How to Profit From a Better Virtual Customer Environment

The benefits of engaging customers in product development, product support and related activities are increasingly visible. Having the right technology-based system can enhance the customer experience and help companies improve both their innovation and customer relationship management capabilities.

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In recent years, many well-known companies, including Microsoft, Cisco, Nokia, Volvo and Nike, have forged closer links with customers in the areas of innovation and value creation by establishing technology-based customer forums. These forums, known as virtual customer environments, range from simple online discussion groups to more sophisticated product prototyping centers.1 In many cases, companies incorporate organizational mechanisms to integrate customer innovation roles with internal product development systems and processes.

The benefits of engaging customers in product design and development, product support and other related activities are increasingly visible. By interacting with customers, for example, Nokia Corp. has been able to tap into innovative design concepts. Similarly, AB Volvo has been able to accelerate product development by involving customers in virtual product concept tests. Microsoft Corp., meantime, has realized considerable savings by embracing “expert” customers as partners in providing product support services to other customers.2 Such advantages, combined with the availability of powerful and inexpensive information technologies, help explain the rapid growth of VCE initiatives in both the United States and Europe.

Our research indicates that VCE initiatives can offer important (and often hidden) benefits beyond the innovation outcomes. (See “About the Research.”) Specifically, customer interactions in VCEs can shape their relationships with the company as well as with the product or brand. Yet many companies treat their virtual environments strictly as an innovation platform and pay limited attention to other issues. We think that companies that ignore the broader impact of the customer’s experience are overlooking an important dimension — something that they may not realize until it is too late.3

About the Research »



1. For a more in-depth discussion of virtual customer environments, see S. Nambisan, “Designing Virtual Customer Environments for New Product Development: Toward a Theory,” Academy of Management Review 27, no. 3 (2002): 392-413. Other recent publications that have described such virtual customer forums for innovation include: C.K. Prahalad and V. Ramaswamy, “The Future of Competition: Co-creating Unique Value With Customers” (Boston: HBS Press, 2003); M. Sawhney, G. Verona and E. Prandelli, “Collaborating to Create: The Internet As a Platform for Customer Engagement in Product Innovation,” Journal of Interactive Marketing 19, no. 4 (autumn 2005): 4-17; S. Nambisan and R. Baron, “Interactions in Virtual Customer Environments: Implications for Product Support and Customer Relationship Management,” Journal of Interactive Marketing 21, no. 2 (spring 2007): 42-62.

2. Author’s interview with Microsoft MVP program managers in 2004.

3. For example, in 1999, Microsoft made some radical changes in its VCE initiative, the MVP program. To its surprise, the company soon discovered that the initiative had implications well beyond the product support activities it was originally meant for — implications on customer relationship management that the company had not previously taken into consideration. Microsoft had to reverse some of those decisions. For more details, see A. Leonard, “Microsoft Flip-Flop,” Salon Technology, Oct. 26, 1999.

4. See Nambisan, “Designing Virtual Customer Environments.” Other studies have also considered customer roles in value cocreation. For example, see C.A. Lengnick-Hall, “Customer Contributions to Quality: A Different View of the Customer-Oriented Firm,” Academy of Management Review 21, no. 3 (July 1996): 791-824; and N. Bendapudi and R.P. Leone, “Psychological Implications of Customer Participation in Co-Production,” Journal of Marketing 67, no. 1 (January 2003):14-28.

5. For more on such virtual design methods and tools, see E. Dahan and J.R. Hauser, “The Virtual Customer,” Journal of Product Innovation Management 19, no. 5 (September 2002): 332-353; E. von Hippel, “User Tool Kits for Innovation,” Journal of Product Innovation Management 18, no. 4 (July 2001): 247-257; and G.L. Urban and J.R. Hauser’s discussion of virtual engineer and design palettes in “‘Listening in’ to Find and Explore New Combinations of Customer Needs,” Journal of Marketing 68, no. 2 (April 2004): 72-87.

6. Many traditional offline product user groups — such as Harley Owners Group, Apple User Group and Saab Owners Group — have hosted such peer-to-peer product support activities, although they have largely been localized activities and mostly outside the purview of the vendor. For a discussion of such offline customer communities, see A.M. Muniz, Jr., and T.C. O’Guinn, “Brand Community,” Journal of Consumer Research 27, no. 4 (March 2001): 412-432.

7. The Consortium for Service Innovation is a nonprofit alliance of companies focused on innovation for the customer support industry. Members include leading companies such as Cisco, HP, Microsoft, Texas Instruments, Hilton Hotels, Fujitsu and JPMorgan Chase. Details are available at

8. Studies have found that visual and functional control of virtual product tools enhances customers’ perceived diagnosticity (that is, ability to evaluate a product) and leads to favorable product purchase-related attitudes and intentions. For example, see Z. Jiang and I. Benbasat, “Virtual Product Experience: Effects of Visual and Functional Control of Products on Perceived Diagnosticity and Flow in Electronic Shopping,” Journal of Management Information Systems 21, no. 3 (winter 2005): 111-148.

9. See P. Nambisan, “Online Community Experience: Impact on Customer Attitudes” (Ph.D. diss., Rensselaer Polytechnic Institute, December 2005). Also see P. Nambisan, “Conceptualizing Customers’ Online Community Experience (OCE): An Experimental Study,” International Journal of Internet Marketing and Advertising, in press.

10. Given these different contextual characteristics, our framework of customers’ VCE experience draws on diverse theoretical domains, including innovation management, computer-mediated communication, consumer psychology, online communities and information technology.

11. Authors’ interview with a customer participant in Bang & Olufsen’s VCE in 2003.

12. See J. Nielsen, “Usability Engineering” (San Francisco: Morgan Kaufmann, 1993); and J. Nielsen, “Designing Web Usability: The Practice of Simplicity” (Indianapolis: New Riders Publishing, 1999).

13. Authors’ interview with a customer participant in Microsoft’s VCE in 2004.

14. The second author developed a survey-based tool to measure the four components of a customer’s experience in a VCE (see Nambisan, “Online Community Experience”). The tool, which incorporates a set of 22 items, was created partly based on prior research in consumer psychology as well as on a theoretical approach called “uses and gratifications” developed in the mass media communications area by Jay Blumler and Elihu Katz in the early 1970s to study how and why consumers use different types of media. We surveyed the customers in these four companies and then found the average (across all customer participants in a given VCE) for each of the four experience components.

15. Authors’ interview with a customer participant in Microsoft’s VCE in 2004.

16. For example, Microsoft’s Netscan project helped customers track the activity of the different online customer discussion forums and the conversation threads that emerge from their activity. More details on Microsoft’s Netscan project are available at: http://netscan.research.

17. For more details on such semantic visualization tools, see J. Donath, “A Semantic Approach to Visualizing Conversation,” Communications of the ACM 45, no. 4 (2002): 45-49.

18. For more details on IBM’s tools (Loops, Babble), see T. Erickson et al., “Social Translucence: Designing Social Infrastructures That Make Collective Activity Visible,” Communications of the ACM 45, no. 4 (April 2002): 40-44.

19. The concept of “flow,” proposed by psychologist Mihaly Csikszentmihalyi, reflects a mental state of operation in which a person is fully immersed in what he/she is doing. Research conducted by Dona Hoffman and her colleagues in the 1990s has shown how compelling online environments may lead to such a state of flow or enhanced customer experiences. See, for example, Novak et al., “Measuring the Customer Experience in Online Environments: A Structural Modeling Approach,” Marketing Science 19, no. 1 (2000): 22-42.

20. Two of the concept cars previously shown on Volvo’s VCE have become production vehicles. The Adventure Concept Car became the award-winning XC90, and the Performance Concept Cars turned into the new S60 R and V70R.

21. Channel 9 facilitates an open dialogue between Microsoft customers and internal developers — a dialogue that is not mediated by internal marketing groups or any other Microsoft organizational unit. It features interviews with Microsoft developers about their products as well as a wiki that has been used by various Microsoft product development teams as a way to aggregate customer feedback and respond to it. For more details, visit:

22. See B. Schneider and D.E. Bowen, “Understanding Customer Delight and Outrage,” Sloan Management Review 41, no. 1 (fall 1999): 35-45.

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