Service Quality and Value Co-Creation

Introduction

Service quality is an important aspect of corporate management. It affects different key performance indicators (KPIs), such as customer satisfaction and brand loyalty (Noorshella, Abdullah & Nursalihah 2015). Despite the relevance of service quality to business operations, a lot of attention has been directed towards understanding the main components of service delivery with little focus on examining its relationship with quality.

Consequently, few researchers understand the relationship between service quality and value co-creation. Value has been traditionally created by manufacturers through the production and sale of goods and services (Noorshella, Abdullah & Nursalihah 2015). In turn, consumers enjoy its benefits through a monetary transaction that allows them to pay for the benefits enjoyed from consuming a product or service. From this relationship, the economics of value stem from the interaction between companies and their customers.

Traditionally, consumers of goods and services have been treated as passive users of company products (Brodie & Storbacka 2014). In this regard, it has been difficult for manufactures to design their products to reflect end-user input because of the minimal interaction they have with buyers (Noorshella, Abdullah & Nursalihah 2015). However, technological changes have created a paradigm shift where companies can seamlessly interact with their customers, through social media and other platforms, to create superior products and services (Hammoud, Bizri & El Baba 2018; Kaartemo & Helkkula 2018).

This improvement happens when they rely on consumer feedback to tweak their product or service design processes. This strategy has led to the emergence of the value co-creation concept. It has been touted as a useful contribution to business philosophy because it is premised on three key drivers impacting global commerce today: emergence of social media, changing consumer behaviour and globalisation (Abdul-Halim et al. 2014; Hammoud, Bizri & El Baba 2018; Kaartemo & Helkkula 2018).

Value co-creation refers to the involvement of consumers in the product development process. It has also redefined the relationship between companies and consumers by encouraging both parties to promote each others’ interests by maintaining long-lasting relationships and improving product development processes (Brodie & Storbacka 2014).

Current works of literature that have attempted to examine the link between service quality and value co-creation have done so through the framework of the service-dominant (S-D) logic (Hietanen, Andéhn & Bradshaw 2018). This model views customers as key contributors to the value creation process and advocates for a shift of power from companies, as sole creators of value, to consumers through a distribution of power to both parties (Noorshella, Abdullah & Nursalihah 2015). The strength of the value co-creation model stems from its ability to tap into the strengths of consumer relations and networks (Brodie & Storbacka 2014). This research investigation examines the relationship between the concept of quality and value co creation.

Service Dominance Logic

The service dominance logic has been used by observes to understand the nature and logic underlying corporate activities (Kurtmollaiev et al. 2018). It also explains how markets and societies work in the global business environment, relative to value creation processes. The fundamental logic underlying the development of the service dominance logic is the understanding that corporations and markets exist for the purpose of service exchange (Nilsson & Ballantyne 2014). Therefore, the application of knowledge in this type of system is aimed at giving one party an advantage over another. The basic assumption underlying the service dominance logic is the idea that all firms exist to provide services and all economies or societies are based on the consumption or production of the same services.

Broadly, the service dominance logic recognises six key drivers of value exchange: the ability of firms and customers to interact ethically, the aptitude to relate to each other’s experiences, the ability to interact individually, development interaction capability, the capacity to create synergies between companies and their customers and the potential to empower end-users to give their inputs about goods or services consumed (Hietanen, Andéhn & Bradshaw 2018). Some studies have shown that the service dominance logic has a positive impact on people’s perceptions of the associated brands and the trust that people have with linked firms (Magdalene & Ramanaiah 2018). The S-D logic has also been associated with improved market performance (Hietanen, Andéhn & Bradshaw 2018).

Based on the aforementioned factors, the service dominance logic explains value co creation through the exchange of information among different actors in global commerce through a broader framework of analysis where firms and customers benefit from availing their competencies through a service exchange framework. The merits of the service dominance logic have seen it applied successfully in almost all linked sub disciplines. For example, studies authored by Zhong et al. (2019) and Farooq et al. (2019) have demonstrated it successful application in supply chain management. Comparatively, research articles authored by Ehret and Wirtz (2018) have reported its successful use in marketing, through improved brand recognition and management.

As an extension of the S-D logic, several researchers have used varied models and theories to explain service co-creation (Taylor & Bovill 2018: Troisi et al. 2018a; Troisi et al. 2018b). They have pointed out that the meaning of the concept overlaps with other business processes, such as innovation and participatory design, because of shared goals. These overlaps explain two models that have characterised current literature on the topic.

The first one stems from the view that value co-creation is an innovation movement that seeks to find out new methods of improving existing business processes. The second one emerges from the understanding that the process furthers participation in business process improvements. Therefore, the inclusion of customer views is one aspect of participation that businesses endear as a strategy to promote expanded stakeholder inputs. Particularly, this process is associated with business process designs because it describes the formative stages of product development, which act as a blueprint for the creation of a final product or service (Brodie & Storbacka 2014).

This type of value co-creation is deemed as the “opposite” of traditional product development models. Indeed, traditional models of creation had little or no customer input (Valenzuela-Fernández et al. 2016). Figure 1 below explains the spectrum of co creation models highlighted above.

According to figure 1 above, co creation is a product of collaborative processes between firms and their customers, especially in product design and development. The intensity, or quality, of this relationship has a significant impact on output. The upper half of the diagram above highlights the two main models of value co-creation: co-creation as a design method and co-creation as an innovative approach.

The lower section of the diagram highlights the traditional model of co-creation where there is little involvement of customer input in business design processes. This framework has allowed for the development of a common contemporary innovative view of business process improvements – innovation. This management idea means that the innovation process overlaps with an (almost) independent design method of value co creation – design. Consequently, there is an improvement in business process output. Overall, the theories and models highlighted in this study have led to the development of service ecosystems that present a broader view of the value creation process (Trischler & Charles 2019). Furthermore, they have increased the profile of institutions involved in facilitating collaboration between firms and their customers.

Impact of Value Co-creation on Service Quality

As highlighted in this paper, service quality is a function of the relationship between producers and consumers (Hammoud, Bizri & El Baba 2018; Kaartemo & Helkkula 2018). However, it is also a product of many functions. For example, Kaur Sahi, Sehgal and Sharma (2017) say that quality and customer satisfaction are intertwined concepts because high quality services often yield elevated levels of customer satisfaction. In line with this finding, most literatures that have investigated the impact of value co-creation on service quality suggest the existence of a positive correlation between the two concepts (Hammoud, Bizri & El Baba 2018; Kaartemo & Helkkula 2018).

In other words, it has been demonstrated that value co-creation improves perceptions of service quality. This relationship has been highlighted in market-based research investigations, which suggest that consumer involvement in the value creation process helps to improve brand perception and identity (Taylor & Bovill 2018: Troisi et al. 2018a; Troisi et al. 2018b). These findings have also been replicated in health-based studies, which show that service quality is an antecedent of value (Martínez-Cañas et al. 2016; Kaartemo & Känsäkoski 2018).

Conversely, consumer satisfaction and behavioural intentions are creators of value. Technology-based studies have further affirmed this relationship by showing that customer satisfaction is a product of people’s perceptions of service quality (Hammoud, Bizri & El Baba 2018; Kaartemo & Helkkula 2018).

Economists also affirm the above-mentioned relationship between firms and their customers by demonstrating that value co-creation has a positive impact on service quality through increased returns on investments and improved customer insights. For example, extracts from research articles authored by Davidow (2018), Gummesson, Mele and Polese (2019) suggest that value co-creation has helped companies to increase their sales and profitability both in the short and long term.

This view was supported by independent views of different levels of corporate managers who concurred that value co creation helped them to understand customers and become more relevant than they would have been without such a relationship (Davidow 2018; Gummesson, Mele & Polese 2019).

The process was also linked to higher levels of efficiency and an increase in shareholder value. It is from this basis that the above-mentioned researchers mentioned the positive contribution made by value co-creation through improved customer insights. These researchers have pointed out that the relationship developed between producers and consumers creates a deeper understanding of customer needs, which are later reoriented into the production process to create a superior quality offering for different goods and services. In fact, companies that have embodied this advantage treat it as a source of competitive advantage because they boast of understanding their customers better than the competition.

Studies have also shown that value co-creation improves service quality because of the enrichment of a firm’s intellectual resources (Hammoud, Bizri & El Baba 2018; Kaartemo & Helkkula 2018). The same works of literature have also linked this competence with the development of a firm’s competitive advantages. These intellectual resources ensure that a company correctly responds to market needs by providing the right content to the correct group of customers. Consumer-centred companies have optimised this competence because it aligns with their mission statement (customer focus) (Kaartemo & Helkkula 2018).

Therefore, embracing co-creation simply means fulfilling a core part of a company’s mission. Again, the alignment of co-creation processes with a company’s core mandate explains why they have a stronger competitive edge compared to their rivals. These firms also achieve high levels of service delivery because the concept has been integrated into their core mandates. Therefore, interpersonal relationships are a core function of such companies and customers benefit from them through improved brand experiences. Some marketing goals that have been achieved through co-creation include improved visibility, loyalty, experience, differentiation and awareness.

Influence of External Factors on Value Co-creation

Most studies which have investigated external factors impacting value co-creation suggest that consumers are interested in the value they would get from the process (Noorshella, Abdullah & Nursalihah 2015). Others have shown that environmental and brand considerations impact a consumer’s willingness to participate in the value co-creation process (Gummesson, Mele & Polese 2019). Most of these outcomes have been observed in studies that have investigated consumer behaviour in the virtual community.

Their findings further show that customers with a strong brand loyalty are likely to participate in value co-creation compared to those who have not attachment to the products they buy. For example, Apple could benefit from value co-creation through consumer buy-in because most of its customers have a strong brand loyalty. The case would be different for Samsung, which is Apple’s rival, because it does not enjoy high levels of brand loyalty, as the silicon valley-based tech giant does.

Broadly, most external influences on value creation are psychological because they focus on providing different stakeholders with incentives for participating in the value co-creation process. Therefore, several motives are often advanced to encourage customers to take part in the value co-creation process. For example, the profit-making motive is a common incentive that customers use to increase participation in value co-creation processes.

Some companies also provide customers with social benefits as an incentive to participate in the value co-creation process. Particularly, these firms offer people surety that they would be recognised or acknowledged for their work in exchange for their participation in the value co-creation process (Baron et al. 2018). However, some studies have shown that a customer’s perceived value of the relationship with service providers significantly affects their enthusiasm to take part in such processes (Helkkula, Kowalkowski & Tronvoll 2018; Baron et al. 2018).

For example a person who has strong feelings of belonging would provide more impetus for participation in the value co-creation process compared to another who has no stake in the process at all. From a customer’s perspective, the possibility to increase consumer benefits and an overall net increase in consumer costs is enough incentive to participate in the value co-creation process.

Based on the above insights, the multiplicity of factors affecting value co-creation explains why there are different marketing concepts, theories and models of value co creation in contemporary literature. Their high numbers also explain why there is confusion regarding the application of the value co-creation concept. However, this problem does not emerge from the availability of multiple theories but rather from the application of different sets of assumptions about the concept. This challenge has been further worsened by the pursuit of different interests in value co-creation (because firms and customers have conflicting interests) and the emergence of new centres of innovation (usually virtual-based) in varied industries.

The consequence has been a shift in power dynamics between companies and their customers because customers can give their inputs regarding product or service development. Therefore, it is no longer tenable for firms to ignore customers’ wishes during the design phase of their business processes because they would lose their competitive edge to rivals who have a customer-focused culture. Based on this understanding it is no surprise that companies, which have a customer-centred culture report the best results in value co-creation.

Summary

The findings of this study suggest that there has been increased interest among academicians and marketing experts regarding the roles of value co-creation in the improvement of service quality. There are two main stakeholders involved in the process: firms and their customers. Both parties often experience positive outcomes through collaboration because they can exchange ideas and improve weak areas of service design. The findings of this study are useful to companies in improving their operational processes because they can get invaluable insights about consumer views when designing products. More importantly, they can better understand how to improve service quality through value co-creation.

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