Bachelor thesis

Applicability of Web 2.0 tools for customer retention

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Applicability of Web 2.0 tools for customer retention: BACHELORS PAPER: Web 2.0 Tools that can create value for companies
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Bachelor thesis
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Fachhochschule Krems - FH

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2010, Schüssler

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WEB 2.0 FOR CUSTOMER RETENTION

Applicability of Web 2.0 tools for customer retention


BACHELOR’S PAPER
Export-oriented Management


Table of Content

 Kurzfassung 1

Abstract. 2

1.       Introduction 3

1.1.     Description of the problem 3

1.2.     Research Questions. 3

1.3.     Limitations. 4

1.4.     Methods. 4

1.5.     Structure. 5

2.       Web 2.0. 6

2.1.     Definition and history of Web 2.0. 6

2.2.     Web 2.0 tools. 9

2.3.     Summary. 30

3.       Customer Retention 31

3.1.     Definition. 31

3.2.     Opportunities and Threats of customer retention. 32

3.3.     Effectiveness of customer retention. 35

3.3.1. Causal chain of customer retention. 35

3.4.     Managing customer retention. 38

3.5.     Critique in measuring customer retention. 42

3.6.     Summary. 43

4.       Web 2.0 tools for Customer Retention 44

4.1.     Web 2.0 tools in the fields of application of e-commerce. 44

4.2.     Facebook vs. Twitter 45

4.3.     Summary. 50

5.       Conclusion 51

5.1.     Outlook to further research. 52

6.       List of References 53

6.1.     Books and Articles in Journals. 53

6.2.     Online Journals and Documents. 56

Kurzfassung

Das Ergebnis dieser Arbeit zeigt, dass Web 2.0 Tools viele Möglichkeiten zur Kundenbindung bieten und besonders die zwei Anwendungen Facebook und Twitter können dafür eingesetzt werden. Dennoch birgt der Einsatz von Web 2.0 Tools in der Marketing Strategie auch immer Gefahren, besonders wenn diese nicht richtig verwendet werden. Am Beispiel von Firmenseiten auf der Social Network Plattform Facebook, sieht man, dass bei falscher Nutzung keine Kohärenz des dort veröffentlichten Inhalts mit dem allgemeinen Firmenimage besteht.

Des Weiteren können User sich als Opfer von unerwünschter Werbung fühlen und negative Gefühle gegenüber einem Unternehmen entwickeln. Nichtsdestotrotz bieten Web 2.0 Tools zukunftsorientierten Unternehmen, die wettbewerbsfähig bleiben wollen, großartige Möglichkeiten, wie zum Beispiel aktive Kommunikation mit Kunden, Segmentierung und Zielgruppendefinition, Vertrauens und Akzeptanzförderung, Aufbau von Begeisterung und Emotionen, sowie Erkennen von Trends und Sammeln von Kundendaten.

Eine Wertsteigerung für das Unternehmen im Sinne von gesteigerter Brand Awareness, Kundenzufriedenheit, Kundenloyalität, und daraus resultierend, erhöhte Kundenbindung, kann dadurch entstehen.

In einem ersten Schritt wird der Begriff Web 2.0 definiert und beliebte Web 2.0 Tools werden beschrieben und mit praktischen Beispielen ergänzt um die Verständlichkeit des Themas zu erleichtern. Der zweite Teil dieser Arbeit grenzt den Begriff Kundenbindung ein, listet Möglichkeiten und Gefahren auf und beschreibt des Weiteren das Kundenbindungsmanagement.

Als letzter Schritt dieser Arbeit werden die zuvor beschriebenen Web 2.0 Tools auf ihre Einsetzbarkeit im Bereich der Kundenbindung analysiert. Der ausführlichste Teil in diesem Schritt beinhaltet den Vergleich der zwei Web 2.0 Anwendungen Facebook und Twitter hinsichtlich ihrer Eignung im Einsatz von verschiedenen zuvor definierten Prozessen der einzelnen Phasen der Kundenbindung.

Diese zwei Anwendungen wurden auf Grund ihrer Aktualität und, zur Zeit der Abfassung dieser Arbeit vorhandenen, Beliebtheit gewählt.

Abstract

The outcome of this paper shows that Web 2.0 tools offer many possibilities in order to retain customers and especially the two applications Facebook and Twitter can be used therefor. However, by implementing Web 2.0 tools into a company’s marketing strategy also problems can occur, especially if not used with sufficient knowledge. Looking at the example of the social network platform Facebook, one can see that the wrong utilization of corporate pages can lead to inconsistency of the published information and the general company image.

Furthermore users can feel over-spammed and thus, can prompt negative feelings for a brand or a company. Nevertheless future-looking companies, which want to stay competitive and differentiate from their competitors, are offered great chances by Web 2.0 tools, such as active communication with customers, segmentation and targeting, building of trust and acceptance, establishing enthusiasm and emotions or identifying trends and col.....[read full text]

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Furthermore, since this thesis are only conducted by researching literature and professional articles from the internet, applicability is limited to theory and no practical examples are used. Additionally there is no specification for the different industries and market sectors in which the companies operate in, but the entire thesis is conducted with regards to general applicability of findings.

The practical treatment of this topic was not manageable for this short period of research and was furthermore neglected due to a lack of contacts to experts in the respective field.

1.4. Methods

This thesis was conducted through research in literature in the fields of Web 2.0, customer retention, customer relationship management and marketing including English and German books and documents. The information was mainly searched for online or in the IMC library focusing on the keywords aforesaid. Due to the huge amount of literature especially in the field of customer retention, theories and strategies stated in books are sometimes contradictory.

During the research process several books and online documents considered as useful for the conduction of this thesis, were in the end disregarded due to better description available or an inconsistent outcome throughout the writing process. Examples in the sector of Web 2.0 tools were chosen as mentioned in respective literature or according to online articles about recent popularity of applications.

1.5.  Structure

The paper is divided into three parts:

The first part describes the term Web 2.0 in detail and gives general definitions and facts about Web 2.0 including a detailed description of Web 2.0 tools and which possibilities each tool offers (communication, creation of emotions,…).

The second part especially concentrates on customer retention and the process of managing customer retention in Customer Relationship Management (CRM). Additionally definitions of terms and importance of customer retention and the management of customer retention are stated.

The third part consequently gives some approaches of how to use Web 2.0 for customer retention and furthermore evaluates the Web 2.0 tools, specified in the first part, according to their usability for activities of customer retention processes, described in the second part. For further comprehension and due to recent events, the two Web 2.0 applications Facebook and Twitter are compared and evaluated upon their adequacy in the different customer retention processes.

2.  Web 2.0

Defining the term itself and several Web 2.0 tools as well as giving examples of their usage, should give a basic understanding of the topic. The applicability of the chosen tools for customer retention is thereupon comprehensible and important for the final outcome of this paper.

2.1. Definition and history of Web 2.0

The term Web 2.0 evolved in 2004 at a brainstorming session between O’Reilly and MediaLive International, invented in order to describe and pool new and emerging Web-based tools. (Schrum, & Solomon, 2007, p. 13) After the dot-com bust in 2001 the Web was thought to be a thing of the past, though survivors of the burst and newly emerging companies all exploited the new opportunities of the network as a platform. (Shuen, 2008, p. 1)

Among experts there is still “a huge amount of disagreement about just what Web 2.0 means” (O’Reilly radar, 2005-2009), ranging from terms such as “meaningless marketing buzzword” to “new conventional wisdom”. (O.....

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The following summary was given by O’Reilly concerning the full extent of Web 2.0: “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. Chief among those rules is this: Build applications that harness network effects to get better the more people use them.” (O’Reilly radar, 2005-2009)

Another definition given by the internet blogger Ian Davis concentrates more on the social part of the Web 2.0: “Web 2.0 is an attitude not a technology. It’s about enabling and encouraging participation through open applications and services. By open, I mean technically open, with appropriate APIs[1] but also, more important, socially open, with rights granted to use the content in new and exciting contexts.” (Internet Alchemy, 2011)

In a nutshell, the term Web 2.0 cannot be defined and captured in a single, simple phrase, but is rather a combination of several tools and principles, more or less bound to each other. (Governor, Hinchcliffe, & Nickull, 2009, p. 1)

2.2. Web 2.0 tools

Due to the wide range of tools, which have been defined in the last years, this thesis will concentrate on those, most commonly used and described in books. The emergence of those tools, as well as private usage and business-oriented ways of how to use them for customer retention will be discussed. For further understanding one or more examples will be mentioned for each described tool.

The most well-known and most widely discussed Web 2.0 applications are Wikis and Blogs. (Damiani, Lytras, & Ordonez de Pablos, 2009, p. 171) Those two communication forms contribute to the write nature of the Web 2.0 nowadays. (Hagemann, & Voss, 2007, p. 49) Among consumers wikis and video-web pages have the highest popularity, followed by Blogs, photo-web pages and social networks.

As shown in graph 1 the usage of Web 2.0 applications of companies widely differs. Podcast, only used by about 7% of internet users in Germany, but more popular in the US, is highly utilized among the “Best Global Brands 2007”, with over 70%, followed by video and photo-platforms with 60%. With about 40% blogs, social communities and networks and virtual worlds and online games are listed on the places three to five.

Far behind, with a utilization of 7% Wikis have the least priority for companies. (Gr.....

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Thus, additional value is offered to customers in the existing product line. (Bauer, Große-Leege, & Rösger, 2007, p. 209)

The word “wiki” originates from the Hawaiian word “wikiwiki”, which means “fast” and first appeared in 1995 under the compound term “WikiWikiWeb”. A distinction can be made between a sole “wiki page” and “the wiki”, which is connected through several links and is a “simple, easy-to-use, and user-maintained database for creating content.” (ibid., p. 54)

Appropriate wiki software allows the user to enter or edit something without using HTML, instead the modified or new content is automatically converted into HTML. (ibid., p. 54) “Wikis should not entrap to passive consummation of information like the conventional Web, but should motivate active exchange of information.” (Back, Gronau, & Tochtermann, 2008, p. 10) Therefore wikis need to be designed as open systems, meaning that each and every user is able to observe and edit all the content.

For special content such as headlines and emphasized words special rules apply. (Hagemann, & Voss, 2007, p. 54) Those rules are in addition to basic rules of conduct, laid down e.g. in the “Wikiquette”, which is used by Wikipedia and should encourage users to treat others with respect in order to effectively build up an international online encyclopedia. (Back, et al., 2008, p. 11; Wikipedia, 2011)



2.2.1.1.       Example

The most popular example for a Wiki is the abovementioned online encyclopedia Wikipedia, which was established in 2001 by Larry Singer and Jimmy Wales. Initially the Wikipedia-project should have amended the already existing Nupedia. Users should write their own contents for an international, free of charge and web-based encyclopedia. By now Nupedia lost its importance and Wikpedia, with versions in over 200 languages and more than 50.000 articles, is the biggest encyclopedia in the world.

Compared to any printed encyclopedia version, Wikipedia is always up-to-date and constantly filled with news. (Alby, 2007, p. 88)

Since the quality of Wikipedia’s contents is often criticized and some critics refer to it as the biggest “piece of scrap paper” in the world, a comparison between 42 articles from different fields from Wikipedia and the Encyclopedia Britannica was conducted by the journal “Nature”. The result was that the number of profound mistakes was in both cases the same. (B.....

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Table 2: Topics of Blogs

Watchblogs

Critical observation of media and literature

Litblogs

Examination of literature topics

Corporate Blogs

Blogs conducted by companies

Blawgs

Examination of judicial contents

Photo-blogs

Publication of mainly photos

Politblogs

Examination of political topics

Audio and Video-blogs

Blogs with mainly audio and video contents

Consumer blogs

Blogs conducted by consumers

Source: translated and adapted from: Alby, 2007, p. 24

Especially corporate blogs are qualified to better communicate contents and information regarding the company itself and hence clients build a rising trust in the company, which furthermore has direct effects on customer loyalty. (Bauer, et al., 2007, p. 210)[2]

Today most blogs are much more complex than the basic form of text-based entries. With images, audio or videos, graphics and photos features are added to blogs. (Hagemann, & Voss, 2007, p. 50) Another possibility is to enable comments, which makes a site more interactive through comments and arising discussion and can furthermore create an online community. (Stauffer, 2008, p. 12) One example therefor is the Huffington Post blog, which is, according to Technorati, currently the most popular online blog.

The site offers videos, tags, RSS feeds covering areas such as politics, media, business, entertainment, living, and world news. Furthermore commenting is enabled in order to foster discussions among users. (Technorati, Inc., 2011, Huffington Post, 2011)

Critics may argue that a blog is only a forum, where the participants allocate themselves to different blogs. The essential difference compared to a forum, however, is, as mentioned before, that there is only one author and hence only the author of the original entry is able to set the principal theme. (Alby, 2007, p. 122) Furthermore forums require the user to log on, whereas for blogs this is .....

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They describe interests and attitudes which users publish in order to share them with others. Distribution channels of micro-blogs can be instant messages, mobile phones, emails or the Web, which deliver the comments to a user community or network. (Jansen, Zhang, Sobel, & Chowdury, 2009, p. 1)

Micro-blogging applications, such as Twitter[4], allow companies to create new ways of direct interaction with customers, which in turn can lead to an increase in customer loyalty. Information, though limited to its length and amount, can be easily and quickly disseminated and thus, in the earlier stage of the causal chain of customer retention, the creation of trust is encouraged, leading to customer satisfaction.[5] (Schmidt, 2009, p. 19)

According to Dan Connolly from Blogtronix micro-blogging cannot only help to reduce email clutter and increase productivity, but in an interview with Brian Mc Donald on March 1st, 2011, he came up with statistics including top customer and employee engagement benefits of micro-blogging based on experiences of Blogtronix’s customers. Companies experienced an increase of 42% in communication with their customers, 34% higher brand awareness and customer involvement such as feedback and ideas.

As described in chapter 2.4.2.2. Reichheld sees a direct link between employee satisfaction and customer retention, which is also shown by Blogtronix’s statistics. An increase of 30% in employee satisfaction and a higher creativity and connectedness between staff members was stated as a direct outcome of micro-blogging. As a result 31% increase in customer retention was measured. (Square Jaw Media, 2011)

2.2.3.1.Example

The first and up-to-now most popular micro-blogging platform is Twitter, which was established in 2006 and, according to statistics used at Hub Spot, in March 2010 reached the 10 billion tweets (micro-blog) mark. Registered users can publish short messages or statements with a maximum of 140 characters, which are followed by other users. Nevertheless about 55% of the 4.5 million user accounts at Twitter have never been used to twitter and another 52.7% of accounts have no followers at all.

Only around 5% of all users create 75% of the tweets. (Hub Spot, Inc., 2011) Twitter has experienced an era of growth starting in November 2008, referred to as the “Twitter Red Carpet Era”, when celebrities started to extensively use Tweets to keep their fan-community up-to-date. (Barracuda Networks, Inc., 2003-2011)

The hardware manufacturer Dell discovered Twitter as a sales channel and is currently supplying around 500.000 followers daily with relevant Tweets for their buying decisions. Within 24 months Dell directly gained 3 million dollars through their marketing strategy on Twitter. In the US Twitter already established as a communication channel for companies, whereas in the German-speaking countries only around 5% of the companies listed on the stock exchange actively use Twitter. (Schmidt, 2009, p. 19) Twitter quickly got high attention by companies, which discovered it for obtaining direct feedback and reachin.....

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Applicability of Web 2.0 tools for customer retention: (Hass, Killian, & Walsh, 2008, pp
Applicability of Web 2.0 tools for customer retention: (Hagemann, & Voss, 2007, p
Applicability of Web 2.0 tools for customer retention: Another way to use Twitter is for company internal communication which can hence increase employee
Applicability of Web 2.0 tools for customer retention: Many social networks also offer the possibility of uploading photos and videos, and are thus, no
Applicability of Web 2.0 tools for customer retention: A collaboration of all the tags used by different users for an object is called folksonomy
Applicability of Web 2.0 tools for customer retention: Hence, the following research questions were answered in this chapter:

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