CRM in the era of web 2.0: Consumer empowerment through E-WOM and CGC

September 4, 2014

 Written by Masters Student at Lund University

Abstract

Consumers are no longer passive receivers of mass-communicated messages. The web 2.0 is the host for many-to-many interactions and co-creation of content, which has empowered the consumers and reduced the control of the marketer. The social media challenge the traditional customer relationship management (CRM) approach, which this paper aims to uncover by looking into the phenomenon of ‘’social CRM’’. Furthermore, the empowerment of consumers is considered in relation to electronic word-of-mouth and collaborative consumer generated content.

Key words: Web 2.0, Electronic word-of-mouth (E-WOM), Consumer generated content (CGC), Social media, Relationship management (CRM), Consumer empowerment

Introduction

The interactive web 2.0 has provided a digital media platform, which enable consumers to co-create and interact with the company, the media and each other (Hanna, Rohm & Crittenden 2011). The internet has become a host for many-to-many communications and has thereby empowered the consumers (Chrisodoulides 2009). Deighton & Kornfeld (2009) supports this argument by stating that the internet has empowered the consumers and reduced the control of the marketer. According to Chrisodoulides (2009) the empowerment of consumers engaging in the social media is so strong that it is possible to interfere with the brand’s value.

The empowerment of consumers through the interactive web 2.0 seems to have changed the relationship between consumers and companies. Consumers are no longer passive receivers of distributed messages. According to Malthouse et al. (2013) the rise of social media has changed the way companies should address customer relationship management (CRM). Furthermore, Wind (2008) argues that the high failure rate of CRM indicates that the game of CRM has changed. Companies must focus on offering a platform where consumers can co-create the solution (Wind 2008). The paper aims to undercover the challenges of CRM in the era of web 2.0.

 

From CRM to Social CRM

CRM in its traditional form is about companies managing relationships with customers to maximize customer lifetime value (CLV), but social media has changed the name of the game (Malthouse et al. 2013). According to Wind (2008) it is of great importance to measure the ‘’right’’ aspects for a successful CRM strategy. CLV and share of wallet provide insights about customer profitability and might provide the company with insights about how growth can be obtained by reallocating resources. CLV is not limited to purchase value, but includes the value of customer influence, referrals and knowledge (Kumar et al. 2010; Weinberg & Berger 2011 in Malthouse et al. 2013).

The ease of finding information about competitors and distributing opinions to a large audience has made it harder for companies to manage the output of messages. Customers have become active participants in the relationship with a company. In short, social media has enabled consumers to create and share consumer generated content (CGC). Companies are challenged in managing the messages received by the consumer about products and services (Malthouse et al. 2013). According to Malthouse et al. (2013) ‘’CRM must evolve if it is to survive in this marketplace, by producing contact points that engage the consumer and provide value to both the company and consumer’’ (p. 278). According to Wind (2008) companies need to move from CRM to CMR by creating platforms that offers customers to manage their relationship with companies. Furthermore, Malthouse et al. (2013) points out that ‘’a company should determine its CRM strategy according to the level of engagement that customers are likely to show and the CRM objectives that the company would like to achieve’’ (p.272). The adaption of CRM in social media is referred to as ‘’social CRM’’. From the social CRM perspective engagement can be either high or low which determines how a company should deal with acquisition, retention and termination (Malthouse et al. 2013).

In social CRM a low engaged consumer passively consumes content or engage in very basic forms of feedback e.g. ‘’likes’’ on Facebook. Companies can obtain acquisition of new consumers with low engagement by creating awareness and change attitudes by creating promotions on YouTube, Facebook, Wikipedia etc. (Malthouse et al. 2013). These basic activities are quite similar to planning traditional marketing activities, which reduces the risk for the company. Furthermore, it provides the company with the opportunity to improve targeting. To retain customer with low engagement in social CRM it is suggested that the company can influence attitudes through the use of Facebook brand pages and similar actions. In situations where the consumer chooses to terminate the relationship companies can use information form the social media to identify the customers that are likely to leave and thereby attempt to prevent it (Malthouse et al. 2013).

In social CRM high engagement would require that the consumer is active in co-creation of content related to a brand e.g. writing reviews. The main challenge for a company is the reduced control over the messages consumers and customers receive, whereby acquisition activities cannot be separated from retention activities in social CRM. Electronic word-of-mouth (E-WOM) and consumer generated content (CGC) is indeed a tool marketers need to consider in developing profitable relationships with consumer and customers. Negative word-of-mouth is at stake if the company choose to terminate a relationship with a high engaged customer (Malthouse et al. 2013).

The empowerment of consumers – E-WOM and CGC

Social media has enabled consumers to become marketers and advertisers. Web 2.0 has made it easier to share opinions, information and thoughts. These circumstances have influenced buying behaviour as E-WOM is now a dominating channel (Akar & Topsu 2013). The phenomenon of brand related messages created by consumer’s informal opinions spreading through the web is often referred to as E-WOM (Sandes & Urdan 2013). E-WOM is of great importance from the social CRM perspective. Companies have realized that E-WOM is stronger than traditional WOM, but it should be an interactive and engaging process to improve relationships (Papasolomou & Melanthiou 2013).

Henning-Thurau and colleagues (2004 in Sandes & Urdan 2013) suggest four main reasons for consumers to engage in E-WOM: ‘’(1) Seeking self-help, for economic reasons or own gain; (2) Concern about others  and searching for social promotion; (3) Altruism, seeking only to help others and companies; (4) multiple reasons relating to self-expression.’’ (p. 184). The motives for engaging in E-WOM can be useful to companies wishing to facilitate positive messages as a promotion initiative on the web e.g. through review sites.

Having considered the power of E-WOM and the motives for engaging in it in the era of social CRM, it is interesting to consider the effects of E-WOM. According to Sandes & Urdan (2013) positive messages about brands created by consumers improves the perception of image, but it does not increase purchase intensions. The importance of mastering social CRM is severely evident as a message can spread with high speed, which can become even more damaging if the content is negative (Barwise & Meehan 2010). According to Sanders & Urdan (2013) negative content has a stronger effect than positive content. The study shows that exposure to negative messages about brands created by consumers can damage the image and reduce purchase intentions.

E-WOM is often perceived to have higher credibility and trustworthiness than traditional media, but it is still influenced by traditional marketers and marketing activities e.g. CRM (Akar & Topsu 2013). ‘’According to Red Bridge Marketing (2008), regarding products and services, 78 percent of global consumers believe and trust suggestions of other people over any other data’’ (in Akar & Topsu 2013, p. 42). On the basis of this it could be argued that companies are dependent on the ability to collaborate with consumers in co-creating content to be successful in social CRM in the era of web 2.0.

Fournier and Avery (2011) refers to the web as ‘’the peoples web’’ indicating that marketers are less wanted in the social media sphere and thereby making social CRM a collaborative activity. Furthermore, consumer generated content (CGC) is more easily shared via the web (Akar & Topsu 2013).  One strategy that companies can apply, fitting well with the social CRM perspective, is to encourage the creation and sharing of CGC and thereby collaborate with consumers (Chrisodoulides 2009). According to Hanna, Rohm &Crittenden (2011) consumers are becoming increasingly interested in co-creating content for companies. On the other hand are very few companies taking a proactive approach in collaborative CGC in their long-term strategy (Muniz & Schau 2011). Companies are assumed to hold back due to the loss of control over the brand messages and brand meanings, but involvement from a skillful marketer increase the likelihood of a favourable outcome. Muniz and Schau (2011) suggest a 13 step checklist (p. 211, Figure 1):

‘’guideline collaborative consumer generated content ’’

These 13 guidelines could provide the companies with the courage needed to engage in collaborative CGC. According to Chrisodoulides (2009) CGC is expected to nurture stronger and deeper relationships between companies and consumers, which make it important for companies to master.   

Insights about consumers are out there

The social CRM landscape does offer positive aspects for the companies in managing relationships. One opportunity is to create advocates for their products by listening and engaging with their customers (Malthouse 2013). Companies can also benefit from using social media by acquiring insights about the consumer and possibly preventing termination of a desirable relationship (Barwise & Meehan 2010 and Malthouse et al. 2013).

Example – Telmore

Telmore is a Danish telecommunication company that promotes services and products mainly online. They were founded in 2000 and were the first telecommunication company to exist exclusively online (Politiken 2013). Telmore was early adopters of the interactive platform that web 2.0 has provided and is a great example of a company that successfully manage relationships online. Relationships are build online through a range of touch points e.g. Website-chat and review sites (Telmore 2014a and Trustpilot 2014). Six years in a row they have obtained records for satisfied customers in the telecommunication industry (Telmore 2014b). The company has made a great effort in engaging customers in creating content on review sites and interacting with customers surviving negative content in the transparent web 2.0.

Conclusion

In the era of web 2.0 customer relationship management (CRM) in its traditional form has changed due to the possibilities of interaction, reach and co-creation empowering the consumers. Initially companies need to consider more nuanced measures for CLV like the value of customer influence, referrals and knowledge. Producing contact points that engage the consumer and provide value to both company and consumer are necessary actions in the social CRM perspective. Furthermore, companies must consider different strategies for acquisition, retention and termination dependent on the level of consumer engagement.

The bad news for companies is that studies have shown that negative content has a stronger effect than positive content. Negative content is unavoidable, but to improve relationships and benefit from the use of E-WOM it should be an interactive and engaging process. Obtaining positive E-WOM has potential for companies as it is often perceived to have higher credibility and trustworthiness than traditional media. Furthermore, consumers are becoming increasingly interested in co-creating content for companies. Companies hold back due to the loss of control over brand messages and meanings, but it is suggested that involvement from a skilful marketer increases the likelihood of a favourable outcome. Companies can benefit from engaging in collaborative CGC and CGC is expected to nurture stronger relationships between companies and consumers.

Opposed to the empowered consumers, the web 2.0 has also provided companies with insights about consumers creating possibilities to identify advocates and prevent termination of a desirable relationship.

References

Akar, B, Topsu, (2013), “An examination of factors influencing consumers’ choice of social media marketing”, Journal of Internet Commerce, 10(1), 35-67.

Barwise, P. and Meehan, S. (2010), “The one thing you must get right when building a brand”, Harvard Business Review, December.

Chrisodoulides, G. (2009), “Branding in the post-internet era”, Marketing Theory, 9, 141.

Deighton, J. and Kornfeld, L. (2009), “Interactivity's Unanticipated Consequences for Marketers and Marketing”, Journal of Interactive Marketing, 23, p. 4-10.

Fournier, S., Avery, J. (2011), “Uninvited brand”, Business Horizons, 54, 193—207.

Hanna, R., Rohm, A. and Crittenden, V. (2011), “We’re all connected: the power of the social media ecosystem”, Business Horizons, 54, 265-273.

Muniz, A.M. and Schau, H.J. (2011), “How to inspire value-laden collaborative consumer-generated content”, Business Horizons, 54, 209-217.

Malthouse, E.C., Haenlein, M., Skiera, B., Wege, E. and Zhang, M. (2013), ‘’Managing Customer Relationsips in the Social Media era: Introducing the Social CRM House’’, Journal of Interactive Marketing, 27, p.270-280.

Papasolomou, I.  & Melanthiou, Y. (2013), “Social Media: Marketing Public Relations ‘New Best Friend”, Journal of Promotion Management, 18(3), 319-328.

Politiken (2013) TDC rydder op: Opløser selskabet Telmore og lukker Onfone [Internet]. Available from <http://politiken.dk/oekonomi/virksomheder/ECE2113942/tdc-rydder-op-oploeser-selskabet-telmore-og-lukker-onfone/> [Accessed 14 February 2014]

Sandes, F.S. & A. T. Urdan (2013), ” Electronic Word-of-Mouth Impacts on Consumer Behavior: Exploratory and Experimental Studies”, Journal of International Consumer Marketing, 25(3), 181-197.

Telmore (2014a) Kontakt [Internet]. Available from <https://www.telmore.dk/kontakt> [Accessed 14 February 2014]

Telmore (2014b) Press release [Internet]. Available from <https://www.telmore.dk/1210849510069/PressRelease_C/om-telmore/pressrelease-2008-10-16> [Accessed 14 February 2014]

Trustpilot (2014) TELMORE reviews [Internet]. Available from <http://www.trustpilot.com/review/www.telmore.dk> [Accessed 14 February 2014]

Wind, Y.J. (2008), “A plan to invent the marketing we need today”, MIT Sloan Management Review, 49(4).

Social media’s function as a catalyst

18th August

Written by Izabelle Bäckström

How frequently do you log on to your Facebook account in order to get a glimpse of the latest news, or go to LinkedIn.com to see whom will be your next business contact to add to your valuable network?

My honest answer to the question above would undoubtedly be “too often”, and by reflecting upon my friends’ behavioral patterns on social media platforms I am not alone with this addiction.  Interestingly, social media has turned into a communication vehicle that enables constant interaction between people, twenty-four hours a day, seven days a week. Thus, as it has become more widely practiced among the public, companies have concurrently recognized golden growth opportunities with expansion on different web-based social platforms. With significant benefits such as inexpensiveness, international audience, and instant feedback from consumers, companies and their respective brands have found new Web 2.0 platforms to capitalize on (Papasolomou & Melanthiou, 2012). However, social media does not only provide potential profit gains. It also represents an uncontrollable environment where companies and brands are put in an increasingly vulnerable position since the information velocity patterns are difficult to predict. You simply cannot control what consumers will reveal about your brand, and what the impact will be on the reputation (Armelini & Villanueva, 2011). Subsequently, the purpose of this paper is twofold. Firstly, it examines how social media acts as a catalyst through a consumer perspective as shared information becomes crucial in the purchasing process. Secondly, it investigates the implications for companies with regards to reputation management as social media alters the communication landscape. 

Social media: A change catalyst

Evidently, social media has revolutionized the internet by its ability to connect people and hence it has transformed the way human beings communicate on a daily basis. As a result, it has altered the traditional buyer-seller exchange dynamics where the power structures of conversation nowadays lie on the consumers’ side of the negotiation table (Kietzman et al., 2011). Social media is accordingly defined as social web-based forums such as Facebook, LinkedIn and MySpace (Akar & Topcu, 2011). A wider distinction of this contemporary phenomenon can further be made by including blogs, video sharing, wikis and podcasts (Papasolomou & Melanthiou, 2012). Today consumers are the main drivers of dialogue which enhances social media’s role as a catalyst for change of communication patterns from an offline to an online environment (Hanna, Rohm & Crittenden, 2011). No longer does a one way communication exist where the company directs information on products, services and brands and where consumers are passive recipients. Consumers are today actively using the platforms for various interactive purposes, for instance it is used to educate each other about their consumption experiences. This user generated content has intensified companies’ dependence on customers because in this online environment rumors spread fast (Hardey, 2011). Whether it is a comment left on Amazon or a YouTube review of a product, the user generated content provides valuable insights to consumer behavior. The online setting enables former and actual customers to conveniently share, edit, generate, critique and rank information and thoughts on specific companies, brands and services. Consumers are able to create and engage in communities where a piece of information, either positive or negative statements, can reach a vast number of networks in a short period of time. This is also referred to as electronic-word-of-mouth, and it has tremendous importance for companies to monitor as it influences other peoples’ purchasing intentions and decisions (Hardey, 2011; Bhagat, Klein & Sharma, 2009).

Social media: Catalyst for change in consumer behavior

Not only do social media act as a catalyst for the communication landscape as a whole.  More specifically, it entails that consumers can access available information whenever and wherever they want, given access to Internet. This accordingly affects consumer behavior in terms of awareness, attitudes and information acquisition (Mangold & Faulds, 2009). Subsequently, consumers’ decision making process is influenced when intending to buy a product or service.  What it all boils down to is how the consumer perceives the information gained in the initial step of information search before buying, and secondly how the consumer prefers to share the experience in the post-purchase communication and evaluation (Gensler, Verhoef & Böhm, 2012). As consumers go through their purchasing process, they move initially from mere discovery to validation, and within this process the tool of social media acts as a catalyst that confirms or disapproves the purchasing intentions.  That is, social media provide frames of mind for the consumers.

The framing of human mind is a part of the cognitive structures that shape consumer attitudes and behavior (Christensen & Olson, 2002). These mental structures are psychological phenomena that one is more or less aware of and hence it is directly affecting consumer behavior. The effects of mental frameworks partly depend on how well the individual has improved self-awareness and self-reflection along the journey of life. We are all framed by previous experiences and knowledge, and all of us bring an invisible luggage wherever we go that reflects the way one behaves, talks and interacts with people around us.  If we are lucky we are surrounded by people that encourage us to reveal our behavioral blind spots that we fail to identify ourselves. As a result, one is able to bring unconscious behavior to a conscious level to improve the ways of thinking and acting into critical terms. Yet, how to bridge this over to social media’s function as a catalyst? Simply put, as human beings today tend to spend a vast number of hours online, what appears in social media affects the way that we perceive the world around us. Thus, peer opinions revealed in online communities have shown to not only impact purchasing decisions, but also our perception of our surroundings (Akar & Topcu, 2011). Social media can even be a catalyst for social and political change. A striking example is an issue that was addressed in class, namely Kony 2012. With more than 43 million views on YouTube within two days after publication, the response from the public was massive and immediate. The emotional video about innocent children that are forced to become soldiers and sex-slaves in Uganda rapidly caught peoples’ attention and touched many hearts. Nevertheless, this video has also been criticized which has somewhat shadowed the viral success (Bal et al., 2013). However, it still demonstrates the substantial power of social media to mobilize resources in times of need and highlights its role as a catalyst to connect unrelated people for a common cause.

Social media: Catalyst for change in reputation management

A significant lesson to be learned from this is that social media’s function as a catalyst also is reflected in reputation management. As opposed to the previous section that dealt with consumer perspective, reputation management highlights the role of the company.  Thus, the power of social media concerns companies as much as it concerns consumers (Hoffman & Fodor, 2010). On the one hand social media represents profit opportunities for businesses to connect with consumers and generate loyal brand ambassadors (Papasolomou & Melanthiou, 2012). However, on the other hand it puts companies in a vulnerable position with regards to potential reputational damage if the brand or product quality is rumoured to be inconsistent by the public online (Xia, 2013). The online information flow is completely out of a firm’s direct control as companies cannot filter the information from one consumer before it reaches another. This is why reputation management has become an up-to date issue that continuously needs to be dealt with by the companies. With increasingly active consumers in the online sphere comes pressure of companies to monitor and respond to the opinions and attitudes expressed. Everything a company does reflect on its reputation, and thus the purpose of reputation management is to bridge the gap between identity of the company and the external image of it (Roper & Fill, 2012, p.5). In the end it is indeed the perception of the stakeholders that counts, not how the company itself states the image to the public.

Furthermore, as reputation management signifies being up-to date with consumers’ perception of a brand, it means that negative online reviews needs to be addressed quickly to prevent reputational damage. Bad news travel fast online and therefore companies must put instant emphasis on the feedback gained from consumers and other stakeholders. To further illustrate reputation management and its implications, let me use the concept of Corporate Social Responsibility (CSR). At first sight CSR may seem to be a one-dimensional concept addressing the social, economical and environmental consciousness of firms as a prerequisite for success in the long run. However, research has shown that CSR can actually function as a reputation insurance by affecting the beliefs of stakeholder that adverse events are caused primarily by bad luck rather than bad management (Minor & Morgan, n.d.). Thus, CSR can (if not mismanaged) create a favourable halo that embraces the trust for the corporate brand. The halo effect accordingly entails that positive associations are equivalent to the company’s brand, products and services (Roper & Fill, 2012, p.141).Thereby, in times of crisis it enables the company to rely on its reputational reservoir by the trust that has been generated over time through CSR programmes (Minor & Morgan, n.d.; Greyser, 2009). Similarly, regardless of performing CSR work or not, a company benefits from creating trust and long-term relationships with its customers to protect itself in the challenging and uncontrollable online environment. By the same token, by accentuating positive user generated content the firm can contribute to engagement and loyalty, and hence resonate favourable associations (Papasolomou & Melanthiou, 2012). Indeed, since reputation is a judgement from the market, it needs to be managed wisely in order to be preferably preserved. 

All in all, companies benefit from recognizing the catalyst role of social media. Evidently, consumers today tend to live actively online where interaction provides frames of mind for them. Information acquired online then affects consumer buying processes which become critical for companies to understand. The implications signify that companies need to be up-to date with consumer perceptions that are expressed and reinforced online. By adapting an early warning system firms may be able to scan the online environment for current attitudes and behaviours. However, this is easier said than done.  It is time consuming as well as it requires the company’s representatives to be open-minded and unbiased when scanning the online periphery for perception trends. If open-mindedness and creativity are not closely attached to the prevailing norms in the organization, then this way of approaching the online sphere may be even more complex. Nevertheless, to manage reputation requires the firm to discover unfavourable associations at an early stage to prevent potential damage. Since this can actually make or break a company, it is even a question of survival in the long run. The key to successful reputation management appear to be long term relationships with customers since this will generate trust over time, given that brand (or product) promise is fulfilled, i.e. aligned with consumers’ expectations. With a solid trust foundation consumers tend to be more forgiving in times of crisis which is an important feature of today’s dynamic online environment.

Reference list

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