem strategy (P9). On an interpersonal level relationships consisting of similarity liking, interpersonal mutual trust and commitment influence positively the quality of interactions (P10).
The supplier must be invited by the customer within the customer value process to enable value co-creation. Therefore, the supplier must open the initiating value proposition to obtain dialogue (P6). These initiated value propositions may be based on creation opportunities as design, development, co-production and during consumption (P7). The next section elaborates on the methodology of testing, reformulating and refining the formulated propositions and the framework.
4. Research Protocol
The aim of this study is to expand the amount of knowledge of value co-creation from the supplier’s perspective by an explorative research with explanatory elements. The purpose of the research analysis is to draw a practical and process-based framework to guide firms towards value co-creation. This framework should be suitable for distinct purchasing actors such as end-users, intermediaries and institutions. The unit of analysis is the process towards value co-creation between the supplier and the customer. The phenomenon of value co-creation is studied among the defined actors within the product and services industry.
4.1 Method Type
explorative method with the use of two unique cases to extract the general from the unique (Michael Burawoy; 1998). The two cases which are analysed thoroughly since the cases inherent the two marketing approaches: the goods dominant (G-D) logic with the goods for monetary exchange and the services dominant (S-D) logic focused on relationship marketing.
The aim of this study is not to produce generality but to reconstruct theory by reflective science application. This research searches to reject existing theories or to place existing theory within a context. This case study violates the reactivity, reliability, replicability and representativeness of positive science. The researcher acknowledges the context effects of intervention by researcher’s participation which influences the interviewees and their situation. The findings are influenced by the inherited processes within the interviews. The interviewees place their own mark on the findings by the interpretation of the interview questions and the willingness to disclose to the interviewer. The positive science principle of replication is thwarted as the fast moving field of marketing cannot be held constant. The extended case method is an appropriate method to study a contemporary event without the need to control behavioural events. The uniqueness of the cases provides insight in value co-creation related to the external environment. Researchers who employ a case study methodology experience validity concerns as the academic world is critical about the validity of case studies. This is partially caused by researchers who are not working systematically. In this research the researcher chooses to follow the procedures of grounded theory development (Boeije, 2005) which concerns coding, categorising and conceptualising. Memoing supports the transparency of the line of reasoning, decision-making and concluding. To enhance the validity and reliability, this research contains a questionnaire to validate the findings. The theoretical data-oriented audit trail (Appendix 2) provides an overview of the data gathering and validation.
4.2 Data Gathering
The theoretical conceptual framework (Figure 2) is based the propositions which are found during the literature review of co-creation and interaction (Appendix 1). The framework states under which conditions the value co-creation is likely to be found (Yin, 2009). The identification of the concepts and factors is achieved through the protocol of theory building. The section Data analysis elaborates on the procedure. The audit trail (Appendix 2ab) illustrates the data gathering and analysing process.
Research questions are formulated to explore the topic of value co-creation related to the selected stakeholders. The propositions drawn from the literature review have an important share in the formulation of interview questions.
How may interaction lead to value co-creation between a firm and customer? How can value propositions be framed within value co-creation?
How can a firm create a supporting context for value co-creation which stimulates the actor (consumer) to invite suppliers in the value creation process?
How to frame the factors which may lead to dialogue among customers and suppliers? How to implement interaction tactics which may lead to value co-creation?
How can actors other than end users be framed in the value network?
value co-creation is the core of the business. Value co-creation is approached through interactions and relationship building. The interviewed person is Patrick Sheridan, chief marketing. The second case firm, ‘Ultimaking’, develops, produces and sells 3D printers. It is a young firm selling worldwide through the Internet. There is an established community passionate about 3D printing beyond the firm. The interviewed person is Erik de Bruijn, co-founder of Ultimaking and experienced in the open source environment. Value co-creation helps Ultimaking to develop products and to keep the support of the community. The two cases are chosen as they use distinct approach of value co-creation and because of their uniqueness. The interviewed persons have different educational and company backgrounds which allows for obtaining data from different points of view. The first data collection sessions took two hours, whereas the questionnaire was completed in a shorter time. The interview is guided by prior formulated questions. Nonetheless, the interview was open for further in-depth questioning to detect interesting concepts of which the interviewer took advantage.
The two case interviews in Appendix 6 and 9 identify whether or not the theoretical set of propositions hold. The two interviews shed light on new concepts and factors identified through coding and memoing, which are added in the propositions. The cases show other concepts and factors to be of more importance than literature examination presents. The set of findings forms the basis for the final framework (Figure 3). The validity of the findings is tested through questionnaires. Thus, the questionnaire represents the findings gained through the analysis of the interviews. The interviewees had the opportunity to justify their choice and to give feedback on the proposition. All data, including the interviews and follow-up questionnaires, was collected during a time period of four months.
4.3 Data Analysis
Egan (2002) describes several steps in the process of data conduction: initial coding, coding application, and coding comparison and revision. Coding involves three components (see Appendix 2b). The first step is the naming of observations by having interviews recorded or written down. Then the observations have to be condensed into analysable segments (Hesse-Biber, Leavy; 2010), which can be called open coding. The coded text segments have to be sorted by similarity once having finished open coding. Observations are compared which results in a discovering pattern. The pattern leads to the established codes. This phase is called axial coding. These codes develop themselves into more focused codes since an on-going data analysis process is employed. The goal is to generate analytical concepts. Coding proceeds by the employment of selective coding, which includes the process of combining codes of the two cases. This coding phase has the purpose to “select the core category and systematically relate it to other categories and filling in categories that need further refinement and development” (Boeije, 2005; 96). Selective coding is about bringing structure in the obtained data. The researcher checked for linked codes and modified codes. After each coding phase, a code tree is developed to gain a more structured overview (Appendix 7-8, 10-12),.
4.4 Transperancy
Quantitative criteria are often applied to qualitative research as quantitative research dominates the academic world. The methods of quantitative research are inappropriate within the field of qualitative research although the criteria for constructivist qualitative examination are parallel to the conventional criteria. In the last decades, distinct criteria of validity have been developed. The criteria are derived specifically from issues quantitative research is exposed to (Thomas, 2006): truth value, applicability, consistency, and neutrality. From a constructivist approach, the issues are assessed by four qualitative criteria: credibility, transferability, dependability and confirmability (Guba, 1981). Guba argues that those issues need to be assessed by appropriate means. Appendix 14 gives an overview of how the criteria of Guba are employed within the research (Shenton, 2004).
Transferability includes descriptions of the number of organisations studied, restrictions by type of people, the number of participants involved, the data collection methods employed, the number and length of the data collection sessions and the time period in which the data was collected. These descriptions are given in the research protocol. The same holds for dependability and confirmability. For the former, the research protocol describes and elaborates on the research design and its implementation on strategic level. Furthermore, a detailed description about the data gathering is given. The latter, confirmability, contains more tactics to ensure trustworthiness including the explanation of why the chosen research approach is favoured. Preliminary theories, not born out of data but out of the literature study, are discussed in the discussion part. The methodological description is supported by audit trails to present the steps, decisions and procedures chosen.
Yin (2009) recognises that case studies require some quality tests of the research design due to the trustworthiness and validation issues critics mention. Yin (2009) provides four tests which are relevant to case studies, and establishes some unique tactics to cope these tests. Those tests are closely related to the tests required by quantitative criteria (Thomas, 2006). Multiple sources of evidence are used for the construct validity. A chain of evidence is established and maintained. The key informants review the propositions after data analysis through questionnaires. To enhance internal validity pattern matching is verified through the application of grounded theory building, which infers to coding. Explanation building is internalised through identifying a third factor (e.g. dialogue), where applicable, which may influence the correlated relationship. Negative cross case results are carried out by explanations. Memoing supports explanation building. Logic memos are used for the internal validity, which is a form of pattern matching. The conceptual framework drafted facilitates to identify how concepts and processes are linked. The external validity is increased by using theory of prior research results. Two cases broaden the study. Furthermore, the case study database, which includes for example the interviews, the coding documents, memos and coding trees, enhances the reliability of the investigation. The use of a research protocol ensures the structured manner of working during the research.
5. Case Descriptions
To examine the theoretical set of propositions, and thus indirectly Figure 2, two interviews are held with distinct firms. The interviews are based on the key concepts of the research questions. The key concepts include: interaction, dialogue, value propositions, relational experience, and supporting context for interactions (Appendix 3). To structure the case description, the template of Straus and Corbin (1998) is used to define the context, conditions, tactics, actions and consequences. It is straightforward to examine when and how value co-creation takes place with this template.
5.1 WaterWatch: Value co-creation with intermediaries and institutions
WaterWatch co-creates value by the co-construction of value propositions with a personal approach. It focuses on co-created value propositions and value co-creation by value-in-use. The company depends to a large extent on intermediaries and institutions and does not sell directly to end-users of the satellite data services. An understanding of the value network enables WaterWatch to position itself strategically in the value network. The in-depth analysis of the value network helps to detect what value the company can deliver to the intermediaries. It facilitates to understand what value the intermediary
needs and wants to deliver to the end-users. Several interaction moments are recognised: selling, delivery, customer services and the pre-sales phase. The pre-sales phase is categorised as an important interaction moment as it facilitates to identify purchasing actor’s needs and in this phase expectations are formed. In the selling phase, the sales representative needs to convince the customer about the solution for their problem and to enhance the sense of urgency. The product benefits
are presented. The firm and the customer need to have aligned objectives regarding the benefits of the product. The interviewee mentions that the implementation of personalised interaction through direct communication and personal contact is of great significance. This personalised approach aims for a high customer involvement by specific problem solving and active listening to the customer. Personal contact with the customer appears frequently as an important factor as it stimulates the exchange of customer information. Personal interactions facilitate to identify the personal and underlying true need of the customer.
Personal interaction is believed to enhance the relational experience. A personalised interaction is believed to be the core competence regarding business relationships. Relationship documentation helps to maintain the relationship at a personal level. As a personal customer approach is an intensive method to interact with the purchasing actor, virtual communication tools may be used in the future. It may facilitate to reach a broader public of purchasing actors and stimulates the exchange of ideas and opinions among actors. The company is dependable on marketing their product. Some criteria are set during the prior market research such as sense of urgency. Eventually, the attractiveness of the market is determined by firm’s experience and personnel experience and interpretations. The intermediary gives input and feedback about a particular market. It is a positive consequence of value co-creation between the supplier and purchasing actor, enforced by targeting the right market. The marketing is based on the company goals. The supplier’s goals are attractive for the intermediaries. The interviewee strongly advocates the importance of trust in relationships. A sustainable business relationship is based on trust. Trust reduces risks associated with business relationships. No information is disclosed to the supplier without trust from the purchasing actors. To establish trust, the purchasing actors are approached with sales persons with an authentic personality. Experience of prior and actual customers are proof of validity and influence trust. Mutual dependability and mutual commitment strengthen the reciprocal trust. Furthermore, it is important to have knowledge of the background of the purchasing actor. To establish trust the company creates company accessibility and transparency. It is important to meet actor’s expectations as it influences the state of the relationship. The supplier can affect expectations by the informing and specifications. The firm attempts to align expectations by exceeding the expectations of the purchasing actor. Customers’ expectations vary by customer segments. It turns out that under-promising is better than over-promising in the long run. Dialogue is acquired through personal interaction and a personal relationship. It obtains the necessary customer information to provide a co-created value proposition. This value proposition includes involvement in product design, product development and the value co-creation in terms of value-in-use. The co-created value
proposition contains the process towards an ongoing practice of value co-creation in which joint-problem solving is one of the main concepts. The supplier not always initiates a value proposition. The customer can start with product requirements.
5.2 Ultimaking; Value co-creation with end-users
Ultimaking co-creates value through product co-development, product co-design and co-production. The most important focus is the open source approach which is based on sharing product information, ideas,
experiences and developments. Ultimaking aims to engage in value co-creation during consumption as well. The company sells directly to the end-users. The interviewee acknowledges the importance of the 3D printing community as the firm’s founders were active in the community before setting up the company. Ultimaking receives a lot of support from the 3D print community. The interviewee identifies the following interaction
“…just make it, value co-creation, an integral part of your value proposition… you don’t only deliver a product; you also deliver a process that will help your partner grow his business.”- Case 1 (sic) “Trust: I will not tell you much about my
moments with the end-users: selling, payment, delivery, customer services and additional purchases. The most important interaction moment is the pre-sales phase. This is the moment for needs identification and as a supplier it is possible to influence customer’s expectations. It is a creation point for future interaction opportunities. Customer service functions not only as customer assistance when purchasing actors experience a problem related to the product, but it also functions as a communication channel for feedback and value co-creation. The level of personalised interaction with purchasing actors depends on selectivity criterion. Involved customers are approached
more personally. Conversely, the interviewee considers reaching more customers personally by carrying out the idea of customer cluster adoption. There are many communication channels to achieve interaction between the customer and the firm. Different channels target different segments. The channel choice is related to the customer’s involvement and activity within the open source approach. The companies consider channel enforcement to obtain centralised communication control. The quality of interaction is influenced by the community. Interaction among purchasing actors influences the interaction quality between the purchasing actor and the firm. This influence can be positive when the firm has obtained a status within the community and holds a superior position. It is not only the position one holds within a community, but also the way one participates within that community. The exchange of knowledge is stimulated through the firm’s approach of knowledge sharing. Through the open source approach of disclosing product designs and software coding, Ultimaking enables the community to take part in product development or personalisation of the Ultimaker. This invites the purchasing actor and the community to share knowledge. Coding this abstractly it is called transparency and enables purchasing actors to participate in value co-creation. Transparency can be created by sharing firms’ resources information.
The firm aims to provide the purchasing actor a positive relational experience, next to a high interaction quality. Reciprocal relationships enhance the relational experience. It is essential to address customers with an appropriate approach to identify the needs of the customer. Reciprocal relationships are interactive of nature which means they are based on giving and receiving of information and knowledge. Mutual sharing helps to build reciprocal relationships. The firm favours a customer-supplier approach to establish a reciprocal relationship. It is important to create a sharing atmosphere by participation options in the open source environment. In customer relationships it is better to under-promise and exceed expectations. Mutual benefits are of great significance to develop a positive relational experience. Giving and receiving are conditions to enable mutual benefits. It shows that the open source approach creates a sharing atmosphere where everyone can take part in the firm’s value creation part. Open source means that the product design is open for everyone, it suggests that transparency helps to obtain benefits for both parties. Ultimaking sends a clear message about sharing, especially with the open source approach. A clear message explains the open source message of sharing. If communication lacks, customers may get confused and have the idea that the relationship lacks fairness. Mutual interests facilitate to build a positive relational experience. Mutual interests lead to the mutual understanding of value co-creation. Both parties want to have the best output. The parties have a feeling of similarity and are interested in the same thing. A shared interest fuels the willingness to participate in product improvement or product development. Mutual respect is obtained by sharing the same interest and it is built by interactive participation. Active participants need to have the feeling that the firm values and respects their participation.
Dialogue is the outcome of interaction and a good relational experience. The community, among other communication channels, is a value creation instrument for Ultimaking as it facilitates interaction between the firm and the
“…in a personal situation people don’t want to be friends with the whole world. With a company that’s not different. So as a company you also select people with who you can get more involved with, not necessarily everyone”- Case 2 (sic)
customer, but also among customers The community helps the firm to detect problems, which customers experience. As participant, the firm is more open to receive either positive or negative feedback. Customers provide directly ideas regarding product development or product improvement and are enabled to provide indirectly ideas by communicating about their needs. Another useful function of a community is the technical help it provides among customers. Moreover, a community functions as a creator of trust and enthusiasm between the supplier and purchasing actor and among customers. Prior customer experiences guarantee a valuable product. Customers sometimes offer free product promotion by mentioning and discussing the product within the community. A community helps to create enthusiasm by its interactive nature. Dialogue stimulates actors to exchange ideas and opinions among one another.
The general open source value proposition constitutes the value co-creation opportunity. Open source means that product designs and codes are available free of charge for the general public for use and modification. This open source value proposition is started by the firm but during implementation customers initiate derived value propositions. This enables customer involvement by giving the opportunity to participate in design, development and production. The open source value proposition is not only directed at value co-creation between the firm and the purchasing actor but also among customers. Value co-creation institutes the exchange of ideas and opinions to detect needs and to share knowledge. Sharing knowledge is not only about the product itself, but also about the product use called value-in-use. Next to the open source approach, value co-creation is also integrated in the co-created value proposition. This value proposition includes involvement in product development and the value co-creation through value-in-use. The customer can invite the firm or the peer customers to get involved in the product valuation process. In the consumption phase, the customer co-creates value through the use of the
firms’ and peer print designs. This can be called the value-in-use. The supplier not always initiates a value proposition. The customer can start with product requirements. In other cases, value co-creation is based on how and what is offered by the supplier.
The customer must invite the supplier to co-create value. Value co-creation gives the participant a unique experience. This unique experience is created by giving the participant the feeling of literally creating value by one of value co-creation opportunities. The other way around, one stimulator for the value co-creation is by granting the customer with a unique experience. Value co-creation is a unique experience since it is a shared experience, either between the firm and the customer or among customers. It is the emotion of similarity and sharing. Value co-creation awards customers with pride, recognition and the
feeling of actually pioneering the technology of the future: 3D printing. A unique experience may be the result of the customer’s web experience as well.
6. Findings
The cases are compared and result in the findings. The findings are analysed in the light of the S-D theory. The results are related to the two marketing approaches: the goods-dominant logic and the alternative service-dominant logic of Vargo and Lusch (2004, 2008). The case descriptions illustrate to what extent the marketing exchange shift applies to the cases and value co-creation. The distinct coding phases and the method of
About value co-creation: “It becomes a shared experience. And also they can have pride in it because we accepted their work, which is also a kind of recognition, but also the idea that they made something and a lot of people are now using it. So we have the means to distribute or acknowledge that their work can be part of the product.”- Case 2 (sic)
memoing add significant and diverse contributions to the first set of propositions. Appendix 13 encloses the memos, which clarify the development towards these findings.
6.1 Case Comparison
The firms find it important to have an in-depth understanding of the value network since customer value is created within the value network. Knowledge of the value network has a positive influence on value co-creation. The importance of having an in-depth understanding of the value network depends on the target group, the product life cycle, and the tuning of supply and demand. Therefore, one can state that different actors in the value network may need a distinct supplier communicative approach to satisfy distinct needs. It shows that undermining actors in the value network may obstruct business success.
Proposition 13 Within the interactive context it is important to identify various actors and how they relate to one another to detect value creation opportunities.
Finding 1: From a strategic point of view, it essential to have knowledge of and to recognise the distinct actors in the value network to create value co-creation opportunities.
6.1.1 Taking advantage of interaction moments
The cases show that the concept of dialogue is the leading concept towards value co-creation. The cases demonstrate tactics and actions leading towards dialogue. Each interaction moment may be beneficial as it may enable dialogue between the firm and the customer. Interaction forms the basis of value co-creation. Ballantyne et al. (2006) recognise the significance of communicative interaction, which takes place before actual sale and during post sale. The results show several interaction moments. Both cases describe the pre-sales phase as the most important interaction phase as it facilitates the identification of purchasing actors needs. The pre-sales phase is based on a problem-solution approach which helps to detect what kind of solution the purchasing actor requires. The findings present the importance of other phases resulting in reformulated propositions.
Proposition 1 Interaction is forced by the practices of informing, approaching, delivery, charging and helping. Finding 2: Interaction between supplier and the purchasing actor is forced through the encounter moments of pre-sales, selling, payment, delivery, customer service and if applicable additional purchase.
Finding 2a: The pre-sales phase is the most critical encounter moment between suppler and purchasing actor and may lead to dialogue which directs towards value co-creation.
6.1.2. Enhancing interaction quality
Proposition 2 The quality of an interaction is determined by personalisation which creates a unique experience.
Proposition 3The quality of an interaction depends on interactivity and the engagement level of dialogue between two willing and enabled actors.
Proposition 8 The quality of an interaction is determined by the experiences of inter-organisational and interpersonal relationships.
Finding 3: The quality of an interaction is determined by personalised interactions, the selection of the communication channel, the exchange of information and knowledge, positioning within the community and the implementation of a suitable market approach.
6.1.3. Facilitating a positive relational experience
Relationships are present wherever there is an interaction. The relationship is given, but firms can manage the quality of those relationships. The quality of the relationship is linked to the experience of interaction. Dialogue is inherently relational as it is an activity between two people. The findings show that trust is an utterly important factor, which influences the relationship. Ballantyne (2006; 339) states: “The ethical underpinnings for dialogue are built on trust.” Both cases show it is important to meet expectations whilst building a sustainable relationship. Expectations of both parties need to match before any value co-creation occurs. The description of Case 2 demonstrates that the open source approach towards value co-creation has more relational implications. The interviewee of Case 2 describes more related factors to facilitate a positive relational experience: to support a reciprocal relationship: to facilitate mutual benefits, to stand for fairness within a relationship, to nourish mutual interests and to aim for mutual respect. In the prior formulated propositions other factors play a major role in positive relational experiences.
Proposition 9On an inter-organisational level, a positive relational experience is formed by a joint problem-solving tactic.
Proposition 10On an interpersonal level, relationships consisting of similarity, liking, interpersonal mutual trust and commitment positively influence the quality of interactions.
Finding 4: A positive relational experience is influenced by a reciprocal approach, the establishment of trust, meeting of expectations, enabling mutual benefits, stimulating mutual respect, having a mutual interest and by fairness.
Finding 4a: On an interpersonal level relationships based on trust are established by personal authenticity, prior experiences, proof of validity, mutual dependability, mutual commitment and mutual accessibility.
6.1.4. Achieving dialogue with different actors
Suppliers and purchasing actors in value network have to get involved in value co-creation together instead of a controlling individual. Ideas and opinions of the supplier and customer are exchanged through dialogue. Dialogue is open-ended with a discovery orientation which induces value creation. The findings suggest the relational experience must be positive and the interaction quality must be sufficient to stimulate dialogue. It is essential to know how to obtain dialogue to learn about the customer. In the first set of propositions dialogue was appointed too rapidly. The findings show that dialogue is influenced by interaction moments, interaction quality and by relational experiences. The cases do not provide findings for the preceding proposition.
