Co-Creation in the Hospitality Industry by Tobias Koehler

Co-Creation
in the Hospitality Industry
Master’s Thesis
International Tourism Management
Heilbronn University
Author: Tobias Köhler
Matriculation No.: 172583
First Examiner: Prof. Dr. Christian Buer
Second Examiner: Prof. Dr. Manfred Lieb
Submission Date: September 30, 2011

The whole point of co-creation is not to ‘build it and they will
come’, but ‘build it with them and they are already there’.
(Venkat Ramaswamy in Roth, 2011a)

Co-Creation in the Hospitality Industry
Abstract I
Abstract
This paper introduces the ongoing paradigm shift in marketing, i.e. service-
dominant (S-D) logic, as well as the therefrom originating thought on value co-
creation applied on the hospitality industry. S-D logic and co-creation are intro-
duced in a comprehensive and accessible way before current issues in hospital-
ity marketing and existing influences of S-D logic and co-creation in tourism lit-
erature are explored. The author, furthermore, conducted a qualitative study on
current innovation practice in the hospitality industry. It revealed that the cus-
tomer is not yet an active part of the value creation process in hospitality. Alt-
hough consumers gain on influence through social media activities, most lodg-
ing corporations do not take advantage of this development; whether in market-
ing, nor in innovation. In order to drive the development of co-creation in hospi-
tality the author developed practical guidelines that support hospitality compa-
nies in their transformation towards an experience mind-set and to support co-
creative activities.
Keywords: Service-dominant logic, co-creation, hospitality, marketing, innova-
tion

Table of Contents II
Table of Contents
Abstract............................................................................................................... I

Table of Contents.............................................................................................. II

List of Figures...................................................................................................IV

List of Tables .....................................................................................................V

List of Abbreviations .......................................................................................VI

1
Introduction.................................................................................................. 1

2
A paradigmatic challenge to marketing orthodoxy.................................. 4

2.1
The evolution of marketing ............................................................. 4

2.2
Service-dominant logic ................................................................... 6

2.2.1
Service vs. goods....................................................................... 7

2.2.2
From separation to collaborative value creation ........................ 9

2.2.3
Collaborative competence – a service-dominant logic
prerequisite .............................................................................. 11

2.3
Consumer emancipation............................................................... 11

2.3.1
Influencing factors and drivers of consumer emancipation...... 12

2.3.2
Implications for companies ...................................................... 15

2.4
The principle of co-creation .......................................................... 17

2.5
Competitive advantage through co-creating experiences............. 20

2.6
Challenges for co-creative companies.......................................... 22

2.7
Summary ...................................................................................... 25

3
Hospitality status quo ............................................................................... 28

3.1
Hospitality definition...................................................................... 28

3.2
Characteristics of hospitality as service industry .......................... 29

3.3
Today’s hospitality customer ........................................................ 31

3.4
Hospitality marketing .................................................................... 32

3.4.1
Relevant issues in hospitality marketing.................................. 32

3.4.2
New marketing thought in tourism and hospitality ................... 37

3.4.3
Summary and interim conclusion............................................. 39

3.5
Qualitative study on current innovation practice in hospitality ...... 41

3.5.1
Theoretical background on innovation in hospitality ................ 41

3.5.2
Research methodology............................................................ 44

3.5.3
Results ..................................................................................... 45

Table of Contents III
3.5.4
Discussion and conclusion....................................................... 50

3.6
Summary ...................................................................................... 51

4
Co-Creation in hospitality: practical guidelines ..................................... 54

4.1
Co-creation and hospitality – a powerful match?.......................... 54

4.1.1
Co-creation components vs. hospitality characteristics ........... 54

4.1.2
The four powers of co-creation vs. hospitality challenges ....... 56

4.1.3
Conclusion ............................................................................... 57

4.2
Becoming a co-creative hospitality company................................ 57

4.2.1
Creating an experience mind-set............................................. 58

4.2.2
Identifying customer touchpoints ............................................. 60

4.2.3
Creating engagement platforms............................................... 64

4.2.4
Setting goals for co-creative activities...................................... 67

4.3
Types of co-creation ..................................................................... 68

4.3.1
Club of experts......................................................................... 68

4.3.2
Crowd of people....................................................................... 69

4.3.3
Coalition of parties ................................................................... 71

4.3.4
Community of kindred spirits.................................................... 71

4.4
Co-creative consumer types and their motivations....................... 72

4.5
Intellectual property ...................................................................... 74

4.6
Co-Creation toolbox...................................................................... 74

4.6.1
Service design tools................................................................. 74

4.6.2
Digital/ online tools................................................................... 75

4.7
Seven guiding principles of co-creation ........................................ 77

4.7.1
Listen ....................................................................................... 78

4.7.2
Define a goal............................................................................ 79

4.7.3
Inspire participation.................................................................. 79

4.7.4
Select the very best ................................................................. 80

4.7.5
Connect creative minds ........................................................... 80

4.7.6
Share results............................................................................ 81

4.7.7
Continue development............................................................. 82

4.8
Summary ...................................................................................... 82

5
Conclusion and future outlook................................................................. 84

Appendix..........................................................................................................VII

Bibliography .................................................................................................. XIV

List of Figures IV
List of Figures
Figure 1: The evolution of marketing Source: Own illustration based on
Lusch et. al. (2007)................................................................................... 5

Figure 2: Consequences of growing specialization. Source: Own illustration..... 8

Figure 3: Separation between firm and consumer in G-D logic. Source:
Lusch and Vargo (2009, p. 8) ................................................................... 9

Figure 4: The collaborative economic system of S-D logic. Source: Lusch
and Vargo (2009, p. 9)............................................................................ 10

Figure 5: The core principles of co-creation. Source: Own illustration based
on Ramaswamy and Gouillart (2010, p. 36)........................................... 18

Figure 6: Value creation and service-dominant logic. Source: Vargo and
Lusch (2008c, p. 257)............................................................................. 19

Figure 7: Traditional vs. co-creative enterprise. Source: Own illustration
based on (Ramaswamy & Gouillart, 2010, p. 6)..................................... 21

Figure 8: Advantages and challenges of co-creation. Source: Own
illustration ............................................................................................... 26

Figure 9: Change our way of thinking. Source: (Li & Petrick, 2008, p. 242) ..... 39

Figure 10: Framework for Innovation Research in the Hospitality and
Tourism Marketplace. Source: (Sipe & Testa, 2009, p. 3)...................... 43

Figure 11: IHG 's assessment of stakeholder issues. Source:
(InterContinental Hotel Group, 2011) ..................................................... 58

Figure 12: Hotel guest’s journey, brand touchpoint wheel. Own Illustration
based on (Shaw & Williams, 2009, p. 327)............................................. 62

Figure 13: Mapping of customer, supplier and encunter processes of a
travel company. Source: Payne et al. (2008, p. 92) ............................... 63

Figure 14: Customer engagment arenas and options. Source: Bhalla (2010,
p. 58) ...................................................................................................... 64

Figure 15: IHG's Innovation Hotel Engagment Platform Screenshot. Source:
(InterContinental Hotel Group, n.d.) ....................................................... 66

Figure 16: Types of Co-Creation. Source: (Pater, 2009b) ................................ 68

Figure 17: Crowdsourcing industry landscape. Source: Esposti (2011). .......... 76

Figure 18: Seven guiding principles in co-creation. Own illustration based
on (Pater, 2009a, p. 5)............................................................................ 78

List of Tables V
List of Tables
Table 1: Service-dominant logic foundational premises...................................... 7

Table 2: Top 10 Website Ranking 2005 vs. 2010 ............................................. 13

Table 3: Comparison between goods-dominant logic and service-dominant
logic ........................................................................................................ 25

Table 4: Hotel corporation interview partners ................................................... 45

Table 5: Consumer engagement catalysts........................................................ 72

Table 6: Co-Creation Consumer Types ............................................................ 73

List of Abbreviations VI
List of Abbreviations
API Application Programming Interface
B2B Business to Business
CRM Customer Relationship Management
eCRM electronic Customer Relationship Management
FP Fundamental Premise
G-D Goods-Dominant
ICT Information and Communication Technology
IHG InterContinental Hotel Group
IP Intellectual Property
NTO National Tourism Organisation
S-D Service-Dominant
SNS Social Networking Site
USP Unique Selling Proposition

Introduction 1
1 Introduction
When a word is used too many times in articles or conversations and the con-
text in which the word is used broadens every time, one might consider it as
“hype”. Moreover, it is possible that the management community develops a
sort of immunity towards the word (van Zijll Langhout, Brinkhorst, & Thijssen,
2011).
In hospitality, the most recent and still lasting hype is social media. While hospi-
tality marketers still try to convince their management to get involved and elabo-
rate at length on the obvious advantages of starting a dialog with their custom-
ers, other industries already discovered “the next big thing”: co-creation.
Some consider it as hype that goes as quickly as it came. Others, however, that
learned more about the topic of co-creation and the foundational principles be-
hind it recognize the opportunity that lies within (van Zijll Langhout et al., 2011).
Co-creation is far more than a tool to crowdsource new ideas with the help of
customers and other stakeholders. It describes a general change of mind-set
and acknowledges the ongoing development of a broad and irreversible shift in
society, technology and corporate culture. For instance, people engage on lev-
els like never seen before and force whole governments to step back. Iceland’s
government, on the other hand, makes use of that and crowdsources their con-
stitution (Hopkins, 2011). The growing connectivity drives a culture of sharing,
promotes the exchange of opinions and helps to push ideas forward as well as
it stimulates innovation. A new mindset is evolving and people engage with
each other in a speed and intensity like never before.
Not without reason Robert Lusch and Stephen Vargo gained world-wide atten-
tion with the publication of their award winning article (Vargo & Lusch, 2004a)
on service-dominant (S-D) logic. Since 2004 their article is the most cited mar-
keting article, which not only shows the general interest and longing for new
ideas, but also stands for the beginning of a new era of thought in the area of
marketing.

Introduction 2
We are on the edge of escaping the firm- and product-centric view of value cre-
ation, which currently is the dominant logic for marketing and strategy. Moving
to an experience-centric co-creation view, new and exciting opportunities un-
fold. This new perspective enables us to challenge the deeply held assumptions
about marketing basics, such as the meaning of products and services, separa-
tion between enterprise and customer in the value creation process, the mean-
ing of a brand and innovation.
So far, not many hospitality practitioners let alone researchers explored the
possibilities of co-creation for hospitality. Therefore, the goal of this work is
threefold. (1) For one, to explore and illustrate the basics of S-D logic and co-
creation in a comprehensive and accessible way. (2) Second, to give a broad
overview of the current marketing and innovation practice in the hospitality in-
dustry as well as explore existing influences of S-D logic and co-creation in tour-
ism literature. (3) The final goal of this work is to bridge the gap between theory
and practice with the development of practical guidelines for successful imple-
mentation of co-creation as guiding framework in hospitality companies in terms
of innovation and marketing.
Accordingly this work is structured into three main parts:
The first part looks into the paradigmatic challenge to marketing orthodoxy, i.e.
S-D logic. This chapter also introduces today’s emancipated consumer, ex-
plores the influencing factors and drivers that led to this development as well as
draws implications for companies. After an introduction to co-creation, the bene-
fits and challenges of co-creative companies are introduced.
The second part gives an overview on the current state of hospitality research
and practice, especially in terms of marketing and innovation. After a definition
of the hospitality term, it is elaborated on the special characteristics that apply
on hospitality as service industry. One sub-chapter is devoted to the savvy hos-
pitality customer and his changing needs. The main part represents a qualitative
study on current innovation practice in hospitality. The author conducted qualita-
tive interviews with five executives of German and Austrian lodging corporations
to get deeper insights into the current innovation practice of hospitality enter-
prises and their general attitude towards co-creation. After giving theoretical

Introduction 3
background on innovation in hospitality, the study and its results are introduced.
After a discussion of the findings a conclusion is drawn. In the final part of this
chapter the summary of the main points lead to a conclusion on the status quo
of customer engagement in hospitality.
In the third part practical guidelines are drawn from the findings of the previous
parts. Initially, it is explored if co-creation and hospitality are suitable for each
other, following a chapter that guides through the steps necessary to become a
co-creative hospitality company. Furthermore, different types of co-creation and
their application in hospitality as well as the different types of consumers and
their motivations are explored. It follows a short chapter on intellectual property.
After introducing the co-creation toolbox, seven guiding principles for successful
co-creation in practice are presented.
The work closes with an overall conclusion and future outlook on the topic of co-
creation in hospitality.

A paradigmatic challenge to marketing orthodoxy 4
2 A paradigmatic challenge to marketing orthodoxy
Robert Lusch and Stephen Vargo raised world-wide attention with the publica-
tion of their article (Vargo & Lusch, 2004a) on service-dominant (S-D) logic. It
marks the beginning of a new era of thought in the area of marketing. The fol-
lowing chapter analyzes the evolution of marketing that led to the point where
we are now.
After looking into the three main phases of marketing evolution an introduction
to the new era of thought – S-D logic – follows. Here Vargo’s and Lusch’s ten
foundational premises (FP), that challenge traditional marketing assumptions,
are introduced. The main differences between goods-dominant (G-D) logic and
S-D logic are presented in a comparison in another chapter. In order for com-
panies to not lack behind and make use of today’s changing environment they
need to develop a collaborative competence which is introduced in chapter
2.2.3.
Since today’s consumers play a bigger role than never before, the influencing
factors and drivers of consumer emancipation as well as the implications for
companies are introduced in chapter 2.3. The integration of the consumers as
active part of the value creation process through co-creation is introduced in the
following chapter. The resulting competitive advantage through collaborative
engagement between enterprises and consumers are explored in chapter 2.5
before closing the first part of this work with a summary of the most important
facts.
2.1 The evolution of marketing
The thought on marketing underwent a steady development since the first for-
mal ideas about it in the early 1900s. At first it was focused on the distribution
and exchange of goods and the function that needed to be performed to facili-
tate it (Vargo & Lusch, 2004a).
The general idea was about bringing goods and services “to market”. Marketing
further developed into the marketing management school after World War II and
moved to a “market to” orientation. Now markets and customers were re-
searched and analyzed in order to produce products that meet customer or

marketplace needs. However, the customer did not play an active role in this
concept either. A goods-dominant (G-D) logic remained with the units of output
as the central component of the exchange process (Lusch, Vargo, & O’Brien,
2007).
In the 1960s Marketing was characterized as “a decision-making activity di-
rected at satisfying the customer at a profit by targeting a market and then mak-
ing optimal decisions on the marketing mix” (Vargo & Lusch, 2004a). The mar-
keting mix or the famous Four P’s – product, place, price and promotion – from
then on served as the main framework of marketing and is still taught to fresh-
men all over the world as basic knowledge of marketing. In this context competi-
tive advantage was and most often still is seen to be a function of utility maximi-
zation through adding value in products by superior management of the Four
P’s. Being based on the conceptual foundation of G-D logic, this happens with
an assumed passive consumer in mind. Furthermore, the idea of “service” as
possible booster of competitive advantage was built on this concept (Lusch et
al., 2007).
Service was not only regarded as a type of product, but also something of a fifth
“P”, another tool for maximizing the value of other products. But what was ne-
glected in G-D logic was to think of “service” as an independent variable and its
central role in the process of exchange. Another downside of this concept was
the already mentioned role of the customer as operand resource: He was seg-
mented, targeted, promoted to, distributed to, captured and persuaded to con-
tinue buying with the help of heavy promotional programs where transparency
was the exception (Lusch et al., 2007).
Figure 1: The evolution of marketing
Source: Own illustration based on Lusch et. al. (2007)
In contrast to that and mirroring the development of marketing thought of the
21st century Vargo and Lusch (2004a) promote the “market with” philosophy of
service-dominant (S-D) logic. Here, the customer is an operant resource capa-
ble of interacting with and on other resources. He no longer is a passive recipi-
ent but a collaborative partner co-creating value with the enterprise.

The following chapter will give an overview of S-D logic and its foundational
premises in comparison to the principles and rules of G-D logic.
2.2 Service-dominant logic
It is not the evolution of marketing and the changing thought behind it altering
companies’ business behavior; it is a general evolution of society and technolo-
gy affecting the way of doing business. One is equally dependent from the other
in order to work and be fruitful. The same applies for S-D logic. Without some
major developments in technology and an ever-changing society S-D logic
would not have come to where it is now. While the changing role of consumers
is analyzed in chapter 2.3 this chapter deals with the general setup of S-D logic
and draws comparisons to G-D logic.
The most obvious transition in business in the context of this work is the shift
from manufacturing economy to service economy. Goods-oriented firms be-
came services firms and services suddenly were everywhere: Service systems,
service marketing, software-as-a-service, services science etc. However, this
transition only appeared to be about service and was still built on G-D logic
(Vargo, 2009).
Vargo and Lusch developed ten fundamental premises (FP) of S-D logic over
the last years (Vargo & Lusch, 2004a, 2006, 2008a). To get an overview with a
short explanation see Table 1. The most important and relevant FPs in context
to this work will be explained in detail in the following paragraphs.

Table 1: Service-dominant logic foundational premises
FPs Foundational premise Comment/ explanation
FP1 Service is the fundamental basis of exchange.
The application of operant resources
(knowledge and skills), “service”, as defined in
S-D logic, is the basis for all exchange. Service
is exchanged for service.
FP2
Indirect exchange masks the fundamental
basis of exchange.
Because service is provided through complex
combinations of goods, money, and institutions,
the service basis of exchange is not always
apparent.
FP3
Goods are distribution mechanism for service
provision.
Goods (both durable and non-durable) derive
their value through use – the service they pro-
vide.
FP4
Operant resources are the fundamental
source of competitive advantage.
The comparative ability to cause desired
change drives competition.
FP5 All economies are service economies.
Service (singular) is only now becoming more
apparent with increased specialization and
outsourcing.
FP6 The customer is always a co-creator of value. Implies value creation is interactional.
FP7
The enterprise cannot deliver value, but only
offer value propositions.
Enterprises can offer their applied resources for
value creation and collaboratively (interactively)
create value following acceptance of value
propositions, but cannot create and/or deliver
value independently.
FP8
A service-centered view is inherently custom-
er oriented and relational.
Because service is defined in terms of custom-
er-determined benefit and co-created it is inher-
ently customer oriented and relational.
FP9
All social and economic actors are resource
integrators.
Implies the context of value creation is networks
of networks (resource integrators).
FP10
Value is always uniquely and phenomenologi-
cal determined by the beneficiary.
Value is idiosyncratic, experiential, contextual,
and meaning laden.
Source: Vargo and Lusch (2008a)
2.2.1 Service vs. goods
In S-D logic, service is defined as
"the application of specialized competences (operant resources - knowledge
and skills), through deeds, processes, and performances for the benefit of
another entity or the entity itself.”(Vargo & Lusch, 2008b, p. 26)
Rather than the plural, “services”, used to describe units of output (immaterial
goods), the singular term reflects the process of doing something beneficial for
or together with some entity. Hence, goods and service are not alternative
forms of products. Goods, on the one hand, are supportive gadgets, tools or
distribution mechanisms that are useful alternatives to direct service provision.
Service, on the other hand, plays the role of the common denominator of the
exchange process: Service is what is always exchanged (FP1). Supporting this
argument FP3 says, goods only assist the service-provision process and derive
their value through use (value-in-use), which, in turn, is the service they provide

(Vargo & Lusch, 2008b). Goods do not drive economic activity; it is driven by
applied knowledge, which is service (Vargo & Lusch, 2008a).
Service is nothing that suddenly appeared over the last years, however, there
are two main criteria that are different today: (1) the growing ability to separate,
transport and exchange information independently from goods or people and (2)
increasing specialization of businesses, which in turn allows for more outsourc-
ing. As individuals, organizations, and nations become more specialized they
need others for what they themselves cannot do. This creates more possibilities
of service provision (exchange of knowledge and skills). Therefore, increasing
specialization boosts market growth. The result of intense specialization is an
increased interdependency among all involved that leads to more collaboration,
which, in turn, stimulates innovation (Lusch et al., 2007). See Figure 2 for illus-
tration.
Figure 2: Consequences of growing specialization. Source: Own illustration
The growing connectedness of people and the importance of networks is also
part of S-D logic’s FPs: “All social and economic actors are resource integra-
tors” (FP9). This connectedness is not only limited to private conversations over
social network sites (SNS). It also applies to business relationships. Not only
individuals, but also companies are more and more specialized. This leads to
the following conclusion: People are more dependent through their specializa-
tion and through their lack of skills they become more connected since they can
trade service with those specialized on the missing skills (Vargo & Lusch,
2006).
As one of their fundamental premises (FP5), Vargo and Lusch argue, “all econ-
omies are service economies”. A logical conclusion is that all businesses are
service businesses, which opens the door to many opportunities in innovation in
new and innovative ways (Vargo & Lusch, 2008a). Value-in-use is what benefi-
ciaries get from service interactions, as compared to value that is added in the
production process within G-D logic. Innovation, in the context of S-D logic is
not defined by what companies produce as output but how they can better
serve. It is about competing through service as opposed to, in G-D logic, com-
peting with service (Lusch et al., 2007).

2.2.2 From separation to collaborative value creation
One of the main differences between G-D and S-D logic is their handling of re-
sources, especially “human resources”. In the case of S-D logic the term of
“human resources” becomes a whole new meaning since it not only is con-
straint to internal resources, i.e. employees, but also to the consumer as oper-
ant resource. In G-D logic the customer was considered as operand resource
that must be acted upon in order to be useful. The customer was considered to
be passive and outside of the value creation process. Things were done to the
customer as he was unknowledgeable but could be encouraged to purchase
and “consume” the firm’s output or production. Thus, he was the “destroyer” of
value. The firm was seen as the active source of expertise and knowledge that
was used to develop innovative and creative marketing offerings that were pro-
duced in the factory. Therefore, the company and the factory were seen as the
source of value (Lusch & Vargo, 2009). The strict separation between firms and
the customer in G-D logic is illustrated in Figure 3.
Figure 3: Separation between firm and consumer in G-D logic. Source: Lusch
and Vargo (2009, p. 8)
In contrast to that, the consumer plays an active role in S-D logic and is part of
the value creation process. He is now considered as operant resource that is
capable of acting and producing effects in other resources. As FP6 states, “the
customer is always a co-creator of value” (Vargo & Lusch, 2008a). Now, things
are done with the customer in an interactive value creation process (Lusch et
al., 2007; Vargo & Lusch, 2008c). Not only consumers but also supply chain
partners are viewed as endogenous to value creation and as a source of exper-
tise and knowledge from which the enterprise could and should benefit (Vargo &
Lusch, 2004a; Lusch et al., 2007; Lusch & Vargo, 2009). In fact, according to
FP4, operant resources that serve with their knowledge and expertise are the
fundamental source of competitive advantage (Vargo & Lusch, 2008a).

Figure 4: The collaborative economic system of S-D logic. Source: Lusch and
Vargo (2009, p. 9)
Figure 4 illustrates how the firm and a respective partner (consumer or supply
chain partner) are no longer seen as separate but rather as an integrated eco-
nomic system. It is a collaborative process between both. They are co-creating
by sensing and experiencing together, integrating resources for individual and
collective benefit, and learning how to better serve each other (Lusch & Vargo,
2009).
It is getting obvious that value creation in S-D logic is an interactive process
between firm and customer. It must be considered in a relational context. In ad-
dition, FP10 suggests that “value is always uniquely and phenomenological de-
termined by the beneficiary”. This means, that each individual has a different
experience with the service being exchanged and values it differently (Vargo &
Lusch, 2008a). Furthermore, the setting of the usage is essential to determine
value. The context involves actors that are part of the experience and the other
resources that are drawn upon in the usage experience (Lusch & Vargo, 2009).
For example, a hotel guest staying in a hotel with his family during holidays ex-
periences the stay differently than somebody staying in the same hotel alone on
a business trip. Furthermore, viewing in the context of other resources such as
previous experiences and therefore expectations from stays in other hotels, the
use of room service, late checkout or airport transfer – all contribute to the ex-
perienced value.
After realizing that the customer is always a co-creator of value and that value is
always individually determined depending on unique experiences of the respec-
tive beneficiary, the logical conclusion is that this service centered-view is in-
herently customer oriented and relational (FP8). That, in turn, means that no
“consumer orientation” is necessary in S-D logic since it is already individually
build around each consumer (Vargo & Lusch, 2008a).
Moreover, Vargo and Lusch (2008a) suggest that the enterprise cannot deliver
value, but only offer value propositions (FP7). Value is co-created during in-use

experience. It emerges through collaboration of dynamic internal and external
operant resources of a firm – employees, customers, supply chain partners and
maybe even competitors.
2.2.3 Collaborative competence – a service-dominant logic prerequisite
Companies that want to have sustained competitive advantage not only have to
be willing to learn, they also have to have a collaborative competence, given the
interactive nature of service provision (Lusch et al., 2007). Following two meta-
competences are critical:
Absorptive competence
“The ability of an organization to be able to comprehend from the external
environment the important trends and know-how. This will assist in trans-
forming these external environments into important resources the firm can
draw upon for support. Collaborative competency will aid a firm in absorbing
new information and knowledge from partners or improve its absorptive
competence.” (Lusch et al., 2007, p. 9)
Adaptive competence
“The ability of an organization to adjust to changing circumstances. Once
again, by developing collaborative competence the entity is able to use its
partner firms as mechanisms for adapting to change brought about by com-
plex and turbulent environments and, thus, improve its adaptive compe-
tence.” (Lusch et al., 2007, p. 9)
Developing this superior collaborative competency secures a firm’s competitive
advantage. It enhances the enterprise’s ability to grasp information and
knowledge from the environment, customers, and its value networks as well as
it enables firms to adjust to dynamic, complex and turbulence environments.
Businesses have to develop those competences in order to be able to keep up
with the more and more emancipating customer. The following chapter will give
an overview of who today’s consumers are and why they now play a more ac-
tive role than ever before.
2.3 Consumer emancipation
The consumer as an active player in business is the result of societal and tech-
nological developments. Nowadays, consumers actually have the possibility to
play an active role in the value creation process. This chapter will give an over-
view of the different factors leading to this development and their implications
for companies.

2.3.1 Influencing factors and drivers of consumer emancipation
Consumers want to engage with firms in new ways. Four interconnected forces
drive this transformation:
Information access and connectivity
Networking and Social Media
Open standards and collaboration
Network ubiquity and activism
Information access and connectivity
The Internet offers unlimited amounts of information. Without it and the occur-
rence of information and communication technologies (ICTs) to access it the
customers would not be as well informed and emancipated as they are today.
According to Miniwatts Marketing Group (2011), almost 60% of Europe’s and
80% of North America’s population are online. Worldwide 30% of all people are
online. Globalization of information, the ubiquitous and ever-growing connectivi-
ty makes consumers more knowledgeable and leads to more informed deci-
sions (Bolton et al., 2004). Firms that were used to limit the flow of information
to consumers experience a radical shift. They are now challenged by millions of
networked customers who collectively aggregate information and question the
tradition of all kinds of industries (Prahalad & Ramaswamy, 2004a). Consumers
now have access to more and more information, causing them to turn away
from communications that appear to be inaccurate, abusive, intrusive or overly
one-sided (Lusch & Vargo, 2009). The same applies for tourism. Once a labor-
intensive industry it was transformed to an information-intensive industry, due to
the rapid distribution of new ICTs (Chung & Buhalis, 2008). The growing popu-
larity and number of market entrances of price comparing websites (e.g.
swoodoo.com) and hotel recommendation websites (e.g. holidaycheck.com)
support this argument.
Networking and Social Media
Advances in communication technology and the fast growth of Internet usage
amongst all age groups allow consumers to follow their natural desire to unite
around common interests, needs and experience. Accordingly, “thematic con-
sumer communities”, where everybody can share ideas and feelings independ-
ent from age, origin or social background, are revolutionizing emerging markets
and changing established ones (Prahalad & Ramaswamy, 2004a). Consumer
networks allow what Prahalad & Ramaswamy (2004a, p. 4) call “proxy experi-
mentation”. It means to learn from the experience of others. The diversity of in-

formed customers all over the world creates a huge base of skills, sophistica-
tion, and interest that any individual can make use of.
Comparing the top 10 website ranking from 2005 and 2010 (Table 2) it is getting
obvious that the usage of social media1
and Social Network Sites (SNS)2
highly
increased during the last years. The ranking from 20103
is dominated by web-
sites with a social, sharing or community approach. While only 10% of the top
10 websites had a social character in 2005, the percentage rose to 50% till
2010. Internet users increasingly communicate with each other, create own con-
tent and share it on respective platforms.
Table 2: Top 10 Website Ranking 2005 vs. 2010
Rank 2005 2010
1 Yahoo.com Google.com
2 MSN.com Facebook.com
3 Google.com YouTube.com
4 Ebay.com Yahoo.com
5 Passport.net Live.com
6 Amazon.com Wikipedia.org
7 Microsoft.com Blogger.com
8 Myspace.com Twitter.com
9 Google.co.uk MSN.com
10 AOL.com Amazon.com
Source: (Alexa.com, 2005, 2010)
Whole new industries emerged out of the web 2.0 movement and SNS, e.g.
Social Media agencies and consultants. Companies realize that consumers
share information about them or their product on Facebook, Twitter & Co.. A lot
1
Social Media can be understood as Internet-based applications that carry consumer-generated
content which encompasses media impressions created by consumers, typically informed by
relevant experience, and archived or shared online for easy access by other impressionable
consumers (Xiang & Gretzel, 2010).
2
Boyd & Ellison (2007, p. 211) define Social Network Sites as “web-based services that allow
individuals to (1) construct a public or semi-public profile within a bounded system, (2) articu-
late a list of other users with whom they share a connection, and (3) view and traverse their
list of connections and those made by others within the system. The nature and nomencla-
ture of these connections may vary from site to site.”. The exchange of information, opinions,
and user generated content are some of the manifold possibilities on these networks.
3
Only websites in English were taken from 2010’s global ranking. Chinese or other websites
have been dismissed to make it comparable to the only-English language website ranking
from 2005.

of them understand that it is better to actively join the conversation in order to
better get to know their customers and their customers’ needs.
Open standards and collaboration
Open standards are relatively new and are best illustrated with the example of
the free dictionary Wikipedia that anyone can edit. Mainly anonymous volun-
teers from all over the world write all articles collaboratively without payment.
The collective genius of more than 82.000 active contributors created more than
17.000.000 articles in more than 270 languages (Wikipedia.org, 2011). Open
standards build the foundation of co-production and collaboration. Lusch et al.
(2007) give to think that the first effort at open standards was language itself.
The consequence of open standards is that information is increasingly symmet-
ric, meaning that everybody has access to the same information and its flow is
bidirectional as opposed to asymmetric information where only some have an
information advantage. What started online with posting comments, sharing
files, code, photos, videos and knowledge is now part of daily life as people also
share their cars (zipcar.com; whipcar.com; nachbarschaftsauto.de), goods
(neighborrow.com), food (neighborhoodfruit.com) or even their gardens (land-
share.net; sharedearth.com) in a collaborative way, also known as “collabora-
tive consumption” (Botsman & Rogers, 2010). Collaborative consumption is
rooted in the technologies and behaviors of online social networks.
“Sharing is to ownership what the iPod is to the eight-track, what the solar
panel is to the coal mine. Sharing is clean, crisp, urbane, postmodern; own-
ing is dull, selfish, timid, backward.“ (Levine, 2009)
Network ubiquity and activism
Nowadays people can access the Internet from almost everywhere with a num-
ber of devices: Their computers, cellphones and tablet devices. It is hard to find
a place on earth where is no Internet-Café around the corner. A lot of hotels and
restaurants already offer free wireless Internet access, thus making it possible
to access all necessary information, which again benefits symmetrical infor-
mation. Through new ICTs it became much easier for consumers to provide
unsolicited feedback to companies and to each other through special recom-
mendation websites or personal blogs. There is almost nothing that consumers
cannot rate today: doctors (ratemds.com), employers (kununu.com), professors
(meinprof.de), and hotels (tripadvisor.com or holidaycheck.com). Most of these
websites offer the possibility to connect the user with like-minded people and

build a network or connect to an existing network, e.g. via Facebook connect or
other APIs4
.
Increasingly, everyone and everything is connected to each other and each
thing. Network ubiquity accelerates the consequences of open standards,
specialization, and connectivity. The consequences are higher collaboration
and more innovation. (Lusch et al., 2007, p. 10)
The Internet has become a powerful tool to express opinions, share views and
organize interest groups. Thus, making the public or governments aware of crit-
ical issues, e.g. environmental protection, or even supporting political revolu-
tions like in Egypt, Tunisia and Lybia in 2011 (Somaskanda, 2011). Concentrat-
ing on marketing issues, consumer advocacy through online groups may have
even greater impact than a company’s advertising (Prahalad & Ramaswamy,
2004a). In hospitality, personal opinions and experiences from others already
play a major role in the customer’s decision-making process and are most of the
times the decisive factor before it comes to a booking (Litvin, Goldsmith, & Pan,
2008; Vermeulen & Seegers, 2009).
2.3.2 Implications for companies
The named drivers of customer emancipation implicate following important find-
ings: Customers are not isolated and are active players. They interact with each
other and firms directly, through customer communities or SNS. It is a dynamic
and fast moving process with a lot of potential for innovation.
Emancipated consumers and a collaborative lifestyle
The growth of sharing-websites – be it music, data, information, cars, tools or
gardens – show two things: (1) A new kind of consumer generation is evolving.
What once was the isolated and rather passive customer developed into an ac-
tive, sharing, collaborative and community/ network oriented consumer.
Botsman and Rogers (2010) call this “collaborative lifestyle”. (2) People do not
wait for companies to find that one market niche and then buy the product.
Nowadays people take initiative, communicate on different channels what they
are missing, and sometimes even start their own business because they see
the potential behind their idea. Hence, customers and customer communities
can play a fundamental role in innovation, product development and along the
4
An application programming interface (API) is a set of rules and specifications within a pro-
gram’s code that allows software programs to communicate with each other. It facilitates the
interaction between different software programs (in this case websites) and serves as an in-
terface. APIs make it easier to connect two databases and share their information with each
other (Orenstein, 2000; PCmag.com, n.d.).

whole value creation process. People love to share their ideas and insights, why
not making use of it?
Dialog and Communication
In order to be able to make use of the vast knowledge of consumers and possi-
ble buyers, it is necessary to engage in a dialog with them. The dialog becomes
even more valuable when all stakeholders affected by the exchange of service
(e.g. supplier, employees etc.) become part of the dialog. This leads to the con-
clusion that the marketplace itself becomes an active part of marketing. Since it
is hard if not even impossible to control the outcome of this conversation this
measure may disturb some companies. Nevertheless, participating in it im-
proves their understanding of customers and other stakeholders (Lusch & Var-
go, 2009). Furthermore, the exchange of opinions and information increases
transparency and eliminates the asymmetry of information between the stake-
holders. Finally, an open dialog can also serve as risk assessment, e.g. during
an early phase of product development (Bolton et al., 2004).
Co-creation of experience
Whether the engagement is with a single customer or a customer community
the outcome is the co-creation of value; what is co-created is the experience.
Products and services can be the means for an end to co-create personalized
experiences. Furthermore, no firm alone can provide the total co-creation expe-
rience (Bolton et al., 2004). Hence, it is important to work together with other
companies – make use of their specialized insights in order to provide a unique
co-creation experience. This again shows, how important it is to open up, not
only to customers but also to relevant stakeholders. Consumerism moves from
its old centralized and controlled forms toward one of sharing, aggregation,
openness and cooperation (Botsman & Rogers, 2010). In order not to lack be-
hind, companies have to do adopt the same collaborative way of doing busi-
ness.
Armed with new tools and dissatisfied with available choices, consumers
want to interact with firms and thereby co-create value. The use of interac-
tion as a basis for co-creation is at the crux of our emerging reality.
(Prahalad & Ramaswamy, 2004b, p. 5)
Summarizing those implications, enterprises can no longer act autonomously
without little or no interference from consumers. Customers attempt to exercise
their influence in almost every part of the business system: product design, pro-

duction sites and processes, marketing messages, and sales channels. As a
consequence of increased sharing of information and experiences direct ex-
change and collaboration becomes a necessity in order to stimulate innovation.
2.4 The principle of co-creation
Previous chapters established the new mindset of the consumer’s and the ne-
cessity of collaboration. With the influencing factors and drivers of the emanci-
pated consumers in mind, this chapter explains the components necessary to
transform an enterprise towards co-creation as well as the four powers of co-
creation.
The transformation of enterprises towards co-creation underlies following core
principle:
Engaging people to create valuable experiences together while enhancing
network economics. (Ramaswamy & Gouillart, 2010, p. 35)
Picking up on this principle Ramaswamy defined co-creation in a recent inter-
view (Roth, 2011b) as follows:
Co-creation is about inclusive and meaningful engagement of stakeholders
(customers, employees, suppliers, investors, partners, regulators, citizens,
and others) to mutually expand value, through the mindset of human experi-
ences.
Both, the co-creation principle and Ramaswamy’s definition, have the same four
components:
Experience mindset
Context of interaction
Engagement platforms
Network relationships
Those components combined liberate the four powers of co-creation
(Ramaswamy & Gouillart, 2010):
Increased strategic capital and returns to enterprises
New experiences of value to individuals
Lower risk and costs for individuals
Lower risk and costs for enterprises
As Figure 5 shows, the four principles of co-creation are deeply intertwined. A
co-creative enterprise reacts to insights originating from the actual engagement
experience of people that are part of the process: customers, employees, sup-

pliers and other stakeholder. It is an ongoing collaborative process of designing
and redesigning what is of value with the stakeholder.
Unique value is created through innovating new types of experiences shaped by
the context of people’s interactions. In order to be effective and make the pro-
cess affordable, the design of engagement platforms is necessary
(Ramaswamy & Gouillart, 2010). An engagement platform can be “any envi-
ronment of online or offline available interfaces, people, processes, and arti-
facts, which is purposefully designed to generate outcomes of value through the
mindset of human experiences” (Roth, 2011c). Examples for engagement plat-
forms are mobile devices, websites or communication software. They “industri-
alize” the scale and scope of interactions, drive their costs down and reduce risk
through co-creative engagement.
In addition to that, another basic prerequisite is an expanded, reconfigurable
network of resources that goes beyond the traditional boundaries of the organi-
zation to expand stakeholder relationships, including private-public-social enter-
prise partnerships. This leads to a generation of radically new ecosystems for
all participants involved in this co-creative ecosystem (Ramaswamy & Gouillart,
2010).
Figure 5: The core principles of co-creation. Source: Own illustration based on
Ramaswamy and Gouillart (2010, p. 36)

Through the expansion of value creation in this “win more-win more” fashion it
comes to more transformational results since its scope of application also ex-
pands over time. It is the small steps in the beginning that bring confidence to
the company engaging in co-creative activities. Whether it is about the individu-
al’s experience, the opening up of interactions or the expansion of their co-
creative network. The key is to build confidence in a smaller group, experiment
and modestly expand the circles. Over time confidence is strong enough to in-
volve a larger and larger set of players, the scope of experiences attempting to
influence will grow as well as the company will open up to more and of entirely
new types of contextualized interactions. Every step will lower the cost of each
new interaction that becomes part of the co-creative ecosystem and energizes
new strategic capital that ignites further growth through new network interac-
tions (Ramaswamy & Gouillart, 2010).
Figure 6 shows Vargo’s and Lusch’s (2008c) S-D logic representation of value
creation. It shows the relational setup of the value-creation process in a cycle.
Figure 6: Value creation and service-dominant logic. Source: Vargo and Lusch
(2008c, p. 257)
Firstly, firms have to overcome internal resistances. As the approach of co-
creation is still very new, people inside a firm – no matter which position – can
feel threatened for three reasons: (1) They might have the impression that peo-
ple outside their company can do their job better and cheaper, which could
make them redundant over time. (2) The approach of co-creation requires a

certain amount of transparency. Firms have to reveal what they are looking for
or working on. This means that everybody, including customers, the general
public (press), and competitors, know more about the company’s activities. It is
not easy for some companies to take that step (Liepuoniute, 2011). (3) The out-
come of a co-creative project is not controllable for the companies, as too many
individuals with different motivations are involved. It might be possible to give
rough directions, however, the outcome is incalculable. However, participating
in co-creative activities helps companies to understand their customers and
stakeholders better(Lusch & Vargo, 2009).
More advantages of engaging in co-creative activities are explained in the fol-
lowing chapter.
2.5 Competitive advantage through co-creating experiences
Co-creation sometimes is mistaken with simple outsourcing or transfer of activi-
ties to customers, which it is not. It is not a marginal customization of products
or services, nor is it a scripting or staging of customer events around a compa-
ny’s products. Nowadays, company-customer interaction of that sort no longer
satisfies most consumers. In co-creation the experience (not the offering) is the
basis of unique value for each individual (Prahalad & Ramaswamy, 2004b). The
core value of co-creation does not lie in the actual contribution to the final prod-
uct or service. It does not imply co-production and goes beyond product devel-
opment. The core value of co-creation is the collaboration itself (Lusch & Vargo,
2009). Furthermore, Payne et al. (2008) note that early experimenter are mov-
ing away from G-D logic models to the new S-D logic model where value is cre-
ated in use by experiences.

Figure 7: Traditional vs. co-creative enterprise. Source: Own illustration based
on (Ramaswamy & Gouillart, 2010, p. 6)
An important role play personal encounters, personal relationships and every-
thing that can be considered as a personal touchpoint or encounter with a com-
pany. A high degree of trust is often required within collaborative lifestyles or in
this case co-creative encounters because human-to-human interaction, not a
physical product, is often the focus of the exchange. As a result, they generate
a myriad of relationships and social connectivity. When personal relationships
and social capital return to the center of the exchanges, peer-to-peer trust is
relatively easy to create and manage, and most of the time the trust is strength-
ened, not broken (Botsman & Rogers, 2010).
Not only do co-creation activities help companies to understand customers bet-
ter, it is also likely to result in deeper bonds with them. More trust, more com-
mitment, and more loyalty can be the result of co-creation with the customer. As
already elaborated on, the process of co-creation requires firms to be transpar-
ent through an open and honest dialogue. Through dialogue, the firm and the
customers, as well as customers among themselves, create bonds of integrity
and shared risk, as everybody knows about the good and the potential bad of a
product or service. The enterprise can reduce uncertainty in capital commit-
ments and even spot and eliminate sources of environmental risk (Jaworski &
Kohli, 2006; Prahalad & Ramaswamy, 2004b).
As a result, trust in this dialogue is increased through co-creation. Since the
customer is involved in the development process, he builds commitment to the
resultant offering by the company. Owing to the fact that the offering is co-
developed, it increases the product’s relevance for consumers, has higher

probability of precisely meeting the customers’ needs, and therefore leads to
higher customer satisfaction. Eventually, through exclusive co-creation activities
customers provide assymetric information about the marketplace and personal
insights about their sources of value, which are not easily available to competi-
tors (Jaworski & Kohli, 2006).
In addition to that, Randall et al. (2011) found that consumers can perceive a
connection in terms of co-creation with firms and their managers and frontline
personnel as well as with other customers. This leads them to the conclusion
that co-creation efforts increases the connectedness between staff and custom-
ers as well as increases overall satisfaction, which in turn stimulates positive
word-of-mouth and reduces marketing costs over time.
Through a larger pool of available information and the constant generation of
insights, co-creation increases effectiveness and speed of product develop-
ment. Employees can more deeply understand consumer aspirations, desires,
motivations, behaviors, and agreeable trade-offs regarding features and func-
tions. (Piller & Ihl, 2009; Prahalad & Ramaswamy, 2004b). Furthermore, co-
creation helps reducing research and development costs, increases output and
opens new markets (Chesbrough & Schwartz, 2007).
Still, the most important source of value is the co-creation process itself. Com-
panies and customers collectively interact, provide inputs and exchange
knowledge. The result is a constant process of learning, creating and develop-
ing ideas (Lusch & Vargo, 2009). This way, co-creation can serve as a source
of significant competitive advantage.
2.6 Challenges for co-creative companies
To be able to make use of the advantages of co-creation, several challenges
have to be met.
A co-creative company should focus their entire organization on the experienc-
es of all their customers and stakeholders. Doing so they need to be aware of
that human experiences can stem from any kind of interaction with products,
processes and people. Managers need to adopt an experience mind set rather
than focusing on goods and service. As experiences are the basis of value, the
organization’s products, processes and management funtions need to be de-
sign in a matter that enables culture of collaboration internally as well as exter-
nally. As a result compelling and meaningful experiences of value can be creat-
ed. Besides that, companies have to redefine themselves away from single-
company performance model towards ecosystem-based performance man-

agement systems where collaboration with other stakeholders is the rule rather
than the exception. (Ramaswamy & Gouillart, 2010)
In order to be able to step into collaborative engagement with others, compa-
nies need to open up to external sources of value. Firstly, as already elaborated
on in chapter 2.4, internal resistances have to be overcome (Liepuoniute, 2011;
Lusch & Vargo, 2009). Ramaswamy and Gouillart add that rather the willing-
ness of companies to engage in co-creative activities is more limited, than their
ability to attract customer co-creators (Ramaswamy & Gouillart, 2010).
When it comes to co-creative design, the challenge is larger inside than out-
side.(Ramaswamy & Gouillart, 2010, p. 144)
Rather than concentrating their focus on control, planning and forecasting,
managers should be more pro-active, flexible and see the opportunities within
opening up. Faster thinking and quicker reactions make the difference in a co-
creative setting (Piller, 2010; Prahalad & Ramaswamy, 2004c). More factors
that are a challenge for some firms are: a company’s learning ability, flexibility,
empathic attitude, ability to create and maintain dialogue, level of openness and
transparency as well as the level of accessibility consumers experience during
the process. However, once accomplished they strongly influence the success
of co-creative activities (Prahalad & Ramaswamy, 2004c).
Before engaging with consumers, enterprises should observe and listen to their
customers to find out what they are talking about and what the brand, product or
service means to them. This crucial step is often overlooked (van Dijk, 2011a).
After gathering of insights the dialog can start. While it is impossible to control
the outcome of this conversation, which might scare some companies, the ben-
efit of understanding customers and stakeholders in return is much bigger
(Lusch & Vargo, 2009). Leading an authentic and continous dialog increases
trust and establishs a feeling of connectedness. Moreover, companies should
be empathic and open, which helps to build an atmosphere that makes it easy
for both sides to learn from each other (Lusch & Vargo, 2009; Prahalad &
Ramaswamy, 2004c).
Value is created through different types of experiences shaped by the context of
people’s interactions. Engagement platforms support this process and make it
more effective and affordable. To find a fitting engagement platform is one chal-
lenge, another is to let it further evolve as a function of the co-creative process it
fosters. Co-creative design thinking is essential to keeping engagement plat-
forms active and spirited (Ramaswamy & Gouillart, 2010). During the operation
of engagement platforms as well as every co-creative engagement companies
need to find a balance between freedom and control, in order to effectively de-

velop and create value (Bartl, Jawecki, & Wiegandt, 2010). This can be accom-
plished by means of participanct protocols that define the rules of engagement.
Based on experiences during the process the rules can constantly be revised.
Social norms, that are enforced by participants help to reduce risks (Chui,
Miller, & Roberts, 2009; Prahalad & Ramaswamy, 2004a).
Stepping into co-creative innovation the question rises, who to co-create with.
The right solution comes from the right participants. (Chui et al., 2009, p. 5)
Finding, targeting and engaging users who can create a critical mass for partici-
paction as well as add value is one major challenge. It is crucial to carefully
choose the appropriate customers for a co-creative activity to make it effective.
In order to generate a diversity of ideas and minimize risk of creating products
or services that only a small segment of users value, Kristensson et al. (2008)
recommend to choose lead-users, that represent a broad heterogeneous seg-
ment of potential consumers. The development process can be disrupted if par-
ticipants resignate or abdicate from their role as co-creators, which is why it is
essential to diminish this risk by selecting only higly involved and dedicated
consumers (Prahalad & Ramaswamy, 2004a). Money as an incentive is not suf-
ficient as it only attracts customers interested in a personal need as their main
goal for participating (Bartl et al., 2010). In addition to that, Chui et al. (2009)
show in their research that monetary rewards to motivate consumers to in-
crease their input are not effective. In contrast, they advise companies to
change their tactics and play into customers’ desire for recognition and
acknowledgement in order to increase the level of participation. In conclusion
and according to van Dijk’s (2011a) study on co-creative consumers they are
mostly driven by intrinsic motivation. When it comes to mass-produced goods,
only a small number of consumer suggestions are actually considered. Hence,
customers that participate in co-creation projects will rarely be able to determine
the final outcome of a product. However, since they are listened to and experi-
ence a sense of enjoyment and confidence they feel empowered. The actual
influence on the final product seems not to be of highest importance (Füller,
Mühlbacher, Matzler, & Jawecki, 2009). Moreover, the level of trust plays a big-
ger role and has a direct influence on the quality of the interaction and feeling of
empowerment. The more participants trust the company, the more involved they
are. Participants want to feel secure and confident that the company does not
end or change the rules of engagemt to pursue a different or better goal
(Botsman & Rogers, 2010; Bughin, Chui, & Johnson, 2008; Etgar, 2008).

2.7 Summary
Chapter 2 focused on introducing the service-dominant logic, which is regarded
to be a challenge to the existing marketing principles as it has a customer-
centric approach rather than a company- or product-centric approach. The most
important steps in the evolution of marketing towards the point where we are
now have been explained.
In an introduction of the service-dominant logic it was compared to the tradition-
al thought on marketing, the goods-dominant logic. In an introduction of Vargo’s
and Lusch’s ten foundational premises, a comparison was drawn between the
challenging customer-centric marketing assumptions and the old product-
centered logic. Table 3 explains the most significant differences between G-D
and S-D logic and summarizes the most important elements for this work.
Table 3: Comparison between goods-dominant logic and service-dominant logic
Element Goods-Dominant Logic Service-Dominant Logic
Exchange Exchange of (tangible) goods Exchange of services (process)
Service Intangible good
Application of specialized competences
(knowledge and skills)
Value
Added by the enterprise in the pro-
duction process
Value creation is interactional and can
only be determined by the user in the
consumption process
Customer
Customer as target (operand re-
source)
Customer as (operant) resource
Employees
Replaceable operand resources
treated in a transactional mode
Primal source of innovation, organiza-
tional knowledge and value
Information Assymetric flow of information Transparency
Based on (Lusch et al., 2007; Vargo & Lusch, 2008c)
Given the interactive nature of service provision companies have to have a col-
laborative competence. Not only do enterprises have to be willing to learn, but
also they need to equipped with an absorbtive and an adaptive competence to
be able to put S-D logic into practice and to ensure sustained competitive ad-
vantage.
Taking a step back and looking at the big picture, the shift from G-D to S-D logic
means much more than just a move from goods to services. Not only can S-D
logic be seen as a paradigmatic challenge to marketing orthodoxy, but it also

implies a new set up of the whole purpose of the enterprise and its collaborative
role in value creation, for both the actors involved in exchange and for society
(Vargo & Lusch, 2008c; Ballantyne, Williams, & Aitken, 2011).
In an examination of drivers and influencing factors of consumer emancipation it
got obvious that consumers are highly connected and that they are active play-
ers in the market. In a dynamic and fast moving process they interact with each
other and firms directly through customer communities or social networking
sites. The consumers’ collaborative lifestyle and willingly sharing of ideas and
insights is big opportunity for companies. Realizing that the marketplace is an
active part of marketing, it is now important to step into an open and transparent
dialog and create possibilities for consumers to co-create their experiences with
the firms in order to stimulate innovation and create a competitive advantage.
In an examination of the principle of co-creation four main components of co-
creation were introduced and explained, which again highlight the factors that
led to today’s consumer emancipation:
Experience mindset
Context of interaction
Engagement platforms
Network relationships
Engaging in co-creative activities brings a lot advantages to the firms. However,
to be able to grasp the full potential of co-creation, several challenges have to
be met. Figure 8 summarizes advantages and challenges of co-creation.
Figure 8: Advantages and challenges of co-creation. Source: Own illustration

In conclusion, applying the S-D logic and making use of co-creation brings a lot
of advantages as well as there are challenges to be conquered, that might not
be easy for some companies. However, making the first little steps towards this
challenging new concept of marketing opens up a world full of potential for
growth, productivity and profits for everybody participating in it.

Hospitality status quo 28
3 Hospitality status quo
This chapter gives an overview on the current state of hospitality research and
practice especially in terms of marketing and innovation. Those fields where
chosen because of their relevance considering the topic of co-creation. Not only
are we in times of a paradigm shift in marketing, but also in times of growing
collaboration on every level that can be used for innovation purposes. It is ex-
plored in how far the consumer actually plays an active part in the so called
“people’s business”.
Since hospitality is a broad term it needs to be narrowed down and specified for
this work, which will follow in the first part of this chapter. After introducing the
special characteristics of hospitality as service industry, todays savvy hospitality
customer with his changing needs is introduced. In the chapter on hospitality
marketing it is looked into current issues of hospitality marketing that are rele-
vant for this work. Thereafter, an examination of hospitality marketing literature
considering the paradigm shift of marketing follows. An interim conclusion will
summarize and point out the main findings.
This chapter’s next main part is a qualitative study on current innovation prac-
tice in hospitality. The author conducted qualitative interviews with five execu-
tives of hospitality companies in Germany and Austria to get deeper insights
into the current innovation practice of hospitality enterprises and their general
attitude towards co-creation. After giving theoretical background on innovation
in hospitality, the study and its results are introduced. After a discussion of the
findings a conclusion is drawn. In the final part of this chapter the summary of
the main points lead to a conclusion on the status quo of customer engagement
in hospitality.
3.1 Hospitality definition
Hospitality is one of the oldest professions in the world and grew into different
disciplines, which does not make it easy to find a fitting definition for the whole
industry. Harrison and Enz (2004) define the hospitality industry as a group of
businesses that welcome travelers and guests by providing accommodation,
food, and/or beverages or a combination of these activities. This is a very broad
definition of hospitality and can be applied to several industries. Ottenbacher,
Harrington and Parsa (2009) identified six distinct areas of hospitality: Lodging,
Foodservice, Travel, Leisure, Attractions, and Conventions. Each component

industry is subdivided into various market segments, lines, brands, concepts,
and so on. The author of this work, however, wants to focus especially on the
lodging sector as part of the hospitality industry.
The lodging industry is defined as the provider of accommodations and other
amenities for travelers and other desiring customers. The primary output of
this industry is providing lodging services. The lodging industry can be fur-
ther subdivided into various market segments, such as resorts, luxury hotels,
high-end hotels, mid-level hotels, suites, economy hotels, budget hotels,
inns and motels, hostels, lodges, bed and breakfast, and other accommo-
dations. This division is based on the level of services offered and the type
of accommodations provided at each type of property. Each type of lodging
facility can be further subdivided using various criteria, such as brand repu-
tation, nature of ownership, location, regional pricing levels, amenities of-
fered and so on. (Ottenbacher et al., 2009)
Further references to the hospitality industry or hospitality in general in this work
apply for the lodging industry.
3.2 Characteristics of hospitality as service industry
Per definitionem the primary output of the hospitality industry are lodging ser-
vices. Hence, the hospitality industry can be accounted for as service industry.
Hotels differ from other service businesses by serving those who are travelling
away from home in contrast to local residents. Furthermore it is important to
notice that the offering of an experience is also a major part of hospitality (Enz,
2009). In contrast to other industries, where goods are at the center of ex-
change, following characteristics differentiate hospitality: intangibility, insepara-
bility, variability and perishability.
Intangibility
As opposed to physical products services cannot be seen, tasted, felt, heard or
smelled before they are purchased – they are intangible (Bowen, 2008). Con-
sumers cannot be sure about the quality of the service they will receive until it
has been consumed. Furthermore customers cannot take ownership of the ser-
vices. There is no transfer of tangible assets (Reid & Bojanic, 2005). But, as
Zeithaml and Bitner (2003) point out, very few products are either purely tangi-
ble or intangible. The breakfast that is served in a hotel is tangible. The atmos-
phere of the hotel and the employees’ uniforms help tangibilize the experience.

Heterogeneity
Service encounters are experienced differently by different people or even by
the same people at different circumstances. The customer’s level of satisfaction
depends on the nature of the interaction with the service provider, the condition
of the physical facilities in which the service gets provided, and other guests
present in the hotel during the time the service is provided (Jones & Siag, 2009;
Lovelock & Wright, 2001; Reid & Bojanic, 2005).
Inseparability
Not without reason the hospitality industry is called “peoples business”. As the
experience of a stay is in the foreground, the human factor plays a much bigger
role during the exchange of this service. Most of the times consumers are re-
quired to be present during the production or delivery of the service. The ser-
vices provided differ from tangible products since they are immediately con-
sumed and require a people-intensive-creation (Jones & Siag, 2009). Owed to
the fact that hospitality is a high-contact service, customers not only come into
contact with service personnel, but also with other guests. The difference be-
tween service businesses often lies in the quality of employees serving the cus-
tomers. Similarly, other guests also have influence on the nature of the service
experience (Lovelock & Wright, 2001).
Variability
The intangibility, heterogeneity and inseparability contribute the the variability
that customers experience when consuming the hospitality product. The lack of
consistency is a major case of customer disappointment. Services cannot be
stored for later use, they are consumed in real time with many variables not be-
ing under full control of the manager. Hotels try to minimize the amount of vari-
ability between service encounters; however, much of the final product stays
situational. Their quality depends on who provides them when and where. Sev-
eral causes account for the service variability. Since services are produced and
consumed simultaneously, quality control is limited. Fluctuating demands or
seasonality make it difficult to deliver consistent products during periods of peak
demand. Hotels may fail to cope with too many guests at a time, which can re-
sult in customer dissatisfaction. With only few guests a vital ingredient of the
hospitality product – atmosphere – can be missing, which can lead to customer
disappointment. Moreover, the product consistency depends on the employee’s
skills, attitude and performance at the time of exchange. Even more uncontrol-
lable is the guest’s attitude, who may perceive the same service differently from
day to day because of a different mood he is in. These factors make it difficult
for hotels to improve productivity, control quality, and offer a consistent product

(Lovelock & Wright, 2001; Reid & Bojanic, 2005; Wood, 2008). Nevertheless,
not all variations in service delivery are necessarily negative. A lot of hotels rec-
ognize the value of customizing at least some aspects of the service offering to
the needs and expectations of individual customer, especially in the luxury
segment where a high personalization is expected.
3.3 Today’s hospitality customer
As already elaborated on in chapter 2.3, consumers in general are more in-
formed, networked, empowered, and active than ever. Apart from that, today’s
savvy hospitality customers show other characteristics that are important to
mention for this work.
As people work more and have fewer holidays, leisure time becomes more im-
portant to them (Niininen, Buhalis, & March, 2007). More work, consequently
means higher disposable income, which puts travellers in the position to be able
to access and afford almost anything they want, especially when it comes to
physical needs. Having those wishes fulfilled, their standards rise. Therefore,
after fulfilling their physical needs, they are now in quest of psychological
needs, like inspiration, cultural, spiritual and authentic experiences, belonging to
a meaningful community, value and meaning in general (Binkhorst & Den
Dekker, 2009; Niininen et al., 2007). Furthermore, the new generation of cus-
tomers is highly technology-savvy and deliberately relinquishs personal interac-
tion with front line personnel in exchange for money or time benefits. Conse-
quently co-producing or self-servicing engagements, such as self check-in ter-
minals, are highly popular among customers and considered convenient
(Sanders, 2011). In general customers become more demanding. Each guest
is a consumer with particular expectations. To be able to deliver satisfactory
experiences, hospitality marketers need to segment the market to ensure com-
patibility between consumers sharing the same premises at the same time
(Middleton, 2009). Besides requesting high quality products and value for their
money, they also expect value through a great experience throughout the entire
length of their dealings with companies, from information seeking over booking,
stay and follow up service. Enterprises complying these expectations with per-
sonalized and customized value adding services encourage loyalty and the cus-
tomers’ sense of identification with the brand (Niininen et al., 2007). Consumers
are erratic and fashions change quickly, delivering what customers are looking
for is increasingly the key to success. (ehotelier.com, 2006). With a highly per-
ishable product, this represents a challenge for hoteliers.

3.4 Hospitality marketing
As part of the tourism industry marketing in the hospitality industry is much
alike. Marketers of both follow the goal of helping tourism providers to increase
visitation and consumption (Buhalis, 2000). The traditional views (“market to”) of
marketing are the rule and the majority of practitioners and researchers in the
field of tourism marketing still incorporate them as basis of their work. Current
tourism and hospitality marketing is built on a provider-based, goods-centered,
and transaction-oriented perspective. Thus, the relationship between guests
and lodging suppliers is viewed as simply one of buyer versus sellers. Different
service components are assembled into products and made readily available for
buyers (Li & Petrick, 2008).
Following subchapter gives an overview of current issues and developments in
hospitality marketing that are relevant for this work. Subsequently, a literature
review on research considering the paradigm shift of marketing follows. The
chapter on marketing in hospitality is closed by a summary and an interim con-
clusions.
3.4.1 Relevant issues in hospitality marketing
Without going into further details of the classic marketing, following list gives an
overview of current developments and value drivers in marketing practices in
hospitality that are relevant for this work:
Brand relationships
Internet and new ICTs
Customer relationship management (CRM)
Social media marketing
Brand relationships
The hotel industry has firmly embraced and accepted the value of branding as
an essential component of its marketing strategy in the last decades (Dev,
Zhou, Brown, & Agarwal, 2009). In their article on hotel brand strategy O’Neill
and Mattila (2010) summarize recent research, which highlights the importance
of a strong hotel brand and how it creates personality for an intangible entitiy,
i.e. hospitality. It can create an emotional connection with the consumer and be
an important cornerstone of a close (brand) relationship. They further explain,
how brand equity can serve as a strategic advantage that not only opens oppor-
tunities for expansion in a variety of markets, but also creates financial value
due to its power to achieve cash flows via relatively higher margins. A hotel
brand assures a certain level of quality in the eyes of the customer, which leads

to customer loyalty and in turn has positive financial aspects, e.g. price premi-
ums, increased market share or improvement of stakeholder value (O’Neill &
Mattila, 2010). Extensive corporate development and changes in brand archi-
tecture have resulted in most big hotel companies having a brand at every price
level. This resulted in excessive sub-branding of the industries major compa-
nies: Marriott has 13 subbrands, Starwood has 9, Hilton has 10, Intercontinental
has 7, and Accor has 17 (Green, 2010). This proliferation of brands led to an
extensive hotel brand segmentation in the market. This caused confusion to the
consumer in differentiating products between and within lodging firms as well as
it became harder for hotel corporations to establish brand relationships with
consumers (Bender, Partlow, & Roth, 2008; Niininen et al., 2007).
Internet and new ICTs
With growing popularity and accessibility the Internet has brought many chang-
es to the business environment such as the lowering of entry barriers, a growth
in market size and greater potential to reduce costs (Stockdale, 2007). In com-
bination with the occurrence of new technologies the tourism and hospitality
industries where revolutionized in terms of industry structures and marketing.
The new business environment created by the occurrence of ICTs had an es-
sential impact on the tourism system. ICTs have become an inseparable partner
of the tourism industry offering the interface between consumers and provider
on a global scale (Buhalis, 2002). Over the last decade ICTs facilitated the ex-
pansion of the industry and the enlargement of the market in a pace like never
before. Especially the Internet and digital technologies reshaped the marketing
mix and led to a shift from offline communications to online activities at the cen-
ter of the marketing communications mix (Middleton, 2009). This development
sped up the need for airlines, hotels and tour operators alike to continue to de-
velop their online strategies and improve the ease and security with which their
e-commerce initiatives can be used by online customers. One outcome of this is
the increasing growth in self-serving technology with the consequent reduction
in interaction between customers and the industry. Interestingly, while on the
one hand businesses wish to build relationships with customers on the other
hand, consumer autonomy is growing via the use of self-servicing technologies
(Middleton, 2009; Stockdale, 2007). Considering marketing activities and
spending, the most recent survey on digital marketing in hospitality by Starkov
and Mechoso Safer (2011a) shows that the Internet is the only marketing chan-
nel in hospitality that is still growing. Furthermore it is the most measurable
channel. According to the survey most hoteliers believe that Internet marketing
(40,5%) produces better results than traditional offline marketing (9,5%). Com-

pared to last year, almost 75% of the hoteliers have a higher Internet marketing
budget. In some cases this increase went at the expense of offline marketing.
Customer relationship management
Marketing strategy has been significantly affected by the ongoing developments
in technology. The Internet became a catalyst for relationship marketing, which
primarily is driven by knowledge gained and communicated by connected cus-
tomer databases, often referred to as CRM-systems (Middleton, 2009). The
strategy of CRM, “enabled by processes and technologies, is architected to
manage customer relationships as a means for extracting the greatest value
from customers over the lifetime of the relationship” (Heller Baird & Parasnis,
2011a, p. 1). It is typically concentrated on the operational response required to
manage the customer. Apart from the ability to target individuals, databases
have a powerful market research value in generating detailed knowledge of re-
peat buyers and cutting out the cost of undertaking traditional usage and atti-
tude studies among buyers (Middleton, 2009). Although the hospitality industry
as a whole has been lagging in moving towards relationship marketing and uti-
lizing existing data to develop marketing programs more tailored to the individu-
al consumer, loyalty or frequent guest programs have become an integral part
of the marketing strategy of hotel companies. By now guest loyalty programs
have become a core brand feature for the industry as a whole (Bender et al.,
2008).
According to Middleton (2009) only few hoteliers really know who the bulk of
their customers are. Samanta (2009) draws a similar conclusion stating that
hotel managers are not aware of the new technological improvements. They
rarely take into consideration that getting to know their customer better is es-
sential for their businesses to know where they can improve and what they
should expand on. In contrast to that, Bender et al. (2008) found out that sever-
al US lodging companies made use of their loyalty programs in combination
with electronic tools to get to know their customers at every touch point. One of
the studied corporations has guest information available at each point of cus-
tomer contact to the employee servicing the guest. Throughout their brands, this
hotel company has information about past and future behaviors as well as travel
needs. For lodging companies operating an Internet-based strategy it is neces-
sary to be able to distinguish between ‘lookers’ and ‘bookers’. In order to find
out who these ‘bookers’ or ‘lookers’ are and what their needs or future patterns
of behavioral intentions may be, it is worth developing an eCRM strategy. As
the electronic tools and management information systems exist, it is possible to
put far more proactive strategies in place (Middleton, 2009). One of the execu-

tives Bender et al. (2008, p. 22) interviewed underlines this point: “Technology
is allowing us to be much more personalized in customer experience and pre-
plan people’s visits; know who they are and be able to recognize those custom-
ers.”.
Social media
A few years ago, it was considered sufficient by many hoteliers to have a new
hotel website and to launch a few Internet marketing campaigns, like email
campaigns and paid search. Nowadays, the above is part of the basics and
should only be the beginning of the hotel’s Internet marketing strategy. Hoteliers
now need to do much more to engage the emancipated and hyper-interactive
consumer in this multichannel, 24/7 environment of the Internet (Starkov &
Mechoso Safer, 2011b). As already introduced in chapter 2.3 the usage behav-
iors of Internet users developed towards one of creating own content, uploading
it on social media sites and sharing it on SNS. Hotel guests use these channels
to share their travel-related comments, opinions, and personal experiences,
which then serve as information for others. Unlike content provided by market-
ers and their companies, social media are produced by consumers to be shared
among themselves (Xiang & Gretzel, 2010). However, companies can use so-
cial media or their presence on SNS to their advantage. Besides, that social
media allows for real-time and two-way communication, it also offers the oppor-
tunity to embrace a company’s brand personality. Communicating via social
media can reinforce a message through different formats (audio, video, photos
and text) and help it to go viral (Lanz, Fischhof, & Lee, 2010). Since more and
more guests make use of social media and talk about companies, whether they
are engaged or not, this highly challenges the established marketing practices
of many hotel companies (Litvin et al., 2008). Social media is believed to be a
game changer and is going to become the primary communications channel to
connect with customers (Heller Baird & Parasnis, 2011a). Hoteliers try to meet
this challenge and continue to professionally develop their skills in this area
(Starkov & Mechoso Safer, 2011a). Several agencies, consultancies and free-
lancing experts specialized on social media and Web 2.0 communication help
hotels and other tourism institutions to keep up with and further drive this fast
development. Ongoing (cross-industry) exchange through blogs or on various
kinds of meetings, conferences or workshops, help to stay up-to-date with the
ever evolving world of social media. Facebook.com, for instance, is the leading
SNS with over 750 million active users today (Facebook.com, 2011). Compa-
nies can create a Facebook Fan Page and use it as channel to get in touch with
their customers or potential customers. Most firms use Facebook in combination
with other channels, e.g. Flickr.com for photos, YouTube.com for Videos and

Twitter.com to spread news. Looking at the fast development of SNS, not only
considering the different features and functions on each of those sites, but also
the user migration from one established SNS to a new entrant, make social me-
dia marketing a task of constant testing, learning and adapting.
In their annually conducted survey with hoteliers worldwide Starkov and Mecho-
so Safer (2011a) found out that the perceptions towards social media changed
drastically over the years. 43% of hoteliers said they believe social media is one
of the Internet marketing formats that produces the best results and the highest
ROIs in comparison to only 16,8% in 2007. From a customers point of view,
however, social media does not play a big role when it comes to a holiday deci-
sion. According to Teufel’s (2010) survey most of the customer (60%) start their
holiday research on google.com. For 70% a visit on the hotel’s website is the
first or second step of their holiday planning. For 30% the second step is re-
search on recommendation websites like holidaycheck.com or tripadvisor.com.
However, a visit on Facebook, Twitter or other social media sites had no influ-
ence on the decision where to go or stay. This was relevant for no more than
2%. As most customers visit the hotels website and other third party websites to
gain further information in the course of their decision making process, some
hotel companies ease this process trough aggregating and integrating relevant
content from different Web 2.0 platforms in a social media news room
(Amersdorffer, 2009; Watson, 2011). Besides recent reviews on recommenda-
tion platforms, latest Twitter or Facebook updates or recently published videos
are shown. Not only does this enhance customer service by having all relevant
data and media on one page, it also boosts the dialog and embraces necessary
transparency which in turn leads to higher trust and loyalty from the customers
(Watson, 2011).
Apart from the decision making process, customers are willing to interact with
enterprises if they believe it could serve to their benefit, feel they can trust the
firm and decide for themselves that social media is the right channel to use to
get the value they are looking for (Heller Baird & Parasnis, 2011a). Following
the idea of eCRM from above and connecting it with the possibilities social me-
dia offers, Heller Baird and Parasnis (2011a) suggest the strategy of ‘Social
CRM’. In classic CRM the customer is managed; with social media, however,
companies are no longer in control of the relationship. On the contrary, con-
sumers (and their highly influential virtual networks) are now driving the conver-
sation. The advantages are unprecedented immediacy and reach, which can’t
be reached with conventional marketing, sales or service efforts. Social CRM
recognizes that in today’s environment the customer is in control. Instead of
managing customers, the role of the company is to facilitate collaborative expe-

riences and dialog that consumers value. Social CRM is about managing the
dialog and customer engagement (Heller Baird & Parasnis, 2011b).
Following chapter takes a closer look on the emerging paradigm shift of market-
ing in hospitality, i.e. S-D logic and co-creation.
3.4.2 New marketing thought in tourism and hospitality
Over the last years tourism and marketing practitioners as well as researchers
where occupied with keeping up-to-date with the recent developments of ICTs
and the growing possibilities of online marketing through newly created and still
evolving channels. Owing to this fast development, the meta-level of marketing
research in the tourism industry was neglected. Only few tourism academics
engaged themselves in the research on the emerging paradigm shift of market-
ing, i.e. S-D logic and co-creation, and its implications for tourism in general and
hospitality in specific (Binkhorst & Den Dekker, 2009; Focken, 2011; Li &
Petrick, 2008; Middleton, 2009; Shaw, Bailey, & Williams, 2011).
Traditionally in tourism and travel, even when consumer research was under-
taken, managers decided what product should be provided and customers were
expected to buy. Determined by a top-down management decision process, this
is the classic firm centric approach still practiced in the majority of hospitality
enterprises. However, this process is changing considering the many experi-
enced and savvy consumers, introduced in chapters 2.3 and 3.3, who want to
play an active part in the new value co-creation process. This consumer centric
approach, introduced in chapter 2.4, is a collaborative one and as much bottom-
up as top-down (Middleton, 2009).
So far it has been recognized that practicing knowledge management to ac-
quire, store, and share knowledge among both internal and external customers
is effectively beneficial to hotels. It is one source of competitive advantage and
economic growth in hospitality (Yang & Wan, 2004). Further research estab-
lished the importance of knowledge management, the exchange and transfer of
knowledge within the hospitality industry and its value as driver for innovation
(Shaw & Williams, 2009). In a study on the effect of customer participation on
service quality, Wang et al. (2007) showed how the active involvement of cus-
tomers in the service process improves the overall service quality of a hotel.
Niininen et al. (2007) were the first to adapt the technique of consumer centric
marketing to travel context. They showed the necessity of putting the customer
in the center of marketing activities due to the possibilities through ICTs and the
emancipated consumer in order to gain a competitive advantage and increase
customer satisfaction.

Co-Creation in the Hospitality Industry by Tobias Koehler

Co-Creation in the Hospitality Industry by Tobias Koehler

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

En vedette

En vedette (10)

Similaire à Co-Creation in the Hospitality Industry by Tobias Koehler

Similaire à Co-Creation in the Hospitality Industry by Tobias Koehler (20)

Dernier

Dernier (20)

Co-Creation in the Hospitality Industry by Tobias Koehler