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ASSOCIATION FOR CONSUMER RESEARCH Labovitz School of Business & Economics, University of Minnesota Duluth, 11 E. Superior Street, Suite 210, Duluth, MN 55802 Relationship Glue: Customers and Marketers Co-Creating a Purchase Experience Edwin Rajah, Auckland University of Technology, New Zealand Roger Marshall, Auckland University of Technology, New Zealand Inwoo Nam, Nanyang Technological University, Singapore Co-creation occurs when a customer works together with a marketer to create a consumption experience that adds value to the purchase process. Although authors have proposed this idea before, this research reports the first empirical support. The research instrument first exposes different respondents to scenarios that differ in the extent of co-creation present whilst retaining exactly the same eventual purchase outcome. Then the research variables (Co-creation, Trust, Satisfaction, Relationship strength, and Loyalty) are measured. A structural equation model provides positive support for the hypothesized relationships, where co-creation does indeed strengthen the relationship through increasing levels of satisfaction and trust. [to cite]: Edwin Rajah, Roger Marshall, and Inwoo Nam (2008) ,"Relationship Glue: Customers and Marketers Co-Creating a Purchase Experience", in NA - Advances in Consumer Research Volume 35, eds. Angela Y. Lee and Dilip Soman, Duluth, MN : Association for Consumer Research, Pages: 367-373. [url]: http://www.acrwebsite.org/volumes/13297/volumes/v35/NA-35 [copyright notice]: This work is copyrighted by The Association for Consumer Research. For permission to copy or use this work in whole or in part, please contact the Copyright Clearance Center at http://www.copyright.com/. Relationship Glue: Customers and Marketers Co-Creating a Purchase Experience Edwin Rajah, Auckland University of Technology, New Zealand Roger Marshall, Auckland University of Technology, New Zealand Inwoo Nam, Nanyang Technological University, Singapore ABSTRACT use’ perspective (Ramirez 1999; Vargo and Lusch 2004). The degree of interaction with relevant actors is one factor that determines the quality and extent of the co-created solutions. In the context of co-created value, it is not only the product or service the customer purchases that generates value to the customer, but also the total customer experience gained because of the dialogue and interactions in the network of customer experiences. Thus, the total customer experience in the purchase process determines the degree of enhanced value derived from the co-created exchange. Cocreated value is a sum of the derivation of the dialogue, interactions, personalized treatment, and level of customization co-created in the experience network. This degree of enhanced value is what differentiates co-created customer experience from conventional value derived from a company-centric customer experience. RESEARCH FOCUS In the conventional company-centric perspective, the marketA fundamental requirement for the evolution of the marketing ing provider is the dominant player in the creation, management, function is to explore and develop marketing approaches that are and delivery of the product to the customer. The company-centric customer-centric (Parasuraman and Grewal 2000). One new con- view holds that the customer is a passive player in the marketing ceptual approach consistent with a customer-centric focus is co- process (Calhoun 2001; Prahalad and Ramaswamy 2000; Smith creation, which can occur when a customer is actively involved in 2001). Despite increasing attention on the co-creation approach to some way in the design, delivery, and creation of the customer experience(Sheth, Sisodia, and Sharma 2000). The literature sug- creating value, there are differing views on the actual meaning and gests that the co-creation view shifts the focus onto the customer; definition of co-creation. There is general agreement in the literahence, Sheth’s assertion that co-creation is inherently customer- ture that co-creation is a customer-centric approach, however there centric. In simple terms, co-creation creates a unique value for the is no clear consensus on the precise meaning of co-creation. customer elevating a transaction to a relation-building experience. Furthermore, there is a range of terms used to denote customer The outcome for a company adopting a co-creative approach is a participation in the value creating process. Authors have employed terms such as customer participation, joint production, co-producunique differential advantage that is difficult to imitate. The aim of this research is to empirically test this concept, by tion, collaboration, and joint-value creation to mirror co-creation. investigating the extent to which customers who experience a co- However, these terms as applied in the literature do not always created customer (purchase) experience derive increasing levels of equate to co-creation, leading to a lack of clarity regarding the satisfaction and trust, and consequently develop a stronger relation- precise meaning of co-creation. From an analysis of the literature, the adoption and practice of co-creation seems to have developed in ship with the company and become more loyal. two discrete stages. The first stage is where the producer is the primary value The Meaning of Co-Creation A co-creative customer experience means that the customer is creator and customers participate in the co-creation process via actively involved and contributing in some way in the design, toolkits set up by the company (Bitner, Faranda, Hubbert, and delivery, and creation of the customer experience. To achieve the Zeithaml 1997; Jeppesen and Molin 2003; Kellog, Youngdahl, and co-created experience, the customer must interact with the market- Bowen 1997; Kotze and du Plessis 2003). An example of this view ing provider (and perhaps other relevant actors in the experience of customer co-creation is evident in mass customization strategies network) to enable the co-construction of the experience. The of companies such as Dell (Lampel and Mintzberg 1996; Piller, outcome of the active contribution of the customer makes each Schubert, Koch, and Moslein 2005). The more mature conceptualization of co-creation is set in the experience unique, personalized and may provide a customized solution to the client. Co-creation is a new marketing approach that context of how customers interpret and create new meanings in offers the potential for creating value for customers to a greater consumption. These meanings and interpretations are constructed degree than company-centric marketing approaches. In co-cre- jointly and collaboratively together with the actors in the value ation, the customer is an integral, active part of the value creating chain and or customers in the experience network (Flint 2005; Katz process. This is in contrast to the conventional Porter Value Chain and Sugiyama 2005; Poulsson and Kale 2004; Prahalad and framework, where the customer plays a passive role in the value Ramaswamy 2003; Wikstrom 1996b). Co-created value is the outcome of the subjective, personalized consumption experience of creation process (Ramirez 1999; Wikstrom 1996a). Customer purchasing processes in the co-creation perspective the consumer. The focus here is on identity and image creation as represent an important stage for value creation. Value, in the co- an outcome of the interactions in the experience network. In this creation view, is a collaborative effort of all actors in the up and later approach to co-creation, the customer is the primary driving downstream stages of the value-creating process. All actors in the force and the company becomes the facilitator in the co-creation value-creation network act as facilitators in creating value, which is process. In summary, co-creation is a process requiring an active fully realized only when the customer uses the product for a specific problem-solving situation. This is acknowledged as the ‘value in participation of the customer and relevant actors in the experience 367 Advances in Consumer Research Volume 35, © 2008 Co-creation occurs when a customer works together with a marketer to create a consumption experience that adds value to the purchase process. Although authors have proposed this idea before, this research reports the first empirical support. The research instrument first exposes different respondents to scenarios that differ in the extent of co-creation present whilst retaining exactly the same eventual purchase outcome. Then the research variables (Co-creation, Trust, Satisfaction, Relationship strength, and Loyalty) are measured. A structural equation model provides positive support for the hypothesized relationships, where co-creation does indeed strengthen the relationship through increasing levels of satisfaction and trust. 368 / Relationship Glue: Customers and Marketers Co-Creating a Purchase Experience FIGURE 1 The Research Model network. The dialogue and interactions between the customer and relevant actors leads to new, reconfigured, and enhanced problem solving solutions for the customer. These solutions cannot occur without the presence and interactions of relevant actors in a specific co-creation situation. Co-created value is a derivative of a combination of the interactions, degree of personalization and customization created in the context of customers’ problem solving situation (Lundkvist and Yaklef 2004; Mascarenhas, Kesavan, and Bernaccchi 2004; Normann and Ramirez 1993; Ottensen, Ranes, and Gronhaug 2005; Ramaswamy 2005). CO-CREATION AND ITS OUTCOMES: A RESEARCH MODEL Studies on co-creation up to now have focused primarily on understanding and clarifying the concept. A key issue for marketers is to develop a better understanding of the impact of co-creation on the key marketing outcomes of customer satisfaction; customer loyalty, trust, relationship strength and the consequent loyalty induced. Strong empirical evidence between co-creation and key performance measures, which is currently lacking, will provide impetus to adopt co-creation marketing. The discussion in this section will present theoretical links between co-creation and the key performance measures mentioned above and illustrated in Figure 1. Co-creative enhancement of the quality of the purchase interaction over and above the value received from the product purchased from the business has two potential effects for the customer. Firstly, it reduces the costs of a transaction for a customer and secondly it reduces risk and uncertainty for the customer. Vandenbosch and Dawer (2002) suggest that co-creation can reduce interaction costs for customers, which in turn will lead to increased trust, satisfaction with the company and improve customer loyalty behavior. Satisfaction One important factor contributing to customer loyalty is customer satisfaction (Garbarino and Johnson 1999). Consequently, dissatisfied customers–or even customers with low satisfaction levels–will generally not exhibit repurchase behavior. In this context, co-creation via active customer participation, interaction and personalization can affect customer satisfaction, trust, and create strong relationships between the company and customer. All these will have an impact on customer loyalty (Bitner et al. 1997; Kellog et al. 1997). Trust and Relationship Strength The KMV (Key Mediating Variables) Model put forward by Morgan and Hunt (1994) postulates antecedents and outcomes in a buyer-seller relationship within a business-to-business context. The study reveals that trust does not form part of the relationship commitment construct, rather it is a separate mediating variable influencing the buyer seller relationship. A more recent article, however, takes the perspective that relationship strength is a better way to evaluating the buyer seller relationships (Hausman 2001). The Relationship Strength construct is a hybrid construct that combines the relationship commitment construct and the trust variable of Morgan and Hunt (1994) into a single construct. In both these approaches, the principal focus is the relationship itself–to understand the mediating role of the relationship between a set of inputs and outputs. The implicit assumption of both approaches is that the strength of the relationship will influence customer retention. It is postulated here that co-creation, via its interaction and personalization properties, will have a positive impact on trust and consequently strengthen the relationship between the company and customer ultimately leading to customer retention (Edvardsson and Johnston 2005; Malaviya and Spargo 2002). RESEARCH METHOD In this preliminary study, the research exposes groups of undergraduates to three different scenarios designed to generate a broad range of perceptions of co-creation across the sample. The researchers measure these perceptions on an instrument that also gathers measurements of trust, satisfaction, relationship strength and both attitudinal and behavioral loyalty. The analysis employs AMOS 6.0 to construct and test the research model with structural equations. Sample One of the researchers presented undergraduate students, in a research methodology class, with a questionnaire in class time. The exercise formed part of their curriculum studies and the class instructor has blanket ethical approval for collecting data this way as long as the work forms an integral part of the students’ course. The database consists of 177 responses; the gender balance is approximately even. Materials, scales and procedure Appendix 1 contains a complete questionnaire. The research depends upon a device used to give a spread of scores on the Cocreation variable itself. Prior to answering the questionnaire the respondents read one of three scenarios, each describing the same purchase situation for an identical airline booking, but each scenario contains a different level of co-creation. The three scenarios are in Appendix 2. After reading a scenario, each respondent answered the research questions, finishing with three questions asking their perceptions of the amount of co-creation in the scenario Advances in Consumer Research (Volume 35) / 369 TABLE 1 Measurement Model fit statistics Model GFI AGFI CMIN/DF RMR RMSEA CC/S/T .958 .925 1.46 .044 .051 A/B Loyalty .878 .787 3.85 .073 .127 TABLE 2 CFA for latent variables–regression weights Estimate S.E. C.R. p RS2 ← Relationship Strength 1.000 RS3 ← Relationship Strength 1.011 .156 6.463 < .001 AL1 ← Loyalty .804 .094 8.545 < .001 AL2 ← Loyalty .761 .088 8.615 < .001 AL3 ← Loyalty 1.000 BL1 ← Loyalty .931 .092 10.148 < .001 BL2 ← Loyalty 1.292 .113 11.404 < .001 BL3 ← Loyalty 1.189 .107 11.144 < .001 BL4 ← Loyalty .899 .124 7.246 < .001 they had read. The Alpha coefficient for the newly developed, three-item scale is .816. Relationship Strength has also never yet been directly measured and reported in the literature. One of the items used does not contribute to the scale Alpha and was thus dropped; the remaining two items are highly correlated (Pearson’s correlation=.69, p<.001). The research utilizes previously used scales for all other variables, which have satisfactory reliability, with the exception of Trust (three items drawn from Morgan and Hunt (1994). The analysts noted the low reliability of Trust (Alpha=.66), but all items do contribute to the Alpha score so they made a considered judgment to let the scale remain. Satisfaction, composed of three items from Ranaweera and Prabhu (2003) has an Alpha of .79. Loyalty is composed of seven items. Four are Behavioral Loyalty items from Garbarino and Johnson (1999), and three Attitudinal Loyalty items from Ganesh, Arnold, and Reynolds (2000). The Alpha for the composite Loyalty variable is .881. (Initially these two aspects of loyalty were to stand as separate variables, but their correlation is too high to allow modeling.) The researchers validated the scales within the model by creating two first-order SEM measurement models. The first is for Co-creation, Satisfaction and Trust, the second for Relationship Strength and Loyalty. The fit statistics in Table 1 and the parameter estimates in Table 2 give further confidence to the model variables. A Maximum Likelihood extraction is used. ANALYSIS Initially the analysts used a Maximum Likelihood estimation method to examine the structural model. The Model’s fit statistics, however, are very marginal (GFI=.829, AGFI=.762, CMIN/ DF=2.99, RMSEA=1.07). These statistics place the fit at the very lowest level of acceptance, even for a model using only 177 responses. Further inspection, though, reveals a multivariate kurtosis value of 82.5; a Mardia’s coefficient value in excess of 1.96 indicates a problem with multivariate normality. Even a cursory consideration of the distributions of the variables in the model shows that most are severely leptokurtic (possibly due to the use of a student sample). In this circumstance, enlarging the sample by bootstrapping is unlikely to remove the bias so an Unweighted least squares estimation method is used. Although this relatively rarely used method does not yield a Chi square statistic, it does operate well regardless of the scales’ non-normality. The consequent fit statistics are all well within the parameters indicating a well-fitting model (GFI=.963, AGFI=.949, NFI=.947, CMIN/DF=2.20). The Model in Figure 2 shows the parameter estimates as standardized regression weights. DISCUSSION Both Satisfaction and Trust mediate the relationship of Cocreation with Relationship Strength. Although the model fit statistics remain satisfactory, the path estimate for a new path directly 370 / Relationship Glue: Customers and Marketers Co-Creating a Purchase Experience FIGURE 2 SEM Structural Model with Estimates from Co-creation to Relationship Strength has a negative value. Similarly, Relationship Strength provides partial mediation for Satisfaction and Loyalty (a path estimate of only .37) and full mediation for trust and Loyalty (a negative path estimate). Implications for theory Prior research has not reported that either Co-creation or Relationship Strength have been measured before. The sample used here was far from ideal and is rather small for structural modeling. Nevertheless, co-creation does appear to generate both satisfaction and trust, with the expected increase in relationship strength and loyalty. There are many questions left unanswered, of course. There is a host of possible moderating variables, from product type (credence goods, hedonistic versus utilitarian) and industry type (B2B versus B2C) to purchase situation (online versus offline)–there is even a suggestion that co-creation is advantageous in discrete as well as relational purchase situations. Yet there is great promise here for a stronger, confirmatory study to show that the co-creation idea increasingly mooted in the literature does have an empirical foundation. Implications for practice Some businesses are already going down the co-creation path. It is not yet widely understood by many businesses, though, exactly what benefits can flow from such a course. Consumer marketing has become increasingly competitive in recent years. To develop sustainable competitive advantages marketers require strategies that are more resilient to imitation than attribute modifications. In this regard, marketers turned their attention to intangible resource strategies such as branding and relationship marketing as a means to ensure long-term competitive advantages (Gronroos 1994). There is evidence to show that a strong brand is an effective competitive strategy to develop customer loyalty (Neal, Quester, and Hawkins 2004). A second competitive strategy based on intangible resources is relationship marketing. The basic thrust of this approach is to develop an on-going relationship with the customer. The benefits of a positive ongoing relationship are loyalty by way of repeat purchases and positive word of mouth communications for the marketing provider. Relationship marketing can also bring about cost reductions in running the business and consequently influence the bottom line of the business. The consumer behavior environment in recent years has seen an increasing shift toward the consumption of lifestyle products. This shift signals a move toward satisfying higher-order needs of customers. While lower-order needs are still important, these represent the lower end of the spectrum of customer expectations. To create customer value businesses need to focus on competitive advantages that relate to satisfying higher order needs of customers. Advances in Consumer Research (Volume 35) / 371 APPENDIX 1 Scenarios Imagine that you have been invited to stay in London with your married, older brother for a two-week holiday. The accommodation is, of course, free, and the prospect of an early summer holiday very attractive. There seems no problem, as the School has a betweensemester break and your kindly brother has sent some cash toward the tickets. Quite excited, you try booking your flights on-line, but it proves really hard and, anyway, you don’t have a credit card so it would be impossible to pay on-line. So, off to the travel agent you go. Your friend has recommended an excellent agent situated in Holland Village; you have your travel dates all sorted out and ring the agency; John Tan answers and you make an appointment to see him. When you arrive at the agency, John seems nice enough, and greets you with a smile. After chatting in general about your fabulous holiday offer, you tell John the days you wish to travel and ask him for the cheapest return ticket. John has no hesitation and states that Qantas have a flight that morning, priced at a very reasonable $1,506.00. It leaves at 11.00 in the morning and so you don’t have to arrive at the airport at an uncivilized, early hour. You ask for a window seat and, after checking, John finds seat 34A for you, for both the outward and return flights. Finally, John assures you that he has noted your requirement for vegetarian food. You leave the agency feeling very pleased with your purchase. Additional material in the second version …John turns to his computer and, a few minutes later, produces a list of four flights leaving that day for London. Of the four airlines, the cheapest one is leaving at 8.00 in the morning, and another two leave late but get into London very early in the morning indeed. Qantas have a flight leaving at 11.00 in the morning, so you don’t have to arrive at the airport at an uncivilized, early hour, but it is slightly more expensive than the less convenient flights. You discuss this with John and decide that the Qantas flight is the best choice, priced at $1,506.00. Additional material in the third version …You ask for a window seat and John brings up the aircraft seating-plan on his console and turns it so you can see. You then discuss the relative merits of being on the escape hatch row near the kitchen versus another row away from the kitchen and toilets but with less leg-room. You decide on the escape-hatch row and John secures seat 34A for you, for both the outward and return flights. In this context, it could be said that enabling good customer experiences is consistent with the satisfaction of higher-order needs of customers (Achrol and Kotler 1999; Vargo and Lusch 2004). Finally, developments in communications technology are facilitating the adoption of co-creation strategies. For example, the Internet channel provides scope for greater interaction and an active involvement of the customer in the marketing process. There is a range of ways consumers can be involved from the simple act of finding relevant information to a high level of customer involvement in respect of customized solutions. Internet technology has also enabled consumers to interact and share information with each other e.g. customer communities and blogs. This interaction provides a platform for consumers to share experiences and to cocreate customer-to-customer solutions (consumer-to-consumer cocreation). An example of this is customers networking with each other in a customer community, sharing ideas and solving problems jointly on a website (Achrol and Kotler 1999). In the context of cocreative marketing strategies, developments in communication technology add a touch-point for a greater level of involvement and interaction between customers and the experience network. REFERENCES Achrol, R. S. and P. Kotler (1999), “Marketing in the network economy,” Journal of Marketing, 63 (Special Issue), 146-63. Bitner, Mary Jo, William T. Faranda, Amy R. Hubbert, and Valerie A. Zeithaml (1997), “Customer contributions and roles in service delivery,” International Journal of Service Industry Management, 8 (3), 193-205. Calhoun, John (2001), “Driving loyalty by managing the total customer experience,” Ivey Business Journal, 69 (6), 65-70. Edvardsson, Bo and Robert Johnston (2005), “Cocreating customer value through hyperreality in the prepurchase service experience,” Journal of Service Research, 8 (2), 14961. Flint, Daniel J (2005), “Innovation and the symbolically interacting customer: Thoughts stemming from a service dominant logic of Marketing,” in The Otago ForumAcademic Papers. Dunedin, Otago, New Zealand. Ganesh, J., M. J. Arnold, and Reynolds K. E. (2000), “Understanding the customer base of service providers: An examination of the differences between switchers and stayers,” Journal of Marketing, 64 (July), 65-87. Garbarino, Ellen and Mark S. Johnson (1999), “The different roles of satisfaction, trust, and commitment in customer relationships,” Journal of Marketing, 63 (April), 70-87. Gronroos, C. (1994), “From Marketing Mix to Relationship Marketing: Towards a Paradigm Shift in Marketing,” Asia Australia Marketing Journal, 2 (1), 9-29. 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Molin (2003), “Consumers as codevelopers: Learning and innovation outside the firm,” Technology Analysis & Strategic Management, 15 (3), 36383. 372 / Relationship Glue: Customers and Marketers Co-Creating a Purchase Experience APPENDIX 2 The Research Instrument Please indicate the extent to which you agree or disagree to the following statements by writing an appropriate number in the box opposite each statement, where: Disagree Agree 1 2 3 4 5 6 strongly 7 strongly 1 I would highly recommend my travel agent to my friends and family…………. 2 In our relationship, my travel agent can be counted to do what is right…...…… 3 It is risky to change as a new travel agent may not give such good service......... 4 The probability that I will use this service again in future is very high……….. 5 I am likely to make positive comments about my travel agent to my friends and family…………………………………………………………………………… 6 Overall, I am pleased with the services offered by my travel agent…................. 7 My relationship to this specific travel agent is very strong……...………............ 8 In our relationship, my travel agent has high integrity………………………….. 9 As long as the present service continues, I doubt that I would change my travel agent……. 10 The services offered by my travel agent meet my expectations……………….... 11 My relationship to this specific travel agent is very important to me……........... 12 In our relationship, my travel agent can be trusted at all times……….………… 13 In the future I intend to use more of the services offered by my travel agent…... 14 I think I did the right thing when I took up the services provided by this travel agent…………………………………………………………………………….. 15 I intend to continue using my travel agency over some time……........................ 16 My relationship to this specific travel agent is something I really care about..... 17 If I had to do it over again, I would still engage this travel agency…………….. 18 I would feel upset if I terminated my current relationship with my travel agent 19 I would lose a comfortable relationship with my current service provider if I change to another travel agency………………………………………………… We are interested in the concept of “ Customer co-creation,” which occurs when a company and their customer work together to create a (purchase) solution. 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Sharma (2000), “The antecedents and consequences of customer-centric marketing,” Academy of Marketing Science, 28 (1), 55-66. Smith, Shaun (2001), “Experiencing the brand, branding the experience.” London: Forum Corporation. Vandenbosch, Mark and Niraj Dawar (2002), “Beyond better products: Capturing value in customer interactions,” Sloan Management Review (Summer), 35-42. Vargo, S. L. and R. F. Lusch (2004), “Evolving to a new dominant logic for marketing,” Journal of Marketing, 68 (1), 1-17. Wikstrom, Solveig (1996a), “The customer as co-producer,” European Journal of Marketing, 30 (4), 6-19. (1996b), “Value creation by company-customer interaction,” Journal of Marketing Management, 12, 359-74.