The internet and mobile marketing have sparked interest in co-creation of value defined as the collaboration of producers and consumers in the creation of value through the definition, production, delivery, and use of products and services.
To the traditional marketer, the interest in the co-creation of value may seem like a shift. Traditional brand management was all about strict control of the design of the product and precise execution of the marketer-defined marketing mix.
But it’s useful to realize that the consumer—either a household or a business—has always been involved in the creation of value:
- In the Agrarian age, the household bought cucumber seeds, and then grew the cucumbers, pickled them, and served them on dinner plates so the family could enjoy them. Virtually all the value was created by the consumer-household.
- In the Industrial age the cost of manufactured pickles dropped and the opportunity cost of time increased, so the rational household stopped pickling and bought pickles in the grocery store. The household still had to go to the store, buy, take home, and plate the pickles for the family to experience value, but a large percentage of value-creation was shifted to the manufacturer.
- In the Internet age, the opportunity cost of time has increased to the point where we describe our affluent consumers as experiencing time-poverty—and Uber Eats delivers the pickles, shifting even more of the value creation away from the consumer.
Today’s economics are causing many shifts of value creation from producer to consumer:
- ATMs shift financial services from the bank teller to the self-serving consumer. Both banks and their customers benefit—banks though reduced costs; customers through increased convenience, greater personalization, and time savings.
- Amazon shifts many retail functions—searching for products, placing orders, payment transactions, even in some cases picking up the product from a local drop-off point from the retailer to the consumer.
- Intel solved the problem of product functionality design by giving the engineers of their customers design-kits to customize Intel chips.
The internet has so much capability and the number and kinds of value creation opportunities that it makes sense for consumers to perform:
- Crowd funding shifts the work of the banker (business loans and risk evaluation) and venture capitalists (start-up funding and business idea assessment) to the individual investor.
- Frito Lay famously had the most popular Super Bowl ad created by consumers.
- Web meetings shifted the creation of the value of business communication from airlines to telecommuting workers.
The marketer’s job: who does what
The marketer’s job is, and has always been, facilitating the performance of each aspect of value creation by the consumer, producer, or eco-system participant that can perform the task least expensively and most effectively.
While value co-creation may not be new, what is new is the increase in the possibilities brought by the internet. In the past, value co-creation needed to be done in the same place and at the same time:
- The retail shopper had to be physically in the store to be helped by a sales person. No longer. Amazon has freed this exchange from constraints of both time and space.
- International trade required letters of credit and time-consuming customs clearance. No longer. Automatic Clearing House (ACH) transactions make payment instantaneous and UPS clears customs while shipments are in the air.
- Parts manufacturers created complicated bills of lading and detailed invoices. Today their customers generate payments without invoices based on predetermined ratios of payments to production of their final products.
Where to look for today’s co-creation opportunities
As a marketer, where can you look for opportunities for co-creation of value? One way to systematically search for co-creation opportunities is to adapt Michael Porter’s five forces model (below) and examine the five players in the model. But instead of looking at each as a source of competition, look for ways to collaborate to co-create value.
Collaboration with Customers
So far in this article we have discussed co-creation of value through the collaboration of producers and consumers. We see famous examples of co-creation of value in every element of the marketing mix:
Product: Consumers provide input to product design through user groups, prototyping and customer testing, simulation tools, innovation jams (as popularized by IBM), crowd-sourcing, open architecture software development, product design kits, et al.
Place: Amazon, Walmart, Target, UPS, and Fed X are all involving customers in the distribution process with drop off and pick up locations. Uber Eats is taking over a distribution task traditionally done by the consumer.
Promotion: The famous Frito-Lay Super Bowl ad is the classic example. As marketing communications evolve from one-way messaging—marketer to consumer—into multi-directional conversations between consumers and marketers brand identity is increasingly co-created.
Price: The consumer is increasingly involved in pricing. How much does a book cost? Hardback or paperback or electronic; delivered same day, one-day, or two-days for free. The consumer decides on the price of the book.
Collaboration with Suppliers
Supply chain management optimizes which organizations perform each function—production, inventorying, delivery, financing. As situations and economic conditions shift, so do the assignment of functions and compensation. The multi-organizational marketing system is a well-developed process for execution. Increasingly it is also a source of innovations in products and processes as well. Another good example is the millions of app developers for the Apple and Android operating systems.
Collaboration with Competitors
As industry structures evolve and technologies advance we increasingly see situations where two firms will be competitors for one part of their businesses and partners in others. Cell phone companies are fierce competitors in many ways, yet they often share the costs of building and maintaining cell towers. Electric utilities compete for large commercial business, but co-fund research on the intelligent grid.
Collaboration with Substitutes
Wind, solar, and hydro are all substitutes for fossil fuels in the production of electricity. But collaboration among the substitutes makes each a more effective and efficient contributor to the supply of electricity to society as a whole. This is happening between the existing pharma companies and the biotech substitutes.
Collaboration with New Entrants
Collaboration of industry giants with new entrants can produce win-wins: The giant provides resources and access to markets that new entrants just don’t have. And the new entrant can provide technology and skills that complement the giant’s traditional strengths without requiring an expensive commitment of resources. If the collaboration works out, it often leads to an acquisition. But new technologies are risky, and a joint-venture lets both parties experiment and prove the merits of a potential acquisition.
It used to be that people needed to be in the same room at the same time in order to co-create value. No longer. As the chart above illustrates, technology has freed co-creation from constrains of time and space to anytime anywhere co-creation of value.
Consider these new possibilities as you look for opportunities for co-creation of value.
Co-creation of value may not be new, but new technologies have created new possibilities and opportunities. It behooves us, to paraphrase and update John F. Kennedy.
Ask both: What can your customer do for you, and what can you do for your customer?
Professor Jagdish N. Sheth is a Distinguished Fellow of the Academy of Marketing Science, Fellow of the American Psychological Association (APA), and a recipient of a Distinguished Fellow award from the International Engineering Consortium. He has authored or coauthored several hundreds of articles and several books including Clients for Life, Tectonic Shift, Firms of Endearment, Chindia Rising, The 4 As of Marketing, Breakout Strategies for Emerging Markets, and most recently, The Sustainability Edge.
Dr. Karl Hellman is Managing Director of Consentric Marketing. Karl is the author of The Customer Learning Curve (with Ardis Burst, 2004) and his clients include best-in-class companies such as JP Morgan Chase, Wells Fargo, UPS, and Coca Cola.