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Cecilia Weckstrom The LEGO Group

C e c i l i a @ l e g o . c o m

   

CONSUMER  DRIVEN:  The  role  of  consumer  affinity  in  selecting  consumer-­‐centered  innovation  methods  at  the  LEGO  Group.      

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Consumer Driven: The role of consumer affinity in selecting consumer-centered innovation methods at the LEGO Group. by Cecilia Weckstrom

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INTRODUCTION  

Much  has  been  written  about  the  need  for  companies  to  become  better  at  understanding  the  consumers  of  their  products  and  services.  Methodologies  such  as  co-­‐creation  and  lead-­‐user  innovation  offer  a  promise  of  turning  product  development  in  companies  inside  out  by  unleashing  the  creativity  of  consumers.  Through  orchestrating  a  creative  collaborative  process  companies  can  better  understand  the  often  un-­‐articulated  needs  and  wants  of  consumers,  and  based  on  this  insight  develop  value  propositions  that  combine  products  and  services  in  new  ways  for  improved  differentiation  and  return  on  investment.    To  realise  the  full  value  of  consumer  co-­‐creation  we  need  to  understand  how  the  levels  of  affinity  consumers  have  for  a  brand  determine  their  willingness  and  ability  to  contribute  to  different  methods  like  co-­‐creation  and  lead-­‐user  innovation.  Another  pre-­‐requisite  to  successfully  involving  consumers  in  the  innovation  process  is  an  open,  internal  dialogue  about  the  innovation  profile  of  the  value  proposition  being  developed,  which  will  determine  the  choice  of  methodology,  timing  and  extent  of  consumer  involvement  in  the  development  process.  Building  on  examples  of  practice  at  the  LEGO  Group,  we  illustrate  how  consumer-­‐centred  innovation  methods  can  be  a  set  of  powerful  tools  that  when  applied  in  combination  with  an  in-­‐depth  understanding  and  pursuit  of  an  innovation  objective  will  likely  not  only  result  in  an  innovative  and  differentiated  offer,  but  transform  the  company  in  order  to  deliver  it.    

 

 

DEFINING  APPROACHES  TO  USER  INVOLVEMENT

Co-­‐creation  has  become  a  very  popular  term  and  appears  to  define  a  range  of  different  practices,  from  a  way  of  conducting  research  by  co-­‐creating  solutions  with  consumers,  to  a  new  business  model  where  the  value  proposition  relies  on  the  active  participation  and  contribution  of  consumes  for  the  business  model  to  function.  Some  even  go  as  far  as  arguing  

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that  business  models  built  on  the  co-­‐creation  of  value  are  will  be  the  ones  that  survive  in  the  future  (Ramaswamy  and  Gouillart,  2010).    Co-­‐creation  research  was  arguably  popularised  by  IDEO,  whose  ‘Human  Centred  Innovation’  methodology  and  toolkit  have  inspired  many  others  to  realise  the  power  of  involving  consumers  in  a  creative  activity  and  exploration.  The  co-­‐creation  activity,  combined  with  ethnographical  interviewing  and  observational  techniques  is  used  to  uncover  needs,  wants  and  motivations  that  are  relevant  for  defining  the  value  proposition.  This  insight  then  forms  the  foundation  for  a  design  process  where  internal  stakeholders  participate  in  synthesising  the  findings  and  developing  concept  directions  based  on  the  material.      Other  authors  refer  to  co-­‐creation  as  a  type  of  product  or  service  where  consumers’  participation  and  contributions  make  the  value  proposition  more  relevant  and  valuable  to  its  users.  Arguably,  any  product  that  enables  customisation  is  a  platform  for  co-­‐creation  of  value,  other  examples  include  platforms  like  Nike+,  Youtube  and  Twitter.  However,  to  be  able  to  co-­‐create  value  on  the  platform  requires  the  platform  to  be  in  existence,  thus  this  definition  insinuates  that  co-­‐creation  is  not  possible  prior  to  the  launch  of  the  platform.  However,  when  considering  the  term  co-­‐creation  in  more  broad  terms,  also  as  a  research  activity,  co-­‐creation  can  thus  happen  as  part  of  the  development  process  prior  to  launch,  as  well  as  after  launch  on  the  platform  itself.        The  lead-­‐user  method,  originally  developed  by  Eric  von  Hippel  at  the  MIT,  is  built  on  the  notion  that  innovation  and  new  opportunities  in  using  a  product  is  explored  by  those  most  intensely  invested  in  using  it,  rather  than  the  manufacturer  (Hippel,  2005).  Thus  lead  users’  expertise  and  ideas  are  likely  to  be  far  more  significant  when  considering  innovating  a  product,  than  what  manufacturers  are  likely  to  come  up  with  on  their  own.  Some  argue  that  lead  users  are  heavily  feature-­‐,  function-­‐  and  product  oriented  and  may  not  be  able  to  freely  associate  about  what  Clayton  Christensen  calls  ‘the  job  to  be  done’  (Christensen,  2006)  as  they  are  already  heavily  invested  in  a  particular  way  of  getting  the  job  done.  Bearing  this  in  mind,  lead  users  are  probably  the  most  effective  partners  in  innovating  a  product  due  to  their  deep  domain  expertise  and  experience  in  using  the  product  and  thus  essential  to  include  in  the  innovation  process.        

UNDERSTANDING  CONSUMER  AFFINITY    Valencia  and  Westberg  (2005)  highlight  the  increasingly  common  practice  among  companies  of  using  experiences  to  build  and  support  a  brand  and  they  introduce  the  ‘affinity  pyramid’  as  a  framework  to  model  the  impact  of  brand  experiences  on  customers.    

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 Each  company  can  segment  its  customers  in  different  levels  according  to  the  affinity  they  have  with  the  brand,  starting  from  people  who  hate  it  or  are  indifferent  to  it,  and  ending  with  people  who  love  the  brand  so  much  that  they  become  brand  ambassadors.  As  customers  encounter  experience(s),  they  can  easily  change  their  perceptions  and  feelings  about  the  brand,  moving  further  up  the  pyramid.  People  at  each  level  of  the  pyramid  have  specific  consumption  patterns,  thus  generating  different  revenue  for  the  company.  As  consumers  move  to  a  higher  segment,  they  bring  more  value  in  the  following  ways:  higher  consumption  rate  and  repeat  usage;  more  willingness  to  pay  price  premiums;  longer  relationship  with  the  brand  (decreased  churn);  word  of  mouth/brand  ambassadorship  [and]  community  effects.  (Valencia,  Westberg,  2005)  

 At  the  LEGO  Group  the  affinity  pyramid  framework  has  proven  a  useful  tool  not  only  to  understand  the  evolution  of  consumers’  behaviour  and  interest  in  the  brand,  but  also  a  segmentation  tool  for  innovation  purposes.  The  affinity  pyramid  for  the  LEGO  Group  is  defined  as  follows:    

   Our  research  on  this  model  confirms  that  consumers  spend  more  on  products  and  services  (both  on  higher  price  points  and  by  purchasing  more  frequently)  at  the  higher  levels  of  the  pyramid,  their  propensity  to  promote  the  brand  as  measured  by  the  Net  Promoter  Score  (NPS)  

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is  higher,  and  their  interest  and  willingness  to  engage  with  the  company  and  in  a  community  of  like  minds  increases.    

   Reference:  Stephen  P.  Anderson  (2006)  http://www.poetpainter.com/thoughts/file_download/7    Importantly,  consumers’  expectations  also  change  as  they  move  higher  in  the  pyramid.  Initially  highlighted  by  Stephen  P.  Anderson  (2006)  in  his  experience  hierarchy  of  needs  model  (see  above),  subsequent  research  by  the  LEGO  Group  confirms  that  similar  changes  in  expectations  also  occur  among  our  consumers.  Using  the  affinity  pyramid  for  the  LEGO  Group,  the  Active  households  (at  the  base  of  the  pyramid)  first  and  foremost  care  about  a  superior  quality  product  experience,  whereas  when  moving  to  the  1:1  layer  consumers  not  only  expect  the  superior  product  experience,  but  also  that  the  company  knows  them  (and  their  preferences)  and  actively  show  this  when  interacting  with  them  (leading  to  pleasurable,  personally  relevant  and  enriched  experiences),  whereas  lead  users  at  the  top  of  the  pyramid  care  about  all  the  aspects  consumers  lower  in  the  pyramid  do,  and  to  the  extent  that  they  want  to  have  an  active  role  in  running  the  company.    The  affinity  pyramid  makes  it  possible  to  segment  consumers  according  to  the  very  different  ways  they  engage  with  the  company,  their  differing  levels  of  experience  with  the  company’s  products  and  services,  combined  with  their  different  expectations  of  the  company.  If  we  turn  around  Anderson’s  definition  of  experience  needs  to  explain  the  kinds  of  insights  the  company  

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can  gain  when  involving  consumers  at  these  levels  in  the  innovation  process  –  the  value  of  early  involvement  of  consumers  in  the  innovation  process  becomes  obvious.      

 Reference:  C.Weckstrom,  The  LEGO  Group,  2008.    When  designers  and  marketers  are  able  to  take  a  starting  point  in  understanding  what  is  meaningful  and  pleasurable  to  those  most  familiar  with  the  company’s  offers,  and  its  brand,  a  more  focused  exploration  becomes  possible.  Therefore  the  higher  levels  of  the  affinity  pyramid  (1:1  level  and  lead  users)  are  naturally  more  able  to  contribute  to  more  explorative  co-­‐creation  sessions  to  define  entirely  new  value  propositions,  and  lead-­‐users  are  often  skilled  and  experienced  enough  to  contribute  significantly  to  designing  and  developing  the  solution  itself.  Concepts  arising  from  this  phase  can  then  be  validated  with  users  in  lower  parts  of  the  pyramid  to  assess  whether  the  proposed  solutions  address  the  needs  of  this  (much  larger)  audience,  i.e  is  the  solution  convenient,  usable,  reliable  and  functionally  useful.  Ultimately  piloting  the  business  becomes  an  opportunity  to  gain  valuable  feedback  from  all  segments  in  the  pyramid,  and  the  Net  Promoter  Score,  combined  with  questions  a  way  to  ensure  continuous  improvement  of  the  value  proposition.        

UNDERSTANDING  THE  INNOVATION  PROFILE  OF  A  VALUE  PROPOSITION  

 A  company  that  has  tens  of  product  lines  and  hundreds  of  individual  products  on  the  market,  combined  with  products  and  services  online,  is  naturally  challenged  by  a  proposition  to  involve  consumers  at  every  step  of  its  development  process.  The  logistics  are  simply  unrealistic.    In  this  situation  a  more  strategic  approach  is  required,  combined  with  an  open  dialogue  within  the  company  to  establish  the  areas  where  early  co-­‐creation  with  consumers  would  reduce  risk  and  help  provide  focus  for  the  development  process,  or  where  lead  users  are  essential  to  involve,  in  order  to  achieve  a  breakthrough  innovation.    

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To  address  this  issue  proactively,  the  LEGO  Group  uses  the  LEGO  innovation  model  to  create  a  shared  understanding  of  the  objectives  and  approach  to  deliver  the  outcome.  Early  opportunity  areas  are  discussed  and  assessed  in  terms  of  their  required  innovation  level  (see  below)  on  four  dimensions:  the  business  model,  product,  process  (for  manufacturing  and  delivery)  and  communication.  The  innovation  levels  are  as  follows:    

• Level  1  -­‐  Adjust  –  minor  changes  and  optimisation  of  known  parameters  are  used  to  update  products  or  modify  processes  in  order  to  improve  performance  

• Level  2  -­‐  Reconfigure  –  known  and  often  of  multiple  parameters,  are  put  together  in  a  new  way  in  order  to  better  meet  existing  business  and/or  customer  needs  

• Level  3  -­‐  Redefine    –  an  entirely  new  approach  and  offering  are  introduced  in  a  business  area  or  market  sector  –  existing  products  and  processes  may  undergo  quite  fundamental  modifications  

 Even  if  the  early  opportunity  area  and  value  proposition  is  largely  undefined,  this  simple  framework  enables  an  open  dialogue  about  the  requirements  for  success,  and  from  a  portfolio  management  perspective  it  makes  possible  a  balancing  of  innovation  activities  to  mitigate  risk  in  the  development  portfolio.      Moreover,  assigning  innovation  profiles  to  all  development  activities  also  serves  as  a  useful  guide  to  proactively  discuss  user  involvement  in  the  development  process  and  determine  appropriate  consumer  segment(s),  timing  and  methods  to  use  when  involving  consumers.      For  example,  a  value  proposition  that  is  classed  largely  as  an  Adjust  profile  (Level  1)  will  benefit  from  more  traditional  market  research  approaches  such  as  surveys  and  focus  group  testing  with  consumers  lower  down  in  the  affinity  pyramid  to  validate  solutions  proposed.  Opportunities  with  a  largely  Reconfigure  (Level  2)  or  Redefine  (Level  3)  profile  across  the  four  areas  of  assessment,  will  benefit  from  ethnography,  co-­‐creation,  and  lead-­‐user  methods  to  define  the  value  proposition  in  collaboration  with  1:1  and  lead-­‐users.  Consumers  with  higher  levels  of  affinity,  experience  and  expectations  of  the  brand  are  also  often  more  extreme  users,  and  as  such  have  the  capacity  to  inspire  and  provoke  designers  and  developers  to  better  understand  the  dimensions  that  the  value  proposition  will  need  to  address.  As  the  concept  becomes  more  refined  through  an  iterative  process,  consumers  from  connected  and  active  households  will  be  essential  to  validate  the  appeal  and  relevance  of  the  concept  beyond  extreme  users.              

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TOWARDS  CONSUMER-­‐CENTRED  INNOVATION      A  deliberate  practice  of  defining  the  innovation  profiles  of  value  propositions,  and  proactively  involving  consumers  in  developing  the  solution  not  only  contributes  to  a  more  focused  innovation  process,  but  also  works  actively  to  eliminate  risk  from  each  step.  An  essential  element  of  this  way  of  working  is  the  participation  of  the  stakeholder  in  the  process.  The  research  function  plays  a  significant  role  at  the  outset  in  defining  the  relevant  consumer  segments  to  involve  and  ensuring  that  the  process  is  in  place  for  this  to  occur,  but  an  equally  important  dimension  is  the  active  involvement  and  participation  of  the  internal  stakeholders  in  order  to  prevent  the  ‘not-­‐invented-­‐here’  syndrome.  Value  propositions  that  originate  from  a  highly  consumer-­‐centric  approach  often  entail  substantial  changes  to  the  internal  processes  and  practices  of  the  company  and  without  a  broad  involvement  of  those  affected,  the  outcome  will  likely  not  live  up  to  the  promise.    

   At  the  LEGO  Group  a  four-­‐stage  process  of  collaboration  around  consumer  co-­‐creation  is  applied  to  ensure  its  full  potential  when  developing  opportunities  with  the  Reconfigure  (Level  2)  or  Redefine  (Lever  3)  innovation  profiles.  The  process  takes  a  starting  point  in  immersion  into  the  consumers’  lives,  understanding  their  reality  and  through  this  defining  the  opportunity  areas  for  co-­‐creation.  Co-­‐creation  research  with  users  helps  further  uncover  needs  and  wants,  and  the  findings  from  the  research  becomes  the  foundation  for  a  co-­‐creation  process  with  the  internal  stakeholder  to  define  relevant  concepts.  The  prototyping  phase  serves  both  the  purpose  of  improved  internal  communication  and  feedback,  but  also  provides  the  opportunity  to  involve  consumers  in  providing  further  input  to  iterate  the  

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solution.  Implementation  then  enables  improvements  based  on  further  consumer  tests,  and  piloting  the  business  live  in  the  market  place  and  using  the  Net  Promoter  Score  to  systematically  gain  an  understanding  from  all  consumers  on  the  experience  helps  refine  the  solution  further.    The  collaborative  approach  between  internal  stakeholders,  researchers  and  developers  ensures  that  wide-­‐spread  learning  takes  place  within  the  organisation  and  requirements  to  the  process  innovation  is  the  product  of  an  in-­‐depth  understanding  by  all  contributors  to  the  value  chain.    

 

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BIBLIOGRAPHY:  

 Anderson,  S.,  P.  (2006).  Experience  hierarchy  of  needs  model.  Retrieved  7th  August  2011    from  http://www.poetpainter.com/thoughts/file_download/7    Christensen,  C.  (2006).  What  customers  want  from  your  products.  Retrieved  14th  August  2011  

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Consumer Driven: The role of consumer affinity in selecting consumer-centered innovation methods at the LEGO Group. by Cecilia Weckstrom

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