How Do Virtual Communities Create a Value Exchange Proposition for e-businesses? An Exploratory Study.
How Do Virtual Communities Create a Value Exchange Proposition for e-businesses? An Exploratory Study.
Abstract
As the world continues to change and customers continuously become more sophisticated and demanding, marketing strategies have had to adapt. In the 1990's, processes and customer needs became more recognised, which brought about modern marketing and the concept of relationship marketing (RM). With the emergence of the Internet, many e-businesses have failed to survive the increasingly global competitive environment. This report aims to create understanding of the current marketing schools of thought in order to decipher a means of creating a value exchange proposition for survival in this 'New Economy.'
Qualitative secondary research has been gathered from written documents to explore how e-businesses are missing an opportunity to create a value exchange proposition through virtual (on-line) communities. In order to answer the research question, How Do Virtual Communities Create a Value Exchange Proposition, three propositions were developed from the focal theory within the literature review:
* (P1) Virtual communities create customer value
* (P2) Virtual communities increase loyalty
* (P3) Virtual communities enhance business value
Case studies within a theoretical framework have supported the propositions and enabled new insights and contributions to be created through the development of a 'value exchange' model. This model is a continuous cycle of virtual communities adding customer value, which increases loyalty and ultimately business value and then repeats. As this cycle has been supported by theory and evidence, virtual communities have proven how to create an untapped opportunity through creating a value exchange proposition that enables a competitive advantage for e-businesses.
Acknowledgements
I would like to show my appreciation to my supervisor, Sally Harridge-March, for her guidance and help throughout the whole research process. Through her inspiration, I have found new areas of interest that have lead to this research topic and possible visions for future directions.
The Truch Family deserves great acknowledgement. Dr. Edward Truch has shown considerate devotion to this project and kind nature for sparing great amounts of time and effort. Jennifer has provided me with a beautiful home and atmosphere to be inspired from. Nick has given continuous and dedicated support and companionship. Anna has shared insights from her own research within knowledge management and virtual communities.
My loving family and friends have always been an inspiration and must not be forgotten. Mum, Dad, Nick and Alex, I thank you for your continuous support, belief and kind-heartedness. Mathew Middleton has given support during late-night dissertation sessions and has shown to be a true friend. Finally, my housemates, Laura, Dave, Ed, Rich and Rob for going through this process with me and making this experience a little less painful!
List of Abbreviations/ Terms
CRM
Customer relationship management, the managing of customers, usually by means of technology.
E-business or dot.com
These terms refer to Internet-based businesses.
E-customers
Customers that purchase over the Internet.
Electronic Commerce (e-commerce)
This refers to transactions and purchasing via electronic means, i.e. via the Internet.
Electronic Commerce Environment (ECE)
The Internet has created a virtual environment where electronic commerce takes place.
Internet
The technological medium that allows electronic communication and access to the World Wide Web (WWW).
Members
This term is used interchangeably with customers and users that take part within a virtual community.
Product
Many academics use the term product to mean good; however, in this study, product means a good or service.
RM
Relationship Marketing, the building and maintaining of mutually beneficial relationships.
Traditional business
A business with a physical presence, non-Internet-based.
Transaction site
A Web site based on exchanges, with no virtual community.
Value exchange
A business provides added value to customers, which created value for the business.
Virtual Community or on-line community
A community, or gathering of people, who communicate and interact with one another (customer-to-customer) using a designated site on the World Wide Web.
Visitors
These are non-registered customers/ non-members to a Web-site.
Table of Contents
Abstract............................................................................................ii
Acknowledgements iii
List of Abbreviations/ Terms iv
Chapter 1 - Introduction 8
.1 Chapter Overview 9
.2 The Reasoning behind the research 9
.2.1 Research Question 10
.3 Scope of the Research 10
.3.1 Aims and Objectives 11
.3.2 Structure of the Report 11
Chapter 2 - Literature Review 13
2.1 Chapter Overview 14
2.2 Evolution of Marketing 14
2.2.1 Product focused 14
2.2.2 Customer focused 14
2.2.3 Internet Influence on Marketing 19
2.3 Virtual Communities 20
2.3.1 Value exchange propositions 22
2.4 Summary.... 26
Chapter 3 - Methodology 28
3.1 Chapter Overview 29
3.2 Research Process 29
3.3 Validity.... 31
3.3.1 Secondary Research 31
3.3.2 Propositions 33
3.3.3 Methods to reduce limitations 33
3.4 Summary... 34
Chapter 4 - Proposition Development 35
4.1 Chapter Overview 36
4.2 Proposition 1 (P1): Virtual communities increase customer value 36
4.3 Proposition 2 (P2): Virtual communities increase loyalty 37
4.4 Proposition 3 (P3): Virtual communities increase business value 38
4.5 Summary.... 40
Chapter 5 - Analysis and Findings 41
5.1 Chapter Overview 42
5.2 Proposition 1 (P1): Virtual communities increase customer value 42
5.2.1 Supporting Evidence for P1 42
5.2.2 Opposing Evidence against P1 44
5.2.3 Main Findings of P1 45
5.2.4 P1 Conclusions 47
5.3 Proposition 2 (P2): Virtual communities increase loyalty 47
5.3.1 Supporting Evidence for P2 47
5.3.2 Opposing Evidence against P2 49
5.3.3 Main Findings of P2 49
5.3.4 P2 Conclusions 50
5.4 Proposition 3 (P3): Virtual communities increase business value 50
5.4.1 Supporting Evidence for P3 50
5.4.2 Opposing Evidence against P3 53
5.4.3 Main Findings of P3 53
5.4.4 P3 Conclusions 54
5.5 Summary.... 55
Chapter 6 - Discussion 56
6.1 Chapter Overview 57
6.2 Development and Explanation of the New Model 57
6.2.1 Case Studies Applied to the 'Value Exchange Model' 58
6.3 Summary.... 62
Chapter 7 - Conclusions 63
7.1 Summary ...............................................................................64
7.2 Main Conclusions 64
7.3 Contribution of Report 65
7.4 Further Research 65
Chapter 8 - Reference Material 67
8.1 Bibliography 68
Chapter 9 - Appendices 75
9.1 Appendix 1: Loyalty 76
9.2 Appendix 2: Internet Influence on Marketing 78
9.3 Appendix 3: Advantages & Disadvantages of Research Method 81
9.3.1 Secondary Research Advantages 81
9.3.2 Secondary research Disadvantages 81
9.3.3 Qualitative Research Advantages and Disadvantages 82
9.4 Appendix 4: Brainstorming results 83
9.4.1 Keywords included: 83
9.4.2 Authors included: 83
9.5 Appendix 5: Analysing the Evidence 84
9.5.1 Proposition 1 (P1): Virtual communities create customer value 84
9.5.2 Proposition 2 (P2): Virtual communities increase loyalty 92
9.5.3 Proposition 3 (P3): Virtual communities enhance business value 95
9.6 Appendix 6: Case Study Summaries 101
9.7 Appendix 7: Spiralling Cycle 104
List of Figures
Figure 2.1 Relationship Marketing Diagram ..........................................15 Figure 2.2 The Six Markets Model ......................................................16 Figure 2.3 Four Processes of CRM ......................................................17
Figure 2.4 Ladder of Customer Loyalty ................................................17 Figure 2.5 Customer Loyalty: an integrated model ...................................18 Figure 2.6 Framework for customer loyalty............................................19 Figure 2.7 Virtual Communities .........................................................21 Figure 2.8 Virtual exchange- potential new types of relationships ..................21 Figure 2.9 Virtual Marketing Processes ................................................22
Figure 2.10 The Concept of real-virtual interaction ....................................24 Figure 3.1 Phases of the research process ..............................................30
Figure 6.1 The Value Exchange Cycle ................................................58 Figure 6.2 Four Stages of Member Development .....................................61
List of Tables
Table 2.1 Difference between Transaction and Relationship Marketing..........15 Table 5.1 Value Exchanges from a sample of 74 Fortune 500 consumer sites...45
Table 5.2 Users of community features are twice as loyal ..........................48 Table 5.3 One-third of all users but two-thirds of sales .............................52 Table 9.2 Strengths of Best-Practice Sites.............................................89
Chapter 1 - Introduction
And here is where it begins...
.1 Chapter Overview
This chapter introduces the research question and provides the aims, main concepts and scope of the report.
.2 The Reasoning behind the research
With the emergence of Internet technology, many businesses are struggling to survive the new environment created. Gurton (2001, p14) states,
"All organisations want to effectively select, attract, retain and grow their customers, but the e-world requires a different degree of openness than traditional sales and business channels."
The Internet has become a vital component in the changing and evolving global environment. As the Internet has created the service revolution into the information service revolution, information has become the most valuable exchange between the business and the consumer (Rust and Lemon 2001). According to Davis et al. (1999), the key area of importance by marketing and IT researchers concerns how the Internet can be used to create marketing strategies that build relationships and strengthen customer motivation to electronic commerce service offerings. As technology continues to progress, advanced economies are realising the importance of service over goods (Rust and Lemon 2001). The Internet has created many changes to the traditional communication and distribution channels. Through the virtual environment, different types of relationships are emerging, including customer-to-customer, as customers are demanding more control and empowerment from the Internet (Gurton 2001). This greater customer power is making e-service (electronic services offered by e-businesses) and customer self service (CSS) more valuable. According to Rust and Lemon (2001), "$6.1 billion in potential Web sales were lost in 1999 due to inadequate e-service," (p.85). With intense failure rates of e-businesses, it is evident that gap exists in creating value to fulfil more complex customer demands; therefore, it is important to clarify how e-businesses can create a competitive advantage to survive. To create a competitive advantage, Porter (2001) believes e-businesses must create differentiation rather than compete solely by price.
As marketing has evolved to becoming more customer-focused, competitive advantages have been attempted through building and maintaining mutually beneficial relationships. The interest of this subject reflects whether customer-to-customer relationships through virtual communities create a value exchange proposition that fulfils customer demands and creates business value.
.2.1 Research Question
As identified above, there is a gap in creating value that fulfils increasingly complex customer demands. As virtual communities are arising as a means of creating customer-to-customer relationships, this gap leads to the research question:
'How Do Virtual Communities Create a Value Exchange Proposition for e-businesses? An Exploratory Study.'
To answer the research question, three propositions have been developed from the literature review:
* (P1) Virtual communities increase customer value
* (P2) Virtual communities increase loyalty
* (P3) Virtual communities increase business value
To prove the validity of each proposition, secondary research has provided supporting and opposing case study evidence. Through these propositions, this report aims to create a new model to illustrate how virtual communities create a value exchange proposition between customers and e-businesses.
.3 Scope of the Research
Due to the intricate nature of the Internet, not all issues concerning relationship building and maintaining by e-businesses are addressed in this report. To cover all aspects of gaining relationships over the Internet to create a value exchange proposition would be unnecessary and time consuming. The evolution of marketing, from traditional to modern marketing provides an introduction to the subject and informs the analysis. Focal theory provides development of the propositions, which is used to answer the research question in conjunction with the evidence.
.3.1 Aims and Objectives
Through secondary and qualitative research, this report aims to:
* Create an understanding of the growing importance of customers, especially with the emergence of the Internet.
* Use theoretical foundations to develop the propositions and prove how one leads to the other to form a continuous cycle.
* Explore evidence for and against the propositions using case studies to validate the research.
* Explore the research question by developing a new model that illustrates how virtual communities create a value exchange position based on the supported propositions.
.3.2 Structure of the Report
The structure detailed below is adapted from Turabien (1993) and Teitelbaum (1998), which identifies and maps-out the main schools of thought to provide evidence, fulfill the aims and objectives, and enable the research question to be answered.
Chapter 2: Literature Review
This chapter provides a theoretical foundation for the subject matter, which informs the proposition development and Discussion. The evolution of marketing provides an introduction to the chapter, with focal theory concentrating on creating customer value, loyalty, and business value over the Internet using virtual communities.
Chapter 3: Methodology
The methods and concepts used are provided to enable a clear understanding of the research process and reasoning behind the collection of data and evidence, with limitations and strengths identified. Secondary research is utilised, with case studies providing qualitative evidence.
Chapter 4: Proposition Development
The Propositions are developed from theory in the Literature review and are analysed in the next chapter using evidence from case studies.
Chapter 5: Analysis and Findings
This chapter provides a practical element to the report by presenting supporting and opposing evidence from case studies for each proposition developed in the previous chapter. Evidence is combined with theory to create findings that provide a theoretical and practical foundation for the new model developed in Chapter 6 that illustrates how virtual communities create a value exchange proposition for e-businesses.
Chapter 6: Discussion
This Chapter discusses the evidence provided in the Analysis against the theory in the Literature Review to develop a new model that explores the research question.
Chapter 7: Conclusions
As the final chapter, a summary of the main findings is presented to answer the research question. Further research is included to reduce limitations and enhance contribution.
Chapter 8: Reference Material
This includes all the sources used in the form of a bibliography.
Chapter 9: Appendices
This includes extra material that has been referenced in the main body.
Chapter 2 - Literature Review
We must learn from our past
to succeed in our future...
2.1 Chapter Overview
This chapter focuses on the theories and concepts surrounding the research issue. The main issues within this section are:
* Evolution of marketing
* Internet influence on marketing
* Virtual communities and their impact on customer value, loyalty and business value
2.2 Evolution of Marketing
Through several decades, marketing has evolved from product-centric to customer-centric. This evolution is explored below to understand the development of the current schools of thought and the rationale behind virtual communities.
2.2.1 Product focused
The product-focused marketing approach is known as traditional or transactional marketing. Although many approaches to marketing were developed (i.e. by Weld 1917; Copeland 1923; Reilly 1931; Duddy and Revzan 1947; Alderson 1950; Mickwitz 1959; and Fisk 1967), the universally accepted approach is the marketing mix model (Mickwitz 1959; Gronroos 1997). Originally developed as twelve elements by Neil Borden in the 1950's, the marketing mix model was simplified into the four Ps (Price, Place, Product, and Promotion) by McCarthy (Gronroos 1997). This model focuses on structure and function rather than process and has led to the American Marketing Association (1985) definition of marketing,
'Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchange and satisfy individual and organisational objectives.'
With the environment continually changing, many argue this approach is too simplistic, allows no integration and is no longer appropriate.
2.2.2 Customer focused
Whereas traditional marketing focuses on functions, selling products, gaining new customers, and short-term profits, modern marketing is more process, and customer/ market oriented (Jaworski and Kohli 1993; Gronroos 1997; and Chaffey et al. 2000). In order for modern marketing to be effective and efficient, it must be the guiding philosophy and the focus throughout the whole organisation (Valentin 1996; and Chaffey et al. 2000). Through process enhancements from modern marketing and the realisation that retaining customers is more profitable than gaining new ones (Bhote 1996; and Dubois 2000), Relationship Marketing (RM) emerged (for differences between traditional marketing and RM, refer to Table 2.1).
RM is about creating mutually beneficial relationships (Morgan and Hunt 1994; Ravald and Gronroos 1996; Peck et al. 1999; Gummesson 1999; Zineldin 2000; and Gummesson 2002). According to Christopher (in Batt 1990), RM is comprised of marketing, quality, and customer service, which enables long-term relationships, customer satisfaction, and total quality management (refer to Figure 2.1).
To illustrate the importance of long-term relationships with customers and other internal and external markets, Cravens and Piercy (1994) place the customer in the middle of 'Six Market Model' (refer to Figure 2.2). This version of the Six Market Model suggests RM's main purpose is 'the creation of customer value, satisfaction and loyalty, leading to improved profitability in the longer term,' (Peck et al. 1999, p6). This pressing emphasis on customers has led to Customer Relationship Management (CRM) and loyalty.
Customer Relationship Management
CRM is about creating win-win relationships through mutual trust and commitment with individual customers (Gummesson 1999; and Kavali et al. 1999). This relationship enables valuable customer knowledge to be gained, which allows businesses to more effectively meet customer needs and add value (Peppers and Rogers 1999; McDonald 2000; and HMU 2000). The CRM process is illustrated in Figure 2.3. Bray 2000 (in Egan 2001) states, CRM is 'learning as much as you can about each of your customers in order to serve them better and keep their custom in an increasingly fickle world.' This leads to the importance of loyalty in RM.
Loyalty
As modern marketing and RM are becoming more recognised, so is the importance of loyalty. Loyalty marketing is often interchanged with the term relationship marketing, as neither could be achieved without the other (Egan 2001). Singh and Sirdeshmukh (2000) state, loyalty 'is emerging as the marketplace currency for the 21st century,' (p.150). This is due to relationship building and loyalty leading to customer commitment, knowledge and retention. Whereas the aim of modern marketing and RM is to reach the highest level of loyalty, traditional marketing focuses on gaining new customers (refer to Figure 2.4).
The three main types of loyalty and non-loyalty behaviour are switching, promiscuous, and polygamous (Uncles 1994). Promiscuity and polygamy are the more usual types (Uncles 1994; Barnard and Ehrenberg 1997; and Kandampully and Duddy 1999), as most consumers are multi-brand buyers and merely one tenth of all buyers are 100% loyal (Barnard and Ehrenberg 1997). Loyalty is developed from either softer dimensions or hard dimensions (Dick and Basu 1994; Christopher 1996; and Egan 2001). Softer dimensions rely on emotion and satisfaction influencing attitude towards a decision (Dick and Basu 1994; refer to Figure 2.5). Hard dimensions rely on value for money, convenience, reliability, safety and functionality (Christopher 1996; refer to Figure 2.6). Whereas hard dimensions tend to be temporal, as 'everyone has a price,' softer dimensions are more long-term and beneficial for the business, as they are influenced by society, situations and experiences, which create bonds between attitude and repeat support (Egan 2001).
For a more complex analysis about loyalty, refer to Appendix 1.
As marketing continues to change and evolve with the surrounding environment, the Internet has created the necessity for further marketing adaptations. The next section focuses on how the Internet has impacted marketing.
2.2.3 Internet Influence on Marketing
The Internet is a powerful marketing communications medium that has created electronic-commerce environments (ECEs). In ECEs, the relationship between retailer and consumer is based on information via computer networks with minimal physical interaction; therefore, real-virtual interaction and relationships are created (Gronroos 1996; and Davis et al. 1999). In order to create effective two-way relationships in these ECEs, relationships must be trust-based (Rao and Reukert 1994; Moore and Andradi 1996; and Davis et al. 1999).
The Internet has become a fundamental element of the modern marketing concept (Davis et al. 1999; and Chaffey et al. 2000). Gurton (2001) believes the main goal of every business is to select, attract, retain and develop their customers; however, e-businesses have a more difficult task as electronic sales and business channels (e-commerce) create a new degree of openness. These new channels are creating new types of relationships (discussed further in Section 2.3) and increasing customer demands (Mitchell 2000; and Gurton 2001). Due to these elements, e-businesses must not merely compete on price, but create unique means of differentiation (Porter 2001). According to Rust and Lemon (2001), differentiation and value are created through information, as the Internet has created the service revolution into the information service revolution. For further details on the impact of the Internet and ECE's on marketing, refer to Appendix 2.
The 'New Economy', as Gummesson (2002) terms the changing economic life and business of the 21st century, has led to the emergence of virtual communities in order to capture the new types of real-virtual relationships to increase trust and loyalty.
2.3 Virtual Communities
Virtual communities are 'social aggregations that emerge from the Net where enough people carry on those public discussions long enough, with sufficient human feeling, to form webs of personal relationships in cyberspace,' (Rheingold 1993, p5). Virtual communities emerged in late 1990 as information intermediaries sought to add value and facilitate an information exchange by bringing people and resources together onto a network (Lovelock 2000).
Virtual communities create a real-virtual environment, as they add a real element to the Internet by instigating social gatherings, personal relationships and human feelings through discussions, interaction and involvement (Stone 1991; Rheingold 1993; Gronroos 1996; Davis et al. 1999; and Egan 2000). The four main categories of virtual community are illustrated in Figure 2.7 (Hardaker and Graham 2001).
Through virtual communities, buyers and sellers are brought together electronically, creating 'virtual exchanges,'(Mitchell 2000). Mitchell (2000) believes these 'virtual exchanges' change typical types of relationships (refer to Figure 2.8).
The main relationships created through virtual interactions are marketer-to-customer, agent-to-customer, marketer-to-marketer, and customer-to-customer (Mitchell 2000). With these new relationships, the main challenge facing web users and developers is the need to move towards a real-time environment, offering interactive communication (i.e. chat rooms to create immediate responses) rather than a more static traditional approach (Kannan et al. 2000). This virtual community must be the central intermediary in Internet-based transactions (Kannan et al. 2000; and Hardaker and Graham 2001; refer to Figure 2.9).
Through customer-to-customer interaction in virtual communities, CRM processes (HMU 2000) are enhanced as interaction increases, allowing greater customisation and added customer value. As the Internet continues to distinguish the 'tyranny of distance,' there is less price discrimination, which means these new types of relationships and member-generated content are a source of differentiation (Lovelock 2000). The next section focuses on how virtual communities create a value exchange proposition through providing customer value, which leads to increased loyalty and business value.
2.3.1 Value exchange propositions
A value exchange proposition is created when a business provides value to customers, which then gives value back to the business. Abela and Sacconaghi (1997) believe the main task of consumer-marketing companies is to find online value exchange propositions to capture consumer information and build stronger relationships. This section provides the main focal theory on how the customer value virtual communities create (Peck et al. 1999; and Lovelock 2000) increases loyalty and ultimately business value. This section contributes to the development and analysis of the propositions in Chapters 4 and 5 and the Value Exchange model in Chapter 6.
Customer Value
Virtual communities provide customer value by providing an environment for like-minded people to visit and interact in order to satisfy their various information needs (Hoey 1998). Community features allow greater customer-focus through member-generated content and provide an alternative to the regular product/company-driven corporate Web site (Armstrong and Hagel 1996; and Lovelock 2000). Not only do virtual communities congregate potential buyers, they provide great amounts of information than most customers would generally have convenient and cost effective access to.
Cumby and Barnes (1998) state that closer ties and frequent communication strategies associated with RM would be especially useful for reducing cognitive dissonance in high risk and salient situations. In these situations, they argue that customers have specific expectations and intense emotions. Through virtual communities, potential customers seek non-biased (non-company related) reassurance from other members in real-time (with an immediate response), which reduces cognitive dissonance and makes them feel more confident about purchasing. Virtual communities allow people to gather vast amounts of information, network, and discuss common interests. Many advocates of virtual communities argue that they give customers more power through greater information and interaction advantages (Lovelock 2000). As customers are becoming more empowered and in control because of the Internet (Gurton 2001), these advantages create customer value, as customers are in control and can more effectively satisfy their information needs. The customer value that virtual communities create is further discussed in Section 4.2 for the development of P1. This customer value leads to loyalty.
Loyalty
Although loyalty has been discussed above, this section intends to provide literature on how the value virtual communities add creates loyalty in a virtual environment. This literature is expanded in Section 4.3 for the development of P2.
Bhote (1996) argues, retaining a customer (loyalty) is more cost effective and profitable than gaining a new customer. As virtual communities gain great customer knowledge, e-businesses understand customers better enabling customised added value to increase loyalty. According to Hagel and Armstrong (1997, p32), 'Companies that organise virtual communities can use what they learn to create undreamed-of customer loyalty.'
To build relationships and gain loyalty, trust is a prerequisite, especially over the Internet (Gronroos 1994; Gummesson 1994; Morgan and Hunt 1994; Webster 1994; Buttle 1996; Nelson and Cooprider 1996; Reichheld and Schefter 2000; and Egan 2000). To gain trust in a real-virtual environment, Costabile (1998; in Egan 2000) argues that customers must have overall satisfaction, which is created when the actual-real service (customer perceptions) are greater than the expected-virtual experience (customer expectations), (refer to Figure 2.10). In the long-term, this satisfaction and trust enhances consumer motivation towards the real-virtual environment and leads to loyalty. Although customer satisfaction and dissatisfaction do not always lead to retention and defection respectively, satisfaction is needed before loyalty and retention can be achieved (Egan 2000). According to Peck et al. (1999, p3), 'Customer satisfaction and loyalty are built through the creation of superior value for the customer, and that value is created throughout the organisation and beyond.' Virtual communities create internal and external value, as customers interact and contribute content to the e-business community site.
Loyalty is especially important in high-risk and more complex purchases (Egan 2000). With virtual communities, 'real-time' communication is provided, which allows immediate reassurance and confidence from non-bias, non-company generated content and responses (Lovelock 2000). According to Reichheld and Schefter (2000, p106) 'Most of today's on-line customers exhibit a clear proclivity toward loyalty, and Web technologies, used correctly, reinforce that inherent loyalty.' Theory suggests virtual communities are an appropriate use of Web technology to add value and create loyalty. Whereas this section focuses on the importance of loyalty and how it is influenced, the next section focuses on how loyalty leads to business value.
Business value
Business value must be created in order for a business to survive. This section focuses on how loyalty leads to business value, and is discussed further in Section 4.4 for the development of P3.
For e-businesses to gain value, loyalty is essential, as 'without the glue of loyalty, even the best-designed e-business model will collapse,' (Reichheld and Schefter 2000, p106). Armstrong and Hagel (1996) believe early organisers of virtual communities will have an enduring competitive advantage through the development of a large member base of loyal customers. As virtual communities provide customers with control and power, individual information needs can be satisfied and associations developed (Hagel and Armstrong 1997; and Lovelock 2000). Business value is created as these associations and the 'power of skin' (familiarity among people) increase loyalty and provide an opportunity for customers to continue through electronic relations (Gomez 1998).
According to Reichheld and Schefter (2000, p106), 'loyalty is still about earning the trust of the right kinds of customers- customers for whom you can deliver such a consistently superior experience that they will want to do all their business with you.' Reichheld and Schefter (2000) found that through loyalty, long-term increased profits and retention lead to greater profitability and less costs, especially for e-businesses. In traditional businesses, when customer retention increases by 5%, profits increase between 25-95%. As attaining new customers on the Internet costs between 20-40% more than for traditional retailers, early losses followed by increasing profits are exaggerated in an e-commerce sector. However, in the long-term, profits accelerate at a greater rate, as repeat customers spend more than twice as much after being with the e-business for twenty-four to thirty months than in their first six months (Reichheld and Schefter 2000).
Loyalty also creates business value through increased referrals, especially over the Internet, as 'word of mouse spreads faster than word of mouth' (Reichheld and Schefter 2000). With technology allowing Web sites to automate the referral process, customers are able to send recommendations without having to leave the site. Since referred customers cost so little to acquire, because other customers are marketing for the business, profits are generated much earlier in their life cycles than non-referred customers (Hardaker and Graham 2001; and Reichheld and Schefter 2000).
As the Internet provides competition 'just a click away,' loyalty is even ...
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Loyalty also creates business value through increased referrals, especially over the Internet, as 'word of mouse spreads faster than word of mouth' (Reichheld and Schefter 2000). With technology allowing Web sites to automate the referral process, customers are able to send recommendations without having to leave the site. Since referred customers cost so little to acquire, because other customers are marketing for the business, profits are generated much earlier in their life cycles than non-referred customers (Hardaker and Graham 2001; and Reichheld and Schefter 2000).
As the Internet provides competition 'just a click away,' loyalty is even more important for ECEs than in the physical/traditional world (Reichheld and Schefter 2000; Agrawal et al. 2001). Therefore, Reichheld and Schefter (2000, p106) state, 'if executives don't quickly gain the loyalty of their most profitable existing customers and acquire the right new customers, they will face a dismal future catering to the whims of only the most price-sensitive buyers.' In order to sustain this loyalty, business value must continually be re-invested to increase customer value.
Section 2.3.1 has identified how virtual communities create a value exchange proposition through adding customer value, which leads to loyalty and ultimately business value. This cycle will be further explored and developed into a model in Chapter 6.
2.4 Summary
The evolution of marketing introduced this chapter to illustrate how marketing has changed from being product to customer focused. Through the increasing importance of customers and influence from the Internet, it is evident that differentiation is imperative for e-businesses rather than solely focusing on price incentives. Although many academics have explored virtual communities, the impact customer-to-customer relationships have on creating differentiation is a new and evolving area. The gap in literature, therefore, lies in how virtual communities create a value exchange proposition (differentiation) to reinforce loyalty when competition is just a click away over the Internet. The literature identifies relationships between virtual communities, customer value, loyalty, and business value. These relationships will be further explored in the Discussion in an attempt to fill the gap. Chapter 3 focuses on the methods and concepts used during the research process.
Chapter 3 - Methodology
This is how everything was accomplished...
3.1 Chapter Overview
This chapter details the research process and the justification of the methods and theory used. The main purpose of the research was neither to unravel nor establish a new ground-breaking and flawless framework, rather to explore the importance of creating and maintaining relationships through virtual communities in an attempt to understand how e-businesses may develop a value exchange cycle to prosper most affluently.
The main issues within this chapter are:
* The research process
* Validity of qualitative secondary research
3.2 Research Process
The research for this report was based on qualitative secondary research on case studies and other written documents. Three propositions were developed (in Chapter 4) based on the literature and proven by the evidence provided by several in-depth case studies. Through these propositions, a model was developed in Chapter 6 to explore the research question. The research process followed seven stages, which is illustrated in Figure 3.1.
3.3
Validity
This Section validates the research methods chosen.
3.3.1 Secondary Research
Secondary research involved re-analysing data that has already been collected (Hakim 1982). Since the data already exists, Stewart and Kamins (1993) argue that secondary research provides an advantage over primary research because the author can evaluate the data before use. This eliminated inappropriate data at an early stage, which was more time effective for the author. Secondary data was used to explore the research question and meet the proposed objectives (Saunders et al. 2000). Through the use of multiple secondary sources, the qualitative evidence gathered proved appropriate for the research issue, as it identified minor issues that quantitative research would not have detected (Proctor 2000). Multiple sources were used rather than multiple types of resources to enhance the written documentary research. Multiple sources included case studies, books, and journals and articles.
This report is an independent study; therefore, external research rather than internal research was undertaken (Proctor 2000). Archival research was used, which mainly focused on recent written documentary data (Saunders et al. 2000).
Exploratory Research Collection
Exploratory research was focused on in this report to enable a deeper understanding of the research issue (Proctor 2000). The three steps used in exploratory research were:
. Spelling out information needs
The research question was specified and revised to focus the data found.
2. Looking for promising leads by title or apparent content
Written documents were gathered, as relevant non-written materials were more difficult to access. This provided valuable qualitative data (Saunders et al. 2000; Bryman 1989). Written materials included:
* Library resources (books, journal articles, magazine articles and newspapers).
* On-line material (i.e. from Emerald, Harvard Business Review, and Web sites)
* Other published resources available (other Journals and magazines)
3. Getting hold of promising published material
Materials to understand the current economy and provide up-to-date business information and examples were used, such as highly acclaimed newspapers (i.e. Financial Times and The Times); business magazines (i.e. e.Business, Marketing, and Wired); Journals (i.e. Harvard Business Review and Journal of Marketing); and case studies (i.e. from Harvard Business Review and other Journals).
Case Study Collection
Case studies are research tools that explore unexplained modern phenomenon and elements within real-life instances and events (Yin 1989; Yin 1993; and Bell 1993). Case studies gathered through secondary research were used as a development tool to aid to the collection of evidence for the theoretically developed propositions (Remenyi et al. 1998). This evidence-collection method allowed validation of already established theories through extensive sources to create findings and explore the research question. Due to the use of case studies in this report and the flexibility presented, the strategy involved was not strictly positivistic or phenomenological, rather between these two extremes, more towards phenomenology (Yin 1993; Remenyi et al. 1998; and Yin 1989).
Although McCutcheon and Meredith (1993) argue that case studies tend to lack rigour and objectivity, Remenyi et al. (2000) states that all research tactics may include biases, including experiments and surveys. As case studies may contain high levels of subjectivity and bias, Remenyi et al.'s (2000) process of triangulation was used to increase validation and reliability of evidence and reduce bias. This process included:
* Multiple sources: This report used many documentary research resources to increase the number of sources and authors used, which enabled a more objective analysis and limited possible bias.
* Corroborative evidence: Several case studies and other documentary research were used to corroborate evidence.
3.3.2 Propositions
The propositions are based on a theoretical framework from the Literature Review and supported through evidence from the collected case studies. Through the propositions, a model was developed that enabled the research question to be explored and possible answers developed.
3.3.3 Methods to reduce limitations
To ensure optimal quality, validity and suitability of secondary data sources, four main criteria adapted from Boyd (1977), Proctor (2000) and Saunders et al. (2000) were used as evaluative measures of data resources. These criteria are evaluated below. For validation of the advantages and disadvantages of secondary and qualitative research, refer to Appendix 3.
. Pertinence and suitability of data to research question and objectives
All relevant data gathered from academic journals, reports, books, magazines and newspapers were cross-referenced. A brainstorming session was held with a business student and a business academic to list the key constructs and associated keywords. The main theorists within the key constructs were also identified and then searched for in electronic databases. The terms and theorists identified are listed in Appendix 4.
2. Who collects data and why
Authors from well-known business and marketing journals, newspapers, magazines and books (as listed above) were used to ensure reliability of resources. Data was used based on its relevance to the research question.
3. Method of collecting data
Data was gathered from several sources to provide extensive knowledge and understanding. The sources used provided theory and case studies. Sources included:
* Journal articles: for relevant theoretical backing, business examples and case studies (i.e. European Journal of Marketing and Harvard Business Review).
* Academic Texts: For theoretical backing and foundations.
* Magazines and Newspapers: for industry information (i.e. e.Business and Financial Times).
4. Evidence of careful work
Research was saved based on section and chronology to enable future checking and revision. Discussions with advisors allowed careful planning and organization.
3.4 Summary
This section focused on how, why, when and where research was collected. Through careful and organised collection and planning, this section has provided the strengths and weaknesses of the secondary research method chosen. Examples were provided to prove how these limitations were decreased. Chapter 4 focuses on the development of the Propositions.
Chapter 4 - Proposition Development
Bringing the theory together...
4.1 Chapter Overview
This chapter develops the focal literature from Chapter 2 into three propositions, which are analysed in Chapter 5.
4.2 Proposition 1 (P1): Virtual communities increase customer value
Stone (1991) believes virtual communities are social spaces where people still meet face-to-face, but with different definitions of meet and face. Members meet through designated community areas and converse using chosen identities. Virtual communities increase value by being more customer-focused through member-generated content, rather than purely business/published content, and creating a place for similar types of people to meet and share interests (Armstrong and Hagel 1996; and Lovelock 2000). These communities provide personalisation, convenience, networking and non-biased (customer generated) opinions and reassurance. This value allows users to gain greater information in a more cost effective and convenient manner than ever provided before (Armstrong and Hagel 1996).
Since the Internet provides comparability at the 'click of the mouse,' customers are more powerful, demanding and controlling (Lovelock 2000; Gurton 2001; and Agrawal et al. 2001). Virtual communities are a means of creating a differential advantage, as they allow customers to take control and seek individual information at their own-time from whom desired, which is more important and valuable to the customer than price incentives (Lovelock 2000). Advocates of virtual communities argue,
'They [virtual communities] put the individual, the customer, in the more powerful position by providing them with a rich, and comparative, source of vendor information, forums in which to interact with other customers who had dealt with specific vendors, and the capability of interacting with specific vendors to negotiate the most advantageous terms of sale. As the tyranny of distance withered in cyberspace, price discrimination would also collapse,' (Lovelock 2000, p4).
As emotion and satisfaction are influenced by society, situational influences, and experiences, customers' attitudes towards making a decision are influenced by many factors (Dick and Basu 1994; and Egan 2001). Through virtual communities, close ties and frequent communication creates value for members, as influence can be sought quickly, conveniently and efficiently (Egan 2000). This allows trust and confidence to be created and cognitive dissonance reduced about a purchase. Reducing cognitive dissonance and reassuring customers in high risk and salience purchasing decisions is important, as customers may have mixed emotions about the purchase (Egan 2000).
As information and services are becoming the focus of the 21st century, Rust and Lemon (2001) argue that e-businesses must decide how to create real customer value. Through the literature above, it is apparent that virtual communities add customer value by enabling personalised information to be sought and associations to be formed, which influences decisions and reduces cognitive dissonance through creating reassurance, trust, and confidence from non-biased sources.
4.3 Proposition 2 (P2): Virtual communities increase loyalty
Virtual communities generate valuable customer knowledge through allowing customer-to-customer interaction. Through this knowledge, an e-business is more capable of creating value for customers that will generate loyalty. Hagel and Armstrong (1997, p32) state, 'Virtual communities provide companies with the chance to know their customers better than ever before, by giving those customers the ability to interact with each other and with the companies themselves. Companies that organise virtual communities can use what they learn to create undreamed-of customer loyalty.'
Before loyalty can be achieved, satisfaction and trust should be obtained with the most profitable customers (Reichheld and Schefter 2000; and Egan 2000). Although satisfaction and dissatisfaction do not always lead to retention and defection respectively, satisfaction is needed before loyalty and retention can be achieved (Egan 2000).
With the emergence of the Internet, many businesses have been struggling to survive this 'New Environment' (Mitchell 2000; and Gummesson 2002). Reichheld and Schefter (2000, p106) state, 'most of today's on-line customers exhibit a clear proclivity toward loyalty, and Web technologies, used correctly, reinforce that inherent loyalty.' The challenge of e-businesses, therefore, is figuring out how to use Web technology to enhance value and create trust, satisfaction and loyalty. In order for an e-business to over-come price-sensitive buyers, they must retain (make loyal) the most profitable customers (Reichheld and Schefter 2000; and Gurton 2001). Singh and Sirdeshmukh (2000, p150) believe that loyalty 'is emerging as the marketplace currency for the 21st century.' Internet technology has created different types of relationships (refer to Figure 2.8) and brings competition merely a click away. This makes loyalty even more important over the Internet than in the physical world (Reichheld and Schefter 2000). Therefore, without the 'glue of loyalty,' e-businesses will not survive (Reichheld and Schefter 2000, p106).
Through the literature in this section, it is apparent that e-businesses must create loyalty in order to survive the increasing competition over the Internet. Gurton (2001, p14) states, 'All organisations want to effectively select, attract, retain and grow their customers, but the e-world requires a different degree of openness than traditional sales and business channels.' With new types of relationships forming and competition increasing over the Internet, customer-to-customer interaction through virtual communities are a way of capturing customer knowledge to create value and capture trust and loyalty.
4.4 Proposition 3 (P3): Virtual communities increase business value
Swerdlow (1995, in Gomez 1998) believes that customer-to-customer interaction creates recognition of others, the power of skin, which creates an opportunity for customers to continue through electronic relations. This customer-to-customer interaction occurs in virtual communities, which enables e-businesses to gain valuable customer information and purchases. Through these communities, brand can also be enhanced, as they provide value to members. Brand is important over the Internet, as it reduces risk and allows trust to be developed, which enhances long-term loyalty and value for the business (Gronroos 1994; Gummesson 1994; Moore and Andradi 1996; Buttle 1996; and Davis et al. 1999). According to Armstrong and Hagel (1996), early organisers of virtual communities will gain a more enduring competitive advantage through a head start in creating a strong mass of community members.
The Internet allows up-to-date information to be gathered, which enables businesses to get insights to consumer's opinions and develop strong relationships quickly (Abela and Sacconaghi 1997). According to Abela and Sacconaghi (1997, p216), 'the richness of information about individuals that can be gleaned from the Internet makes it an enormously powerful marketing medium.' As communities provide unique elements into the commerce environment, Hagel and Armstrong (1997) believe that community and commerce should be joined. To join community and commerce, interactive communication must take place, with virtual communities acting as an intermediary in the centre of Internet-based transactions (Kannan et al. 2000; refer to Figure 2.9). Hardaker and Graham (2001) believe offering interactive communication is an extreme challenge for web users and developers.
As customers are becoming more demanding over the Internet (Lovelock 2000; and Gurton 2001), companies must provide unique value to capture loyalty and gain business value. Reichheld and Schefter (2000, p106) state, 'loyalty is an economic necessity: acquiring customers on the Internet is enormously expensive, and unless those customers stick around and make lots of repeat purchases over the years, profits will remain elusive.' Loyalty is important in creating profits and also leads to referrals, which increase profits and reduce acquisition costs (Reichheld and Schefter 2000). The Internet intensifies the effect of referrals, since 'word of mouse spreads faster than word of mouth' (Reichheld and Schefter 2000, p106). With virtual communities, 'word-of-mouse' spreads to the whole community rather than a few selected individuals.
The Internet has changed the service revolution into the information service revolution, which has made information the most valuable exchange between the business and the consumer (Rust and Lemon 2001). To be successful over the Internet, businesses must not merely compete on price, they must create a differential advantage (Porter 2001). Rust and Lemon (2001) believe that with advancements in technology, the more sophisticated economies value service over goods. The literature in this section indicates that e-businesses must create differentiation through gaining customer information and loyalty to be successful. Virtual communities create this differentiation through providing a unique service for customers that enables customer-to-customer interaction. Literature, therefore, indicates that virtual communities create business value.
4.5 Summary
The three propositions have been developed by the focal literature in Chapter 2. In order to provide practical evidence to support these propositions, case studies have been analysed in Chapter 5.
Chapter 5 - Analysis and Findings
'It is a capital mistake to theorise before
you have all the evidence. It biases the judgement.'
(Spoken by Sherlock Holmes in A Study in Scarlet,
by Sir Arthur Conan Doyal, 1982).
.1
5.1 Chapter Overview
This chapter focuses on the main case study evidence for each proposition developed in Chapter 4 (for a more detailed analysis, refer to Appendix 5). Although small cases are used to enhance evidence validity, the main case studies (described in Appendix 6) include: VirtualChina, Firefly, e-Bay, MCB UP Ltd., Sift Cases (TrainingZONE, AccountingWEB, and Thepublican.com), COLNODO, and BroadVision.
The main issues within this Chapter are:
* Provide the main case study evidence for each proposition
* Bring the literature and evidence together to create main findings
* Conclude how each proposition is supported
5.2 Proposition 1 (P1): Virtual communities increase customer value
This section provides the main supporting and opposing evidence for P1, which enables findings and conclusions to be drawn. For a more detailed analysis of the evidence, refer to Section 9.5.1.
5.2.1 Supporting Evidence for P1
Case A: VirtualChina (Lovelock 2000)
The virtual community improves communication between Chinese and Western members, allowing social, commercial and cultural exchanges and associations.
Case B: Firefly (Charlet 1998a)
The virtual community provides a 'real' dimension to the Internet, allowing people to socialise, network, form associations, give advice, share experiences and preferences, and discover things that probably would not have been discovered without the community. This enhances customer value and trust.
Case C: E-Bay (Hardaker and Graham 2001)
Members interact and share experiences, which creates friendships, trust, confidence and information exchanges. Members also receive value from increased and continuous support, customer service, and communication from the community.
Case D. MCB UP Ltd. (source: Hoey 1998)
The community increases communication, empowerment and personalisation for members with common interests. This allows members to gather and satisfy their information needs in a simple and convenient manner.
Case E(ii): AccountingWEB (www.sift.co.uk)
Like-minded members gain great value through sharing of knowledge, experiences, ideas, advice, discussions and non-competitive networking. Through chat technology, fast and effective responses to problems can be gathered through forums and conferences, real-time assistance, information and resources. Providers can also publish their resources online for colleagues to download. Three particular members added value by developing products based on community feedback and demands.
Case E(iii): Thepublican.com (www.sift.co.uk)
Members contribute and benefit from communication and knowledge generated by discussion forums, workshops, feedback opportunities, supplier directories and other community features. Members discuss concerns, opinions and ideas to gain value.
Case G: COLNODO (Gomez 1998)
The virtual community allows users to perceive a breakdown of geographic barriers by allowing different national borders to communicate and network. This adds user value in terms of time, convenience, knowledge gained, and perception of close contact with geographically dispersed friends. Supporting users feel a strong sense of belonging and friendship and believe the community is of greater value 'than the convenience of lower rates or the possibility of improved service with the new commercial CMC [computer-mediated communication] providers,' (p.226).
Example 1: Proctor & Gamble (Abela and Sacconaghi 1997)
Proctor & Gamble set up the virtual community, ParentTime, for parents to raise and discuss common concerns to create a sense of belonging and reassurance.
Example 2: Amazon.com (Abela and Sacconaghi 1997)
A sense of community is attempted through customer comments and ratings for particular products. This customer involvement increases confidence and value in potential purchases, as Amazon can make referrals based on similar products other customers have bought.
Example 3: Survey on 74 Fortune 500 consumer sites and 88 smaller business sites from Yahoo!'s directory (Abela and Sacconaghi 1997)
The best-practice Web-sites provide chat sites (a community feature) as a way of providing customer value to stay ahead of competition (detailed in Table 9.2).
Example 4: Study by Reichheld and Schefter (2000)
Reichheld and Schefter (2000) found that many people like to use virtual communities to communicate, even with the company itself.
5.2.2 Opposing Evidence against P1
Case F: BroadVision (Charlet 1998b)
Establishing a sense of community between business-to-customer, rather than customer-to-customer, is believed to provide greater customer value through enhanced customisation. A rules-based system allows marketers to control the information a customer receives, which adds value through relevant expert opinions and advice, and more appropriate offers on prices and services because of higher profit margins. It is believed that customers cannot be influenced by another customer's opinion or purchase; therefore virtual communities do not provide value.
Case G: COLNODO (Gomez 1998)
The critical users of the COLNODO community feel that any Internet Web-site could provide and exchange information; therefore, no real information value exchange occurs in the virtual community. The sentimental value of belongingness and interaction do not appeal to these users, as they view the community as purely a provider of electronic communication services. They feel value is created through competitive access, low costs of service, and quality of service. These users are most likely to switch to a commercial provider.
Example 1: Surevy on 74 Fortune 500 consumer sites (Abela and Sacconaghi 1997)
Community features are not important to most of the surveyed consumer sites, with merely 27% offering community features, such as discussion forums (refer to Table 5.1).
Sites requesting information (%)
Sites offering value in return (%)
E-mail
69
Nothing
31
Name and Address
65
Promotional offer
36
Demographics
35
Information
28
Consumer information
34
Discussion forum
27
Set cookies
24
Coupon
4
Require log-on
0
Agent
2
5.2.3 Main Findings of P1
E-businesses must create added value for customers, as information and services are becoming the focus of the 21st century and the Internet is providing competition at the 'click of the mouse' (Lovelock 2000; Agrawal et al. 2001; Gurton 2001; and Rust and Lemon 2001). VirtualChina, Firefly, e-bay, MCB UP Ltd., AccountingWEB, Thepublican.com, COLNODO, and the other supporting evidence use virtual communities to create added value through enabling networking, friendships, sharing of knowledge and concerns, communication, discussions, exchanges with other members, decreased geographic barriers and increased reassurance. Through the virtual communities, customer-focused and member-generated content allow similar people to congregate, interact, and communicate to enable customer empowerment and control (Armstrong and Hagel 1996; Egan 2000; Lovelock 2000; Agrawal et al. 2001; and Gurton 2001). The evidence indicates that virtual communities are valuable to customers, as immediate communication with other members can be sought, which creates reassure and reduces cognitive dissonance (Egan 2000). MCB, Firefly, e-Bay, and VirtualChina use communities to create a 'real' dimension to the Internet and allow information to be accessed easily, conveniently, and continuously through customer empowerment to increase value and trust.
BroadVision opposes virtual communities based on the desire to control what customers receive. Through higher profit margins BroadVision believes they can add greater value through better offers on price and service; however, evidence has proven that virtual communities increase loyalty and purchasing volume, hence profitability. Virtual communities, from e-businesses such as Firefly and e-bay, have also proven to increase trust and loyalty to the business. Although a successful company, BroadVision's argument lacks rigour compared to the support given for virtual communities. BroadVision does not take into consideration people's natural attraction to social groupings and the influence external situations have on a customer's attitude and decision-making process, such as the 'softer' dimensions of loyalty (Uncles 1994). The survey by Abela and Sacconaghi (1997) also lacks rigour as opposing evidence. Although Only 27% of the 74 Fortune 500 consumer sites surveyed by Abela and Sacconaghi (1997) offer on-line community features, most of the surveyed companies did not offer any form of value exchange for consumers and wasted the opportunity to gather information and create customer value (refer to Table 5.1).
COLNODO critical users seem to be the more undesirable users, as evidence suggests these users follow a more non-loyal behaviour through switching or promiscuous behaviour (Uncles 1994). These users are loyal due to 'hard' dimensions of loyalty, where 'everyone has a price' and loyalty is based on value for money, convenience, reliability, safety and functionality. As virtual communities are a form of creating CRM over the Internet and one of the first processes within CRM is identify the most valuable customers (HMU 2000), these customers would not be advantageous to e-businesses desiring to create CRM to add customer value.
5.2.4 P1 Conclusions
Virtual communities increases value for customers through creating belongingness and friendships, trust in the products and information gained, networking potential, and exchange of information. As the proposition has been supported by evidence and theory in the findings, it has been proven that customer value is increased through virtual communities.
5.3 Proposition 2 (P2): Virtual communities increase loyalty
This section provides the main supporting and opposing evidence for P2, which enables findings and conclusions to be drawn on how virtual communities increase loyalty. For a more detailed analysis of the evidence, refer to Section 9.5.2.
5.3.1 Supporting Evidence for P2
Case A: VirtualChina.com (Lovelock 2000)
Loyalty is built through member-to-member relationships, member-to-host relationships, and customised interaction from the virtual community. The expertise members bring to the site creates involvement and 'outside' wisdom, which builds 'a natural momentum and a natural commitment to the site.'
Case E(ii): AccountingWEB (www.sift.co.uk)
Members are very involved and interactive, as they contribute content to the virtual community. Three members felt such great dedication and commitment to the virtual community, they developed products based on member feedback and demands.
Case E(iii): Thepublican.com (www.sift.co.uk)
80 enthusiastic responses were received about the community within twenty-four hours after electronically sending a survey to members. Two months after the virtual community launch, there were 3,000 regular members. Four months after the launch, the on-line community exceeded 13,000 registered users. Unique users (non registered) increased from 1,064 in March to 9,553 in June.
Case G: COLNODO (Gomez 1998)
Supportive COLNODO community users value the information exchange they receive and the relationships they build with founders and staff and are least likely to switch to a commercial provider.
Example 1: Study by Bughin and Hagel (Agrawal et al. 2001)
Loyalty is stronger in virtual communities than transaction sites because people interact and share common interests, which reduces the risk for security-minded visitors. The study reveals that transaction sites convert 2% of their visitors, which is one-third of new customers into repeat customers. This means less than 1% of all visits to a specific transaction site are by potential repeat customers. Virtual communities, have a 60% success rate at converting repeat visitors into members, with member-retention rate at almost 18%, rather than 1%. Unlike virtual communities, conversion of visitors into repeat customers declines as traffic (the number of visitors) increases on transaction sites.
Example 2: McKinsey- Jupiter Media Metrix study (Brown et al. 2002)
The more a member uses community features, the more that member visits and buys. The members who contribute content and interact, visit more than nine times as often as nonusers, remain twice as loyal, and purchase products nearly twice as often. Users that do not contribute and participate in community features, but merely read exchanges are still more frequent visitors and buyers than nonusers (Table 5.2*).
Visit Frequency, average numbers of user sessions
Conversion rate per visit (%)
Retention, (%) of users returning to site
Community users
Contributors
7.6
8
61
Non-contributors
.9
5
44
Non-community users
0.8
0
32
5.3.2 Opposing Evidence against P2
Case F. BroadVision (Charlet 1998b)
BroadVision believe expert advice and mass customisation through One-To-One marketing will generate a sense of trust and enhance loyalty.
5.3.3 Main Findings of P2
Through virtual communities, supporting evidence demonstrates how virtual communities capture and retain the most loyal and profitable customers. Reichheld and Schefter (2000) believe loyalty is still about retaining the most profitable customers, especially for e-businesses to over-come price-sensitive buyers. Supportive COLNODO members value the benefits from the virtual community, such as networking and friendships, over lower prices and better service from commercial providers. VirtualChina users value the interaction, involvement, and personalisation gained from the community features. For AccountingWEB, not only did members return, three members created products for the benefit of the community, which are successfully being sold via AccountingWEB. This demonstrates how these members reached the highest level of the loyalty ladder, partnership (Peck et al. 1999, refer to Figure 2.4). Thepublican.com gained quick and positive responses from a survey, which demonstrates the sense of belongingness and increased involvement and satisfaction gained through the community. With membership growing and customers using the site regularly, the virtual community has proven incredibly useful in capturing and retaining loyal users. The other supporting evidence, by Bughin and Hagel (in Agrawal et al. 2001) and McKinsey-Jupiter Media Metrix (in Brown et al. 2002), showed how virtual communities reduce risk for many and provide an atmosphere where individuals interact and share common interests. These benefits create a sense of belongingness and entice members to visit more often, remain more loyal and purchase more often. Through the supporting evidence, virtual communities seem to gain the more profitable customers (Reichheld and Schefter 2000), who are more likely to climb the loyalty ladder (Peck et al. 1999).
5.3.4 P2 Conclusions
Virtual communities increase loyalty through creating interaction between users/customers, which creates trust, a sense of belonging and less risk, involvement, and 'outside' wisdom. These factors create a natural commitment to the site (loyalty). As P2 has been supported by evidence and theory in the findings, it has been proven that virtual communities increase loyalty.
5.4 Proposition 3 (P3): Virtual communities increase business value
This section provides the main supporting and opposing case study evidence towards virtual communities increasing business value. For a more in-depth analysis, refer to Section 9.5.3. Main findings and conclusions for P3 are provided based on the evidence.
5.4.1 Supporting Evidence for P3
Case A: VirtualChina (Lovelock 2000)
Loyalty is built and maintained through greater understanding of customer demands, which then creates more profitable returns. The virtual community creates a competitive advantage and increases value through transaction opportunities, targeted advertising and fees collected for premium services.
Case B: Firefly (source: Charlet 1998a)
The virtual community creates a competitive advantage through the information captured, as there are millions of people connecting to the Web regularly. The information allows Firefly to 'listen to the marketplace and drive the marketplace' through stronger segmentation and targeting strategies to find markets better. Loyalty is then increased with the more valuable/profitable customers.
Case C: E-Bay (Reichheld and Schefter 2000)
The Cost to acquire a new customer is less than $10, as half of e-Bay's customer base is comprised of referrals (word-of-mouth) from loyal customers. Retaining these referrals is much less than customers created through marketing activities, as they usually seek advice and support from their referral. 'In effect, loyal customers not only take over the function of advertising and sales, they even staff the company's help-desk for free,' (p.107).
Case D: MCB UP Ltd. (Hoey 1998)
Community features brings customers to the site, exposes them to the marketing communications mix and allows customers to move quickly from gathering information about products to making a purchasing through community advice and content.
Case E(i): TrainingZone (www.sift.co.uk)
TrainingZone have found their on-line community to be a competitive advantage by providing networking potential and sharing of knowledge.
Case E(ii): AccountingWEB (www.sift.co.uk)
Three members that developed products based on community feedback and demands, sold them to AccountingWEB, which created savings on development, research, and marketing costs and profits from sales. With sales ongoing, profits received from each product are (1) 135 copies sold over 6 weeks, generating £1,586.00 in revenue (2) 95 copies sold over 4 weeks, generating £3,325.00 in revenue, and (3) 50 copies sold over 2 weeks, generating £500.00 profit.
Case E(iii): Thepublican.com (www.sift.co.uk)
The virtual community has broadened the customer base and created monetary value, with revenue from advertising, sponsorship and e-commerce inline with predictions.
Case G. COLNODO (Gomez 1998)
The virtual community creates a meeting place for people to interact, network, exchange information and create associations. This increases loyalty and information gathered to provide value for the business. A competitive advantage is created through these elements, as supporting users value the community more than lower rates and improved services.
Example 1: Proctor & Gamble's ParentTime (Abela and Sacconaghi 1997)
The ParentTime virtual community creates a competitive advantage through demonstrating that they are not only concerned about selling products, but about the people they sell the products to. The community brings awareness and valuable insights to the business and reassurance to customers through the sharing of concerns and interests.
Example 2: McKinsey-Jupiter Media Metrix study (Brown et al. 2002)
Users of communities on transaction sites visit more often than nonusers, spend more time, view more pages and remain more loyal (as shown in Table 5.2). This enables greater exposure to the marketing communications mix. From the leading e-tailing community-transaction sites, only one-third of all visitors are loyal, yet they create two-thirds of sales (refer to Table 5.3**).
Example 3: Research by Evans et al. (2001)
Many Internet users 'have a more positive opinion about the owner of the sites that they use, with more than half of all respondents considering it to be a good idea for companies to provide virtual communities on their Websites,' (p.156).
5.4.2 Opposing Evidence against P3
Case F. BroadVision (source: Charlet 1998b)
Personalisation software is preferred as a means of enhancing customer value and loyalty and creating business value, as BroadVision believes virtual communities take control away from the business and create insignificant subjective recommendations.
Example 1: Study by Bughin and Hagel (in Agrawal et al. 2001)
Revenue per repeat visitor on community sites was found to be lower than a transaction site. Therefore, in order for virtual communities to be more profitable than transaction sites, they must be more cost-effective.
5.4.3 Main Findings of P3
As customers are becoming more demanding (Gurton 2001; Lovelock 2000), e-businesses must create a differential advantage unrelated to price (Porter 2001). With information becoming the most valuable exchange between the business and the consumer over the Internet (Abela and Sacconaghi 1997; and Rust and Lemon 2001), supporting evidence has proven how virtual communities can create this value exchange for e-businesses. The evidence has proven that virtual communities have created a differential advantage through increasing value for customers, which increases loyalty and profits for the e-business.
Businesses must provide value and capture loyalty, otherwise profits will remain insubstantial (Reichheld and Schefter 2000). As shown in P2, loyalty from virtual communities is created with the more profitable customers, which provides added value for the e-business. VirtualChina has increased loyalty through greater understanding of customer demands, which enables the business to increase customer value and create a differential advantage over competitors. COLNODO users value the benefits from virtual communities more than just lower prices and greater services, which provides the e-business with a differential advantage. TrainingZONE, AccountingWEB, thepublican.com, and the other supportive evidence have gained a competitive advantage through the virtual communities by providing value to the customer, gaining customer loyalty and increasing profits. Firefly and MCB have shown how their virtual communities create a competitive advantage by bringing people to the site through stronger segmentation and targeting strategies and exposing them to the elements of the marketing communications mix fast and effectively. These benefits also enable each of these e-businesses to find markets better and gain more valuable and profitable customers. Evidence suggests that value is gained through loyalty and referrals, which, according to Reichheld and Schefter (2000), leads to another source of profits. The Internet intensifies the effect of referrals by loyal customers, since 'word of mouse spreads faster than word of mouth' (Reichheld and Schefter 2000). This is apparent for e-Bay, as half of its members are derived from referrals. Referrals increases profits and decreases costs, as most seek support from their referral.
Although BroadVision does not appreciate the value of customer interaction, most of the cases presented have proven otherwise. BroadVision feels that virtual communities may take away potential value for their e-business because it reduces the control the company has over customers. They feel customers are subjective rather than objective, which may be harmful to the business. BroadVision believes in taking control, whereas the supporting cases have found value through incorporating the customer into their business strategy. This incorporation has allowed these supporting cases to enhance customer value, which ultimately adds value to the businesses.
The other opposing evidence, by Bughin and Hagel (in Agrawal et al. 2001), found that revenue per repeat visitor on a community site was lower than a transaction site. However, Brown et al. (2002) in Table 5.3, found that virtual community users visit nine times more often, are twice as loyal, and buy twice as often as nonusers of communities.
5.4.4 P3 Conclusions
Virtual communities increase business value through creating a competitive advantage and differentiation by enabling customer-to-customer interaction; exposing customers to the marketing communications mix once they are brought to the site; understanding customers better and creating stronger segmentation and targeting strategies; and the increase in loyalty and resulting referrals that increase profitability and customer knowledge. As virtual communities increase customer value, loyalty increases, which creates value for the e-business in terms of customer knowledge, profits, and competitive advantage gained. As the proposition has been supported by evidence and theory in the findings, it has been proven that business value is increased through virtual communities.
5.5 Summary
Each proposition has been supported by evidence and literature. Therefore, Chapter 6 discusses how the propositions have led to the development of the Value Exchange Cycle, Figure 6.1, to explore the research question.
Chapter 6 - Discussion
We have got the Evidence and Findings,
But how does it all come together?
6.1 Chapter Overview
This section brings the findings together to develop a new model that explores the research question. The main areas of focus within this chapter are:
* Creating a model based on the findings that explores the research question
* How virtual communities create a value exchange proposition
6.2 Development and Explanation of the New Model
On-line consumer-marketing companies must find value exchange propositions that will enable them to capture consumer information and build stronger relationships (Abela and Sacconaghi 1997). As customers have become increasingly important, the Six Market Model focuses 'on the purpose of relationship marketing, the creation of customer value, satisfaction and loyalty, leading to improved profitability in the longer term,' (Peck et al. 1999, p6). This literature suggests that capturing customer information, creating customer value, and increasing CRM are vital for enhancing business value. As the four stages of CRM suggest (HMU 2000; detailed in Figure 2.3), interaction with customers reduces costs and enables a learning relationship to be developed. This literature has led to the purpose of this report: how do virtual communities create a value exchange proposition for e-businesses?
The focal theory in Chapter 2 suggests increased customer value leads to increased loyalty, leading to increased business value. This literature was developed into three propositions to distinguish how virtual communities could create this value exchange cycle. Through analysis using case studies in Chapter 5, findings concluded that virtual communities affect customer value, loyalty and business value and that each element influences the other. Figure 6.1, the Value Exchange Cycle model, has been developed based on these findings.
The Value Exchange Cycle model developed describes how virtual communities create customer value by increasing personal service, empowerment, time and money, and networking opportunities, and creating sense of belonging. This customer value leads to increased trust, confidence and loyalty, as customer needs are met better and they become more satisfied. As Reichheld and Schefter (2000, p106) state, 'loyalty is an economic necessity: acquiring customers on the Internet is enormously expensive, and unless those customers stick around and make lots of repeat purchases over the years, profits will remain elusive.' The customer value and loyalty created through virtual communities leads to business value through increases profits (sales), repeat customers and retention, 'word-of-mouse', and access to personal customer information. Through increased profits and customer information, businesses can re-invest their value to meet customer needs and demands more accurately.
As each proposition influences the other, this cycle could lead to a positive/upward or negative/downward spiral. This spiralling affect is discussed in Section 7.3 for further research. The following section discusses how the case studies have followed the 'Value Exchange Cycle'.
6.2.1 Case Studies Applied to the 'Value Exchange Model'
Stone (1991) believes that virtual communities are as 'incontrovertibly social spaces in which people still meet face-to-face, but under new definitions of both 'meet' and 'face.' According to Buxton (1994, in Davis et al. 1999), real-virtual relationships can be enhanced through technology that creates a physical scene and emphasises on users' experiences. As virtual communities can be regarded as creating physical scenes and enhancing experiences, they can help increase the relationship between the e-business and the customer to create a value exchange proposition.
According to Reichheld and Schefter (2000), knowing and trusting an on-line business is the most important attribute for Web shoppers to make a purchase. Through the analysis, it was shown that virtual communities bring familiarity through a sense of belonging, which builds trust and loyalty. Reichheld and Schefter (2000) concluded through their research that trust rules the Web rather than price. Reichheld and Schefter (2000) found that when trust is formed, customers share more information, which allows companies to personalise their offerings to effectively meet customer needs. This value increases trust and strengthens loyalty. Such a virtuous circle can quickly translate into a durable advantage over competitors. Evans et al. (2001) also found a cycle formed through the use of on-line communities. Evans et al. (2001, p158) suggest 'there is scope for marketers to provide virtual communities, especially bulletin boards, to facilitate three-way communication with the company, consumer and between consumers.' Through this three-way communication, a company can develop more appropriate products and services, based on the feedback from and between customers. The supporting evidence indicates that virtual communities create a value proposition between the customer and business through information exchanges and greater communication.
AccountingWEB benefited from the cycle created through a virtual community. The products developed by members were in response to community feedback/demand. Whereas AccoutingWEB was able to identify and meet the demands of its loyal customer base through its community, competitors without communities would not have access to this depth of information and would loose out in the subsequent revenue and lack of meeting demand. Firefly believes information about the customer is tomorrow's competitive advantage for Internet-based companies. Kamionek states, 'In the electronic world, your profile becomes as valuable as money is in the real world. Because you can use it to get things that you want, and find other people who are like you. And on the companies' side, products can find markets better too.' This demonstrates the value exchange cycle that is formed. Through providing virtual communities, customer value is created, which enhances loyalty and business value and then gets re-invested into the customer.
MCB, E-Bay, and COLNODO also found virtual communities to create this value exchange cycle. The value virtual communities provide entice customers to the site. MCB (Hoey 1998, p33) state, 'As a result of adding value through connectivity between authors and readers, key parties are encouraged into the 'information-rich' environment of the Web site.' This creates information flows and connectivity. This connectivity between members allows MCB to provide them with added value and gain its own value through the newly created relationships. Through the relationships gained, a feedback loop is formed, which enables MCB to adapt strategies to suit the needs of customers to create a competitive advantage. MCB (Hoey 1998, p36) links each proposition together when they state,
'By building, sustaining, promoting and developing the added-value hypermedia environment in a structured and customer-focused manner, MCB can expect to attract members of the value chain into the arena of its Web site, ease the process of adoption of its electronic products, and capitalise on a critical mass exposed to its product offerings and marketing communications.'
This statement brings together each proposition in Chapter 5, by stating that each proposition affects the other. Through the community, MCB expects to increase the value added, which will increase loyalty and ultimately profits. Through these advantages, they will have a better stance against competitors who lack this benefit of community, connectivity and interactivity.
VirtualChina has created a cycle similar to the Value Exchange Cycle model (refer to Figure 6.2). VirtualChina entices customers to the site through their virtual community, increases loyalty through the added value and captures the resulting value. Through building a virtual community, VirtualChina is being responsive to unique interests, which creates customer value and a competitive advantage. Business value is created as customers take part in a database and share information. Customer value is increased further through the provision of direct services. Farrall, from VirtualChina, believes a natural commitment is created and loyalty increased due to this value exchange proposition. Through this natural commitment and loyalty, VirtualChina is able to understand their customers better and improve their content and service offerings in response to customer needs. This supports the new model (Figure 6.1) through the value exchange proposition created from their virtual community.
Although BroadVision does not believe on-line communities create this value exchange cycle, they do believe the cycle is important. BroadVision (Charlet 1998b, p5) states,
'By gaining a better understanding of individual customers, thereby enabling them to offer individually targeted motivations and create more effective advertising, yielding a higher profit margin...the customers get better value because the merchant will be able to offer better prices and service because of higher profit margins.'
This type of relationship creates a feedback loop, where value increases for the merchant and the customer as the relationship enhances using One-To-One software. Although BroadVision does not partake in on-line communities, this cycle adheres to Figure 6.1. The customer affects the value for the business as the business affects the value for the customers. However, Charlet (1998b, p6) states 'If an Internet-based business really wants to develop its service and provide value, it probably can benefit from both approaches, [Firefly's] collaborative filtering and a [BroadVision's] rules-based system.' Whereas Firefly chooses to provide customer-to-customer interaction through collaborative filtering (virtual communities), BroadVision believes more value is derived from their expert advice given through mass customisation. However, in each instance, the cycle demonstrated in Figure 6.1 is carried out.
6.3 Summary
This section has identified how each proposition has been used to develop the Value Exchange Cycle model. This new model suggests that virtual communities are valuable to both the customer and the e-business. Although other methods, such as BroadVision's One-To-One, attempts a similar cycle, supporting evidence proves virtual communities are untapped opportunities for e-businesses, as they create a continuously increasing cycle of customer value, loyalty and business value. Chapter 7 draws out the main conclusions for this research report.
Chapter 7 - Conclusions
And now it is brought to a closing...
Chapter 1 -
7.1 Summary
The literature review focuses on the importance of the evolution of marketing as the surrounding environment adapts and changes. With the Internet creating changes in the environment, it is evident that marketing must continue to adapt to enable e-business survival. As many e-businesses have been struggling to survive and many have failed over the Internet, a gap seems apparent in the literature. How can e-businesses create a value exchange proposition in this increasingly complex environment? Through further research into literature, it became evident that new relationships were developing over the Internet. These relationships, specifically customer-to-customer, have been the focus of research to explore how they could create a value exchange proposition. As virtual communities provide opportunity for customer-to-customer relationships, they have been used as the basis of research. With building and maintaining customer relationships and services becoming increasingly important over goods, the research focused on how virtual communities incorporate these factors to create a value exchange proposition
Throughout the whole research process, secondary research was used to explore qualitative and case study evidence. Limitations, therefore, must be considered due to lack of primary research, as this may have created new insights and greater contribution. As secondary case studies tended to focus on success stories, opposing case study evidence for the propositions was not equivalent in quantity to supporting evidence. This limitation may have been reduced with primary research, which could have sought out new and original opposing evidence to present a more balanced argument for each proposition. Quantitative evidence through primary or secondary research would also have provided more rigorous and statistically valid results. These limitations are considered for further research.
7.2 Main Conclusions
The main purpose of this report is to explore how virtual communities create a value exchange proposition for e-businesses.
To explore this research issue, three propositions were developed based on the focal theory. P1 explores how virtual communities increase customer value through providing unique opportunities. P2 focuses on how virtual communities increase loyalty as customer value increases. P3 demonstrates how virtual communities increase business value through increasing loyalty and gaining customer knowledge. Through these propositions, a cycle was apparent as each proposition influenced the next. This led to the development of the Value Exchange Cycle model. This model explores how virtual communities create a value exchange proposition for e-businesses by increasing customer value, which increases loyalty and leads to increased business value. This cycle is drawn together by the business' ability to further enhance the value given to customers. Through these findings, it is evident that this cycle incorporates virtual communities to create a value exchange proposition for e-businesses.
7.3 Contribution of Report
'In every industry, some company will figure out how to harness the potential of the Web to create exceptional value for customers, and that company is going to lock in many profitable relationships at the expense of slow-footed rivals,' (Reichheld and Schefter 2000, p106).
Virtual communities for e-businesses are not a cure for success; however, evidence indicates that they harness the potential of the Web by creating a cycle that increases customer value, which increases loyalty and leads to increased business value. As evidence and theory both support this 'Value Exchange Cycle', it is evident that customer-to-customer relationships through virtual communities create value for both customers and e-businesses.
This report does not aim to provide a flawless means to building customer and business value over the Internet. The contribution this report has made is identifying an untapped opportunity for struggling e-businesses to create a value exchange proposition through the 'Value Exchange Cycle' created by virtual communities.
7.4 Further Research
Before any finite conclusions are made through this research paper, further research should be considered. As most case studies constructed tend to be on 'success stories,' further opposing evidence would be useful. Primary research into opposing cases and Web users' opinions would also be useful, as quantitative research could be used to support qualitative research. Primary research and quantitative research would also reduce bias and create new evidence to prove the how virtual communities create a value exchange proposition.
Further research should be considered on evolving the theoretical understanding of the Value Exchange Cycle model (Figure 6.1). Particular focus should be taken into the cycle and the self-reinforcing spiral created (an example is provided in Appendix 7) to understand its importance for e-businesses and enhance the contribution of this report by enabling greater understanding and evolution of the model presented in this report.
Chapter 8 - Reference Material
This is where credit is due...
.1
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Chapter 9 - Appendices
Just when you thought it was all over!!!
9.1 Appendix 1: Loyalty
According to Ravald and Gronroos (1996), relationship marketing is used to 'create customer loyalty so that a stable, mutually profitable and long-term relationship is enhanced,' (p.19). As RM is becoming more recognised, so is the importance of loyalty. EgaSn (2001; p.36) believes that the term loyalty 'suggests the highest possible level of relationship impinging upon the emotional not to say the irrational.'
Bloemer and de Ruyter (1998) define loyalty specifically about the relationship. Although they base the definition on retail store loyalty, Egan (2001; p.37) has adapted their definition to apply to general suppliers:
'The biased (i.e. non-random) behavioural response (i.e. re-visit), expressed over time, by some decision-making unit with respect to one [supplier] out of a set of [suppliers], which is a function of psychological [decision making and evaluative] processes resulting in brand commitment.'
This definition stresses the importance of a consumer making the decision to repurchase out of choice or favourability for loyalty to occur. O'Malley (1998) also stresses that loyalty must be viewed as a 'biased repeat purchase behaviour' or 'repeat patronage accompanied by a favourable attitude,' (p.50).
The origin of loyalty stems from extrinsic factors, such as the market structure or geographic barriers, or intrinsic factors, such as the strength of the relationship and the way important interactions are dealt with (Storbacka et al. 1994). There are two main definitions within the main schools of thought of commercial loyalty, behaviour and attitude (Javalgi and Moberg 1997, p165).
. In terms of behaviour: loyalty is defined based on the number of purchases and measured through monitoring the frequency of purchases and any brand switching.
2. In terms of attitude: levels of loyalty are based on the integration of consumer preferences and temperament towards brands.
Loyalty cannot be accurately measured through solely behaviour, as customers may be forced into loyalty (repeat purchasing from the same supplier during a specific time frame) through lack of choice, convenience, low income, etc (Hart et al. 1999, p.545). Therefore, relationship longevity does not relate information about the strength of the loyalty (Storbacka et al. 1994, p.34).
There are two main viewpoints as to the antecedents to loyalty, hard (Christopher 1996) and softer (Dick and Basu 1994) dimensions (Egan 2001).The common element within these two viewpoints is that customer satisfaction retains loyalty (Egan 2001). Javalgi and Moberg (1997) state that superior customer service creates satisfaction, which builds loyalty. However, Hassan (1996 in Egan 2001) argues that research has proven that although satisfaction may reduce disloyalty, loyalty should not be intertwined with satisfaction. Retention or loyalty does not always occur from satisfaction and dissatisfaction and does not always result in less retention or loyalty (O'Malley 1998). Lack of alternatives and other factors may lead to false loyalty (Dick and Basu 1994). Storbacka et al. (1994; p.28) state,
'Customer loyalty is not always based on positive attitude, and long-term relationships do not necessarily require positive commitment from customers. The distinction is important because it challenges the idea that customer satisfaction (the attitude) leads to long-lasting relationships (the behaviour).'
Egan (2001) agrees with this statement, stressing that loyalty and satisfaction are not interdependent, as other factors than customer satisfaction may drive consumers to be loyal or disloyal.
Uncles (1994) states there are three main types of loyalty and non-loyalty behaviour (1) Switching behaviour, the customer either stays loyal and returns or switches; (2) Promiscuous behaviour, the customer makes many purchases and either always stays and is loyal or is promiscuous and uses a selection of alternatives; and (3) Polygamous behaviour, the customer makes many purchases but loyalty is divided between many products. Customers may be loyal more or less to any brand. However, most consumers prefer to 'mix and match' their products based on their needs (Kandampully and Duddy 1999), as most businesses are incapable of fully meeting customer needs (Egan 2001).
9.2
Appendix 2: Internet Influence on Marketing
As is evident, marketing has developed and changed with the surrounding environment. The Internet has led many businesses struggling to survive in the current new environment. According to Abela and Sacconaghi (1997), the Internet creates a significant value exchange, as 'The richness of information about individuals that can be gleaned from the Internet makes it an enormously powerful marketing medium,' (p.216). As the Internet provides up-to-date information, insights into consumer's opinions can be captured to develop relationships quickly and efficiently. The Internet can also decipher purchasing intentions through 'cookies' and other similar technologies that record web sites and user visits (Abela and Sacconaghi 1997). As the Internet has created the service revolution into the information service revolution, information has become the most valuable exchange between the business and the customer (Rust and Lemon 2001).
Internet-based marketing is defined as 'the use of the Internet and related digital technologies to achieve marketing objectives and support the modern marketing concept,' (Chaffey et al. 2000, p.4). In order to compete in the continuously changing environment, businesses need information about competitors and the external environment. Chaffey et al. (2000) state, 'Up-to-date, timely and accessible information about the industry, markets, new technology, competitors and customers is critical for an organization to plan and compete in the competitive marketplace,' (p.4). According to Chaffey et al. (2000), the Internet has become a fundamental element of the modern marketing concept. The Internet is a powerful communications medium that enables integration and support of functions within an organisation and allows deliverance of products to various markets. The Internet has also enabled the facilitation of information management, which creates a marketing support tool for the creation and implementation of strategies. In the near future, the Internet should be included in the business vision, as its future impact will be significant to most businesses (Chaffey et al. 2000). According to Chaffey et al. (2000), 'The Internet can and will need to support the entire marketing process... Organisations will use Internet technology in the form of Intranets and extranets to support the operations of the internal and external value chains,' (p.4).
Gurton (2001) believes the main goal of every business is to select, attract, retain and develop their customers; however, e-businesses have a more difficult task as electronic sales and business channels create a new degree of openness. These new channels are creating new types of relationships and increasing customer demands. According to Gurton (2001), customers are demanding more control and empowerment over the Internet. Traditional, established companies are advantaged by the Internet because they are able to combine traditional and Internet methods. However, for e-businesses to be successful, they must not merely compete on price, but must create new means of differentiation (Porter 2001). As technology develops, Rust and Lemon (2001) believe service is the means of differentiation, as more advanced economies are realising service is more important than goods. This belief follows the evolution of marketing, from product focused to customer focused.
Electronic-Commerce Environments (ECEs)
Internet technology has created an e-commerce environment (ECE). This environment enables businesses to sell on-line, improve market efficiency with handling suppliers and clients, and on-line bill payments; and customers to home-shop and bank with ease and convenience (Hoffman and Novak 1997 in Chaffey et al. 2000). Zwass (1998 in Chaffey et al. 2000) states that e-commerce allows businesses to share information and maintain relationships. Other terms that are used synonymously to e-commerce are online commerce, Internet commerce, and trading and digital commerce (Davis et al. 1999; and Chaffey et al. 2000). Chaffey et al. (2000) define electronic commerce (e-commerce) as 'the trading of goods and services that is mainly achieved by paid-for transactions between a business and other businesses and consumers,' (p.4).
ECEs create real-virtual interaction and relationships (Buxton 1994 in Davis et al. 1999). Real-virtual relationships can be enhanced through technology that creates a physical scene and emphasises on users' experiences (Buxton 1994 in Davis et al. 1999). In ECEs, the relationship between retailer and consumer is based on information via computer networks with minimal physical interaction; therefore, interaction is a marketing communication process in the consciousness (Gronroos 1996). The two components of interaction are (1) Real virtual (customer expectations) and (2) Real (customer perception), (Mattsson 1992; Teas 1993; Spreng et al. 1996; Castells 1996; Hoffman and Novak 1996; and Davis et al. 1999). In order to create effective two-way relationships in ECEs, relationships must be trust-based (Rao and Reukert 1994; Moore and Andradi 1996; and Davis et al. 1999).
The 'New Economy', as Gummesson (2002) terms the changing economic life and business of the 21st century, embraces 'the network society, a focus on services, new customer roles, information technology (IT), globalisation, deregulation of financial systems, and mega-alliances between countries,' (p.38). The next section focuses on how on-line communities can play a competitive role in enhancing customer value, generating trust and loyalty, and creating information and increased profits for the business in order to create a competitive advantage in this 'New Economy.'
9.3
Appendix 3: Advantages & Disadvantages of Research Method
9.3.1 Secondary Research Advantages
Saunders et al. (2000) lists advantages, which have been applied below.
. May have fewer resource requirements. Secondary research generally saves resources, especially time and money (Ghauri et al. 1995). This allowed more time to analyse and interpret greater amounts data.
2. Unobtrusive. This data is generally higher quality and less time consuming than one can collected through primary research (Stewart and Kamins 1993). These advantages presented minimal limitations and increased time to development the argument.
3. Can result in unforeseen discoveries. Unanticipated or unexpected new discoveries occured due to re-analysis of secondary data. Links were found between the propositions, which enabled the creation of a model that supported the research question.
4. Permanence of data. Unlike primary data, secondary data is readily available and permanent (Denscombe 1998), which allowed others to easily check the research.
9.3.2 Secondary research Disadvantages
Saunders et al. (2000) lists disadvantages, which have been applied below.
. May be collected for a purpose, which does not match your needs. Secondary research is designed by others for a specific purpose, which may not be appropriate for particular research questions or objectives (Denscombe 1998). As this research involved analysing theories and gathering evidence to support and oppose the research issue, rather than a concern within an organization, the research used suited the objectives of the report.
2. Access may be difficult or costly. Access to journals and research was not a problem, as the University provided many resources.
3. Aggregations and definitions may be unsuitable. Many theorists and authors were used and interpretations were explored to limit the bias and possible unsuitability.
4. Initial purpose may affect how data are presented. All data collected for this report was analysed thoroughly and crossed referenced to validate the results.
9.3.3 Qualitative Research Advantages and Disadvantages
Proctor (2000) states that qualitative analysis focuses on non-numerical information, mainly situational and structural contexts, and does not provide statistically rigorous evidence, like quantitative research. Quantitative research, however, is weak on context and mainly multivariate (Proctor 2000). Through the use of multiple sources qualitative evidence proved appropriate for the research issue, as it identified minor issues that quantitative research would not have detected (Proctor 2000).
9.4
Appendix 4: Brainstorming results
9.4.1 Keywords included:
Added value
Internet Business
Business value
Internet selling
Competitive advantage
Loyalty
Customer Relationship Management
Marketing
Customer value
Marketing evolution
Customisation
Modern marketing
Differentiation
On-line communities
Direct marketing
Personalisation
Dot.com
Relationship Marketing
E-business
Transactional marketing
Electronic commerce
Virtual communities
E-loyalty
Web-based selling
E-tailing
Websites
Internet
World Wide Web
9.4.2 Authors included:
Burke, Raymond
Narayanadas, Das
Christopher, Martin
Parasuraman, A.
Clark, Moira
Payne, Adrian
Egan, John
Peck, Helen
Graham, Gary
Peppers, Don
Gronroos, Christian
Reibstein, David
Gummeson, Evert
Rheingold, H.
Gurton, A.
Rust, R.T.
Hardaker, Glenn
Wind, Jerry
Lemon, K.N.
Winer, Russell S.
Mahajan, Vijay
Zeithaml, Valerie
9.5
Appendix 5: Analysing the Evidence
This section is an in-depth analysis of the evidence provided for the propositions described in Appendix 6 and developed in Chapter 4. Through these propositions, a model is developed in Chapter 6 to explore the research question.
9.5.1 Proposition 1 (P1): Virtual communities create customer value
This section provides supporting and opposing case study evidence for P1.
Supporting Evidence
Case A: VirtualChina (Lovelock 2000)
VirtualChina feel a community is detrimental to their success, 'To succeed, VirtualChina needed to become the on-line community where Chinese businesses went to find and engage the Western market,' (p.10). Through the community, it is felt that communication, is improved, which allows social, commercial and cultural exchanges between the Chinese and Western world. Lovelock (2000) states that members would 'derive greater value from member-generated content than from more conventional forms of published content, over time,' (p.4). As the communities are comprised of many different types of people, users gain value through the unique opportunities of understanding other cultures based on members' experiences. Users can build associations with Chinese people and other citizens throughout the world who are interested in China. VirtualChina feel it is important to encourage this transaction among its users to make them 'feel more like residents of a community than visitors to a website,' (p.12).
Case B: Firefly (Charlet 1998a).
Mae's vision of Firefly is 'to change the relationship that people have with computers and make a software that would take a more active role in helping the end-user.' Collaborative filtering is developed by Firefly and is important for online communities and enhanced personalisation. Firefly's idea is to bring customer-to-customer interaction to the Internet to make it feel more real. This human contact allows people to interact, give advice and share experiences and preferences. Saul Klein, from Firefly, states, 'if there are five things that I have in common with a community, there are going to be people in this community with ten things I don't know about them. I'm using that community to discover and navigate into new areas,' (p6). This valuable formation of friendship and association through on-line communities brings a sense of belonging and a way to socialise with people with common interests in a convenient manner. Firefly believes their service offers users a valuable exchange. Ted Kamionek, from Firefly, states that after Bignote was launched, users believe, 'I offered my information to this service, they did something with it and gave me something valuable in return, personalised for me; I never would have gotten this if I had not exchanged that information; so I can trust them.' Firefly creates value for customers through communities by creating personalisation and enabling the user to trust the company.
Through communities, knowledge is collected about customers, which allows greater personalisation. Firefly state, 'Community knowledge comes from the accumulation of information about customer taste and preferences. It allows an online company to develop one-to-one relationships with its customer, and enables the firm to anticipate what an individual customer needs, even before the customer knows he needs it.' This enhanced personalisation provides value for the customer, as they are treated as an individual, with their specific needs being met. Large companies need 'economies of scale,' such as distribution, communication and production, which communities make easier to achieve. For example, the electronic New York Times can be 80% standardised and 20% customised to address each customer separately without the necessity of millions of journalists to attend each reader personally. Building online communities provides 'a window to the world' and opens industrial standards. Through collaborative filtering, offered by Firefly, customers have the opportunity to discover things within an information environment, which they probably never would have discovered otherwise.
Case C: E-Bay (Hardaker and Graham 2001).
E-Bay has a feedback forum that is dedicated to one-to-one trading. Through this forum, customers can interact and share experiences. This adds value, like the COLNODO community, by allowing friendships to be developed and information to be exchanged. 'The vision of e-Bay, and a significant factor in their success is trust, between the buyers and sellers who constitute the community of e-Bay,' (p.113). The community provides value to the customers by enabling trust and confidence to be built. E-Bay also adds value to its community members through an exclusive strategic relationship with E-Stamp, which allows members convenient methods to purchase and receive merchandise. 'We are committed to offering the e-Bay community a range of services that will make trading more convenient, efficient and add value to the core auction process,' (President and CEO of e-Bay). Support and customer service is enhanced through communities, as customers can interact with other customers as well as continuous support and communication from e-Bay via the e-Bay café and email.
Case D. MCB UP Ltd. (source: Hoey 1998)
MCB believe the publisher's role has developed beyond the distribution of purely published material. They believe added value should be provided 'through both 'traditional means' and the focus, branding and connectivity of the forum or conference to use the electronic environment to communicate both with and through the content; and to form unprecedented 'feedback loop' between reader and author,' (p.36). MCB forum activities and Internet conferencing provide computer-mediated communication (CMC) in a virtual environment for people with common interests to gather and satisfy their assorted information needs. This enhances customer value through allowing more empowerment personalisation and communication in a convenient manner.
Case E(ii): AccountingWEB (www.sift.co.uk)
The members of AccountingWEB access current information and resources and network with other members through the community. This community has created many opportunities for purchasers and providers in the training sector to discover fast and effective responses to problems. The purchasers specifically use the community to find appropriate providers. Although there is an on-line directory of training providers, the forum can be used to seek advice and providers can send proposals to the purchasers. The providers mainly find value in the community through the non-competitive networking capabilities. Assistance can be received through freelance associates, questions can be raised and answered through forums and conferences through the sharing of advice and ideas, and the providers can also publish their resources online for colleagues to download. Chat technology also allows members to communicate in real time to hold discussions and conversations. As this community, like many others, attracts like-minded members, great value is gained by users through sharing of knowledge, experiences, and ideas.
By creating a community for members to belong to, value was created by enabling sharing of problems, experiences, and advice. Three members in particular decided to create further value by developing beneficial products for the community users. Through the interaction gained in communities, products were developed based on discussions in order to meet customer demands. This form of communication and interaction allowed value to be created through enhanced personalisation based on the demands of the community.
Case E(iii): Thepublican.com (www.sift.co.uk)
According to Thepublican.com, 'Discussion forums, workshops, feedback opportunities, supplier directories and other community features allow members to benefit from, and contribute to, a core base of knowledge within the market place.' The community allows members with similar interests to congregate in an attempt to benefit from and contribute to the overall body of knowledge on the site. Members are able to discuss concerns and express their opinions and ideas to create value for each other. Members gain value through the ability to communicate and the information and knowledge they gain from the site in a fast and effective manner.
Case G: COLNODO (Gomez 1998)
COLNODO allows users from different national borders to communicate and network via computer-mediated communication (CMC), which creates great value for users in terms of time, convenience, and the knowledge gained. Through the use of communities, networking can be enhanced even further in CMC. Organisations with offices in different cities using CMC perceived internal relations and communication to be enhanced. 'NGO users of CMC commonly felt a breakdown of geographic barriers and shared a perception of closer contact with partners and friends all over the world,' (Gomez 1998, p.225) COLNODO believes the most important element of (CMC) experiences in NGOs is the users' perception of increased networking.
Some of the users of COLNODO state that they have a strong sense of belonging to the on-line community of NGOs. Some of these users even feel that the community is of greater value 'than the convenience of lower rates or the possibility of improved service with the new commercial CMC providers,' (p.226). One respondent states 'There is no way I could get all the information I receive through the 'Everybody' mailbox if I was not with them [COLNODO],' (Gomez 1998, p.228). The 'Everybody' mailbox provides information to subscribers only and is a closed mailing list. Some respondents 'insisted on the existence of a virtual community of NGOs in the country, bound together by their affiliation to COLNODO,' (p.226). These attitudes demonstrate the value placed upon on-line communities by users. Gomez (1998) found the main supportive attitudes towards COLNODO's on-line community to be 'associated with commitment to personal friendship and to the idea of a non-commercial provider, one that 'groups all of us alternative people' [by one respondent], and one that provides 'the kind of alternative information that we need' [by another respondent],' (p.227). Supportive COLNODO community users value the information exchange they receive and the relationships they build with founders and staff and they are the least likely to switch to a commercial provider (Gomez 1998). As is evident, users value the relationships the COLNODO community provides.
Example 1: Proctor & Gamble (Abela and Sacconaghi 1997)
Proctor & Gamble has set up the web-site for parents, ParentTime. Rather than focusing on products, this community allows parents to raise and discuss common concerns, which brings value through building a sense of belonging and reassurance to members.
Example 2: Amazon.com (Abela and Sacconaghi 1997)
Amazon.com (http://www.amazon.com) has attempted to create customer-to-customer contact by asking for customer comments, ratings for products, etc. Creating this sense of community allows customers to feel more confident about their purchases, based on the opinions of other members that have similar tastes. Personalisation can then add greater value as the company can make referrals to other similar products (books, movies, etc.) that have been bought by customers.
Example 3: Survey on 74 Fortune 500 consumer sites and 88 smaller business sites from Yahoo!'s directory (Abela and Sacconaghi 1997)
Although these surveys scored low in providing value exchanges, the best-practice sites scored highly in terms of the information collected and the value exchanged. Table 9.2 shows how the best-practice sites exceeded the competitors. One of the elements that provides value exchange are the chat sites, which is a community feature. As these are the best-practice sites, it is evident that these businesses use community features to create value for the customer and themselves.
Information Capture
Value Exchange
Use cookies to track browsing behaviour
Use agent-based software to process user's data and add value to it (i.e. making movie recommendations)
Collect broad spectrum of data, including (but also extending beyond) traditional market research questions
Offer chat sites
Require log-in for access to more valuable pages
Provide convenience in exchange for holding data
Example 4: Study by Reichheld and Schefter (2000)
Reichheld and Schefter (2000) found that on-line communities provided customer value, as many people would like to use a virtual community to communicate with the company.
Opposing Evidence
Case F: BroadVision (Charlet 1998b)
BroadVision believes in establishing a sense of community between the business and the customers, rather than customer-customer. The goal is to create a bond, where the merchant can customise products to meet the needs of the customer better. Pehong Chen, of BroadVision states, '...by using One-To-One, marketers can now develop a relationship with each of them and try to know who they are, what they want, and provide that to them in real time,' (p.4). BroadVision believes in a rule-based system, where the marketer controls what a customer receives. BroadVision asks for personal information and attempts to create value based on this information, rather than using customer-customer interaction. They believe 'Customers get better value because the merchant will be able to offer better prices and services because of higher profit margins,' (p.5) Focus is based on being able to create customer value based on personalisation, promotions and services rather than customer-to-customer relationships.
BroadVision feels that the business should control what the customers receives, 'Our firmly held view is that businesses like to control their own destiny,' (p.5). Chen states that customer recommendations to other customers are not as relevant as experts (such as BroadVision), as BroadVision can provide relevant and accurate information. Chen states, 'the meaning and importance of trust must be viewed in terms of objectivity and relevance of the information,' (p.5). He does not believe that customer contributions and interaction are objective and therefore will not benefit other customers. Chen states, 'I just cannot come up with any scenario in which your interest as a customer would be influenced by somebody else's buying the same thing,' (p.6).
Case G: COLNODO (Gomez 1998)
Some users are critical to COLNODO as a community. One respondent in the COLNODO case states, 'The sense of community is only maintained by the nostalgia of community, not because there is any real exchange to justify it,' (p.226). This respondent believes that communities are mainly for sentimental value and belongingness, rather than to create valuable information exchanges. Another respondent states, 'COLNODO is not needed as a community, since we are interested in exchanging information with those who share our interests. For that we can use any Internet provider we choose,' (p.226). Both of these respondents do not feel a community is needed to enhance value.
Another respondent states, 'the COLNODO community doesn't even exist; the only shared space is the mailbox 'Everybody,' and that is not enough to make a community,' (p.228). This respondent does not appreciate the interaction with other members, as this respondent does not feel value is gained through the other members' interaction and contributions. Gomez (1998) found that critical users felt communities were merely a 'provider of electronic communication services,' (p.227). Gomez (1998) found that critical users do not rely on personal friendships with the founders and staff, expect competitive access and cost of service, were most likely to switch to a commercial provider, and mainly focused on quality of service. A community, therefore, does not provide added value for the critical COLNODO users.
Example 1: Surevy on the Fortune 500 consumer sites (Abela and Sacconaghi 1997)
Only 27% of the 74 Fortune 500 consumer sites surveyed by Abela and Sacconaghi (1997) offer on-line community features, as shown in Table 5.1. However, most of the surveyed companies did not offer any form of value exchange for consumers. 69% gave something in return for information; however, the value given is usually extra product details and/or promotional offers. Only 1 site used an artificial intelligence agent to create value for customers through the manipulation of information. Abela and Sacconaghi (1997) believe that most of the sites wasted the opportunity to gather information and to create customer value. 31% of the sites did not provide any means of consumer to business contact, as no email address was provided. Table 5.1 demonstrates the minimal value exchange offered to consumers. Although on-line communities were not generally used to create value, other methods were also missed.
P1 Conclusions
The main arguments supporting virtual communities providing customer value are that they create:
* belongingness and friendships;
* trust in the products and information gained;
* networking potential; and
* exchange of information.
The main opposing evidence includes:
* No value in the friendship and information gained
* No belief in increasing profits from virtual communities
* Professional opinions are more valuable than customer interaction
9.5.2 Proposition 2 (P2): Virtual communities increase loyalty
This section provides supporting and opposing case study evidence for P2.
Supporting Evidence
Case A: VirtualChina.com (Lovelock 2000)
The founder of VirtualChina, Mr. Farrall, believes that communities are vital to gain and retain customers in order to be responsive to members' unique interests. To keep customers and respond effectively, VirtualChina must be able to understand customer demand. To build loyalty, Farrall realised his own experiences were not enough. The found the expertise visitors bring to the site influence members more through involvement and 'outside' wisdom. This external involvement and expertise builds 'a natural momentum and a natural commitment to the site.' The three main techniques used by VirtualChina to build loyalty are:
* Member-member relationships
* Member-host relationships
* Customised interaction
Through on-line communities, VirtualChina is able to build and maintain loyalty in order to effectively meet the demands of customers and receive profitable returns. This cycle of value will be explored further in the Chapter 5.
Case E(ii): AccountingWEB (www.sift.co.uk)
AccountingWEB has an online community for its users. Not only do members contribute content, three members in particular were so dedicated and loyal they developed products for the benefit of other users. This type of dedication to the site demonstrates the power communities have to draw-in and retain customers. Not only did these customers return, they created products for the benefit of the members, which are successfully being sold via the AccountingWEB Software Tools facility. These products were developed in response to community feedback/demand. Community applications- workshops, expert guides/tips, reviews and newswires are all used to promote the product. These members reached the top level of the loyalty ladder and became partners with AccountingWEB.
Case E(iii): Thepublican.com (www.sift.co.uk)
The community developed by Thepublican.com was intended to extend their existing brand, rather than a new identity. Two months after launch, there were 3,000 regular members. To understand the loyalty gained from these members, Adele Turner, Web manager, sent a bulk email requesting feedback about the community. Within twenty-four hours, 80 members had responded enthusiastically about the community features. The quick response rate demonstrates the satisfaction gained through the community and the belongingness and involvement gained. Four months after the launch, the on-line community exceeded 13,000 registered users. Unique users (non registered) increased from 1,064 in March to 9,553 in June. These increases demonstrate the power on-line communities have in. With numbers growing and customers using the site regularly, on-line communities have proved incredibly useful in capturing and retaining users.
Example 1: Study by Bughin and Hagel (Agrawal et al. 2001)
Studies by Bughin and Hagel (Agrawal et al. 2001) in indicate that loyalty is greater in on-line communities than transaction sites. According to these studies, transaction sites convert 2% of their visitors, which is merely one-third of new customers into repeat customers. This means that less than 1% of all visits to a specific transaction site are by potential repeat customers. On-line communities, however, have a 60% success rate at converting repeat visitors into members, with the member-retention rate at almost 18%, rather than 1%. Bughin and Hagel also found that traffic (the number of visitors) influences the rate a transaction site converts visitors into repeat customers. Whereas convertion declines as traffic increases on transaction sites, traffic does not influence on-line communities. Through Bughin and Hagel's research, Agrawal et al. (2001) concludes loyalty is stronger in on-line communities because people can transact and share common interests, which reduces the risk for security-minded visitors.
Example 2: McKinsey- Jupiter Media Metrix study (Brown et al. 2002)
Brown et al. (2002) found a coorelation between on-line communities and loyalty and profit. Brown et al. results indicated that the more a member uses community features, the more that member visits and buys. The members who contribute content and interact visit the on-line community greater than nine times as often as nonusers, remain twice as loyal, and purchase products nearly twice as often. Users that do not contribute and participate in community features, but merely read exchanges are still more frequent visitors and buyers than nonusers. Table 5.2 demonstrates the frequency of visits, and the conversion and retention rate of community users versus non-community users. These figures demonstrate on-line community's success at achieving loyalty among visitors. Much like Bughin and Hagel's study in Agrawal et al. (2001), on-line communities create and maintain loyalty better than sites that do not offer communities.
Opposing Evidence
Case F. BroadVision (Charlet 1998b)
BroadVision believes a relationship can be developed and loyalty enhanced through their mass customisation technique of One-To-One marketing. Although customer-to-customer relationships are not developed, BroadVision does not feel this is necessary to increase loyalty. They believe their expert advice and personalisation alone will generate a sense of trust and hence loyalty.
P2 Conclusions
The main supporting evidence for virtual communities increasing loyalty is:
* Interaction between users creates trust, a sense of belonging, involvement, and 'outside' wisdom, which makes a natural commitment
* Less risk is perceived than transaction sites
The main opposing evidence is:
* Customisation and expert advice is better at creating loyalty than virtual communities.
9.5.3 Proposition 3 (P3): Virtual communities enhance business value
This section provides supporting and opposing case study evidence for P3.
Supporting Evidence
Case A: VirtualChina (Lovelock 2000)
As VirtualChina was in construction, Mr. Farrall was working on the China Matrix community site. Through this site he realised that 'he needed to learn from the community in order to provide information to it.' In order for VirtualChina to become commercially successful, the site became an English-language on-line community for Chinese businesses to interact with the Western market. They became a community because they wanted to become the best company in the emerging marketspace. The difference between VirtualChina and its main competitors, China Online, China Big, and China Vista, is that none of these competitors attempted to create loyalty through on-line communities. VirtualChina has successfully created a competitive advantage over these sites through their on-line community. Besides creating a competitive advantage, the main values gained through the VirtualChina community are transaction opportunities, targeted advertising, and fees collected for premium services.
Case B: Firefly (source: Charlet 1998a)
As there are millions of people connecting to the Web regularly, Firefly feels that their community allows them to survive. Firefly believes information about the customer is tomorrow's competitive advantage for Internet-based companies. Kamionek states, 'In the electronic world, your profile becomes as valuable as money is in the real world because you can use it to get things that you want, and find other people who are like you. And on the companies' side, products can find markets better too.' Through the community, Firefly not only creates value for its customers (as demonstrated in Proposition 1), it also creates value for themselves. Saul Klein states, 'A key component of being successful is being able to listen to the marketplace as well as drive the marketplace, and listen to your customers as well as drive your customers.' Firefly captures valuable customer information through their community, which enables stronger segmentation and targeting strategies. These strategies then allow more effective marketing and increases loyalty with the more valuable/profitable customers.
Case C: E-Bay (Reichheld and Schefter 2000)
E-Bay profits from their extensive base of loyal community customers, as referrals make-up more than half of E-Bay's customers. CEO Meg Whitman stated to the Wall Street Journal, 'If you just do the math of our quarterly financial filings, you see that we're spending less than $10 to acquire each new customer. The reason is that we are being driven by word of mouth,' (p.107). The cost in retaining these referred customers is less than those brought in from E-Bay's marketing activities, as referred customers seek advice and support from their referrals rather than from eBay. 'In effect, loyal customers not only take over the function of advertising and sales, they even staff the company's help desk- for free,' (Reichheld and Schefter 2000, p107).
Case D: MCB UP Ltd. (Hoey 1998)
MCB believe added value should be provided through 'the focus, branding and connectivity of the forum or conference to use the electronic environment to communicate both with and through the content; and to form unprecedented 'feedback loop' between reader and author,' (p.36). MCB creates value for customers through on-line community features, which brings customers to the site and exposes them to the elements of their marketing communications mix. MCB states, 'communities will have a profound effect on marketing in general as they will become a highly effective way to reach customers and allow them to move seamlessly from finding out about the product to making a sale,' (p.35). Through the community, members find the information they need quickly through the advice of other members and MCB's content.
Case E(i): TrainingZone (www.sift.co.uk)
TrainingZone state, 'Online communities are creating plentiful opportunities for new ways of networking, and in a highly fragmented marketplace, such as training, networking is the ideal solution to business survival and growth. Keeping in touch with others in a similar situation through an online community is proving an essential means of staying in business.' TrainingZone have found their on-line community to be a competitive advantage by providing networking potential and sharing of knowledge.
Case E(ii): AccountingWEB (www.sift.co.uk)
The community created a great base of loyal customers, which provided AccountingWEB with vast amounts of customer information. Three committed community members developed products based on discussions with other community members and sold them to AccountingWEB. As the customers produced the products, AccountingWEB saved on development, research, and marketing costs and profited from the actual products sold. At last count, the actual profit received from each product is:
* Product 1 (Introductory tutorial to Excel programming): 135 copies sold over 6 weeks, generating £1,586.00 in revenue with ongoing sales.
* Product 2 (Exfiles): 95 copies were sold over 4 weeks, generating £3,325.00 in revenue with ongoing sales.
* Product 3 (Access for Accountants tutorial): Over 50 copies sold over 2 weeks, generating £500.00 profit with ongoing sales.
Not only have AccountingWEB gained value through profits, they have gained a loyal and committed base of customers and vast amounts of customer information.
Case E(iii): Thepublican.com (www.sift.co.uk)
Through the on-line community, Thepublican.com has broadened their customer base and have gained monetary value. As to date, the revenue from advertising, sponsorship and e-commerce are inline with their predictions.
Case G. COLNODO (Gomez 1998)
COLNODO creates a competitive advantage over commercial providers because it offers virtual communities. The business derives value from customer interaction through the information gathered and the building of loyalty towards COLNODO. Supporting users believe the community is more valuable than the lower rates and improved services offered by new commercial CMC providers. The main reason people choose COLNODO over competitors is because it was founded by friends within the NGO sector and provides a 'virtual meeting place' for NGOs in Colombia. A competitive advantage is created through the fact that COLNODO offers a virtual community in which common groups of NGOs can interact, network and exchange information. By creating value for customers from the community, COLNODO is also creating value for itself.
Example 1: Proctor & Gamble (Abela and Sacconaghi 1997)
The Proctor & Gamble community, ParentTime, demonstrates to parents that Proctor & Gamble are not only concerned about the products they sell, but also the people they sell the products to. By creating communities, Proctor & Gamble attempts to reassure their customers and provide added value to create a competitive advantage. This site brings awareness to members and allows Proctor & Gamble to gain valuable insights into customers concerns and interests.
Example 2: McKinsey-Jupiter Media Metrix study (Brown et al. 2002)
Brown et al. (2002) found that users of community sites visit more often than nonusers, spend more time, view more pages and remain more loyal. This will enable greater exposure to the elements of the marketing communications mix, which may instigate a purchase. Loyalty is also valuable to businesses, as Brown et al. (2002) found community users on the leading e-tailing transaction sites represented one-third of all visitors, yet created two-thirds of their sales (refer to Table 5.3).
Example 3: Research by Evans et al. (2001)
Evans et al. (2001) has found 'commercial benefits for organisations providing virtual communities. A substantial proportion of Internet users in the research sample claim to have a more positive opinion about the owner of the sites that they use, with more than half of all respondents considering it to be a good idea for companies to provide virtual communities on their Websites,' (p.156). Businesses would gain value from on-line communities, as customer value would be increased and the businesses brand name would be enhanced.
Opposing Evidence
Case F. BroadVision (source: Charlet 1998b)
BroadVision believes that customer-to-customer interaction takes control away from the business and creates recommendations that do not add value for the business. Personalisation software is preferred as a means of enhancing customer value and loyalty, to create a competitive advantage. Through this software, companies are able to predict a customer's next purchase intention, which provides the company with the opportunity to satisfy the customer unexpectedly.
Example 1: Study by Bughin and Hagel (in Agrawal et al. 2001)
Bughin and Hagel state that revenue per repeat visitor on community sites is lower than a transaction site. Therefore, in order for virtual communities to be more profitable than transaction sites, they must be more cost-effective.
P3 Conclusions
The main supporting evidence towards P3 is, virtual communities:
* provide a competitive advantage through customer interaction, content, networking potential and sharing of knowledge, which enhances brand image;
* bring customers to the Web-site, exposes them to the marketing communications mix and provides transaction opportunities, targeted advertising and fees collected for premium services;
* enable greater understanding of customer demands and stronger segmentation and targeting strategies (increasing loyalty from more valuable/profitable customers, making community users generate the most sales); and
* increase loyalty, which increases referrals and reduces costs in advertising, support, and in some instances research and development.
The main opposing evidence includes, virtual communities:
* create subjective and insignificant value for customers and businesses;
* do not provide adequate personalisation from marketers; and
* provide less revenue per repeat visitor than transaction sites.
9.6 Appendix 6: Case Study Summaries
To understand the arguments used to support or oppose the propositions in Chapter 5, brief summaries (and assigned letters) for each in-depth case study are provided below. Each case study is used as evidence to support and/or oppose each proposition.
A. VirtualChina (source: Lovelock 2000).
VirtualChina was set-up by Mr. Farrall in 1998 as a China-focused portal with a China-interested community that enables trade and information exchange. Initially establishing Matrix East Incorporated (MEI) in 1996 for content accumulation over the Internet, Mr. Farrall took his first venture as designing and managing a Web site for Xindeco Limited, China Vista, which eventually led to the broader 'VirtualChina' site. During the transition, an Internet and information technology site called the China Matrix was set up to gather information from members. Both of these sites added to the success of VirtualChina. This case discusses VirtualChina's potential success based on building a sense of community.
B. Firefly Network (source: Charlet 1998a)
Firefly was founded as Agents Inc. in March 1995 by six individuals after a three-year research project led by Pattie Maes at MIT Media Lab. The headquarters are in Cambridge, Massachusetts, with offices in San Francisco and New York. The Internet site, www.firefly.com was launched in 1997 as a community-based showcase that gives personalised recommendations for music (Bignote) and movies (Filmfinder). According to Charlet (1998a), Firefly can be best described as 'a software company that sells online business solutions to develop advanced personalisation features on their Web sites and facilitate the information exchange process between end-users and providers'. This case examines how online collaborative filtering technology and relationship management has created Firefly's rapid growth and success.
C. E-Bay (source: Hardaker and Graham 2001; Reichheld and Schefter 2000)
Pierre Omidyar and his wife launched e-Bay in September 1995 as a new market of person-to-person trading in an auction format over the Web and soon became the leading personal on-line trading community. Consumers are able to buy and sell unique items and to meet other consumers with similar interests and needs. E-Bay's main strategic relationship is with E-Stamp, which provides purchasing and shipping to the community members of E-Bay. E-Bay has almost 10 million registered users, more than 4000 categories and greater than 500,000 new items available daily.
D. MCB UP Ltd. (source: Hoey 1998)
MCB UP Ltd. is a specialist publisher of high quality titles involving management and research, with over 140 journals published by 1998. This case examines how 'MCB UP Ltd. moves beyond the hyper-linked 'shop window' of its early days Web site, towards a high value-added, effective and integrated marketing communications environment,' with specific focus on 'Web interactivity and connectivity as a means of strengthening the effectiveness of marketing communications,' (Hoey 1998, p31).
E. Sift Case Studies (source: www.sift.co.uk 07/02/02)
Sift is based in Bristol and maintains offices in Edinburgh and Indianapolis, U.S.A. For more than five years, Sift has provided vertical portal and online community information and technology to their members and other businesses. The three cases below are customers who have purchased software from Sift and the benefits that have been created.
E(i). TrainingZONE
TrainingZONE is an online community with a membership of 30,000 training-related professionals. This community focuses on purchasers and providers from the training sector and enables access to current information and resources and allows networking with other members. This case examines the opportunities of online communities for the training sector.
E(ii). AccountingWEB
AccountingWEB provides an online community to its members, based on Sift technology. This case is specifically based on the AccountingWEB Software Tools area and how three members contributed to the generation of profit.
E(iii). Thepublican.com
The Publication newspaper has been a business-to-business magazine for the licensed trade for more than 25 years. With more than a circulation of 36,700 magazines, the Publican created a Web site in 1999, which did not permit communication between users. In March 2001, the publican.com site had created a community utilising Sift technology. This case demonstrates how the formation of an online community has impacted their success online.
F. BroadVision (source: Charlet 1998b)
Pehong Chen founded BroadVision in May 1993 in Los Altos, California. This publicly owned company develops and markets one-to-one software applications for other businesses. The intention of this software is to create greater personalisation to meet individual needs. This case examines BroadVision's potential future and makes comparisons with Firefly.
G. COLNODO (source: Gomez 1998)
COLNODO is the Colombian Association of Non-Governmental Organisations (NGOs) for Communication via email. This virtual community was formally accepted to the Association for Progressive Communications (APC) in July 1994. The APC is a global computer communications and information network, especially useful in Latin America for NGOs and citizens who work for social justice, environmental sustainability and other associated concerns. The COLNODO users are a community of NGOs in Latin America who use the network especially set up by and for users to gradually coalesce the tools and knowledge necessary to completely exploit the potential of this service. This case discusses the supporting and opposing views of COLNODO virtual community users.
9.7
Appendix 7: Spiralling Cycle
The examples below have been provided to create considerations as to how the Value Exchange Cycle model may create positive/upward or negative/downward spirals and should not be taken as theoretically proven cases.
Upwards/Positive Spiral
Microsoft is an example of a positive/upward spiralling cycle, as they continually add customer value by updating programs. This leads to enhanced loyalty and increased business value, with the cycle continuously spiralling upwards as long as customer value is continuously added.
Downwards/Negative Spiral
As each proposition has proven to influence the other, a negative influence would create a downward spiral. Research should be taken into what happens if a business creates a negative influence or attempts to stand still in this cycle. If a business stands still, will that influence a negative cycle/spiral? Would this then lead to a failed business or an acquisition? An example of a negative cycle could be used to describe Marks&Spencer's problems. For many years, Marks&Spencer was standing still and not providing value for their customers (Paterson 2000; Mills 2001; Sherwood 2001). By applying this to the cycle, it could be concluded that this lack of value decreased loyalty, which decreased business value in terms of profit and customer information. With less business value to re-invest, customer value decreased, which led to a negative spiralling cycle. In recent years, Marks&Spencer has attempted to re-create business value and the positive spiral through the development of their new ranges, Per Una and Autograph (Paterson 2000; Mills 2001; Sherwood 2001).
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Chapter 1- Introduction
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Chapter 2: Literature Review
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Chapter 3- Methodology
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Chapter 4- Proposition Development
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Chapter 5: Analysis & Findings
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Chapter 6- Discussion
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Chapter 7: Conclusions
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Chapter 8- Reference Material
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Chapter 9: Appendices
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Chapter 9- Appendices
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