Customer Insights & Co-creation

Customer Insights & Engagement

Customer insights are systematic understandings of customers, competitors, and the market that drive marketing strategy. Co-creation uses those insights to develop new products, services, or improve existing ones. The module covers how insights are collected, how they enable engagement, and how they fuel market development (a growth path distinct from product development).

Value Delivery Process – Revisited

Market insights underpin every stage of the four-stage value delivery process:

1. Choose value – Segmentation, targeting, positioning (STP). Requires understanding customer needs, competitor offerings, and gaps.
2. Provide value – Product/service development, pricing, distribution. Constant monitoring of market changes (competitor moves, evolving preferences).
3. Communicate value – Marketing communication (6Ms framework). Needs insights into message effectiveness.
4. Sustain value – Innovation and brand equity management. Insights prevent value erosion and guide improvement.

All marketing mix decisions (4Ps for goods, 7Ps for services) rely on ongoing marketplace insights. Customer satisfaction, value equity, brand equity, and relationship equity are all measured against external data.

Customer Engagement Marketing → Firm Performance

A framework with four building blocks:

Customer Engagement Marketing – a firm’s deliberate efforts to motivate, empower, and measure a customer’s voluntary contribution to marketing functions beyond the core economic transaction (i.e., beyond just buying). Examples: watching/sharing content, giving improvement ideas.

• This leads to Customer Engagement – voluntary resource contribution (time, effort, ideas) from the customer.

Firm Performance – the ultimate outcome, measured as increased revenues or reduced costs.

Moderator: Customer Owned Resources – the translation of engagement into firm performance depends on the customer’s own assets:

• Network assets – size and strength of the customer’s personal network.
• Persuasion capital – ability to influence others.
• Knowledge stores – expertise about the product/brand/category.
• Creativity – capacity to generate novel content (e.g., user-generated content).

Exam tip: The framework explicitly shows that firm performance is not directly caused by engagement marketing; it is mediated by customer engagement and moderated by what the customer already brings (resources). A highly engaged customer with few network assets may not improve firm performance as much.

Key takeaways

• Customer engagement marketing goes beyond transactions to motivate voluntary customer contributions.
• Customer engagement (voluntary resource input) mediates the link to firm performance.
• Customer owned resources (network, persuasion, knowledge, creativity) moderate how strongly engagement translates into revenue gains or cost savings.

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Drivers of Customer Engagement

A second framework explains when customers engage. Two broad tenets:

Tenet 1: Antecedents of Engagement

Tenet 2: Psychological Mechanisms

Causal flow:

Key takeaways

• Positive product experience and brand associations are prerequisites for customer engagement.
• Task-based engagement fosters psychological ownership; experiential engagement fosters self-transformation.
• Both mechanisms increase the likelihood that customers will voluntarily contribute to the firm’s marketing function.

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Analytical Models: Customer Transactions

Models are grouped by the customer journey stage:

• Contractual setting: Customer has a subscription or contract (e.g., Amazon Prime, Netflix, B2B software contract).
• Non-contractual setting: Purely transactional (e.g., retail store visits, restaurant).

Analytical Models: Customer Engagement

For engagement (beyond transactions), models use different data:

Exam tip: Distinguish transaction models (focus on purchase behavior) from engagement models (focus on non-transactional contributions like sharing, reviewing, community participation). Engagement models often require specialized distributions (zero-inflated, truncated) because many customers contribute zero.

Key takeaways

• Transaction-based models span acquisition, development, and retention; engagement models add a parallel track.
• RFM data is a classic foundation; digital context adds clickstream, WOM, and social network data.
• Models range from simple scoring (RFM) to advanced probabilistic methods (HMM, MDP, VAR).

Customer Engagement Value (CEV)

Customer Engagement Value (CEV) is the total monetary value a customer provides to a firm beyond just purchases. It captures four distinct contributions: transactions, referrals, social influence, and knowledge feedback. Intuitively, a customer who only buys is valuable, but one who brings in new buyers, spreads positive word-of-mouth, and helps improve the product is far more valuable.

$\text{CEV} = f(\text{CLV}, \text{CRV}, \text{CIV}, \text{CKV})$

The Four Components of CEV

Key distinction: CRV is paid referrals; CIV is unpaid influence (social media, word-of-mouth). Both drive acquisition, but the mechanism differs.

Measuring CEV: Behavioral, Attitudinal, and Network Metrics

Each component is tracked using three lenses:

Exam tip: The "weak link" concept – a customer who connects two otherwise separate networks – can be more valuable than a hub for reaching new communities (the surprising strength of weak links).

Relationships Among CEV Components

The proposed relationships between components use signs to indicate the expected direction of impact:

Key insight: CEV is not just a sum – components reinforce each other. A satisfied customer (high CLV) is more likely to refer (high CRV) and influence others (high CIV). Feedback (CKV) can improve the product, boosting CLV for all customers.

Key Takeaways – CEV

• CEV = CLV + CRV + CIV + CKV.
• CLV = transaction-based; CRV = paid referrals; CIV = unpaid social influence; CKV = customer feedback.
• Measure each component through behavior (system data), attitude (surveys/NPS), and network (connections, hub vs. weak link).
• Weak links connecting different networks can be as valuable as hubs.
• Relationships between components are positive and synergistic.

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Landmark Group: Customer Insights in Practice

Landmark Group (Dubai-based, ~50 years, Indian entrepreneur) operates multiple brands in India as an omnichannel retailer (physical + online). Its brands include:

• Lifestyle – large-format department store (apparel, footwear, fragrances, cosmetics)
• Max – value fashion (apparel, footwear, accessories)
• EasyBuy – value apparel for Tier 2/3 cities
• Home Centre – home improvement (furniture, kitchen appliances)
• Spar Hyper – grocery hypermarket (licensee of Spar International; also sells apparel, appliances)
• Fun City – play centre for kids aged 4–12
• Krispy Kreme – master franchisee in South & West India (doughnuts)

Online presence: own sites (lifestylestores.com, maxfashions.in, homecentre.in, sparonline) + third-party platforms (Myntra, Amazon, Flipkart).

Data Collection via Apps

To gather behavioural and attitudinal insights, Landmark launched two apps for different brands:

Strategy: Encourage customers to share data through delightful engagement, shopping incentives, and a simple loyalty programme. Initially, no loyalty programme existed – customers simply shared their phone number at billing. Because most Indians have a unique mobile number, this served as the unique identifier to create a single view of the customer. Later, SMS/email offers were sent, and apps were introduced to capture richer usage data.

Customer insights are the foundation for co-creation – feedback from CKV (e.g., product suggestions, feature requests) feeds into innovation and improvements, while influence (CIV) and referrals (CRV) drive acquisition. Landmark’s omnichannel data allows it to understand customer behaviour across touchpoints and tailor engagement.

Key Takeaways – Landmark Group

• Unique identifier (phone number) enables a single customer view across brands.
• Data collection is incentivised through loyalty programmes, app benefits, and personalised offers.
• Behavioural (purchase history, app usage) and attitudinal (feedback, reviews) data are integrated.
• Insights drive co-creation: customer knowledge (CKV) directly improves products and services.

Customer Data

Organizations need a unique identifier to create a single view of the customer. At Landmark, this begins with a simple mobile number. Customers are motivated to share data when they receive delightful experiences or incentives.

Types of Customer Data

Data Quality

Volume of data is increasing and now includes images, videos, and other formats. Quality (currency, relevance, cleanliness) is an ongoing challenge.

Three Key Questions: Who, What, Why

Data helps answer three core questions:

1. Who – Customer segmentation
2. What – Affinity, market basket, catchment
3. Why – Deeper research, observation, surveys

Who: Customer Segmentation

What: Customer Insights from Data

• Brand / category affinity – Which brands or categories a customer buys (e.g., only grocery from Spar, not home furniture)
• Market Basket Analysis – Products bought together in a single visit (from invoice data)
• Catchment analysis – Where customers come from; how far they travel to a store; differences between online and offline categories

Why: Deeper Research

• Market research – Commissioned studies (e.g., why footfall differs between stores)
• Observation research – In‑store: which aisles customers visit; layout and merchandising decisions
• Shopping journey analysis – In‑store observation or digital path‑to‑purchase analysis, supplemented with interviews
• Satisfaction surveys – Automated post‑purchase SMS surveys
• Competition analysis – Behavior changes due to new competitors or aggressive offers

Customer Analysis & Value

Customer analysis classifies data to assess the value of each customer. Key metrics:

• Lifetime Value (LTV) – projected total value of a customer over their relationship
• Average Bill Value – average spend per visit/purchase
• Frequency – number of purchases per year (e.g., 6, 4, 12 times)
• Period of Engagement – how long the customer has been active; when they tend to drop off

These metrics are used to create relevant offers for each customer, aligned with:

• Proposition – what the customer wants (based on past purchases)
• Great experience – e.g., personal shopper for top‑tier customers; free home delivery of altered items
• Brand belief – consistency with the brand’s purpose

Customer Context

Understanding context involves location, personal milestones, social events (festivals), time of day (weekday vs. weekend, peak vs. off‑peak).

Business Objectives

Customer Retention & Value

Driving customer centricity means considering:

• Value proposition per target segment: product range, price quality tiers
• Fulfillment – deliver from another store if local stock is missing
• Shopping experience – address webrooming / showrooming (comparing online vs. store)
• Post‑sale service – e.g., alterations for apparel; after‑sales for appliances
• Brand purpose alignment – consistent across store brands and third‑party brands

Engagement Framework: Triggers, Next Best Action, Measurement

Using the Landmark Group example:

Example: A personalized Dussehra promotion for a customer named Jai (“Reunite with dear ones… Max fashion”) vs. a more general festive message. The trigger could be previous purchase behavior or life stage.

Exam tip: The key is the closed loop: data → insight → engagement → response → data refinement. Focus on how the three questions (who, what, why) feed into segmentation, then into predictive next‑best‑action.

Key takeaways

• Customer data spans demographic, contact, transaction, browsing, response, feedback, complaints, social listening, partnerships, and third‑party enrichment.
• Three fundamental questions: who (segmentation), what (affinity, basket, catchment), why (research, observation, surveys).
• Segmentation can be demographic, behavioral (loyalty tiers, life stage, channel), or psychographic.
• Customer analysis uses metrics like LTV, average bill, frequency, and engagement period to drive personalized value propositions.
• Business objectives include headroom growth, channel/category/format penetration.
• Effective engagement uses triggers, predictive models, customized offers, and measurement of response.

Customer Engagement at L'Oréal

L'Oréal, the world’s largest cosmetics company (≈€45 B, founded 1907, French), operates a complex signature‑and‑brand structure. Each signature (e.g., L’Oréal Paris, Garnier, Gemey, Lascad) contains multiple brands that compete across categories (hair care, colourants, etc.) – often without customers knowing they all belong to the same parent. A more recent classification splits the portfolio into L’Oréal Luxe (Lancôme, Giorgio Armani, YSL – premium licensed brands), Consumer Products (Garnier, Mixa, etc.), Professional Products (Kérastase, Matrix – sold to salons), and Dermatological Beauty (Vichy, La Roche‑Posay). Luxe brands contribute heavily to revenue and margins.

Blogger Panel (Micro‑Influencer Programme)

L’Oréal’s R&D Consumer Insights group recruits micro‑influencers (10 000–30 000 followers) who blog about beauty, travel, or fashion. Influencers sign a 1‑2 year contract, receive pre‑launch products, use them, and provide feedback while posting on their own channels.

Traditional Focus Groups

Standard method for large R&D‑heavy firms: gather lead users (heavy product users) in a facility for moderated discussion.

Beauty Bubble Community (Mobile App)

L’Oréal created an online community where consumers post video logs of using cosmetics in their own homes. Participants are active social‑media users who validate their expertise simply as consumers – no formal training needed.

Key takeaways

• L’Oréal uses three complementary engagement methods: blogger panels, focus groups, and an online video community.
• Blogger panels rely on micro‑influencers – moderate following, but risk bias.
• Focus groups are quick and hands‑on but artificial and expensive.
• The Beauty Bubble community provides authentic, natural‑setting feedback at scale, though it can generate information overload.

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Customer Co‑Creation for Innovation – Customization

Customer insights and engagement lead to co‑creation – using one‑to‑one digital interaction to improve existing products or create new ones. The concept of mass customization combines economies of scale (“mass”) with individual tailoring (“customization”).

Customization in Wealth Management

The table shows how different firms allocate decision rights between the firm and the customer across wealth‑management activities.

Asset classes include equity, gold ETF, mutual funds, commodities, forex, debt instruments. KARVY does everything; ICICI Direct lets customers control allocation and monitoring.

The 2×2 Mass Customization Framework

Four types defined by whether the product changes and whether its representation (presentation/packaging) changes.

Exam tip: Collaborative customization is the highest level because it alters both product and representation through direct customer dialogue. It requires tools that allow customers to articulate and visualise their preferences.

Key takeaways

• Mass customization = standard production + individual tailoring.
• The framework classifies by product change and representation change.
• Four types: adaptive (user‑tweaked settings), cosmetic (same product, different packaging), transparent (hidden individualisation), collaborative (co‑designed via dialogue).
• Wealth management illustrates varying degrees of customer decision rights across activities.
• All customization depends on customers sharing information – either actively through tools or passively through observation.

Mass Customization & Co-Production

Mass customization is the ability to provide individually designed products and services to every customer through high process agility, flexibility, and integration – at a cost comparable to mass production.

Co-production is the strategy firms use to meet customization requirements. It requires customers to actively participate in creating the core offering – through inventiveness, co-design, or shared production.

• Mass customization takes the customer’s perspective (getting a tailored product).
• Co-production takes the firm’s perspective (enabling the customization by co-opting customer competence).

Exam tip: The two terms are complementary. Co-production is the mechanism; mass customization is the outcome.

Critical Success Factors (Elements of Mass Customization)

Limits of Mass Customization

• Requires a highly flexible production technology (e.g., cell manufacturing).
• Requires an elaborate system for eliciting customer needs and wants.
• Requires a strong direct-to-customer (D2C) logistics system (now widely available).
• Requires sufficient customers willing to pay a premium for customization.

Forms of Co-Production (Typology)

Co-production can be classified by:

1. Stage of customer activation – design, production, assembly, distribution, usage.
2. Type of customer effort – sharing information/expertise vs. undertaking physical or mental effort.

The spectrum ranges from adaptive customization (customer adjusts a standard product) through to co-design and collaborative customization (customer directly shapes the offering).

Key takeaways – Mass Customization

• Mass customization aims to deliver tailored products at mass-production costs.
• Co-production is the customer‑involvement strategy that enables it.
• Three pillars: elicitation, process flexibility, logistics.
• Limits include technological, logistical, and customer willingness to pay.

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The IKEA Effect

The IKEA effect is the tendency to value self‑made products more highly than identical products made by others – “labour leads to love.”

In this demonstration:

1. A handmade table is shown in isolation (ask willingness to pay).
2. A reference table at ₹9,000 is shown (the original table’s perceived value changes).
3. The table is revealed to be your own creation – built over 12 weekends (3 months, 3 hours each Saturday) with provided materials. Willingness to pay increases significantly.

Exam tip: The effect is strongest when the creation is successfully completed. If the task is unfinished or the creation destroyed, the effect disappears.

Why Labour Leads to Love

• Effort justification – people rationalise the effort they invested by assigning higher value to the outcome.
• Studies show: participants see their own (even amateurish) creations as equal in value to expert creations.
• They also expect others to share that opinion.

Who Is Affected?

The IKEA effect applies to both DIY‑enthusiasts and novices – no difference in valuation increase.

The Paradox of Work

People rate jobs as among the least pleasurable activities, yet also among the most rewarding. This apparent contradiction is explained by effort justification: the effort itself creates a sense of reward.

The principle extends beyond products: students who invest more effort in learning often perceive greater value in the knowledge they create.

Key takeaways – IKEA Effect

• Self‑made products are valued higher (labour → love).
• Effect depends on successful completion of the task.
• Driven by effort justification – effort and valuation increase together.
• Applies to both experienced DIYers and novices.
• Explains why effortful but unpleasant tasks (e.g., jobs) are simultaneously seen as rewarding.

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LEGO: Fan‑Led Co‑Creation & Co‑Production

LEGO, a family‑held Danish company, used customer‑led innovation to revive its fortunes. Its official objectives: create innovative play experiences and reach more children; growth is a by‑product, not a financial target.

How Customer Co‑Production Transformed LEGO

The Stealthy Start of LEGO Architecture

• Adam Reed Tucker (architect, Chicago) approached LEGO with his homemade iconic‑building models.
• LEGO’s target was boys 5–11; adults were a “no‑go.”
• Internal champion (David Graham, Future Labs) made a counter‑offer: provide bricks, let Tucker produce small batches.
• First 200 boxes sold in local shops – and at a premium price.
• Proved the business case → official line launched.

Digital Enablement – The “Phygital” Shift

Later projects like LEGO Fusion and Life of George (2012) blend physical bricks with smartphone/tablet apps – a phygital experience. These initiatives were developed by Future Labs, the R&D unit that studies play patterns.

Exam tip: LEGO’s story illustrates how customers can drive innovation when firms are willing to listen, even to non‑target segments. The key lesson: co‑production need not be limited to individual product customisation – it can extend to new product development (crowdsourcing, fan‑led design). The firm’s role is to provide the platform and production capability.

Key takeaways – LEGO Case

• Customer co‑production can create entirely new product lines (LEGO Architecture, LEGO Ideas).
• Success often starts with a small, stealthy test before scaling.
• Not every customer‑led initiative survives (LEGO Games discontinued).
• Digital tools (apps, cameras) enable new forms of co‑production (phygital experiences).
• When customers are empowered as co‑creators, they are willing to pay a premium.

Customer Co-Creation for Innovation

Customer co‑creation is the practice of leveraging customer insights to develop new products, engage broader audiences, and grow the business. Companies like LEGO, Barilla, and Salesforce illustrate how firms orchestrate customer input through digital platforms, social media, and dedicated co‑creation programs.

The Barilla Case Study: “In the Mill I Wish For” (MIW)

Barilla, a 170‑year‑old Italian pasta manufacturer, launched a community‑based co‑creation initiative called “In the Mill I Wish For” (MIW). The initiative was studied using primary data (semi‑structured interviews with managers, internal documents) and secondary data (press releases, case studies).

The MIW process evolved over time across five dimensions:

Outcome: New products, customized pasta on digital platforms, and overall business growth – similar to LEGO’s co‑creation success.

Innovation in the Digital Economy: Antecedents and Consequences

A framework based on big data investments identifies drivers and outcomes of service innovation:

• Big Data Marketing Affordances – possibilities for action enabled by big data technology and analytics for customer‑focused goals. They include:
  • Customer behaviour pattern spotting
  • Real‑time market responsiveness
  • Data‑driven market ambidexterity
• Service innovation leads to customer value benefits (convenience, engagement, etc.), which in turn affect shareholder value.
• Moderators: industry digitalization; purchase stage (pre‑/post‑purchase); product nature (utilitarian vs. hedonic).

Digital Capabilities and Customer Experience

A broader digital capability framework includes: business model, customer experience, operations, employee experience, and digital platform. For co‑creation, the customer experience dimension is key and comprises:

• Customer experience design
• Customer intelligence (collecting and incorporating insights)
• Emotional engagement

Co‑creation requires integrating customer intelligence into experience design.

Salesforce Ignite: B2B Co‑creation through Design Thinking

Salesforce, a CRM platform, launched the Salesforce Ignite co‑creation program to convince large enterprises (already using competing CRM/ERP systems) to adopt Salesforce. Ignite uses design thinking principles in a cyclical process:

The cycle repeats, moving from understanding to testing. The program operates without guarantee of sale, but it generates demand, captures success stories, and attracts top internal talent.

Process flow:

• Raise awareness (internal & client events)
• Generate internal demand (sales team proposes Ignite)
• Execute Ignite sessions → achieve annual customer value (CV)
• Capture success stories → enable non‑Ignite sales
• Attract talent and scale capacity

Exam tip: Salesforce Ignite is a B2B co‑creation example using design thinking before the customer signs up. Contrast with Barilla’s B2C community‑based model.

Key Takeaways

• Customer co‑creation leverages customer insights for product, service, and business model innovation.
• Barilla’s MIW evolved from incremental to radical innovation by expanding participants, processes, and practitioners.
• Innovation in the digital economy depends on big data investments → affordances → service innovation → customer value → shareholder value, moderated by industry, purchase stage, and product type.
• Digital capabilities for co‑creation focus on customer experience design, intelligence, and emotional engagement.
• Salesforce Ignite demonstrates a design‑thinking co‑creation cycle for enterprise B2B customers, even before purchase.

The Ansoff Matrix

The Ansoff Growth Matrix classifies growth opportunities along two dimensions: product (existing vs. new) and market (existing vs. new). Intuitively, it helps a firm decide where to focus its resources: stick with what it knows, innovate, expand, or take a leap into the unknown.

Market Penetration

Existing products, existing markets. The firm stays in the same cities/segments and tries to increase its market share (e.g., from 25 % to higher). Tactics: expand distribution, run promotions, increase loyalty.

Example: Fashion brand Ajio targeting college students in big cities. It keeps its current product line (jeans, t‑shirts) and works on gaining a larger share of those same cities.

Product Development

New products, existing markets. The firm introduces new offerings to the same customer base and geography. Customer insights and co‑creation fuel innovation.

Example: Ajio adds jackets and other apparel to its college‑student product range while still selling in the same cities.

Market Development

Existing products, new markets. The firm takes current products into different geographies or new customer segments (e.g., younger teens, small islands, new countries). Digital tools often enable this expansion.

Example: Ajio sells its standard jeans and t‑shirts to younger children by repackaging or adjusting sizes.

Diversification

New products, new markets. The riskiest strategy, as both dimensions are unfamiliar. Often pursued when existing opportunities are saturated.

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Assessing Opportunities: The MARAKA Framework

Firms like HubSpot (an inbound marketing SaaS company) use the MARAKA framework to evaluate market‑development opportunities:

The freemium model (e.g., Asana) provides real‑time analytics: a company with 100 free users from the same IP is a qualified lead → pre‑sales initiates conversion to paid enterprise licenses.

Exam tip: MARAKA is a real‑world tool used by SaaS companies. Be able to define each component and relate it to digital market expansion.

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Case Study: Unilever International (UI)

Unilever ($61\,B turnover, >400 brands, 13 "super-brands" >$1 B each) created Unilever International (UI) to capture white spaces – non‑core brands, underserved segments, new channels (airports, cruise ships, duty‑free), and small geographies that local operating companies ignore.

Key enablers: digital communication, outsourced partners (gig workers, agencies), repositioning and repackaging existing brands for new markets.

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Leveraging Digital for Market Development: The OIEO Framework

Research (published in Journal of the Academy of Marketing Science) distinguishes B2C vs. B2B digital marketing in emerging and developed economies. A core conceptual model is OIEO – Owned, Inbound, Earned, Organic media.

• Firm‑initiated: Paid media (sponsored ads), owned media (website, properties), inbound marketing (content that attracts visitors).
• Market‑initiated: Earned media (likes, shares, comments), organic search (indexed search, Google Trends).

Key Research Findings (B2B in emerging markets)

• Owned media has a strong positive association with new sales.
• Earned social media has a positive but low impact on new sales.
• Paid media elasticities for new sales and customer acquisition are on average negative – more spend does not proportionally increase outcomes.
• Inbound marketing plays a critical role in sales and customer acquisition.
• Feedback loops exist between digital media investments and performance; effects cannot be isolated.

Exam tip: For B2B market development in emerging economies, investing in owned media and inbound content is more effective than pouring money into paid advertising. Always consider the circular, interconnected nature of digital media.

Key Takeaways

• The Ansoff Matrix classifies growth into penetration, product development, market development, and diversification.
• Market development (existing products, new markets) can be assessed with frameworks like MARAKA (Market Availability, Real‑time Analytics, Customer Addressability).
• Unilever International demonstrates how a dedicated small unit using digital tools can capture white spaces and double revenue rapidly.
• Digital market development relies on a mix of POEM (Paid, Owned, Earned Media) plus organic search; owned media and inbound content have the strongest impact on new sales.
• Paid media often shows negative elasticity – more spending does not guarantee proportional gains.