Artificial Intelligence and Value Co-Creation in Service Frontlines: The Mediating Effect of Customer-Engagement

As artificial intelligence (AI) increasingly penetrates service frontlines, understanding its role in creating business value is crucial for leveraging it strategically. Grounded in service-dominant logic, our study examines how AI reshapes the paradigm of value co-creation in service frontlines, incorporating mechanical intelligence, which addresses service automation, and feeling intelligence, which manages interactions with customers. We hypothesize that these two types of AI contribute to co-created value through enhanced functional, emotional, and social customer engagement. By conducting text and regression analyses of a large dataset of hotel reviews, our findings indicate that mechanical intelligence contributes to co-created value by facilitating customers’ functional engagement, while feeling intelligence contributes to co-created value by facilitating customers’ emotional and social engagement. Additionally, our results show that the pathways for co-creating value with AI have been significantly strengthened after the COVID-19 pandemic.