How does customer co-creation increase revenues in hotels?

“Over the past decade, co-creation has gained wide attention in academia and practice. Customers centricity plays a key role as we engage and co-create experiences no longer for but with customers.”


The co-creation paradigm has introduced the idea of a two-way engagement between customers and businesses. This has brought deep changes for businesses and they way they view and interact with customers. In the tourism and hospitality business we have seen several innovative firms lead the way by engaging customers in a myriad of co-creation initiatives.

For instance, Marriott launched Travel Brilliantly to invite people to co-create the future of travel through a co-creative idea generation processes, while Hotel Lugano Dante adopts the principles of co-creation by enabling guests to share their preferences for a highly personalised room and hotel stay.

Across the service sectors, there is one trend common. Co-creation has captured the attention of businesses, and the question many companies are asking, is: “How can we implement co-creation?” and in many cases, that very question is accompanied by:

“How does co-creation help us increase our revenues?”

At the core of co-creation is the idea of mutual value creation – value for the firm, value for the customer. While this may sound alright, businesses naturally wonder about the  return of investment of co-creation, asking:

  • If we launch a co-creation initiative…
  • If we build a new platform for co-creation…
  • If we commission an expensive marketing campaign based on co-creatinon…

…how can we know that this initiative will not only create mutual value, but translate into concrete return of investment?

To tackle this question, we have conducted a study (Tu, Neuhofer, Viglia 2018. When co-creation pays. Stimulating engagement to increase revenues.) to find out whether customers are actually willing to pay a higher price if they are engaged and invited to co-create a personalised experience for a hotel stay.

The willingness of a customer to pay, also called WTP, was originally set out to estimate the perceived value from a purchasing experience. With adopting a service-dominant (S-D) logic lens, the aim of the study was to empirically test how co-creation impacts WTP through customer engagement (CE). The study was done based on the Chinese market, which is one of the largest online purchasing markets that has been greatly transformed since the advent of co-creation.

Theoretical insights

First, let’s take a look at the key theories behind our study…

The shift from ‘value-in-exchange’ to ‘value-in-use’

With the S-D logic, a paradigm shift has occurred, moving away from “value-in-exchange” to “value-in-use”. Companies can no longer deliver value to customers, but can co-created value with customers. Customers engage and integrate their resources through co-creation in-context and in-use.

This means that customers themselves are creating their own experiences!

As the service paradigm has developed, customers now desire to engage and participate in the product, service and experience creation process. As a result, service and hospitality strategies should be adapted to reflect the market’s need for increasing CE.

The willingness to pay more?

Our study bridged the gap between the concepts the S-D logic, WTP and CE to test how co-creation might impact the customers’ willingness to pay through a degree of engagement:

  • S-D logic
    Shows the customer as a resource integrator, who seeks to proactively engage with firms for a mutual experience and value co-creation.
  • WTP
    Represents the total amount of money customers endure in exchange for their desired product or service.
  • CE
    Co-creation is positively related to customers’ WTP and CE mediates this relationship.

The  interesting question is whether customers would pay more if they have a chance to get involved and co-create their services and experiences with firms.

Research and Experiment Design

Our study used a scenario design experiment to measure how co-designing a room influences the customer’s willingness to pay. The view of components, which could be flexibly managed from the hotel side, was taken and four items to develop experimental choices were selected. These items are a mini bar, hair dryer, bath amenities, bed mattress in different brands, but at equal value.

Participants were asked to respond to two blocks of questions. The first part focused on measuring customers’ attitude towards co-creation and the degree of engagement. The second part with two open-ended questions elicited the customer WTP:

  1. “A standard room (without co-designed features) in a competing hotel of the same star rating in Shanghai costs 600 Yuan per night.”
    Considering this, how much are you willing to pay per night for your standard room?

  2. “A standard room (without co-designed features) in a competing hotel of the same star rating in Shanghai costs 600 Yuan per night.”
    Considering this, how much are you willing to pay per night for the co-designed room?


The Findings: To pay or not to pay more…. that is the question.

The results show that the degree of co-creation was positively associated with customers’ WTP

This means that the higher the degree of co-creation customers noticed, the more customers  are willing to pay for a hotel room. Moreover, the CE plays an important role in influencing both, the customer WTP and the degree of co-creation.

These results have significant implications for businesses in the hospitality industry and the wider service sector aspiring to implement co-creation.

For the first time, a study quantifies the premium price a customer is willing to pay when invited to co-create a room through a co-design initiative. The enacting engagement is important too for reaching a revenue boost. The study contributes not only to a better consumer behaviour around co-creation, but also tested the practicability of the co-creation concept in the context of the Chinese market.

Interested in learning more about this study?

You can cite this study as follows:

Tu, P.,  Neuhofer, B. and Viglia, G. (2017). When co-creation pays.
Stimulating engagement to increase revenues. International Journal of Contemporary Hospitality Research.

If You are interested in this reasearch paper, feel free to continue reading it on:

Research Gate

Academia

You can download and read the full text too on:

Emerald Insight/ International Journal of Contemporary Hospitality Research

Photo credit: Nik Lanús on Unsplash


 

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