July 22, 2013

Business-Consumer Interactions on Social Media Mean More Dollars Spent, Say Texas A&M Profs

Once consumers ‘like’ a company or brand on Facebook, they’re voluntarily accepting advertising, and the result is they’ll spend more money at the business, say researchers at Texas A&M University who compared retail customers’ actual transactions with their social media behavior.

Facebook create a page

Businesses that interact with customers and address their complaints on social media, for all to see, are doing it right, say Texas A&M researchers.

“By ‘liking’ a business on Facebook or following it on Twitter, consumers are declaring to the world that they endorse this product, and that’s a big commitment,” says Ramkumar Janakiraman, a marketing professor at Texas A&M’s Mays Business School. “In so-doing, they’re also voluntarily agreeing to receive the company’s advertising in posts about products and specials.”

In the study “The Effect of Customers’ Social Media Participation on Customer Visit Frequency and Profitability,” Janakiraman and co-authors Rishika Rishika of Texas A&M, Ram Bezawada, University at Buffalo School of Management, and Ashish Kumar, Aalto University School of Business, examined the actual transaction data of a New York retailer and compared them to the corresponding customers’ behavior on social media.

“We wanted to test it empirically using transaction data ― how does behavior change if a customer were to become a fan of a retailer or brand online?” explains Janakiraman, an expert in marketing analytics. “A lot of firms are investing in social media, so we wanted to quantify it and show return on investment. Past studies have used survey data and of course, if a consumer is a fan of the company online, they’ll say good things about the product. The real question is: after a consumer becomes a fan of a retailer on Facebook, does it affect how much the consumer frequents the retailer? We wanted to test this using hard data and sound statistical techniques.”

So the researchers studied two different groups of customers over time, which were similar to each other, except for one big difference – “the experimental group became Facebook fans of the business and the control group did not,” says Janakiraman.

Ram and Rishika

Texas A&M professors Rishika Rishika (left) and Ramkumar Janakiraman

They collected the social media data and purchase data for each of the groups. “We merged the online behavior and the purchase data – one of the first studies to do so,” he notes.

The results showed a hike in revenue from the customers who had “liked” the business online.

“This group visited the store 5 percent more than customers that didn’t interact with the business online,” the professor reveals. “And business revenue increased by 5.6 percent as a result.”

Once they became a fan, their purchase behavior changed, says Janakiraman, because “becoming a fan strengthens the bond between the business and the consumer.”

Once consumers become fans, the business is now able to market its products and/or services directly to them via posts that can include everything from promotional pictures and videos, to event invitations, articles, giveaways and coupons.

What it really boils down to, says the Texas A&M professor, is that the consumers have entered into this relationship with the company voluntarily, so they’re more open to its advertising messages, as opposed to much of advertising, which is unsolicited.

Another facet of this online fan-business relationship is dialogue, and Janakiraman says the companies that are doing it right are the ones that address customer complaints and questions right on their Facebook and Twitter pages for everyone to see.

“That’s a big deal for other customers,” the professor notes. “It’s reassuring for them, so that if they were to face a similar problem, they know the company would help them out.”

While the study focused on a wine-and-spirits company, Janakiraman says the results can be applied to any type of business, because it’s all about interacting with the customers and providing them with information they want.

“As a customer, I don’t have to rely on traditional word-of-mouth to give me information on a product,” says the professor. “I’m giving the retailer permission to inform me about its product, and new information comes in immediately from the retailer and other fans. My Facebook friends see that I ‘liked’ this product, and they can ‘like’ the business and participate right away. It’s the fastest and most efficient way for consumers to collect information about products.”

Whether businesses succeed at social media depends on a number of factors, including the demographics of the customer base. “Of course, younger customers are more likely to be social media users,” the professor explains. “And it also depends on the product. This approach works especially well with specialty products, when customers may need a lot of information to decide on a purchase.”

Janakiraman says companies should try and attract fans with dynamic and user-friendly Facebook pages. “A smart firm will talk to customers using regular updates, invitations to events and direct interactions.”

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About Research at Texas A&M University: As one of the world’s leading research institutions, Texas A&M is in the vanguard in making significant contributions to the storehouse of knowledge, including that of science and technology. Research conducted at Texas A&M represents total annual expenditures of more than $776 million. That research creates new knowledge that provides basic, fundamental and applied contributions resulting in many cases in economic benefits to the state, nation and world.

Media contact: Lesley Henton, Division of Marketing & Communications at Texas A&M University; 979-845-5591, lshenton@tamu.edu

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