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More and more brands are creating an online community. Either on social networks such as Facebook and Google+, or their own. There has been a lot of interest in the Return on Investment by the marketing community.

“Does spending money building an active online brand community lead to more customer expenditure?”

Scientific research by the University of Michigan (professor Puneet Manchanda et. al.) revealed multiple interesting findings. The bottom line: Yes, 19% more.

The logic of spending ‘social dollars’

Looking at the increase of online marketing budgets, or the many job offerings for online or social marketeers suggests companies realize there is a positive ROI on communities. Moreover, brands such as Ikea (IkeaFans) or Disney (MyDisney) created their own online community and motivate its users to actively engage with each other, preferably about the brand. Conversations range from sharing experiences, reviewing new products, and recommendations and advice for usage.

The rationale behind the money spent on building a social brand community is simple. Customers, who actively engage with a brand in an online brand community, will be more loyal to that brand. Brand loyalty in turn, will lead to spending more money on that particular brand. This makes sense and seems very logical.

This consumer spending after engaging with a brand in a social community has been defined as social money: money spent by members of an active brand community on that particular brand. In other words, this social money can be directly attributed to the social behaviors that these costumers engage in with that particular brand. The 2 million-dollar questions are:

“Does having an active brand community lead to more brand loyalty?”

“And does this increased brand loyalty in turn lead to more social money?”

 

Time for science!

Quite some research has been conducted to study the link between engaging with your customers online and brand loyalty. There is also some evidence that brand loyalty lead to more spending on a brand that has an active social community. However, this research usually uses “intention to buy” as their dependent measure and we know that intention does ‘not always’ translates into actual behavior. Moreover, the direct link between engagement, brand loyalty and online spending has not yet been properly tested.

A good test of this hypothesis should make use of:

• Two groups: an experimental group consisting of people who actively engage with a brand on a social network, and a control group consisting of similar people whom do not engage with that brand
• A measure of actual shopping behavior instead of measuring buying intentions
• Longer term data collection, to compare pre- and post engagement online shopping behavior

Puneet Manchanda, a marketing professor of the University of Michigan, and his colleagues did just that. They saw a perfect research opportunity when an online retailer decided to build an online social community. Using a quasi-experimental design, they were able to measure how much of the online shopping expenditure on that retailer could be attributed to its members actively engaging with the retailer’s in its online community.

And now for the results…

What they found was that social money account for about 19% of revenue once customers join an online community. That is a 19% increase in spending on that retailer after the launch of the social community. In case of this retailer, that meant an average added value of about €100 per customer per year (unfortunately, the authors were not allowed to disclose the total revenue per client to put this added value into more perspective). This rise in spending could be attributed to an increase in frequency of visits and not so much to an increase in shopping cart value or conversion rate. Thus, these customers came back more often and therefore bought more products.

So: Do setup a brand community (that is, when setting up and maintaining an online community costs you less than the profit you make over a 19% sales increase…)

This research suggests that – if you haven’t already – you should set up your own brand community and actively engage with your customers. Use your online community to create more brand loyalty. Science now proved that – purely financially – it pays off. In fact, the researchers commented that for a brand with a single product (such as Heineken or Douwe Egberts) the pay-offs might even be bigger. The retailer used an umbrella structure to sell many different products of various brands (books, office supplies, etc.) from different brands. Brand loyalty is likely to be even stronger and more persistent for firms marketing a single brand. And of course there are other benefits such as customer insights, product improvement suggestions et cetera.

Discussion

There are however some questions left to be answered. For example, does setting up an online brand community attract new customers? What should be the focus of a brand in its online community to strengthen brand loyalty? For example, a brand could focus on strengthening existing brand beliefs and attitudes, on active engagement with its community to find out more about their customers, on letting members co-create or review new products, or, most likely, a mixture off the above.

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About the author

Dirk Franssens
Living in Amsterdam, currently working in Utrecht, > 5 years experience in the psychology of changing behaviour. My current focus is online persuasion: the art of optimising consumer dialogue with the use of persuasion techniques. I studied Psychology at Maastricht University and received my PhD at the same university in 2010. During my time as a PhD candidate, I specialized in systematically analysing and changing behaviour. Contact me: dirk@onlinedialogue.nl Add me: http://nl.linkedin.com/in/dirkfranssens Twitter me: dxfranssens