Now that we have this basic definition, let's take a bit of a deeper dive into some more specific concepts about customer co-creation. It's a fascinating topic and I'm doing some research in this domain. So lots of things we could talk about, but for purpose of our discussion, I want to focus on three issues in particular. First of all, what are the steps involved in customer co-creation? Second of all, what motivates customers to engage in this activity? Thirdly, what are some different types of customer co-creation? So first of all let's talk about the steps involved in the co-creation process. Successful co-creation requires two key steps. First of all, a firm must convince it's customers to submit their ideas, to give them contributions. So contributions is the first step. Second, once it receives this contributions, it must then select the few valuable ones for the many that are less valuable. So we think of this second step as a selection process. So you think about again, customer co-creation as first of all getting contributions and second of all selecting the good from the bad. Now, this may sound quite simple, these two basic steps. But in actuality, both of these processes are quite challenging but for different reasons. First of all, getting contribution it's actually quite hard because most customers like you are quite busy, and typically care very little about your products. They don't have much incentive to spend their valuable time giving you ideas to benefit your company. As a result, most co-creation efforts fail because they don't get many submissions. No one gives them any ideas. Second of all, once you get ideas if you're successful with getting contributions, selection process is also quite challenging. Because most submissions are not very useful. They may be ideas that you've thought about before. Maybe too idiosyncratic for a given customer that may alienate other customers. Or maybe they're too expensive. As a result, firms face a very difficult task of having to reject customer submissions and risk the danger of creating bad will. That's some of the most highly engaged customers who are giving them ideas having to reject these valuable ideas. Thus, in order to be successful at co-creation, firms must both first of all convince customers to give them ideas and the second, have a way of rejecting these ideas without alienating the customer base. Second of all, the second concept we like to talk about is how to motivate customers to engage in this activity. So why would a customer again spend their valuable time to give a firm ideas? There are two main methods for motivating customers to engage in co-creation. First of all, social recognition and second of all financial reward. Most firms that are successful in customer co-creation employ both the social and the financial incentives. Usually, these rewards go to customers whose contributions have been selected. So only those few whose ideas are being used are typically rewarded. For example, customers who submit winning designs to threadless t-shirts receive both $2,500 in monetary incentives. They also receive the intangible benefit of having their name printed on the back of the t-shirt's label. So each t-shirt that's designed using your submission carries your name. Now, let's talk a bit about different types of co-creation. Co-creation is a large category and there are lots of different types of activity within this broader category. This comes from some recent research that I've conducted with my former doctoral student Matt O'Hearn. Matt is now at the University of New Hampshire who's a faculty member there. We've published an article that identifies four different types of co-creation based on a two-by-two matrix. Here is a picture of our matrix. As you can see, it is based on the two key steps in the customer co-creation process. So on the x-axis we have the contribution step and the y axis we have the selection step. With each of these axis, we have both a high and a low degree of customer control over each process. So you'll see under contribution, the first box is fixed which means that the customer has very little control over the contribution process and the firm will fix the types of contribution that it wants. For example, the size of the contribution could be the color, could be a particular design. The next box open indicates that the firm has much less control over the process and allows a much wider range of types of customer contributions. In essence, customers are able to contribute just about anything that they would like. We see the same thing under selection. Under the firm-led process, it is largely the firm that does the selection activity. The firm picks the winning submissions. In the customer-led category, the firm relies more on the customers to select the winning submission. So it could be for example, based on a customer vote, number of points, number of thumbs up that sort of thing. This two-by-two matrix provides four different types of customer co-creation. So at the very extremes, we have the bottom left submissions in which a firm maintains tight control over both contribution and selection. On the other extreme, on the far upper right, we have collaborating in which the firm releases much control over both contribution and selection. In-between these on the off diagonal, we have co-designing and tinkering. In the article that we have attached to this video lecture, we go into more details about this matrix. Let me provide a few more details in terms of both some concrete examples as well as a discussion of the process by how these different mechanisms work because there is some differences in terms of how they work. So a few examples. So first of all, a great example of collaborating, we've talked a bit about Apache, about open source software in general is a great example because both the contributions and the selection processes are largely open and determined by the customer user base, so that's a great example of collaborating. We talked about LittleBigPlanet, this is a good example of the tinkering process because if you recall under tinkering, we have more of a firm-led selection process. In LittleBigPlanet although the users are creating the platform, the firm has control over which ones it selects to actually be published and distributed. We move on to the two other examples of customer co-creation, designing and ensuring. We talked a bit about Threadless t-shirt, a great example of the designing process. So in Threadless, the community votes on the winning designs but the actual contributions are constrained in terms of the design and it has to be a t-shirt. So you can't design a mug, you can't design an umbrella. It has to be a t-shirt, and a certain color scheme, and a certain design template. So what you see even though Threadless t-shirts are designed, each t-shirt designed by a different designer just about, you'll see a very consistent look from one t-shirt to the other. Finally sharing. So we go back to our matrix, we'll see that in sharing, you have both fixed contributions but also firm-led selection. So this is the most constrained of the four types of customer co-creation. Let me talk about this one example that you see before you. This is actually from Electrolux, and can you guess? This is an appliance. What type of appliance this is? It's not apparent by this picture but if you look in the background, that might give you some hints. So this is actually a new appliance that's designed to provide an alternative means of drying your clothes, so almost a home form of dry cleaning in which instead of the typical drying process that would dry by heating your clothes, this device releases positive ions that would break up the dirt, clean it, and dry it over time. This device was not developed by Electrolux but was part of what they call a design lab competition that they hold every year. Typically, the submissions for this competition are done by engineering students across the world, so this particular design was developed a few years ago by a Taiwanese undergraduate engineering student. So Electrolux will sponsor this competition. It's very defined in terms of the submissions. It have to be about appliances that have some potential market value, and then all of the designs are voted on by a small panel of Electrolux judges. So both the contributions and the selections are very tightly controlled by Electrolux, and we have a website for all of these different examples you can browse for additional information. Now let's talk a bit about the actual processes by how each of these techniques work. So we're going to group collaborating and tinkering because these are the more extreme forms that firms have less control over and then also we'll then look at sharing and co-designing. So here we have a flow chart that talks about the process from start to finish. If you look at both of these, there's quite some similarities in terms of the processes. So we have a firm releasing something that's developed and then we have a second step in which some of the customers, again not all of the customers, but some of the customers usually a small percentage typically 10 percent or less will take that initial offering and modify it or suggest changes in some way, usually these changes are transparent and a broader customer base will see these contributions and they can either vote on them or further modify them, and then over time, the firm or the project team will see both the contributions as well as the broader market reaction to these contributions and then engage in some sort of selection process. So you see collaborating on the figure on the left. The key difference here is that in tinkering, you have a firm releasing a final product, like with Sony, the LittleBigPlanet video game worked. This was a workable game that anyone could use without tinkering with it. In collaborating, typically a project is not viable, is usually what's called the source code, it's a minimal foundation in which to launch a product. So that's one distinction between the two is in collaborating, the product is usually at a earlier stage of development, and then also that in phase four, there's another distinction between these two steps. With tinkering, the firm typically doesn't change. The firm is the firm and customers don't become the firm. But in collaborating, if you are a very active contributor and you've shown that you've made significant contributions to a source code, you can actually become part of the project team. So in that sense by becoming part of the firm itself, we have a much more active and much more decentralized selection process. Now let's talk about the remaining two types of co-creation, co-designing, and sharing. Again these two types have quite a bit in common, we see co-designing on the left and sharing on the right. In both of these, we have users or customers who are submitting ideas to a firm, ideas or designs, and then we have a selection process. So in co-designing, typically the community has a strong voice in selecting the contributions that should go forward. So we saw with Threadless, we have the actual votes and comments by customers play a big role in the selection process. In the share example, we used Electrolux earlier. It's simply a small team typically of corporate executives who make the selection process. So that's a fundamental difference, and then from that, a very similar process afterwards in which the selections are basically either integrated into an existing design or launched as a stand-alone commercial product. So those are the four types of customer co-creation. Hopefully these examples and these process models give you a deeper insight into how they work and where they're effective.
