Do Customer Communities Really Create Value for Firms?

Based on research by Sharad Borle (Rice Business), Utpal Dholakia (Rice Business), René Algesheimer (Universitat Zurich), and Siddharth S. Singh (Indian School of Business)

Key findings:

• 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.

Customer communities can deliver real marketing value, which helps explain why many firms are investing more of their budgets in building and managing them. The promise is straightforward: bring customers together, deepen relationships and create value that extends beyond individual transactions.

But the promise of value creation raises two practical questions. First, does participation in a customer community actually cause customers to behave in more valuable, relationship-oriented ways toward the sponsoring firm? And second, even if it does, can firms do anything concrete to increase participation in the first place?

According to new research from Rice Business, the answer to the second question is yes. One simple tactic works: send customers an email invitation to join the community.

What happens next, however, is more complicated. While email invitations are effective at jumpstarting participation, participation itself does not always translate into higher value-creating behaviors for the firm. In fact, contrary to what many managers might expect, customer participation can reduce certain types of buying and selling activity.

To understand why, Rice Business professors Sharad Borle and Utpal Dholakia, along with their co-authors, studied nearly 14,000 eBay customers who list, bid on and sell products through the platform.

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 — i.e., 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 of these customers were invited via email to participate in an eBay community; the remaining customers were not invited to join. 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. 

The researchers tracked customers’ bidding behavior (number of bids and monthly spending) and selling behavior (number of listings and monthly revenue), along with demographic and marketing-related variables.

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 in the community had a negative effect on a selling behavior outcome (number of listings) and a buying behavior outcome (amount spent). 

Specifically, a 10% 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 suggest that lower spending reflects customers’ increased exposure to community “war stories” about the risks of overspending. At the same time, revenue did not decline despite fewer listings, likely because the community’s educational value helps customers become more efficient sellers over time.

That educational value may translate into longer-term benefits for eBay, including positive word-of-mouth and growth in the community itself. Still, this study focused squarely on participation’s effect on primary value-creating activities — namely, the buying and selling behavior 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.

Borle, et al (2010). “The Impact of Customer Community Participation on Customer Behaviors: An Empirical Investigation,” Marketing Science.