Dr Graham Hill, of Optima Partners enlightens us on why companies should shift their focus from producing for to creating value with customers – which is to optimize the value for all parties!
Dr Graham Hill: A couple of years back I wrote a speculative blog post at CustomerThink entitled ‘How Customer Co-Creation is the Future of Business’. In many ways my prediction was right, Customer Co-Creation IS the future of business, but not exactly in the way I had imagined.
Customer Relationship Management (CRM) has been around for over 20 years. It is built around using customer analytics to improve marketing, sales and service touchpoints. And it works very well. Or at least it does for companies. But it doesn’t offer much of any value to their customers. And as a result, its effectiveness has started to fall.
Customer Experience Management (CExM) was created about 10 years ago as an antidote to the blatant one-sidedness of CRM. It still uses the same customer analytics, but it applies the insights generated to improve all the touchpoints in the end-to-end customer experience. It is still mostly about companies’ branded experiences, but it does offer more value to customers than CRM.
Both CRM and CExM are designed around passive customers who consume whatever the company offers them. That might work for more traditional customers, but it doesn’t work for today’s informed, empowered, social customer. Social customers want to be involved in co-creating their own experiences. Indeed, they expect companies to actively engage with them during the design, delivery and consumption of the experiences. The social customer knows exactly what they want. Their friends told them so. Woe betides any company that treats them as passive consumers.
Just as CExM was created as an antidote to CRM’s one-sidedness, so Customer Co-Creation was created as an antidote to CRM and CExM’s lack of engagement with customers. In it’s simplest form, it actively engages with customer during the Co-Design of products. In co-design, customers typically contribute product ideas, vote on the best ones and may even be involved in reviewing prototypes.
Companies as diverse as Lego, Ford and Best Buy have used crowdsourcing to co-design new products, marketing communications and even customer service.
Having involved customers in the co-design of products, the next step is involving them in their Co-Production. In co-production, customers take over the production, delivery and installation activities of the company. It’s a bit like self-service, only on a much larger scale. This has wide-appeal to both companies and governments. Although IKEA does it’s own product design, it expects customers to transport them home, and build them from the components provided. And governments in the UK, Germany and the Netherlands are actively engaging citizens in co-producing their own services.
Involving customers in co-design and co-production is a great start, but they both suffer from the same fundamental problems as CRM and CExM. Despite the active involvement of customers, they are still mostly about the company. The customer may receive some personal satisfaction in seeing their co-designed idea implemented, but it is the company that gets all the profit from incremental sales. And the customer may even get a marginally lower price for building their own furniture, but it is the company that reaps all the savings from not having to manufacture and distribute finished products.
If co-design and co-production are just post-modern equivalents of CRM and CExM, created to take advantage of social customers, is that all there is to co-creation? Fortunately there is more. Much more!
Value Co-Creation takes a radically different approach to co-creation. Rather than just involving customers in co-designing or co-producing products for the company, value co-creation creates a platform over which customers and companies can co-create whatever they value together. By understanding who their customers are, what they value and how they interact with the company to get it, the company can create a platform which brings together all the right resources, at the right time, so that customers can co-create more value from the interactions. The company bears the cost of providing the platform, but it creates much more value from increased sales revenues, reduced service costs, increased loyalty of customers and ultimately, increased referrals of new customers.
A good example is British Airways’ introduction of check-in kiosks at Heathrow in the 1980s. When they were first introduced, customers struggled with them. They would try them out, find them too complicated and abandon them for the check-in queue. The skills gap was just too great. So British Airways placed check-in staff next to the kiosks to show customers how to use them. Armed with this new skill, the customer could quickly check-in, avoiding the long queues and leaving them with more time to relax before their flight.
Although British Airways had to initially provide additional staff, they quickly paid for themselves in smaller check-in queues, fewer check-in staff, higher customer loyalty and higher retail sales once customers had gone airside.
By designing a platform-based business model to create more value for customers, a company can create even more value for itself. And it can use the platform to attract other partners too. Companies like Amazon, EBay and Apple have all gone to great lengths to understand who their customers are, what they value, and which interactions they use to get it, and have developed multi-sided platforms to allow customer to create more value for themselves. Their millions of satisfied customers have attracted thousands of partners to their platforms, only serving to attract yet more customers.
Customer co-creation IS the future of business. But not exactly in the way I had originally imagined. Co-design and co-production are currently much in-vogue, but they are just stepping-stones on the way towards platform-based value co-creation. As the old saying goes, “Be careful what you wish for. You might get it!”.