Changing Role of a Customer

In a traditional view, the concept of a market is a firm- or product-centric and customers are only seen as a demand target for a firm’s offerings (Figure 1). It is a push system, where a firm produces products and/or services and then pushes those to employees, suppliers, partner organizations and customers (Lee, Olson

& Trimi, 2012). Value is created by a firm through its activities, in a form of the product being distributed and exchanged at the market against monetary compensation (Vargo & Lusch, 2008). Companies focus on the interaction and extracting economic value, which is the basis of customer experience (Prahalad

& Ramaswamy, 2004a). The purpose and flow of communication is one-way, from a company to a customer in order to gain access and target predetermined group of customers (Prahalad & Ramaswamy, 2000). Customers are regarded as passive buyers thus companies have limited understanding of their experiences and knowledge (O’Hern & Rindfleich, 2010).

FIGURE 2. The Traditional Concept of a Market (Prahalad & Ramaswamy, 2004)

Technological advances have changed the way of doing business and the trend is moving towards service economy and globalization (Krisna & Dhaka, 2013).

The market is challenged by informed, networked, empowered and active consumers that are seeking to exercise their influence and to co-create value with a firm (Prahalad & Ramaswamy, 2004a). These changes have altered the market power and there is a shift away from traditional roles of companies and customers to become co-creators of value. The evolution and transformation of customers means that they are part of the enhanced network and co-create and extract business value through active dialogue with manufacturers of products and services (Prahalad & Ramaswamy, 2000; Payne, Storbacka & Frow, 2008;

O’Hern & Rindfleich, 2010). The marketplace becomes a forum where customers are the source of competence for corporations. Customers are no longer passive buyers or average statistics, instead they possess knowledge and skills, are willing to learn, experiment and engage in dialogue to create personalized experiences (Ramaswamy, 2009).

However, difficulty is to fully understand customers’ needs since even when customers know precisely what they want, this information cannot be

clearly transferred to manufacturers (Thomke & von Hippel, 2002). The amount of choices of products and services make it also challenging for companies to differentiate themselves. As a result, in the emerging concept of the market (Figure 2), the focus is on consumer-company interaction and co-creation experiences are the basis of value. The roles of a company and a consumer converge and both are collaborators and competitors in co-creation and in extracting economic value (Prahalad & Ramaswamy, 2004a) and consumers become co-creators of products and services that they buy and use (O’Hern &

Rindfleich, 2010).

FIGURE 3. The Emerging Concept of a Market (Prahalad & Ramaswamy, 2004)

Since customer’s desired experiences cannot be decided priori, firms must create experience environments that actively involve customers to accommodate a wide range of potential co-creation opportunities (Prahalad & Ramaswamy, 2003).

According to Grönroos & Voima (2011), in order for value to exist, there needs to be various touchpoints of interaction between the customer and the company throughout the process. The purpose of firms is to customize its offerings according to individual needs and aim for the maximum participation of consumers (Vargo & Lusch, 2004).

The traditional approach of customizing new products according to customer segments is drastically far from co-creation process. Customization is in line with goods-dominant logic where value is built into a product or service and exchanged at the market with a customer against monetary compensation (Kristensson, Matthing & Johansson, 2008). In order to successfully develop new products two types of information are needed: information of customer needs and how to solve these (Thomke & von Hippel, 2002; von Hippel 2005). Usually customers possess information on the first type and companies about the second.

To overcome this information asymmetry, some companies have abandoned their efforts of understanding customer needs, instead, they turn their customers into innovators and equip them with right tool kits to design and develop their own products (Figure 3). In this way, a company can bypass the extensive and time-consuming trial and error face. On the other hand, companies are outsourcing their valuable service, a major source of competitive advantage, to customers who are not experts in design. Also, many are reluctant to increase customer autonomy due to concerns about losing power and control over products or leaking of valuable information (von Hippel 2005). This type of approach also requires a radical change in management mind-set and rethinking of business practices. (Thomke & von Hippel, 2002).

FIGURE 4. Traditional Approach vs. Customer-as-Innovators Approach (Thomke & von Hippel, 2002)

The transformation from products to co-created experiences is an ongoing shift and managers must change their focus from products and services to the experience space and engage with the extended network including consumer communities. Traditional innovation is company- and product-centric in contrast to experience innovation which focuses on experiences desired by individual consumers. Convergence of technologies and industries, consumer and company roles are changing the purpose and process of innovation and the new competitive space for companies is centered on personalized co-creation experiences through purposeful dialogue between a consumer, a network of companies and consumer communities (Prahalad & Ramaswamy, 2003, 2004).

Also, this change in paradigms requires rethinking of the role of marketing in the value creation process (Kotler et al., 2010). Nowadays consumers have access to vast amount of information, which enables them to participate in the innovation

process and coproduce value through customized offerings together with companies (Payne et al., 2008). This brings new sources of competitive advantage for companies who can better understand their customer needs and preferences (Lusch & Vargo, 2006) and customers that feel more active and engaged with a company. Thus, value is co-created for both parties (Grönroos, 2008) and therefore co-creation is appealing for companies and consumers alike.