Co-Creation Theory

Organizational reputations are socially constructed, and many different factors influence an organization’s reputation. The types and quality of a firm’s products and services will influence its reputation, as will the words and actions of its employees, consumers, stockholders, and other stakeholders. There are many types of reputations (actual, conceived, ideal, desired), but they all involve some kind of communication in their creation, maintenance, and sustainment. This entry covers the co-creation of value, the evolution of value creation, the chance of devaluation, and implications for reputation management.

An organization’s reputation is an important resource because it shapes its relationships with publics. Organizations devote extensive resources that either directly or indirectly promote their reputation through marketing, public relations, corporate social responsibility programs, community outreach, social media, risk and crisis management, and good, old-fashioned media relations.

Many organizations attempt to control their reputation through activities that emanate from within the organization—public relations, corporate social responsibility, and CEO leadership. This perspective has its roots in the rationale or logic-based systems of the firm. In the past, firms sought control over the business cycle. Firms managed internal processes, ranging from research and development to product design, supply chain, product development, production, and packaging and the final marketing strategy to consumers. Internal forces such as budgets, expertise, access to resources, and timing all influence the final product. In this model, the firm acts autonomously. There is, of course, feedback from the marketplace, but the ultimate influence on the end product is from internal forces within the organization. Traditionally, the relationship between the firm and the consumer centered on an exchange process, where firms produced goods and services and consumers purchased those goods and services. Feedback occurred after the consumer had purchased and then used a product or service.

Over time, consumers have become more engaged with firms. Specifically, consumers have also become more aware of the manufacturing process and are more interested in how products and services are developed. Consumer interest is evident in consumer boycotts of products, concerns raised about the supply chain, and questions asked about the environmental impact of firms. The growth of the Internet and social media has empowered consumers to follow firms’ actions more closely. Some organizations have embraced consumer engagement and have created communication opportunities to foster even more interaction—through Facebook, Twitter, marketing surveys and polls, online focus groups, opportunities to name or design products or provide feedback on different parts of the product life cycle, and so on. Today, the consumer and the firm can be more engaged than ever before. This engagement has the potential to create value for the firm.

Co-Creation of Value

Through a variety of communication practices, organizations and members of the public co-create meaning and value for the organization. University of Michigan marketing professors C. K. Prahalad and Venkatram Ramaswamy termed the process of organization-consumer interaction as “the co-creation of value.” Their groundbreaking work The Future of Competition: Co-Creating Unique Value With Consumers (2004) opened the door to considering a revised model of the firm’s relationships with consumers. Their work signaled a shift in the understanding of a firm from an autonomous entity to a new reality of consumer-firm interaction.

To create something is to make something. To co-create something is to involve others in the creation process. A co-creational approach proceeds from a different view of the information flow and relationships between firms and consumers. Communication is no longer one-way, emanating from the organization to the public, but instead, it is two-way communication, with both organizations and publics creating, through experiencing, an event or activity. Co-creation theory is a framework to describe how communication and experience create shared meanings and shared interpretations of messages, events, and context.

According to Carl Botan and Maureen Taylor, the co-creational approach sees communication as that which creates the relationships among individuals, groups, and organizations. Communication is the process through which relationships are negotiated. Meanings are neither fixed nor stable but, instead, are constantly being negotiated as multiple actors weigh in and attempt to get their definition of the issue, problem, situation, or solution accepted by others. Consumers are not treated as recipients of organizational messages, but they are instead treated as co-creators of meaning, product, service, brand, and reputation. Experience with the brand, people, and ideas drives this co-creation, and co-creation drives value.

The Evolution of Value Creation

In the past, products and services were developed in private. Innovations were considered a competitive advantage, and secrecy ensured that a product or service would not be copied or preempted by a competitor. In this model, the marketing strategies that promoted a product were also treated as proprietary and controlled. Consumers were symbolically part of the development cycle of a product, but their input was mostly in the form of consumer and marketing research. As Prahalad and Ramaswamy noted, there was a separation between the exchange and the value of relationships. The firm created value, the market allowed for the exchange of value, and the consumer sought the firm’s offerings. The interaction between the firm and the consumer occurred at the end of the product’s life cycle. The firm created value in the form of the product, its packaging, and its marketing. The marketplace is where the value was exchanged, and the consumer came into the equation at the end of the product cycle. It is consumer demand that brought the value chain full circle.

This interaction cycle captures the basic firm-consumer relationship that dominated marketing approaches for many years. This model allowed organizations to create their products, and their reputations, based on carefully staged actions internal to the organization.

Yet, over time, the public has become more interested in the stages of product development that occur before the product enters the marketplace. They want greater access to and experience with the brand. Organizations are also seeing the potential benefits of greater involvement of the target markets. As a strategy, co-creation has emerged to focus on mutual company and consumer value. A co-creation approach views the marketplace (supply and demand) as an intersection of ideas, where firms and active consumers create value. The consumer participates in individual experiences that create a “unique value” and competitive advantage for the firm. This value is created through new forms of interaction between the firm and the consumer. There is an overlap in the marketplace as firms introduce products and people customize them.

There are building blocks of interactions between the firm and the consumers that facilitate co-creation experiences. Prahalad and Ramaswamy identified four building blocks of co-creation of value: (1) dialogue, (2) access, (3) risk-benefits, and (4) transparency. These four building blocks guide the orientation to and the interaction between the consumer and the firm. Dialogue occurs when the firm and the consumer become equal and joint problem solvers. Dialogue occurs around issues of interest to the firm and the consumer. Access occurs when there are opportunities for consumers to interact or experience the products and services of the firm in an environment where they can provide feedback. Risk-benefits occur when both parties engage, trusting the other, and transparency describes the conditions that guide the interactions.

New opportunities and challenges have emerged for firms. Opportunities include consumers providing input into product design, manufacturing, and distribution. For instance, today, organizations invite consumers to help them collectively solve problems, and consumer participation is made easier through mobile apps and social media.

Co-creation has existed in the open-source software field. In this field, users have full access to the source code and can make their own changes and improvements to the code. The rationale behind open-source code is that people will innovate with it and thus create even more value down the line. Tesla Motors’ decision to share its patent portfolio with other innovators is an example of how open-source opportunities can accelerate the way a market develops.

Crowdsourcing is also a type of co-creation of value. Crowdsourcing is the process of gaining ideas, service, or content by asking for input from a large group of people. Crowdsourcing has been made easier due to the growth of the Internet and social media. It combines the efforts of numerous self-identified volunteers. The actual value for an organization comes from the inputs of the public rather than from employees or consultants.

Co-creation of value occurs at some of the largest and most respected organizations in the world. Coca-Cola used co-creation and customization to remain relevant to Millennials. Coca-Cola created the fountain dispenser, Freestyle machine, and a mobile app that enables any kind of flavor mix, creating new and unique flavor combinations. Consumers are no longer limited to Coke, Diet Coke, or Coke Zero. The Freestyle machine enables consumer to co-create and customize their drinks. The Freestyle mobile app lets consumers save the recipes of their favorite blends, so any Freestyle machine will know their favorite flavor combination. An added benefit of the co-creation process is that the user feedback data provide Coke with real-time insight on the product, consumer engagement, and new dispenser opportunities.

Computer manufacturer Dell has implemented Dell IdeaStorm—a series of consumer feedback environments (IdeaStorm, Studio Dell, and Direct to Dell) where the company asks users to submit new ideas and then discuss the ideas with one another and with Dell employees. Likewise, the Nike ID Studio allows consumers to design their own Nike shoes. Consumers can order the shoes or just share the design with their friends across social media platforms, such as Facebook or Twitter.

There are also risks as organizations figure out how to integrate consumer feedback at all stages of the product creation, marketing, and distribution process.

The Chance of Devaluation

There are risks in the co-creation process as new inputs enter into the product process. “Value destruction” or “co-destruction” outcomes can occur as firms fail to manage consumer input or misuse consumer input. Organizations may also experience threats to co-creation when they have strong brand reputation, there is high demand uncertainty, or there are too many initiatives.

Peter Verhoef, Jenny van Doorn, and Sandra Beckers warned firms with strong brands that they need to protect the brand as a major organizational asset. Organizational leaders must be aware that these co-creation initiatives may actually tarnish or dilute the brand. This threat is real because strong brand reputations are carefully nurtured through consistent and coherent marketing, and opening up a brand or product to mass input may damage the firm’s reputation if the engagement process creates negative outcomes. For example, McDonald’s attempted to use a word-of-mouth Twitter campaign to get people to tweet about McDonald’s, and many users posted negative characteristics of the fast-food restaurant.

A second threat is high demand uncertainty. Demand is rarely a certainty in the modern business environment, with local, national, and international competitors regularly emerging. In co-creation, firms often seek consumer input when the market conditions are highly uncertain. Verhoef et al. warn that this strategy can backfire because consumers in fast-changing markets often don’t know what products they will want in the future.

Finally, Verhoef and colleagues suggest that firms must maximize their opportunities through routine interactions with trusted partners, such as suppliers, manufacturers, and experts. Consumers’ likes and dislike are more ephemeral and less predictable. The authors suggest that the quality, quantity, and variety of input decrease as the frequency of firm-consumer engagement increases. Caution is needed because the initial enthusiasm for firm-consumer interactions may diminish over time and organizations that count on their consumers too much may be left with too little feedback as they seek to co-create value.

Implications for Reputation Management

Reputation is socially constructed, and today, in a co-creational environment, reputations can no longer be managed inside the organization. Consumer interaction matters. Firms can still shape their reputations, but they need to offer consumers experiences that engage them with the brand and its products. Social media have a role to play in creating interactions, and public relations, marketing, and advertising strategies can enhance how consumers come to experience a brand and in that experience develop an enduring positive relationship with the organization. It is through the cycle of consumer interaction, experiences, and communication that respected reputations emerge and endure.