Category: Research Insight

Study on Second Life and Corporate Innovation

Posted on

Together with Linden Lab, the creator of Second Life, my research team is conducting a study on corporate innovation as reflected by companies’ participation in the virtual world Second Life.  In particular, we are interested in why corporations engage in cutting-edge innovations such as Second Life, despite the risks involved, and the benefits that are received through such ventures.  If your company has conducted any activities in Second Life, we would like to invite you to participate in a survey that constitutes part of the research project.  The survey will take only 10-15 minutes to complete, and we would be pleased to share the results of our research with you after the project’s completion in the form of an executive summary.  Please note that although Linden Lab has been working with us on facilitating the data collection process, we are not working with any commercial interests, and we will not share any data that can be tracked back to individuals or firms unless you first provide written permission to do so.

If you are interested in participating, please click on this survey link to launch the survey.  If you have any questions about the project, please feel free to contact us through the Contact Yuping form or via email to wjudge@odu.edu.  Thank you!

Loyalty Program Saturation (or Not)

Posted on

With the current downturn in US economy, many companies are adding loyalty programs to their marketing toolbox, both as a customer relationship management tool and to demonstrate better value to existing and potential customers.  In some industries such as travel and financial services, numerous rival loyalty programs are offered, creating intense competition among these programs. This pervasiveness of loyalty programs has led some to conclude that such programs may be a necessary cost of doing business or argue that memberships in multiple loyalty programs may eventually cancel out the effects of each individual program, creating a zero-sum game. With a large number of competing loyalty programs, are firms merely giving away profits in a desperate struggle to win business, much like the airline price war in the early 1990’s?  Or are loyalty programs a viable strategy that can increase revenue potentials, even with competitive offerings in the same market?

These are the questions my co-author and I intended to answer with our forthcoming article in the Journal of Marketing entitled “Competing Loyalty Programs: Impact of Market Saturation, Market Share, and Category Expandability“.  Using 30 years of historical data from the airline industry supplemented by consumer survey data, we found that an airline’s frequent flyer program does not always lead to beneficial outcomes for the offering firm and that only high-share airlines experience sales lifts from their loyalty programs. As high-share firms tend to possess complementary product and customer resources, they are more likely to gain from their loyalty programs than firms with a smaller market share.

Our research also reveals that crowding the marketplace with loyalty programs can diminish the return of an individual program. However, this saturation effect is contingent on the expandability of the product category. When the products from one industry can be extended to meet the demands in related industries, the competitive landscape shifts to include not only competitors within an industry (i.e., other airlines) but also firms in those related industries (i.e., other modes of transportation). Looking from this broader perspective, the imitation of loyalty programs among direct competitors can still derive competitive advantage within the broader market if competitors in alternative categories do not yet possess such resources. Under this situation, saturation becomes less of a threat to the success of each individual program in the focal industry. For the airline industry, due to its relatively high category expandability, the overall effect of market saturation becomes insignificant.

The findings from this research caution against an urge to launch a loyalty program simply because every other competitor is doing so. Rather, a firm who is pondering the launch of such a program in an already saturated market should carefully take into consideration the flexibility of market demand and whether importance resources (e.g., products, customers, data analytic capabilities) exist to complement such a program.

For further readings, you are encouraged to download a preview copy of the loyalty program competition paper from my website, or from the Journal of Marketing website.

Leveraging Online Media and Online Marketing

Posted on

The “Leveraging Online Media and Online Marketing” conference sponsored by the Marketing Science Institute just ended. The two-day conference brought together researchers from major universities and practitioners from MSI membership companies to discuss the emerging issues of online marketing. I summarize below three overarching sentiments that I observed from the conference:

(1) Facing lower switching barriers and declining consumer loyalty, companies are investing heavily into engaging their customers in the online channel. Different techniques were discussed, such as creating an environment for consumer-to-consumer interaction, incorporating consumer-generated content, and using multimedia contents such as video. Many of the ideas build on the increasing importance of social networking on the Internet, including some early exploration into the newest form of social networking in virtual worlds. No matter what form is used, however, the key is still to provide real value to consumers, whether that value comes from the firm or from other consumers.

(2) With the vast amount of brand-related commentaries and reviews online, companies are also watching closely what consumers are saying about their products and services. Specialized internal teams have been formed to plow through this valuable market information. For some companies, this information has powerful influences on their product mix and customer service decisions. With regard to negative comments and publicity, participants disagreed on how they should be handled. While some dismissed them as a natural part of life/business, others think they should be addressed more formally. Company blog seems to be the common approach, although other traditional PR channels are also mentioned.

(3) A major concern with many marketers is a lack of clear metrics for measuring online marketing, especially as it relates to social networking. This difficulty can be attributed to two sources: not understanding the true effect of some techniques (e.g., what is the value of positive or negative word-of-mouth); and an inability to track sales and conversion to the appropriate source (e.g., did this consumer buy because of that banner ad or because of a consumer-posted recipe). It is clear from the conference discussion that simple traffic building measures such as hits and visitors are not enough, as they do not necessarily lead to the critical step of conversion. But it is less clear what the right metric system should be. Without proper measurement, it becomes difficult to determine the right allocation of budget into different channels and campaigns.