October 31, 2006
Customer communities do pay off!(Posted by francois to: communities | marketing | self-organization | social innovation | social networking | technology enablement )
The most recent Harvard Business Review reports on a study (requires subscription) that was done on the impact of customer communities on customer behavior at eBay in Germany (disclosure - I have an active interest in this topic as I have agreed to chair a conference on the business of communities - Community 2.0 - but more on that later).
The numbers are quite interesting. The experiment involved 140,120 eBay customers who had bought or sold on eBay but who had not participated in the eBay customer communities before. 79.242 were invited to join the online customer community, while the remaining 60,878 were used as a control group. Of the people who were asked to join the community, 3,299 became active participants and 11,242 became lurkers. Over the course of a year they compared the behavior of the active participants and lurkers to that of the control group and found that:
- Lurkers and active participants won up to 25% more auctions
- Lurkers and participants paid prices that were as much as 24% higher
- Lurkers and participants spent up to 54% more money in total
- Active participants listed up to 4 times as many items
- Active participants earned up up 6 times as much monthly sales revenue
- For first time sellers who were lurkers and participants, 10 times as many of them started selling on eBay after joining the community
All in all the activities of the lurkers and participants resulted in 56% more sales during the year of the study - bringing in millions of additional dollars into eBay's bottom line.
So can the results of this experiment be replicated in more traditional businesses?
Some people clearly think so, while others who used to be very enthusiastic about the business of communities are starting to become very skeptical.
Communities require a certain critical mass to get going - and not all companies have a large enough customer base to get to that point. They also require a lot more work and resources than most companies are willing to invest - to set up the infrastructure, to nurture the communities, to acquire content, etc.
Active communities of employees, customers and partners are clearly powerful management instruments that can dramatically improve core business processes like innovation, product development and marketing & sales. They can also backfire and have very negative impact if they are not managed properly, or set up wrongly. Before embarking on this path, companies have to truly understand the dynamics as well as the pros and cons of communities. They also need to find out if they have the resources and wherewithal to create their own communities or whether they should play in someone else's sandbox.
Unfortunately, many will start the process by throwing technology at the problem - let's just hope that those ignorants won't destroy the market for the rest of us like email spammers destroyed email marketing and (un)ethical zealots are slowly destroying word of mouth marketing.
Posted by francois at October 31, 2006 10:51 AM | Bookmark This
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Another great find. I've referenced you and the article. Keep up the good work! Interested in finding out more about your community 2.0....
Posted by: PaulSweeney at October 31, 2006 03:32 PM
another great example of people getting duped by statistics involving parties who were self-selective.
this survey only does good to those who want to prove a point. to anyone who knows anything about the reliability of a self-selected control group (i.e. those more likely to be pre-disposed towards passionate E-Bay usage), will not look past the first couple paragraphs of this "study".
Posted by: marcus at November 1, 2006 12:53 AM
The people who were asked to join vs. those that were left as a control group were selected randomly. I am not sure if that is the piece that is missing.
Posted by: francois gossieaux at November 1, 2006 04:55 AM
Thanks for this post--useful pointer! I particularly like your cautions about the fact that 1) you shouldn't lead with community technology and 2) that you need both a large enough customer base and 3) enough active engagement by execs, employees, and partners as well as partners to make a community work!
Keep the insights coming!!
Posted by: Patricia Seybold at November 24, 2006 08:42 AM
Patty - thank you for the comment. It is amazing that so many people do not get those basics. Another issue is that most companies will fail because of underfunding these projects.
Posted by: francois gossieaux at November 24, 2006 09:57 AM
Just came across your very thoughtful analysis of our HBR piece. It was indeed a controlled field experiment. The HBR piece was only a very short synopsis, I will be happy to share the full-length academic article if any one is interested.
Posted by: Paul Dholakia at December 4, 2006 06:31 PM
Paul - thank you for your comment on the post. I would love to see the complete study. I had also emailed you but unfortunately used the wrong email address. Hopefully we can connect live sometimes soon!
Posted by: francois gossieaux at December 4, 2006 06:54 PM