In a nutshell: Dynamic relationship marketing

Scientific articles contain valuable management implications, but are usually not very easy to digest. We summarize the core results so that you can use the latest research findings for your company. 

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Original

Firms routinely engage in relationship marketing (RM) efforts to improve their relationships with business partners, and extant research has documented the effectiveness of various RM strategies. According to the perspective proposed in this article, as customers migrate through different relationship states over time, not all RM strategies are equally effective, so it is possible to identify the most effective RM strategies given customers’ states. The authors apply a multivariate hidden Markov model to a six-year longitudinal data set of 552 business-to-business relationships maintained by a Fortune 500 firm. The analysis identifies four latent buyer–seller relationship states, according to each customer’s level of commitment, trust, dependence, and relational norms, and it parsimoniously captures customers’ migration across relationship states through three positive (exploration, endowment, recovery) and two negative (neglect, betrayal) migration mechanisms. The most effective RM strategies across migration paths can help firms promote customer migration to higher performance states and prevent deterioration to poorer ones. A counterfactual elasticity analysis compares the relative importance of different migration strategies at various relationship stages. This research thus moves beyond extant RM literature by focusing on the differential effectiveness of RM strategies across relationship states, and it provides managerial guidance regarding efficient, dynamic resource allocations.

Key statements

In this article, the authors examine how companies can effectively utilize various relationship marketing strategies in different states of collaboration with their customers. The authors analyzed 552 seller–buyer relationships in a business-to-business (B2B) company over a period of six years. Based on this analysis, the authors identified four relationship states of different strengths: (1) the transactional state, (2) the transitional state, (3) the communal state, and (4) the damaged state. The objective of suppliers must be to actively strengthen relationships and avoid causing damage. The authors define five mechanisms that companies can use to guide their customers between the various relationship phases:

  • Exploration: The first objective is to deepen the relationship with new customers. Contacting new customers regularly and demonstrating the added value of the company’s entire portfolio allows companies to tap into potential for cross-selling.
  • Endowment: The aim here is to bring existing customers closer. Companies must invest in the relationship (e.g. shared infrastructure or dedicated account managers) to optimize value creation.
  • Neglect and betrayal: These are negative mechanisms that lead to unfairness and conflict. They can permanently damage business relationships and should be avoided in every relationship phase.
  • Recovery: Once the relationship has been damaged, it can be restored by making concessions to the customer. In communications with the customer, companies should use someone who was not involved in damaging the relationship and be ready to compromise (e.g. offer discounts) in order to find a way to move forward together.

Source:
Dant, R. P., Palmatier, R. W., Watson, G. F. & Zhang, J. Z. (2016). Dynamic Relationship Marketing. Journal of Marketing, 80, 53–75 SAGE