Literature Review

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
firms 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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 Literature Review

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 companys product can quickly be compared to another, and many
companies are offering very similar products or services to each other. With this in mind, the
relationship experience becomes one of the greatest competitive aspects for a businesss 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 didnt 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
implementation of a implementation of an
specific technology integrated series of
solution project. customer-oriented
technology solutions.
CRM is a holistic
approach to managing
customer relationships
to create shareholder
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 the
organisations 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 desirable
customer 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 organisations 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 organisations 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 its 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 customers 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 clients 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 marketers 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
organisations 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 hasnt 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 customers 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 savvy
social user. They also make it easy to integrate ones 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 consumer
interaction. 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 organisations 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

(Hagel and Armstrong, 1997)
that supplements buildings and streets with personal
computers and information superhighways.
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

(Craig and Zimring,2000)
(Ho,chraefel andChignell,2000)
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.
A sense of community, that is, it is not guaranteed by
opportunities for interaction but, rather, must grow out of
interaction itself.
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 of Classification of Main emphasis
an online community online
communities
(Howard - Virtual communities are social Commercial, The human
Rheingold aggregations that emerge from the Net non-commercial. relationships.
1993, 2000) when enough people carry on those
public discussions long enough, with
sufficient human feeling, to form webs
of personal relationships in
cyberspace.

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(Hagel and - People have four reasons to join: Consumer- The economical
Armstrong, interest, relationship, fantasy and focused, benefits of an online
1997) transactions. geographic, community.
- Distinctive focus as to membership, demographic,
emphasis on member-generated topical
content, choice among competing B-to-B-focused:
vendors, commercially motivated Vertical
community organizers. industry,
functional,
geographic,
business
category
communities.
(Klang and -Functioning effective infrastructure, Non-profit and The classification of
Olsson ,1999) active membership. profit, non- online communities.
company and
company.

(Amy Jo Kim, -Purpose, places, profiles, roles, Geographic, The building

2000) leadership program, etiquette, events, demographic, process of an online
rituals, subgroups. topical, activity- community.
based.

(Cothrel, - Online communities are groups of Consumers (B- The active

2000; businesses, customers, or employees to-C), business management and the
Warms, with common interests interacting via customers or community
Cothrel and Internet. partners (B-to- programs.
Underberg, - Community elements: member- B), and
2000) generated content, online events, employees (E-to-
Member-to-member interaction, E).

36
Ph.D. Thesis
 Literature Review

outreach.
(Schubert and - Virtual communities describe the Community of The concept of
Ginsburg, union between individuals or interest (leisure online communities,
2000) organisations who share common time, research communities of
values and interests using electronic and business transaction.
media to communicate within a shared community) and
semantic space on a regular basis. Network
community
(Internet
community).
(Jennifer - An online community consists of: People, purpose, The sociability and
Preece, 2000, people, purpose, policies, computer policies, usability.
2001) systems. computer
systems.
(Dorine - Online communities consist of three Traditional, Computer-mediated
Andrews, elements: trust and the nature of audience-centric. communication and
2001) computer-mediated communication, the impact of
online community implementation, the economics.
impact of economics.

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 Draft
for a Comprehensive Model
(Jones,1997) Virtual-Communities, Virtual
Settlements & Cyber-
Archaeology: A Theoretical

37
Ph.D. Thesis
Chapter 2

Outline
(Romm, Pliskin, and Clarke, Virtual Communities and
1997) Society: Toward an
Integrative Three Phase
Model
(Igbaria, 1999) The Driving Forces in the
Virtual Society
Information exchange in
(Burnett, 2000) virtual communities: a
typology
(Ho, Schraefel, and Chignell, Towards an Evaluation
2000) 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
Audience-specific online
(Andrews, 2002)
community design
(Cummings, Butler and Kraut, The quality of online social
2002) relationships
(ONeil, 2002) Assessing community
informatics: a review of
methodological approaches
for evaluating community
networks and community
technology centers

38
Ph.D. Thesis
 Literature Review

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

and Communities:
Mechanisms for
Organisational Learning in
Distributed Environments
Socialware: Multiagent
(Hattori, Ohguro and Yokoo,
Systems for Supporting
1999)
Network Communities
(Bieber et al. 2002) Virtual Community
Knowledge Evolution

Functions derived and (Erickson, 1997) Social Interaction on the Net:

adoption Virtual Community as
Participatory Genre
How Virtual Organisation is
(Faucheux, 1997) 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 New Role for Community
Gasparini ,1998) Networks
(Wachter, Gupta and Quaddus, IT takes a village: Virtual
2000) communities in supporting of
education
A Cyber publishing
(Berghel, 2001)
Manifesto
(Marlino, Summer, Fulker, The Digital Library for Earth

39
Ph.D. Thesis
 Chapter 2

Manduca and Mogk, 2001) System Education: Building

Community, Building The
Library
(Stanoevska-Slabeva and A Typology of Online
Schmid, 2001) Communities and
Community Supporting
Platforms
(Swan, 2001) Knowledge Management in
Action: Integrating
Knowledge Across
Communities

Implementation and (Hesse, 1995) Curb Cuts in the Virtual

outcome assessment Community: Telework and
Persons with Disabilities
(Chellappa, Barua and An Electronic Infrastructure
Whinston, 1997) for A Virtual University
The Industrial Virtual
(Hardwick and Bolton, 1997)
Enterprise
(Hiltz and Wellman,1997) Asynchronous Learning
Networks as a Virtual
Classroom
India Network the first case
(Rao, 1998)
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

40
Ph.D. Thesis
 Literature Review

(Majchrzak, Rice, Malhotra, Technology Adaptation: The

King, and Ba 2000) Case of a Computer-
Supported Inter-
organisational Virtual Team
(Piccoli, Ahmad and Ives, Web-Based Virtual Learning
2001) Environments: A Research
Framework and a
Preliminary Assessment of
Effectiveness in Basic IT
Skills Training
(Singh, Yu and Venkatraman, Community-based Service
2001) 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, Virtual internet communities
2001) and commercial success:
individual and community-
level theory grounded in the
atypical case of
TimeZone.com

(DeSanctis, Wright and Jiang, Building A Global Learning

2001) Community
(Bruckman, 2002) The future of E-learning
communities
(Jin, 2002) Design of a virtual

41
Ph.D. Thesis
 Chapter 2

community based interactive

learning environment
(Wang, Yu and Fesenmaier, Defining the virtual tourist
2002) community: implications for
tourism marketing
Participation and (Sangwan, S.,2005) Virtual Community success:
Contributions A uses and gratifications
perspective

( Iriberri, A., and Leroy, G., A life cycle perspective on

2009) online community success

Governance and Value ( Dahlander et al. 2008) Online Communities and

Creation 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

42
Ph.D. Thesis
 Literature Review

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 Dells 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
todays 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. Todays 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 participants 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

44
Ph.D. Thesis
 Literature Review

Management mechanisms. To provide them with a better management and technical support, a
systematic analysis of the community dynamics is required. The communitys 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.

45
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Chapter 2

The Kodak companys 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.

46
Ph.D. Thesis
 Literature Review

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.

47
Ph.D. Thesis
Chapter 2

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.

48
Ph.D. Thesis
 Literature Review

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 members 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 individuals 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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Chapter 2

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

50
Ph.D. Thesis
 Literature Review

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 on
the 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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Chapter 2

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.

52
Ph.D. Thesis
 Literature Review

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,

53
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Chapter 2

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.

Inception-
Need vision

Death
Lack of Creation-
contribution Purpose
Participation Technology
Quality People
Content

Maturity-
Regulations Growth-
Subgroups Rules
Trust Roles
Relationships Identity

Figure 2.2: Online Communities Life Cycle

2.4.5. Member Retention in Online Communities

The online communitys ability to sustain activities is largely determined by their ability to
attract and retain members (Butler, 2001), since online communities rely on a members
voluntary 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

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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 communitys
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 communitys 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 community platform for better streamlining of operations.

2.4.7. Online Business Communities and Consumer Price Sensitivity

Online business communities maintained for effective Customer Relationship Management can
help to reduce price sensitivity, enable price premiums, and create opportunities for up and cross
selling. The communities create barriers for customers to exit and for competitors to enter and
facilitate database development, (O Malley and Tynan, 2000). Loyal customers are important
determinants in predicting market share and profit levels, (Ferguson, R. and Hlavinka K.,
2006).The availability of detailed product information and the interactive nature of the online
medium may enhance consumers willingness to search for price information on the Internet.
Performing an internet search for the lowest prices will be perceived as relatively comprehensive
and capable of delivering a favorable price with less cost to the consumer. Respondents with
Internet access have different price perceptions and price-search intentions than those without
access (Jensen, Thomas, Kees, Jeremy; Burton, Scot, 2003).

The price search done by a consumer on the Internet provides low cost options and demonstrates
availability of higher benefits of products which is less likely to be strongly influenced by other
promotional cues. The large amount of information about pricing, competitors, and features
available on the Internet also helps to create a cost transparent environment. This severely
impairs a seller's ability to obtain high margins, because it turns products and services into

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commodities, and may damage company reputations by creating perceptions of price unfairness
(Campbell C. Margaret, 1999).

Transaction Marketing is focused on profitable customers and Relationship Marketing focused

on building consumer relationships. Smart marketers will benefit by identifying strategically
significant consumers who show noteworthy profit or relationship potential for the company,
rather than investing resources in blanket promotions and mass marketing to all consumers.

2.5. Customer Experience Management

The limitations of CRM's internal orientation and technology-obsession led to the rise of
Customer Experience Management. CEM focusses on designing and delivering loyalty-building
experiences. CEM is not just about using technology, but about mapping the actual consumer
experience and the variation in the consumer thought process which results due to any new
methods or processes adopted by the organisations. Customer Experience Management is a
function of perceived value. The focus of CEM is on strategically managing a customers entire
experience with a product or a company and enhancing customer value through managing the
customer experience. Customers go through some kind of experience, ranging from positive to
negative, during the course of buying goods and services. As such, a supplier cannot avoid
creating an experience every time he interacts with a customer. A customers perception of an
organisation is built as a result of the interaction across multiple-channels, not through one
channel, and that a positive customer experience can result in increased share of business (Pan
and Lee, 2003). CEM is measured as a company's ability to deliver an experience that sets it
apart in the eyes of its customers how best it serves to increase their spend with the company
and, optimally, inspire loyalty to its brand. In order to create a superior customer experience,
understanding the customer's point of view is very important. Marketing has two roles in
companies. The first is to influence customer demand using the marketing mix toolkit. The
second is to take a leadership role in helping companies develop a stronger focus on customers
to create a customer orientation. CRM advances marketings mission on both fronts. CRM brings
a result-oriented discipline to the management of customer demand. Experimentation, learning
and change are the hallmarks of this form of CRM-enabled demand management. CRM also
supports the effort to become more customer focused and concentrate on Customer Experience

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Management (CEM). CRM enables companies to create and share deep customer insight within
and beyond the company. Properly implemented, this new intimacy will ensure that the right
value propositions are created and the right customers are recruited, retained and developed.
With CEM an organisation can integrate the experience across various touch points to link
tangible outcome measures and manage the customer experience. CEM provides new insights
into marketing and management issues such as segmentation, targeting, positioning, branding,
service and innovation. It also demonstrates the power of collecting truly relevant customer
information, developing and implementing winning strategies and measuring their results.

With the explosion of digital media and smart devices, customers are becoming incredibly
sophisticated, elusive, and empowered. As a result, the dynamics that govern the relationship
between brands and customers is evolving. But even in this era of engagement and two-way
conversations, the reality is that the relationship businesses hope to have with customers through
these new devices, applications, or networks and their true state are not one in the same. In fact,
it is woefully one-sided, and usually not to the advantage of customers, which for all intents and
purposes still affects businesses. Rather than examine the role new technologies and platforms
can play in improving customer relationships and experiences, many businesses invest in
attendance strategies where a brand is present in both trendy and established channels, but not
defining meaningful experiences or outcomes. Simply stated, businesses are underestimating the
significance of customer experiences. Some of the biggest trends today-mobile, real-time are
changing how consumers discover and share information and connect with one another.
Technology aside, consumers are driving the rapid adoption of technology because of the
capabilities that are unlocked through each device. From self expression and validation to
communication and connections to knowledge and collaboration, new opportunities unfold with
each new device and platform. As smart and connected technology matures beyond a luxury into
everyday commodities, consumer expectations only inflate. As a result, functionality,
connectedness, and experiences emerge as the lures for attention. For brands to compete for
attention now takes something greater than mere presence in the right channels or support for the
most popular devices.

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Good Customer Experience Management is possible when organisations tap their employee
resource base appropriately. Online Communities can be useful tools for CEM by being good
Collaboration Enablers. This can be done by-

2.5.1. Harnessing Collaborative Intelligence

Collaborative intelligence can be used as representing the collaborative ability of an entity or a

group. To succeed, companies need to innovate faster, collaborate better, and operate more
efficiently than ever before. To do so, they need to depend on close collaborative relationships
with strategic partners, the ability to exchange prudent information rapidly, and to act on that
information in real time, across end to end business processes. The key to unlocking this
performance potential is to tap into the power of communities that drive business success.
Relationships matter particularly for knowledge intensive activities that make organisations
unique. Given the increasingly dispersed, project based work environments that are characteristic
of companies today, it is important to help people become better connected with one another and
with the information and applications they need.

2.5.2. Increasing employee connectivity on operational issues

Vital to good CEM is productive and satisfied employees having adequate access to information
can aid in a better way to achieve a good CEM process. The first step towards enhancing
employee productivity in an organisation is providing him access to vital information.
Enterprises with large employee, partner, and customer bases have long known the value of the
knowledge living in employees' heads and in the databases and unstructured documents found
across the organisation. Attempts to collect this information into knowledge management
systems have been made in the past, with varying degrees of success. Technological advances
are simplifying online collaboration and communication. These advances are increasing
productivity by helping people to easily capture, share and reuse work practices (such as project
workflows) and link them to the widest possible range of supporting services (for example,
instant messaging, web conferencing and tools for team collaboration). Interactivity interfaced
with technology enhances the knowledge base of the community which includes organisational
employees, customers and partners; hence the content generated by the community can be
harnessed for the collaborative intelligence it offers. Further, the preservation of these intangible

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assets can form a source of competitive advantage for a firm. This is slightly complex as they
differ from normal assets in a crucial way most of the firms intangible assets are locked up in
the brains of the employees, who can sometimes turnover. While this way, business can benefit
by making optimal use of key resources by increasing operational flexibility, employees can be
empowered with access to knowledge for challenging and new assignments.

2.5.3. Stimulating learning for faster responsiveness/velocity

Teams of participants can be asked to share their views online and learning can be attained by
each team or group member, as they start benefiting from the views of the other members of the
group. The collaborative intelligence of the entire group can have substantial learning outcomes
for the diverse group members, even if they are geographically dispersed. Encouraging
participation in this interactive environment can help team leaders utilize the intellectual capital
of their team members, through content aggregation, while knitting them together through better
communication. Learning leads to individual growth and faster responsiveness.

2.5.4. Cross Organisational Business Networks

Organisations are waking up to the need of extending business processes beyond corporate
firewalls which implies inclusion of people outside the company as readily as they do people
inside the firm. Companies like IBM, Dell, Apple, Cisco etc. has taken the lead in applying the
consumer based, online networks concept to cross organisational business networks. With IBM
networking services, organisations can securely and easily tap into collective knowledge by
enabling formation of fluid communities of interest. Enterprise Collaboration Platforms offer to
employees what online networks offer to consumers ease of use, speed and ubiquity combined
with a high level of security, availability, quality of service, and reliability that enterprises
require. To site an example, The Greater IBM Connection is a business online network designed
to connect current and former IBMers and to enable them to connect, communicate and
collaborate in a variety of new ways, by interacting via a virtual environment. Greater IBM seeks
to contribute to advancing societal innovations by creating an innovation network that can
orchestrate collaborative work, the sharing of insights, and facilitate community based,
productive projects for business innovation.

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Customer experience is now becoming a critical point in customer engagement in order to

compete for attention now and in the future. For, without thoughtful customer experience,
consumers meander without direction, reward, or utility. And their attention, and ultimately
loyalty, follows.

Customer Experience Management is a prime driver for enhancing customer equity.

2.5.5. Customer equity

Online Communities can be used for increasing customer equity. Customer equity is the total of
the discounted lifetime values of all the firms customers (Blattberg R.C., and John Deighton, J.,
1996).The more loyal the customers, the higher the customer equity. The three drivers of
customer equity are value equity, brand equity, and relationship equity.

2.5.5. 1. Value equity

It is the customers objective assessment of the utility of an offering, based on perceptions of its
benefits, relative to its costs. The sub drivers of value equity are quality, price and convenience.
Each industry has to define specific factors underlying each sub driver in order to find programs
to improve value equity. Value equity makes the biggest contribution to customer equity when
products are differentiated and when they are more complex and need to be evaluated. Value
equity especially drives customer equity in business markets.

2.5.5.2. Brand Equity

It is the customers subjective and intangible assessment of the brand, above and beyond its
objectively perceived value. The sub drivers of brand equity are customer brand awareness,
customer attitude towards the brand, and customer perception of brand ethics. Companies use
advertising, public relations, and other communications tools to affect these sub drivers. Brand
equity is more important than the other drivers of customer equity where products are less
differentiated and have more emotional impact.

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2.5.5.3. Relationship equity

It is the customers tendency to stick with the brand, above and beyond objective and subjective
assessment of its worth. Sub drivers of relationship equity include loyalty programs, special
recognition and treatment programs, community building programs and knowledge building
programs. Relationship equity is especially important where personal relationships count for a lot
and where customers tend to continue with suppliers out of habit or inertia.

2.6. Internet Marketing

The Internet represents an extremely efficient medium for accessing, organizing and
communicating information. In the present scenario, interest in the Internet is unprecedented and
its use in CRM and marketing is increasing exponentially, (Peterson,R. and
Balasubramanian,S.,1997). The World Wide Web resembles a huge forum where organisations
can enter at will and visit prospective consumers. The web possesses the fundamental
characteristics of openness, informality, participation and interactivity a combination of a
community and a market place.

Four key features of the shape and evolution of online web spaces are especially important to
online marketers. These are-

1. Network connections grow faster than the number of participants. The growth of a
communications network strongly enhances its value.

2. Real networks typically have high local clustering. Friends tend to have the same group of
friends and not know many other participants in the network.

3. Social networks are small worlds. Connecting any two people on a network is usually possible
with a small number of links.

4. There is a widespread increase in participation by network marketers. Specifically there are

critical hubs and connectors, network members with far more links than average that dominate
the network. Involvement of a network hub member dramatically speeds communication (Ward,
H. and Kirthi, K., 2007).

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Individuals may gain knowledge of the other community through their involvement within one.
The many other communities around a community and the connections between them can have
important implications to their survival and success. Both the internal characteristics and external
context affect communities capability to retain members. Specifically competition i.e. the extent
to which a community shares content with other communities and the extent to which the
communitys members also participate in other communities represents an external threat that
leads to a lower likelihood of members to return in the expected time period.

2.6.1. Metcalf Law

Metcalfs Law is often cited as an explanation for the rapid growth of the Internet today and can
be used to explain the rising wave of information technology that we are riding in the 21st
Century. It relates to the power of an interconnected network to enable collaboration and extend
the reach of an organisation. We often forget that Internet is short for Interconnected network.
Marketers should continually review how to make the best use of this network as this law is
widely believed to apply equally to electronic marketplaces. A networks value grows
quickly/exponentially as participants join. Named after a networking company founder who
popularized it, Metcalfs law captures the idea that number of possible connections between
members of a network expands much faster than the count of the members. Metcalfs law relates
the value of a digital network to the number of connections (or users or members) it has.
Metcalfs law helps explore the use of the virtual paradigms in the context of enabling
collaboration and extending the reach of an organisation (Dyke Hendrickson, 1999). This finds
applications in the domain of online marketing with respect to e-commerce with the web
adequately proliferating as an electronic marketplace. Of significance is the global reach of the
Internet (Klein and Quelch., 1996) in creating a larger marketplace which is also a function of
the number of eyeballs that view a web site (Evans and Wurster., 1999), considering that reach is
the most visible difference between e-commerce and the physical world. The power of the
network grows in relation to the number of players in the network. This is true in innovation as
well as any other business process (Means, Grady E, Faulkner, Matthew, 2000).Metcalfs law
illustrates the important difference between an individuals value of a network and the value of
the network as a whole. As per Metcalfs law, the full value of the network, the community
value, is the summation of the individual values of the members in the community (Hanson

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Ward and Kalyanam Kirthi, 2007).The law is also very much related to economics and business
management, especially with competing business communities of a company looking to merge
with one another. If there are n number of members in a network, they can connect to n-1
members.

The community value of the network grows at a rate of n * (n 1). The bigger the network, the
more valuable it is and the more valuable a new member is. According to Metcalfs law, with
everyone connected, each valuing connections at Re. 1, is Re 1= Rs. 2 * n * (n-1) / 2 = Rs. n *
(n-1).For other situations, it is useful to define network value based on individual values. Each
member of the network above contributes an individual value to the network. This is the benefit
that the individual gets from joining the network. In the situation above, everyone benefits the
same from a connection. The full value of a network, the community value, is the summation of
each of the individual values.

Community Network value= (Individual Values in a Network)

More simply, Hanson says The value of a network increases with the square of the number of
participants. This value accrues to those who are collaborating within the network or those who
are providing their services across the network. The value of the network to the individual
actually increases linearly with 3 people, there are 2 people to communicate with and with 6
people, there are 5 people to communicate with (the value is proportional to n - 1, where n is the
number of members in the network).

This law gives an idea of how consumer generated media (CGM) has become so popular in
comparison with conventional marketing practices (Tariq, Muhammad; Wahid, Fazal,
2011).Where communities are created as part of a business proposition, the law shows the
importance of supporting the growth of the networks through the difficult initial phase until a
critical mass of participants is achieved. Many communities never make it through this phase
(Dave Chaffey, Fiona Ellis-Chadwick, Mr Kevin Johnston and Richard Mayer, 2008).

2.6.2. Interpretations of Metcalfs Law

(a) The number of possible cross-connections in a network grow as the square of the number of
computers (any form of access platform to a digital network) in the network increases.

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(b) The community value of a network grows as the square of the number of its users (active
members) increase.

2.6.3. Implications of Metcalfs law

This law has been used to explain the rapid growth of the World Wide Web. This can be
considered in two ways:

1. Firstly, from a commercial perspective the potential value of the network has increased
rapidly as the number of consumers and businesses connected has increased. During the
dot-com boom it was used to argue in favour of aggressive investments in online
services.
2. Secondly, from a consumers point of view, value of the World Wide Web has increased
as the number of web information sources and online services have increased.
The law also suggests how the more links a web site has, the number of visitors will not increase
linearly since each site linking will have multiple sites linking to it. However, the law is
particularly concerned with the value created from setting up online communities amongst an
organisations staff, partners and customers. It is of greatest application in this area. For
networks set up within companies (intranets) or between partners (extranets), Metcalfs law
suggests value will be increased as more employees or partners are active users. Initially returns
on the investment may be disappointing, but Metcalfs law dictates that as the network increases
in size, returns will grow exponentially. For intranets and extranets, the returns are achieved by
increases in productivity and cost-savings resulting from more efficient communication. Where
communities are created as part of a business proposition, the law shows the importance of
supporting the growth of the network through the difficult initial phase until a critical mass of
participants is achieved. Many communities never make it through this phase.

2.6.4. Examples of Metcalfs law in practice

Many online communities have gained from the interconnections. Face-to-face business
networking has always been useful as a way of gaining business and it continues to be as is
shown by organisations such as Business Networks International (www.bni.com).Online-
facilitated business networks include Linked-in (www.linkedin.com) and E-academy
(www.ecademy.com) which have grown very rapidly. In the area of digital marketing,

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communities such as the E-consultancy discussion forums (www.e-consultancy.com/forum),

U.K Net marketing discussion groups (http://www.chinwag.com/uk-netmarketing) have proved
beneficial for facilitating connections between clients, consultants and other suppliers. Facebook
mega-brand Starbucks reached 8% of all U.S. internet users in May through unpaid posts and the
majority of participants were not fans of the brand. When a Starbucks community manager posts
to its Facebook page, only a portion of its 24 million fans are actually online or paying attention
to their news feed to view that post. About 3% of all 216 million U.S. internet users were in that
camp in May, according to COMSCOREs new measurement tool based on its 2 million-person
global panel. When those fans like or comment on Starbucks post, their friends, an additional 5%
of all U.S. internet users see the brand pop into their news feeds and, boom, Starbucks gets even
more viewers. (The average Facebook user has 130 friends.) All that comes at no media cost to
the brand, considering that posting updates to Facebook brand pages is free to advertisers. The
Facebook executives in a study selected Starbucks, Southwest and Bing as the major advertisers
that use paid media on the site to amass their followings. Facebook made nearly $2 billion in
global ad revenue last year, up from $740 million in 2009, according to e-Marketer. In all
fairness, Starbucks is somewhat of an anomaly on Facebook, considering its massive fan base
and the fact that many U.S. consumers visit its stores daily. But even brands with fewer fans,
such as Southwest and Bing, reach more friends of fans than fans themselves via Facebook posts.
Southwest reached 917,000 fans through posts in May, but 1.1 million friends of fans. Similarly,
Bing reached 1.2 million fans and 2.2 million friends of fans. The study also found that the
majority of those views don't happen on brands pages, but in users own news feeds. The most
activity, 27% in May, happened on Facebook's homepage and in the news feed. Profile views
accounted for 21% of activity and photos 17%. Only about 10% came from applications or tools.

"The default assumption is that when you publish (on Facebook) you're hitting 100% of your fan
base all of the time," said Brad Smallwood, head of measurement and insights, Facebook. "That's
not the case. When you publish you have the same tendency to hit the same fans again and
again."

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2.6.5. Individual Network Value

It is defined as the value which one member provides to the whole network. The value of
communication differs among individuals. To further explain this, let us denote the link values in
a network by vij the value v to person i of a network link to person j. The high value
communication between will show up as a large positive value for vij and if there is a low value
communication between two acquaintances who rarely exchange mails will have a low but
positive value, in some cases vij is negative This happens when the presence of a communication
link between i and j imposes costs on individual i. Spam is the most important example of this.
Individual network value serves as an important metric in identification of valuable customers.

2.6.6. Community Network Value

As the network grows, the added links accelerate the growth of the community value. Each new
user benefits from joining the network and contributes a new value laden connection to all the
existing members of the network (Hanson Ward and Kalyanam Kirthi, 2007). The community
value of a network is of great importance to organisations, especially from a marketing,
Customer Relationship Management and Customer Experience standpoint. The community value
grows rapidly as the network grows and for a company, this translates into productivity, cost
savings, and effective communication. The most fundamental insight of Metcalfs law is that
networks can generate increasing returns (George. Gilder, 1993).The bigger the network, the
more valuable it becomes. A value network generates economic value through complex dynamic
exchanges between one or more enterprises, its customers, suppliers, strategic partners, and the
community. These networks engage in more than just transactions around goods, services, and
revenue. The two other currencies are knowledge value and intangible value or benefits (Verna
Allee, 2000).The community value of a network grows at a much faster rate than individual
values. When there are only a few members in the network, the community value is comparable
to the individual values. As the network grows, the added links accelerate the growth of
community value. Each new user benefits from joining the network, and contributes a new value
laden connection, to all the existing members of the network., the community value is the main
driver behind the actions of organisations, governments and businesses.The community value of
a network is of great importance to organisations, especially from a Marketing, Customer
Relationship Management and Customer Experience standpoint.

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2.7. Co-creation
With the advent of web 2.0, customers are active co creators of the products they buy and use.
Co-creation is defined as an active, creative and social process, based on collaboration between
producers and consumers that is initiated by the firm to generate value for both the firm and the
customers (Humphreys et al. 2009).Co-creation can be described as the method for organisations
to create new products and take all important decisions by involving consumers from the
beginning and thus helps in extracting fact based innovation. Value is not any longer only
created in the suppliers process of designing, manufacturing, packaging and delivering of
market offerings but also by the customers processes of consuming these outputs (Mitchell and
Saren, 2008).Value creation goes beyond its former understanding and also affects usage by the
final customer (Lemke et al. 2011). In an era where companies are moving away from a
company and product centred value creation to an experience centred value creation (Prahlad and
Ramaswamy, 2003), participation is becoming a desired ingredient. There are some passionate
consumers who are interested in getting involved in every phase of the new product development
in an organisation, they are actually the co- creators for the company. Organisations will benefit
if they target and identify such passionate consumers and further retain and build strong
relationships with them (Ahuja V. and Medury Y., 2011), actively involve them in the process of
co creation and further leverage all their innovative ideas and experiences for the growth of an
organisation. Objectives of co-creation include identifying the right customer set to interact and
after identifying the requirements of this customer set, alter product offerings as per the
requirements of the same.

(i) In the emerging economic model of value co-creation, consumers and companies routinely
collaborate to create personalized value.

(ii) Co-creation is not the transfer or outsourcing of activities to customers or a marginal

customization of products and services. It isn't scripting or staging of customer events around the
company's offerings. Those kinds of company-customer interactions no longer satisfy most
consumers today. It is the co-creation experience that is the basis of value for each individual. It
is hence, this procedure of participation which is important. Co-creation may require a dedicated
approach from the management to allow consumers to not exactly take over the brand, but

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definitely have a larger voice share. However the high involvement opportunity it offers with
substantial value growth drives commitment from organisational leadership.
The process of co-creation revolves around the selection and creation of the various modes for
interaction and communications, targeting the right customer set, engage them and focus on
enhancing their participation levels in the process, inducing the strategic and key managers in the
company to involve in the process of co-creation, strategically evaluating the customers entire
experience with the company, encouraging the development of innovative ideas and last but not
the least, taking the right course of action on the selected ideas(McEleny, Charlotte, 2010).A key
finding of leading businesses is that becoming a co-creative organisation is about changing the
very nature of engagement and relationship between the institution of management and its
employees, and between them and co-creators of value customers, stakeholders, partners or other
employees. (Venkat Ramaswamy, 2009).Enterprise Web 2.0 technologies serve as enablers for
organisations in the process of Co-Creation. The traditional strategic thinking and action is based
on the assumption that a firm maximizes its share of the created value along the value chain
relative to the competitors and other stakeholders. Co-Creative strategy, however, tries to
balance the interests of all stakeholders and by maximizing the value of the entire value chain, all
stakeholders are better off. By harnessing the "wisdom of crowds" and the knowledge as well as
experience of customers and other stakeholders, Co-Creation is able to bring about new ideas
within shorter timeframes than traditional innovation approaches. Co-creation is a way for
brands to develop products and make major decisions by involving consumers from the start. It
uses online communities to help brands derive insights. Furthermore, it redefines the way
companies interact with their stakeholders and thereby has a positive impact on customer brand
loyalty and employee commitment. Finally, by having candid conversations, establishing shared
learning environments, and creating mutual benefits with customers, Co-Creation is a
management philosophy that gives companies a real competitive advantage. Traditionally, firms
have been using market research methodologies based on opinions and assumptions. Now, using
internet technology, marketing can develop new products by connecting with their key customers
and target audience and drive fact based innovation. Dell, New Look and Unilever are among
brands shifting investment to co-creation by placing it at the heart of product planning and
development.

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Several organisations like Dell and Unilever are using communities focused on product
development for over two years are now looking to develop them into other areas of the business
after successful trials. Computer giant Dell runs Idea Storm, a community launched in 2007
where consumers can submit ideas to the brand. According to Kerry Bridge, head of digital
media communications EMEA and global public sector, Idea Storm has had 14,000 ideas
submitted since launch, of which 4,000 were implemented and 700,000 votes on ideas. For the
mobile giant Nokia co-creation is now a core part of its product development.

The process of Co-creation involves the following steps:

Build and manage platforms for Interaction

Inspire a target audience to participate in Co-Creation
Involve key people of the firm in the Co-Creation process
Gain Insight into customer experience
Foster generation of breakthrough ideas
Initiate actions on selected ideas

2.7.1. Co-creation and Online Community

Business Online Communities are fast becoming excellent tools for operational and collaborative
CRM with co-creation soon gaining pace as a strategic outcome of Collaborative CRM. Co-
creation may take place in the context of customer communities. Much of the research on online
communities suggests that the nature of these communities with permeable boundaries and
selforganisation makes them a new powerful locus of collective creativity and innovation (Lee
and Cole, 2003). The process of community development goes hand in hand with product
development (Rowley, J., Kupiec, T., Beata and Leeming, E., 2007). Information Technology
enables new forms of producer consumer collaboration in new product development processes
(Fuller Johann, Muhlbacher Hans and Matzler Kurt, 2010).Companies that have learnt how to
manage the process of creating unique value with customers and other stakeholders have
developed engagement programs and processes that enable interactions among all stakeholders
everywhere in the system, with the goal of creating greater value by fostering more rewarding
experiences (Anonymous,2010).The business online communities help in achieving this goal by
providing excellent support in the entire process of co creation.

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The increased complexity, globalization and knowledge intensity of marketplaces require all
businesses to make better use of their technological, organisational and marketing competencies
in order to survive. Contemporary organisations in highly competitive and highly innovative
markets are able to build market share quickly, by delivering fast, high quality, innovative
solutions. The changing organisational environment has driven interest in organisational learning
and knowledge management. Many studies have confirmed customer knowledge as one of the
most important knowledge bases for an organisation, and there is a considerable interest in the
potential of co-creation" either individually or in community contexts, to enhance innovation
and business performance. In an online community the customers are engaged in organisational
learning, innovation and knowledge processes in which data and information are not simply
gathered into databases and distilled to aid management decision making, but rather marketing
intelligence is embedded in dynamic co-creation processes that involve customers as partners
rather than subjects In the present scenario the locus of innovation and co-creation has shifted
from products and services to experience environments-thus it has become increasingly
important for businesses to respond to the needs of the experienced consumer. Further with the
continuous engagement with the online community, the company is able to not only gather the
feedback on the experiences associated with the use of its products but also to add to them by
offering opportunities in both the real and virtual environments for customers to enjoy
interactions with others who share their interests. This further increases the sales and expands the
community and probably intensifies customers engagement with the experiences that
community members co-create with the company. The customer community comprises those
who have participated in those experiences, enjoyed them, and wish to develop the interaction.
Customers work in partnership with the company to build excitement and develop skill, and by
sharing the experiences with others, add to the totality of the customer community. The
companies take a number of actions to facilitate this process, including working with
distributors, sponsorship, and engagement in events, training courses, and an interactive web site.
Specifically, their approach to communication with their customers is sophisticated. The
common view of marketing communications as a one-way transmission is replaced by a
marketing communications strategy designed to build and reinforce the company's position as a
leader of a community. Traditional channels such as advertising, sponsorship, and even brand
building are only elements in a complex web or network of marketing communications activities,

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involving C2C and B2B as well as B2C relationships. The company communicates directly with
its customers, but also provides contexts which encourage them to "talk" among themselves. In
addition, the marketing communications effort is "pushed" through distributors, not just in terms
of the traditional advertising and branding, but also through the selection of distributors that can
offer appropriate support and advice. These actors in the system have a role in welcoming new
members into the community. They are supported in doing so by the existing online community,
and various company-sponsored events at which members are encouraged to gather. The
customer community builds gradually as the business grows. As new products are added to the
product range to support new sports, new sub-communities are formed around them. The process
of community development goes hand in hand with product development.

2.7.2. Implementation of Co-Creation

Co-creation can have different requirements and take different ways in implementing customer
co-creation. On the basis of the POST method (Bernhoff, 2007) firms can determine the
requirements for the implementation of the co creation initiative .The following section will
discuss how the model can help the firm to establish requirements and implement customer co
creation.
According to (Bernoff, 2007) the POST method is a basic structure for starting to frame a plan
for implementing customer co-creation. POST stands for People, Objectives, Strategies and
Technology. This four step approach is explained as follows:
1. P stands for People. This step means that firms should understand and find customers or a
target group that will be involved.
2. O stands for Objectives. This step determines what the firms want to accomplish with the
initiative.
3. S stands for strategy. This step determines how the objective of the initiative will be
achieved.
4. T stands for Technology. This step determines which technology for the co-creation
initiative will be used.
With this four step approach, firms are able to determine what they exactly want to achieve and
how they want to achieve it. Implementation characteristics are closely related to these

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achievements, so the POST method gives a good guideline for firms that want to know how to
implement and which requirements the co-creation implementation must meet.

2.7.3. Online Community- A Technological enabler for Co-Creation

The online computer based innovation fundamentally challenges current ways of

communicating, cooperating and coordinating during the innovation and product development
process (Sladjana Vujovic, Ulhi John Parm.,2008). This has caused a fundamental change in the
way companies can participate in innovation and learn from their consumers. Greater
participation in an online community, backed by greater commitment, online trust and loyalty
towards an organisation are individual traits which are useful to companies for identifying
consumer co-creators for new product development, sharing innovative ideas and consumer
evangelism. Online Community Platforms are an important technological enabler for
implementing Co-Creation. Co-Creation requires community platforms as a basis for connection,
communication, and collaboration. Alongside the adoption of social networks and companies
discovering the need to listen and engage with their target audience, the market for community
platforms engaged in Social Business is growing fast. There are a lot of vendors engaged in this
fragmented market, many of them providing co-creation and collaboration features. The
challenge for companies aiming to build and operate online business applications is finding and
selecting the right platform according to their specific needs and objectives. Furthermore, firms
seek not just technology, but strategic advice in building and operating online communities and
in synchronization of community platforms with other marketing solutions. Online customer
communities enable organisations to establish distinguished innovation models that involve
varied customer roles in new product development, which is further supported by Operational,
Analytical and Collaborative CRM.

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Figure 2.3: Co-creation through Online Communities

Consumer

Online
Community-co Online Content and Messages
creators/consu
mer evangelists

CRM

Direct Marketing Mix Consumer Consumer

Influence Elements
seeding
one to
one
Organization

2.8. Consumer Evangelism

A good customer should not be identified solely by their purchases, but also by their ability to
influence others. The greatest word-of-mouth evangelists are a powerful influential group.
Consumers might ignore the marketing message but value the word of a brand evangelist on
product review sites, message boards and online forums. This can be done by creation of simple
content, for the organisational online spaces, leverage emotional equity, which stimulates a
consumer and brand connect, which eventually helps in consumer retention, cross-selling and
acquisition. Organisations will benefit from rewarding and recognising evangelists, by including
metrics for recognition and reward of their ability to inspire and influence others to buy their
products or services (Kerry R., 1992).

2.9. CRM Functionalities

Online Communities can hence be used for:

2.9.1. Campaign Management

The Campaign Management functionality helps in segmenting the customers and develop
targeting and positioning strategies for each segment, defining products that match the customer
requirements, help in pricing and selecting distribution channels for those products and finally

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implement communication strategies to build brand awareness, generate interest and motivate
purchase (Shainesh, G., Sheth, J., 2006). Often, due to lack of data regarding the consumer
sentiment for the organisation and its products, organisations resort to blanket promotions for
their consumers, thereby not matching the true consumer expectations. Campaign management
software applications allow marketing users to segment groups of customers (and prospective
customers) into smaller groups by identifying and understanding unique customer patterns and
then specify the interaction that should take place with those individuals, by creation of
customized offers for small groups of customers that correspond to those patterns. This involves
the process of response modelling - evaluating consumer interactions with the organisation and
modelling organisational responses accordingly. An Online Community can be used to deliver
promotional outbound messages to the consumers and further to analyze the consumer responses
on the communities for effective campaign management. The consumer thought process as
reflected in the comments under the posts is knowledge capital which can be mined to extract
explicit information which can be leveraged from the organisational perspective for diffusion and
exploitation and subsequent competitive advantage. Business Online communities can hence
serve as an online platform for campaign management, providing an opportunity to segment
consumers on the basis of their interactions with the organisation, rather than those based on
simple demographics. Appropriate targeting strategies can be developed for different consumer
segments.

2.9.2. Consumer Segmentation

Customers generate a wealth of behavioural information. Customers are not all created equal.
Nor should all customers be treated equally, since some are clearly more valuable than others.
Customer segmentation has been traditionally based on market research and demographics where
a few broad segments could be defined (e.g. older users, expert users) based on overall
demographic information. Now, in a Web 2.0 era, as organisational access to consumer related
information increases, it is possible to define many more segments at a finer level of granularity.
In fact, it is now possible to extract the consumer segments based on consumer databases. By
using Online Communities for segmentation, marketing managers can segment customers (and
prospective customers) into smaller groups and then specify the strategies that need to be
followed to target these individuals. Segmentation is the process of identifying groups of

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customers around whom to conduct marketing efforts by analyzing the existing customer base.
Consumers interacting with organisations can be segmented on the basis of their Individual
Network Values, their Degree of Participation, their Emotional Attachment or even with
respect to their profit or relationship potential.

Once a prospect has become a customer, the goal is to increase the customers value. This
usually entails the following activities:

Up-selling: Having the customer buy premium products and services.

Cross-selling: Broadening the customer relationship, such as having customers buy CDs, plane
tickets and cars, in addition to books.

Usage Stimulation: Ensuring that the customer comes back for more, for example, by ensuring
that customers see more ads or uses their credit card for more purchases.

2.9.3. Response Management

Comprises the ability to track a consumers response to a marketing message or deliver an offer
to the customer. Marketing managers can access contextual information with regard to consumer
responses in the context of specific campaigns as also assess in real time the actual performance
of respective elements of the campaigns.

2.9.4. Response Modelling

The models developed for respective campaigns can be used for future segmentation and
targeting efforts. If a suitable model is developed, for consumer profiling or portfolio analysis,
then the model can be run for other segments to find better prospects. They can be made the
targets of subsequent campaigns. This research thesis aims at developing 4 specific models
for response modelling/prediction/consumer profiling. These were-

(i) Consumer Trustworthiness Regression model using Netnography (CTR)

(ii) Co-creation model using INV based on Metcalf Law (C-INV)
(iii) Consumer Price Sensitivity model using K-means cluster analysis (CPS)
(iv) Business Online Community Credibility model (BOCC)

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Fig. 2.4 : Response Modelling for CRM

CTR C-INV

The Business Online

Community
Framework for CRM

CPS BOCC

2.9.5. Contact Management

Critical information about each customer contact can be stored in the system and is available
easily. In addition to the usual details, idiosyncratic information about the contacts and the
organisation can also be stored. The sales force can access such information through their mobile
PDAs or laptops anywhere, while on the move and accordingly vary their sales pitch.

2.9.6. Account Management

Online communities can be used for aiding sales professionals in building a deeper
understanding of target accounts with complete history of all the accounts with some contextual
information comprising details of interactions with partner organisations.

2.10. CRM Strategies

2.10.1. Customer Portfolio Analysis

Customer Portfolio Analysis (CPA), the first step in the CRM value chain, acknowledges that not
all customers have equal value to the company. Customer Portfolio Analysis asks the question:
Who are our strategic customers. When CPA has sorted the actual or potential customer base
into different groups, they can be targeted with different value propositions. An important
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consideration is to analyse and sort by profit potential, not by volume, whether that is by sector,
segment or individual, (Buttle, F., 2009).
Sackable customers are those who have no present or future profit potential or life-time value.
The invest group contains customers who are both valuable currently and have significant
future potential. The re-engineer group contains customers who are not presently profitable but
who could become so if the relationship were re-engineered.
Customer Portfolio Analysis involves tracing both current and prospective costs and revenues to
customers.CPA has important organisational implications in-
(i) Identifying consumers for whom exit barriers should be created.
(ii) Enables organisations to understand their customers propensity to switch or reduce
volumes and benchmark its current structural bonding activities against best-in-class to
identify opportunities for improvement.

Customer Portfolio Analysis can provide strategic input into a firm's planning processes and may
also be the key to a successful relationship management strategy. Customer portfolio
management is a multi level process that encompasses understanding the customer portfolio,
developing a plan, managing implementation of the plan and evaluation thereof. The managers
of the company may identify high-potential customers, increase their value through target offers,
and personalize their service to ensure loyalty and to drive up the profit opportunities. The
following applied portfolios may be developed by the companies in order to gain the high
customer value high profit matrix:
1. High profitability The customers who have high actual and potential value, coupled with
relatively low cost to service.
2. High potential The customers who have high potential value, medium actual value,
and low cost to service.
3. Underperforming The customers who are currently unprofitable.

The customer portfolio management process should then lead to plan and create strategies to
maximize return on customer relationships, either by portfolio or individual accounts. Customer
profitability is one of the most frequently used and most important a key figure for customer
valuations. This may be easily calculated as the difference between revenue and costs. The
customer portfolio analysis is more useful to perform detailed customer contribution margin

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analysis including different revenue types, costs of products, acquisitions, and services and
retaining customers in order to produce a better coherent picture.

A Customer Portfolio is a combination of customer products for each product that generate sales
and resulting profit. An optimal customer portfolio consists of a balance of new and repeat
customers yielding target sales and profits. Depending on the competencies of the firm and the
state of the market, this optimal mix can be altered. The design of the portfolio begins by seeking
meaningful customer classifications based on market research of actual purchase patterns. The
portfolio segments can be measured in terms of number of customers, number of purchases,
demographic and psychographic profiles and contributions to sales and profits.
For example, a firm can analyse how the customer portfolio contributed to the sales in terms of
contributions from each segment and this can be used to fix up next years sales figures. Three
basic factors must be considered in seeking the optimal balance in a customer portfolio
(Shainesh, G., Sheth, J., 2006).

Products vary according to perceived product differences by consumers. When product attributes
are perceived to be superior to competition, then it is relatively easy to keep up with those
customers.
(i) Product category volume growth affects the balancing of a customers portfolio. If a firm
has too many repeat purchasers in the rapid growth stage of the market, then it might
mean that insufficient attention is being paid to the attracting function.
(ii) Finally, the relative costs and benefits of attracting and retaining customers must be
compared. The customer portfolio must be based on sound customer feedback research
by periodically monitoring marketing performance and measuring how satisfied or
dissatisfied the customers are.

The Customer value based model shows that the demand for products under competition varies
strongly with the values associated with the brand, industry attractiveness, and pricing issues.
The switching attitude may influence the customers if the organisational values are not strong
and sustainable in the given competitive environment. The customer value concept is utilized to
assess product performance and eventually to determine the competitive market structure and the
product-market boundaries. The value based portfolio model explains that the value based
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customer portfolios would enhance the customer value as the product efficiency viewed from the
customers' perspective, i.e. as a ratio of outputs (e.g. resale value, reliability, safety, comfort) that
customers obtain from a product relative to inputs (price, running costs) that customers have to
deliver in exchange. The derived efficiency value can be understood as the return on the
customer's investment.

2.10.2. Key Account Management

Key accounts or strategic accounts are the most valuable customers for a company. To put it
simply: a company cannot afford to lose these customers without getting into serious difficulties.
Key Account Management can be defined as: Key Account Management means systematic
selection, analysis and management of the most important current and potential customers of a
company. In addition it also includes the systematic set up and maintenance of necessary
infrastructure (Dirk, Z., 2008).
Without a systematic approach, key account management (KAM) becomes a process of trial and
error that may miss some necessary elements, creates additional costs and offers no opportunity
for corporate learning. Not surprisingly, KAM is one of the most significant marketing trends of
the past several decades (Conlon et al. 1997, Abratt, R. and Kelly, P.M., 2002).
KAM is typically associated with the business to business context, and most of the KAM
literature deals with industrial relationships (Stevenson, T.H. and Page A.L., 1979 and Pardo et
al. 1995). Services, however, also include business to business. KAM clearly has potential in any
kind of business relationship. After all, most business relationships include both tangible and
service elements (GroEnroos, C., 1990). This can also be called system selling. According to
(Millman, T.F., 1996), system selling involves offering and delivering a comprehensive package
or bundle of product/service attributes and benefits to selected customers and KAM plays an
important role in this context. Thus, successful KAM often requires an understanding of the logic
of both product and service management. Moreover, excellent operational level capabilities are
useless if strategic level management is inferior, and vice versa, the KAM approach combines
strategic and operational level marketing management (McDonald et al. 1997).

A successful Key Account Management (KAM) consists of four basic elements:

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i) Identifying the key accounts, ii) Analyzing the key accounts, iii) Selecting suitable strategies
for the key accounts, iv) Developing operational level capabilities to build grow and maintain
profitable and long-lasting relationships with them (Ojasalo, J., 2001).

2.10.3. Customer Retention Marketing Mix

A detailed study of the Customer Retention Marketing mix is valuable for reducing customer
defections, as organisations strive to understand the role of customers as value maximisers.
Elements such as product extras, reinforcing promotions, sales force connections, specialised
distribution and post purchase communications are usually part of a customer retention
marketing mix.
2.10.3.1. Product Extras-This entails providing customers with more than the basic product that
initially attracted them. The main approach is to create a total product service system that
contains not only the items that the customer purchased initially, but also related benefits by
giving other items from the product line. The customers get involved with the system and might
remain with the firms as opposed to when just delivered with the basic product that might be
subject to aggressive competition.

2.10.3.2. Reinforcing Promotions-Product promotions work better when aimed at existing

customers because the customer already knows about the firms products and thus the firm can
look towards advancing the knowledge of the customer about the product. Such types of
promotions can also introduce customers to the firms other products. A firm can reinforce
customers by promoting customer only publications that are targeted at buyers who have
exhibited some degree of commitment to the product or the firm by one or more purchases. Post
purchase dissonance can be reduced considerably by communicating with the customer after the
purchase.

2.10.3.3. Sales force Connections-The organisational sales force should be oriented towards
maintaining a long term relationship with the customer. Sales people who are inadequately
trained, lack preparation and knowledge about the product lines or customers usually are not able
to retain consumers for long.

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2.10.3.4. Specialised Distribution-Firms can try and retain customers through separate
distribution channels, through special functions. This depends on the distribution strategy
adopted by the enterprise.

2.10.3.5. Post Purchase Communication

Post purchase communication yields quantifiable benefits of increased consumer satisfaction and
increased positive recommendation of the retailer after the sale. Satisfied customers are more
likely to repurchase from the store and will be more likely to recommend the retailer to friends
and relatives. This is particularly important to retailers because word-of-mouth or personal
communication from an intermediate and trusted source is typically more influential than media
communication from a remote and trusted source. Consumers, when considering major
purchases do often consult friends and relatives for recommendations. The post purchase
communication can represent a tow-cost and effective device to increase retail specific, word-of-
mouth transmission, while at the same time, increasing consumer satisfaction with the product.

2.10.3.6. Customer Reward and Loyalty Programs

A significant number of customers want an involving relationship with the brands they buy, a
proportion of these buyers are hard-core loyal and only buy the one brand, these hard-core loyal
buyers are a profitable group because they are numerically large and are heavy or frequent
buyers, it should be possible to reinforce the loyalty of these buyers and encourage them up a
loyalty ladder, and database technology can be used to establish a personalized dialogue with
customers which will bring about moves up the loyalty ladder (Dowling R. G. and U Mark.,
1997).Outcomes expected from programs for existing customers are to

1. Maintain sales levels, margins and profits

2. Increase the loyalty and potential value of existing customers
3. Induce cross-product buying by existing customers

Reward schemes of a loyalty program influence perceived value of the program and how value
perception of the loyalty program affects customer loyalty. Involvement moderates the effects of
loyalty programs on customer loyalty. In high-involvement situations, direct rewards are
preferable to indirect rewards. In low-involvement situations, immediate rewards are more

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effective in building a program's value than delayed rewards. Under high-involvement

conditions, value perception of the loyalty program influences brand loyalty both directly and
indirectly through program loyalty. Under low-involvement conditions, there is no direct effect
of value perception on brand loyalty (Yi Y. and Jeon H., 2003).

2.10.4. Consumer Profiling

Consumer Profiling is one of the major areas of the application of data mining for knowledge-
based marketing.Consumer profiling involves creating consumer models, based on which a
marketer can decide on the right strategies and tactics to meet the needs of the customer.
Profiling is an innate tool used for consumer behaviour and preference prediction. Consumer
profiles can be formed based on their purchase data or any other behavioural data.

2.11. Web 2.0

Web 2.0 is a collection of open-source, interactive and user-controlled online applications
expanding the experiences, knowledge and market power of the users as participants in business
and social processes. Web 2.0 applications support the creation of informal users networks
facilitating the ow of ideas and knowledge by allowing the efcient generation, dissemination,
sharing and rening of informational content (Constantinides E. and Fountain J. Stefan, 2008).

Commonly and collectively called Web 2.0 tools, these new content-sharing sites, discussion
and collaborative web spaces, and application design patterns or mashups are transforming the
consumer web. They also represent a significant opportunity for organisations to build new
social and web-based collaboration, productivity, and business systems, and to improve cost and
revenue returns (Platt., 2007).Web 2.0 is the business revolution in the computer industry caused
by the move to the Internet as a platform, and an attempt to understand the rules for success on
that new platform(OReilly., 2007).Web 2.0 applications support the creation of informal users'
networks facilitating the flow of ideas and knowledge by allowing the efficient generation,
dissemination, sharing and editing/refining of informational content. Web 2.0 also appears to
have a substantial effect on consumer behaviour and on new challenges facing strategists and
marketers (McKinsey Global Survey., 2008).Online communities, social networks, wikis,
micromedia and folksonomies are some Web 2.0 concepts being used by businesses in the field
of marketing, brand promotion and Customer Relationship Management.

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2.11.1. Blogs

The dictionary meaning of a blog is a frequent, chronological publication of personal thoughts

and links. Blogs are customizable online web spaces that allow users to post content, which is
displayed in reverse chronological order. Depending on the blogging software or service used,
entries may include video and other rich media. Visitors to an individuals personal blog can
typically post comments to specific entries and can also elect to be automatically notified
whenever a new entry has been posted by subscribing to a blogs feed. Blogs are personal
journals or reversed-chronological commentaries written by individuals and made publicly
accessible on the web. To many people, blogs are not much different from regular websites;
however, they have distinctive technological features that differentiate them from other forms of
computer mediated communication. These features include: (i) easy-to-use content management
system; (ii) archive-oriented structure; (iii) latest-information-first order; (iv) links to other
blogs; and (v) ease of responding to previous blog postings (D.A. Huffaker and S.L.Calvert,
2005). However, with the evolution of blogging technology, and the fast expansion of the
blogosphere, the form, content and functions of blogs have expanded tremendously. These
weblogs are often perceived as low-threshold tools to publish online, empowering individual
expression in public. Although a weblog is a personal writing space, its public nature suggests a
need to communicate, (T. Mortensen., 2004) and invites feedback. Weblogs can be positioned as
their own genre, situated on an intermediate point between standard web pages and asynchronous
computer-mediated communication along dimensions of frequency of update, symmetry of
communicative exchange and multimodality (S.C Herring., 1993). Because of the flexible and
interconnected nature of blogs, people can use blogs for various purposes including: keeping
personal diary (D.S., Bortree., 2005); interacting with other bloggers building a virtual
community; and disseminating messages to a mass audience (Lawson-Borders, G. and Kirk, R.
2005).

Even though the majority of blogs contain personal thoughts or feelings of authors that are not
intended for mass dissemination, blogs exist in a public arena, the Internet, and messages posted
in blogs are open to anyone with an Internet connection (Gurak, L. J., Antonijevic, S., Johnson,
L., Ratliff, C., and Reyman, J. 2004). More and more bloggers are recognizing this mass
communication potential of blogs and use blogs to publish their opinions on public issues and to

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disseminate them to a mass audience (Trammell, K. D. and Keshelashvili, A. 2005). Bloggers

desire connection with their audience, want to insert themselves into known, sometimes
unknown social spaces, to update, inform or advise, to greet or grumble, to pontificate, confess,
create and to think (Nardi, B.A., Schiano, D.J., and Gumbrecht, M. 2004). Blogs are a global
phenomenon that has hit the mainstream. In 2008, Technorati tracked 133 million blogs in 81
languages. Technorati is a real-time search engine for blogs that tracks what is current and
popular. Bloggers are collectively creating close to one million posts every day and blogs have
become integral to the media ecosystem. The Blogosphere is the collective community of all
blogs. Since all blogs are on the Internet by definition, they may be seen as interconnected and
socially networked. Discussions in the Blogosphere have been used by the media as a gauge of
public opinion on various issues. The active Blogosphere can be defined as - The ecosystem of
interconnected communities of bloggers and readers at the convergence of journalism and
conversation (Technorati.com, 2008). Bloggers are not a homogeneous group. There are
personal, professional and corporate bloggers, all having differing goals and covering a myriad
range of topics, using different techniques to drive traffic to their blogs, different publishing tools
on their blog and distinct metrics for measuring success.

2.11.2. Wikis

A wiki is a collection of Web pages designed to enable individuals to contribute or modify

content, using a simplified mark up language. Wikis are often used to create and power
collaborative and community websites. The most prominent Wiki application is the Wikipedia
on which every Internet user can become the knowledge provider of its contents. In such
architecture, both peers and experts are equally welcomed and valued to participate in the
knowledge refinement process. Wikis are used in business as effective knowledge management
systems. Wikis enable site visitors to add their own content and build up, in an additive fashion,
on the content created by others. They hence create a common platform for people in the targeted
and specified community to not merely participate in the communications but also to be the
content and knowledge providers of the group. The properties of a wiki platform make it easy to
track activities such as the viewing, reading, adding, and editing of content, changes to content
over time, the most active contributors, as well as the opportunity to recruit specific users for

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more focused research projects. When done right, wikis can drive key metrics that online
marketers labour to achieve including increased page views, a higher level of consumer
engagement, and higher rates of user contributions. Wikis can also be used for gathering market
intelligence by analyzing the content added by consumers which can provide insight into
possible future trends or competitor offerings. They can also aid in market research where
researchers enter the discussion and conduct focused surveys or discrete experiments. Wikis
offer companies the opportunity to encourage user generated content.

2.12. E-Commerce
The entire value chain in a typical marketing organisation starts at the supplier and ends at the
consumer. E-Commerce and digital technology are playing significant roles in enriching the
sales and marketing strategies of an organisation. It has forced companies to find new ways to
expand the markets in which they compete, to attract and retain customers by tailoring products
and services to their needs, and to restructure their business processes to deliver products and
services more efficiently and effectively (Namchul, S., 2001). E-Commerce has equipped the
erstwhile consumer with greater access to information, more opportunities to compare products
and services, greater convenience, thereby making him the dominating partner in the consumer-
buyer relationship. This has pushed brands towards greater customer-centricity, emphasizing
greater focus on the relationship between the organisation and the consumer. The success factor
for firms has been heavily dependent on the extent to which the Internet can be harnessed as a
marketing tool and better service can enhance consumer relationships (Rust & Kannan, 2002).
Due to its potential for interactive communication, the Internet has been considered a promising
tool for relationship marketing (Thorbjornsen et al. 2002). The term 'electronic commerce'
encompasses many activities carried out through computer networks and the Internet, including
inter-organisational commerce, intra-organisational transactions, and transactions involving the
individual consumer (Adelaar, 2000). The impact of the Internet has made a substantial
difference in business-to-business (B2B) transactions. (Teo et al. 2003; Venkatraman, N., 2000)

2.12.1. The Internets Role in E-Commerce

The Internet has been highly influential in removing separations between IT and the business
(Earl, M. and Khan, B., 2001).The Internet is a nearly perfect market because information is

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instantaneous and buyers can compare the offerings of sellers worldwide. The result is fierce
price competition and vanishing brand loyalty (Srinivasan, S. S., Anderson, R., and Ponnavolu,
K., 2002).Many applications of Internet such as online communities can help to provide
interactivity to consumers(Holland, J., and Baker, S. M., 2001).Organisations will benefit from
understanding the gains that can be acquired by utilising this medium for growth and enhanced
profitability by leveraging the cost benefits offered by this medium coupled with ease of access
and enhanced collaborative opportunities.

2.13. Customer Life Time Value

Customer Lifetime Value is the present value of the future cash flows attributed to the customer
relationship. It depends on a customers activity level, duration, the firms retention spending,
and other related costs and benefits attachable to that specific customer or customer segment.
Firms should invest in an appropriate consumer segmentation process once a new consumer is
acquired, to target them appropriately for future sales generation. Use of customer lifetime value
as a marketing metric tends to place greater emphasis on customer service and long-term
customer satisfaction, rather than on maximizing short-term sales. In order to maximize the
Customer Life Time Value the firm must work with desirable customers to begin or they should
know how to customize the customers experience to create highest value (Venkatesan R. and V.
Kumar., 2004).

2.13.1. Customer Life Time Value Measurement

The various components of CLV include purchase frequency, contribution margin, and
marketing costs (however, the various CLV components can vary depending on the industry).
Some of the antecedents of purchase frequency and contribution margin (e.g., marketing
communications) are under managements control and affect the variable costs of managing
customers.
Typically, CLV is a function of the predicted contribution margin, the propensity for a customer
to continue in a relationship (customer retention), and the marketing resources allocated to the
customer. In general, CLV can be calculated as follows (Venkatesan, Kumar, 2004)
where

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i = customer index,
t = time index,
n = forecast horizon, and
r = discount rate.

Customer understanding is the core of CRM. It is the basis for maximizing customer lifetime
value, which in turn encompasses customer segmentation and actions to maximize customer
conversion, retention, loyalty and profitability. Proper customer understanding and actionability
lead to increased customer lifetime value. Incorrect customer understanding can lead to
hazardous actions. Similarly, unfocused actions, such as unbounded attempts to access or retain
all customers, can lead to decrease of customer lifetime value (law of diminishing return).
Hence, emphasis should be put on correct customer understanding and concerted actions derived
from it.

Marketing Managers are today collecting more information about their customers than ever
before. Managers can capitalise on the value of this information by applying simple formulae to
determine Customer Lifetime Value. CLV helps managers arrive at a monetary value for the
long term relationship which an organisation can associate with the customer.

CLV is useful in considering acquisition process as well as selecting optimal service levels to
provide different groups.

The development and retention of profitable customer relationships is vital to the health of every
business. Revenues and profits generated in the short term should not be the focus of any
company. If firm profits are high during one year and during that year the core customer base has
been alienated, the firms prospects of repeating a strong financial performance are significantly
diminished. Companies need to be concerned with the future revenue and profit streams
associated with the ongoing retention and satisfaction of their core, profitable customer bases.
Retaining the right customers over time has a strong impact on company profitability. The
companies that fail to understand this truth overspend in marketing to acquire and retain less
profitable or even unprofitable customers and do not spend enough on keeping profitable ones.

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Figure 2.5: CLV Calculator (Source: Harvard Business School Publishing, 2007)

Study of Customer Lifetime Value aims at protecting existing highly profitable customers, re-
pricing expensive services, based on cost-to-serve. It also comprises discounting, if necessary to
gain business with low cost-to-serve customers. This aims at negotiating win-win relationships
that lower cost to serve with cooperative customers while being patient with currently
unprofitable customers that provide other non-quantified benefits to the company. All the efforts
are directed towards attempting to capture high profit customers from competitors.

In this context, studies of Customer Lifetime Value perform three functions in organisations-

(i) Identification of Profitable Potentials: This can be done by identifying high/low cost
to serve customers, calculating incremental revenue per customer, assessment of
average no. of consumer purchases and average amount spent per consumer purchase.
This can be done by increasing the average consumer retention rate and subsequently
identifying strategic consumers for the company through consumer segmentation.
(ii) Diminish consumer communication costs: This includes reduction of consumer
acquisition costs, decreasing direct marketing costs per consumer, reduce cost of
mailing information to consumers, provide presale and post sale support as also

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identify customers who value unique functionality, features and extensive support and
service and pay for them.
(iii) Augment profits from current customers: This includes increasing average number
of consumer purchases and increasing average amount per consumer purchase,
involves improvements in order and delivery relationships, raise consumer switching
costs, identify price sensitive consumers, reduce consumer price sensitivity,
identification of customer categories for cross selling and up selling, development of
service and product portfolios, which are aligned towards increasing consumer
profitability.

2.14. Consumer Price Sensitivity

Price sensitivity depends on the ability of the consumer to compare alternatives, evaluate deals
and addresses whether the total costs justify the time and effort to find better prices. Price
sensitivity encompasses how consumers react to price levels and price changes. Price sensitive
consumers seek low prices and are less likely to buy when prices rise. Price insensitive
consumers are willing to pay higher prices for the same goods than are price sensitive
consumers, and are more willing to buy if prices go up , (Foxall and James., 2003; Shimp, Dunn.
and Klein2004).

Many factors affect consumers price sensitivity. A common perception is that the Internet
always raises consumer price sensitivity. This is not always true. On one hand the internet tends
to increase consumer price sensitivity, on the other hand, some companies have skilfully used the
internet to lower their specific marketplace price sensitivity and retain premium prices. Having
an intuitive understanding of price sensitivity factors helps pricing managers make good decision
and for online marketers provides a better understanding of how these factors might be affected
by online marketing content.
One of the tasks of an online marketer is to understand the implications of the price sensitivity
factors for online content. Different companies will have different objectives. A low price firm
will want to use its online presence to enhance price sensitivity and create a focus on price. A
premium service oriented firm, on the other hand, wants online content that reinforces that

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position and reduces the focus on price. Each of the price sensitivity factors help the reverse
engineering from price sensitivity factor to online content. One of the major implication can be
understood through shared cost effect, it applies when there is a separation between purchase
decision maker and purchase payer. The shared cost effect typically lowers market price
sensitivity. The main impact of the shared cost effect on Internet strategy is to create separate
content aimed at the decision maker or the payer. One or more of the price sensitivity factors can
operate at the same time for a particular pricing decision. Thus a thorough understanding of the
factors shaping price sensitivity helps pricing managers make good decisions and for online
marketers it provides a better understanding of how these effects might be altered by online
marketing content.
If proficiency in searching the Internet increases with experience or over time, then reliance on
brand names should likewise decrease. Internet search proficiency is likely to increase as users
gain more experience with the medium. Increased proficiency decreases the cost of gathering and
evaluating information, specifically product information. Alternatively, consumers can rely on
well known brand names as shortcuts in evaluating the merits of different products. Unlike
search costs, increased Internet experience is not likely to make consumers more proficient at
inferring product quality from brand names. Therefore, as the price of searching, relative to using
brands, falls with increasing Internet experience and if there are substitutes the more experienced
consumers should rely less on brands and thus here the various effects of consumer price
sensitivity have a significant role to play. On the other hand, the large amount of information
about pricing, competitors, and features available on the Internet also helps to create a cost
transparent environment. This severely impairs a seller's ability to obtain high margins, because
it turns products and services into commodities, and may damage company reputations by
creating perceptions of price unfairness. Early work suggested that the Internet could present a
threat to branding and erode loyalty. As a result of this cost benefit focus, many e-tailers offer
low prices and focused on customer acquisition.

2.14. 1. Role of Internet in impacting Consumer Price Sensitivity

The internet constitutes a new form and conception of the purchase process carried out by
consumers. The more dynamic pricing mechanisms started up in this channel allow prices to

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adapt quickly to the demand for products (Martinez M. Encarnacion Andres et al. 2011).The
Internet leads to increased price competition and the standardization of prices. Organisations will
have to employ new pricing models when selling over the internet, (Eric, Allen, and Jerry,
Fjermestad, 2001). The people who use this channel for shopping assign great importance to
price when making decisions, which is why they are very sensitive to this aspect.
This can further be illustrated through the following-

2.14.2. Role of online content in influencing Consumer Price Sensitivity

A lot of research has been conducted in the past by various eminent researchers to assess this
(Alba et al.1997) propose that, when quality-related information becomes a brand differentiating
factor for customers, interactive retailing could lead to lower price sensitivity. (Degeratu et al.
1999) found that online promotions, which are indicators of price discounts, lead to higher price
sensitivity. When there is high motivation to shop, an increase in information load led to a high
price level of the product being perceived as more valuable and of superior quality. For the same
high motivation situation, the low price level of the product showed a pattern of results that was
opposite to that for the high price level (Suri, R., Long Mary, L. and Monroe B. K., 2003).Thus
one of the tasks for an online marketer is to understand the implications of price sensitivity
factors for online content. Different companies will have different objectives. A low price firm
will want to use its online presence to enhance price sensitivity and create a focus on price. A
premium service oriented firm wants online content that reinforces that position and reduces the
focus on price. Each of the price sensitivity factors helps the reverse engineering from price
sensitivity factor to online content. A major impact of the internet on price sensitivity throughout
the economy is the ability of consumers and firms to rapidly compare alternatives for products
and services even when they arent sold online.

2.14.3. Ability of the Internet to increase consumer perceived value

Consumers may use price as an indicator of product quality, i.e., the higher the price, the higher
the perceived quality. Such an association between price and perceived quality is essentially a
heuristic that enables consumers to use an extrinsic attribute like price to make judgments about
a products quality (Pechmann, C. and Ratneshwar, S., 1991). Price information plays a dual role

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in consumers judgments. Consumers use price not only to infer a products quality but also to
determine the monetary sacrifice associated with the purchase of that product (Monroe KB,
1990, Leszinski R, and Marn M,1997).If perceived value represents a tradeoff between perceived
sacrifice and perceived quality, then, price information is processed systematically (Grewal et al.
1998), greater weight will be placed on the price sacrifice relationship and judgments of value
will behave in a manner similar to judgments of perceived sacrifice.

2.15. Price Effects in Online Domain

2.15.1. Reference price Effect

The reference price effect connects price sensitivity with the competitive alternatives that a
potential customer uses to judge the products price (Kalyanaram G., and Russell W.S., 1995).
Price sensitivity increases when a products price is above those of the perceived alternatives.
Perception is important and the manner in which the product is compared to alternatives can
strongly influence price sensitivity (Lichtenstein R. Donald, Burton, S. and Karson J. Eric,
1991). The reference price effect provides strong motivation for firms to seek the attention of
consumers and to provide the information regarding various product and services at their own
sites, rather than send consumers to an online site with different comparison sets (Urbany E. Joel,
Bearden O. William and Weilbaker C. Dan, 1988). The firms competing on low price want that
the comparisons revolve around basic features and the low prices of their product and services.
Sellers of enhanced features need to ensure that the full range of benefits is required for the
comparison set. In reference price effect, price sensitivity rises when price is perceived as out of
line with the alternatives, (Briesch et al. 1997).

2.15.2. Difficult comparison effect

The difficult comparison effect connects price sensitivity with the presence and awareness of
alternatives. In this effect awareness of more substitutes and lower search costs work to increase
price sensitivity (Lynch G. J., Ariely Dan., 2000). The internets biggest impact on price
sensitivity may be through the comparison effect with increasing information leading to lower

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willingness to pay. The internet has created a cutthroat competition for the retailers as the best
prices are available for products at lower shipping costs with the emergence of online services. If
the price comparison is easier it further boosts price sensitivity. The nature of the product or
service involved, contributes to the challenge of judging new products. One of the important
distinction is between search and experience goods (Klein R. Lisa., 1998). A search good is one
in which the goods features and characteristics, such as quality and price, are easily observable
and comparable. An experience good on the other hand is one in which it is difficult to judge
quality and proper price (Huang Lurie, 2009). Experience goods are naturally more sensitive to
the difficult comparison effect and consequently less price sensitive.

2.15.3. Switching Cost effect

For a price sensitive customer, if switching costs are high, then the customer will not switch over
and vice versa. In this effect, price sensitivity, (Gerard, T.J., 1986) is reduced when the product is
part of a system of complementary products. When a product is part of a system, such as
computer plus software product purchases are less sensitive to changes in the price of one of the
components. Switching costs are the expenses incurred by changing suppliers (Thompson and
William, B.C., 2002). Switching costs have long been associated with customer satisfaction and
loyalty. In a low satisfaction relationship, switching costs may act as an exit barrier. Companies
attempting to acquire customers often invest money in lowering customer switching costs (Lee et
al. 2006), what is important here is to understand that how important the switching cost effect
will be on price sensitivity. Switching costs are positively associated with loyalty and it is an
important mediator between consumer loyalty and its antecedents. The impact of trust and
satisfaction on consumer commitment appears to vary according to contingency conditions of
switching cost antecedents, (Sharma, N. and Patterson G. Paul, 2000). (Chen and Hitt., 2002)
have examined the role of switching costs in online shopping. (Farrell, J. and P. Klemperer.,
2002) wrote from a consumer perspective regarding the expense in time or money that a
consumer faces in a purchase from a different seller. Examples of switching costs include the
effort needed to inform friends and relatives about a new telephone number after an operator
switch, costs related to learning how to use the interface of a new mobile phone from a different
brand and costs in terms of time lost due to the paperwork necessary when switching to a new

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electricity provider. Types of switching costs, (Burnham et al. 2003) include: exit fees, search
costs, learning costs, cognitive effort, emotional costs, equipment costs, installation and start-up
costs, financial risk, psychological risk, and social risk. (Gourville, John. T., 2003) listed several
rules of thumb to help understand why many consumers do not immediately switch from a
product they currently use to the latest innovative improved product, even if the cost difference is
minimal. First, people are sensitive to the relative advantages and disadvantages of any change
from the status quo. So a new, improved product, (Chiu et al. 2005), no matter how great it is on
its own merit, must be significantly better than what consumers are currently using before they
will switch. Second, different people have different reference points. For example, a hi-tech
traveling salesman would evaluate the advantages of a cellular over a landline phone from a
much different perspective than a home-bound, fixed-income, and retiree. Third, people exhibit
loss aversion. The pain of giving up a benefit is much more significant than the pleasure of
gaining that benefit. Online shoppers may have additional technology-related efficiency needs,
(Ha Sejin and Stoel Leslie., 2009) compared to traditional shoppers. A web user may go through
a learning curve before skillfully browsing a commercial site and identifying targeted
information. This may build a high technology related switching cost, (Wu Her Jen et al. 2005).
Perceived switching cost (Balabanis et al. 2006) is a component of perceived relationship value.
When consumers think that switching to another retailer is costly, they are more likely to stay
with the current retailer and exhibit brand preference, (Armstrong Mark and Vickers John., 2009)
and relational market behaviour.

2.15.4. Price quality effect

For certain specific goods which provide consumers with a unique experience or value, the price
of the product influences consumer evaluation of a product, (Dodds B. William, Monroe B.
Kent., 1985). In this effect when price is a signal of quality, price sensitivity is lower. A
products price may act as a trigger to consumers of some underlying characteristics of the
product that is hard to observe directly. In particular, consumers may believe that a high price
signals high quality. If this is true then price becomes a less responsive tool. The reason is
simple, when a firm cuts its price; it makes its product more affordable to a wider customer base.
The positive benefit of cutting price is partially offset by the negative perception that quality may

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be lower. Price premium research demonstrates that consumers are willing to pay a higher price
for higher quality brands (Erdem et al. 2002). A price increase makes items more expensive, but
for those consumers using price as an informational cue (Brucks. Merrie, Zeithaml A. Valarie
and Naylor Gillian.,2000) about quality there is a positive perceived quality impact.
Inexperienced consumers tend to rely on the natural correlation between higher price and higher
quality. Web sites targeting these consumers should address this price quality effect directly
through product education hence increasing acquisition value perceptions (Grewal, Monroe,
Krishnan., 1998). The price quality effect works to the advantage of well established brands in
the face of aggressive price competition by start ups and discounters. Each company is trying to
use its online content, at least partially, to reinforce the view of the price quality effect most
advantageous to its own pricing strategy.

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