INTRODUCTION                                                  defined as an aggregation of consumers, was a “tar-         ...
FIGURE 1                      The Traditional Concept of a Market                      Source: Prahalad and Ramaswamy (200...
system, consumers have little or no role in value cre-                        as Disney and Ritz Carlton have found intere...
Patient A may live alone and find it difficult to follow                                  Dialoguethe diet regimen. She ma...
We believe that the opportunities for value creation         example, video games could not exist without activeare enhanc...
between the company and the consumer are opportu-           learn to anticipate and lead, and further, to co-shapenities f...
consumers are separate, with distinct, predetermined                            Transformation of the Relationship        ...
TABLE 3                 The Market as a Target for the Firm’s Offerings Versus a Forum for Co-Creation ExperiencesTHE MARK...
context. This does not take away the responsibility of        Normann, R., & Ramirez, R. (1994). Designing Interactivethe ...
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Inovacao experience cocreation

  1. 1. CO-CREATION EXPERIENCES:THE NEXT PRACTICE IN VALUECREATIONC. K. PRAHALAD AND VENKAT RAMASWAMYC onsumers today have more choices of products and services than everbefore, but they seem dissatisfied. Firms invest in greater product variety but C. K. PRAHALAD is the Harvey C. Fruehauf Professor of Business Administration at theare less able to differentiate themselves. Growth and value creation have University of Michigan Businessbecome the dominant themes for managers. In this paper, we explain this School in Ann Arbor; e-mail: cprahalad@aol.comparadox. The meaning of value and the process of value creation are rapidlyshifting from a product- and firm-centric view to personalized consumerexperiences. Informed, networked, empowered, and active consumers are VENKAT RAMASWAMYincreasingly co-creating value with the firm. The interaction between the firm is the Michael R. and Mary Kayand the consumer is becoming the locus of value creation and value extrac- Hallman Fellow of Electronic Business and Professor of Marketing at thetion. As value shifts to experiences, the market is becoming a forum for University of Michigan Businessconversation and interactions between consumers, consumer communities, School; e-mail: venkatr@umich.eduand firms. It is this dialogue, access, transparency, and understanding of risk-benefits that is central to the next practice in value creation. This article is based on Prahalad and Ramaswamy (2004), The Future of© 2004 Wiley Periodicals, Inc. and Direct Marketing Educational Foundation, Inc. Competition: Co-creating Unique ValueJOURNAL OF INTERACTIVE MARKETING VOLUME 18 / NUMBER 3 / SUMMER 2004 with Customers, Harvard BusinessPublished online in Wiley InterScience ( DOI: 10.1002/dir.20015 School Press. 5
  2. 2. INTRODUCTION defined as an aggregation of consumers, was a “tar- get” for the firm’s offerings.2The word “market” conjures up two distinct images.On one hand, it represents an aggregation of con- Needless to say, the traditional concept of a marketsumers. On the other hand, it is the locus of exchange is company-centric. So is the process of value cre-where a firm trades goods and services with the con- ation. Consequently, firms conceptualize customer-sumer. Implicit in this view is a critical assumption relationship management as targeting and managingthat firms can act autonomously in designing products, the “right” customers. Firms focus on the locus ofdeveloping production processes, crafting marketing interaction—the exchange—as the locus of economicmessages, and controlling sales channels with little or value extraction. The interactions between companiesno interference from or interaction with consumers.1 and customers are not seen as a source of value cre-Consumers get involved only at the point of exchange. ation (Normann & Ramirez, 1994; Wikstrom, 1996).Firms aggregate consumers into “meaningful seg- Value exchange and extraction are the primary func-ments” for ease of exchange. Both of these images of tions performed by the market, which is separatedthe market are being challenged by the emergence of from the value creation process, as shown in Figure 1.connected, informed, empowered, and active con- It is no surprise that the flow of communications issumers. Consumers now seek to exercise their influ- also from the firm to the consumer, as the market is aence in every part of the business system. Armed with place where value is exchanged and the consumer hasnew tools and dissatisfied with available choices, con- to be persuaded such that the firm can extract thesumers want to interact with firms and thereby most value from transactions.“co-create” value (Prahalad & Ramaswamy, 2004). Thechanging nature of the consumer-company interaction Informed, connected, empowered, and active con-as the locus of co-creation (and co-extraction) of value sumers are increasingly learning that they too canredefines the meaning of value and the process of value extract value at the traditional point of exchange.creation. In this article, we discuss how the concept of Consumers are now subjecting the industry’s valuea market is undergoing change and transforming the creation process to scrutiny, analysis, and evaluation.nature of the relationship between the consumer and Consumer-to-consumer communication and dialoguethe firm. provides consumers an alternative source of informa- tion and perspective. They are not totally dependentCONSUMERS, MARKETS, FIRMS, AND on communication from the firm. Consumers canVALUE CREATION: THE TRADITIONAL choose the firms they want to have a relationshipSYSTEM with based on their own views of how value should be created for them.In the traditional conception of process of value cre-ation, consumers were “outside the firm.” Value cre- Online auctions for hotel rooms and airline reserva-ation occurred inside the firm (through its activities) tions are just one example of this growing phenomenon.and outside markets. The concept of the “value chain” The popularity of businesses such as eBay suggestsepitomized the unilateral role of the firm in creating that the auction is increasingly serving as the basis forvalue (Porter, 1980). The firm and the consumer had pricing goods and services online. From the customer’sdistinct roles of production and consumption, respec- perspective, the advantage of the auction process istively. In this perspective, the market, viewed either that prices truly reflect the utility to that customer, atas a locus of exchange or as an aggregation of con- a given point in time, of the goods and services beingsumers, was separate from the value creation process purchased. That doesn’t necessarily mean that prices(Kotler, 2002). It had no role in value creation. Its role are lower, only that the customer pays according to herwas value exchange and extraction. The market, 2 We use the term “offering” to denote products and services. Our1 We use the terms “consumer” and “customer” interchangeably point of view applies equally to conventional distinctions ofthroughout the paper. “products” versus “services.”6 JOURNAL OF INTERACTIVE MARKETING
  3. 3. FIGURE 1 The Traditional Concept of a Market Source: Prahalad and Ramaswamy (2004)utility rather than according to the company’s cost of the “Walmartization” of everything, from clothes toproduction. DVD players.As customers become more knowledgeable and Is there an antidote to this dilemma? We think so.increasingly aware of their negotiating clout, more Firms continually reduce costs and the consumersbusinesses—from automakers to cosmetic surgery negotiate away the cost reductions in price erosion.clinics—will feel pressure to adopt an implicit (if not But to find the antidote, companies must escape thean explicit) negotiation. An auction is one approach to firm-centric view of the past and seek to co-createthis negotiation process. Armed with knowledge value with customers through an obsessive focus ondrawn from today’s increasingly transparent business personalized interactions between the consumer andenvironment, customers are much more willing than the company. Further, doing so will require managersin the past to negotiate prices and other transaction to escape their product-centered thinking and insteadterms with companies. We are moving toward a world focus on the experiences that customers will seek toin which value is the result of an implicit negotiation co-create. We need to challenge the traditional, dis-between the individual consumer and the firm. tinct roles of both the consumer and the company andTherefore, value creation, for an automaker, for examine the impact of a convergence of the roles ofexample, is the result of individualized negotiations production and consumption; or the convergence ofwith millions of consumers. the roles of the company and the consumer.The consequences of not recognizing this shift can behigh. As long as firms believe that the market can be CO-CREATION EXPERIENCES AS THEseparated from the value creation process, firms insearch of sources of value will have no choice but to BASIS FOR VALUE CREATIONsqueeze as much costs from their “value chain” activ- High-quality interactions that enable an individualities as possible. Meanwhile, globalization, deregula- customer to co-create unique experiences with thetion, outsourcing, and the convergence of industries company are the key to unlocking new sources ofand technologies are making it much harder for man- competitive advantage. Value will have to be jointly cre-agers to differentiate their offerings. Products and ated by both the firm and the consumer (see Table 1).services are facing commoditization as never before.Companies can certainly not escape being super effi- In the traditional system, as firms decide the prod-cient. However, if consumers do not see any differen- ucts and services they will produce, by implicationtiation they will buy smart and cheap. The result is they decide what is of value to the customer. In this CO-CREATION EXPERIENCES 7
  4. 4. system, consumers have little or no role in value cre- as Disney and Ritz Carlton have found interestingation. During the last two decades, managers have ways to stage an experience for consumers (Pine &found ways to partition some of the work done by Gilmore, 1999). In all variations of consumer involve-the firm and pass it on to their consumers—be it ment, from self-checkout to participation in a stagedself-checkout (e.g., gas pumps, ATMs, supermarket experience, the firm is still in charge of the overallcheckout), involvement of a subset of customers in orchestration of the experience. Yes, they focus on con-product development (e.g., industrial customers help sumer experience, but their consumers are basicallydesign the products they need as airlines do with treated as passive. Such companies disproportionate-Boeing), or a range of variants in between. ly influence the nature of the experience. They areConsumers find some of these beneficial. Firms such primarily product-centric, service-centric, and, there- fore, company-centric. The focus is clearly on connect- ing the customer to the company’s offerings. TABLE 1 The Concept of Co-Creation This firm-centric view of the world, refined over the last 75 years, is being challenged not by new competi- tors, but by communities of connected, informed,WHAT CO-CREATION IS NOT WHAT CO-CREATION IS empowered, and active consumers. We believe that• Customer focus • Co-creation is about joint there is an emerging disconnect between the opportu-• Customer is king or creation of value by the nities for value creation and differentiation enabled customer is always right company and the customer. It by a networked, active, informed consumer (and con- is not the firm trying to sumer communities), their expectations and capabili- please the customer ties and the constraining force of the traditional con-• Delivering good customer • Allowing the customer to cept of a market. The more than 1.3 billion cell phones service or pampering the co-construct the service and the proliferation of PCs around the world are cre- customer with lavish experience to suit her context ating ubiquitous connectivity. For example, more than customer service 70 million Americans have visited• Mass customization of • Joint problem definition and More than 500 chat rooms exist on just cancer alone. A offerings that suit the problem solving visit to the doctor today is qualitatively different than industry’s supply chain• Transfer of activities from • Creating an experience it was 10 years ago. Patients want to engage in dia- the firm to the customer as environment in which logue. They want to understand the risk-benefits of in self-service consumers can have active alternate modalities of treatment. They have access to• Customer as product dialogue and co-construct more information than ever before, regardless of qual- manager or co-designing personalized experiences; ity. Consumers expect transparency. “Don’t hold back, products and services product may be the same tell me the truth,” is often the approach. Doctors may (e.g., Lego Mindstorms) but not like this. It takes time. It exposes them and the customers can construct quality of their expertise. It is hard to hide behind different experiences authority. However, the doctor now has a better• Product variety • Experience variety patient. Because he or she understands and is• Segment of one • Experience of one involved, the patient is more willing to comply with the treatment modalities that they have jointly developed.• Meticulous Market research • Experiencing the business as consumers do in real time • Continuous dialogue Put yourself in the position of a patient. What is of• Staging experiences • Co-constructing personalized value here? Is it the medications, the hospital, the experiences equipment that is used, and the expertise of the doc- tor? Surely, all these are critical. But what differenti-• Demand-side innovation for • Innovating experience ates one hospital from another? One doctor from new products and services environments for new another? For the patient, it is the experience of co- co-creation experiences creating with the doctor a modality of treatment that takes into account his or her peculiar circumstances.8 JOURNAL OF INTERACTIVE MARKETING
  5. 5. Patient A may live alone and find it difficult to follow Dialoguethe diet regimen. She may need help. A differentpatient with the same medical condition may havetotally different circumstances or context. His experi-ence may depend on taking care of his children. He Transparency Co-creation of Accesswants to indulge his children in the American ritual Valueand must make it to the little league games withoutappearing to be very sick. The traditional view of thehospital and its product—medical treatment—has not Risk-benefitsdisappeared. Rather, what has emerged as the basisfor unique value to consumers is their experience FIGURE 2(which is contextual). The quality of that experience Building Blocks of Interactions foris dependent on the nature of the involvement the Co-creation of Valuecustomer (patient) has had in co-creating it with doc-tors, counselors, and others. Individual involvement ness to act on both sides. It is difficult to envisage acan go beyond the treatment modality to the process dialog between two unequal partners. So, for anof diagnosis, therapy, counseling, and wellness indica- active dialog and the development of a shared solu-tors. It can vary from patient to patient, and depends tion, the firm and the consumer must become equalon how each patient chooses to co create his or her and joint problem solvers. Dialog must center aroundown unique experiences. What we need to create is an issues of interest to both—the consumer and the firmexperience environment within which individual and must have clearly defined rules of engagement.patients (consumers) can create their own unique For example, buyers and sellers engage in a dialoguepersonalized experience. Thus, products can be com- in eBay. The rules of engagement are evolving butmoditized but co-creation experiences cannot be. clear at any point in time. But dialog is difficult if consumers do not have theBUILDING BLOCKS OF INTERACTIONS: same access and transparency to information. FirmsDIALOGUE, ACCESS, RISK-BENEFITS, have traditionally benefited from exploiting the infor-AND TRANSPARENCY (DART) mation asymmetry between them and the individual consumer. Because of ubiquitous connectivity, it isLet us look at what has changed. How do we build a possible for an individual consumer to get access to assystem for co-creation of value? First, we have to start much information as she needs from the communitywith the building blocks of interactions between the of other consumers as well as from the firm. Bothfirm and consumers that facilitate co-creation experi- access and transparency are critical to have a mean-ences. Dialog, access, risk-benefits, and transparency ingful dialog.(DART) are emerging as the basis for interactionbetween the consumer and the firm (see Figure 2). More importantly, dialog, access, and transparencyThese building blocks of consumer-company interac- can lead to a clear assessment by the consumer of thetion challenge the strong positions managers have risk-benefits of a course of action and decision. Shouldtraditionally taken on labeling laws, disclosure of I change my medication? What are the risks? Insteadrisks (as in smoking or genetically modified plants), of just depending on the doctor—the expert—thetransparency of financial statements, and open access patient has the tools and the support structure to helpand dialog with consumers and communities. make that decision—not in some generic risk category but “for me”—with a medical condition, a lifestyle, orDialog is an important element in the co-creation social obligations. This is a personalized understand-view. Markets can be viewed as a set of conversations ing of risk-benefits.between the customer and the firm (Levine, Locke,Searls, & Weinberger, 2001). Dialog implies interac- The progress towards DART cannot be stopped. Thetivity, deep engagement, and the ability and willing- case of the patient-doctor interaction is not isolated. CO-CREATION EXPERIENCES 9
  6. 6. We believe that the opportunities for value creation example, video games could not exist without activeare enhanced significantly for firms that embrace the co-creation with consumers. At the other extreme, tra-concepts of personalized co-creation experience as the ditional firms like John Deere are building extensivesource of unique value. Personalizing the co-creation networks that allow farmers to share their experi-experience differs from the concept of “customers as ences, dialogue with the company and among them-innovators.” Customers of a firm like General Electric selves, and increase their productivity. The OnStarPlastics assume much of the task of developing a cus- network of GM is another case in point. The systemtom resin for a specific application. By providing has the potential to allow individuals to construct theiraccess to tools and a library of compounds, GE shifts own experience. GM provides the platform. As an indi-effort and risk to its customers (Thomke & von vidual, I can decide to seek advice on restaurants orHippel, 2002). When the process works well, both par- ask them to alert me to breaking news or the progressties benefit. GE saves development time and reduces of my favorite football team. These are all possibilities.its risk, while customers can get what they want with Individuals construct their own experiences. Ebay andgreater speed and accuracy. But as long as the process Amazon are further examples of this trend—both facil-remains firm centric and product centered, it is at itate the process of personalized experiences, bothbest a variant of the current dominant logic. involve communities, both facilitate dialogue.The same applies to the conventional approach to The transition from a firm-centric view to a co-product or service customization. Starting from a tra- creation view is not about minor changes to the tradi-ditional firm-centric view of value creation, managers tional system. Note what co-creation is not. It isfocus on providing products and services to a single neither the transfer or outsourcing of activities to cus-customer at low cost. This process leads to mass cus- tomers nor a customization of products and services.tomization, which combines the benefits of “mass” Nor is it a scripting or staging of customer events(large-scale production and marketing and therefore around the firm’s various offerings (e.g., La Salle &low cost) with those of “customization” (targeting a Britton, 2002; Peppers & Rodgers, 1993; Schmitt,single customer). The focus on product-feature devel- 1999; Seybold, 1998). That kind of company-customeropment leads to increased product choice for con- interaction no longer satisfies most consumers today.sumers. On the Web, for example, consumers can cus- The change that we are describing is far more funda-tomize products and services ranging from business mental. It involves the co-creation of value throughcards and computers to home mortgages and flower personalized interactions based on how each individ-arrangements, simply by choosing from a menu of fea- ual wants to interact with the company. Co-creationtures. But such customization tends to suit the com- puts the spotlight squarely on consumer-companypany’s supply chain, rather than a consumer’s unique interaction as the locus of value creation. Becausedesires and preferences. there can be multiple points of interaction anywhere in the system (including the traditional point ofPersonalizing the co-creation experience means fos- exchange), this new framework implies that all thetering individualized interactions and experience out- points of consumer-company interaction are criticalcomes. It involves more than a company’s á la carte for creating value. Since no one can predict the expe-menu. A personalized co-creation experience reflects rience a consumer will have at any point in time, thehow the individual chooses to interact with the expe- task of the firm is one of innovating a robust experi-rience environment that the firm facilitates. We are ence environments (Prahalad & Ramaswamy, 2003).suggesting a totally different process—one that Hence, our view of value co-creation challenges bothinvolves individual consumers on their terms—a images of a market: as an exchange of product andbroad challenge that business leaders must face service offerings and as an aggregation of consumers.(Prahalad & Ramaswamy, 2003). Traditional economics focuses squarely on the exchange of products and services between the com-Once we discard the “firm-centric” view of value cre- pany and the consumer, placing value extraction byation and accept the “co-creation” view, the evidence of the firm and the consumer at the heart of the interac-this shift is visible in a wide variety of industries. For tion. In the co-creation view, all points of interaction10 JOURNAL OF INTERACTIVE MARKETING
  7. 7. between the company and the consumer are opportu- learn to anticipate and lead, and further, to co-shapenities for both value creation and extraction. expectations and experiences?The co-creation view also challenges the market as an In co-creation, direct interactions with consumers andaggregation of consumers for what the firm can offer. consumer communities are critical. Consumer shiftsIn the new value co-creation space, business man- are best understood by being there, co-creating withagers have at least partial control over the experience them. Firms must learn as much as possible about theenvironment and the networks they build to facilitate customer through rich dialogue that evolves with theco-creation experiences. But they cannot control how sophistication of consumers. The information infra-individuals go about co-constructing their experi- structure must be centered on the consumer andences. Co-creation, therefore, forces us to move away encourage active participation in all aspects of the co-from viewing the market as an aggregation of con- creation experience, including information search,sumers and as a target for the firm’s offerings. Market configuration of products and services, fulfillment,research, including focus groups, surveys, statistical and consumption. Co-creation is more than co-modeling, video ethnography, and other techniques marketing or engaging consumers as co-sales agents.were developed in an effort to get a better under- It’s about developing methods to attain a visceralstanding of consumers, identify trends, assess con- understanding of co-creation experiences so that com-sumer desires and preferences, and evaluate the rela- panies can co-shape consumer expectations and expe-tive strength of competitors’ positions. Within this riences along with their customers.framework, the ultimate concept in customer segmen-tation is one-to-one marketing. Thus, in the emerging concept of a market, the focus is squarely on consumer-company interaction—theWhile debates rage about the adequacy of our mar- roles of the company and the consumer converge. Theketing methodology, the underlying vision of con- firm and the consumer are both collaborators andsumers as targets (prey) is rarely questioned. But competitors—collaborators in co-creating value andwhat if the consumers were to turn the tables? What competitors for the extraction of economic value. Theif consumers were to start investigating companies, market as a whole becomes inseparable from theproducts, and potential experiences in a systematic value creation process, as shown in Figure 3.way? Is it sufficient for companies to “sense andrespond” to customer demands? Do managers need Co-creation converts the market into a forum wheremarket foresight—besides market insight? Must they dialogue among the consumer, the firm, consumer FIGURE 3 The Emerging Concept of the Market CO-CREATION EXPERIENCES 11
  8. 8. consumers are separate, with distinct, predetermined Transformation of the Relationship roles, and, consequently, that supply and demand are TABLE 2 Between Firms and Consumers distinct, but mirrored, processes oriented around the exchange of products and services between firms and consumers. We believe that, in time, new approachesFROM TO and tools consistent with a new experience-based view• One-way • Two-way of economic theory will emerge. We have identified• Firm to consumer • Consumer to firm and summarized some of the key points of departure• Controlled by firm • Consumer to consumer in Table 3.• Consumers are “prey” • Consumer can “hunt”• Choice buy/not buy • Consumer wants to/can The new frame of value creation creates new compet- impose her view of choice itive space for firms. To compete effectively however,• Firm segments and • Consumer wants to/is being targets consumers; empowered to co-construct managers need to invest in building new infrastruc- consumers must “fit a personalized experience ture capabilities, as well as new functional and gover- into” firm’s offerings around herself, with firm’s nance capabilities—capabilities that are centered on experience environment co-creation through high-quality customer-company interactions and personalized co-creation experiences (see Prahalad & Ramaswamy, 2004). While the build-Source: Adapted from Prahalad & Ramaswamy (2005). ing of new capabilities is critical, it is less difficult than changing one’s dominant logic. Unless we makecommunities, and networks of firms can take place. a shift from a firm-centric to a co-creation perspectiveThe transformation of the relationship between firms on value creation, co-extraction of economic value byand consumers is shown in Table 2. informed, connected, empowered, and active commu- nities of consumers on the one hand and cost pres-THE MARKET AS A FORUM FOR sures wrought by increased competition, competitiveCO-CREATION EXPERIENCES discontinuities, and commoditization on the other will only make it harder for companies to develop a sus-Co-creation of value fundamentally challenges the tainable competitive advantage. The future belongs totraditional distinction between supply and demand. those that can successfully co-create unique experi-When the experience, along with the value inherent ences with it, is co-created, the firm may still produce a phys-ical product. But the focus shifts to the characteristicsof the total experience environment. Now demand is IMPLICATIONS FOR INTERACTIVEcontextual. Given that customers cannot predict theirexperiences, co-creation of value may well imply the MARKETINGdeath of traditional forecasting. Instead, the focus As we move rapidly to a co-creation experience as theshifts to capacity planning, the ability of the experi- basis of value, the fundamental interaction betweenence network to scale up and down rapidly, and for the firm and the consumer changes in character andthe system to reconfigure resources in real time to importance. As we have discussed, the interactionaccommodate shifting consumer desires and person- becomes the locus of value creation; the interactionalization of co-creation experiences. Such a system can be anywhere in the system, not just at the con-may be highly demanding, yet it promises incredible ventional point of sale or customer service. In the tra-efficiency gains as well. We must view the market as ditional view of marketing, interaction is where thea space of potential co-creation experiences in which firm markets its offerings to extract economic valueindividual constraints and choices define their will- from the consumer (based on the value the firm hasingness to pay for experiences. In short, the market already created through its value chain). This firm-resembles a forum for co-creation experiences. centric and product-centric view is deep-rooted and manifests itself at all the interfaces and touchpointsThe market as a forum challenges the basic tenet of between firms and customers. Firms manage cus-traditional economic theory: that the firm and the tomer relationships leaving little room for customers12 JOURNAL OF INTERACTIVE MARKETING
  9. 9. TABLE 3 The Market as a Target for the Firm’s Offerings Versus a Forum for Co-Creation ExperiencesTHE MARKET AS A TARGET THE MARKET AS A FORUMThe firm and the consumer are separate, with distinct The firm and the consumer converge; the relative “roles of the moment”predetermined roles. cannot be predicted.Supply and demand are matched; price is the clearing mechanism. Demand and supply are emergent and contextual. Supply is associatedDemand is forecast for products and services that the firm can supply. with facilitating a unique consumer experience on demand.Value is created by the firm in its value chain. Products and services are Value is co-created at multiple points of interaction. Basis of value isexchanged with consumers. co-creation experience.Firm disseminates information to consumers. Consumers and consumer communities can also initiate a dialogue among themselves.Firm chooses which consumer segments to serve, and the distribution Consumer chooses the nodal firm and the experience environment tochannels to use for its offerings. interact with and co-create value. The nodal firm, its products and services, employees, multiple channels, and consumer communities come together seamlessly to constitute the experience environment for individuals to co-construct their own experiences.Firms extract consumer surplus. Consumers are “prey,” whether as Consumers can extract the firms surplus. Value is co-extracted. Consumers“groups” or “one-to-one.” Firms want a 360-degree view of the customer, expect a 360-degree view of the experience that is transparent in thebut remain opaque to customers. Firms want to “own” the customer consumers language. Trust and stickiness emerge from compellingrelationship and lifetime value. experience outcomes. Consumers are competitors in extracting value.Companies determine, define, and sustain the brand. The experience is the brand. The brand is co-created and evolves with experiences.Source: Prahalad & Ramaswamy (2004).to have a voice, inject their view of how they want to and changing managerial practices. How does a firm(individually and collectively) interact with firms and engage in a dialog? How do you understand theconsumer communities, and co-create value that cus- underlying expectations of millions of consumers andtomers are, by design, “willing to pay for.” their utility functions? The infrastructures and the governance processes that are emerging in a wideBut co-creation demands that both managers and range of industries is an indication of implicit negoti-consumers make the necessary adjustments. For ations (e.g., Expedia, eBay, Amazon, and others). Theexample, both must recognize that the interaction system allows for the consumers to inject or statebetween the two—the locus of value creation—must their expectations and their willingness to monetizebe built on critical building blocks. It must start from their own experiences and makes it explicit. The firmaccess and transparency. Firms have traditionally also has a way of accepting or rejecting that specificopposed transparency. The fight against product transaction at that time. What is emerging is thatlabeling is well known. Releasing information regard- dialog requires us to invest time and effort to under-ing the likely risks is often mandated. It must become stand the economics of experience and develop sys-voluntary. Further, transparency and access are of lit- tems to come to agreements rapidly. Finally, firmstle value if the firms do not create the infrastructure must recognize that the more educated the consumer,for dialog. This requires investment in technology but the more likely it is that she will make an intelligentmore important, investments in socializing managers choice and make tradeoffs that are appropriate to her CO-CREATION EXPERIENCES 13
  10. 10. context. This does not take away the responsibility of Normann, R., & Ramirez, R. (1994). Designing Interactivethe company to deny some choices. As everyone Strategy: From Value Chain to Value Constellation. Chichester, UK: Wiley.knows, the barman has the obligation to know whento stop serving drinks. Peppers, D., & Rogers, M. (1993). The One to One Future: Building Relationships One Customer at a Time. New York: Doubleday.Consumers have to also learn that co-creation is a Pine, B.J., II, & Gilmore, J.H. (1999). The Experiencetwo-way street. The risks cannot be one sided. They Economy: Work Is Theater and Every Business a Stage.must take some responsibility for the risks they con- Boston: Harvard Business School Press.sciously accept. The tobacco company has the obliga- Porter, M.E. (1980). Competitive Strategy: Techniques fortion to educate consumers on the risks of smoking and Analyzing Industries and Competitors. The Free Press.develop cessation programs. But if a consumer per- Prahalad, C.K., & Ramaswamy, V. (2003). The New Frontiersists in smoking, he must take responsibility for his of Experience Innovation. Sloan Management Review,own actions. In cases where the consumer is unlikely Summer, 12– have the expertise to make that choice, they must Prahalad, C.K., & Ramaswamy, V. (2004). The Future ofaccept the choice made for them by a neutral party Competition: Co-Creating Unique Value withsuch as the Federal Drug Administration. The gover- Customers. Boston: Harvard Business School Press.nance issues that will mediate the interactions and Prahalad, C.K., & Ramaswamy, V. (2005). Building Newcreate mutually beneficial results for the consumer Strategic Capital for Co-Creation. Strategy + Business,and the firm is the goal. This we believe is the next forthcoming.practice of value creation. Schmitt, B.H. (1999). Experiential Marketing: How to Get Customers to Sense, Feel, Think, Act, and Relate to Your Company and Brands. New York: Free Press.REFERENCES Seybold, P.B. (1998). How to Create aKotler, P. (2002). Marketing Management. Englewood Profitable Business Strategy for the Internet and Cliffs, NJ: Prentice Hall. Beyond. New York: Times Books.LaSalle, D., & Britton, T.A. (2002). Priceless: Turning Thomke, S., & Von Hippel, E. (2002). Customers as Ordinary Products into Extraordinary Experiences. Innovators: A New Way to Create Value. Harvard Boston: Harvard Business School Press. Business Review, April, 74–81.Levine, R., Locke, C., Searls, D., & Weinberger, D. (2001). Wikstrom, S. (1996). Value Creation by Company- The Cluetrain Manifesto: The End of Business as Usual. Consumer Interaction. Journal of Marketing Cambridge, MA: Perseus Publishing. Management, 12, 359–374.14 JOURNAL OF INTERACTIVE MARKETING