Based on Research By Rene Algesheimer, Sharad Borle, Utpal M. Dholakia and Siddharth S. Singh

While Many Believe That Customer Communities Create Value For Firms, How Do They Really Create Value?

  • Simply mass emailing invitations to customers boosts community participation, making it an effective marketing strategy.
  • Customers who act relationally in a community tend to be pre-disposed to such behaviors rather than motivated by participation.
  • Though participation actually decreases some types of relational behaviors toward the firm, it has significant educational value for customers.

A customer community can be a virtual gold mine for some firms, creating substantial marketing value. This is why many firms are spending an increasing share of their marketing budgets on implementing customer community programs. However, the virtual goldmine could turn into a virtual ghost-town if customers don’t participate. So while many believe that customer communities create value for firms, the value creation process is unclear. Does participation in a community actually cause customers to exhibit more value-creating relational behaviors toward a sponsoring firm? And even if that’s true, is there’s anything specific that firms can do to increase customer participation?

Yes, according to findings from a study published by Rice Business faculty members Sharad Borle, associate professor of marketing, and Utpal Dholakia, professor of management, as well as two other co-authors. What’s the secret? Send them an e-vite – an email invitation to join the community.

Using email invites to jumpstart customer participation in a community is fairly easy, but leveraging customer participation to increase value-creating relational behaviors toward the sponsoring firm, not so much. Contrary to what managers might think, customer participation actually decreases some types of relational behaviors toward the firm.

Borle and Dholakia, along with their co-authors, studied almost 14,000 eBay customers who list, bid and pay for products. While as an auction site eBay earns revenue from these activities, the firm also hosts customer communities comprised of buyers and sellers who chat real-time or via discussion boards. Consistent with a sociological definition of community, these online gatherings at eBay are social organizations where customers’ interactions around transactions are often mixed with personal chat, communication of war stories or social support.

During the year-long study, each customer had successfully completed at least one eBay transaction – won an auction or completed a sale – within three months prior to the research team’s experimental manipulation. But none had participated in an eBay community. Roughly half were randomly invited to participate in an eBay community, via email invitation, and the remaining customers were not invited. The data contained information on customers for 16 months prior to the release of the email invitation, and customers were observed for one year after the email invitations. Bidding behaviors – the number of bids placed per month, the total amount spent per month – and selling behaviors – the number of items listed per month and the total revenue earned per month – were tracked for each customer, and various demographic and marketing-related customer variables were recorded.

While an initial, cursory analysis indicated that participation was correlated positively with all four bidding and selling behaviors, a second, more detailed analysis revealed otherwise. This second analysis explicitly accounted for the fact that customers might self-select into participation, which could bias the results of the analysis, and was comprised of two empirical models. The so-called “participation model” showed that email invitations, along with a couple of reminders, worked. Customers who were invited to participate were associated with a 23 percent higher probability of participation than those who were not invited. The analysis also revealed that firms should pay attention to variables that could profile target customers, because certain variables could be associated with a higher probability of participation.

The so-called “outcome model” revealed an unexpected truth: that customer participation had a negative effect on a selling behavior outcome (number of listings) and a buying behavior outcome (amount spent). Specifically, a 10 percent increase in the propensity to participate, above the median value, corresponded to four fewer listings per month and a spending decrease of about .58 Euros per month. Scaled across eBay’s vast customer base, the negative impact is substantial. So in the end, it seems that customers who act relationally in a community tend to be pre-disposed toward such behaviors rather than motivated to do so by participation.

The researchers think that lower spending results from customers’ increased exposure to community-based war stories about the perils of overspending, and that revenue earned was not impacted, despite fewer listings, due to the educational value of the community. In short, customers learn, over time, how to become more efficient sellers. Ultimately, educational value might convert to long-term value for eBay in the form of customers’ positive word-of-mouth, as well as growth in customers/community members. However, this study focused squarely on the impact of participation on primary value-creating activities – namely the buying and selling behaviors of eBay community members.

When all is said and done, if you want to boost participation in a customer community, don’t just build it. Invite them to come. But be sure to temper your expectations regarding how participation will create immediate value for your firm.

Utpal Dholakia is a marketing professor at the Jones Graduate School of Business at Rice University.

To learn more, please see: Algesheimer, R., Borle, S., Dholakia, U. M., & Singh, S. S. (2010). The impact of customer community participation on customer behaviors: an empirical investigation. Marketing Science, 29(4), 756-769.