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Sunday, 24 January 2010

Value Co-creation

So finally I come to the subject most talked about in contemporary discussions on value. Value Co-creation.

Here's the way I teach it to the MBAs. I ask them to go to a cafe and with 'new eyes' (ala Kuhn), evaluate the experience by critically looking at all the attributes (features) of the cafe. They go out, have nice coffee/tea, come back after 45 minutes, notebooks in hand. So I go on the white board and on the right hand side I ask them to give me the outcome of the experience (value). I wanted the emotional and functional outcomes so they will say 'relaxed', 'feel good', 'got updated on the gossip', 'chilled', 'cosy and warm'. Then on the left hand side of the board, I ask them to give me a list of all the attributes of the cafe. This part is easy. they usually say 'music', 'ambience', 'good coffee', 'not crowded', 'good seats', 'good heating'. Between the attributes and the outcomes, I create a blank column and I ask them a simple question - how the hell did 'ambience' become 'chilled'? how did 'music' become 'relaxed'? They usually look puzzled, and not understand. Until I say - 'what if you can't hear'? would 'music' still lead to 'relax'? what if you are there to sort out a problem with a girlfriend, would 'ambience' still lead to 'chilled'?

They suddenly realise that they have completely forgotten their own role in creating that experience. That they, as customers, co-created the value with the cafe. They realise that for attributes to become outcomes, they realise the value proposition of the cafe to achieve benefits. And more importantly, and this is a key point - they needed to access their own resources to co-create that value whether these resources are their ability to choose the right company to go to the cafe, or even their basic resource of being able to see, hear and feel. The customer designed themselves and their context so that they can co-create value with the firm.

It's fun to watch the penny drop. The looks on their faces are priceless. I honestly believe I teach for that moment. But being smart MBA students... they get it and when they do get it, they fill up that middle column with lots of very interesting things about themselves and their resources to get the left hand side attributes over to the right hand side outcomes. Makes me cheer...

Back to the previous point. In essence, it's a lot about whether the customer is able to access the resource to achieve the best benefit and whether the firm takes for granted what the customer is able to access. BMW i-drive. Have you tried it? In its early days, you could sit inside the state-of-the-art BMW and feel really stupid because you don't know how to work it (they've tried to make it easier but I haven't tried it recently). In my world, you just didn't have the right resources to co-create value. So the best value proposition in the world (iPhone) is useless if you didn't know how to use it. And it would give you the greatest value if you did. What does this mean for firms? Well, to service designers out there - how much of service design includes the design of the customer and the resources they need to co-create value? And to achieve what types of outcomes?

Oh, just to clarify. Value co-creation isn't co-production. Co-production is helping the firm shape its value proposition (users helping nokia with the next phone, or better software, or even a better cafe). Value co-creation is bringing in your own contextual resource to achieve the beneficial outcomes with the firm at the point of consumption/experience (remember, we are still talking about value-in-use?) There is a difference.

So pop quiz... how does one co-create emotional value? what resources are needed by the customer? and what's the value proposition of the firm? what fun...

19 comments:

  1. This comment has been removed by the author.

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  2. More about value co-creation in the link below where I commented:

    http://www.customerthink.com/blog/measuring_customer_performance_the_value_co_creation_way

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  3. Irene, thanks for an insightful post here... and for your comment on Wim Rampen's post on CustomerThink.

    Your cafe example is brilliant. To this point I've thought of co-creation as meaning co-designing at product or service. What you call co-production. Now I see how the individual consumer can creates value as part of the experience.

    Thanks again, and hope you'll visit CustomerThink to share your thinking on this important subject.

    Bob Thompson
    www.customerthink.com

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  4. Hi Irene,

    First of all I'd like to join Bob in saying thank you for engaging on my Customer Think post on Measuring Value Co-Creation.

    I've written several posts on Co-creation and Value Co-creation, even in an attempt to define it. You can read my definition here:

    My personal definition of business with Customer value co-creation

    As is, thanks also to your wonderful post here, clear to me now, the measurement method I wrote about, and you linked to above, just does not come near a way of measuring the value co-created by Customers.

    Of course this leaves the question of how to measure VCC wide open. As well as the question how well it relates to Value to Firm (which one can bring about a huge discussion too btw).

    How would you measure e.g. the value co-created by a cafe Customer, as per your example? And how would you do that in an aggregated way. Or am I now reaching too far?

    Would love to read your views.

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  5. Wim

    Thanks for your post. You are absolutely right. VCC measurement is WIDE open which is exactly the space I am in now. And you are getting to it... I like your term - aggregated way - because that is exactly where we're going next. Here's a hint - this blog isn't called value-based service SYSTEM for nothing....I had thought of going through my blog entries slowly but you guys are really pushing! But I'm enjoying it so keep the comments coming!

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  6. Due to Wim I read your view on Customer Value and as many others I must agree.
    The customers experience of the value of the services is influenced by the state of mind of the customer, his ‘current’ situation and experiences. Like every other relationship we know. At home my behavior in my relationship can be influenced by a bad day at work. As we all say, I’m only human.
    A view years ago, as a director of a contactcenter I was responsible for improving a outbound activity for a insurancecompany. Outbound for my customer was simply massproduction. The conversionrate was 5%. I convinced the insurancecompany, there was a better way. We started to add customerlifestyl profiles and began to analyze each customertype. In total we analyzed a 100.000 customerapproaches. It ‘s no surprise that each consumertype had a different behavior. What was interesting was that the customertypes showed a significant variation in het conversionrate, depending on the day you approached him. For instance there was a customertype that in general had 10% conversionrate, but on Friday the conversionrate was 13%. That day this customertype was more open and willing to buy.
    It means the sensitivity of the company towards the unique customer is very important. So how do I coop as a person in my private-relationships, with the influences of my partner. I observe, I learn, interpret signals and change my own behavior. Reading and acting on these signals is based on my sensitivity. The question is how can we measure the sensitivity of the company. If we go back to your coffeeshop example.
    The person that serves the customer had direct contact, and made a connection. Which means his sensitivity can be measured by asking him afterwards how he thinks the customer valued the services of this coffeeshop. We compare it with the customeropinion on the value of this coffeeshop in general and keydrivers like portfolio, quality of the coffee, ambiance, personnel, chances of return and advising his friends. The gap between those opinions defines the sensitivity of the organisation.
    This gapanalyse can be used in every customerproces and every part of the chain, billing, hr, contactenters. Of all customersopinions you can extract the general customer and the customertypes per period/location.The marketeer of this company must define the keydrivers and the rating between the keydrivers. The value-co-creation-factor, is an variable that influences (with a certain chance) the height and the rating of these items. The goal of each marketeer and the rest of the company (especially the frontend-organisation) should therefore be identifying what influences this unique customer. The second question is, is it a trend? In my example there was. It turned out the customers within these types had a common behavior and on certain days they were more relaxed. For some types at Friday-evening the were enjoying there weekendfeeling.
    The more accurate the customertyping, the more influence-factors are recognized and defined in variable-effects, the more accurate the chance-calculation will be. The sensitivity-gap will narrow and the customervalue can (by acting the right way) grow. Of cause there is always the really unique factor. The bad-day feeling or the fact that my car just broke down. The only way to influence that, lies in the hands of the employee that has contact with the customer.
    It sounds complex, yet in many of our relationships we act intuitively, we act on the signals we see and hear. We ask if there is something we can do, if we see a troubled soul. That humaninterest, that sensitivity, makes the difference.So yes, I believe in the role of the consumer on his idea of the value of the company. Personally I have the idea that is connected to companies sensitivity and measurement should be defined on that base. So I’m very much interested to see how your research develops and where it leads to. Hopefully I explained my thought clearly. In these complex discussions, I realize my English is not my native language.
    Ankie Straathof

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  7. Hello Ankie

    Thank you for your comment. It is interesting that you have hit open a very critical point of systems research - customer variety and customer transformation and the way the organizational system deals with it. I hope to be posting on systems soon and hopefully you can see if the systems postings could help shed some light into what you have written from your experience.

    irene

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  8. Hi there

    It is interesting to read your comments. by the way, have you cross the term co-disposal?

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  9. Hi Irene,

    It's a nice article to understand co-creation. Do you have any recommended (research) article(s) for further reading on the topic?

    -Dennis

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  10. Dennis

    On the right hand side of the blog are a list of my papers that you can download on co-creation

    Irene

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  11. Hi Irene!
    I read the article and its very useful on my MBA presentation... I have read another research article on "Service as Business Logic:Implications for value creation and marketing by Gronroos. In that article, it mentioned that customers are value creators and firms (suppliers) are value co creators. I accept the example of cafe and the i-phone. So accordingly customers would be the value creators and firms who provide services or fulfill the value would be value co creators. Can you please clarify this?

    - Arunnia

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    1. Arunnia

      sorry for the very late reply on this. i wasn't notified on the comment at all!

      if you read sdlogic, both firms and customers are value co-creators. customers co-create value through use in context, and the firms get value in return (through payment)

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  12. Irene, it's April 2012 and I've only just discovered your excellent article. I've linked to it from my article ( http://www.jackmartinleith.com/?p=2309 ) on value generators. A value generator is value in latent form – something tangible or intangible that generates experiential (in contrast to economic) value when the user interacts with it. Everything (?) has its opposite and value is no exception. The converse of value is anti-value (see http://www.jackmartinleith.com/?p=2409 ). Anti-value manifests as an experience of physical pain or emotional upset arising from a poorly designed or malfunctioning value generator, or from the denial of previously received (and possibly taken for granted) value. Let's say that the customers of one of the cafes visited by your MBA students are given a free croissant with their latte. One day a customer goes into the cafe and discovers that the 'free' croissant is no longer free. The customer experiences disappointment, frustration and anger. Instead of a sense of well being, there's a feeling of unwell being. This is anti-value. I experienced much value from your article, and no anti-value. Thank you, Irene. Warm wishes from Bristol. Jack (P.S. Having just noticed Aruni's 7/12/11 comment, I'd say that firms who provide services - and products and so on - produce value generators. The value generator in your example would be the cafe environment, the music and the baristas.)

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  14. 1. I would like to make two points. First, researchers avoid discussion on how companies and customers should divide the jointly created value. They only describe why and how value can be co-created. Companies/people often fail to engage in co-creation– even when it is technically and economically viable to do so– because they cannot agree how they should share the jointly created value. This is a major shortcoming of the “economic view” of co-creation. Second, the legal approach can overcome this shortcoming. According to the legal view, co-creation is a type of exchange (contract) in which contracting parties agree to jointly create NEW legal rights and obligations and also agree how they will distribute new rights and obligations. Exchanges in which contracting parties trade EXISTING rights and obligations are not co-creations. The legal view considers both creation and sharing of rights (value).

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  15. tks for the comment Sandeep. There are definitely differing views on what 'value' is. we have written a paper on this and it might be useful.

    http://wrap.warwick.ac.uk/41761/

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  16. Irene, thanks. Did not find discusson on Auctions, which reveal how much people value a good/service.

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  17. you're right - the paper did not cover auctions - it was beyond the scope - perhaps you could extend the thinking!

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  18. Hi Irene,

    With the clicks on google, your comments have cleared my understanding between value creation and value co-creation. Surprisingly, I am residing in Singapore with a Warwick MBA journey, into my last leg of a dissertation on value creation and impact of strategic social media on consumer influence and branding. Yes, it sounds sophisticated but personally, the data collection would be a challenge.

    Anyway, thanks for your insights on this and I can sense you are someone who loves what you do. Hope I could be one in the future too =). Once again, thanks for the great articles. Two-thumbs up!

    Warmest regards,
    Ash

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