It doesn’t require many participants to earn a return on the investment of establishing an online community, the authors found. Based on the projected volume of social dollars taken in, and the costs and firm-level margins available in public financial statements, the authors’ conservative estimate is that the firm broke even on its investment when 33,000 of its existing customers signed up.
“Given that the firm acquired 260,000 members within the first fifteen months after community launch, this was clearly a very profitable investment for the firm,” the authors write, “especially as this number is comprised of a mix of both current and newly-acquired customers.”
Aside from the direct economic benefits of setting up the community, the firm has much to gain in other ways. For example, the data paints a clear picture of each customer’s preferences and behavior, the authors write, which is “an informational boon for customer relationship management and other life-cycle based marketing strategies.”
By monitoring which products are becoming more popular and identifying who is discussing them, marketers can optimize their promotional strategies. And the firm also disclosed to the authors that the massive amount of user-generated content produced via the community strongly improves the company’s position in major online search engines.
“While it is likely that hosting customer communities on third-party websites such as Facebook provides reach to a broader audience,” the authors conclude, “this strategy does not offer the same level of access and control over customer interaction management and data offered by a firm-sponsored social network, nor is the third-party community interaction data commonly available to the firm in a manner that can be easily linked to customer-level purchase behavior.”
Consumers who join a company’s online community spend significantly more on the firm’s products than they did prior to signing up or in comparison with similar customers who are not part of the network. The findings indicate that online communities more than justify the investment to create and maintain them, and provide a unique way for companies to connect with customers and monitor their purchases and behavior.