Short answer
When designing customer engagement strategies, prioritize approaches that naturally encourage positive word-of-mouth and leverage social media, and consider the company's existing market context and reputation to mitigate potential negative shareholder reactions.
- Field
- Innovation & Markets
- Source
- Journal of the Academy of Marketing Science (2017)
- Method
- Event study analysis
- Sample
- 159 announcements of customer engagement initiatives
- Evidence
- Moderate effect
Shareholders often react negatively to company-led customer engagement campaigns, perceiving them as risky. This innovation & markets research insight is drawn from a 2017 study published in Journal of the Academy of Marketing Science. Using Event study analysis with 159 announcements of customer engagement initiatives, researchers explored how this design variable affects real-world outcomes. The key design takeaway: When designing customer engagement strategies, prioritize approaches that naturally encourage positive word-of-mouth and leverage social media, and consider the company's existing market context and reputation to mitigate potential negative shareholder reactions.
Customer engagement initiatives can decrease shareholder value by 5% on average
Shareholders often react negatively to company-led customer engagement campaigns, perceiving them as risky.
Journal of the Academy of Marketing Science · 2017
Key Findings
- 01Customer engagement initiatives, on average, decrease market value.
- 02Initiatives stimulating word-of-mouth are viewed less negatively than those soliciting customer feedback.
- 03Initiatives supported by social media are viewed more positively.
- 04Companies in competitive environments or with low advertising can create value through engagement.
- 05Companies with strong corporate reputations are less likely to benefit from engagement initiatives.
Application
Design takeaway
When designing customer engagement strategies, prioritize approaches that naturally encourage positive word-of-mouth and leverage social media, and consider the company's existing market context and reputation to mitigate potential negative shareholder reactions.
How to apply
Before launching a new customer engagement program, conduct a risk assessment of its potential impact on shareholder value, considering the chosen engagement mechanism (e.g., feedback vs. word-of-mouth) and the company's current market standing and communication channels.
Project actions
- 01When researching customer engagement, consider how different types of engagement might be perceived by various stakeholders, not just customers.
- 02Analyze the potential financial implications of design choices, even for non-product-focused projects.
Method & Evidence
Variables
Strengths & Limitations
Strengths
- +First study to empirically link firm-initiated customer engagement to shareholder value.
- +Uses objective market data (stock prices) for evaluation.
Limitations
The study's findings are based on stock market reactions, which can be influenced by many factors beyond customer engagement. The specific details of each engagement initiative are not fully accounted for.
Reliability & validity
The study uses an established event study methodology, which provides a degree of reliability for measuring short-term market reactions. Validity is supported by the focus on specific announcements, but external validity might be limited by the specific context of the studied firms and announcements.
Think critically
Given that customer engagement initiatives can decrease shareholder value, what alternative strategies could companies employ to foster customer loyalty and advocacy without incurring similar risks?
Design Principles
"Customer engagement initiatives should be designed with a clear understanding of potential shareholder risk, favoring strategies that foster organic advocacy and leverage digital platforms, while being mindful of the company's unique market positioning."
Understanding shareholder perception is crucial for the strategic implementation of customer engagement programs. While intended to foster loyalty and advocacy, these initiatives carry a risk of negative market reception if not carefully managed and communicated.
What This Means for Your Design
Companies trying to get customers to talk to each other or share their experiences often make their shareholders unhappy, because they see it as a risky move. However, if the company is in a tough market or doesn't advertise much, these efforts can actually help.
How to use in your project
- 1.Use this research to justify the selection of customer engagement strategies in your design project, by explaining how different approaches might affect market perception and business outcomes.
Add to My Project
Quick Cite
Paragraph starter
The research by Beckers, van Doorn, and Verhoef (2017) indicates that company-initiated customer engagement behaviors can negatively impact shareholder value due to perceived risks. However, strategies that foster word-of-mouth and leverage social media, particularly for companies in competitive markets or with less established reputations, show more promise for creating value.
Source
Journal of the Academy of Marketing Science
Good, better, engaged? The effect of company-initiated customer engagement behavior on shareholder value
journal · 2017
View sourceQuestions About This Research
- What does the research say about customer engagement initiatives can decrease shareholder value by 5% on average?
- When designing customer engagement strategies, prioritize approaches that naturally encourage positive word-of-mouth and leverage social media, and consider the company's existing market context and reputation to mitigate potential negative shareholder reactions. Evidence: Journal of the Academy of Marketing Science (2017).
- Why does "Customer engagement initiatives can decrease shareholder value by 5% on average" matter for design?
- Understanding shareholder perception is crucial for the strategic implementation of customer engagement programs. While intended to foster loyalty and advocacy, these initiatives carry a risk of negative market reception if not carefully managed and communicated.
- How can designers apply this research?
- When designing customer engagement strategies, prioritize approaches that naturally encourage positive word-of-mouth and leverage social media, and consider the company's existing market context and reputation to mitigate potential negative shareholder reactions.
- What were the main findings?
- Customer engagement initiatives, on average, decrease market value.. Initiatives stimulating word-of-mouth are viewed less negatively than those soliciting customer feedback.. Initiatives supported by social media are viewed more positively.. Companies in competitive environments or with low advertising can create value through engagement.
- What research method was used?
- Event study analysis with 159 announcements of customer engagement initiatives.
- How strong is the evidence?
- Evidence strength is rated Moderate effect, based on a 2017 journal from Journal of the Academy of Marketing Science.
- What should I do differently in my next project?
- Before launching a new customer engagement program, conduct a risk assessment of its potential impact on shareholder value, considering the chosen engagement mechanism (e.g., feedback vs. word-of-mouth) and the company's current market standing and communication channels.
- What are the limitations?
- The study focuses on immediate shareholder reactions and may not capture long-term effects. The specific nature and execution quality of each engagement initiative are not deeply explored.