Co-Creation and Brand Loyalty: Value, Community, and Equity

Introduction to Co-Creation

Extant literature has been dedicated to the concept of clients as co-creators of products and value (Zhang and Chen, 2008; Prahalad, 2004). Other studies have focused on consumers as innovators (Thomke and von Hippel, 2002). Still other studies have concentrated on the role of consumers as prosumers — that is, as simultaneous producers and consumers of products and services (Xie et al., 2007). Together, these streams of research establish that the consumer's role in value creation is far more active and multifaceted than traditional marketing models have assumed.

The Social Element of Consumer Co-Creation

It has been suggested that it is quite misleading to consider consumers as mere individuals. Focusing on consumers solely as individuals leads to the neglect of a very important dimension of their behavior. Cova and Cova argued that the social link is crucial. As a consequence of rising individualism and liberation from previously strong social bonds, the importance attached to traditional communities such as family systems has deteriorated. This has resulted in a systematic re-socialization of people in their quest for a sense of belonging — including belonging expressed through the use of a specific brand.

Several studies have indicated that these communities are extremely attractive to corporations (Cova and Cova, 2002; McAlexander, Schouten, and Koenig, 2002). The work of Muniz and O'Guinn (2001) indicated that consumers, as individual members of a larger brand community, eventually develop a special relationship not only with the brand but also with other consumers. This insight was elaborated by McAlexander, Schouten, and Harold (2002), who introduced a consumer-centric brand community model. According to their model, target consumers develop relationships not only with a given brand and with other consumers, but also with the marketer and the specific product or service being marketed.

Extant literature has been dedicated to the study of co-creation with a focus on consumer communities and company involvement (Cova and Cova, 2002). One example of how effective this strategy can be is the inclusion of snowboarders by Salomon in its product development process. By involving snowboarders directly, the company was able to successfully launch its snowboard line (Cova and Cova, 2002).

Co-Creation in Consumer Communities

Other studies describe the process of fan and consumer production. Füller et al. (2007), for instance, analyzed the process of consumer design of basketball shoes for Nike. The design process was perceived by individual contributors as both fun and highly rewarding. Nike was never formally involved; the only viable link between Nike and the designer community was the hope held by participants that some of their designs might be discovered and lead to job offers. The work of Kozinets (2007) discussed how Star Trek fans effectively hijack products and the brand, as further described by Wipperfürth (2005). These fans are also involved in the production of content such as episodes, radio shows, and music.

This phenomenon is referred to as Wikimedia by Kozinets (2007), as it involves the collaborative creation of new media content by fans. These fans are noted to be driven by egoboo — a quest for public recognition. The company itself is never involved in the process. Paramount Pictures discontinued production of the Star Trek series some years ago and allowed fans to continue producing the series, provided they did not earn any monetary returns from their work.

Several studies have also been dedicated to analyzing the topologies of consumer communities. Kozinets et al. (2008) categorized online creative consumer communities into various crowds, mobs, hives, and swarms, based on how members participated in production and whether the resulting innovation was the consequence of goal-oriented work. Cova et al. (2007), on the other hand, divided consumers into four main categories based on the degree to which they engage with general marketplace norms and the extent to which they become producers rather than consumers. The importance of these studies lies in their expansion of knowledge about the various types of creative consumer communities. A striking similarity across these studies is that none of them fully recognized the active and dynamic role of the company in the co-creation process.

Brand Loyalty: Definitions and Dimensions

Several authors have suggested that the improved logic of value creation through co-creation must be integrated at both the operational and strategic levels (Prahalad and Ramaswamy, 2004b; Lusch, Vargo, and O'Brien, 2007), as it introduces a systematic view of the direction companies must follow to realize success (Maglio and Spohrer, 2008). Superior performance is often associated with the attainment of competitive advantage (Porter, 1985). Woodruff (1997) argued that the delivery of superior customer value marks the future source of competitive advantage and that firms must integrate customer value information with the marketing process to translate learning into action.

The company-centric approach is reflected in various literature on market orientation, in which value is created by the company for its clients (Zheng, Zou, Yim, and Tse, 2005). According to Priem (2002), the concept of value has been treated by strategic management on the supply side as something created entirely by producers — a perspective heavily criticized by authors who advocate for a market with stronger elements of co-creation (Prahalad and Ramaswamy, 2004a; Vargo and Lusch, 2004). In some literature, the customer has been viewed as a partial employee (Bitner et al., 1997), a co-producer of the final product or service (Wikström, 1996), and a key player in service provision (Grönroos, 2006). Various authors have argued that awareness of customer participation as a source of competitive advantage is integral for current and future businesses (Woodruff, 1997; Vargo and Lusch, 2004). Ramani and Kumar (2008) indicated that the next source of competitive advantage lies in interaction orientation, given the crucial weight held by interactions between companies and their customers.

The process of co-creation is also noted to carry certain risks. The most obvious risk for companies engaging clients in co-creation activities is the risk of losing total or partial control of their brands, since they cannot control the brand associations created by customers (Pongsakornrungsilp et al., 2009). Another risk is self-serving bias (Bendapudi and Leone, 2003), whereby consumers who contribute to co-creation may take full credit for positive outcomes while blaming the brand for negative ones. Self-serving bias may be reduced by increasing the level of autonomy for clients in the co-creation process, thereby encouraging customers to take personal responsibility (Bendapudi and Leone, 2003). Another method of reducing self-serving bias is by forming a close relationship with consumers before initiating the co-creation process.

According to Mark et al. (2007), brand loyalty is a deeply held commitment by customers to repurchase or re-patronize preferred products and services consistently, despite situational influences and marketing efforts that might otherwise induce brand switching. Customers who are loyal to a brand always give it first consideration when shopping and rarely switch to new brands, even in the face of price changes. Baldauf et al. (2003) further noted that loyalty is developed through continuous usage and, unlike brand awareness, is an attribute of direct experience. Loyalty to a brand can only develop once people have already consumed or used a product.

According to Ude et al. (1994), loyalty to any brand is characterized by the existence of a favorable attitude toward a certain brand and the purchase of that same brand over a long period of time. Keller (1993) posits that brand loyalty may develop depending on a customer's past experience and interaction with a product over time, since its development is most evident when an individual repeatedly engages with the same product. As an attribute of experience, loyalty is influenced by the evaluation of direct use or trial, as well as indirect contact with a product or service through channels such as advertising or word of mouth. Consequently, brand loyalty can be used as a measure of a brand's perceived quality (Aaker, 1991), and loyalty is believed to be one of the factors that enables competitive advantages such as reduced marketing costs, premium pricing, market share, and greater trade leverage — all of which are closely related to brand equity (Delgado-Ballaster and Munuera-Aleman, 2005).

Many researchers have acknowledged an evolution in the understanding of brand loyalty over time. Early studies defined loyalty as a repetitive behavior of buying the same product repeatedly (Farley, 1964), while more recent work defines it as a multidimensional concept (Dick and Basu, 1994). This evolution has involved many stages and has embraced different interpretations of the concept. The oldest and most frequently invoked definition is from Jacoby and Kyner (1973), who described loyalty as a biased behavioral response expressed over long periods of time through the process of decision-making with respect to alternative brands in the market — a psychological process that begins in the mind of a person. Oliver (1999) described loyalty as a deeply held commitment to repurchase or re-patronize a preferred product or service over time, regardless of situational influences. Reichheld (2001) placed emphasis on a different dimension, defining loyalty as the willingness of a person to make a personal sacrifice or investment in order to strengthen an existing relationship.

The most recent brand loyalty definition reviewed here is by Chegini (2010), who defines it as a theory and guide to leadership that includes positive behaviors such as repeatedly purchasing the same product and offering support for new purchases that in turn reinforce a brand's control over a potential customer. The American Marketing Association defines brand loyalty as the circumstance under which a consumer will generally buy different products but from the same manufacturer, rather than buying comparable products from different companies (Moisescu, 2006).

Attempts to classify categories of brand loyalty have led to two dominant approaches: attitudinal loyalty and behavioral loyalty. Attitudinal loyalty, according to Morgan (1999), involves favoring a brand in a systematic way — the emotional reflection of attachment that a consumer holds for a specific brand. Behavioral loyalty, by contrast, refers to a consumer's tendency to repeatedly purchase the same brand, observed over time (Kahn et al., 1986). However, repetitive purchasing may not always indicate true loyalty (Reichheld, 2001), as many dissatisfied customers do not switch brands due to inertia — a belief that available alternatives are of equally low quality — or due to ignorance of alternative brands (Kuusik, 2007).

The significance of marketing managers understanding how to influence customer loyalty is growing consistently (Reichheld and Sasser, 1990). As competition intensifies, loyal customers become one of the most important considerations in driving business success (Tripathi, 2009). Managers must be aware of the tools of marketing that can have a big impact on both attitudinal and behavioral loyalties. Dick and Basu (1994) posit that many managers fail to integrate the degree of customer commitment known as spurious loyalty — a combination of strong behavioral loyalty and low attitudinal loyalty — which is ultimately unprofitable because such customers identify primarily with discounted pricing rather than with the brand itself. Research shows that the length of time a customer has had a relationship with a firm greatly influences the firm's profitability (Reichheld and Sasser, 1990), and that the cost of winning a new customer is approximately six times greater than the cost of retaining an existing one (Rosenberg and Czepiel, 1984). Reducing the rate of customer migration by approximately 6% can increase profits by about 60% (Reichheld, 1995).

Brand equity is another key aspect of brand loyalty. Its meaning and definition depend on both financial and marketing perspectives and can be defined from the viewpoint of consumers, manufacturers, retailers, or investors. According to Meyers (2003) and Calderon et al. (2003), manufacturers and retailers are more concerned with strategic cash flow and its implications for brand equity, while investors are interested in the financial value of the brand as an asset that can be sold or included on a balance sheet. From a marketing perspective, customer brand equity refers to the strength or descriptive power of the brand (Wood, 2003).

According to Keller (2000), the power that a brand holds lies in what customers have learned, felt, seen, or heard over a long period of time, combined with accumulated experiences. This, according to Lassar et al. (1995), comes from the confidence that individual customers place in one particular brand over others. Keller (2003) defines brand equity as the differential effect that consumer knowledge of a brand has on their response to the brand's marketing activities. The equity of a brand reflects the value customers place on a particular brand compared to other brands that would otherwise produce an identical product but without the brand name. In this sense, brand equity represents the degree to which a brand name contributes to the cumulative value of the brand in the marketplace (Leuthesser et al., 1994). Brand equity includes the assets and liabilities linked to a specific brand — including the brand name and symbol — that either add to or subtract from the cumulative value of the product or service for both the firm and its customers (Aaker, 1996; Baldauf et al., 2003).

Elena and Jose (2005) consider brand equity a market-based relational asset, existing outside the firm and residing in the relationship between final consumers and the brand itself. Creating an equity profile for a brand involves identifying the associations between customer and brand, the level of brand awareness in the consumer population, the loyalty and quality perceptions that exist, and the extent of differentiation from competitor brands (Yoo et al., 2000). Keller (1993) argues that brand equity involves two core elements: brand awareness and brand associations. Like other tangible assets, brand equity demonstrates the qualities required to create a competitive and sustainable advantage — it helps add value for customers, takes considerable time to develop, is inherently complex, and is not easily transferred to other organizations (Delgado-Ballaster and Munuera-Aleman, 2005).

Meyers (2003), in conceptualizing the evaluation of brand equity by customers, holds that it consists of two components: consumer perceptions (encompassing brand awareness, associations, and perceived quality) and consumer behavior (encompassing brand loyalty and readiness to pay a premium price). Brand strength refers to consumer actions, while brand value refers to the gains accrued when that strength — such as loyalty — is leveraged to acquire superior present and future profits (Lassar et al., 1995). Although terms such as brand strength, brand image, brand description, and brand value are often used interchangeably to refer to brand equity, Wood (2000) argues that these terms mean different things, though they are all interrelated. She postulates that a brand's value is a function of its strength, which is in turn a function of its description. Keller (2003) concludes that brand equity encompasses brand loyalty, awareness, perceived quality, brand associations, and other proprietary assets.