Category: Social Media

Wharton Conference on User-Generated Content Part I

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In between the wedding and my race against the clock to get as much research done as possible before my research leave is over in January, the year 2009 has quietly slipped away and the holiday season is already upon us.  First of all, happy holidays!  As a gift to my readers, I want to bring some new exciting research insights from the conference The Emergence and Impact of User-Generated Content (UGC) I just attended in Philadelphia last week.  The conference was co-hosted by the Wharton Interactive Media Institute and the Marketing Science Institute, and featured top-notch researchers and practitioners who work in the field of social media and UGC.

A major question addressed by quite a few presentations at the conference was the impact of user-generated content. So in Part I of this two-part conference report series, I would like to highlight three presentations that I found particularly interesting with regard to this topic.

Philadelphia

Does consumer chatter about a product affect stock return?

The answer is yes, according to the research presented by Professor Gerard Tellis from the University of Southern California. In their research, Professor Tellis and his doctoral student Seshadri Tirunillai looked at six diverse product categories with rich consumer reviews: data storage, footwear, toys, personal computers, cellphones, and PDAs/smartphones. They gathered consumer reviews in these product categories from three sources: Amazon.com, Epinions.com, and Yahoo! Shopping. These reviews were then analyzed for the overall rating, review volume, and valence (positive or negative) of review associated with each product. Using a mathematical approach called vector autoregressive, the researchers tied these review characteristics to each company’s stock return and volatility. They found that consumer reviews lead stock performance by a few weeks (meaning that consumer reviews can help predict stock performance a few weeks ahead). Specifically, the volume of review (after controlling for the valence of review) has a positive effect on stock return.  The overall rating (e.g., 3.5 out of 5) did not have any significant impact on stock performance.  But the number of negative reviews and the average percent of negative expressions in the reviews negatively impact stock return and increase stock volatility. In contrast, positive reviews did not have a significant impact.

Lessons for marketers:

  • It is justifiable not only from a marketing perspective to monitor consumer opinions in social media but it makes financial sense as well. Research such as this can help make an argument to financial managers why a company should invest in such monitoring activities.
  • Although positive reviews may make one feel warm and fuzzy, it’s much more important to pay attention to negative reviews.  In general, negative information is much more diagnostic in conveying market sentiment.

Lessons for investors:

  • Consumer reviews may seem far removed from the complex mathematical modeling that goes into stock picking and performance prediction. But this research suggests the value for investors to monitor this social space.
  • The researchers further recommended a few investment approaches. For example, as a short-term strategy, buy a stock when its product review enters top 20% and sell the stock when it drops out of the top 20%. The recommended holding period for this strategy is 6 weeks.

Do bloggers affect product sales?

Bloggers like me probably would all like to know that we are making a real impact after the time and effort we’ve put into our blogs. Some companies also invest heavily in the blogosphere and want to know whether that’s a wise thing to do. The research presented by Professor Sriram Venkataraman from Emory University found that blogger influence is geographic-specific depending on the demographics of a market.  Using movie industry data, this research finds that a movie’s first-day national sales is not associated with blog variables.  However, when looking from the DMA (designated market area) level, strong geographic influence emerges. Not surprisingly, markets with a larger portion of young people are more likely to be affected by blogs and at the same time are more likely to discount the influence of company-sponsored advertising.  For markets with a higher proportion of female consumers, the research found that they tend to be more forgiving to negative blogs.  These consumers could read quite negative blogs about a movie but still feel and act positively toward the movie.

Lessons for marketers:

  • Consumer blogs can be a worthwhile tool to integrate into a company’s marketing strategy.
  • Selectively using these tools based on each market’s demographics may be more effective than a blanket strategy.

What about user contribution in new product development?

This research first struck me as using a very clever data source to address an important question.  Partially based on Professor Matthew O’Hern’s doctoral dissertation, this project uses the well-known open source community SourceForge.net to examine if user collaboration and contribution truly lead to better and faster product development. The answer is mixed. O’Hern and colleagues classified user contributions on SourceForget into three categories: (1) user reports: reports of bugs and issues found in a piece of software; (2) user requests: requests of new functionality or modifications to be added to future software releases; (3) user revisions: user-submitted solutions (i.e., codes) for fixing certain problems or adding new functionality to a software release.  They found that:

  • User reports of problems increase release activities, indicating a positive impact on software development.
  • At the same time, such problem reports alert other users of issues with the software and reduce the download volume for a software release.
  • User requests have the most negative impact, both reducing download volume and release activities.
  • Most surprising to me, users submitting their own solutions did not have any significant impact on release activities.  The only impact it had was on increasing download amount for a given month.

Lessons for marketers:

  • Wiki-type efforts by users may not always be beneficial to a company’s new product development.  When not properly managed, it can actually prolong the development process and reduce the speed-to-market.
  • Caveat: SourceForge is a community of mostly volunteers who do not have a strong commercial interest. Therefore, the proper utilization and integration of user revisions may be limited due to the lack of human power and resources. I would not be surprised that user submission will have a more positive impact in a more closely managed environment.

* * * * * * *

Plenty of information to digest for a while.  So I’m gonna stop here for Part I of the series.  What do you think of these research insights?  I’d love to hear back from you.  If you find any of these projects particularly interesting and would like more information, I encourage you to contact the presenter.  Whenever possible, I tried to provide a link to the presenter’s homepage so that you can find his/her contact information.

In Part II of this series, I will discuss another project on a privacy-friendly target advertising approach based on social network data.  I will also share with you a few high-priority topics related to social media and Internet marketing that were identified by practitioners at the conference.  So stay tuned!

Best Practices — Engaging Customers at ING Direct

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Established about about nine years ago, ING Direct (the US subsidiary of the Netherlands-originated ING Group) has quickly become a popular bank among tech-savvy and savings-oriented customers.  Much of its success can be contributed to the way it engages and empowers consumers, as described in the book The Orange Code coauthored by ING Direct’s founder & CEO Arkadi Kuhlmann and the branding expert Bruce Philip.

Start with the Brand
As a brand, ING Direct stands out with its distinctive orange dot logo, like the way Apple stands out with its half-eaten apple logo. The color came from its parent company ING Group’s logo — an orange lion.  Considered the most “edible” color, the warm tone of orange conveys a sense of energy and caring. The dot further adds the touch of fun and rebellion.  Together, the orange dot is a significant departure from the usual uptight image of suit and a tie associated with most banks.  This is perfect for ING Direct’s target audience of younger and tech-savvy consumers.

ING Direct Facebook

Social Media Engagement

ING Direct’s social media portfolio consists of a fairly standard set of tools: Facebook page, Twitter, Flicker, YouTube, and a blog called “We, the Savers“.  While any company can establish a presence on these social networking sites, not everyone is able to build them into interactive channels that truly engage the customer. I am especially impressed with ING Direct’s Facebook page (see the screenshot above).  Here are a few things that I think they are doing particularly well:

1. A clear mission: consumers. Instead of trying to sell their financial products, the page has a clear mission: to serve “We, the Saver”.  As the little blurb in the left side bar puts it concisely: “Proud to be a Saver? You’ve come to the right place. It’s where we inspire our fellow Americans to save their money.” This goal of “inspiring” rather than “selling” brings consumers much closer to the company, uniting the savers into one big family. In today’s economic environment, this likely resonates with a lot of consumers.

2. Content from third-party sources that has nothing directly to do with the bank but very relevant to consumers. For example, a recent post on the page is an article from the website getrichslowly.org on how to use a flowchart to evaluate potential purchases. This is information that savers would really be interested in reading. ING Direct then adds a little personal touch to the content by adding in the comment: “We learned about flow charts in 7th grade English class. This is the first practical use we’ve seen since then:” This again reflects a consumer-centered approach and comes cross to consumers neither as pushy nor condescending as one might expect from a commercial bank.

3. Plenty of opportunities for interaction. Oftentimes ING Direct posts little fun questions to consumers on the page (and via Twitter).  Here are a few questions asked recently: (1) “The library, visiting a pumpkin farm & going to the park are three great free fall activities. What are your favorite fall must dos?” (2) “Our favorite “money” movie quote may be from Swingers- ‘You’re so money and you don’t even know it!’ What’s yours?” (3) “Simple tips from everyday people on how to save money on everyday expenses: Got any others?” (4) “Will your next car be new, or pre-owned?”  These questions are things that consumers can easily relate to and answer, which motivate them to participate in the conversation.  I always see at least a dozen responses and comments on such posts, which also translates into potential better understanding of consumers by the company.

Take Away for Marketing Practitioners

Social media give power to people, and to win in this arena, focusing on the people is a must. Traditional mindset of selling is not going to work in this setting. If your business does not have the courage and culture to adapt to this new collaborative environment, it may be worse to pretend to be a social media participant when nothing you do is “social”. The end results will be skeptical consumers and wasted resources. ING Direct’s social media strategy offers good ideas on how to do this properly. For those who want further guidance, I recommend this Smashing Magazine article: “Social Network Design: Examples and Best Practices“. You may also find this report on the top 100 brands’ customer engagement level and its business impact useful.

Take Away for Marketing Academics

While customer relationship management and relationship marketing have gained strong hold in the academic marketing discipline, I think there has not been enough attention paid to customer engagement, especially through the use of social media.  I suggest a few research questions below that I believe are relevant to both marketing theory and practice.

  • How do we properly gauge customer engagement?  Is this a state of mind?  Or is this measured by the number of conversations and/or followers?
  • How should models of persuasion in traditional advertising being modified in the context of customer engagement?
  • Do consumers undergo different processes to form their attitude and satisfaction judgment when they are engaged with the brand vs. when they are not?
  • What metrics should be used to measure the outcome/ROI of customer engagement?
  • With these metrics in place, can we show that customer engagement does lead to visible business benefits?

What are your thoughts about customer engagement?  I’d love to hear your stories and questions about customer engagement.

Word-of-Mouth or Traditional Marketing?

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Some people may disagree with what I am about to say here: online social networks bring people closer to each other. At least that is the personal impact that they have had on me.  But what does this mean for marketing?  One answer is that word-of-mouth between consumers is carrying more weight in how we choose and consume products. Whether we love or hate a product, now it is so easy to make it known to the public that we are essentially affecting the opinions of other consumers (from total strangers to close friends) every day.

Managers are often hesitant to invest in encouraging word-of-mouth, however, as its effects are notoriously difficult to measure.  This is because word-of-mouth behavior is often unobserved, and it is difficult to tease out the concurrent impact of traditional marketing.  These are the exact problems a recent article by Michael Trusov and colleagues in Journal of Marketing tried to tackle.  Entitled “Effects of Word-of-Mouth Versus Traditional Marketing: Findings from
an Internet Social Networking Site”, this article offers a clear answer to the relative effectiveness of word-of-mouth vs. traditional PR and marketing.

Word of Mouth

What did they look at?
The impact of word-of-mouth, event marketing, and media appearance on the sign-ups for an undisclosed online social network.

Some intuitive findings:
More new sign-ups resulted in more word-of-mouth; event marketing led to more media appearance, and vice versa;  word-of-mouth was not affected by previous event marketing or media appearance, however, suggesting consumers’ relatively independent opinions and actions.

Some not-so-intuitive and very important findings:
The 3-day elasticity of sign-ups with respect to word-of-mouth was .17. In layman’s terms, this means that doubling the amount of word-of-mouth increases sign-ups by 17%. The corresponding impact from event marketing and media appearance, in contrast, was only 1.7% and 2.2%. The gap became even bigger with regard to long-term effects.  In the long run, the effect of word-of-mouth is 20 times that of event marketing and 30 times that of media appearance.  While doubling event marketing or media exposure led to 1.7% and 2.6% respective increase in sign-ups in the long run, doubling word-of-mouth increases sign-ups by a full 53%. Financially, an outbound word-of-mouth referral translates into 75 cents/year increase in advertising revenue.

What does this mean for marketing practice?
Word-of-mouth is a powerful tool for customer acquisition.  With the help of more powerful tracking tools provided by social networks and websites, it is possible for managers to measure the return from word-of-mouth activities. The mathematical approach used in this article (vector autoregressive modeling) further helps tease out the impact of other marketing and PR activities so that the true effect of word-of-mouth can be accurately measured. Together, this should reduce the hesitation to incorporate word-of-mouth into a company’s overall marketing strategy. The findings from this article also provide a strong motivation to better utilize word-of-mouth channel of communication.

Cautions
Readers should be cautioned from taking the results from the above research too literally.  Two things should especially be taken into consideration.  First, the data came from an online social network.  Customers on such websites are usually highly motivated to invite their friends, and those invited by their friends are also very likely to sign up.  If we were to change the context to, say, online banking, both the level of referral and the impact of referral are likely to be lower.  Second, the word-of-mouth activities studied in this article are all organic referrals initiated by consumers themselves. If the word-of-mouth had been stimulated by the company (say, with financial incentives), the referrals may not have been considered as genuine to other consumers and therefore may not have created as strong of an effect as reported in this study.  Although these are real limitations, the findings from this study are still quite powerful indicators of word-of-mouth effect. It is a tool managers should not ignore.

Reference
Michael Trusov, Randolph E. Bucklin, and Koen Pauwels (2009), “Effects of Word-of-Mouth Versus Traditional Marketing: Findings from an Internet Social Networking Site,” Journal of Marketing, Vol. 73 (September), p.90-102.