Co-production of the service offering

Derivative Proposition 5

Understanding how the customer uniquely integrates and experiences service-related resources (both private and public) is a source of competitive advantage through innovation.

Generally, customers are increasingly becoming involved in the co-production of many services (Bendapudi and Leone 2003). For example, compare the service of today’s supermarket in relation to that of the small corner grocer of 100 years ago. The corner grocer of yesterday would take the order, pick the groceries from the store or behind the counter, wrap and package the groceries, deliver the merchandise, and provide credit service. Today customers enter the store and navigate it without assistance, choose the merchandise they desire, move through a self check-out counter where they scan their own merchandise, pay electronically, bag their own groceries, transport the items to their car, and then drive home, unload, and stock their pantry. As this example illustrates, co-production is not new to retailing, but in a large part characterizes the historical evolution of retailing. It also illustrates that the retailer has considerable control and influence over customer experiences and thus should be a vital participant in the management, or as S-D logic states, in the co-creation and co-production of customer experiences.
Based upon the work of Lusch et al. (1992), we posit six key factors that contribute to the extent to which the customer is an active participant in the co-production of a service offering. Retailers and other organizations in order to develop innovative service strategies can use each factor.

  1.  Expertise.  An individual is more likely to participate in co-production if s/he has the requisite expertise (i.e., operant resources). Recognizing this, Home Depot and Lowe’s offer do-it-yourself (DIY) clinics to teach people such skills. It then offers to sell the tangible products needed to complete these projects.
  2. Control. Co-production is more common when a person wants to exercise control over either the process or outcome of the service. For instance, many households are practicing home schooling their children because they want to have more control over the educational process and outcomes, providing an opportunity for firms to provide the needs to complete these activities, such as educational software.
  3. Physical capital . Co-production is more likely if the party has the requisite physical capital. For example, for auto or home repair this might involve needed tools, space or both. Retailers such as Taylor Rental or U-Haul can provide some of the needed physical capital.
  4. Risk taking . Co-production involves physical, psychological, and/or social risk-taking. This does not imply that risks are necessarily increased with co-production, since co-production can also reduce risks. For instance, most Western medicines use a goods-dominant logic where the patient is someone that is passive and something is done to him or her in order to cure him or her. However, if the person becomes involved in managing their health and wellness, then the risks of poor health may decline.
  5. Psychic benefits . One of the primary reasons people engage in co-production is for pure enjoyment—the psychic (experiential) benefits. Activities like home gardening, gourmet cooking, personal fitness training, education, or learning a new skill, are all heavily service intense and are engaged in for psychic benefits. For example, Build-A-Bear is a retailer that allows customers to build a customized stuffed animal, which becomes a rewarding experience.
  6. Economic benefits . Perceived economic benefits plays a central role in co-production. Many people participate in co-production because it is a good use of their time. In fact, it can be argued that the rise of self-service retailing, from gasoline stations to mass merchandisers, is primarily driven by the economic benefits. Importantly, value that is created through co-production is tax-free.

The preceding six factors speak not only of the motivations behind the customer’s desire to be involved in co-production, but can also be used to help determine how much the customer wants to be part of service operations (Lusch et al. 1992). Furthermore, a firm may decide that it needs to provide certain services that may help the customer be part of service operations. These factors also are the source of many customer contacts or touch points, which form the basis of managing customer experiences (Smith and Wheeler 2002; Schmitt 2003). Thus, firms should consider mapping the entire experience process that is associated with its offerings to include the customer’s level of involvement in co-production activities and processes. This mapping can be the basis for the customer-experience management framework suggested by Schmitt (2003), which includes: (1) analyzing the experiential world of the customer, (2) building the experiential platform, (3) designing the brand experience, (4) structuring the customer interface, and (5) engaging in continuous innovation (Schmitt 2003, p. 25).

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