Net Gain: Expanding Markets through Virtual Communities

By Hagel, John,, III; Armstrong, Arthur G. | The McKinsey Quarterly, Winter 1997 | Go to article overview

Net Gain: Expanding Markets through Virtual Communities


Hagel, John,, III, Armstrong, Arthur G., The McKinsey Quarterly


Make no mistake. Virtual communities will fundamentally change how companies develop, price, and promote their products

Marketers that "get it" will encourage community members to communicate with them and each other

The purpose of advertising will shift from building awareness to selling

There will be new levels of loyalty and disloyalty

As virtual communities tip the balance of power in commercial transactions toward the customer, they will provide a powerful vehicle for vendors to deepen and broaden their relationships with the people who buy their goods and services. This is likely to affect the way businesses are run in physical space as well as in the virtual world. The primary effects will be felt by managers in the marketing and sales functions [ILLUSTRATION FOR EXHIBIT 1 OMITTED], who will find themselves wrestling with new rules for winning customer loyalty. In fact, "ownership" of customer relationships as a whole is likely to be thrown up for grabs by the emergence of virtual communities.

These threats to the status quo will also represent opportunities. Marketers stand to gain, on balance, from the implications of virtual communities, especially those who find ways to leverage this new customer power rather than fight it [ILLUSTRATION FOR EXHIBIT 2 OMITTED].

Marketing and selling to more powerful customers

The fact that virtual communities are likely to shift power from vendor to customer by reducing or eliminating the information advantages that vendors currently enjoy is not all bad news for marketers. Because virtual communities will actually improve the quality of information about individual customers and give those customers a reason for releasing the information to vendors, virtual communities will allow innovative marketers to move closer to treating customers as "segments of one." Virtual communities will also allow marketers to leverage customers' ideas in designing and commercializing products and to leverage customers' voices in promoting them.

Communities will undoubtedly create challenges as well. In this online environment, marketers must rely more on the quality of their product than on the strength of their brand; they must learn how to make advertising sell, not just communicate; and they must adjust their pricing strategies to survive in a world of more efficient markets. Successful marketers could end up enjoying a kind of customer loyalty that they can now only imagine. As a result, salesforces will be able to focus less on selling to customers and more on managing and serving them.

Market to "segments of one"

Marketers long ago mastered the art of mass marketing. But the next frontier - "mass customization" - has proven more difficult to achieve. The concept has intensified marketers' focus on the objective of identifying, and building relationships with, a company's current and potential best customers, with the financial goal of having them concentrate a disproportionately high share of their value with that company. An essential factor in meeting this objective is the selection, communication, and delivery of a product value proposition that is tailored to stimulate the most profitable types of transactions with the individual customer. Virtual communities are the mechanism that can bring this vision of relationship-based, individually tailored marketing to reality.

Central to this effort will be the new sources of customer information that virtual communities can provide. If communities are successful - as measured in numbers of participants, amount of time spent in the community, and transaction intensity - the profiles they create on individual customers will yield rich data sets about both individuals and customer segments. These data sets will generate detailed transaction histories, at the level of the individual customer, that can be used to predict future opportunities to transact with that customer. …

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Net Gain: Expanding Markets through Virtual Communities
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