Value Co-Creation at IKEA

“An example of making an ordinary product extraordinary…”

What is value co-creation? According to the Business Dictionary, it is a business strategy focusing on customer experience and interactive relationships. Co-creation allows and encourages a more active involvement from the customer to create a value rich experience. In recent years, consumers are increasingly have helped companies, whether by creating advertising content, informing companies on what products they are interested in or advising companies on how to improve their customer service. Many companies are not encouraging consumers to share their thoughts and one of those companies is the successful retail furniture company IKEA. Rich D’Amico, the deputy marketing director at IKEA USA, states that IKEA is a company built on clear values. The two values relevant for value co-creation are simplicity and working together. In addition, IKEA constantly asks itself the following question: What can we do better? To answer this question, IKEA focuses on the needs of people and try to find a solution for them. According to D’Amico, IKEA relies on consumer insights to drive marketing and product ideas. One of the ways in which IKEA tries to understand the needs of the people better was through a campaign titled IKEA Home Tour. A team of five American employees of IKEA were sent on a yearlong road trip across the United States to give families from diverse backgrounds a home makeover using products from the local IKEA store. The road trip was filmed and the episodes were published via the YouTube channel of IKEA USA. During the IKEA Home Tour, the five employees would help with the planning, decorating and assembling of the furniture for the makeover. The home owners were also asked to provide their input. The IKEA Home Tour provided the employees of IKEA with valuable insights into the needs of people and the way IKEA products could fulfill those needs. The IKEA Home Tour allowed for a unique, inside perspective which would not be possible to gain from in-store contact. Not only did the IKEA Home Tour provide IKEA with valuable insights into the needs of the people, it also increased IKEA’s brand awareness and increased goodwill as the IKEA Home Tour visited people from a multitude of backgrounds (e.g., a homosexual couple). While we in the Netherlands may not find this extraordinary, the United States is relatively prude and for IKEA to show do this shows courage and openness. The trailer for one of the episode of the IKEA Home Tour can be found below: In addition to the example of the IKEA Home Tour (which is also discussed in another blog post), another example of how IKEA increases the consumer experience is through the creation of IKEA experience rooms. In general, IKEA experience rooms are designed in a uniform way and most of the furniture comes from the same collection. However, some minor changes are made in the experience rooms to attract different target groups. All experience rooms portray the needs of everyday life (e.g., cooking, sleeping and entertaining).  The experience rooms allows the customer to gain some inspiration of what they can do with their homes. The value of the experience rooms lies in customers becoming involved in creating and assessing solutions to special needs or everyday problems at home in the true reality. Customers share ideas and suggestions during informal conversations with one another and IKEA employees. Customers are involved and that they create their own experiences and not predefined ones. IKEA also encourages customers to do their own assembly and thus selling the furniture at discounted prices. A consumer may decide to buy all the items in the experience room. However, it is more likely that consumers will mix-and-match the items of several experience rooms to design their own room at home. IKEA has simplified this process by digitalizing all of its products for their design stands. For instance, with the help of IKEA employees, consumers can pick the cupboards they want, the size and the color. IKEA goes one step further by allowing customers to mix and match cupboards. For example, a customer may like the internal designs of cupboard A but like the doors of cupboard B and the handles of cupboard C. With the help of IKEA employees, the consumer’s dream kitchen can be assembled digitally, purchased and delivered. The experience rooms are a clear example of IKEA’s principles related to value co-creation: simplification and collaboration. A standardized cupboard is just a cupboard. However, this same cupboard, disassembled and reassembled with customer input can become a unique cupboard. Therefore, IKEA has shown how simplification and collaboration can make an ordinary product extraordinary without having to ask a premium. Other companies should take a good look at the IKEA business model and find ways to adapt it in a unique way to their own context. In this day and age, mass production is OUT, mass customization is IN! Sources

IKEA & co-creation

IKEA, the Swedish furniture company calls itself the Life Improvement Store. They want to reach even more consumers with their different solutions and demonstrate the unique ideas they have to make everyday life at home better.

Talking openly about co-creation with customers is a main driver for product innovation and creativity. Values as a constant desire for renewal or providing solutions to problems are rooted in their history and how they have evolved as a brand and as a company. Those values have provided a perfect environment for IKEA to “dare” relying on consumer insights to drive marketing and product ideas.

With the Home Tour, which is an initiative to send five American employees on a yearlong road trip to provide families with makeovers that use merchandise from local IKEA stores. This experience will provide many conversations to understand participants needs and desires that can ignite new product developments. The campaign is being made in a documentary series to be produced by creative employees within the IKEA head office. It is published on a special YouTube channel.

This way IKEA is studying people, getting close to them, going into their homes, having conversations, and reading reports. They try to understand and fulfil the needs of consumers, dreams and desires. Through the Home Report they have the opportunity for consumers to tell what is going on in their life and how they can help them. All that information can feed back to communication, to product development, to a store, an online experience.

For me, it comes back to co-creation, collaborative effort between co-works, consumers and the brand” – Rich D’Amico, Deputy Marketing Director at IKEA USA

The fact that consumers are co-creating the value with IKEA through their involvement and work only seems to enhance the service experience, and thus make it easier to develop these relationships. It is in the successful management of these relationship building interactions and experiences that IKEA appears to excel.

I think IKEA is doing a good job by interacting with consumers to better understand their needs, dreams and desires. Especially when the company is visiting consumers’ home the company can understand the consumers and anticipate on it. Customers construct the furniture themselves, so it must be easy and practical to stay competitive to other furniture companies. With the inspiration of customers this can be accomplished, because other customers will also benefit from the improvements. A lot of what IKEA is doing drives marketing is co-created with consumers. And what they do in terms of product development is co-creation with consumers.


Controversial Yik Yak

It seems like a simple idea: create a platform which allows users to anonymously create posts which are linked to specific locations. Still, this idea from Tyler Droll and Brooks Buffington received investments equal to $73 million. These investments result in a company valuation between $300 million and $400 million, all within one year after launch. The whole idea is captured in a very interesting, but controversial app: Yik Yak.

The app Yik Yak was founded in 2013 by Tyler Droll and Brooks Buffington, who directly created the app after they graduated from Furman University in South Carolina. The app had a Facebook like start, since it used the networks as they exist on university and college campuses to spread the app across many students with the help of word of mouth. Soon after the Furman University was added to the app, other neighboring colleges picked up the app. In this way the app spread across the United States and within one year after launch, over 1500 colleges were on the app.

So what is it all about? Yik Yak allows users to anonymously create posts which can only be read by other users which are within a specific area. So based on your location the app divides you into a specific group of users which are within a specific distance from each other. All the users within that specific group can post, read and like the messages, which are called yaks. These yaks can be up-voted or down-voted by other users, so that the yaks get ranked according to popularity. Users can also comment on yaks, to enable the possibility of a conversation between different users. As I explained above, the app is mostly used on colleges across the United States. Tyler Droll, one of the founders of Yik Yak, described his app as follows: “it’s like a bulletin board for your local area.” But although the intentions for this app are well-meant, it turns out that the app is not always used in the way it is supposed to be…

Downside of Yik Yak
One of the negative aspects of the Yik Yak app is that it brings along cyber-bullying. Of course, due to the fact that everyone who is using the app is completely anonymous, users can say anything they want. All kind of forms of cyber-bullying occur through the app like violation threats, sexual assault and racism. Several counter measures were taken towards these negative features of the app. The two founders allowed to geo-fence the app, so that the app cannot be used in specific areas. Due to this measure, the app cannot be used in and around many primary and secondary schools in the United States. If students open the app in the geo-fenced areas, a message pops up saying that the app cannot be used in this area. Besides this, the founders increased the minimal age to download the app to 17 years. Finally, a lot of school across the United States took action to ban the app in and around their campuses.

I think this app is a very interesting example, since it shows two sides of a story. On the one hand, the app raises a lot of money through investments and gets an enormous valuation within a small time period. But on the other hand it struggles a lot with the social aspects of the app. This app is a good example of how users can create and destroy the value of an app. Some users create value for the app by creating interesting messages, while other users destroy value of the app by using it for cyber-bullying.


The Future of Health Care?

Applications for sports and fitness activities were predicted to rise by 63% from 2012 – 2017. With the abundance of fitness and health applications currently available, we have become increasingly health conscious; we can now track our kilometres run, our steps walked, our current heart rate as well as our daily calorie consumption. However, this sheer amount of data is spread out over different platforms and makes us sometimes forget what is really important. In order to change this, the Radboud UMC (Dutch Hospital in Nijmegen) is planning on fully centring around the customer/patient within the health care process. Together with Philips and cloud-software provider Salesforce they have invented a combination of a personal health file and an online community which serves as an connectivity platform for medical equipment, wearables and applications. This electronic platform is called Hereismydata.

The platform Hereismydata focuses on data such as blood pressure and heart rate, but is also able to incorporate weight or daily exercise. Hereismydata is not necessary only for people who have a condition, but is also for people who are just eager to keep track of their own medical data. Individuals themselves can decide who they give access to their data. In most cases this is a family member and a general practitioner. Hereismydata can serve as a preventive measure; if general practitioners or doctors see that your heart rate and blood pressure are suddenly rising, a patient can be contacted to clarify this sudden increase. In this case fatalities can be prevented rather than treated once they have occurred.

The adoption of a platform such as Hereismydata causes a certain paradigm shift. Individuals will no longer be just patients, they will become co-creators of their personal health file to which they have access themselves. Nonetheless, in order to make Hereismydata a success, both sides of the market need to be leveraged. Both doctors/ professional caretakers and individual will need to join the platform to realize its full potential. If, however, hospitals are willing to connect and work with the platform, individuals can truly benefit of their own generated data.

It is predicted that in 2040 the care needs in the Netherlands will double, while the amount of caretakers will diminish. A nationwide electronic patient database could be start to overcome these dreary prospects. By empowering the patient and by giving both the patient and the doctor access to health data, I believe a lot of healthcare costs can be prevented. The scope of this project and the privacy issues could, however, be limiting factors with regard to the implementation of the platform. On the bright side, Arthur Govaert, CIO at Radboud UMC commented that Hereismydata is currently being piloted on a handful of patients in the Netherlands. Will it be a matter of time before everyone has its own electronic patient database?


Interview with Arthur Govaert (CIO Radboud UMC) on the 10th of March, 2015

An Econometric Model to Optimize your Recommendation System

In this blog post I am going to talk about the paper called “Recommendation Systems with Purchase Data” by Anand V. Bodapati (2008).

The majority of firms selling online utilize recommendation systems, which are a decision tool that tries to identify products that the customer is likely to buy, if the product is brought to their attention. They are usually based on analysing the previous purchase behaviour of the user and showing him/her the products that are the most likely to be bought. However, what such a mechanism does not account for is the fact that customers are likely to buy these products even without an explicit recommendation. Therefore, a recommendation may have a higher value if it suggests a product that the customer would not buy unless it is recommended.  Following on that, the main proposition of the author is that recommendation systems should be based not on purchase probabilities but on the sensitivity of the purchase probabilities to the recommendation action.

The methodology of this academic article is highly technical and quantitative. Firstly, the author builds an econometric model that incorporates the role of the recommendation actions of the firm. Secondly, the proposed model is empirically tested using the purchase data of a real life e-commerce company. Then the performance of the proposed model is compared with the one of other benchmark models. The results indicate the superiority of the proposed model.

One of the biggest theoretical contributions of this article is that it suggests the idea that purchasing can be seen as the outcome of two separate factors – awareness and satisfaction. Awareness (A) can be defined as becoming aware of the product and its characteristics. At the same time, Satisfaction (S) involves evaluating the product and buying it, if its utility exceeds a certain threshold level. A consumer buys a product if both A and S occur. The consumer will not buy anything of he/she is unaware of the product, or he/she is aware but decided that the utility is not high enough. Furthermore, the next contribution of the article is showing that these two events can be separated and identified using existing datasets that companies have. These datasets are information about self-initiated purchase data and recommendation response data. Using all of that information, the research paper proposes a decision framework for recommendation system use.

The econometric model that is developed tells firms at what time they should show a product recommendation to the customer in order to optimize the beneficial outcome for the company. The equation takes into consideration the purchasing probability, the timing of the recommendation and the two factors affecting the purchasing decision – awareness (A) and satisfaction (S). The main idea is that recommendations should not increase the purchase probability for products that the customer is already willing to buy, but rather increase the incremental revenue for the company by suggesting items that are otherwise less likely to be bought.

Despite the few limitations of the research, it makes a valuable theoretical and practical contribution.

H&M’s Digital Move

Hennes & Mauritz, better known as H&M, is a Swedish multinational retail clothing company that most probably does not need an introduction. It was founded in 1947 and is still very successful worldwide, mainly due to putting all of its customers central. H&M’s online presence in terms of a web shop, a smartphone application, and several social media accounts plays a major role in H&M’s success, as this has enabled H&M to continuously observe and interact with its customers. The 31st of March, H&M will come with something new to take its customer relationships to the next level. Namely, it will introduce a digital customer loyalty program in the Netherlands. This will make the Netherlands the second country in the world with a H&M loyalty program. According to the country manager of H&M in the Netherlands, this move is now made in order to capitalize on the relatively high amount of online orders of customers in the Netherlands.

The past years loyalty programs have become more and more digitalized. The non-digital loyalty programs involved getting stamps for every €5 spent. They evolved into digital loyalty programs with member cards that had to be scanned after every purchase in order to receive loyalty points. Currently, there are loyalty cards that have to be connected to an online account to collect customer demographics information. Clearly, loyalty cards came into existence to bind customers to a certain business. Over the years this mindset has changed, and at this time businesses primarily want to have as much relevant customer information as possible to be able to better adapt their products and deals to their customers.

H&M is taking a slightly different but more advanced approach with its loyalty program ‘H&M Club’, by integrating a customer loyalty card in the H&M application. Joining the club is free, and when one has joined the club, he or she will receive one point for every euro spent, in addition to 50 free “welcome points”. The points can be redeemed for weekly changing discounts, but more importantly, these points can also be exchanged for access to exclusive events. Customers are given the opportunity to attend designer events in cities such as New York or Paris, be present during H&M photoshoots, or get a guided tour at H&M’s headquarter in Stockholm. This method has been selected because it is more sustainable not to have an actual member card, but the main reason is that customers are demanding more and more engagement and transparency from H&M.

H&M’s loyalty program seems to be a promising addition to H&M’s existing business model, especially since it offers its customers the opportunity to increasingly engage with the brand. The free welcome points give the customers a head start which may lead to a greater use of the program, as the rewards become easier to reach. Furthermore, points can be redeemed in different quantities, depending on the chosen deal. Moreover, the discounts and events offered by the H&M Club are most likely treats that customers would not spend their own money on and can lead to customers buying things that they would not have considered buying before. The previously mentioned components of the H&M Club have been cited by scholars as important levers of loyalty (Nunes & Drèze, 2006). Based on this and H&M’s long-term success, its loyalty program is likely to succeed.


Nunes, J.C., & Drèze, X. (2006) Your Loyalty Program Is Betraying You. Harvard Business Review, 84(4), 124.

Excellent customer involvement by Xiaomi

On April 6, 2010 Xiaomi Corporation was founded: a mobile internet company focused on the research and development of high-end smartphones. However, the fans (i.e. customers) of the Xiaomi Corporation play a very important role in the company’s development. They are the core value of Xiaomi. Xiaomi interacts with fans in multiple ways.

As they are focused on the Chinese market, they developed an interface that makes it much easier to use their smartphones for Chinese users. Furthermore, they update their software on a weekly basis at the best possible price. However, the part of their strategy I would like to emphasize is the treatment of their customers. Xiaomi acknowledges all feedback with gratitude. The founder and company executives spend time on social media every day to personally interact with the customers (usually over 100 comments on a daily basis). Xiaomi adds functionalities based on the feedback they receive from their customers. Feedback regarding modifications can be about anything: shape and color of the phone, the quality of the camera, but also modifications such as delivery speed and the ease of the ordering process.

On top of the integration of their customers in the developments of their products, Xiaomi classifies fans in grades in terms of participation, number of comments and level of importance of services provided to other fans. These grades grant fans different permissions and incentives. Users with high grades are often asked to try out new products. Some have even been recruited by Xiaomi to work for them full time. The grades in turn motivate customers to participate actively in the Xiaomi community. Fans often help each other out with problems, which has resulted in the establishment of a large community.

Another thing Xiaomi Corporation does to show fans how important they are, is organizing various gatherings for Xiaomi fans. Think of fan festivals and reunions in cities, where fans can meet and share experiences. The highlight every year is the fan festival. As part of the program, Lei Jun (the founder of Xiaomi) reports the latest results and activities of the company, and he introduces new products. Furthermore, those users that have contributed the most throughout the year receive ‘the best feedback gift’. The reunions in cities are usually organized by fans, however, Xiaomi Corporation provides the venue and gifts in support of the reunion. Fans can select their location and the corporation will pay for it (if the idea is approved of course).

Xiaomi offers customers to provide them feedback and helps them customize the products to match their needs. For example, one user mentioned he wanted to record the times at which he answered the phone, so a few weeks later this functionality was provided.

Through the customer involvement, Xiaomi has created a community in which their customers are the key factor to success. I believe that Xiaomi involves their customers in an excellent way. The products are adjusted to their needs, resulting in very satisfied customers, as they receive exactly those products they want. This story is a great example of the two-sided positive effects good customer involvement can lead towards.

Shih, C., Lin, T.M.Y., Luarn, P. Fan-centric social media: The Xiaomi phenomenon in China, Business Horizons, Vol. 57, pp 349-358