Co-Creation Open innovation is not limited to using ideas from competitors and other industries. It can go as far as involving the customer in the creation of the product. In fact, some of the world’s top thinkers in the fields of strategy and innovation believe this trend could represent the next big wave in business.
And, although it still sounds radical, this idea was in fact described in The Third Wave, the classic 1980 work by futurist Alvin Toffler that predicted the rise of the “prosumer economy.” A prosumer is a consumer who plays a key role in producing those things he consumes. The 21st century concept of “co-creation” uses the Internet to turn Toffler’s concept into reality.
One of the assumptions about the Internet was that it would shift the balance of power to consumers, who would take advantage of the wealth of information available on the Web to find the best prices. This assumption became a reality, as customers can now easily use search engines to find more information than was ever available in the history of commerce. Today, people routinely search the Internet for good deals on hotel rooms, airfares, books, music, computer hardware, and software.
But this is only the beginning. Consumers will not only use the Internet to capture value; they will also help create value by becoming actively involved in the creative process for developing products.
According to C.K. Prahalad, who introduced the concept of “core competencies” with Gary Hamel in their book Competing for the Future a decade ago, the trend of co-creation will make an even more profound impact on business strategy over the next 10 years.
This is a natural extension of the “core competencies” concept, which has since expanded to include a company’s suppliers and customers. Three years ago, Prahalad’s article in the Harvard Business Review called “Co-opting Customer Competence” argued that companies must take advantage of their customers’ knowledge, preferences, and skills.
For example, Amazon.com invites customers to share their lists of favorite books, which spur sales to other customers with similar interests. Similarly, Microsoft recruits its customers to test “beta” versions of its software to find the bugs before the product is rolled out to the mainstream market. In the article, Prahalad predicts that customers would become part of a broader value network in which they co-created value with the producers of the products and services they buy.
As he said recently in a Financial Times interview, “People talk about the convergence of technologies. I think the most fundamental convergence is between the role of producer and the role of consumer. The consumer goes from being a very passive person to being a very active co-creator of products, services and value.” This is done, he explained, “through dialogue, collaboration and partnership [with customers].”
By co-creation, he explained, he means a step beyond the mass customization that companies like Dell and Land’s End offer their customers who want more choices in the products those companies sell. Those companies, according to Prahalad, fall short of co-creation. “Sure, they let you choose from a menu of options ? but it is a menu written in their language, based on the configurations they have decided to offer, based on what is efficient for them. We need to move beyond customization to personalization.”
What does the seller have to gain from giving customers a more powerful role? There are three main advantages of co-creation:
One advantage is a closer understanding of customers’ needs and wants, which leads to products and services that succeed in the marketplace.
The second advantage is that customers who co-create products and services are more likely to buy them, and to continue to purchase them. This brand loyalty has been linked to profitability in countless marketing studies.
The third advantage is that co-creation can steer companies in new directions, to new product lines and markets that they never would have considered otherwise. For example, the makers of Rice Krispies knew that some of its customers were combining the cereal with marshmallows to bake trays of chewy dessert squares. The company launched its own line of individually wrapped Rice Krispies Treats that are now a staple in schoolchildren’s lunchboxes ? and one of the company’s best-selling products.
According to a survey of purchasing habits by a New York marketing firm, Euro RSCG MVBMS Partners, one in four American consumers are already prosumers. These customers are proactive and empowered. They get, collect, and analyze information and opinions before they buy a product or service. While they enjoy being on the cutting edge of new offerings, they can be demanding. They expect high quality goods and first-rate customer service. And they exert a strong influence on the purchasing decisions of other consumers through word of mouth.
But to this point, the full potential of co-creating with prosumers remains an untapped phenomenon. As Prahalad puts it, “No company has fully thought through the implications of extending the enterprise to include the customer. What I am describing here is not best practice, it is next practice.”
While the future for this trend could unfold in many different ways, we are certain of two predictions:
First, the proportion of prosumers in the customer population will rise from the current 25 percent to more than 60 percent by the end of the decade. The reason is simple. Thousands more people are being connected to the Internet every day, which gives more people access to the information that drives proactive purchasing decisions.
Second, an entirely new approach to marketing will be needed. Instead of viewing prosumers as passive targets of a marketing campaign, companies must treat them as active partners. That means you have to go beyond persuading them to make a one-time transaction, and instead learn what they want, work with them in developing a product or service that matches their specifications, and then win their loyalty by reminding them of their role as co-creators in the creative process.
References List :1. The Third Wave by Alvin Toffler is published by Bantam Publishing, a division of Random House. ⓒ Copyright 1984 by Alvin Toffler. All rights reserved. 2. Competing for the Future by Gary Hamel and C.K. Prahalad is published by Harvard Business School Press. ⓒ Copyright 1994 by Gary Hamel and C.K. Prahalad. All rights reserved. The audiotape summary of Competing for the Future is available from Audio-Tech Business Book Summaries. Ask for catalog #0941. 3. Harvard Business Review, January 2000, "Co-opting Customer Competence," by C.K. Prahalad and Venkatram Ramaswamy. ⓒ Copyright 2000 by the President and Fellows of Harvard College. All rights reserved. http://hbr.org/2000/01/co-opting-customer-competence/ar/1 The complete article is available from Harvard Business Review. Ask for reprint #R00108. 4. Financial Times, December 13, 2003, "The Next Core Competence Is Getting Personal," by Simon London. ⓒ Copyright 2003 by FT Publications, Inc. All rights reserved.
