Co-creation business model explained using an example of successful implementation at Local Motors

A co-creation model is a business model where the users of the product are integrated into the development of the product from the early stages of the conception. Such a model allows the company to be at the same time aware of its consumer’s needs, and innovative regarding its competitors. Local Motor’s (LM) ideal co-creation model involves the users in the cars’ conception and in the car manufacturing process.

The model relies on a strong community of car designers and car lovers. The company organizes design competitions to inspire creative contributions to the designing step of the car. The company provides a few guidelines for the type of car to be designed and the community participates in the competition. To select a winner the community votes and comments on their favorite designs, and provide insight to the company of customer needs and expectations. One of the most appreciated cars is then chosen for production. The co-creation model also extends to manufacturing by involving the customer in the car-making process.

Pro: This model helps the company to understand customer needs accurately since the community designs and approves the models to be produced. The community also provides a source of an available and enthusiastic customer base. The model allows the company to save money on research and design. The model is also an effective marketing tool because the community helps to create a positive brand image and word of mouth. The customer’s participation in the manufacturing of the car significantly reduces labor costs. Since the company does not mass produce, they can delay expensive crash tests and focus resources on more important aspects. The involvement of the consumers in the manufacturing of the car provides a unique experience to the customer, and a unique link between the consumer, the company, and its car.

Cons: The innovative and creative designs created by the community member does not ensure to find purchasers because most of the community members are not customers. Therefore, a highly praised design by the community could be a commercial failure. Also, the model entirely relies on a strong community, hence a lack of involvement could result in fewer designs and less activity amongst the members. The model is focused on the local community which prevents the company from expanding in a centralized manner. The car is expensive and targets only a very niche customer segment. Lastly, the customers might find building a car and being involved in the manufacturing process tedious and unnecessary.

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Jay Rogers thought of using the co-creation model because of the abovementioned advantages. To launch the co-creation model, LM’s first step was to hire a software engineer to develop and design LM’s online community functionality. They used the crowd-sourcing model to attract car designers to design concepts as well as comment and collaborate on others’ designs, which LM would build supported by an online community. LM tried convincing underemployed designers to upload their portfolios on the website in order to get started. But, user activity was very low. In order to reach their target audience and generate interest LM hired a professional to build a design network and increase their credibility. LM created a charter member program where 20 members uploaded their portfolios after the initial hesitation due to security concerns etc. and soon attracted 1400 designers. After gaining a significant number of members LM started an auto design competition inspired by U.S. regional markets, which received an overwhelming response.

LM moved on with planning related to building cars with insights from the company’s community. They identified 8 to 10 segments that weren’t heavily built-in and directed the community to those segments. The community members rated and commented on the predetermined sub-categories. After this, LM’s staff discussed and voted for the car they preferred with the CEO having decision-making power. Through this bimodal intelligence process, LM tried to combine the results of the community to a tangible output that can be produced and marketed. The resultant car was also the winner of the Southern California Motor contest. The community was buzzing but the excitement was not universal since not everyone was in support of the idea to focus on an off-road segment car.

The next step was to plan LM’s regional micro-factories. This would require significant investment because each factory costs $6 million on average and since the revenue was limited, LM would have to source funds from other mediums. The micro-factories also served as a physical venue for community events like “Burgers, Cars, and Welding” to discuss designs and the company’s progress. LM plans to construct 30-50 regional micro-factories over the next 10-12 years, the facilities would be located near major metropolitan areas. LM analyzed the market based on cities and regions, targeting progressive customer segments who are early adopters and who are interested in buying kits. At these micro-factories, there will be 40 employees (salespeople and mechanics) but the major labor requirement would be provided by the purchaser himself. It takes a 14-day build process where the future owner works two weekends 8-10 hour shifts and the employees work on the car on the weekdays. The capacity of each factory is planned to be 2000 vehicles per year. This encourages the customers to bring in family and friends and enjoy a shared activity which increases word of mouth and hence creates more customers.

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