Customers’ Social Media Participation and Business Value for Firms: An Empirical Investigation

Research Seminars
Prof. Ram Bezawada, Associate Professor,Marketing Department, UB School of Management, The State University of New York at Buffalo.
July 11, 2014 | 12:30 PM - 2:00 PM | Friday
AC 2 Mini Lecture Theatre, ISB Campus, Hyderabad, India
For ISB Community
Social media has changed the way individuals interact with each other and is redefining the way firms connect with their customers. With 75% of internet users participating in some form of social media (Forrester Research 2008), companies are increasingly investing in the creation of social media platforms and strategies to augment customer-firm interactions. Social media enables firms to converse about their offerings with current and potential customers interactively (Agarwal, Gupta and Kraut 2008) while also providing customers the opportunity to co produce information about products (Godes and Mayzlin 2004). Thus, social media has provided firms-both large and small-with a new tool for customer engagement.
Despite the eagerness on the part of firms to embrace social media to connect with customers, there is also much skepticism about its efficacy. For example, a recent IBM report (2011; page 3) mentions that “social media is no longer the adorable baby everyone wants to hold, but the angst-filled adolescent- still immature yet no longer cute- who inspires mixed feelings.” The doubts about the effectiveness of social media arise because the link between firms’ social media efforts and return on their investment has not been established. In particular, there is no study to our knowledge that has examined the value or returns that can be realized by firms as a consequence of their investment in social media. Recent studies in this area have primarily focused on the effectiveness of user generated content (UGC) in stimulating product sales (Godes and Mayzlin 2004; Dellarocas, Zhang and Awad 2007; Zhu and Zhang 2010), encouraging new product diffusion (Susarla, Oh and Tan 2012) and fostering acceptance of recommendations (Ho, Bodoff and Tam 2011). However, from the perspective of a firm that is contemplating social media investments, it is imperative to know if such expenditures help in furthering customer-firm relationships thus creating sustainable firm value. In this regard, since most of the extant studies use aggregate data they are unable to uncover critical individual level differences that are essential for obtaining insights at the customer level. The objective of this paper is to systematically examine the benefits that accrue to companies because of customers’ participation in firm initiated social media efforts and the resulting business value generated thereof for the firm. For this purpose, we utilize a unique dataset comprising social media participation and actual purchase behavior for the same set of customers at the individual level.
We assemble a novel data set in which we not only track individual purchases but also observe customer activities on a firm’s social media page. We believe that our study is one of the first to establish the link between customers’ social media participation and the transaction driven firm value they generate using behavioral data.  However in our research context, it is important to account for salient endogeneity issues arising due to self-selection. For instance, customers who have an affinity towards the firm are more likely to join its social media site and also have longer relationship tenure with it. To address these self-selection concerns, we use multiple methods and techniques such as using pre (before the social media site went in effect) and post data, relying on a quasi- experimental design and using explicit methods to account for endogeniety. With regards to the quasi-experimental design, we compare the behavior of two distinct groups: (1) the “treatment” group comprising customers who participate in the firm initiated social media site, and whose behaviors we wish to analyze, and (2) a “control” group, consisting of those customers who are not part of /never participate in the firm’s social media site.
Our study makes several substantial contributions to the social media literature. First, we attempt to uncover the direct benefits that accrue to firms’ as a consequence of their social media efforts. Our approach is different from the extant social media research in that we use actual behavioral data to establish the causal link between customers’ social media participation and their relationship with the firm. Second, we propose a framework extending customer-firm interactions to the social media domain and examine how they impact key drivers of behavior. No study to our knowledge has integrated customers’ social media participation behavior and their offline exchange relationship with the firm and studied how such relationships in these two different domains may interact to create value for the firm. Finally, our research also explores how social media participation behavior is affected by features of the social media site. By focusing on these important factors, we offer insights on when customer participation becomes more salient. This will provide managerial guidelines on how customer relationships cultivated in the online social media environment can be leveraged for optimal return on investment.