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 / Second Quarter 2002 / Issue 27(originally published by Booz & Company)


The Co-Creation Connection

And therein lies a fundamental challenge for business. Companies have grown used to viewing consumers as passive target markets for what they create. But, interestingly, markets are not passive; they are now becoming more like forums, largely because of the Internet. In the “market as a forum,” consumers actively define value the way they see value — as experiences — and push companies to see it the same way. Today’s companies know just how dramatically 40 million consumers networking with each other and challenging the status quo online, in categories as different as music and mortgages, are shaking up the business world.

In this environment, we believe companies need to embrace a new approach to value creation, one in which the basis for value shifts from products to experiences; consumer influence is spread across the value chain (in research and development, design, manufacturing, logistics, service, and points in between); conflicts between companies and consumers are more visible and resolved more productively; and companies don’t dictate how value is created.

In short, companies must learn to co-create value with their customers.

Although it is only human to feel threatened by a loss of control, it makes little sense for companies not to be open and engaged with consumers. By partnering with them in the value creation process, companies can better balance the objectives of value creation, managing the bottom line (cost and investments) and the top line (growth and revenues). Furthermore, co-creation is becoming a competitive imperative. Information illuminating what consumers value is voluminous, and it flows freely in information networks. If your company does not capture this intelligence to create more fulfilling experiences for consumers, your competitors will.

The Art of Co-Creation
How do companies co-create valuable experiences with consumers?

The traditional company-centric view says: (1) the consumer is outside the domain of the value chain; (2) the enterprise controls where, when, and how value is added in the value chain; (3) value is created in a series of activities controlled by the enterprise before the point of purchase; (4) there is a single point of exchange where value is extracted from the customer for the enterprise.

The consumer-centric view says: (1) the consumer is an integral part of the system for value creation; (2) the consumer can influence where, when, and how value is generated; (3) the consumer need not respect industry boundaries in the search for value; (4) the consumer can compete with companies for value extraction; (5) there are multiple points of exchange where the consumer and the company can co-create value.

In the customer-centric mass production and marketing of automobiles, for example, suppliers provide raw materials, components, subcomponents, and systems to manufacturers, who create value by assembling these inputs into vehicles. Consumers actively decide what vehicle to buy, but companies decide what their choices will be. Cars are sold by dealers acting as intermediaries for the automakers. For companies reliant on this scenario, value creation is defined solely by extracting profit from end consumers.

The Saturn Corporation, billing itself as “a different kind of car company,” has spurned the industry’s traditional ways. In 1985, when the General Motors Corporation launched Saturn, it didn’t just start a new car company, it created a “community.” Saturn works with its customers in the design, manufacturing, and sales processes, and it engages Saturn owners to help continuously innovate and improve its cars.

Consumers think about the place of a car in their life — how it fits their budget, their desire for comfort, their need for peace of mind, their aesthetics. Companies think about their competitive strategy and their operations — engineering, differentiation, logistics, pricing, and, above all, revenue and profit. Although these views of value do clash, they’re not irreconcilable. Saturn is a company trying to merge these two ways of looking at value.

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  1. J. Philip Lathrop, Gary D. Ahlquist, and David G. Knott, “Health Care’s New Electronic Marketplace,” s+b, Second Quarter 2000 Click here.
  2. C.K. Prahalad and Stuart L. Hart, “The Fortune at the Bottom of the Pyramid,” s+b, First Quarter 2002 Click here.
  3. C.K. Prahalad and Venkatram Ramaswamy, “Co-Opting Customer Competence,” Harvard Business Review, January–February 2000 Click here.
  4. Neil Strauss, “Behind the Grammys, Revolt in the Industry,” New York Times, February 24, 2002
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