March 27, 2006

Blogs, Social Networking Sites or Virtual Communities: Alternative Paths to Building Relational Equity with Customers (Part 2)

by Constance Porter

At the end of my last post, I left you with the following questions:

Given the opportunities and risks associated with attempting to build relationships with customers via social networking sites, the blogosphere or firm-sponsored virtual communities, which online space would you recommend as the preferred pathway toward higher levels of relational equity? Under what conditions might firms prefer any of these online-networking models? Why? (See my 2/27/06 posting at http://www.centralityjournal.com/archives/cat_value.html)

As promised, I am back to share my thoughts about the value associated with each of the three online-networking models. In doing so, I must confess that I am a fan of customer relationship management (CRM). Now, before you begin to think about all of the drama that your firm might have experienced with CRM, let me say that when I refer to CRM, I am referring to the basic notion that firms should select and build mutually valuable relationships with their customers, based unique information captured from customers. Such relationships often result in higher levels of trust, cooperation, loyalty and, ultimately, profitability.

So, in the context of CRM, I will discuss how each of the online-networking models supports CRM-related goals. I will do so using a framework put forth by authors Rust, Lemon and Narayandas in their book entitled Customer Equity Management (2005). Their framework suggests that firms should focus on building customer equity, a measure of return on investments in customers, by influencing three customer equity drivers: Value Equity (the objective evaluation that a customer makes about the products/services of a firm), Brand Equity (the subjective evaluation that a customer makes about the products/services of a firm, beyond product/service functionality) and Relationship Equity (the strength of the relationship between the firm and its customers, as perceived by the customer).

I can now reframe my questions at the beginning of this post: Which online-networking model would you recommend as the preferred pathway toward higher levels of customer equity? Which of the three models affects which of the key drivers of customer equity?

While few have explored the notion that online-networks could drive customer equity, I believe that that they could. I propose that among the three online networking models, blogs have the greatest effect on value equity, social networking sites have the greatest impact on the brand equity driver and virtual communities have the greatest potential impact on relationship equity. Thus, each model has the potential to grow customer equity.

Let me start with blogs. As I mentioned in an earlier post), blogs can create for firms (see my 1/15/06 posting at http://www.centralityjournal.com/archives/cat_value.html) Bloggers can generate positive word-of-mouth and can be used as a source of marketing intelligence. It is the benefit of marketing intelligence that uniquely positions blogs to drive value equity. Indeed, bloggers often discuss publicly their perceptions of value offered by marketers.

Assuming that such blogs are not marketer-sponsored, however, the information shared via the blogosphere is not unique and proprietary to any particular firm. Thus, blogs should not be considered a key driver of relationship equity because relationship equity is typically is built on the notion that firms leverage unique information captured from customers, and use this information better serve and extract value from them. Furthermore, while bloggers can impact perceptions of brand equity via word of mouth, I suggest that the effect of bloggers on brand equity is secondary and, at times, driven by their effect on value equity.

Now, I turn to social networking sites. Again, in an earlier post, I suggested that these sites have real value for marketers (See my 12/5/06 posting at http://www.centralityjournal.com/archives/cat_value.html). These sites provide a ready-made marketplace that savvy firms can use to target the lucrative youth-market that often cannot be reached via traditional media outlets. Through the power of WOM, these sites provide new opportunities to build brand identity and equity with the youth market, and several firms have begun to do so by sponsoring ads and marketing related events on these sites. While there are opportunities for social networking sites to affect value equity (via direct discussion of products or services) and relational equity (as marketers push for more direct contact with customers via network-based surveys or focus groups, for example), the primary effect of social networking sites, in my opinion, remains in the domain of building brand equity through repeated exposure and interaction in the site.

Finally, we arrive at the topic of virtual communities. In my opinion, marketer-sponsored virtual communities (i.e. those online communities that are embedded on the website of a marketer) have the greatest potential impact on all three equity drivers and are particularly useful for building relationship equity. While members of virtual communities often discuss issues related to value equity (e.g. product design, functionality, pricing) and brand equity (e.g. how the brand has meaning in their lives), because these online spaces are positioned within the website of a firm, firms have a unique opportunity to use such communities to build relationships directly with customers. My research shows that relationship-building efforts in virtual communities enhance trust and drive other beneficial outcomes such as a the willingness of a consumer to share information with marketers. In the context of CRM, this information can help marketers to behave in value-enhancing ways toward customers and, in doing so, facilitate value creation for the marketer (e.g. cross-sell and up-sell opportunities, lower cost to service associated with loyal customers, etc.).

In sum, I believe that virtual communities, social networking sites and blogs affect different customer equity drivers and, as the customer equity framework suggests, firms should think about which drivers are most important for them to influence, given factors such as customer perceptions and competition, before determining which of the three online-networking models might be most useful to further CRM goals. What do you think?

March 27, 2006 07:59 AM | TrackBack

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