Analyzing role of online communities in business strategy

Abstract

Social media and word of mouth are becoming the latest strategies in spreading the message about a product as well as keeping your consumers closely knit. The project aims at studying the key aspects of such a strategy. In today’s world, everyone is connected through online groups and communities. Companies like Facebook and LinkedIn have been hugely successful in fueling several businesses and making changes to the way consumers react to marketing, and also how companies target their patrons. There is potential for companies to create fan clubs around their products and use them to create a buzz for their products. Companies like Coke have online portals, which involve consumers through a variety of promotional schemes and contests to create publicity for their products. This also helps them get feedback on their promotional strategies in other medium. Most firms have pages on Facebook and Orkut, to keep in touch with the changing attitudes of the customers. As a result, we believe that online communities can become an integral part of a company’s long-term strategy to create an indelible image in the minds of the consumers and keep abreast with the changing technology, at the same time keeping pace with evolving channels of promotion and targeting. We would first analyze the need of social networks, under the institutional voids framework, as mentioned by Khanna and Palepu in their milestone 1997 articlei. We would then look at institutional voids, analyzing their presence and the reasons behind them. We would study these voids in the present context, and the reasons behind such market failures. We would then see how social media helps in plugging some of these gaps, and look at some live examples of the same. We would also try and analyze why social media is better than some of the current strategies to counteract the effect of these voids. We would also look at some challenges faced in implementing solutions based on social media, since this is a new concept, and try and come up with some ways to overcome those challenges. We would then look at two ways to plug these voids and overcome the market failures, namely the own company model and the third party model. We look at how a company can build its business strategy using social media as an integral factor, and how some of the challenges in building such a strategy can be overcome. In some cases, the companies might not have an incentive to try and bridge the gap, or they might be incapable of doing that. Such situations open up the possibility of a third party catering to their needs, and try and mend the market failures. Such situations provide an opportunity for entrepreneurs to establish themselves in a niche position to cater to a specific need. We also attempt to differentiate between the two models, and look at the situations where one model is better than the other. We attempt to analyze the situations on two metrics, Product Complexity and Cost of trial, and suggest which model is better under what circumstances. We establish a 2X2 matrix for the same and recommend a model for each state. We also seek to validate our hypothesis through certain examples of both models, and how those strategies are in relation to our recommendations.