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

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