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Co-creating with customers is nothing new, but in the commercial world it has largely been restricted to one-off customisation of anything from computers to bikes and running shoes. However, bespoke goods are just a sideshoot from the main process of putting customers into the business innovation mix.

In a recent Harvard Business Review article, researchers Barry Libert, Yoram (Jerry) Wind, and Megan Beck Fenley explain how companies such as AirBnB, Apple and lending Club

“Have made customer co-creation of value central to their business models and in doing so now rank among the world’s most innovative and valuable firms.”

Their research indicates that companies that partner with customers have increased growth in revenue, are more efficient and have a higher ‘enterprise value’. As the researchers say:

“By leveraging customer networks and their tangible (e.g. homes and cars) and intangible (e.g. expertise and relationships) assets, firms can gain these advantages.”

The researchers identified four ‘levels of affinity’ that show how customers interact (or not) with a brand. Understanding these enables your business to move beyond customers simply promoting your brand towards true co-creation.

  1. Transactors
    Uninterested customers, with no brand loyalty, who simply buy and move on.
  2. Supporters
    These customers buy from you, but probably more out of habit than true loyalty. Warning – they might swap to another supplier at any moment.
  3. Promoters
    Loyal customers who buy from you often. They will recommend your business by word of mouth and social media.
  4. Co-creators
    These customers love your product or brand. They know your products inside out and may even create accompanying items that work with yours, such as apps or accessories.

Examples of Co-creation
Co-creation is not about engagement, it’s about adding value to your business and giving value to the customer.

“When a company co-creates with its customers (usually by providing a technology platform which facilitates interactions and transactions), company and customers create shared value.”

Computer hardware manufacturers such as Apple have been doing this for years, Through their Develop Network, developers create new applications to run on the Apple OS platforms, which are sold through the App Store. They get a share of the value created, which to date is over $25 billion for the developers.

Accommodation website Airbnb provides the platform, homeowners provide the beds (or sofas!) It’s a familiar model for those who own rental properties, but Airbnb has created a whole new generation of ‘hosts’ who otherwise would never have been able to offer informal accommodation and keep so much of the associated revenue.

Peer to peer lending sites work on a co-creation model by connecting those seeking funding with those willing to lend. It’s a purely financial arrangement, with interest rates agreed in advance, but with the added frisson of a personal story behind each funding request. It personalises lending so investors feel involved.

The same applies to crowd funding sites such as Kickstarter, where individuals (Backers) can help finance creative projects. As the Kickstarter website explains:

“Backers are supporting projects to help them come to life, not to profit financially. Instead, project creators offer rewards to thank backers for their support. Backers of an effort to make a book or film, for example, often get a copy of the finished work.”

It works well too: to date, $1.8billion has been pledged to help over 88,000 creative projects.

Benefits of Co-creation
The researchers suggest that the Network Orchestration (co-creation) model leads to:

  • greater revenue growth, through “reciprocal loyalty”
  • lower marginal cost, as co-creators bring new skills and experience to your business for virtually zero investment
  • greater customer insights, since you communicate at a deeper level
  • greater flexibility, as customers can co-create solutions or respond to other customers’ needs more quickly

How to start customer co-creation in your business
The researchers suggest that the first steps towards creating a co-creation model is to identify which of your customers are potential co-creators, and what assets they bring to the relationship.

Then, “Design a system that will incent them to participate, with a particular emphasis on leveraging digital technologies as the platform.”

Once the system is up and running, let it evolve and grow, and make sure you track the performance to check the benefits to your business.

Innovation management and customer co-creation
Sound familiar? That’s what all our Idea Network solutions enable your business to do. You can identify users with particular interests, group them together to work on specific areas of interest, and set challenges to direct energy towards specific business goals. Your employees in turn can comment, rate, respond and suggest ideas, as well as help shape the solutions.

Taking it to customers is simply a logical extension. Since our solutions are cloud-based, they can also be accessed anywhere, anytime by your customers, without compromising your own systems or security.

Moving towards customer co-creation
Not sure if you’re ready for customer co-creation yet? We’ll leave the last words to the researchers:

“Giving up control, and sharing rewards, may seem terribly risky, but it is the key to the co-creative business models that generate unprecedented value with lower marginal costs, and greater profits. It’s unwise to delay this journey any longer. Your customers are waiting.”

 

 

For more background on the research, see The Harvard Business Review