New research finds double-digit growth for firms that create own online communities

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CATONSVILLE, MD, April 28, 2015 - A new study published in Marketing Science reveals that double-digit revenue growth accrues to firms that create brand-specific own online communities. The study, titled “Social Dollars: The Economic Impact of Customer Participation in a Firm-Sponsored Online Customer Community,” was conducted by professors Puneet Manchanda at the University of Michigan, Grant Packard at Wilfrid Laurier University, and Adithya Pattabhiramaiah at Georgia Tech.

Engaging consumers through online social networks is an increasingly mission-critical activity for major brands. While some firms host their own brand-centric online communities, Facebook has become the dominant “host” for online communities of brand enthusiasts, taking over $10 billion and 10% of U.S. digital advertising spending in 2014. But do firms see real economic returns by enabling their own customer communities? And if so, what is it about an own online community that drives these returns?

This study investigates this question by looking for “Social Dollars” – economic returns to firms from customers that can be attributed to the act of joining firm-specific online communities.  The results of the study offer the first hard evidence that these social dollars exist. Specifically, they account for almost 20% of all dollars spent by customers after they join the community, representing a significant additional benefit. The study revealed that the key to achieving these returns was not so much the customer’s increased exposure to relevant brand or product information as it was enabling social engagement among consumers over their shared brand or product interests (e.g., creating “friend” ties and “posting” to one another).

“While many firms think of enabling online customer communities as just a form of advertising, we reveal that supporting consumer social interactions can generate a substantial direct revenue benefit to the firm on their own,” said study co-author Puneet Manchanda.

Double-Digit Growth Coin

Armed with a unique data set—consumer panel data from a large multi-category, multi-channel retailer for a 15 month period before and after the launch of the retailer’s online community—the researchers were able to isolate how much of the post-launch revenue from customers was attributable only to their joining and participating in the online community. The firm’s online community allowed consumers to create friend ties, talk about, “like,” or recommend products, and create special-interest group pages. The researchers ran many robustness tests to assess the strength of a causal linkage, all of which supported the validity of their findings.

The big question for companies, of course, is whether these additional “social dollars” outweigh the cost of setting up and maintaining their own online community. Using confidential data from the retailer, the researchers estimated that the firm achieved break-even on its investment within months of launching the community.

“While not all firms may achieve the same level of economic returns, firm-sponsored communities can be valuable on other dimensions,” says Manchanda. “The ability to design the community’s features and observe customer behavior is preferable to ceding control and insight of a brand’s online social network to a third-party like Facebook. Of course, such communities will never draw the volume of traffic that sites like Facebook get. However, they are likely to get a much higher quality of traffic driven in no small part by the user-generated content from the community. This traffic leads to better organic search. ”

The authors of the study are members of ISMS, INFORMS Society for Marketing Science. ISMS is a group of scholars focused on describing, explaining, and predicting market phenomena at the interface of firms and consumers. This press release was created by the authors with the assistance of Gerard J. Tellis, ISMS VP of External Affairs.

The Authors

Puneet Manchanda
Puneet Manchanda
University of Michigan
Grant Packard
Grant Packard
Wilfrid Laurier University
Pattabhiramaiah
Adithya Pattabhiramaiah
Georgia Tech

About Marketing Science

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  Marketing Science is an Institute for Operations Research and the Management Sciences (INFORMS) publication (SSCI indexed). We invite authors to submit for peer review their best marketing-oriented research. We accept many types of manuscripts. Please consider us as an author-friendly outlet for your research. We are THE premier journal focusing on empirical and theoretical quantitative research in marketing. The journal is governed by the INFORMS Society for Marketing Science.

About ISMS

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  ISMS is a group of scholars focused on describing, explaining, and predicting market phenomena at the interface of firms and consumers.

Peter T.L. Popkowski Leszczyc, Ph.D.,
V.P. of Electronic Communications Informs Society for Marketing Science

Director CampusAuctionMarket.com and Professor of Marketing
University of Alberta, 4-20 F School of Business
Edmonton, AB, Canada, T6G 2R6,
and Professor of Marketing Renmin University, Beijing, China

Hompage: http://www.business.ualberta.ca/PeterPopkowskiLeszczyc

SSRN Author page: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=441780