CHALLENGE:
Companies spend millions on the internet building brand communities. Is it worth it? If so, how much? The answer is a 19% lift compared to spending prior to becoming community members.
HOW THEY RESEARCHED IT:
The largest North American retailer of entertainment and information-related media was researched. It has both brick and mortar and online presence, with 10% of sales coming from the latter. It launched its online community in 2007, using a Facebook-like framework to allow profile pages and note-posting. Data were collected from 26,624 community members (from about 260,000), including specific purchase data in 2009. Hence, purchase data were compared from BEFORE the online community was formed in 2007, and after that date.
WHAT HAPPENED?
The key finding was that members of the brand community spent 19% more, post their joining the community. This is the incremental revenue from consumers who joined the online community, over and above their pre-existing purchase behavior with the firm (and relative to a control group). The authors estimate that the 19% incremental sales lift is more than sufficient to cover the fixed cost of setting up the community as well as the variable cost of maintaining it. In fact, breakeven for this company occurred after 33,000 existing consumers joined the community. This means there is a positive ROI for successful brand communities on the social net. The driver to the 19% lift appears to be order frequency as nearly 3 additional purchase occasions occurred over the 15 month observation period, representing an 18.4% increase in order frequency.
WHY MANAGERS SHOULD CARE:
The power of brand communities is accepted, but the cost of building one is a major stumbling block. This study provides some assurance that we might well get positive financial returns from these communities. In addition, we might expect that community members are likely members of off-line networks for which members may serve as opinion influencers.
CAN YOU HELP?
What is your experience in the cost and effectiveness of building brand communities?
Source: Manchanda, Puneet, Packard, Grant M. and Pattabhiramaiah, Adithya, Social Dollars: The Economic Impact of Customer Participation in a Firm-Sponsored Online Community (January 12, 2012). Available at SSRN: http://ssrn.com/abstract=1984350 or http://dx.doi.org/10.2139/ssrn.1984350
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