Do Customer Communities Increase Revenues by Active Customers?

Thanks to Paul Sweeney  for his link to Customer Communities do Pay Off! and this great blog--Emergence Marketing spearheaded by Francois Gossieaux .  This post cites a report on a research study in the December 2006 issue of the Harvard Business Review, Do Customer Communities Pay Off?  (Requires a subscription or pay to view) by Rene Algesheimer and Paul M. Dholakia.

Here's Francois's commentary which caught my eye:

"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."

Of course, these people were already active buyers and sellers on eBay--"These customers were all active eBay users who had bought or sold on the site within the past three months but had not participated in eBay’s online communities before." [Algesheimer and Dholakia]

Francois goes on to caution that just because this approach worked for eBay customers, doesn't mean it will work for all customers of all businesses. No other company can match the unique and vibrant ecosystem of eBay. Nevertheless, marketers who are spearheading online community efforts will take heart from this study.

Francois points out that online communities don't just happen. You need, among other things:

• A large enough critical mass of customers who are active online to even contemplate creating an online community.

• The management commitment and resources to keep you community well-moderated, and constantly supplied with fresh content, information and valuable insights and tools.

• Active engagement by many knowledgeable employees, execs, partners as well as customers.

Good advice....

Like you, we're on the hunt for good ROI and best practices around customer communities...We know they're important to innovation and customer experience as well as customer support and marketing/brand awareness. As this study shows, if done well, they can be profitable as well.

By the way, the eBayers who participated in this study were incented to do so...through prizes, such as Apple ipods. The researchers spent about 3000 UK pounds on incentives. The study was conducted in 2005.

Any other great examples of ROI from online customer communities??

Comments

[Patty Seybold]

Thanks Paul,
I appreciated receiving the paper! Matthew Lees (my customer community consultant) and I are digesting it. We'll get back to you with comments and questions. This is a great addition to the online community research. So many people ask about the ROI of customer communities. You have done a great service in providing detailed research on the subject!

Patty

[Paul Dholakia]

Hi Patty:
Thanks for your thoughtful analysis of our HBR piece. Note that it was only a short synopsis of a long and complex research project. If you or anyone is interested in the full-length academic paper, I will be happy to email it to you. Best, Paul