Literature CRM

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CHAPTER 2

LITERATURE REVIEW

2.1. Customer Relationship Management

A restricted view of Customer Relationship Management would be database marketing focusing

on how promotional marketing is linked to database management tools. A more widely accepted

idea states that it is the application of technology that emphasizes on individual or one to one

relationships with customers by integrating database knowledge with the long term prospects of

growth and customer loyalty. Managing a successful CRM implementation requires an integrated

and balanced approach to technology, process, and people (Chen, J. Injazz, Popvich, K .,

2003).CRM or Customer Relationship Management is an enterprise wide initiative that belongs

to all areas of an organisation (Singh D. and Agrawal, D.P. 2003). It reflects the comprehensive

strategy and process of acquiring, retaining, and partnering with selective customers to create

superior value for the company and the customer. Customer Relationship Management is a term

for the methodologies, technologies and e-commerce capabilities used by the firms to manage

customer relationships. In particular CRM software packages aid the interaction between the

customer and the company, enabling the company to co-ordinate all of the communication

efforts so that the customer is presented with a unified message and image.

CRM coordinates touch points around a common view of the customer (Eckerson and Watson,

2000). As the business gets larger and number of customer relationships to be managed increase

exponentially, it calls for integration of different business departments to collaborate the

customer information to provide a unified view of customer interaction to serve the customers

better. Customer Relationship Management is the strategic process of shaping the interactions

between a company and its customers with the goal of maximizing current and lifetime value of

customers for the company as well as maximizing satisfaction for customers (Rajagopal,Sanchez and Romulo Sanchez, 2005).

CRM can be viewed as an application of one-to-one marketing and relationship marketing,

responding to an individual customer on the basis of what the customer says and what else is

known about that customer (Peppers, Rogers and Dorf, 1999).It is a management approach that


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enables organisations to identify, attract, and increase retention of profitable customers by

managing relationships with them (Hobby, J., 1999) and further identifying strategically

significant customers (Buttle, F., 2001).

“CRM is an IT enabled business strategy, the outcomes of which optimize profitability, revenue

and customer satisfaction by organizing around customer segments fostering customer-satisfying

behaviour and implementing a customer-centric process” (Gartner group, 2008).

A detailed analysis of available definitions in the domain of CRM helps us compile the

following definition-

Customer Relationship Management is a comprehensive business strategy to empower

the internal functioning of an organisation with the aim to identify, acquire, deliver,

develop and retain customers. With the use of ever changing technology, this process

seeks to integrate various functions of an organisation, such that it becomes effective and

efficient in the long run. This enables the organisation to have a high customer share and

market share to gain a long term competitive advantage.

CRM is important because it costs 6 to 7 times more to acquire a new customer than to

retain an existing customer. An increase in customer retention rate by 5% can possibly

increase the profits by up to 95%. Further, all customers do not contribute equally to the

firm’s bottom line and thus are not equally valuable for the company (Natrajan, R. and

Shekhar, B., 2010).

The value of targeting the right kind of customers has become so important that the entire

success and failure of an organisation depends on customer acquisition and retention. It is for this

reason that technology has become very important in marketing in the form of CRM. To provide

a wholesome understanding about customers, effective data generation and data analysis is very

important, backed with appropriate data mining, organisations can reap such benefits.

2.1.1. The Goals of CRM

The goals of CRM are-

1. Build long term and profitable relationships with chosen customers.


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2.Getting closer to those customers with every point of contact with them (Shainesh G. and

Sheth, J., 2006).

CRM is an enterprise wide approach to understanding and influencing customer behaviour

through meaningful communication to improve customer acquisition, customer retention,

customer loyalty, and customer profitability. CRM can be viewed as an application of one-to-one

marketing and relationship marketing, responding to an individual customer on the basis of what

the customer says and what else is known about that customer (Rogers Peppers and Dorf, 1999).

It is a management approach that enables organisations to identify, attract, and increase retention

of profitable customers by managing relationships with them (Hobby, J., 1999) and further

identifying strategically significant customers (Buttle, F., 2001).

In the academic community, the terms “relationship marketing” and CRM are often used

interchangeably (Parvatiyar, A. and Sheth, J., 2002).The heart of marketing is relationships and

nurturing long term relationships should be the goal of marketing practice (Berry, L.L. and Wall,

E.,2006). Five macro environmental factors responsible for the growth of relationship orientation

in marketing (Sheth, J.N. and Parvatiyar, A., 2000) included-

Rapid technological advancements, especially in the field of information technology.

The adoption of total quality programs by companies.

The growth of the service economy.

Organisational development processes leading to the empowerment of individuals and

teams.

An increase in competitive intensity leading to concern for customer retention.

Customers are now more than ever demanding a different relationship with their suppliers,

managing a close relationship has become a central aspect in delivering the business goals (Xu,

Yen et al. 2002). A company’s product can quickly be compared to another, and many

companies are offering very similar products or services to each other. With this in mind, therelationship experience becomes one of the greatest competitive aspects for a business’s survival.

Increased competition reduces brand loyalty, making the job of the marketers more complex.

Further, customers also become indifferent to the myriad marketing messages being thrust upon

them. As a result, marketing needs to be more well directed and specific, because customers,

whether consumers or businesses, do not want more choices. They want exactly what they want,


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when, where and how they want it, and technology now makes it possible for companies to give

it to them (Joseph, P.B., Peppers, D. and Rogers, M., 1995).

Customers have hidden or overt preferences which marketers can reveal by building a learning

relationship. Earlier, marketers were attempting to interpret consumer needs on the basis of their

buying behaviours. Now, with the arrival of consumer generated media, which I discuss in the

next section, marketers have another avenue to learn about the consumer. The objective is to

keep the consumers satisfied and keep them loyal towards the company or brand. CRM, which

has also been described as ‘information-enabled relationship marketing’ (Ryals, L. and Payne,

A.F.T., 2001) comprises processes used by organisations to manage consumer relationships

which also include collecting, storing and analyzing data, and is often termed as data-driven

marketing. CRM attempts to provide a strategic bridge between information technology and

marketing strategies aimed at building long-term relationships and profitability. This requires

‘information-intensive strategies’ (Glazer, R., 2002). It is vital to maintain appropriate Customer

Information Management systems by acquiring customer databases and consolidating customer

feedback.

For decades, businesses tried to determine what their customers wanted using focus groups that

offered feedback about how well customers liked certain products. As the business world got

more complex and markets became more competitive, the kind of information that could be

gleaned from focus groups became inadequate for most businesses. They didn’t provide enough

information, nor was the information valuable after a product was already released.

Realizing the limitations of focus groups and similar marketing practices, companies decided

that they needed to know more about who their customers were, how they interacted with the

company, and how the company could reach out to customers in a meaningful way. This idea of

getting a “360-degree view” of customers was a nice concept, but it was never really achievable

within the limited spectrum of marketing and communication tools that were available (Wright,J., 2006).This is where interactive marketing had a vital role to play. Marketing has moved from

a transaction-based effort to a conversation and Interactive Marketing can be defined as the

ability to address the customer, remember what the customer says and address the customer

again in a way that illustrates that we remember what the customer has told us.


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The collaborative web is evolving as a significant interactive marketing tool and the ability to

remember what the customer has said is made easier when we can collect customer information

online and communicate with the customer easily using the connectivity provided by the internet.

Four main CRM strategic capabilities (Gordon, I., 2002), include-

Technology-This will enable the desired functionality for the CRM practice.

People- Skills, abilities and attitudes of the people responsible for the CRM initiative.

Process-The processes that the company has identified to enable or to ensure that the

CRM objectives are fulfilled-these include the transactional interactions with the

customers.

Knowledge and insight -To ensure stronger and deeper relationships with the right set of

customers, companies need to identify the right approaches that will enable them to gain

knowledge to gain insight for enhancing the customer value significantly.

For the purpose of my research, I use the following two definitions of CRM-

(i) Customer Acquisition and Retention are the twin objectives of CRM.

(ii) CRM is a strategic approach that is concerned with creating improved shareholder value

through the development of appropriate relationships with key customers and customer

segments. CRM unites the potential of relationship marketing strategies and IT to create

profitable, long-term relationships with customers and other key stakeholders. CRM provides

enhanced opportunities to use data and information, to both understand customers and co- create

value with them. This requires a cross-functional integration of processes, people, operations,

and marketing capabilities that is enabled through information, technology, and applications.

2.1.2. The CRM Continuum

CRM Defined: The CRM Continuum (A. Payne and Pennie Frow, 2005).

Table 2.1: CRM Continuum

CRM is about the CRM is the CRM is a holistic

implementation of a implementation of an approach to managing

specific technology integrated series of customer relationships

solution project. customer-oriented to create shareholder

technology solutions. Value.


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2.1.3. CRM Processes

CRM processes can be broadly divided into five categories: (Reinartz, W., Kraft, M. and Wayne

D. Hoyer, 2004).

1.

The strategy development process: This process requires a dual focus on theorganisation’s business strategy and its customer strategy.

2. The value creation process: The value creation process transforms the outputs of the

strategy development process into programs that both extract and deliver value. The three

key elements of the value creation process are (i) determining what value the company

can provide to its customer; (ii) determining what value the company can receive from its

customers and (iii) by successfully managing this value exchange, which involves a

process of co-creation or co-production, maximizing the lifetime value of desirablecustomer segments.

3. The multi channel integration process: The multichannel integration process is

arguably one of the most important processes in CRM because it takes the outputs of the

business strategy and value creation processes and translates them into value-adding

activities with customers.

4.

The Information Management process: The information management process is

concerned with the collection, collation, and use of customer data and information from

all customer contact points to generate customer insight and appropriate marketing

responses. The key material elements of the information management process are the data

repository, which provides a corporate memory of customers; IT systems, which include

the organisation’s computer hardware, software, and middleware; analysis tools; and

front office and back office applications, which support the many activities involved in

interfacing directly with customers and managing internal operations, administration, and

supplier relationships.

5. The Performance assessment process: The performance assessment process covers the

essential task of ensuring that the organisation’s strategic aims in terms of CRM are being

delivered to an appropriate and acceptable standard and that a basis for future


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improvement is established. This process can be viewed as having two main components:

shareholder results, which provide a macro view of the overall relationships that drive

performance, and performance monitoring, which provides a more detailed, micro view

of metrics and key performance indicators.

Table 2.2: Eight Building Blocks for Successful CRM

1.CRM Vision: Leadership, value proposition

2 CRM Strategy: Objectives, target markets

3. Valued Customer 4. Organisational Collaboration

Experience Culture and Structure

Understand requirements Customer understanding

Monitor Expectations People, skills, competencies

Maintain Satisfaction Incentives and compensation

Collaboration and Feedback Employee communication

Customer Interaction Partners and suppliers

5. CRM Processes: Customer life cycle, knowledge management

6.CRM Information: Data analysis, one view across channels

7. CRM Technology: Applications, Architecture, infrastructure

8. CRM Metrics: Value, retention, satisfaction, loyalty, cost to serve

Source: Adapted from Gartner Group, available at www.gartner.com

In this context, we discuss the role of CRM Technology.

2.1.4. Role of CRM Technology

CRM Technology aims at analysis of customer revenue and cost data to identify current and

future high value customers, to enable organisations to target their direct marketing efforts better.

In this context, CRM Tools help companies capture relevant product and service behaviour data,

create new distribution channels, develop new pricing models, build communities, process

transactions faster and provide better information to the front line. Also included are functions

for managing logistics and the supply chain more efficiently, as also catalysing collaborativE-

Commerce. Alignment of incentives and metrics, deployment of knowledge management

systems, tracking customer defection and retention levels and customer service satisfaction levels

are other contributions of CRM Technology (Buttle., F., 2004).


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2.1.5. CRM and Customer Life Cycle

The term customer life cycle refers to the stages in the relationship between a customer and a

business. It is important to understand customer lifecycle because it relates directly to customer

revenue and customer profitability. It is a series of progressive steps that a customer goes

through while considering, purchasing, using and maintaining loyalty to the company. Customer

lifecycle in the perspective of CRM also focuses on customer selectivity. All customers are not

equally profitable for a company (Storbacka K., 2000). Therefore it is very important for an

organisation to customize it’s one to one marketing programs by carefully targeting and

segmenting its customers. The organisations can even go for customer outsourcing such that a

company can allocate its valuable resources to customers it wants to serve the best. This will not

only help an organisation to filter its customers, but most importantly it will aid it to identify the

methods that are most cost effective, thus creating value for both the organisation and the

customer. Marketers say that there are three ways to increase a customer’s value: (i) increase the

use (or purchases) of products they already have; (ii) sell them more or higher-margin products;

and (iii) keep the customers for a longer period of time.

There are four types of customers in the customer lifecycle:

1. Prospects: People who are not yet customers but are in the target market.

2. Responders: They are prospects who have exhibited some interest, for instance, by filling

out an application or registering on a web site.

3. New customers: They are responders who have made a commitment, usually an agreement

to pay, such as having made a first purchase, having signed a contract, or having registered at

a site with some personal information.

4. Established customers: They are those new customers who return, for whom the

relationship is hopefully broadening or deepening.

5. Former Customers: They are those who have left, either as a result of voluntary attrition

(because they have defected to a competitor or no longer see value in the product), forced

attrition (because they are no longer in the target market, for instance, because they have

moved).

From the perspective of CRM, the customer lifecycle (Stone M., et al. 2003) has been divided

into five progressive stages:


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1. Identification: At this stage, a company identifies the right set of customers to be targeted

and offered its products and services in light of its marketing objectives.

2.

Acquisition: The company promotes its products and services to the set of customers

identified and acquires the customers by selling them.

3.

Delivery: At this stage, the company sells the product or service. This is an important stage,

as the customers experience the company and its offerings first hand.

4. Development: Here the focus is on maximising the value of the customers by delivering

customized products (Ansari, A. and Mela., C.F., 2003) and cross-selling (Kamakura,

Wagner A., S. Ramaswami, and Srivastava, R., 1991, Kamakura, Wagner A., Michel Wedel,

Fernando De Rosa and Jose A. Mazzon., 2003). Cross selling increases the existing customer

value and also broadens the relationship with the customer.

5.

Retention: Customer retention stage refers to the proactive steps taken by the organisation to

detect and prevent customer churn. This helps in increasing the customer base value to the

organisation.

2.1.6. Bonding for Customer Relationship Management

2.1.6.1. Financial Bonds

Financial Bonds tie in the customer primarily through financial incentives-lower prices for

volumes or for customers who have been patronising the firm over a period of time. Loyalty

programmes such as frequent flyer programs, rewards programs of hotels, and credit cards are

examples of financial bonding through volume and frequency rewards. Bundle and cross selling

is seen in the case of magazine subscriptions, Credit Cards, Telecom and Internet services in

which customers can buy other services provided by the same provider or someone else at a

lower cost.

2.1.6.2. Social Bonds

Marketers build social bonds with customers by viewing them as clients who are not merely

nameless faces. They find ways to keep in touch with them and interact with them to find their

changing needs and offer solutions. It is easy to visualise social bonds of the personal kind in the

context of professional service providers and personals service providers. During interactions,


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information sharing and rapport are necessary for providing the service as they also cement a

social, interpersonal bond. Opportunities for social bonding also exist in business markets where

the account/relationship managers work very closely with the client’s team. This helps them

build social bonds which transcend the commercial transactions.

2.1.6.3. Customisation Bonds

Intimate knowledge of customers and their needs developed through a learning relationship is

very useful in retaining valuable customers. Customer intimacy connotes that the customer is

actively sharing information during interactions and contributing in the marketer’s endeavour to

customise the products, services or any aspect of the marketing mix. Every member of the

organisation uses every opportunity of interaction to learn new things about the customer and

add to the organisational knowledge of the customer.

2.1.6.4. Structural Bonds

Structural bonds are created through integrated information systems, joint investments and

shared processes. Structural bonds are the strongest bonds and subsequently the most difficult to

break.

Structural bonds are stronger than customisation bonds, customisation bonds are stronger than

social and financial bonds. As the bonds become stronger, customer loyalty increases, and the

opportunities and scope for reaping the benefits of relationship marketing increases.

2.2. E-CRM

With the increasing interaction of business applications to the Internet, CRM has enhanced an

organisation’s capabilities by providing access to its customers and suppliers via the web. This

web experience and communication through the wireless web is called E-CRM.

E-CRM comprises activities to manage customer relationships by using the Internet, web

browsers or other electronic touch points. A higher degree of interactivity possessed by these

channels further allows companies to engage in dialogue, organize consumer redressal, solicit

feedback, respond to controversies and establish and sustain long-term customer relationships.

Existing companies are being challenged to rethink the most basic business relationship-the one


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between the organisation and its customers. Customer Relationship Management is a

comprehensive business and marketing strategy that integrates technology, process and all

business activities around the customer. Despite media hype about the internet changing the rules

of engagement with customers, it hasn’t changed the underlying fact that addressing customers’

needs leads to sustainable profit, (Pan and Lee.,2003), and that E-CRM is related to customer

satisfaction,(Feinberg and Kadam.,2002). In this scenario, where information overload in the

internet age can force people to become passive receptors of information, it is important for an

organisation to make sure that the right information reaches the right people at the right time. A

higher perceived value by the consumer in the organisational information will stimulate

consumer interest leading to a desire to interact, achieving ‘engagement ’ from the organisational

perspective.

While CRM can be considered as an approach or business strategy providing seamless

integration of every area of business that touches the customer, namely sales, marketing,

customer service and field support, through integration of people, process and technology, E-

CRM on the other hand, takes advantage of revolutionary internet technology to expand the

traditional CRM techniques by integrating technologies of new electronic channels and combines

them with e-business applications into the overall enterprise CRM strategy.

The practice of CRM involves tracking customer transactions and interactions across all contact

points and analyzing the transactions or interactions to make sense of the customer’s behaviour.

The terminologies associated with these issues comprise operational and analytical CRM. I now

focus on the three components of the E-CRM framework- Operational CRM, Analytical CRM

and Collaborative CRM.

2.2.1. Operational CRM

Operational CRM aims at combining sales, support and marketing databases into a single

repository that tracks and manages interactions with customers, thereby focusing on improving

the efficiency of customer interactions. It is concerned with the customer facing functions and

the capturing of data generated as a result of interactions with the consumer, across all contact

points. Operational CRM focuses on actual customer interfaces. In course of its day to day

transactions, a company collects large amounts of data about its customers, competitors and


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details about its processes and the environment in general. Such data contains hidden implicit

knowledge which could be profitably used by the company. Extraction of this data requires data

analysis using statistical and other such techniques. It involves process management technologies

across diverse functions of an organisation and involves the automation of horizontally

integrated business processes. Thus channel integration is important for an operational CRM

system. Online communities can aid this channel integration by hosting consumer enquiries,

order placements, organisation-consumer interaction during order fulfilment, and providing a

medium for conversion of consumer related tacit knowledge to explicit knowledge. Integration

of the same through data extraction and dissemination of actionable information across different

organisational departments, will successfully serve the CRM function.

2.2.2. Analytical CRM

Analytical CRM comprises the analysis of customer data for strategic or tactical purposes to

enhance both customer and firm value. Analytical CRM aids decision making using various tools

ranging from simple spreadsheet analysis to sophisticated data mining (Tanner, Jr., John, F.,

Ahearne, M., Leigh, T. W., Mason, C.H. and Moncrief, W.C., 2005). The analysis should enable

insight into consumer behaviour, and meet the objectives of the CRM initiatives, for the purpose

of business performance management and improvement. The aspects that could be covered

include prediction of consumer behaviour, creating segments of consumers based on their

purchase behaviour, understanding consumer purchase preferences, understanding changing

trends, identifying consumers at the risk of churn, analyzing responses to campaigns and

retention strategies. Customer analysis applications predict and interpret consumer behaviour and

the integrated customer information is used to build a business campaign strategy and assess

results. Also built are predictive models to identify the customers most likely to perform a

particular activity. Segment selection processes improve response rates and campaign

effectiveness and lower campaign costs by reducing the size of the original target segment.

Usually there are three major types of customer analysis applications-online analytical

processing, data mining and statistics. Data mining applications perform the analysis and extract

relevant consumer information. Analytical CRM depends on Operational CRM for getting the

input data on which analysis is to be done.


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2.2.3. Collaborative CRM

Collaborative CRM is primarily geared towards increasing the interactions between the

customers and the companies. Collaborative CRM facilitates interactions between customers and

companies and between members of the company around customer information to improve

communication and coordination, to raise customer switching costs and to increase customer

intimacy and retention. It involves business collaboration management technologies.

Collaborative CRM is an integrated organisation wide system which allows for greater customer

responsiveness throughout the supply chain (Kracklauer H. Alexander and Mills D. Quinn,

2004).Organisational collaboration results in productivity enhancement resulting in greater

profitability by enhancing cross functional effectiveness. Some collaborative CRM technologies

are voice, conferencing, email, web based and other interactive technologies.

2.2.4. Using Online Communities as tools for Operational, Analytical and Collaborative

CRM

Nowadays companies are using well defined CRM tools and applications like

(i) Buzz Stream for helping the company build credibility online via researching

influencers and tracking relationships, by tracking consumer communications and

engagements, thereby facilitating collaboration and delegating actions, which is

likely to result in increased sales and improved relationships.

(ii) Batchbook for shared contact management across the entire organisation, to maintain

a complete communications history for every individual. This further aids integration

with a number of web-based applications and has mobile versions for iPhone and

other smart phones.

(iii) KickApps to encourage organisations to develop an entire community with the

integration of other social media services into the mix. Their branded community

development with integrated features provides a familiar environment for the savvysocial user. They also make it easy to integrate one’s new community into an existing

website.

An online community acts as a repository for content and contextual data and the combination of

this data enables effective analysis of customer relationships and trends over time. While content


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data comprises the information captured about individual events and customer encounters, it is

primarily fact based information. The contextual data aims at providing a detailed context for the

consumer related information to facilitate decision making. Further, analytical data aims at

reflecting the relationship of fact data to contextual data for a specific point of time. The

effective integration of information content and context drives analytic applications which

evaluate the relationship of encounters under various contextual circumstances to identify

predictable trends in customer behaviours. The resulting information analysis can then be

incorporated into a business intelligence process.

CRM applications have focused on extending traditional contact management applications

through the collection and maintenance of more robust contextual customer information. An

online community can be used in this reference by preserving the context of the consumerinteraction. An important role in CRM is the process of applying lessons learnt from customer

information to enhance business and customer relationship behaviours.

Knowing customer behaviours over time and in the proper context provides companies with the

baseline information needed to adapt business decisions and operational behaviours to maximize

results. This information also reinforces successful practices and defines the future customer

interactions and behaviours likely to generate desired business results.

Figure 2.1: Online Communities for operational, analytical and collaborative CRM


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2.3. Community of Practice

2.3.1. Role of Information Communication Technology

Information communication technology is regarded as one of the most remarkable scientific and

technological developments during last couple of decades which has impacted our lives deeply.

This development has provided a lot of opportunity to leverage technological outcomes like the

internet as a new and innovative service delivery channel to optimize the value chain system of

the organisation in the long run (Hanudin et al.2008). As a result, a large number of

organisations are integrating the internet for an effective interaction between the company and its

customers. Information Technology can support distributed cognition by enabling individuals to

make rich representations of their understanding, reflect upon those presentations, engage in

dialogue with others about them, and use them to inform action (Boland et al. 1994).

2.3.2. Community of Practice and the Virtual World

A community of practitioners within which situational learning develops, which results in the

community developing a set of relations among persons, activity and the world. Extrapolating

from this definition, communities of practice can be seen to have three defining characteristics,

all of which flow from the community members involvement in some shared activities. Firstly,

participants in a community possess, and develop shared values and attitudes, a common ‘world

view’. These communities are highly dynamic as new members join. In these communities of

practice, the knowledge created and stored by members contributes to the organisation’s ability

to solve problems, create new products, innovate and ultimately increase productivity (Millen et

al. 2002). Recent years have seen exponential growth of online communities spanning diverse

categories. Started in 2005, You Tube has become the dominant video sharing website on the

Internet. More than 500,000 registered users are sharing over 45 terabytes of videos on You

Tube by 2006. Usenet, one of the oldest electronic communication infrastructures, has over

190,000 newsgroups worldwide with 48 million participants (Turner, 2005). Second life, a 3-D

virtual world opened to the public since 2003, now has 6,240,591 virtual residents owning and

building ‘virtual lives’ within. In the Gartner Symposium/IT expo 2007, Gartner analysts

suggested that “over 80% of the active Internet users (and Fortune 500 enterprises) will have a

virtual life online by the end of 2011” (Gartner, 2007). There are many more examples including

MySpace, Flickr, Epinions, Source forge and Wikipedia. Increasingly, online communities are


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also being used to support business and organisational needs. Some companies build their own

discussion groups to provide customer support (Jeppesen and Frederiksen, 2006) and encourage

user innovation (Von Hippel, 2005). For example, a computer-controlled music instrument

company sponsored an online user community that enabled its product to be modified and

improved by users, saving costs of market research, product development and technical support,

(Constant, 1996). Software vendors like Microsoft and IBM maintain Usenet newsgroups,

mailing lists, and online forums to provide technical support for users. Electronic communities

are implemented within organisations to enable knowledge sharing (Wasko and Faraj, 2005).

Others participate in existing online forums attempting to influence customer purchase decisions

(Dellarocas, 2006). Moreover, Open Source Software projects such as Linux, Apache and

Mozilla successfully use online communities to facilitate coordinated development work among

millions of developers and users distributed across the world (Lee and Cole ,2003), (Mockus,

2002).

2.3.3.Definition of an Online Community proposed by various authors

Table 2.3: Online Community definitions

Author Definition

(Howard, 1993) Social aggregations that emerge from the Net when enough

people carry on public discussions long enough, with

sufficient human feeling, to form webs of personal

relationships in cyberspace.

(Hesse, 1995) A community that spins time and geography, a community

that supplements buildings and streets with personal

computers and information superhighways.

(Hagel and Armstrong, 1997) Virtual Communities are computer mediated spaces where

there is a potential for an integration of content and

communication with an emphasis on member-generated

content.


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(Carver, 1999) Virtual Communities are about aggregating people. People

are drawn to virtual communities because they provide an

engaging environment in which to connect with other people

sometimes only once, but more often in an ongoing series of

interactions that create an atmosphere of trust and real insight.

(Craig and Zimring,2000) A sense of community, that is, it is not guaranteed by

opportunities for interaction but, rather, must grow out of

interaction itself.

(Ho,chraefel andChignell,2000) Technologically mediated, persistent, environment which

supports: multiple interaction styles, capability for real-time

interaction, and multi-user engagement.

(Jones and Rafaeli ,2000) Virtual Publics are symbolically delineated computer-

mediated spaces, whose existence is relatively transparent and

open, that allow groups of individuals to attend and contribute

to a similar set of computer-mediated interpersonal

interactions.

2.3.4. Previous Classifications of Online Communities

Table 2.4: Online Community Classifications

Author Definition / Important elements ofan online community

Classification of

online

communities

Main emphasis

(Howard

Rheingold

1993, 2000)

- Virtual communities are social

aggregations that emerge from the Net

when enough people carry on those public discussions long enough, with

sufficient human feeling, to form webs

of personal relationships in

cyberspace.

Commercial,

non-commercial.

The human

relationships.


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Ph.D. Thesis

(Hagel and

Armstrong,

1997)

- People have four reasons to join:

interest, relationship, fantasy and

transactions.

- Distinctive focus as to membership,

emphasis on member-generated

content, choice among competing

vendors, commercially motivated

community organizers.

Consumer-

focused,

geographic,

demographic,

topical

B-to-B-focused:

Vertical

industry,

functional,

geographic,

business

category

communities.

The economical

benefits of an online

community.

(Klang and

Olsson ,1999)

-Functioning effective infrastructure,

active membership.

Non-profit and

profit, non-

company and

company.

The classification of

online communities.

(Amy Jo Kim,

2000)

-Purpose, places, profiles, roles,

leadership program, etiquette, events,

rituals, subgroups.

Geographic,

demographic,

topical, activity-

based.

The building

process of an online

community.

(Cothrel,

2000;

Warms,

Cothrel and

Underberg,

2000)

- Online communities are groups of

businesses, customers, or employees

with common interests interacting via

Internet.

- Community elements: member-

generated content, online events,

Member-to-member interaction,

Consumers (B-

to-C), business

customers or

partners (B-to-

B), and

employees (E-to-

E).

The active

management and the

community

programs.


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2.3.5. Previous Research conducted in the domain of Online Communities

Table 2.5: Online Community Previous Research

Research Stage Author Research Topic

Fundamental understanding (Romm and Clarke, 1995) Virtual Community Research

Themes: A Preliminary Draftfor a Comprehensive Model

(Jones,1997) Virtual-Communities, Virtual

Settlements & Cyber-

Archaeology: A Theoretical

outreach.

(Schubert and

Ginsburg,

2000)

- Virtual communities describe the

union between individuals or

organisations who share common

values and interests using electronic

media to communicate within a shared

semantic space on a regular basis.

Community of

interest (leisure

time, research

and business

community) and

Network

community

(Internet

community).

The concept of

online communities,

communities of

transaction.

Jennifer

Preece, 2000,

001)

- An online community consists of:

people, purpose, policies, computer

systems.

People, purpose,

policies,

computer

systems.

The sociability and

usability.

Dorine

ndrews,

001)

- Online communities consist of three

elements: trust and the nature of

computer-mediated communication,

online community implementation, the

impact of economics.

Traditional,

audience-centric.

Computer-mediated

communication and

the impact of

economics.


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Ph.D. Thesis

Outline

(Romm, Pliskin, and Clarke,

1997)

Virtual Communities and

Society: Toward an

Integrative Three Phase

Model

(Igbaria, 1999) The Driving Forces in the

Virtual Society

(Burnett, 2000)

Information exchange in

virtual communities: a

typology

(Ho, Schraefel, and Chignell,

2000)

Towards an Evaluation

Methodology for the

Development of Research-

Oriented Virtual

Communities

(Jones and Rafaeli, 2000) Time to Split, Virtually:

‘Discourse Architecture’ and

‘Community Building’ as

means to Creating Vibrant

Virtual Metropolises

(Andrews, 2002)Audience-specific online

community design

(Cummings, Butler and Kraut,

2002)

The quality of online social

relationships

(O’Neil, 2002) Assessing community

informatics: a review of

methodological approaches

for evaluating community

networks and community

technology centers


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Ph.D. Thesis

Technology development (Goodman and Darr, 1998) Computer-Aided Systems

and Communities:

Mechanisms for

Organisational Learning in

Distributed Environments

(Hattori, Ohguro and Yokoo,

1999)

Socialware: Multiagent

Systems for Supporting

Network Communities

(Bieber et al. 2002) Virtual Community

Knowledge Evolution

Functions derived and

adoption

(Erickson, 1997) Social Interaction on the Net:

Virtual Community as

Participatory Genre

(Faucheux, 1997)

How Virtual Organisation is

Transforming Management

Science

(Pliskin and Romm, 1997) The impact of e-mail on the

evolution of a virtual

community during a strike

(Cowan, Mayfield, Tompa and

Gasparini ,1998)

New Role for Community

Networks

(Wachter, Gupta and Quaddus,

2000)

IT takes a village: Virtual

communities in supporting of

education

(Berghel, 2001)A Cyber publishing

Manifesto

(Marlino, Summer, Fulker, The Digital Library for Earth


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Ph.D. Thesis

Manduca and Mogk, 2001) System Education: Building

Community, Building The

Library

(Stanoevska-Slabeva and

Schmid, 2001)

A Typology of Online

Communities and

Community Supporting

Platforms

(Swan, 2001) Knowledge Management in

Action: Integrating

Knowledge Across

Communities

Implementation and

outcome assessment

(Hesse, 1995) Curb Cuts in the Virtual

Community: Telework and

Persons with Disabilities

Chellappa, Barua and

hinston, 1997)

An Electronic Infrastructure

for A Virtual University

(Hardwick and Bolton, 1997)

The Industrial Virtual

Enterprise

(Hiltz and Wellman,1997) Asynchronous Learning

Networks as a Virtual

Classroom

(Rao, 1998)India Network – the first case

study of a virtual community

(Emmen ,1999) Establishing a Virtual

Medical World Community

(Pearson, 1999) Electronic networking in

initial teacher education: is a

virtual faculty of education

possible


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Ph.D. Thesis

(Majchrzak, Rice, Malhotra,

King, and Ba 2000)

Technology Adaptation: The

Case of a Computer-

Supported Inter-

organisational Virtual Team

(Piccoli, Ahmad and Ives,

2001)

Web-Based Virtual Learning

Environments: A Research

Framework and a

Preliminary Assessment of

Effectiveness in Basic IT

Skills Training

(Singh, Yu and Venkatraman,

2001)

Community-based Service

Location

Institutionalization (Kozinets ,1999) E-Tribalized Marketing: The

Strategic Implications of

Virtual Communities of

Consumption

(McWilliam, 2000) Building Stronger Brands

through Online Communities

(Rothaermela and Sugiyamab,

2001)

Virtual internet communities

and commercial success:

individual and community-

level theory grounded in the

atypical case of

TimeZone.com

(DeSanctis, Wright and Jiang,

2001)

Building A Global Learning

Community

(Bruckman, 2002) The future of E-learning

communities

(Jin, 2002) Design of a virtual


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Ph.D. Thesis

community based interactive

learning environment

(Wang, Yu and Fesenmaier,

2002)

Defining the virtual tourist

community: implications for

tourism marketing

Participation and

Contributions

(Sangwan, S.,2005) Virtual Community success:

A uses and gratifications

perspective

( Iriberri, A., and Leroy, G.,

2009)

A life cycle perspective on

online community success

Governance and Value

Creation

( Dahlander et al. 2008) Online Communities and

Open Innovation:

Governance and Symbolic

Value Creation

2.4. Online Communities

An online community is a group of people with some shared interest who connect and interact

with each other over time. Relationship of some sort is implied. The dawn of the information age

found groups communicating electronically rather than face to face. A computer mediated

community uses social software to regulate the activities of the participants. These are places

where people gather to share knowledge, build recognition and tap opportunities. Initially sensed

to be resource pools for value addition, where people ventured to fulfil their need for self-

actualization, participation in online communities and forums started as a medium for exchange

of ideas and information, and now organisations have started using these communities for

marketing through consumer evangelism and support. A web based communication model

utilizes the features of the network for B2C as well as peer to peer communication. On the

Internet, electronic tribes structured around consumer interests have been growing rapidly. To be


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effective in this new environment, managers must consider the strategic implications of the

existence of different types of both virtual community and community participation (Kozinets,

R., 1999).

Consumers join these forums because of the multifaceted opportunities they provide to members.

Not only do they provide information on products and services and latest promotional schemes,

they are also triggers for innovation. As likeminded people converge together, these are new

cliques where organisations can use opinion leaders for evangelism, while harnessing consumer

generated content for product improvement and co-creation. Corporates like Dell have

introduced ‘Ideastorm’ as a virtual interaction centre for consumers who participate in the

development and enhancement of Dell’s products and services by sharing their ideas online.

Enabling interactive electronic dialogue with user communities is one way of getting closer to

the customers.

The demographic composition of the user population has also changed to include people of all

ages, different cultures, educational backgrounds, and experience and technical skills. This has

led to a change in the range of people participating in various kinds of online communities. In

today’s era while some communities require members to have particular skills or qualifications,

there are millions of “open” communities in which anyone with Internet and web access can

participate. As a result the majority of users in these open communities and many others are not

technical people. Today’s online community participants come from all walks of life. Hence

online communities appear to have significant potential for organisations trying to interact and

build relationships with their consumers. Here customer orientation is given a new meaning and

the contents and processes of exchange between companies and customers are reconsidered if

firms want to retain their customers and cooperate with them (Broniarczyk, S.M. and Nakamoto,

K., 2002). What deserves a significant mention is that online communities represent a set of core

values like consumer culture, building consumer perceived value, conviviality, and strong

democracy, thereby building consumer equity and consumer retention.

There is a concept of empathy and trust prevalent in Online Communities as it is said that greater

similarities amongst people forge better understanding. Furthermore, when people discover they

have similar problems, requirements, opinions or experience, they may feel closer, more trusting

and be prepared to reveal even more.


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This has a “snowball effect” in that the more people discover that they are similar to each other,

the more they tend to like each other and the more they will disclose about themselves. This is

known as “self disclosure reciprocity” and it is powerful online. The reciprocity can be in the

form of exchanges of the same kind of aid or helping a mutual friend in the network. Even if

reciprocity does not happen immediately, it can happen months or years later, possibly with

another person in the community. In healthy communities, reciprocity is a general and accepted

norm amongst members.

Virtual communities are social aggregations that emerge from the net when enough people carry

on those public discussions long enough, with sufficient human feeling, to form webs of personal

relationships in cyberspace (Rheingold H., 2000).

The interest in online communities from a marketing perspective is driven by the belief that the

complex network of personal relationships and increasing identification with the group as a

community provide a foundation for a very attractive business model.(Farquhar, J. and Rowley,

J, 2006).An online community can only be built, maintained and leveraged for the benefit of

achieving the Customer Relationship Management goals of an organisation when both the

organisation and consumers perceive great value in it. Online technologies provide the ability to

refine marketing actions, while reducing the cost of routine sales as well as building loyalty,

these systems help in identifying community members who are most strategically significant to

the companies. A participant’s primary purpose for joining the community can be an interest,

need, information exchange, or service. Thus based on these dimensions, communities can be

understood better, as a strategic marketing tool for companies. Many business online

communities are created for good Customer Relationship Management (CRM) and Customer

Experience Management (CEM). Online communities have policies, in the form of tacit

assumptions, rituals, protocols, rules, and laws that guide people's interactions. One of the other

important constituents of the community dynamics, i.e. the purpose for the existence and creation

of the community from the perspective of the company, aims at obtaining direct revenues,

increased efficiency, acquiring new customers, serving as a breeding ground for innovative

ideas, and building stronger relationships. Online communities are increasingly being used for

organisational benefit to help consumers perceive greater value in organisational products and

brands through well defined Customer Relationship Management and Customer Experience


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Ph.D. Thesis

Management mechanisms. To provide them with a better management and technical support, a

systematic analysis of the community dynamics is required. The community’s internal structural

dynamics also influence members’ ongoing participation. ‘People’, the possible customers,

which are one of the important constituents of the community dynamics can be divided into four

groups, namely by the geography, demography, topic or profession. The division between

professional and consumer targeted communities gives a particularly clear distinction between

the B-to-C and B-to-B communities.

Use of cyberspace, usage of computer based information technology to support the activities in

an online community, communication and interactivity, content typology as driven by

community participants and value of volume and frequency of participation (Lee, F.S., Vogel D.,

Limayem M., 2003) are significant parameters of online communities. There are five stages in

community evolution: A potential stage, in which initial connections are developed, a building

stage for context and community memory creation, an engaged stage which focuses on access to

one another and community learning, an active stage in which serious collaboration starts, an

adaptive stage for innovation and generation (McDermott, 2000) (Wenger, 2002), (Gongla and

Rizutto, 2001). A successful online community should be able to achieve its purpose. (e.g.

targets can be hard like creating a new methodology as well as soft like leveraging collective

intellect.) But some goals are highly measurable and some were highly resistant to

quantification. The amount and quality of participation is considered as the primary indicator of

success (Cothrel, J. and Williams, R., 1999).

2.4.1. Company Online Business Communities

In the present scenario, many business companies view building online ‘brand’ communities as a

marketing strategy. These companies seek to build a new kind of relationship with their

customers through these communities. Many companies are currently hosting interactive

business-to-consumer (B2C) online community sites organized around their brand, products and

services to create reinforcing, competitively distinct and long lasting relationships with

customers, (Mc William, 2000). They aim to expand their markets and accumulating detailed

customer profiles for target marketing new and existing products and services. Companies are

often using these business communities to test new product ideas, involve customers in product

development, to monitor customer purchase patterns and to gauge early demand for products.


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The Kodak company’s web site has an embedded discussion board that serves as a gathering

place for discussion of photography. The various service providers such as Yahoo and Microsoft

host a large number of online communities to encourage traffic to their sites where they carry

advertisements.

Online communities, therefore, can constitute an important external source of innovation for

those firms able to implement a constructive relationship with them (Dahlander, L. and

Magnusson, M.G., 2005). Individuals in these communities may not only be able to develop

innovations that can be integrated into the firm, but also may come up with new perspectives on

and ways of framing problems.

2.4.2. Core Characteristics and Possible usage of Online Communities

In an online community, the members share the same physical space i.e. co-presence and have

access to shared resources. Co-presence breeds kinship amongst consumers. These members

have a shared goal, interest, need or activity that provides the primary reason for belonging to the

community. If organisations seed these communities with their evangelists (brand propagators)

and they are able to become opinion leaders, they can influence the opinion and decision of

entire consumer communities. Members are engaged in repeated, active participation and there

are often immense interactions, strong emotional ties and shared activities occurring between

participants. Reciprocity of information, support and services between members is thus obvious.

The Online Communities can be used for Customer Engagement which ultimately leads to

Consumer Empowerment. These communities act as catalysts for strengthening the bond

between company and consumer, building long lasting relationships with the consumer, creating,

maintaining and tightening the feedback loop, identification and resolution of customer issues,

creating customer loyalty through personal investment in order to maintain competitive business

edge. These communities allow for greater interactivity among members giving boost to self-

disclosure reciprocity. These communities are also a useful complement to CRM solutions. They

help in more accurate profiling of customers based on interests and behaviours-thus they can be

used to reinforce or manipulate brand image through better penetration of markets. They have

enormous potential to be used as a “test group” to gauge new products or advertising campaigns.

Last but not the least, these communities help companies to design a path for growth and change.


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For organisations, attracting online community users is not an end in itself, as the goal is to have

people share information or contribute ideas and the community is a means of achieving this

goal. As a result, organisational efforts tend to focus more on the results and less on the

dynamics of the community which may not be correct (Kozinets, Robert, P.,2004). The online

community managers should devote significant time in understanding who members are, what is

the nature of their work, what tools and skills they have, who they work with and share

knowledge with, and most importantly what kinds of knowledge tools and relationships they

want and need. In some organisations where community members have a high level of subject

matter knowledge, comfort with technology and access to a superior quality infrastructure, the

online community is almost entirely self sustaining. But in most cases the online communities

require a significant investment of time and effort to maintain and sometimes this effort is even

greater than the effort required to launch the community.

The most commonly cited formal roles in maintaining the community are:

(i)Subject Matter expert, (ii) Knowledge Manager, (iii) Moderator (iv) Help Desk

A Knowledge Manager is a person who does some kind of manipulation of online content,

ranging from editing to categorizing and archiving. They also have other responsibilities relating

to supporting the online community. Often online community managers personally solicit

participation from individuals who they thought could offer value to the community. Further, the

type of industry in which the organisation operates is very important. In industries characterized

by a rapid change the online communities tend to be more active. People struggling with

complex new products are compelled to seek out others with more experience. Here the usage of

online tools in an organisation is linked to the leadership style. As observed, the introverts and

extroverts adapted very differently to online tools. The introverts sometimes take a more active

role in online discussions depending on their comfort with the technology and confidence in

conveying their thoughts by writing. In contrast extroverts often failed to adapt to the online

environment since their strongest temptation is to pick up a phone and call someone. As

observed, majority of online communities use some kind of event to build the traffic or increase

participation in the online community. 3/5th of these events are online events either on line

training or web events in which members are able to hear from experts, ask questions or air

views. Physical events like “promotional tours” can be introduced to the prospective members

and a celebratory event that recognized participation of leading members can be conducted.


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Informal roles are a good indicator for the health of a community. When members are willing to

serve in informal roles, it means that the community is an entity that people value and want to be

part of.

Some common informal roles include:

1. Community Advocate: Members who are major supporters of the online community often

take an active role in encouraging others to participate. These people also get involved in

setting guidelines or organizing community activities.

2. Leader: They possess superior knowledge and expertise and are respected and

acknowledged by other members. They play an important role in the evolution of the

community. Experts serve as informal leaders and are essential in creating the boundaries of

discussion. They are permitted to stretch the boundaries thus allowing the discussion to grow

and change over time. The presence of these experts is also one of the many draws that

brings other members online as knowledge seekers go where the answers are.

3. Instigator: These members distinguish themselves by raising important but controversial

issues. This role is more common in Internet communities, but can occur in any online

group.

2.4.3. Salient Features of an Online Community

An online community is a potential source of loyalty, commitment, and increased retention of

participants. Online communities create value for all of their stakeholders including the host

members and any third parties such as advertisers. They can be used for value exploration in the

consumer cognitive space and enhancement of the relational equity of the firm. When enough

members actively participate, and as relationships, trust, and reciprocity build up in the

community, the community fulfills its goals and can even achieve collective goals and actions

for the benefit of all. Thus the features of online communities which make them part of the

value delivering and enhancing mechanisms in organisations range from co-presence,

reciprocity, building trust and conviviality. These features have well defined roles to play in

building relationships with customers and furthering the CRM goals of the organisation.


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1. Participation: A new type of communities is gaining momentum on the web and is

reshaping online communication and collaboration patterns and the way information is

consumed and produced (Kolbitsch., J.and Maurer, H., 2006). A community can further serve

as a value delivery mechanism to enhance the perceived value to the customers by product

promotions and enhancing customer cross selling and up selling, while also stimulating greater

content contribution and participation. Individual desires for self actualization, belonging to a

group and gaining prestige facilitate participation and mutually maximize the collective

intelligence of the participants. The value attributed to these applications is not based on the

classic customer value approach, but rather on some feeling of achievement through personal

gratification. The incentives offered by online communities can lead to higher levels of

participation. A community participant is both a member and a user who is also a virtual value

initiator for other members (Sangwan., S. 2005).

2. Degree of Participation: The degree of participation of members in an online community

primarily depends on the member’s ability to navigate the internet and around the community.

High interactivity with other members, reciprocity, volume of content contributed by a

member and ability to provide correct responses to other members leads to higher degree of

participation. Thus higher levels of degree of participation are related to purposive values and

self interest. Communication is multi-directional with members responsible for both providing

material and consuming information. As more content is available, members find the

community even more valuable and degree of participation increases. The content generation

can break down if members feel unappreciated or apathetic. The most valuable members and

their actions should be rewarded or at least acknowledged. Even a link to their contribution or

a status indicator under their name is sufficient. Sometimes having a list of top contributors

displayed on the main page of the community will boost at least their ego. If an individual

participates more heavily than others in the same online community at a given time, it

indicates that he or she expects higher benefits from participating than others at that time,either because of high value of participation, high expected benefits, low perceived

participation costs or lack of other alternatives. Thus the higher an individual’s level of

participation at a given time as compared to other participants, the more likely the individual

will continue in the community in the immediate future.


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3. Emotional Attachment: It refers to the members’ relationships and attachments within online

communities. (Blanchard, A.L., 2004) and (Blanchard, A.L., and Markus, M.L., 2004) studied

sense of community including feelings of belonging, safety, and attachment to the group. When

these feelings are present, members develop lasting relationships with other members, feel

attachment to the community, and perceive the online community as a source of emotional

support. In one specific online community, they found that active participants develop personal

friendships that in some cases move into private and face-to-face interactions. The community

may develop a shared and mutual understanding of what it is about, what in the new product

design or features is valuable; it may create product or firm loyalty and establish among

community participants a sense of belonging and meaning (Rindova, V. P. and Petkova, A. P.,

2007).

4. Online Trust: In simple terms trust can be defined as the belief by one party about another

party that the other party will behave in a predictable manner. Trust refers to consumer

willingness to rely on an exchange partner Trust refers to consumer willingness to rely on an

exchange partner in whom one has confidence, and it can be a multifaceted construct and it can

be transformed to value and customer loyalty. Trust in the e-vendor is one of the critical factors

of success in e-commerce (Torkzadeh, G., Dhillon, G., 2002). Online trust continues to be

important as customers and other stakeholders such as employees, suppliers, distributors and

regulators now have access to more information and options on the Web, making it critical for

firms to earn and retain the trust of their current or potential customers and other stakeholders

thus an understanding of how online trust is created and maintained can lead to improved web

sites, sales revenues, profitability and ultimately shareholder value. Credibility and benevolence

are the underlying dimensions of trust (Shanker, Sultan, 2002). Online Trust is positively

associated with returns on CRM initiatives because CRM is focused on targeted customer

segments and effective communication and interaction with these segments and customers is

directly related to Online Trust. Online Trust is positively associated with returns on CRM

initiatives because CRM is focused on targeted customer segments and effective communication

and interaction with these segments and customers is directly related to Online Trust. The degree

of trust dependence in CRM may be driven by customer power and the influence of competitive

intermediaries among other factors. Trust can be defined as “the willingness of a party to be


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Ph.D. Thesis

vulnerable to the actions of another party based on the expectation that the other will perform a

particular action important to the trustor ” (Mooradian T., Renzl B., and Matzler K.,

2006).Online trust is important in both business-to-business and business-to-consumer e-

business. Consumers and businesses, feeling the pressure of economic downturn and terrorism,

increasingly look to buy from and do business with organisations with the most trusted Web sites

and electronic networks. Companies’ perception of online trust has steadily evolved from being a

construct involving security and privacy issues on the Internet to a multidimensional, complex

construct that includes reliability/credibility, emotional comfort and quality for multiple

stakeholders such as employees, suppliers, distributors and regulators, in addition to customers.

Further, trust online spans the end-to-end aspects of e-business rather than being just based on

the electronic storefront. Online trust continues to be important as customers and other

stakeholders such as employees, suppliers, distributors and regulators now have access to more

information and options on the Web, making it critical for firms to earn and retain the trust of

their current or potential customers and other stakeholders thus an understanding of how online

trust is created and maintained can lead to improved web sites, sales revenues, profitability and

ultimately shareholder value. Credibility and benevolence are the underlying dimensions of trust.

5. Commitment: A commitment to the community leads to volunteering, willingness to help

coordinate and manage the community and an audience for online postings and messages. Both

customers and businesses need to be committed to the community. (Anderson and Weitz., 1989),

(Wilson and Mummalaneni., 1990) and (Mummalaneni and Wilson., 1991) present models of

relationship development where factors such as trust, satisfaction, social bonds and relational

investments are said to impact the development of commitment. Customer loyalty is usually

taken to be an indication of the existence of a relationship and some commitment to the

organisation on the part of the customer. Commitment and loyalty are generally linked to value

creation. Online communities need to create value for all of their stakeholders, including the

host, members, and any third parties, such as advertisers. A commitment perspective focuses onthe psychological attachment to a community that makes members in a community think

positively about it, leading them to stay with the community for a long period of time and

continuously contribute to it (Meyer, J.P., and Allen, N.J., 1991; Meyer, J.P., and Allen, N.J.,

1997).


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6. Period of association with the network: The duration of association between a member and

an online community can be defined as the period of association with the network. It represents

the total number of days, months or years spent by a consumer in an online community. This is

indicative of longevity of community presence.

7. Member Loyalty: Member loyalty promotes value to members through increased usage and

user satisfaction. Peer-to-peer interaction relies on both the number of users and their intensity of

use. The development of member loyalty involves building and sustaining a relationship with a

member, which leads to the repeated purchase of products or services over a given period of

time. A loyal member base allows online communities to devote their energies to business

matters (Gefen, D., 2002; Rowley, J., & Dawes, J., 2000). Members can demonstrate their

loyalty in several ways. They can choose to stay with the community, draw other members to join the community, they can increase the number of purchases (Reinartz, W. J., & Kumar, V.,

2003), participate in case of new product development and respond if the company asks for a

feedback. Customers engaged through business online communities can become an important

source of competitive advantage where loyal customers become competitive assets.The

organisations through these communities should give special treatment to loyal members by

giving recognition in identity, expertise and other extrinsic rewards in the form of gift, social

recognition and feedback (Ireberri, A. and Leroy,G.,2009).

8. Attitude Towards Switching: The online communities help in enhancing customer loyalty,

customer satisfaction and involvement which are the three main factors that will not let the

consumers switch over from the product or brand. The online communities further help the firms

in formulating relevant product, price and promotion strategies based on the switching behaviour

of the consumers.

9. Reciprocity: It represents a pattern of behaviour where people respond to friendly or hostile

actions with similar actions even if no material gains are expected. Furthermore when people

discover they have similar problems, requirements, opinions or experiences they may feel closer,

more trusting and be prepared to reveal even more.


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2.4.4. Online Communities Life Cycle

The first stage in the online community life-cycle is inception. At inception, the idea for an

online community emerges because of members needs for information, support, recreation, or

relationships. Depending on the type of need, interested individuals, begin forming a vision for a

community where people can disseminate information, communicate, and interact (Wegner et al.

2002). In addition to the vision, incipient communities begin with a focus and some rules of

behaviour and communication, which helps the communities, maintain focus. Once the vision is

clear, the required technological components, including Internet applications such as email,

listserv, bulletin board, discussion forums, or chats, may be selected and gradually incorporated,

responding to the needs and preferences of creators and initial and potential members. The

creation of the online community begins when these technological components are in place and

when the initial group of members can begin to interact and spread the word for other members

to join (Malhotra et al. 1997).

In time and when enough members have joined, a culture and identity for the community begins

to develop. Members start using a common vocabulary and, as the community grows, members

select the roles they will play in the community. Additionally, communication and participation

etiquette rules surface. Some members lead discussions, some provide support, while many look

for support and information. Some members become leaders while others become followers or

lurkers, who read messages posted by other members but do not actively, contribute to the

community. Some volunteer information while others use this information (Maloney Krichmar

D., and Preece J., 2005; Butler et al. 2005; Nonnecke and Preece 2000; Ridings et al. 2006).

These characteristics, common to both online and physical communities, initiate the growth stage

of the online community. As the online community matures the need for a more explicit and

formal organisation with regulations, rewards for contributions, subgroups, and discussion of

more or less specific topics is evident. In this stage, the community is strengthened and trust and

lasting relationships begin to emerge. Throughout the life of the community, new members join

in and old members whose needs are satisfied or whose initial excitement for joining the

community wears down leave the community. As new members join, the community evolves

and a cycle of interaction repeats. New members bring new ideas for discussion and their roles

change (Nonnecke and Preece 2001; Burkett 2006). Many communities thrive in this stage for

long periods. Other communities change course, or add new features to maintain user interest,


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iterating in a mature state. Still others lose momentum and member interest completely and begin

to die down when they face poor participation, lack of quality content, unorganized

contributions, and transient membership (Jarvenpaa S. L. and Knoll K., 1998). Activities and

needs of members change in each stage of the online community evolution. Each stage requires

different tools, features, mechanisms, technologies, and management activities. Developers have

to identify the needs in each stage and add the right technology components that will better

support the community, in the way the information systems life cycle prescribe. Thus matching

features with each community life-cycle stage may more efficiently lead to success.

Figure 2.2: Online Communities Life Cycle

2.4.5. Member Retention in Online Communities

The online community’s ability to sustain activities is largely determined by their ability to

attract and retain members (Butler, 2001), since online communities rely on a member’svoluntary participation to provide resources and benefits; members are key resources that are

central to community viability. Particularly, because many online communities do not have

organisational sponsors or formal incentive mechanisms, their survival and growth depends

completely on the voluntary participation and contribution of members. The number of people

needed to make an online community viable and to attract others is known as its critical mass

Inception-

Need vision

Creation-

PurposeTechnology

People

Growth-

Rules

Roles

Identity

Maturity-

Regulations

Subgroups

Trust

Relationships

Death

Lack ofcontribution

Participation

QualityContent


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(Markus, 1987; Markus, 1990; Morris & Ogan, 1996). Participants in online communities often

carve out roles for themselves just as they do in physical communities (J. Preece and D. M.

Krichmar, 2003). Thus, communities seeking to sustain themselves over time need to not only

retain existing members, but also attract new ones. Membership retention, however, is as

important, if not more important than, new member attraction. From a utility perspective, if

members of a community tend to stay for a long period of time, it signals the effectiveness of the

community in fulfilling members’ needs and the ability of the community to achieve its own

functions. Moreover, from a behavioural point of view, the members who repeatedly participate

will be more likely to be the people in a community who shape the identity and norms within the

community and influence the behaviours of other members. These regulars are particularly

important for community viability because they often contribute the majority of the content, and

help in developing and maintaining the community identity. Therefore, an online community’s

ability to retain members is likely to be critical for community sustainability. Thus retaining

members is particularly challenging in online communities, because there is little organisational

incentive and low normative pressure for members to stay. Low member retention and the

resulting high turnover in online communities reduce the benefits that a community can get from

returning members’ knowledge and contribution, and thus undermine its ability to provide

benefits to its members.

This is the primary reason that organisations, who are actively involved in building, maintaining,

leveraging and harnessing the collective intelligence (Ahuja V., Medury Y., 2009) derived out of

the interactions among the members of the product communities, give too much importance in

retaining the most trustworthy members. It is deduced that increased consumer participation in a

community results in increased reciprocity, and more accurate peer-to-peer responses translate

into greater peer acceptance which is indicative of greater trustworthiness of a participant (Alavi,

S., Ahuja V. and Medury Y., 2011).

2.4.6. Beta groups in online communities

Beta groups in an online community serve a critical function during the initial phases of a

community formation. Inviting a hand selected group of people to experience the community for

prototyping (Maria, A., Marko, M., Mikko, A., 2010) prior to launch leads to a number of

wonderful benefits to the community i.e. the member directory, discussion groups and polls start


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to buzz with activity, so when the doors are opened to new members at the formal launch there

are plenty of members already in the community.

Beta group members can go through certain processes prior to the other members or groups

(Ludford J., Pamela, Cosley Dan, Frankowski Dan and Terveen Loren, 2004) and further become

a leadership team to help an organisation steady the uncertain dynamics of the post-launch period

to ensure there are people dedicated to the community’s success. These members are much more

likely to link to others and respond to questions in the forums after launch because they already

have a vested interest in the outcomes of the community. They can also serve as community

spokespersons, offering testimonials and generating peer referrals. The early arrivals even

perform the function for which the term “beta” was coined i.e. pointing out problems and issues

with the commun

Documents

Literature CRM