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The commercial value of communities

By April 14, 2022Insights

In the past, brands competed with brands and companies competed with companies in a commercial forum. In our increasingly technological world, it’s the platforms and networks that businesses are on, that determine which customers see you. That leaves relationships open to being taken by someone else. We see that happen in a variety of industries – for example, do you book somewhere to stay through or do you go directly to the hotel?

As a result, brands need to find a way to interact directly with customers and to protect their relationship with them. If businesses only focus on the transactional relationship, they practically pass it to someone else. Building a sense of community around what a brand stands for is a powerful way to develop deeper, more invested customer relationships.

Community however, is an intrinsically human experience and in a digital world of data, while we may have more information than ever through which to understand our customers, the challenge is in understanding the human aspect.

In our March Navigator Forum, we discussed communities and how they can be used to help brands create empathetic relationships with their customers. The forum was led by keynote speaker Quentin Lebeau, Co-Founder and CEO of TokyWoky – one of the leading proponents of digital communities.

TokyWoky has been recognised for leading the field in how to build communities, especially in retail and beauty brands, by developing an interesting perspective on how to evolve their relationship with the customer base.

What is a community?

We started the discussion by looking at the definition of community. The dictionary rather blandly describes it as:

The condition of sharing or having certain attitudes and interests in common.

A community offers us a sense of belonging, sharing and trust. Communities are ever-present in our lives, a place for coming together. There’s a whole range of things that underpin what communities do – collaboration, connection, ideas, support, listening, solutions and engagement, for example.

The advent of the digital world has brought new opportunities and new challenges for creating communities around brands. Just look at all the social media sites representing different interests – Pinterest, Instagram, Facebook, LinkedIn. They’re all typically focused on building a sense of community in a particular area.

Technology is allowing people to interact in a different way to ever before, and there is immense power in it, finding ways to create passion around subjects that typically might seem passionless. You may have come across Mrs Hinch, for example, Instagram’s goddess of domestic cleaning, who has become an online sensation, creating a community for people who like to care for their houses.

We see brands building communities within social media platforms and beyond, bringing it into their marketing and their customer journey. For example, some use terminology designed to give a sense of inclusiveness amongst customers – tribes, families, clans. Communities aren’t just for customers – at Starbucks you aren’t greeted by employees – you’re greeted by Starbucks partners (their term for baristas).

Naming your fans and best customers (branding them, if you like) is shown to further that sense of community. Much as Barry Manilow has his Fanilows, Queen of pop Lady Gaga calls her superfans the Little Monsters after the wild fans from her first concert tour, The Monster Ball. Fiskars, the Finnish housewares company has its Fiskateers, and discount retail-clothing store, T.J.Maxx (the US version of TK Maxx) ventured for a combination of the store name and “fashionista,” resulting in Maxxinista – a term that’s already in the Urban Dictionary, meaning “A person who shops at discount designer department store T.J.Maxx.”

So how can brands tap into the power of community in the initial instance, and then continue to nurture those relationships for the long-term?

The top 5%

To understand how Quentin and the team at TokyWoky foster communities, it helps to see their journey into this particular world. In many ways, that journey helps to define what community is, its potential value and what it can do in a commercial context.

Quentin explained that as a French start-up, their idea had simply been to create a chat facility for business websites, but instead of questions being answered by a customer service team, they would be answered by the other shoppers who were live on the brand website at the same time.

A pattern quickly emerged whereby lots of people asked questions, but it was always the same minority of customers who would answer. He cited Sephora, for example, who had 50,000 questions but, without compensation, they would be answered by the same 200 people time and again. This correlates with data that shows that many brands find 5% of their customers represent up to 40% of their total revenue.

This opened up the idea that behind every brand there was a community that was collaborating with them for free and this was something that could be built on with a more ambitious community platform. The goal was to create a single space where brands could gather those key customers and have direct access to them, so they could engage in a number of ways and can engage in various ways.

Why is it essential for brands to create communities?

Quentin’s journey into turning an empirical idea into a practical one meant answering one question: ‘why do we think it’s essential for brands to create communities?’ He found that this strategic ‘why’ came down to four key points:

Access to customers

One thing that’s becoming more and more challenging for brands is access to customers. There tend to be two ways in which brands access customers digitally:

  1. Social media
  2. Email

Most brands however, are finding that their reach on social media is diminishing. It’s harder and harder to talk to customers on Facebook or Instagram because giving access to customers is becoming the business model of those platforms. They own the community, so if you want to access them you have to pay – as a result that access is becoming harder and more expensive.

Email has two current limitations. GDPR legislation makes it harder to communicate, and at the same time, email as a system is becoming less used especially amongst younger generations.

A community platform allows you to secure a place where you can access customers directly and have complete ownership of the data.

Customer loyalty

We have already mentioned that Quentin and his team have found that typically 5% of customers represent up to 40% total revenue with most of their brands. While his experience relates predominately to retail businesses, the principle remains relevant to all businesses – look after your top customers.

The idea isn’t simply to keep those top customers buying, but to bring them into a community where they can talk to each other, create that emotional relationship with the brand and help keep them loyal rather than simply assuming that they will stay loyal.

Drive customer acquisition

Looking after that top 5% is also linked to how brands acquire new customers. Today, the main way brands aim to do that is through Google and Facebook adverts, but as mentioned, the cost is going up and up and there’s no reason that will stop. This poses an issue in terms of the cost of acquisition but it also gives linear growth and most brands want scalable growth.

Those who recognise that are turning to organic growth – namely, word of mouth. If you put those top customers in a position where it’s easy and motivating for them to talk to one another, there’s an opportunity to leverage top customers to drive organic growth.

Activate customers for user generated content and advocacy

The idea that trust in brands is decreasing has been around for ages. One survey in 2021 found that in a group of 1,000 consumers, just 34% trusted the brands they used, despite 81% saying that trust was a deciding factor in purchase decisions. However, 85% of customers are shown to trust user generated content.

Brands need to find a way to gather all of those customers who want to gather user generated content where they have access to it and can transform it into information they can use whilst giving customers reasons to keep creating that content. Communities are the perfect environment to do that.

Brands that have created powerful communities

Citing three examples of brands that have harnessed the power of community and used them in different ways, Quentin showed that central to the success of communities on a commercial level is truly understanding the people within them – their motivation, their emotions and their interests. Each concept also followed the concepts of engendering discussion and encouraging user generated content.

Co-creation through community

LEGO’s co-creation approach has resulted in one of the greatest brand communities. LEGO has always had a strong following of people who created online forums voluntarily to discuss their interest in the brand and its products. In 2019 the Danish toymaker bought the leading forum, BrickLink, and had the idea of asking fans to imagine their own LEGO sets. They asked people within the community to vote on the ideas, and when one reached a certain number of votes LEGO committed to creating it. In some instances the person behind the idea would receive royalties, but in all cases the idea’s originator and voters would become advocates of new sets.

Uplifting sales through customer inspiration

Clothing brand Monki, found that while people love individual clothing items, what fans really enjoy is creating outfits. So they gave top customers the latest catalogue and asked them to put outfits together. What they quickly found was that people who were playing with outfits were converting a lot more. They then took the best outfits and placed them on the product pages of the website so that buyers weren’t inspired to buy one item but by whole outfits. As a result, people were not only more inspired to purchase in general, but there was an uplift in sales as people bought multiple items inspired by the community.

Loyalty through unique experiences

Lancôme fostered further loyalty amongst super fans by offering them exceptional experiences that no one else could gain access to. They offered their top 5% of customers things like master classes and forums, and found that people who took part in communities had more brand loyalty overall.

Communities and multi-level marketing

When asked about the future of communities for brands, Quentin noted that there’s a shift happening, as brands move from content based marketing to experience based marketing. Where people used to focus a lot on writing newsletters and pushing marketing content, now people are doing more events and master classes. What they’re finding is that a user who participates in an event tends to convert more, whether it’s a community forum or something more organised.

He suggested there are strong ties between community and the multi-level marketing model – the second you start having a community of people who have your products, you also want people to sell your products. Quentin noted that if you create a system where those advocates get a percentage of sales, you increase your sales opportunities. He highlighted that the main limitations to that are technical capabilities and legal limitations to processing commission.

Are communities only relevant to categories with high emotional engagement?

One of the questions raised in the discussion was ‘are communities only relevant to categories with high emotional engagement?’

The previous mention of Mrs Hinch and her cleaning empire would suggest that if you can find the right emotional link, there’s a community to be built in just about all categories. Quentin’s response was similar, although he cautioned that the real challenge for businesses is in working out where that sweet spot is. What’s the emotional link and what’s the execution of community that makes it as effective as possible?

If you mix community and DIY you get projects, if you mix fashion and community you get outfits, but travel, for example, is a challenge because it’s so vast – you need to gather people who have been to the same place. Another contributor mentioned how a building society had focused on supporting people to create healthy financial habits as a positive way of generating a sense of community around the brand.

The conclusion amongst navigators was that there is a community for all brands, but there’s no magic solution as to how to find it.

How can you show the ROI of communities?

Building communities requires brand investment and one area that was raised by contributors was how to make the case for that budget requirement. How can you show return on investment?

While one excellent and highly tangible example came from a car manufacturer, where they found a community interested in buying a specific sports car. The brand engaged with them on how to grow and develop that sports car, and then asked ‘how much would you pay for it?’ The average answer was £1,000 more than the price point product marketeers were about to sell for. They delivered the research to the team and put the price up, generating over £1,000,000 more in sales than they would have done otherwise thanks to that one action.

However, such a fast and evident ROI is unusual. Most businesses are held accountable to short cycles with monthly or quarterly targets, but most communities will take a few years to show any tangible financial benefit. There’s often little or no reward for the quality of the relationships we create. One contributor mentioned spending much time creating a customer lifetime value measure, but conceded that it was still difficult to get his company to understand that.

Quentin empathised with the challenge, noting that there’s no clear cut solution, except that central to making a community work is ensuring the CEO buys into the concept. His team has found they can show a form of ROI by comparison with competitors who are fostering communities and having success as a result. As this poses a commercial threat, it’s an incentive to invest. He also noted that brands need to have the maturity to be ready to spend. He noted that if you have someone working full-time on managing a community then you will likely see ROI quite quickly.

Can a brand community be authentic?

Given the importance of authenticity to savvy consumers, one contributor raised the question of whether a brand community could really be seen as authentic?

It should be noted that when LEGO bought the BrickLink forum, it did meet with some accusations of “muscling in” on fan culture. This seems to have subsided, presumably down to the way their involvement has been handled, and this ultimately appears to be the key.

Quentin noted that while brands can be involved in community, they shouldn’t appear in control of it. The essence of a community still needs to continue being relevant otherwise those contributors will indeed retreat. So the focus has to be on providing something that those fans really want so that it doesn’t feel cynical.

Is there value in communities for employees?

One final question addressed the idea of communities for employees. Is there value in them and can you engage authentically with a disparate employee base in a world of hybrid working?

Quentin highlighted that there’s a whole market in this where brands specialise in social networks for employees. He said what his team noticed is that when you create a customer community you often find that some of the best contributors are hidden employees. For example in a fashion brand some of the people creating the best outfits are likely to be staff members playing on the community on their phones during their breaks.

He said his team never creates communities to be exclusive to customers or exclusively for employees, and his reflex is that communities shouldn’t be for one or the other, but for a global community where all fans can interact together.

How to begin creating a community

The forum concluded by noting that lots of companies, especially established brands, have a level of pre-existing community that has evolved organically. The challenge is working out how to leverage that whilst retaining consumer trust.

Lots of brands have a community on social media platforms like Facebook, and that isn’t something you can compete with – it’s about accessing that community. Facebook is easy to use – if you try to create a carbon copy on your website then you could easily end up with a ghost town. Brands need to offer something that Facebook cannot. That might be rewards or access to a unique proposition you can’t get anywhere else, for example.

Finally, whenever you create your community you have to be authentic and you have to accept that you can’t control what people say.

Do you want to transform your customer experience? Gain customer insights that will help you improve customer relationships and more sustainable business outcomes by contacting the team at CGA.