Social Dollars: The Economic Impact of Customer Participation in a Firm-Sponsored Online Community

Abstract:     
Many firms operate consumer-centered social networks or “communities” online. This is motivated by the belief that consumers who join the community become more engaged with the firm, and as a result, increase their economic activity with the firm. We label the revenue generated from the increased engagement as a result of joining the community as “social dollars.” This paper tests for the existence and magnitude of social dollars via a difference-in-differences estimator using data from a multi-channel entertainment products retailer that launched an online community. We find that 19% of the post-launch revenue from community customers can be attributed to their joining the community. This result is robust across a variety of tests. In addition, social dollars persist over time, arise in both online and offline channels and affect all product categories sold by the firm. The analysis of community data reveals that social connections – the number and importance of friend ties – and interactions – personal page displays – are positively linked to social dollars.

Number of Pages in PDF File: 36

Keywords: Virtual Communities, Online Communities, Online Social Interactions, Difference-in-Differences Estimation, User-Generated Content

JEL Classification: M31,M3

working papers series