As people are spending more time on social media sites, firms allocate more of their resources to social media. Social media could be used to acquire and or retain profitable customers. However, it is difficult to measure the direct effect of social media efforts on firm profits. This could make it difficult for managers to justify their promotional budgets and social media spending (Rishika et al., 2013).
Rishika et al. (2013) study firm’s return of investment on social media efforts. Moreover, in their study they investigate how the overall social media activity and customer characteristics affect the customer-firm relationship, which is measured as the frequency that the customer visits the firm’s shop.
The authors verify that participation in firm hosted social media by focal customer will have a positive impact on the intensity of the customer-firm relationship. Moreover, they find that customer’s participation on a firm’s social media site increases customer’s frequency of also visiting the firm’s shop. Also, the firm’s amount of message postings and responsiveness on social media increases the customer’s participation on the social media site. However, these vary for different customers with different customer characteristics.
The CRM literature suggests that there is a positive association between the consumer’s average transaction amount and satisfaction, which results in better behavioral outcomes, such as increased commitment towards the firm. This brand loyalty contributes to an increase in the customer lifetime value (Crosby et al., 1990). Rishika and al. (2013) argue that high value customers feel that they are more important to the firm and that thus they are likely to value a firm’s relationship investments in social media more than low value customers. Indeed, they verify their Hypothesis 3: The impact of participation in firm hosted social media on the intensity of the customer-firm relationship will be greater for customers with a larger purchase amount.
Customers who purchase premium products are often the most lucrative firms, and hence it is in the interest of firms to retain these customers. The authors find that the impact of participation in firm hosted social media on the intensity of the customer- firm relationship is greater for customers who have a greater share of premium product purchases.
The findings of the study by Rishika et al. (2013) have several managerial implications. Firstly, it is that it is important to nurture customer relationships through social media, since active social media efforts could increase the bond between customer and the firm and lead to long term financial performance, due to increasing customer visit frequency. Secondly, since different customers react differently to certain social media efforts, it is important to segment your customers on social media. Managers can create subcommunities or discussion forums customers who are interested in premium/unique products.