What would your bottom-line look like if your customers increased their spending with your company by 19%?
A 2012 study from the University of Michigan found that membership in an online customer community increased customers' expenditures by 19%. Here is a visual aid to help you figure out what that would mean for your company.
Your organization's assumptions may be different, but you get the point!
The research details how the almost 20% increase in purchasing is directly attributed to joining and participating in the online community. It represents spending over and above what the customer was already spending with the organization prior to joining the online customer community.
Building Upon Prior Online Community Research
The report builds upon existing academic research that noted the increase in purchase intention among members of an online customer community, as well as studies that ties customer engagement through social media to higher revenue and margin growth.
Previous research also demonstrated that customers who are active in an online customer community show a willingness to pay a premium for the sponsoring organization's products and services. Online customer community membership has also been linked to greater financial risk-taking with the sponsoring firm resulting from high levels of transparency and trust.
So, what does this mean if you are thinking about launching an online customer community?
5 Things That Executives Need to Know To Increase Revenue Using Online Customer Communities
#1) Customers Will Order More Often, Not Make Larger Purchases
Rather than placing larger orders, it is order frequency that drives the increased spending. This makes sense "“ more opportunities to engage and consume helpful content means an increase in the number of visits to your website, and therefore a higher sales conversion rate.
The University of Michigan study saw order frequency increase by 18.4% after a customer joined the online customer community.
#2) Engage New Customers
It is not necessarily your long-time customers that will make the impact. The research showed that newer customers actually have the highest increases in expenditures after joining the online customer community.
#3) Capitalize on Customer Retention and Repeat Purchases
In the study, the 19% increase in customer expenditures persists over time. Customer who join and participate in your online community will maintain the higher levels of spending with your organization and not drop off after the novelty of the online community wears off.
#4) Offer Ways to Engage and Purchase Both Online and Offline
Though organizations with online customer communities will likely see a shift toward purchasing through online channels, offline purchases will also increase. Make sure your organization has enough ways for customers the engage both online and offline to make a purchase.
#5) A Rising Tide Lifts All Ships (and Product Categories)
Which products will see sales increase? The University of Michigan research indicated that all product and service categories saw a proportional increase equal to the proportion of revenue from each category before launching the community.
However, you can expect the most spending around your organization's most well-known offerings and those in which your organization and its community members create the most content. Less content and fewer discussions correlate with a lower level of focus by your customers and lower sales.
It is also important to note that this research was conducted with a company that sold many different brands' products. This means that the products and services discussed in the online customer community were not associated with the brand sponsoring the online community.
Companies that only sell their own solutions can expect to see even better results when the products discussed in the private social network match the brand on the online community.
Online Customer Community Takeaway
Social business strategies, like online customer communities, can have a profound effect on an organization's revenue performance. The University of Michigan report is the first research to demonstrate the existence and extent of revenue increases as a result of joining an online customer community. Though revenue models can vary from one company to the next, making the 19% revenue jump more of a guidelines than a guaranteed result, executives can't ignore the sales-generating power of online customer communities.