Social Customer Relationship Management – shifting

power from the company to customers?

Course: BUSN32 Internet marketing, branding and consumers

Professor: Veronika Tarnovskaya

Program: International Marketing & Brand Management

Handed in by: Lea Henrike Engling

Date: 29.02.2012

Words: 3,000

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Content

1. Introduction ......................................................................................................................................... 3

2. Theoretical Framework ....................................................................................................................... 3

2.1 Customer Relationship Management ........................................................................................... 3

2.2 Social Media .................................................................................................................................. 4

2.3 Social Customer Relationship Management ................................................................................. 4

2.4. Customer Empowerment ............................................................................................................. 4

3. Case discussion .................................................................................................................................... 6

3.1 Deutsche Bahn ............................................................................................................................... 6

3.2 Nestlé ............................................................................................................................................. 6

3.3 X Factor .......................................................................................................................................... 7

3.4 Nutella ........................................................................................................................................... 7

4. Analysis ................................................................................................................................................ 8

5. Conclusion ........................................................................................................................................... 9

Bibliography ........................................................................................................................................... 10

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1. Introduction

With 800.000 million active members (facebook, 2012), the social network facebook is a major, if not

one of the biggest, opportunity for companies to interact with their customers. But for most compa-

nies, using social media still presents a challenge as they fail to understand how to manage online

relationships. At the same time, the concept of social customer relationship marketing has become

an important area of academic research as it alters fundamental assumptions about the customer-

supplier relationship. It has become obvious that by allowing a two-way or even many-to-many

communication, social media has changed the laws of customer relationship management. But while

it seems clear that customers gained some control over the management of their relationship with

companies, there is a controversy in academic literature on the extent and direction of this customer

empowerment. Thus, the purpose of this paper is to discuss the implications of social media on the

relationship between customers and suppliers. This will contribute to the field of social customer

relationship management firstly by providing an in-depth theoretical discussion of the power shift

and secondly by examining the empowerment of customers in practice through case studies.

2. Theoretical Framework

In order to understand social customer relationship management, this paper starts with a discussion

of the two underlying concepts, customer relationship management and social media. This is fol-

lowed by an examination of social customer relationship and its implication for the empowerment of

customer.

2.1 Customer Relationship Management

The emergence of relationship marketing and customer relationship management (CRM) radically

changed marketing research and practice (Bonnemaizon et al., 2007: 50) as the two concepts shifted

the focus from customers as a source of profit to the importance of long-term relationships (Payne &

Frow, 2005: 168). Even though both terms are similar and used interchangeably sometimes (Payne &

Frow, 2005: 167), CRM goes further by integrating all business activities (Askool & Nakata, 2011:

206). However, there is no universal definition of CRM and it has been discussed from many perspec-

tives, for example as a marketing, business or IT strategy (Askool & Nakata, 2011: 206-207). Based on

the major points discussed in literature (e.g. Payne & Frow, 2005; Askool & Nakata, 2011; Holland;

Greve, 2011; Schierholz et al., 2006), CRM can be defined as following: CRM includes all activities of

an organization to build a long-term relationship with its most valuable customers in order to in-

crease loyalty and retention. CSM software is used to gain a holistic picture of each customer and to

differentiate them to allow for individualization of the relationship. CRM demands a holistic ap-

proach and customer orientation in all business activities.

However, many studies show that companies struggle to implement CRM (e.g. Fournier et al., 1998;

Bonnemaizon et al., 2007; Greenberg, 2010) and its success seems to depend on a variety of techno-

logical, cultural and structural factors (Askool & Nakata, 2011: 207). One common mistake is to treat

CRM as a means to “access customers’ wallets” (Fournier et al., 1998) without creating additional

customer value (Bonnemaizon et al., 2007: 51).

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2.2 Social Media

Web 2.0, social media and social networks are some of the terms that are being used interchangea-

bly to describe the same phenomenon of interactive communication on the internet. Thus, a more

distinct differentiation is necessary.

The term Web 2.0 describes a new form of Internet, which encourages users’ interaction, collabora-

tion and engagement (Askool & Nakata, 2011: 207). This stands in opposition to the preceding con-

cept of Web 1.0, which was dominated by company created content with no or few possibilities for

user interaction. The term social media refers to a collection of online platforms, for example blogs,

wikis and many more, that allow customers to express their opinions, share content and build rela-

tionships online (Scott, 2011:37). It is thus a major part of Web 2.0 and it could be argued that the

majority of online content today can be classified as social media. As a part of social media, social

networks are systems of online relationships, connecting people, companies and groups (Askool &

Nakata, 2011: 208). However, the distinction between social networks and other social media tech-

nologies like the picture sharing platform flickr1 is fluent as they provide many similar features.

2.3 Social Customer Relationship Management

With the spread of social media in recent years, the concept of social customer relationship man-

agement (social CRM) has emerged. Many authors (for example Askool & Nakata, 2011: 208; Greve,

2011: 268) still understand social CRM as merely an integration of social media into traditional CRM.

However, to fully understand the concept of social CRM, one has to appreciate the differences in

communicating through social media. Traditional communication was one-way (Parsons et al., 1998:

32), pushing the messages into the market (Rowley, 2004: 25-26) and thus perceived as intrusive by

customers (Armelini & Villanueva, 2011: 33). Communication on social media, in contrast, embraces

interaction and is two-way or even many-to-many between customers (Parsons et al., 1998: 37; Row-

ley, 2004: 26). As customers have to actively engage, most social media is non-, or at least less, intru-

sive (Winer, 2009: 110).

As communication is a major part of building relationships, traditional and social CRM have to follow

different approaches. Indeed, social CRM proposes that instead of managing the relationship through

operational excellence, companies should engage in a dialogue with customers (Baird & Parasnis,

2011: 30; Woodcock et al., 2011: 52). Furthermore, it adds social features (Greenberg, 2010: 414)

that facilitate interaction between customers and the company, but also between customers and

their peers. Thus, social CRM overcomes the lack of interaction that makes so many traditional CRM

strategies unsuccessful.

2.4. Customer Empowerment

The customer-centered definition of social CRM signals one of the major paradigm changes in current

marketing research and practice: a shift of power from the company to the customers. Whereas

companies used to manage the relationship, customers are now taking over control (Baird &

Parasnis, 2011: 30). Four factors influence this customer empowerment and will be discussed in the

following: voluntary participation, information control, personal marketing and increased choice.

1 www.flickr.com

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As mentioned earlier, social media is not intrusive but consensual (Armelini & Villanueva, 2011: 33).

In practice, this means that not the company but the customer decides with whom to interact (Par-

sons et al., 1998:35, 45) and that they only share data in exchange for tangible benefits or an emo-

tional experience (Baird & Parasnis, 2011: 31). Parsons et al. (1998: 35-37) thus propose five steps to

build a relationship with customers via social media: attract, engage, retain, learn and relate. Key of

this framework seems to be offering relevant content to the customers. However, this is a challenge

as many companies do not know what their customers want (Baird & Parasnis, 2011: 31).

In the past, companies’ power depended to a large extent on their control over company and prod-

uct information (Greve, 2011: 268) via their marketing and PR activities (Scott, 2011: 3-12). In social

media, however, customers are in control of the information flow. Firstly, the Internet enables cus-

tomers to access and understand more information, increasing their knowledge (Pires et al., 2006:

937). But furthermore, customers also become the creators of information by sharing their blogs,

tweets etc. (Greve, 2011: 268). Once created, the content is much more difficult for companies to

control (Langheinrich & Karjoth, 2010: 52), or even uncontrollable. Customers can thus generate

their own brand meaning online with little influence from the company (Morrissey, 2005).

The control over information becomes especially crucial as customers have become more trusting of

the opinions of friends and the social community (Hanna et al., 2011: 267; Baird & Parasnis, 2011: 33;

Armelini & Villanueva, 2011: 32). In fact, customers have built a whole social media ecosystem

around them with billions of connections (Hanna et al., 2011: 267-269), which may tarnish even long-

standing brand-customer relationships (Pires et al., 2006: 937). Customers are furthermore building

online brand communities and brand tribes, again to create their own brand meaning (Muniz &

O’Guinn, 2001). Thus, the “future of advertising is personal” (Langheinrich & Karjoth, 2010: 51) in the

sense that product recommendations and endorsements come from friends and peers and not the

company.

Lastly, customers have access to an increased number of choices via the Internet (Pires et al., 2006:

937). Customers expect personalized products and communication (Rowley, 2004: 34) and marketing

strategies such as “customer-centric marketing” empowers customers as it lets them create their

own products (Pires et al., 2006: 934). Once more, this holds the challenge for companies to know

exactly what their customers want.

These trends clearly show the empowerment of customers. Newell (2003) even talks about CMR –

customer management of relationship - meaning that customers are controlling the relationship with

no influence from the company. They for example choose the type of information, level of service

and frequency of communication they would like from the company (Pires et al., 2006: 944). Howev-

er, there is a discussion in academic research on the extent of this customer empowerment.

Reis et al. (2002: 365-370) found that there is a widening quality gap and customers are less satisfied

with products. This occurs because the buyer-supplier relationship has become depersonalized over

the centuries due to the increase in production and thus number of customers. These empirical find-

ings conflict with customer empowerment theory, which suggests an increase in the personalization

of products and communication. Reis et al. (2002: 370-371) suggest that in the web-economy mod-

ern technology allows companies to calculate the costs and profits of each customer and thus choose

their customers according to their profitability. In fact, segmenting customers is mentioned as one of

the key factors for efficient social CRM (Aljukhadar & Senecal, 2010: 429) and IT and database man-

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agement is becoming increasingly “intelligent” (Bonnemaizon et al., 2007: 54), providing profound

insights into customers’ behavior and attitudes (Greenberg, 2010: 417).

Also, it is argued that companies determine the type of power customers obtain, thus “controlled

empowerment” (Pires et al., 2006: 393). As an example, Pires et al. (2006: 943-944) mention Self-

Service: even though customers can control the value creation process through self-service, the

company is still partly in control as it establishes the degree of self-service. Thus, involving customers

in the production process is often merely an action to regain power (Bonnemaizon et al., 2007: 54).

Lastly, as customers’ empowerment comes from their increased knowledge and choices, the extent

of their empowerment depends upon their ability to make use of this, for example the number of

choices available and their ability to gather, access, understand and act upon this knowledge (Pires et

al., 2006: 939). Consequently, customers with no or limited access to social media, for example elder-

ly or illiterate people, might not get empowered.

3. Case discussion

In the following, several cases will be presented and discussed regarding the influence of social me-

dia on the company-customer relationship.

3.1 Deutsche Bahn

In 2010, the German train operator “Deutsche Bahn” (DB) launched its first facebook page aimed at

selling cheap tickets. The page backfired as the fast growing number of users used it as a platform for

complaints. DB reacted by ignoring and deleting comments and a major wave of negative publicity

followed until the page was eventually deleted (Taz, 2010). Surprisingly, the campaign had no direct

negative effects on online sales (Schutzmann, 2011). One year later, DB started its second facebook

page. This time it was built as a communication tool, questions were answered quickly and critical

comments encouraged. (Buggisch, 2011) The launch of the second fan page received a positive feed-

back from users, social media experts and mass media and negative discussions stayed at a minimum

level (Vielmeier, 2011).

This case shows the dangers of ignoring the empowered customer. DB did not understand their cus-

tomers and how to efficiently use social media. Instead of making their page about their customers,

they used it as a mere sales channel. However, they did learn their lessons when launching the se-

cond fan page. It enabled an active dialogue between DB and its customers as well as between cus-

tomers. It had a long term focus and was tailored at customers’ needs. Yet, DB did not lose complete

control over the relationship. Firstly, by being actively involved in the discussion, they are able to

show the company’s position and determine the direction of the discussion to some extent. Also,

through additional features such as videos and interviews, they can use traditional marketing tools to

spread information. But instead of being interruptive, customers actively decide to use them, thus

the content becomes highly relevant. Lastly, DB can find about customers’ problems, needs and

complains - this knowledge is the basis for developing the relationship.

3.2 Nestlé

Also in 2010, a viral video criticizing Nestlé’s use of uncertified palm oil led to a heated discussion on

Kit Kat’s facebook page. The protest was intensified as Nestlé did not only delete comments, but also

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posted prohibitions and other insulting statements. (Langheinrich & Karjoth, 2010: 52) Even though

the company was able to calm the discussion by admitting their mistakes and starting a dialogue with

customers, this incident is still considered to be one of the biggest social media crises. (Hillenbrand,

2010) However, it had no detectable influence on volume sales either (Phillips, 2010).

This case shows the power customers have through creating content. Nestlé was not able to control

their fans’ criticism by deleting it, but rather intensified the confrontation. Also, Nestlé lost the con-

trol over the relationship by using the page as a one-way communication tool, destroying relation-

ships they had built over years. The example also shows that customers had the power to force

Nestlé to admit to their mistakes and implement changes. Lastly, Nestlé was forced to change their

social media communication strategy and allow interaction to calm the discussion, highlighting the

importance of understanding social CRM.

3.3 X Factor

For the last years, the winner of the British talent show “X-Factor” has always been number one dur-

ing the prestigious and lucrative Christmas week due to a “well-oiled marketing machine”

(Langheinrich & Karjoth, 2010: 52). In 2009 however, a group of critics founded a facebook group

with the only aim of pushing an alternative song. Indeed, they managed to motivate so many fans to

actually purchase the Indy song that it did surpass the X-factor song on Christmas. (Langheinrich &

Karjoth, 2010: 52)

This case shows the power customers have through their social media ecosystem. Firstly, by inviting

friends, who invited friends, who invited friends to join the campaign, critics were able to build a

huge fan base that was stronger than the multi-million marketing campaign of X-Factor. Secondly,

the Internet enabled the campaign to begin with by making it possible to purchase a song that was

not available in stores.

3.4 Nutella

Ferrero started their own social network centered on the Nutella brand called “my Nutella The

Community”2 to strengthen the online brand community. Customers are encouraged to share their

stories, thoughts, pictures etc. about Nutella, but also about the product’s values, and thus become

“architects of [the] relationship” (Cova & Pace, 2006: 1096). The website also facilitates communica-

tion between customers to spread the Nutella myth and to encourage personal marketing. However,

Ferrero controls the type of interaction by giving a limited choice of features, for example offering

Nutella-centered profiles but not chat rooms (Cova & Pace, 2006: 1098), thus keeping the focus on

the brand.

By building an online community, Ferrero is following a rather offensive social media strategy. On the

website, the company tries to strike the balance between acknowledging the power of customers by

encouraging interaction, but also to control customers by restraining interaction features. It is no-

ticeable that there is very limited communication from Ferrero itself, leaving customers to shape and

develop the brand. This shows the importance Ferrero puts on brand communities and tribes.

2 www.nutella.it (only available in Italian)

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4. Analysis

The cases clearly show the empowerment of customers in the buyer-supplier relationship. They not

only pressure companies into actions, but also manage the relationship with them.

Firstly, the four factors empowering customers already discussed in literature are confirmed by the

examples. It has become evident that customers’ participation in a relationship is voluntary and using

a fan page as a mere sales channel does not work as it fails to offer relevant content to the custom-

ers. Even though tangible benefits might initially work as a motivation for interaction, customers

require further experiences to engage and retain a relationship with the company. Similar findings

have been made by Baird & Parasnis (2011: 35). Also, companies cannot control customers’ access to

and sharing of information. As shown in the cases, not only will customers always find a way to share

information within their social media ecosystem, but furthermore trying to restrict customers’ inter-

action leads to a storm of protest that has the potential to destroy a long-lasting relationship. In addi-

tion, the power of personal marketing has been demonstrated as recommendations within the social

ecosystem can beat even expensive marketing campaigns. Only the power gained by the increase in

choice has not become completely obvious through the cases, possibly resulting from the limited

number of cases.

Moreover, an additional factor empowering customers has been found that has, to the author’s best

knowledge, not previously been discussed in literature. There seems to be spill-over effect from so-

cial to traditional media: important failures, but also successes, of social media campaigns are also

covered in traditional media, reaching a broader audience including customers not active on social

media. Thus, social media does not only affect the online but also the offline relationships between

customers and suppliers, also empowering customers with no access to social media.

Nevertheless, the empowerment of the customers is not as strong and uncontrolled as literature

might suggest. In fact, companies can still retain some of the power in regards to managing online

relationships. Similar to the Self-Service example, companies can control the power customers get by

deciding which interaction features to offer. However, this does only work to some extent as cus-

tomers find other, uncontrollable, ways to communicate. Rather than trying to control customers, as

suggested in literature, companies can manage the relationship by actively participating in a dia-

logue. They can influence the direction of the discussion by represent the companies’ opinion, an-

swering questions and reacting to criticism. Furthermore, companies can also make use of traditional

marketing in social media to spread information. Tools like advertisements, videos etc. might even

work better online as they reach a more targeted audience. Social media marketing thus is “highly

fine-tuned brand management” (Cova & Pace, 2006: 1102) that has to take into consideration all

factors of customer empowerment.

There was no evidence supporting the argument that companies have the power to choose between

customers. Rather, it has become evident that problems in a relationship with few customers can

affect the relationship to many other customers through the social media ecosystem. Further case

discussions would be necessary to research this contradiction.

The most striking finding is the lack of financial consequences of a social media crisis. Even though

the brand and the relationship with customers were clearly damaged, no direct effect on sales was

detectable. This could be a sign of an attitude-behavior gap studied by Carrigan and Anttalla (2001:

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568ff), which describes the phenomenon that customers express an attitude against unethical prod-

ucts but that this attitude has no influence on their behavior. This attitude-behavior gap might be

even bigger when comparing online attitudes, heavily influenced by the perceived opinion of the

social media community, and individual offline behavior at the point of purchase. Also, it could be

that the protest seems immense online, but that the majority of customers are offline and thus not

influenced by the online discussion (except through coverage in mass media). In fact, studies have

shown that most online users only interact occasionally with brands (Baird & Parasnis, 2011: 31).

However, these reasons are entirely speculative and require further research.

5. Conclusion

Social media has heavily influenced the customer-supplier relationship and led to a shift in power

from the company to customers. Factors such as voluntary participation, information control, per-

sonal marketing, increased choices and a spill-over effect to traditional marketing have given cus-

tomers the power to manage the social relationship. However, companies are not without any influ-

ence. They can strengthen the relationship by actively participating in a dialogue with customers and

by encouraging interaction.

Social CRM presents a major opportunity for companies to connect to their customers and under-

stand their needs and attitudes. This means that companies have to offer customers an integrated

social media strategy that facilitates social CRM. By following the “attract, engage, retain, learn and

relate” framework (Parsons et al., 1998) companies can offer a meaningful experience for customers

– key for building a relationship (Bonnemaizon et al., 2007: 51). Emotional experiences, together with

the access to recommendation, will make customers less reluctant to share their data with compa-

nies (Baird & Parasnis, 2011: 33-34), creating an experience-data-cycle: the more valuable the expe-

rience to customers, the more the company will learn and be able to improve the experience. As

customers gain more power, they also have to be included in the value creation process

(Bonnemaizon et al., 2007: 55). However, this should not be used to control customers, but be part

of a dialogue in which the company engages with its customers. Simultaneously, companies have to

bear in mind the risks associated with using social CRM, not only online but also offline. As shown in

the cases, social media holds the potential to destroy relationships that have taken years to build.

This paper is based on a thorough literature review and case discussion. However, more cases would

make the findings more reliable. Also, interviews with customers could be included to analyze social

relationship management from the customers’ perspective.

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