Co-creating unique value with customers

Twin paradoxes describe the twenty-first-century economy. Consumers have more choices that yield less satisfaction. Top management has more strategic options that yield less value. This emerging reality is forcing a reexamination of the traditional system of company-centric value creation that has served us so well over the past 100 years. Leaders now need a new frame of reference for value creation (see Exhibit 1). The answer, we believe, lies in a premise centered on co-creation of unique value with customers. It begins by recognizing that the role of the consumer in the industrial system has changed from isolated to connected, from unaware to informed, from passive to active. The impact of the connected, informed, and active consumer is manifest in many ways.

Information access. With access to unprecedented amounts of information, knowledgeable consumers can make more informed decisions. For companies accustomed to restricting the flow of information to consumers, this shift is radical. Millions of networked consumers are now collectively challenging the traditions of industries as varied as entertainment, financial services, and health care.

Global view. Consumers can also access information on firms, products, technologies, performance, prices, and consumer actions and reactions from around the world. Geographical limits on information still exist, but they are eroding fast, changing the rules of business competition. For example, broader consumer scrutiny of product range, price, and performance across geographic borders is limiting multinational firms' freedom to vary the price or quality of products from one location to another.

Networking. "Thematic consumer communities", in which individuals share ideas and feelings without regard for geographic or social barriers, are revolutionizing emerging markets and transforming established ones. The power of consumer communities comes from their independence from the firm. In the pharmaceutical industry, for instance, word of mouth about actual consumer experiences with a drug, and not its claimed benefits, is increasingly affecting patient demands. Thus, consumer networking inverts the traditional top-down pattern of marketing communications.

Experimentation. Consumers can also use the Internet to experiment with and develop products, especially digital ones. Consider MP3, the compression standard for encoding digital audio developed by a student Karlheinz Brandenburg and released to the public by the Fraunhofer Institute in Germany. Once technology-savvy consumers began experimenting with MP3, a veritable audio-file-sharing movement surged to...