"Innovation happens everywhere, but there is simply more elsewhere than here." This quote by two former Sun Microsystem executives nicely illustrates the increasing recognition that companies can enhance their innovation activities by leveraging the knowledge, skills, and resources of external contributors. This is really the core idea behind customer co-creation. The realization that customers can help companies improve their new product development activities by both contributing ideas as well as selecting ideas for possible new offerings. Now over the past decade or so, an increasing number of firms are leveraging the power of online platforms to ask customers to contribute and select ideas for their new products. Thus, in our new digital age, customers are not only buying products, they may also help design and develop them. Now this is a radical departure from the more traditional internally focused innovation processes that most firms used before the digital revolution. Here are some great examples of customer co-creation. Unilever is one of the world's largest manufacturers of consumer packaged goods and markets a variety of well-known brands such as Dove soap, Hellmann's Mayonnaise, and Lipton Tea. Unilever was established nearly a hundred years ago and markets over 400 products and makes billions of dollars in profits each year. Despite the success, Unilever actively solicits external ideas through its open innovation platform, which can be easily accessed from its website. This platform posts a number of challenges and advise anyone to contribute their ideas about how to solve these problems. While most of these challenges are rather technical in nature, anyone over the age of 17 is invited to submit their ideas. If your idea is selected and put it into an actual product, Unilever will provide you with a share of the commercial proceeds. T-Bo. This is probably a company that you haven't heard of. It's a new US manufacturer and marketer of men's underwear. Co-creation is a big part of T-Bo's corporate DNA, and openly invites men from around the world to participate in its co-creation community. For example, its customers can apply to be co-creation insight agents by volunteering to test and select new products before they're launched. In fact, T-Bo's motto is, "I am because of you," and its website states that, "We believe in collaborative creation." So this new company has strongly embraced and incorporated the idea of customer co-creation. Threadless is one of my favorite companies. It's a Chicago-based clothing firm that specializes in producing creative t-shirt designs. It was voted as one of the most innovative companies in America by Inc. Magazine and has embraced co-creation from the very beginning. All of its t-shirt designs are created by and voted upon by its customers. So Threadless is essentially a co-creation platform rather than a clothing company. Now we'll discuss Threadless in more detail in our case study for this module. Co-creation is defined as contributions made by customers that assist a firm in the design and development of a new product offering. I'm using the term customers rather broadly as this contributions may also come from non-customers, but that's typically less likely. These contributions are usually made through a web-based platform and often come in digital form. Thus they are a nice example of a new digital tool. Customer co-creation is a fascinating topic and one of my research interest, so there's lots of things we could talk about in terms of this topic. For the purpose of this discussion, I'd like to focus on three key things that you should know. First, let's talk about the steps involved in the co-creation process. Successful customer co-creation requires two key steps. First of all, a firm must get its customers to submit contributions, and then second, it must select a few viable contributions from much a larger set of ideas, many of which are not very valuable. So we could think of customer co-creation as a process of both contribution and selection. Now both of these processes are quite challenging, but for different reasons. Contributions are challenging because customers are busy, they typically care very little about your products, and don't have much time or incentive to spend on giving you their ideas. As a result, many co-creation efforts fail because the submissions are simply too low. Now selection is challenging because most of the submissions are not very useful. They may be too idiosyncratic, too expensive, or have already been tried and don't work. As a result, firms face the difficult task of having to reject customer submissions and risk creating bad will with some of the most highly engaged customers. So in order to be successful at customer co-creation, firms must both convince their customers to submit ideas and then reject those ideas without alienating them. Second, how to motivate customers to engage in this activity. Research suggests that there are two main methods for motivating customers to engage in co-creation. First, social recognition, and second, financial reward. Most firms that are successful in this process typically employ both of these types of rewards. Usually these rewards go to customers whose contributions have been selected. For example, customers who submit winning designs to Threadless receive a percentage of the sales for any products that use this design and also the intangible benefit of having their name and their design featured as a winner on Threadless's website. Third, there are different types of co-creation. Customer co-creation is a very broad category and comes in many different forms. In my research on this topic with my colleague [inaudible] , who's now at Boston College, we identified four different types of customer co-creation, which we illustrated using a two-by-two matrix. This matrix is based on the two key steps in the co-creation process, contribution and selection. As you can see from this matrix, we outlined four distinct types of customer co-creation: collaborating, co-designing, tinkering, and submitting. These four types differ in terms of the amount of control that firms employ over both the contribution and the selection processes. Collaborating is a form in which firms have the least amount of control, while submission is the form that provides firms with the greatest amount of control. This matrix can be used to understand and classify different types of co-creation activity. For example, Unilever's co-creation approach fits in the contribution category while the type of co-creation we see with Threadless fits in the co-designing category. This is an online platform that allows firms to post design needs for the new products, such as the need for a new package design and then share these needs with crowd springs, crowd of registered designers, who could submit design concepts that are then reviewed by the firm. These researchers conducted both qualitative and quantitative studies that assess the impact of design crowdsourcing upon product performance. The results indicate that design crowdsourcing has a positive impact on the sales of new products that are low in customer appeal, but have no effect on the sales of products that are high in customer appeal. They also found that firms are more likely to engage a design crowdsourcing for products that are more technologically complex. In some this research suggests that design crowdsourcing can be a beneficial tool for companies under certain conditions, especially for those who have complex technological products that have a low degree of initial customer appeal. The second study is by Karina [inaudible] , that's hard to say, and Michael Dalin. It was published in 2018 in the journal of marketing communications. Now, this study examines how customer involvement in the development and selection of ideas for new products is viewed by other customers. To do this, they conducted the experiment among nearly 400 participants in Sweden. In this experiment, these participants were asked to react to various scenarios that involve customers either giving or selecting ideas for new food item offered by a local hamburger restaurant. Half of the participants were told that the new menu item was a hamburger, which they call a congruent product, while the other half were told the new product was a pizza, which they frame as a incongruent product. They then asked participants to rate both the product and the restaurant. The results of this experiment revealed that participants had a more favorable impression of both the product and the restaurant when customers contributed ideas for an incongruent product for the pizza. However, they found the opposite when customers selected ideas. They had a more favorable impression for both the product and the restaurant when the product was congruent for the hamburger. The results of this study suggests that firms should use customers to contribute ideas for products that are different than ones they currently offer but to use customers to select ideas for products that are similar to the ones they currently offer. First, the rule of one. When firms engage in new product development, they carefully test their ideas and concepts to ensure that they appeal to their broader set of target customers. In contrast, when customers contribute their new product ideas, they don't engage in this type of process. As a result, many of these customer ideas are rather idiosyncratic in nature and they may not appeal to other customers. For example, I prefer tea over coffee, I'm not a coffee drinker. Thus, if Starbucks asked me for my ideas, I would suggest they offer more tea and less coffee. Now this would probably be a bad idea since most Starbucks customers seem to prefer coffee rather than tea. As a result of these types of personal idiosyncrasies, typically, only about one percent of all customer contributions are good enough to implement. This is a very low percentage. So for co-creation of work, companies need to get lots of ideas, provide incentives for customers to contribute. Second, authenticity is critical. In our new digital age, authenticity is becoming increasingly important and customers are becoming increasingly skeptical and critical of companies. As a result, customers are much more likely to contribute their ideas, time and energy to companies that have an authentic need for their help and not just try to exploit their efforts for commercial gain. For example, customers seem quite willing to contribute t-shirt designs to Threadless because it's co-creation activity is viewed as highly authentic. Threadless began as a co-creation company, that's what they do. In contrast, customers would probably be less likely to give ideas for t-shirts to a traditional manufacturer that employs a large number of in-house designers. Third, patches and badges. We all like to be rewarded for our efforts. Customers who engage in co-creation are no exception. Thus, most successful co-creation initiatives award successful co-creators not just financially, but also through some visible symbol of recognition. For example, the US Space Agency, NASA, rewards co-creators by giving them a special patch they can proudly display. In fact, NASA found that this patch was a stronger motivator than a financial reward. Fourth and finally, don't be the bad guy. As we discussed earlier, one of the dangers of customer co-creation is the possibility of alienating customers by rejecting their ideas. One way of reducing this risk is by engaging your broader customer community to evaluate, vote on and select these contributions. For example, the US computer manufacturer, Dell, for many years solicited customer ideas for product improvement via its Ideas Storm initiative. This initiative relied heavily on the customer community to evaluate these ideas. Thus, fellow customers felt that the rejected ideas came from the community rather than from Dell itself. This helped reduce the sting of rejection and helped to avoid making Dell look like the bad guy.
