Value Co-creation in Service
Firms are experiencing high competition in today’s service market and need to stand out by being better or differentiating from the competition. To attract customers, firms build value propositions, when offering their services. The hope is that the customer will embrace the offered value proposition and engage with the firm. In a business relationship generating value for both parties’ value can be co-created by the firm and the customer. In the coming paragraphs, I’ll briefly present the concepts of service, value propositions, and value co-creation and at the end of this article, I’ll present the key findings from my research thesis.
Service is about doing something for the benefit of someone else. Service-Dominant logic (Vargo & Lush,2019) explains service as the “process of using one’s resources for the benefit of another actor as the basis of economic and social exchange”. The framework deals with five foundational concepts:
- actors - the firm and the company
- service - the exchange of service
- resources - tools and skills
- value - who creates value and how value is determined
- institutions - “the rules of the game”
The S-D logic is comprised of 11 foundational premises (FP) and a few of them will be referred to in the coming paragraphs.
Value propositions consider the context, competitive environment, customer base, products, and other factors, that uniquely and credibly, communicate the benefits in the mindset of mutual gain of involved actors. Value propositions answer the question of HOW value is intended to be delivered. Value propositions can also be used as a communication device by reaching multiple internal and external stakeholders. The mutual gains should also be emphasized as what is needed to achieve it e.g. the role of resources and resource sharing. An example is sharing information and skills to accomplish tasks of different natures.
It is important to understand what is of benefit to the customer when developing a compelling value proposition. To accomplish this, Osterwalder et al. (2015) suggest identifying key elements in the customer’s daily work, what is preventing them from achieving their goals, and what would help them reach the desired outcomes. The supplier can, based on products and services available in the firm, build value propositions around these findings and thereby provide a value experience for the customer.
Value can be defined in different ways, but the most common definition is the benefits a customer receives minus the sacrifices made in terms of e.g. monetary compensation, own efforts, or the experience perceived during the service. S-D logic (A4/FP10) states value is always uniquely and phenomenologically determined by the beneficiary. It means the value is a relativistic experience and is highly dependent on the context in which the service is provided. S-D logic (FP7) actors cannot deliver value but can participate in the creation and offering of value propositions, so the value is realized when the service is used e.g. the engineering of building a new house. The firm proposes how the house would look with current norms and regulations which is the value proposition by the firm, and the personalization for the family’s needs comes from the beneficiary as his value proposition, and in this way, value is jointly created.
Value co-creation includes multiple actors, but always includes the beneficiary as stated in the S-D logic foundational premise (A2/FP6). The actors could be e.g. the client, a supplier, or another firm. In value co-creation focus is on communication, innovation, resource integration, technical skills, and exchange of information.
My master thesis research methodology was a qualitative study conducted in a customer segment for civil engineering by interviewing eight persons working in managerial positions to identify in what areas value proposition communication would be most fruitful. The key communication areas identified are presented in brief in the below paragraphs.
Create trust
Value co-creation is not possible without trust. Trust was identified as one of the most important aspects in areas of value proposition communication. To promote relationship building, value propositions should serve as an invitation to value co-creation areas, enabling close value co-creation between actors.
Responsibility
A topic that was identified to prevent the successful execution of projects was areas where value co-creation didn’t take place and one actor was 100% reliant on the other actor. In these situations, the firm could build value propositions acting as invitations to value co-creation.
Requirements
Understanding contexts and customer expectations was identified to be of crucial importance for achieving a good value experience. Close discussions with the actors are needed to identify these requirements, and value propositions should be built around the context and expectations, making value propositions a tool for communicating them with other stakeholders.
Consultative approach
Relating to value and the “experience perceived during the service”, the interviews emphasized the need for a proactive approach. This would reduce the efforts of the customer during the service exchange.
Value Engineering
Value engineering is defined as a systematic, organized approach to providing necessary functions in a project at the lowest cost. This means that the total cost of the customer project is in focus and the service provider is considering the impacts of their service e.g. material or installation costs.
Integration
Areas of integration identified were resources, tools, and processes. The integration of resources would provide valuable skills, automation in tools will create savings in monetary costs and integration of processes will reduce efforts for involved actors.
Information sharing
Sharing of knowledge and information by using internal databases, lessons learnt material, and resource experiences will create value. Value generated via this service is efficiency, meeting customer expectations, and meeting requirements.
Support
Receiving (or having the possibility to receive) support in addition to the agreed service scope, is of great value to the customer. The support could be e.g. additional services for technical issues or integrating additional resources.
For further reading:
- Lush, R. F., & Vargo, S. L. (2019). The SAGE Handbook of Service-Dominant Logic London, UK: SAGE Publications Ltd.
- Osterwalder, A., Pigneur, Y., Bernarda, G., & Smith, A. (2014). Value Proposition Design - How to Create Products and Services Customers Want. Hoboken, New Jersey: John Wiley & Sons, Inc.
- Barnes, C., Blake, H., & Pinder, D. (2009). Creating and Delivering your value proposition - Manage Customer Experience for Profit. London and Philadelphia: Kogan Page Limited.
Christian Ekblad is a Chief Project Engineer in civil and structural working for a global company of 17.000 employees. During his career, which started in 2007, he has delivered civil and structural engineering projects to dozens of countries over six continents. He strives to lead projects in a way that ensures project participants receive the best possibilities to perform their tasks. One of Christian's passions in life is to experience new cultures, especially their cuisine.