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Value co-creation in hospitality – a transformational challenge

The idea of “co-creating” with customers has been around for a number of years now, but until recently only a few companies effectively used its power to their benefit or understood the proper application of it. Co-creation as a business strategy allows and encourages a more active involvement from the customer to create a value rich experience. A company like Airbnb stands out: on departure, platforms like Airbnb have been looked at with reservation and seen as experiments at best. However Airbnb has offered the rethinking of value creation and with this a new behaviour in customers. By rethinking how value is consumed, Airbnb has made value co-creation with the customer central to their business model.

Airbnb has recognised that today’s consumers are networked, active and informed and that their expectations do no longer fit into a traditional concept. Differentiation and opportunities for value creation are needed but often are a constraining force for a traditional market concept. Globalisation and outsourcing are making it much harder for companies to differentiate and there is the constant risk of uniformity. This is where a personalized co-creation experience can help – in essence the service or product can be fairly similar and uniform, however the co- creation experience cannot. It reflects how the individual chooses to interact with the experience environment that is on offer.

Through co-creation, companies can access the depth of customer capabilities, knowledge and assets. And furthermore, revenues and profits are shared – together Airbnb and its “hosts” have built a company that was most recently valued at more than $25 billion, more than the value of Hyatt Hotels.

The meaning of value and the process of value creation by a company is rapidly shifting from a company-centric view to empowerment of the consumer in what his personal experience should be. Value is shifting to experiences and this initiates a conversation between the consumer, the in-between communities and selling agents. It requires the next step in practising value creation – dialogue and transparency.

Because hospitality is all about interaction with customers it makes an ideal environment for co-creation. There have indeed been various attempts of co-creation within this sector. However, most of them are merely some form of customer engagement, often only used as a marketing tool. A common example is conducting a survey to get input from customers, which is then reviewed and used by the organization. Consumers now seek to exercise their influence in every part of the experience. No longer are they satisfied with online surveys and the available choices – this is why they wish to interact with the hospitality provider and its in-between contact points and ‘co-create’ value. This network is self-organizing – it makes it highly responsive to changing customer needs. When a new vacation hotspot emerges, Airbnb does not need to change its supply chain or purchase new properties; instead its co-creation network naturally expands to satisfy the demand.

In the new value co-creation space, the hospitality provider has partial control over the experience environment and the networks they build to facilitate co-creation experiences. But they cannot control how individuals go about co-constructing their experiences. There needs to be trust in the process, as any attempt only is not continuous, incomplete and non-productive.

Consumer-to-consumer communication and dialogue of the likes of Tripadvisor and other review sites provides consumers with an alternative source of information and perspective. They are not totally dependent on communication from the hospitality provider only but use of these sites can further influence how value should be created for them.

Online auctions for hotel rooms and airline reservations are another example of this growing phenomenon. The popularity of such businesses suggests that the auction is increasingly serving as the guiding force for pricing services and products online. From the customer’s perspective, the advantage of the auction process is that it reflects the real utility to the client at a given point in time of the purchase – it no longer goes hand in hand with the cost to company for a specific product or service. Giving up control and sharing profits may not seem making sense to hospitality businesses, but it is the key to the co-creative value business model. It generates previously unachieved value with lower marginal costs and greater profits. Because the results are endorsed by the consumer and other stakeholders the output can be sustainable on all levels – not just financially.

The potential downfall on this co-creation platform is that at time it can fail to ensure quality and reliability which is less of a risk factor with the traditional set up and service provision.

To take charge, a strong quality control system will have to ensure that over time the right product is matched with the right customer. Thereby the reliability needed is developed and will spill over and attract not only the traditional customer base but also appeals to established players to be part of this new platform. AirBnB has invested significant resources in its quality systems because of the risks involved – in some cases listings are certified and flagged. Also, the traveller rate the hosts and the host rates the traveller which are essential for the review and give assureance for quality or not.

In any business that involves customer experience, there is no good reason not to go the route of co-creation.



Sources: HBR, 2011 (Barry Libert, Yoram Wind, Megan Beck Fenley, 2015). The Future  of  Competition: Co‐creating  Unique Value with  Customers”,  Prahalad  and Ramaswamy, 2004