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


The Co-Creation Connection

In the pages that follow, we present a framework — a new value creation paradigm — to suggest how companies can better understand the consumer’s view of value and productively work with them to co-create more satisfying value for both sides.

Elements of Exchange
The point of exchange is often the place where the conflict between the traditional company view of value and the consumer view of value is most exposed. Although companies are not inclined to interact with consumers at all points in the value chain, opportunities for exchanges between the company and the consumer neither begin nor end when a consumer purchases something from a company. Indeed, the point of exchange need not be restricted to where the company and the consumer trade money for finished goods or services.

If experience is the critical source of value for consumers, we need to identify the factors that determine experience. We call these the elements of exchange, and they are:

  • How transactions are managed.
  • How choices are determined.
  • How the consumption experience is staged.
  • How price and performance relate.

By examining the four basic elements that constitute an exchange, companies can explore how current management approaches may positively or negatively affect customer experiences, and discover better ways to create value.

• Transactions. Companies have been quick to spot emerging technologies that reduce transaction costs by having consumers perform functions formerly handled by employees (i.e., customer self-service). Gas stations’ transitioning from full-service to self-service was an easy win for gasoline retailers and consumers. Companies asked customers to fill their own tanks and pay through devices on the pump. And what drivers lost in attendant service they happily traded for the convenience of self-service and, sometimes, better prices.

But most customer self-service scenarios aren’t this smooth. Managers are usually so preoccupied with the cost advantages of self-service that they misjudge its consequences on the customer experience. Or worse, they don’t consider the consequences at all. Anyone who has been foiled by automated multiple-choice customer service over the phone, or who has been left on hold listening to bad music, knows the limitations of call centers. When hospitals, laboratories, and pharmacies put health records, diagnoses, and prescription information online to cut costs, are they taking into account consumer concern about privacy?

On the Web — the ultimate self-service technology — corporate indifference to the consumer experience occurs constantly. Witness the number of abandoned “shopping carts”; perhaps shoppers who stop short of purchasing find the interfaces confusing or don’t feel secure using a credit card online. For the consumer who doesn’t believe a company will not sell his or her personal data to someone else, giving profile information in exchange for the convenience of “one-click” purchasing or instant recognition on a password-protected Web site may not be worth the risk. Companies also have greatly underestimated how differently older and younger people view issues like privacy and security online.

The key issue in automating transactions is consumer heterogeneity. Customers differ in their skills, their propensity for problem solving, and their willingness to spend time to learn a new system, as well as their willingness to trust it. This is true whether it involves the Web or any other system that is unfamiliar.

Self-service works best when it’s applied by companies that manage their costs and the customer experience with equal care. Southwest Airlines Company works hard to make sure its standards for being prompt, accurate, and friendly are the same whether the customer exchange is made through an automated channel or handled by an employee. Similarly, Lands’ End Inc. has invested in self-service technology and superior agent training so that the consumer experience on its Web site is as good as its catalog operation consumer experience.

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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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