World Nutella Day, held on February 5, inspired more than 40,000 Instagram posts as fans of the chocolate-hazelnut spread shared recipe videos, memes, and selfies with jars.
It was free marketing for Nutella maker Ferrero, which almost squandered this opportunity when it sent the fan who started World Nutella Day a cease-and-desist letter in 2013. The company backed down and eventually embraced this day of honor of its beloved product.
Companies devote significant resources to holding focus groups and collecting customer feedback. But companies that cultivate, support, or even just observe their fan groups stand to gain valuable insights and build loyalty at a much lower cost, according to Harvard Business School’s Frank Nagle, an assistant professor of strategy, and Sonali K. Shah, associate professor of strategy and entrepreneurship at the University of Illinois.
"Companies that cultivate, support, or even just observe their fan groups stand to gain valuable insights and build loyalty at a much lower cost."
In a new working paper, Why Do User Communities Matter for Strategy?, Nagle and Shah discuss the benefits, pitfalls, and complexities that companies grapple with as they forge relationships with user groups.
Danielle Kost: How can companies engage user communities more effectively? What advantages can they provide a firm?
Frank Nagle and Sonali K. Shah: User communities can differentiate a firm’s offerings by supporting innovation, reinforcing branding, and identifying recurring problems. User communities can also lower costs by providing limited product support—especially for products and services that have been phased out—or informal support for hiring and training.
Companies that have yet to engage with user communities but are interested in tapping additional sources of innovation beyond their research and development can set up simple methods for harnessing user feedback. Traditionally, a company might offer a suggestion box to engage users, but that’s one-way communication. In contrast, creating an actual community where users can interact with each other and the company—and the company can interact with users—can be more successful.
Companies can also identify existing communities and simply observe them. Based on what they learn, they can eventually engage actively with that community or even build their own.
Companies must keep in mind that communities are governed very differently than companies. User communities operate outside the boundaries of the firm even in cases where the community organizes around a firm’s core products––and firms can therefore not control communities via traditional hierarchical methods. They can set rules to try to influence behavior. Doing so, however, requires firms to understand and abide by the community ethos.
Kost: Could you tell me about a case in which a company used the expertise and feedback of a user community to gain competitive advantage?
Nagle and Shah: LEGO and its LEGO Ideas user community is a great example of how a company can gain competitive advantage by tapping into its user community.
LEGO allows its users to create their own designs and share them with other users. They can even enter these designs into a contest in which LEGO turns the winning designs into actual products sold and marketed by LEGO.
In addition to reducing innovation costs, this often leads to an increase in authentic, word-of-mouth advertising as users promote designs that they created or designs they find attractive within their own networks. Further, many of these designs go on to be among the most successful.
Kost: Companies are used to controlling their brands and operations. But with user communities, companies need to strike a balance between influencing the group and stifling it. How do the best companies get it right?
Nagle and Shah: Companies can get it right by seeing themselves as a participant in the community, rather than the owner of the community. They can help by setting up infrastructure to make it easier for the community to grow and thrive, but their touch should not be heavy-handed.
They must keep in mind that the community members are volunteers, not employees or contractors, and any efforts that are interpreted as attempts to force the community in a particular direction may be negatively received.
This lack of direct control can be scary to companies—and managers in particular—but it can be the difference between success and failure.
About the Author
Danielle Kost is senior editor of Harvard Business School Working Knowledge.
[Image: Mark Kostich]