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Marketing Review St. Gallen 6 | 2009 11
In the late 1990s, C. K. Prahalad and I began discussing the impor-tance of co-opting customer competence when developing new products and services, and even experiences. In a Harvard Busi-
ness Review article in 2000, we noted that, thanks largely to the
Internet, the active, engaged customer was dramatically transform-
ing the industrial system as we know it. We went on to emphasize
how companies had to learn to “co-create” value with customers.
In 2004, C. K. Prahalad and I wrote a book defining the implica-
tions of the shift in modern society towards the centrality of indi-
viduals and their human experiences. This book was titled The
Future of Competition, and it was recognized by BusinessWeek
as one of the top 10 books of 2004. In many ways, The Future of
Competition anticipated the digital and consumer universe we
know today. In just three years, a galaxy of new businesses capital-
ized on the so-called “Web 2.0” evolution, with Time magazine
designating “You” as the Person of the Year in 2006.
The conventional firm-centric view of value creation has
expanded beyond the activities of the firm towards one whose
locus is now a function of interactions anywhere in the system –
the underpinning of the new source of value (the “WHERE” of
value creation) as shown on the right side of Figure 1.
Beyond Activities to Interactions
Consider Nike whose Nike+ “experience” kit consists of a wireless
device that transmits speed and distance information from a sensor-
equipped Nike running shoe to an iPod Touch or special wrist-
band. Then, through a website (nikeplus.com) runners can track
their progress, set personal goals and challenge friends to races.
With over 1 million runners and over 130 million miles uploaded
as of June 2009, Nike+ has been a runaway success. For Nike, its
market share has increased by as much as ten share points, not to
mention increased revenues through the Nike+ ecosystem, in part-
nership with Apple and others. As shown on the left side of Figure
2, the “strategic capital” of Nike has also increased – the accumu-
lated knowledge and insights it gains from continuous interactions
with runners through Nike+, which enables Nike to engage better
with the running community at large. Nike+ also reduces the risks
and costs for Nike, through word-of-mouth marketing and exper-
imentation with new value propositions. And as shown on the right
side of Figure 2, Nike+ enables runners to have new valuable expe-
riences, while reducing risks and costs to individuals using the sys-
tem as well. In short, Nike+ has expanded the value creation pie in
“win more – win more” fashion.
Co-Creation of Value – Towards an
Expanded Paradigm of Value Creation
Co-creation is the process by which products, services, and experiences are developed jointly by
companies and their stakeholders, opening up a whole new world of value. Firms must stop thinking of
individuals as mere passive recipients of value, to whom they have traditionally delivered goods, services,
and experiences. Instead, firms must seek to engage people as active co-creators of value everywhere
in the system.
VENKAT RAMASWAMY
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12 Marketing Review St. Gallen 6 | 2009
From the company’s standpoint, not only has Nike redefined how
it interacts with customers, it has also enabled a full system of inter-
actions. Nike no longer attempts to control the value system, but has
instead opened up to multiple types of co-creators, leveraging the skills
and talents of millions of people willing to contribute their knowledge.
As a result, the “value system” of Nike is now open and co-creative.
The global resources of the community of customers – from users to
enthusiasts to trainers and coaches – and the extended network of
partnering firms and suppliers –Apple, Google, and fitness centers –
are a collective competence base for Nike. In other words, Nike has
also expanded the source of competence – the “WHO” of value crea-
tion (see Figure 1). From one perspective, every one of the people and
organizations contributing is a potential (and often actual) buyer or
advocate for Nike shoes, clothing, accessories, and equipment. From
another perspective, they have (or can) become even more: a part of
the Nike co-creation system in which they generate new sources of
mutual value. Co-creators enjoy new, differentiated experiences and
better economics, while the company is able to generate new strategic
capital for itself and dramatically improve its economic model.
Beyond Business and Management Processes
to Engagement Platforms
The Nike+ example also illustrates the shift beyond products and
services to human experience environments (the “WHY” of value
creation). In the words of Nike’s Olander, “In the past, the product
was the end point of the consumer experience. Now it’s the starting
point” (Gregory 2007; see also Greene 2008). The environments of
human experiences embody interactions of individuals with each
other and with the company and its network partners’ products and
artifacts, places and spaces where interactions take place (whether
online or offline), and interactions with the company and network
partners’ business processes. Designing for human experience
environments goes well beyond classic product and service design,
not only in terms of the complexity of the different types of inter-
actions among individuals, communities, and the firm’s enhanced
network, but also in terms of a deep understanding of the inter-
action experiences that actually generate value for those involved.
This requires going beyond business processes to “engagement plat-
forms” that enable and support “two-sided” interactions on a large
scale, in continuous fashion (the “HOW” of value creation). Nike+
is an example of such an engagement platform.
There are many examples of firms that have opened up their
internal processes from marketing to product development to even
designing the entire business network with customers and stake-
holders (Ramaswamy/Gouillart 2010). Consider, for example,
Crushpad, a San Jose based firm, which is transforming the wine
business by using technology to engage consumers in co-creation
of the offering itself. Crushpad started its operation with the slo-
gan: “Make your own wine!” and its value chain is laid out on their
website (crushpadwine.com). Consumers can engage, as much or
as little as they wish, at any point in the wine making process: from
creating a wine making plan; to growing and monitoring the
grapes; to picking, crushing, and fermenting the grapes; to aging
the wine; and finally, to packaging the bottles. At each of these
stages, Crushpad provides consumers with the tools and educa-
tion. This flexibility is the essence of co-creation: true co-creation
enables consumers to engage with the company at whatever stage
of the process, and whatever level of involvement, they desire.
Crushpad is at the center of a network of suppliers, employees,
customers, and customer communities. Each of the parties in the
network allows for multiple types of interactions, which in turn
create value. First, Crushpad allows customers to interact with the
vineyards that grow and supply their grapes, and to design various
aspects of its wine-producing experience directly with employees
or through its website. Consumers can also interact with the prod-
uct itself in creating the wine, or with other products provided by
Crushpad: party planning services, labeling and packaging advice,
and advice on how customers can launch and sell their unique
wines. Finally, Crushpad allows customers to communicate and
create value with other customers by allowing customers to develop
their own websites, by enabling community interaction through
connecting with wine enthusiasts and blogs, by providing a wine
wiki, and by sponsoring community events.
Revenues come from all of these value added services and inter-
actions, above and beyond the traditional product of the wine itself.
Further, increased word-of-mouth communication about the
brand decreases marketing costs and helps channel the power of
the community to generate new ideas. Co-creation is not just a
win-win situation: the emphasis on continuous improvement,
communication, and learning allows customers and firms to “win
more – win more” by efficiently creating unique value.
Engagement platforms, however, transcend the company’s offer-
ings as such. In other words, while products and services can them-
selves become engagement platforms, especially as technology
becomes embedded in offerings, any firm can engage customers
and stakeholders in a dialogue about their offerings and generate
new strategic capital through other external engagement platforms.
Let us take another example to illustrate this.
In a bid to revitalize the Starbucks experience and mitigate busi-
ness risks that it faced from unbridled expansion, Howard Schultz,
who returned as CEO of Starbucks in January 2008, launched
My StarbucksIdea.com in March 2008. In the process of its rapid
expansion, it had not only paid less attention to the Starbucks expe-
rience, but had to contend with rising customer and market risks
from an erosion of its loyal customer base, market development by
competitors who had caught on to espresso drinks, from Dunkin’
Donuts to McDonald’s at the low end, other fast rising premium
coffee shop chains like Peet’s Coffee and Caribou coffee, and the
hordes of local coffeehouses that had begun to upgrade the cus-
tomer experience. In a memo he had circulated the previous year
within the Starbucks organization, Schultz raised concerns about
Starbucks “losing its soul” and the risks to its brand that had been
built around experiences of value to customers (Goldstein 2007).
On MyStarbucksIdea.com, he invited everyone and anyone to
help co-shape the future of Starbucks with their ideas, in ways Star-
|| Co-Creation of Value – Towards an Expanded Paradigm of Value Creation Towards an Expanded Paradigm of Value Creation ||
Marketing Review St. Gallen 6 | 2009 13
bucks might not have thought of, to check out other people’s ideas,
and vote on the ones they like best. Starbucks has been proactive
in laying out areas of experience on its web site, ranging from
ordering, payment, and pick-up, to atmosphere and locations, to
social responsibility and building community, to product-related
ideas concerning drinks, merchandising, and the Starbucks card,
and any other ideas to enhance the Starbucks experience. Within
a month, many constructive ideas were posted. One that gained
traction is to embed a customer’s regular order on the Starbucks
card – for example, “a tall, nonfat, no-foam, extra-hot caramel mac-
chiato with light caramel and a dash of vanilla,” which would speed
up the transaction for an individual customer. From Starbucks’ per-
spective, it could serve more customers faster, generating a “win-
win” for both sides. Other customers called for the ability to send
in orders by phone or Web, give drinks to a friend, make ice cubes
out of coffee so when they melt they won’t dilute cold drinks, and
something to plug the hole in lids to prevent sloshing (which Star-
bucks implemented through reusable “splash sticks”).
Chris Bruzzo, Starbucks’ CTO, says that they wanted to “open
up a dialogue with customers and build up the muscle inside the
company”. There are about 48 Idea Partners – specially trained
employees who act as hosts of the discussion and take specific ideas
to their internal teams, and act as advocates for customers’ sugges-
tions so “customers would have a seat at the table when product
decisions are being made,” as Bruzzo puts it, to “close the loop in
an authentic way.” The goal is to truly adopt customer ideas into
Starbucks’ business processes, including product development,
store design, and customer experience.
Starbucks has already demonstrated this new engagement model
of co-creating the brand experience with customers, not only
reducing its business risk in the process but also identifying ways
of keeping its core customers more loyal. For instance, after Schultz
took over as CEO, he announced that they would be cutting back
on sandwiches to return the stores to a more coffeehouse-style
experience. Through MyStarbucksIdea, however, customers asked
that Starbucks retain the sandwiches, but they wanted more nutri-
tious and healthier options (more whole grains, more fiber and
protein, smaller portions, etc.). Starbucks Idea Partner Katie, a reg-
istered dietician and senior nutritionist at Starbucks, engaged in
dialogue with the community, internally with Starbucks, and with
the company’s supply chain, finally implementing a new range of
nutritious but tasty sandwiches with small ingredient changes that
they found would address aroma issues so as not to interfere with
the smell of coffee. Thus, not only does the community vote and
decide, but members can discuss the ideas with Starbucks Idea
Partners and help make them even better. Says Bruzzo, “There are
advantages to having this kind of transparency because it creates
more engagement, and we actually get to iterate on our solutions
while we are building them” (Jarvis 2008).
Ultimately, the community can not only see which ideas were
the most popular but also engage with the company in dialogue as
it reviews ideas, watch as the company takes action, and provide
real feedback based on actual experiences. This kind of continu-
ous, iterative engagement between Starbucks and its customers, as
well as its customer-facing employees in stores (who have also
chipped into the conversation) and the supply chain and partner
base, enables the brand to be co-created and managed in ways that
challenge traditional brand management orthodoxies. Companies
that engage customers in co-creating brands can create a “seeing
culture,” as Schultz puts it, and help employees inside the company
Fig. 1 Co-Creation as Expanding Conventional Value Creation
Source: Ramaswamy/Gouillart 2010
Global
Network and
Communities
of Individuals
Inside and
Outside the
Firm
Interactions
Anywhere in
the System
Human Experience Environments
Engagement Platforms
Basis of Value
Creation (WHY)
Means of Value
Creation (HOW)
Competence base
of Value Creation
(WHO)
Opportunities for
Value Creation
(WHERE)
WHAT
Firm and its
Employees
Firm and its
Activities
Products and
Services
Business and Manage-
ment Processes
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14 Marketing Review St. Gallen 6 | 2009
“get” customer-think. It is important to drive co-creative thinking
into the management of human capital and (re) design of business
processes, and back to points of interactions with customers.
As the Starbucks example illustrates:
Co-creation is, by its very nature, not about “build it and they will
come”, but “build it with them, and they are already there.”
Co-creation is both the means and the end, as it were, in a con-
tinuous cycle. It is not just about the company conceiving prod-
ucts and services in and of themselves as engagement platforms, as
in the case of Nike+ and Crushpad. It is also about using engagement
platforms as an organization to systematically involve customers,
employees, and stakeholders in a continuous process of both dis-
covery and execution of new value creation opportunities.
Innovating Co-creative Engagement Platforms:
Caja Navarra
Caja Navarra (CAN) is a savings bank based in Pamplona, in the
Navarre region of northern Spain (Aranda et al. 2008).1 Like other
Spanish savings banks, a ‘caja’ (pronounced “ca-ha”) is traditionally
a regional not-for-profit bank designed to support its local com-
munities through social contributions, based on a dual financial
and social mission, with part of its profits allocated for society’s
development and well-being. Incorporated under the legal form of
“private foundations with a social purpose,” they are actually full-
credit institutions with freedom to act and compete operationally on
par with the rest of the financial institutions in the well-developed
Spanish banking system serving over 45 million people.
In 2002, CEO Enrique Goñi arrived at Caja Navarra and imme-
diately sought to differentiate the bank in a crowded market of over
60 savings banks. Its social investment at that time was in the
model of all cajas: the bank’s board decided where the money went,
in a highly political decision. Goñi went to the board with a
proposal to put CAN’s social investments in the hands of customers,
in effect saying, “Those who decided had to stop deciding.” In
January 2004, the new initiative, dubbed “You Choose: You
Decide,” allowed customers to specify their preferences among the
seven initiatives of social action traditionally supported by CAN.
Customers’ credit cards were personalized to show their choices,
reinforcing their identification with the initiative and generating a
strong emotional connection.
Through “You Choose: You Decide,” bank customers revealed that
their most popular project in 2006 was “emergency aid in natural
disasters and crises,” with 12,099 supporting it. CAN invested €42
million (about $60 million), or 30 percent of its after-tax profits in
2006, in these social programs (the other 70 percent was reinvested
in the business). Through a customer-facing engagement platform,
implemented both online and at its branches, CAN let customers
choose categories of investment and specific organizations and
projects. In 2007, over 530,000 customers (almost 88 percent of the
customer base) had chosen which social initiatives to fund (with a
total of €50.25 million, or about $71 million). More than 460,000
customers had selected specific projects from a portfolio of 2,707
■
■
projects proposed by 2,133 organizations. (CAN’s goal by 2010 is to
have over 700,000 customers deciding from over 4,000 projects.)
The “You Choose: You Decide” initiative is the driving force
behind the concept of CAN’s civic banking – empowering people
with new rights, as Goñi puts it. As CAN’s pioneering initiative
evolved, the bank positioned it as a customer right for “Respon sible
Banking”: giving customers a degree of insight into and control
over CAN’s social investment. In 2007, over 650,000 customers
received letters explaining how much profit CAN had made from
their money and how much each customer had contributed to the
projects they had chosen – in cash figures. As Pablo Armendariz,
CAN’s Head of Innovation, who works closely with Goñi in co-
shaping the initiatives, puts it, “Everything is in on view, just like it
is at CAN’s branches. We undertake to work impeccably, without
hiding anything, protecting our customers’ interests at all times.”
Information on profitability – whether by region, product, seg-
ment, or individual customer – is usually one of the best-kept
secrets at any bank. But CAN engaged in transparent banking, con-
sistent with its strategic intent of social responsibility and its new
perspective on the rights of customers. It provided prospective cus-
tomers with an online tool to estimate how much money it will make
with them, and therefore how much money the customer could
direct to social projects. Besides creating a strong emotional
connection with the bank (yes, a bank), CAN has in effect provided
its customers with a platform to get more engaged in their society.
The platform enables the rights of responsible, transparent, and
innovative banking for multiple co-creators, ranging