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Relationship Marketing in the Digital Age Robert W. Palmatier and Lena Steinhoff Agenda Introductory Chapter 1 Relationship Marketing and the Digital Age PART I Understanding Relationship Marketing 2 Relationship Marketing Theory 3 Relationship Marketing Framework PART II Applying Relationship Marketing 4 Relationship Marketing Dynamics 5 Relationship Marketing Strategies 6

Relationship Marketing Targeting Concluding Chapter 7 Research and Managerial Guidelines for Relationship Marketing in the Digital Age Palmatier and Steinhoff 2019 2 Agenda Introductory Chapter 1 Relationship Marketing and the Digital Age PART I Understanding Relationship Marketing 2 Relationship Marketing Theory 3 Relationship Marketing Framework PART II Applying Relationship Marketing 4

Relationship Marketing Dynamics 5 Relationship Marketing Strategies 6 Relationship Marketing Targeting Concluding Chapter 7 Research and Managerial Guidelines for Relationship Marketing in the Digital Age Palmatier and Steinhoff 2019 3 Learning Objectives Understand relationship marketing as an important source of sustainable competitive advantage for companies, with increasing relevance in todays world Define relationship marketing Identify the conceptual differences between relationship marketing and other strategies, such as branding or promotional marketing Review the evolution of relationship marketing terminology over four decades Outline various trends in the economy and society that have increased the relevance of strong customerseller relationships Analyze how the advancement of the digital age as a mega-trend has revolutionized customers and sellers lives

Evaluate the diverse characteristics that differentiate customerseller relationships in the digital age versus the predigital age Detail the growing importance of relationship marketing for firms striving to succeed in the digital age Palmatier and Steinhoff 2019 4 Introduction Relationships have defined business exchanges ever since Homeric Greece In 1983, the concept of relationship marketing first appeared in marketing literature (Berry 1983) Consensus view of academics and managers: Strong customer relationships are vital to company strategy and performance (Morgan and Hunt 1994; Palmatier et al. 2006) A confluence of trends in the global business world has prompted the continued expansion of the impact and effectiveness of strong customerseller relationships Strong customer relationship value can trump brand value when it comes to determining the total value of an enterprise (Binder and Hanssens 2015) Relationships are innately important for human beings: - As primates, we have evolved to be social animals - Approximately one-third of the average human brain activity is linked to interactions - Our capacity for empathy is among the most essential defining traits of humanity (Newman 2016; University of Virginia 2013) - Relationships drive human behavior; along with cooperation, they enable evolutionary advances (Becker 1986; Trivers 1971; Trivers 1985) Palmatier and Steinhoff 2019

5 The Value of Customer Relationships Percentage of Enterprise Value 25 ENTERPRISE VALUE (Purchase price of acquired business for 100% of shares, plus interest-bearing debt minus cash acquired) CUSTOMER VALUE (Gauge of the worth of existing repeat customers who are known in person) 20 15 10 BRAND VALUE (Brands, trademarks, trade names, product names, banners and mastheads, publishing titles, domains, and other similar items

owned by the acquired business) 5 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 HBR.ORG Source: Binder and Hanssens (2015).

Palmatier and Steinhoff 2019 6 Relationship Marketing as a Source of Sustainable Competitive Advantage To thrive in the long run, companies thus must develop barriers to competitive attacks, in the form of sustainable competitive advantages A sustainable competitive advantage meets three criteria (Barney and Hesterly 2012): - The firms customers care about it - The firm is relatively better than its competitors in providing it - It is difficult for competitors to duplicate or substitute for, even if they invest substantially in trying to do so Three main sources of sustainable competitive advantages (Palmatier and Sridhar 2017): - Brand-based sustainable competitive advantage - Offering-based sustainable competitive advantage - Relationship-based sustainable competitive advantage Together, brand-, offering-, and relationship-based equities synergistically constitute a companys overall customer equity, or the total of the discounted lifetime values summed over all of the firms current and potential customers (Rust, Lemon, and Zeithaml 2004, p. 110) Palmatier and Steinhoff 2019 7

Evolution of Sustainable Competitive Advantages in Marketing Pre-Industrial Age Interpersonal relationships were the greatest barrier to competitive attacks. Industrial Revolution Digital Revolution Brands were important to signal product quality. Offerings and innovations became key sources of differentiation. Sources of SCA Services Revolution All strategies are critical to success, but relationships grow more important with the shift to a service economy

in most developed countries. Relationships Brands Offerings Palmatier and Steinhoff 2019 8 Definition of Relationship Marketing Relationship marketing is the process of identifying, developing, maintaining, and terminating relational exchanges with the purpose of enhancing performance (Palmatier 2008, p. 3) Three common features of relationship marketing (Gronroos 1997; Sheth and Parvatiyar 2000): - Relationships are dynamic, and therefore so must relationship marketing be - The scope of relationships is broad, as is the scope of relationship marketing - Relationship marketing must generate benefits for both parties to the relationship Relationship marketing overlaps, but is also distinct from other marketing domains: - Branding: Products as focal unit of analysis - Promotional marketing: Short-term, transactional orientation - Services marketing, business-to-business marketing, and channel marketing: Specific focus on improving performance in unique contexts with distinct features (e.g., intangible services, exchanges between firms, channel members) Palmatier and Steinhoff 2019

9 Evolution of Relationship Marketing Terminology Customer Experience Customer Engagement Customer Centricity Loyalty Programs Customer Relationship Management Brand/Store Loyalty Customer Loyalty Relationship Marketing 1980 1983 Inaugural mentioning of the term Relationship Marketing by Berry (1983) Palmatier and Steinhoff 2019 1990 2000 2010

2020 10 Key Trends Increasing the Importance of Relationship Marketing Transition to service-based economies Faster product commoditization Global competition Emerging markets Aging populations Advertising saturation Palmatier and Steinhoff 2019 11 The Digital Age: The Mega-Trend Increasing the Importance of Relationship Marketing The digital age is defined as the present time, when most information is in a digital form, especially when compared to the time when computers were not used (Cambridge Dictionary 2018) Evolution of the digital age along four major milestones with manifold implications for sellers and customers: - Web 1.0 (1990s): Implementation and dissemination of the World Wide Web and the spread of e-commerce (hypertext web) - Web 2.0 (early to mid-2000s): Internet-based, collaborative systems in which the majority of content is produced by users, and users can interact socially beyond local

boundaries (social web) - Web 3.0 (late 2000s to mid-2010s): Smartphones and mobile apps, Internet of Things (IoT), and big data; computers can communicate with one another, as well as analyze and semantically connect data from diverse sources (semantic web) - Web 4.0 (since mid-2010s): Artificial intelligence and augmented reality as major technological advances; machines and devices equipped with artificial intelligence can mimic the cognitive functions typically associated with human minds, such as learning and problem solving (symbiotic web) Palmatier and Steinhoff 2019 12 Characteristics of CustomerSeller Relationships in the Digital Age Relational Characteristics Digital Age Predigital Age Geographic distance Distant Close

Channel sophistication Omnichannel Single or multichannel Interaction constraints No time constraints Time constraints Availability of alternatives High Limited Anonymity High anonymity Low anonymity Data richness

High Mixed Palmatier and Steinhoff 2019 13 Using Relationship Marketing to Succeed in the Digital Age In the digital age, relationship marketing has grown increasingly critical The human need for relationships is universal, and online relationships appear equally intimate and emotionally rich as offline relational exchanges (Mathwick 2002) As a consequence, relationship marketing can provide the most substantial and meaningful sustainable competitive advantages for sellers in the digital age, based on five propositions: (1) The core competency underlying relationship marketing is seeing customers as equivalent, relational partners rather than just as receivers of marketing messages (2) Relationship marketing allows for personalization and purposeful targeting, rather than one-size-fits-all approaches, and the digital age strongly distinguishes consumers, especially with regard to their technological aptitude and readiness to cope with technological advances (3) To understand and serve customers, relationship marketers analyze customer data (4) Relationship marketing can build trust in technology-driven and technology-dependent settings (5) Relationship marketing leverages the hardwired human propensity to embrace reciprocity principles Palmatier and Steinhoff 2019

14 Takeaways Relationships represent a source of sustainable competitive advantages for firms, along with brands and offerings The shift toward service economies and advancements of the digital age have highlighted the importance of relationship-based sustainable competitive advantages Relationship marketing is the process of identifying, developing, maintaining, and terminating relational exchanges, with the purpose of enhancing performance Relationship marketing focuses on customers and exhibits a long-term, relational orientation, unlike branding strategies that focus on brands or promotional marketing strategies that feature a short-term, transactional orientation The terminology associated with relationship marketingcustomer loyalty, customer relationship management, loyalty programs, customer centricity, customer engagement, and customer experiencemarks major developments in the field Palmatier and Steinhoff 2019 15 Takeaways (contd.) A confluence of global trends foster the need for relationships: transitions to service-based economies, faster product commoditization, increased worldwide competition, emerging markets, aging populations, advertising saturation, and the digital age (mega-trend) The digital age thus far consists of four major steps: Web 1.0 (World Wide Web, ecommerce), Web 2.0 (social media), Web 3.0 (smartphones, mobile apps, Internet

of Things, big data), and Web 4.0 (artificial intelligence, augmented reality) Compared with relationships in the predigital age, customerseller relationships in the digital age feature geographically distant relational partners, omnichannel interactions, a lack of time constraints, competition due to many alternatives, a high degree of anonymity, and a data-rich environment Relationship marketingwhich perceives customers as partners, seeks to provide customization, relies on data analysis to understand customers, provides trust signals in technology-mediated settings, and can evoke reciprocity principles offers a particularly meaningful strategy for the digital age Palmatier and Steinhoff 2019 16 Agenda Introductory Chapter 1 Relationship Marketing and the Digital Age PART I Understanding Relationship Marketing 2 Relationship Marketing Theory 3 Relationship Marketing Framework

PART II Applying Relationship Marketing 4 Relationship Marketing Dynamics 5 Relationship Marketing Strategies 6 Relationship Marketing Targeting Concluding Chapter 7 Research and Managerial Guidelines for Relationship Marketing in the Digital Age Palmatier and Steinhoff 2019 17 Learning Objectives Retrace the historic development of relationship marketing theory and acknowledge the various research disciplines that have informed it from the 1950s to the 2010s Recognize how evolutionary psychology serves as an overarching theory to understand and explain relationship marketing phenomena Understand the key theoretical perspectives and constructs that inform interpersonal, interfirm, and online customercompany relationships

Build an integrative, comprehensive theoretical framework of relationship marketing by synthesizing key theories and constructs Palmatier and Steinhoff 2019 18 Introduction Many different disciplines have studied the impact of relationships on human behavior Many of these different disciplines take central positions in the development of relationship marketing theory that evolved from the 1950s until today Evolutionary psychology represents a rich, overarching theoretical framework to understand the mechanics of marketing relationships Three key types of customercompany relationships: - Interpersonal relationships (B2C or B2B) - Interfirm relationships (B2B) - Online relationships (B2C or B2B) Palmatier and Steinhoff 2019 19 Overview of the Evolution of Relationship Marketing Theory Micro-Level Theories Evolutionary psychology

Psychology Social Psychology Relational exchange theory Powerdependence framework Exchange theory Relational contract theory & social exchange theory Sociology Economics Macro-Level Theories Institutional economics 1950s Commitmenttrust theory of relationship

marketing Resource-based view of interfirm relationships Online relationship marketing theory Dynamic theory of relationship marketing Network theory Transaction cost economics 1960s 1970s 1980s 1990s 2000s

2010s A temporal overview of relationship marketing theory shows a broad pattern of more institutional, macro-level theories to more individual, micro-level theories Palmatier and Steinhoff 2019 20 Twin Pillars of Relationship Marketing Effectiveness: The Evolutionary Psychology of Gratitude and Unfairness Relationship marketing effectiveness largely can be explained by the two evolutionary psychological mechanisms of gratitude and unfairness The psychological traits that have allowed humans to feel gratitude but also perceive unfairness likely developed as evolutionary survival mechanisms over our ancestral huntergatherer past Evolutionary psychology combines modern psychology with evolutionary biology and uses the logic of natural selection to explain the development of human mental processes and behaviors (Saad 2011) A key assumption is that organisms always seek to ensure their survival and pass their genes on to future generations (Colarelli and Dettmann 2003) Survival has long depended on an individual members adherence to group norms Rewarding group members who cooperate and punishing group members who fail to adhere to cooperative norms is crucial Palmatier and Steinhoff 2019 21

Understanding Gratitude and Unfairness Gratitude captures feelings of gratefulness, thankfulness, or appreciation for a benefit received and encourages reciprocity Unfairness represents a persons view of the degree to which the ratio of his or her received outcomes relative to inputs, compared with the corresponding input outcome ratios of other customers, seems unacceptable or inequitable and fosters punishment Gratitude and unfairness can be thought of as two opposite sides of the same coin: - Gratitude and reciprocity reward adherence to group norms - Unfairness and punishment mitigate deviance from group norms Both mechanisms are universal, hereditary, and deeply ingrained in human beings and serve to reinforce cooperation within groups Because they can promote or impede relationships, gratitude and unfairness represent the twin pillars of relationship marketing Palmatier and Steinhoff 2019 22 A Typology of Marketing Relationships: Interpersonal Relationships Interpersonal relationships involve exchange dyads of two individuals, one representing the customer side (i.e., individual customer) and the other representing the company side (i.e., individual salesperson) Four key drivers of relationship performance based on two theories: - Customer commitment and trust (social exchange theory) - Customer gratitude and reciprocity norms (evolutionary psychology)

Individual Salesperson Individual Customer Interpersonal Relationship Quality Relationship marketing investments Palmatier and Steinhoff 2019 Commitment Trust Gratitude Reciprocity norms 23 A Typology of Marketing Relationships: Interfirm Relationships Interfirm relationships involve multiple interactions among many people at multiple levels in the organizationin effect, a network of multilevel relationships Three key drivers of relationship performance based on network theory: - (Interpersonal) Relationship quality - Relationship breadth

- Relationship composition Seller Firm Customer Firm Interpersonal Relationship Quality Commitment Trust Gratitude Reciprocity norms Relationship marketing investments Interfirm Relationship Relationship breadth Relationship composition Palmatier and Steinhoff 2019 24 A Typology of Marketing Relationships: Online Relationships Online relationships are relational exchanges that are mediated by technology

(e.g., Internet, computer) and take place in a nonface-to-face (individual/firm customer-to-technology) environment. Three key drivers of relationship performance based on three theories: - Flow (flow theory) - Media richness (media richness theory) - Parasocial interaction (parasocial interaction theory) Individual Customer Interpersonal Relationship Quality Seller Firm Commitment Trust Gratitude Reciprocity norms Relationship marketing investments Online Relationship Internet Technology as (Partial) Relationship Mediator Palmatier and Steinhoff 2019

Flow Media richness Parasocial interaction 25 An Integrative Theoretical Framework of Relationship Marketing Theory The three perspectives of interpersonal, interfirm, and online relationships between companies and customers provide an integrative framework of how marketing relationships work Interpersonal relationship marketing theory clarifies the core psychology that informs customercompany relationships Interfirm relationship marketing theory extends this view by going beyond relational dyads to encompass a whole network of interpersonal, individual-tofirm, and interfirm relationships present in a typical interfirm relationship between seller and buyer companies Online relationship marketing theory broadens knowledge even further, by accommodating the developments of the digital age and clarifying relationships in which interactions between exchange partners are partially or fully mediated by Internet technology The impact of firms relationship marketing investments on relationship performance is mediated by a series of mechanisms where each mechanism contributes individually to a specific facet or type of relationship Palmatier and Steinhoff 2019 26 Takeaways For more than six decades of relationship marketing research, insights from

diverse domains such as economics, sociology, social psychology, and psychology have informed theory building Over time, relationship marketing theory has shifted from more institutional, macro-level theories (e.g., economics, sociology) to more individual, micro-level theoretical perspectives (e.g., social psychology, psychology) Evolutionary psychology parsimoniously identifies the psychological mechanisms of gratitude and unfairness as the twin pillars of relationship marketing Both gratitude and unfairness are universal, hereditary, and hardwired into human beings. Gratitude reinforces relationships through reciprocity; unfairness impedes relationships through punishment Three types of marketing relationships are interpersonal, interfirm, and online relationships. Each type features its own characteristics, key theories, and constructs Palmatier and Steinhoff 2019 27 Takeaways (contd.) Interpersonal relationship marketing theory is based on social exchange theory and evolutionary psychology; it identifies customer commitment, trust, gratitude, and reciprocity norms as key mechanisms of relationship performance Interfirm relationship marketing theory draws on network theory to establish relationship quality, breadth, and composition as the key drivers of relationship performance Online relationship marketing theory distills flow, media richness, and parasocial interaction as major antecedents to relationship performance in online contexts An integrative theory of relationship marketing combines interpersonal, interfirm, and online perspectives and their respective theories and constructs to illuminate

relationship marketing effectiveness in the digital age Palmatier and Steinhoff 2019 28 Agenda Introductory Chapter 1 Relationship Marketing and the Digital Age PART I Understanding Relationship Marketing 2 Relationship Marketing Theory 3 Relationship Marketing Framework PART II Applying Relationship Marketing 4 Relationship Marketing Dynamics 5 Relationship Marketing Strategies

6 Relationship Marketing Targeting Concluding Chapter 7 Research and Managerial Guidelines for Relationship Marketing in the Digital Age Palmatier and Steinhoff 2019 29 Learning Objectives Understand the three causal stages of the relationship marketing framework: seller relationship marketing investments customer relational mechanisms seller relationship marketing performance outcomes Identify financial, social, and structural relationship marketing investments as three generic relationship marketing strategies available to companies and consider their differential effectiveness Classify emotional, cognitive, conative, and behavioral relational mechanisms among customers and understand their causal order Recognize the various financial and nonfinancial performance ramifications spurred by effective relationship marketing investments Palmatier and Steinhoff 2019 30

Introduction Managers devote substantial time and money to relationship marketing efforts, with the assumption that doing so ultimately will improve company performance Yet, it is difficult to specify the returns on investments in relationship marketing, in terms of their actual financial and nonfinancial impacts or the precise routes through which they improve performance Relationship marketings performance impact occurs through a three-stage causal framework: seller relationship marketing investments customer relational mechanisms seller relationship marketing performance outcomes The performance impact of relationship marketing investments occurs through the stimulation of a battery of customer relational mechanisms that mediate the impact of relationship marketing investments on performance outcomes: - Positive emotions (i.e., negative emotions need to be avoided) - Cognitions - Conations - Behaviors Palmatier and Steinhoff 2019 31 A Framework of Relationship Marketings Impact on Seller Performance Outcomes Customer Domain Relational Mechanisms Seller Domain Relationship Marketing Investments

Seller Domain Relationship Marketing Performance Outcomes Emotional relational mechanisms Gratitude Unfairness () Financial relationship marketing investments Social relationship marketing investments Structural relationship marketing investments Palmatier and Steinhoff 2019 Cognitive relational mechanisms Commitment Trust Reciprocity norms Relationship breadth Relationship composition Media richness Parasocial interaction

Behavioral relational mechanisms Loyalty Engagement Financial relationship marketing performance outcomes Nonfinancial relationship marketing performance outcomes Conative relational mechanisms Relationship velocity Experience Flow 32 Seller Relationship Marketing Investments Seller relationship marketing investments consist of dedicated relationship marketing strategies or programs, designed and implemented to build, grow, and maintain strong customercompany relational bonds by stimulating favorable relational mechanisms among customers Three types of seller relationship marketing investments: - Financial relationship marketing investments: Provision of direct economic benefits in

exchange for past or future customer loyalty, includes special discounts, free products to generate incremental sales, and other incentives that easily may be converted to cost savings (e.g., free shipping; extended payment terms) - Social relationship marketing investments: Efforts to personalize the relationship and convey special status, entails social engagements such as meals and sporting events and therefore may vary from ad hoc, low cost interactions to expensive, formal recognitions - Structural relationship marketing investments: Offer tangible, value-added benefits that are difficult for customers to supply themselves, may include electronic orderprocessing interfaces, customized packaging, or other custom procedural changes Palmatier and Steinhoff 2019 33 Customer Relational Mechanisms Customer relational mechanisms capture the customers emotions, cognitions, conations, and behaviors stemming from his or her interactions with the seller; they mediate or transmit the effect of relationship marketing investments on performance Four types of customer relational mechanisms: - Emotional relational mechanisms: Gratitude, unfairness () - Cognitive relational mechanisms: Commitment, trust, reciprocity norms, relationship breadth, relationship composition, media richness, parasocial interaction - Conative relational mechanisms: Relationship velocity, experience, flow - Behavioral relational mechanisms: Loyalty, engagement Palmatier and Steinhoff 2019 34

Seller Relationship Marketing Performance Outcomes Seller relationship marketing performance outcomes encompass the performance measures to assess the effectiveness of the sellers relationship marketing efforts Two types of seller relationship marketing performance outcomes: - Financial relationship marketing performance outcomes: Sales-based (e.g., revenue, share of wallet, retention rate) and profitability-based measures (customer lifetime value, customer engagement value, return on investment) - Nonfinancial relationship marketing performance outcomes: Knowledge-based outcomes (e.g., patents, time to market, new product success rates) Palmatier and Steinhoff 2019 35 Takeaways Relationship marketing investments affect firm performance by stimulating relational mechanisms among customers Three generic types of relationship marketing investments are financial, social, and structural relationship marketing programs, each with differential effects and performance implications Customer relational mechanisms integrate customers responses to sellers relationship marketing efforts and encompass emotional, cognitive, conative, and behavioral processes Customer gratitude and unfairness represent the key emotional mechanisms in customercompany relationships, acting as opposing twin pillars. Customer commitment, trust, reciprocity norms, relationship breadth, and relationship composition jointly reflect a customers cognitions when evaluating a relational bond with a seller. Relationship velocity, customer experience, media richness,

parasocial interaction, and flow reflect customers conative assessments. Customer loyalty and engagement capture their behavioral manifestations toward the firm Palmatier and Steinhoff 2019 36 Takeaways (contd.) Typically, customers short-term emotions influence their longer-term cognitions, which together affect conations. Emotions, cognitions, and conations all affect customers behavior toward the seller If effective, relationship marketing investments result in enhanced seller performance, as indicated by superior financial and nonfinancial performance Financial relationship marketing performance can be assessed by measuring sales-based or profitability-based outcomes; nonfinancial performance is reflected in sellers superior knowledge gained from customers who share important information Customer lifetime value (CLV), customer engagement value (CEV), and return on investment (ROI) represent comprehensive, profitability-based indicators of relationship marketing performance Palmatier and Steinhoff 2019 37 Agenda Introductory Chapter 1

Relationship Marketing and the Digital Age PART I Understanding Relationship Marketing 2 Relationship Marketing Theory 3 Relationship Marketing Framework PART II Applying Relationship Marketing 4 Relationship Marketing Dynamics 5 Relationship Marketing Strategies 6 Relationship Marketing Targeting Concluding Chapter 7 Research and Managerial Guidelines for Relationship Marketing in the Digital Age

Palmatier and Steinhoff 2019 38 Learning Objectives Assess relationships and relationship marketing from a dynamic perspective Retrace the advancement of dynamic relationship marketing by considering three perspectives on incremental relationship change Understand the four different stages of the classic life cycle perspective Acknowledge the contribution of the relationship velocity perspective Synthesize life cycle stage and relationship velocity perspectives into a parsimonious, dynamic perspective on relationship states and migration mechanisms Recognize transformational relationship events as triggers of disruptive relationship change Learn how customer information gathered from market research techniques, CRM database analyses, and big data analytics helps identify the status quo of customerseller relationships Palmatier and Steinhoff 2019 39 Introduction Relationships change over time and are fundamentally dynamic (Palmatier et al. 2013; Zhang et al. 2016) Relationships pass through multiple stages, such that the key relational constructs shift and change

However, managers and researchers often evaluate customerseller relationships with a static perspective, largely because it is so difficult to capture and analyze relational data over time, especially for unobserved relational constructs Salespeople typically rely on emotional intelligence, adaptive selling, and empathy when interacting with customers to recognize important cues about the relationship, track its progress, and dynamically adjust their selling behaviors As relationships become impersonal, technology-mediated, or less rich in the digital age, firms have to gather data from various customer interfaces in multiple channels, limit their costs by limiting their use of direct selling, and work to target individual customers, making a dynamic view even more critical Palmatier and Steinhoff 2019 40 Approaches to Managing Relationship Marketing Dynamics Incremental Relationship Change Palmatier and Steinhoff 2019 vs. Disruptive Relationship Change

41 Incremental Relationship Change: Relationship Life Cycle Stages Exploratory/Early Stage Growth/Development Stage Maturity/Maintain Stage Decline/Recovery Stage Relationship Quality High Relationship Quality Low Palmatier and Steinhoff 2019 42 Incremental Relationship Change: Relationship Velocity

4.45 Mean Values 4.40 Negative Commitment Velocity Positive Commitment Velocity 4.35 Equal Levels of Commitment 4.30 4.25 4.20 t1 t2 t3

t4 t5 t6 Years Source: Adapted from Palmatier et al. (2013). Palmatier and Steinhoff 2019 43 Incremental Relationship Change: Relationship States and Migration Mechanisms Strong Relationships Communal State (61%) Endowment Migration Mechanism 60% 15% 21%

Transitional State (25%) Exploration Migration Mechanism 41% 15% Neglect Migration Mechanism Weak Relationships Transactional State (43%) Recovery Migration Mechanism 40% 16% Betrayal Migration Mechanism Damaged State (56%)

Poor Relationships Note: Percentages represent how many customers migrate or remain in a relationship state each year. Source: Adapted from Zhang et al. (2016). Palmatier and Steinhoff 2019 44 Disruptive Relationship Change: Transformational Relationship Events High Relational Expectations Positive TRE Region Point 3 Same positive event Point 4 Small relational disconfirmation (= no TRE) Large relational

disconfirmation (= TRE) Large relational disconfirmation (= TRE) Low Relational Expectations Zone of Indifference Changing relational expectations as relationship matures (lifecycle perspective) Small relational disconfirmation (= no TRE) Point 1 Same negative event Point 2 Negative TRE Region Relationship Stage Source: Adapted from Harmeling et al. (2015).

Palmatier and Steinhoff 2019 45 Guidelines for Managing Relationship Marketing Dynamics Customerseller relationships in the digital age take place in a data-rich environment Relationship marketers can use a plethora of data sources to assess empirically where customers currently stand in their relationship with the firm and how the relationship is likely to evolve and then adapt relationship marketing strategies accordingly Effectively combining more traditional (1) market research and (2) customer relationship management (CRM) database analyses with (3) big data analytics represents a powerful means to generate deep customer insights (Wharton 2014) If relationship marketers can effectively integrate these three sources of information, the potential for mutually beneficial customerseller relationships increases substantially Palmatier and Steinhoff 2019 46 Diagnosing Relationship Change Through Market Research Techniques Market research techniques capture what customers are saying Understanding the level and development of customers relational mechanisms is key to understanding their relationship velocity, relationship state, and potential migration paths

To assess the battery of relevant relational mechanisms and track changes in relational constructs over time, firms should use a quantitative approach, such as: - Survey their customers consistently (e.g., once a year) - Conduct brief telephone interviews more frequently (e.g., once per quarter) or after specific interactions (e.g., after a service provision to resolve a concern) To understand why relationships change, firms should use qualitative methods, such as: - Critical incident techniques can be valuable for identifying and digging deep into positive and negative TREs (Bitner, Booms, and Tetreault 1990; Hanagan 1954) - Focus groups can be valuable for generating in-depth feedback about products to inform either new product launches or development efforts to improve current products Palmatier and Steinhoff 2019 47 Diagnosing Relationship Change Through CRM Database Analyses CRM database analyses reveal what customers are buying In their CRM databases, companies typically collect demographic information (e.g., name, age, address), purchase transactions, and other relational interactions (e.g., e-mails, customer service requests) for all their customers, offering a rich history of customers behavior over time RFM (recency, frequency, monetary value) methods can help firms gain a sense of the current state of the relationship and identify variations or anomalies in customers usual buying behavior Substantial changes in a customers purchase behavior (e.g., regular customer

suddenly stops buying) may indicate a TRE; nonpurchase-related customer interactions, such as customer service inquiries, included in the CRM system can provide insights Palmatier and Steinhoff 2019 48 Diagnosing Relationship Change Through Big Data Analytics Big data analytics may uncover what customers are feeling and doing, above and beyond what the seller knows from direct interactions Many firms gather psychographic customer information through social media channels, because customers personal profiles on Facebook or other sites reveal valuable information about their living circumstances, lifestyles, and major life events (e.g., graduating from college, getting married, having kids) Customers interact with a company through its website or mobile applications, enabling companies to track customers omnichannel usage behavior (e.g., frequency of usage, duration of usage, features used) and overall relationship engagement Social media and review sites also serve as important platforms for customers to talk to or about a firm, such that relationship marketing managers can analyze customers seller-related conversations on the Internet through sentiment analysis Palmatier and Steinhoff 2019 49 Takeaways

Most academic research and most managers take a static perspective on customerseller relationships, despite the undisputed premise that relationships change over time and are fundamentally dynamic Recent relationship marketing research indicates that relationships can change incrementally as well as disruptively Three concepts describe incremental relationship change: (1) relationship life cycle stages, (2) relationship velocity, and (3) relationship states and migration mechanisms The classic relationship life cycle stage perspective argues that all relationships follow a generic four-stage trajectory, progressing from an exploratory or early stage to a growth or development stage to a maturity or maintain stage to a decline or recovery stage Rather than assuming discrete, generic relationship life cycle stages, the more fine-grained relationship velocity perspective argues that the rate and direction of change in key relational constructs (e.g. commitment) must be considered to understand relationship dynamics Palmatier and Steinhoff 2019 50 Takeaways (contd.) The relationship states and migration mechanisms perspective synthesizes insights on life cycle stages and relational construct velocity. Hidden Markov modeling empirically establishes four typical relationship states (transactional, transitional, communal, damaged) and depicts three positive (exploration, endowment, recovery) and two negative (neglect, betrayal) migration patterns by which relationships move between states These insights on relationship marketing dynamics underscore the idea that

relationship marketing investments are not universally applicable or effective during the customers overall relationship with the firm. Rather, the effectiveness of specific relationship marketing strategies or programs depends on the relationships current state and trajectory Relationship evolution is not always gradual. Transformational relationship events entail discrete encounters between exchange partners that substantially disconfirm relational expectations (positively or negatively) and result in dramatic, discontinuous changes to the relationships trajectory Relationships in the digital age take place in a data-rich environment. Companies should combine insights from market research techniques, CRM database analyses, and big data analytics to diagnose incremental as well as disruptive relationship change Palmatier and Steinhoff 2019 51 Agenda Introductory Chapter 1 Relationship Marketing and the Digital Age PART I Understanding Relationship Marketing 2 Relationship Marketing Theory 3 Relationship Marketing Framework

PART II Applying Relationship Marketing 4 Relationship Marketing Dynamics 5 Relationship Marketing Strategies 6 Relationship Marketing Targeting Concluding Chapter 7 Research and Managerial Guidelines for Relationship Marketing in the Digital Age Palmatier and Steinhoff 2019 52 Learning Objectives Understand that building and maintaining relationships are key managerial goals for relationship marketing Review research insights on the diverse strategies that can nurture customer relationships Consider research evidence that delineates how to prevent negative events and retain customer relationships

Identify customer-centric structures and loyalty programs as institutionalized, organization-wide programs for managing customer relationships Synthesize best practices for building and maintaining relationships, based on academic and practical evidence Identify emerging strategies for managing customer relationships in the digital age Palmatier and Steinhoff 2019 53 Introduction Relationship marketing programs often rely on strategies and tactics derived from conventional advertising or direct marketing efforts Yet they constitute a unique promotional effort that should be implemented systematically and strategically Managers must answer two critical, complex questions: (1) How can we build strong customer relationships? (2) How can we maintain strong customer relationships? Palmatier and Steinhoff 2019 54 Approaches for Managing Relationship Marketing Strategies Relationship Marketing Strategies for

Building Relationships Palmatier and Steinhoff 2019 and Relationship Marketing Strategies for Maintaining Relationships 55 Relationship Marketing Strategies for Building Relationships: Understanding Relationship Drivers Relational Drivers Definitions Conflict Seller expertise Overall level of disagreement between exchange partners Knowledge, experience, and overall competency of seller Amount, frequency, and quality of information shared between Communication

exchange partners Relationship Sellers investment of time, effort, spending, and resources focused on investments building a stronger relationship Commonality in appearance, lifestyle, and status between individual Similarity boundary spanners or similar cultures, values, and goals between buying and selling organizations Benefits received, including time saving, convenience, companionship, Relationship benefits and improved decision making Customers evaluation of the value of seller-provided resources for Dependence on seller which few alternatives are available from other sellers Number of interactions or number of interactions per unit of time Interaction frequency between exchange partners Length of time that the relationship between the exchange partners has Relationship duration existed Note: The results in this table are based on a meta-analysis performed by Palmatier et al. (2006). Palmatier and Steinhoff 2019 Adjusted r Between Antecedent and Relational Assets -0.67

0.62 0.54 0.46 0.44 0.42 0.26 0.16 0.13 56 Relationship Marketing Strategies for Building Relationships: Stimulating Gratitude and Reciprocity Norms Gratitude is a catalyst of relationships in two ways (Palmatier et al. 2009): - In the short run, customers engage in reciprocal purchase behaviors to satisfy their psychological obligation, in response to relationship-marketing-induced feelings of gratitude - In the long run, gratitude promotes the development of reciprocity norms and initiates reciprocation cycles, fostering positive long-term customer behaviors Relationship marketing managers can use four strategies to leverage gratitude mechanisms: - Enhance customers perceptions of their own need - Act out of free will as a seller - Emphasize benevolent motives - Incur risk in the relationship investment Palmatier and Steinhoff 2019

57 Relationship Marketing Strategies for Building Relationships: Forming Relationships Online In online environments (e.g., e-commerce), exchange partners are moving away from purely transactional exchanges and toward more relational exchanges The psychological mechanisms that underlie relationship development are similar in offline and online settings (Zhu, Chen, and Algesheimer 2012) Yet online and offline settings also differ, due to leaner communication, heightened anonymity, weaker reciprocity norms, and less social interconnectedness encountered in online relational exchanges (Kozlenkova et al. 2017) Recent research on how online relationships form on Taobao.com offers three notable, practible insights (Kozlenkova et al. 2017): (1) Anonymity increases the effectiveness of risk-reducing signals, which can encourage relationships, even among dissimilar partners, to develop quickly (2) Online customers often develop extensive relationship portfolios, consisting of more unilateral than reciprocal relationships as these are easy to form (3) Reciprocal online relationships, relative to unilateral ones, strongly increase psychological commitment by customers and thus their purchase behaviors Palmatier and Steinhoff 2019 58 Relationship Marketing Strategies for Maintaining Relationships: Avoiding Unfairness The long-term effectiveness of relationship marketing often depends more on preventing the bad rather than adding more good Customer unfairness not only undermines positive customer behaviors,

cooperation, flexibility, and performance (Samaha, Palmatier, and Dant 2011), but it also aggravates the negative potential effects of regular daily conflict or opportunism Yet companies often create or even encourage perceptions of unfairness, such as in loyalty programs, where bystanders who do not receive the loyalty benefits frequently express their anger in response to the unfair treatment they perceive (Steinhoff and Palmatier 2016) Palmatier and Steinhoff 2019 59 Effects of Airline Rewards on Target and Bystander Customers Gratitude Unfairness Target Status Target Target 10 Bystander Bystander

Target Bystander Bystander Target 5 Bystander Incremental Sales evoked by Customer Gratitude, Status, and Unfairness (%) 15 0 Free Checked Bag -5 Lounge Access Free Services

Priority Check-In Priority Boarding -10 Loyalty Program Rewards Source: Steinhoff and Palmatier (2016, p. 102). Palmatier and Steinhoff 2019 60 Relationship Marketing Strategies for Maintaining Relationships: Protecting Data Privacy Companies today have a wealth of data available to help them tailor their offerings to reflect customers demographics, purchase histories, or browsing histories Firms spend vast amounts ($36 billion annually) to gather more of these big data, as companies using big data analytics should increase their productivity and profits by 5%6% compared with competitors without such capabilities But in addition to supporting customized offers, big data enhance privacy concerns (Martin and Murphy 2017), with notable effects for both firms and customers (Martin, Borah, and Palmatier 2017): - A firm incurring a data breach suffers an average drop in stock performance of -.27%, equivalent to a loss of $130 million in shareholder value on the day of the breach - Even competitor value erodes by -17% or about $82 million in shareholder value - Data breaches and privacy failures increase customers awareness of the risk and

decrease their willingness to share information about themselves - Consumers express a sense of vulnerability any time their data are collected Transparency and control in their privacy policies help firms reduce customers sense of vulnerability Palmatier and Steinhoff 2019 61 Institutionalized Relationship Marketing Programs: Installing Customer-Centric Structures Firms with customer-centric structures appear to outperform internally oriented peers (Kumar, Venkatesan, and Reinartz 2008; Shah et al. 2006); however, many firms also struggle An analysis of Fortune 500 firms suggests customer to be a doubled-edged sword: - Customer centricity helps firm divisions focus on specific customer segments - Customer centricity also introduces complexity and costs centricity coordination Switching to customer-centric structures is not always profitable (Lee et al. 2015): - If a customer-centric firm competes in a market with many other customer-centric firms, its performance is 11% lower than that of firms with product-centric structures

- When competitive intensity increases, it also impedes the performance of customercentric firms, relative to product-centric firms, by approximately 69% - Customer centricity is less effective in low-profitability industries, such that customercentric firms achieve 20% poorer performance than product-centric firms Palmatier and Steinhoff 2019 62 Institutionalized Relationship Marketing Programs: Implementing Loyalty Programs Loyalty programs are ubiquitous relationship marketing instruments across diverse industries (e.g., retailing, travel and hospitality, and financial services) (Fruend 2017; Gordon and Hlavinka 2011): - 3.8 billion loyalty program memberships in the United States - The average household subscribes to more than 30 different programs - Companies spend $48 billion annually to manage loyalty programs Loyalty programs encompass any institutionalized incentive system that attempts to enhance customers attitudes and behaviors over time (e.g., bonus points, gifts, tiered service levels, and dedicated support contacts) (Henderson, Beck, and Palmatier 2011) Three building blocks of loyalty programs: - Psychological elements - Strategic elements - Operational elements Palmatier and Steinhoff 2019 63

Loyalty Program Framework: Three Key Elements Customer Loyalty Attitudinal loyalty Strategic Elements What the company does Psychological Elements How customers respond (a) Structure (a) Emotional True loyalty (b) Cognitive (b) Rewards Behavioral loyalty (a) Delivery (b) Dynamics (c) Targeting

Operational Elements How, when, and to whom the company does it Source: Adapted from Kim, Steinhoff and Palmatier (2018). Palmatier and Steinhoff 2019 64 Guidelines for Managing Relationship Marketing Strategies Established best practices: - Preventing conflict, unfairness, and privacy concerns - Leveraging seller expertise, communication, and relationship investments - Fostering gratitude and reciprocity norms - Professionalize relationship marketing throughout the organization Emerging practices: - Enhancing communication strategies - Enhancing personalization strategies - Enhancing experiential benefits strategies Palmatier and Steinhoff 2019 65 Takeaways In a meta-analysis of relational drivers, conflict has the biggest (detrimental) impact on relationship quality. Strong positive determinants of relationship quality include seller expertise, communication, relationship investments, relationship benefits, and similarity between relational exchange partners

Gratitude catalyzes customer relationships, stimulating both short-and long-term reciprocal behaviors. The sellers free will, benevolent motives, and risk-taking in making relationship investments, as well as the customers need for the investment, effectively leverage gratitude mechanisms Online relationships differ in several important ways from offline relationships (e.g., geographic distance, anonymity, unilateral structures, lower social interconnectedness), which affects the optimal relationship-building strategies in online environments A substantial threat to relationships is perceived unfairness, which leads customers to reduce their cooperation, flexibility, and performance but also aggravates the negative effects of conflict and opportunism Palmatier and Steinhoff 2019 66 Takeaways (contd.) The digital age creates privacy concerns, which in turn can lead to negative performance effects for firms. Privacy policies should provide transparency and control Customer-centric organizational structures may enhance company performance, especially in industries with few other customer-centric firms, low competitive intensity, low commoditization, and high margins. Switching to customer-centric structures takes time to produce benefits though Loyalty programs are complex relationship marketing instruments, so marketers must account for the programs psychological, strategic, and operational elements Established best practices in relationship marketing recommend avoiding conflict and unfairness; promoting seller expertise, communication, and relationship investments; spurring gratitude and reciprocity norms; implementing overarching

relationship marketing programs throughout the firm; and assessing relationship marketing effectiveness Emerging relationship marketing practices include strategies to leverage communication, trust-building efforts, and contributions to the customer experience Palmatier and Steinhoff 2019 67 Agenda Introductory Chapter 1 Relationship Marketing and the Digital Age PART I Understanding Relationship Marketing 2 Relationship Marketing Theory 3 Relationship Marketing Framework PART II Applying Relationship Marketing 4 Relationship Marketing Dynamics

5 Relationship Marketing Strategies 6 Relationship Marketing Targeting Concluding Chapter 7 Research and Managerial Guidelines for Relationship Marketing in the Digital Age Palmatier and Steinhoff 2019 68 Learning Objectives Define purposeful targeting as key to relationship marketing effectiveness Understand how customers differ in their level of relationship orientation, which makes them more or less appropriate targets for sellers Describe the diverse customer-, industry-, and culture-specific drivers of customer relationship orientation Explain how field experiments can help companies optimize their relationship marketing targeting Identify which groups of customers represent new targets of relationship marketing efforts in the digital age Palmatier and Steinhoff 2019

69 Introduction Purposeful targeting, based n differential customer treatment, is at the heart of relationship marketing (Homburg, Droll, and Totzek 2008; Zeithaml, Rust, and Lemon 2001) Investing in customer relationships does not pay off equally for every individual customer or each relationship Relationship marketing effectiveness varies according to how customers value and respond to sellers efforts to build and maintain strong relationships in particular customer-specific, market-specific, or culture-specific contexts Palmatier and Steinhoff 2019 70 Managing Relationship Marketing Targeting: The Concept of Customer Relationship Orientation A high customer relationship orientation means that a customer prefers a strong relationship with a partner, such that the customer (Palmatier et al. 2008): - Likely responds positively to requests for information from the seller - Is willing to meet regularly and communicate broadly with seller representatives - Aligns its goals with the sellers - Avoids conflict Customers featuring low relationship orientations prefer transactional interactions due to perceived costs of relational involvement, such as: - Opportunity costs in terms of time and effort - Reciprocity obligations - Expectations of increasing prices

Inappropriate levels of relationship marketing represent insufficient investments Optimal relationship marketing outcomes emerge when sellers specific relationship marketing activities match each customers preferred relationship orientation Palmatier and Steinhoff 2019 71 Managing Relationship Marketing Targeting: Drivers of Customer Relationship Orientation Customer-Specific Drivers Relationship proneness Product category involvement and dependence Relationship-centric reward systems Industry-Specific Drivers Exchange and product uncertainty Industry relational norms Service industries Business-to-business markets

Customer relationship orientation Relationship marketing effectiveness Culture-Specific Drivers Collectivism High power distance High uncertainty avoidance Femininity Palmatier and Steinhoff 2019 72 Managing Relationship Marketing Targeting: Culture-Specific Drivers of Customer Relationship Orientation Performance Estimated Effect Rank

Relative to U.S. Individualism Cultural Dimension Scores Power Uncertainty Distance Avoidance Masculinity Country Brazil .46 6 28 % 38 69 76 Canada .36 15 2 % 80 39 48 China

.73 1 100 % 20 80 30 France .30 22 17 % 71 68 86 Great Britain .41 11 12 % 89 35 35 Germany .32 18 11 % 67 35 65 India .62

3 71 % 48 77 40 Japan .41 10 13 % 46 54 92 Mexico .55 4 50 % 30 81 82 Russia .44 8 20 % 39 93 95 United States .36 13

0% 91 40 46 ... Country Averages .40 11 % 55 57 66 Region Africa .51 2 40 % 36 67 65 Asia .62 1 70 % 24 73 50 Eastern Europe .43 6

19 % 46 66 74 Latin America .46 4 28 % 23 71 86 North America .46 5 27 % 54 49 51 Middle East .46 3 28 % 38 65 71 Western Europe .32 7 11 %

63 46 69 Regional Averages .47 29 % 41 62 67 Note: This table reproduces selected results from a meta-analysis performed by Samaha, Beck, and Palmatier (2014, p. 91). Palmatier and Steinhoff 2019 49 52 66 43 66 66 56 95 69 36 62 50 49 53 47 47

55 47 48 50 73 Guidelines for Managing Relationship Marketing Targeting Costly, unwanted relationship marketing efforts can undermine the very existence of a relationship Aligning with customers relationship needs, i.e. purposeful targeting, ultimately is more critical for ensuring the sellers performance than is blindly pursuing evercloser links (Cao and Gruca 2005; Colgate and Danaher 2000; Dowling and Uncles 1997) The digital age facilitates two routes to improve targeting capabilities: - Field experiments enable relationship marketers to test new programs with a limited sample of customers and identify the varying effectiveness of these programs for different customer segments - Targets in the digital age often involve groups of customers such that sellers can leverage the power of group norms to simultaneously build and nurture relationships with a wide range of customers Palmatier and Steinhoff 2019 74 Guidelines for Managing Relationship Marketing Targeting: Using Field Experiments to Improve Targeting Recent marketing research recommends and demonstrates the use of field experiments to understand customer behavior (Gneezy 2017; Meyer 2017) In a field experiment, the experimenter (e.g., academic researcher, manager):

- Manipulates one or several factors in the customers natural environment, then - Measures the behaviors and outcomes that result from this manipulation - By comparing the behavior of manipulated customers (i.e., treatment group) with the behavior of customers who were not exposed to the manipulation (i.e., control group) Palmatier and Steinhoff 2019 75 Field Experiment: Targeting Effectiveness of a Relationship Marketing Initiative Relationship marketing initiative Intrinsic Loyalty Mechanisms Customer Performance Habit Defection versus status quo Dependence Expansion versus status quo Relationship Controls

Field Experiment Timeline Baseline period (5 months) Treatment period (2 months) Outcome period (9 months) Source: Adapted from Henderson, Steinhoff, and Palmatier (2014). Palmatier and Steinhoff 2019 76 Segmenting and Targeting Customers According to Their Intrinsic Loyalty Profiles Loyalists Defection 5.1% Dependent Partners 5 th p Low erce ntil e

Expansion Skeptics Defectio n 5.8% Hab it-b ased Defection 3.3% Source: Adapted from Henderson, Steinhoff, and Palmatier (2014). e Low tile rcen th e 5 p Sleeping dogs" are risky. Upon awakening through engagement, they may play (expansion) or bite (defection). Increasing their relationship and

dependence levels allows engagement to break habits with less risk (defection no longer significant). h Hig ntile erce p 95 th l ased b e enc end Dep 95 th High per c en til Palmatier and Steinhoff 2019 1.9%

Skeptics" are poor targets. With little motivation to remain and uncertain of the sellers true value, they are the most likely to suspect that engagement tactics are manipulative or signal the need to compensate for an inferior or overpriced core offering. loya lty Relationship-based loyalty Sleeping Dogs Defectio n 5.3% Expansion 8.6 % Low 5th percentile Dependent partners" are worth considering. Customer engagement, by making their dependence salient and signaling that the seller is not exploiting its power, lowers defection. However, the likelihood of expansion also decreases. Dependent

partners may refrain from increasing their dependence on this seller if a sense of balanced dependency is salient. Sellers should test socially oriented customer engagement tactics to build relationships and offset dependent partners concerns about the risks of greater dependence due to further expansion. High 95th percentile Loyalists" are the most appropriate target. Customer engagement signals that the seller still cares and thus activates latent benefits of dependence and relationship mechanisms. lty oya Notes: Bubble sizes correspond with the absolute percentage change in the likelihood of expansion or defection due to customer engagement. The spotlight analysis indicates the effects are significant at p < .05. The locations for the spotlight analysis were chosen for their managerial relevance and interest.

77 Guidelines for Managing Relationship Marketing Targeting: Targeting Groups of Customers Digital technology, such as social networks (e.g., Facebook, Instagram), enables consumers to function in networks rather than as individuals (Hennig-Thurau et al. 2010; Libai et al. 2010; Verhoef, Reinartz, and Krafft 2010) Groups drive consistent, conformant purchase behavior, by evoking both information appraisal and identity appraisal mechanisms (Harmeling et al. 2017): - Consumers are 1.4 times more likely to choose a product that matches group norms and also will pay significantly more for it than for an alternative product (even one that is objectively superior) - If group members are relatively new to the purchase domain, group norms affect consumers purchase behaviors according to an inverted U-shape when information appraisals dominate, but they follow a U-shape if identity appraisals dominate When relationship marketers approach members of groups, their target might not be a single customer, but rather a collection of customers whose norms and psychological mechanisms influence their members consumer behavior Palmatier and Steinhoff 2019 78 Guidelines for Managing Relationship Marketing Targeting: Four Steps for Effective Group Marketing Decide to implement

group marketing Step 1: Identify customer target Identify desirable customers Step 2: Establish salient group yes Use a firmmanaged group Build firmmanaged group Step 3: Develop necessary group marketing conditions Identify external, independent group Build psychological affiliation to group a. Increase customer awareness of group affiliation Guide exposure to

group norms for desired behavior b. Expose customer to group norms Step 4: Communicate benefits of group affiliation yes Is the customer new to the domain? Communicate informational benefits of group affiliation Source: Adapted from Harmeling et al. (2017). Palmatier and Steinhoff 2019 no no Communicate social benefits of group affiliation

Evaluate effectiveness of group marketing 79 Takeaways Relationship marketing investments do not pay off equally for each individual customer and each individual relationship; purposeful targeting to customers with high relationship orientations is key to enhance relationship marketing performance Some customers perceive relationship marketing activities as an unwanted waste of time, hassle, or cost. Only customers with a high customer relationship orientation desire strong relationships, which prompts their responsiveness to relationship-building and maintenance efforts Customer-specific drivers of customer relationship orientation include their relationship proneness, exchange and product uncertainty, product category involvement and dependence, and relationship-centric reward systems Industry-specific drivers of customer relationship orientation are industry relational norms, service versus product industries, and business-to-business versus business-to-consumer industries Palmatier and Steinhoff 2019 80 Takeaways (contd.) Culture-specific drivers of customer relationship orientation include low

individualism, high power distance, high uncertainty avoidance, and low masculinity Field experiments can help relationship marketers avoid wasting resources on the wrong initiatives or the wrong target customers. The comparison of the behaviors and outcomes of sample customers exposed to a manipulation (i.e., treatment group) versus those not exposed to the manipulation (i.e., control group) suggests appropriate, differentiated targeting strategies, especially in combination with analyses of customers intrinsic loyalty profiles The digital age helps customers organize into groups, and thus groups of customers are relevant targets for relationship marketing efforts. Managers must identify desirable customers, establish a salient group (firm-managed or independent), develop necessary conditions for group marketing (awareness of group affiliation, exposure to group norms), and adapt group marketing strategies to the customers time in the product domain Palmatier and Steinhoff 2019 81 Agenda Introductory Chapter 1 Relationship Marketing and the Digital Age PART I Understanding Relationship Marketing 2 Relationship Marketing Theory

3 Relationship Marketing Framework PART II Applying Relationship Marketing 4 Relationship Marketing Dynamics 5 Relationship Marketing Strategies 6 Relationship Marketing Targeting Concluding Chapter 7 Research and Managerial Guidelines for Relationship Marketing in the Digital Age Palmatier and Steinhoff 2019 82 Learning Objectives Detail the state of the art and specify research gaps pertaining to relationship marketing research

Describe ways to enhance overall understanding of relationship marketing by employing new theoretical approaches Identify additional relational mechanisms that can enhance relationship marketing understanding Improve relationship marketing applications by dynamically timing the deployment of relationship marketing tools and determining relationship states through analyses of big data Describe ways to enhance relationship marketing applications according to the relative effectiveness of emerging relationship marketing tools, balanced with privacy concerns Outline how contingency factors in online relationships, field experiments, and different social effects can improve relationship marketing applications Palmatier and Steinhoff 2019 83 Introduction Since the early 1980s, relationship marketing has become and remained a central and specific priority for marketing academics and managers Research has established a consensus view: Strong customer relationships are vital to company strategy and performance (Morgan and Hunt 1994; Palmatier et al. 2006) In the digital age, relationship marketing continues to expand in importance, with relationships gaining even greater relevance as premier sources of sustainable competitive advantage (Palmatier and Sridhar 2017) Together with this clear importance, research and practice also establish the vast complexity and contingencies associated with the influences of relationships on customers 14 tenets shed light on the potential avenues and directions that relationship

marketing researchers may pursue to advance the domain and gird it for the opportunities and challenges of the digital age: - Enhancing relationship marketing understanding (5 tenets) - Enhancing relationship marketing applications (9 tenets) Palmatier and Steinhoff 2019 84 Enhancing Relationship Marketing Understanding: Relationship Marketing Theory Need for theories from domains that study humantechnology interactions explicitly, such as computer and communication sciences Flow (Csikszentmihalyi 1975), media richness (Daft and Lengel 1986), and parasocial interaction (Giles 2002; Horton and Wohl 1956) theories may offer new insights into relationship marketing effectiveness in online settings Customerseller relationships in the digital age typically involve hybrid constellations that encompass interpersonal, interfirm, and online elements in an omnichannel environment (e.g., web, mobile app, phone, retail, salesperson) Tenet 1: Beyond interpersonal and interfirm theories explaining relationship marketing effectiveness, online theories that deal with humantechnology interactions can make a unique contribution to comprehensive predictions of relationship marketing performance outcomes. Palmatier and Steinhoff 2019 85 Enhancing Relationship Marketing Understanding:

Relationship Marketing Theory The digital age facilitates consumer-to-consumer interactions on an unprecedented scale (e.g., through social networks) Network theory (Van Den Bulte and Wuyts 2007) can inform consumer-based relationship marketing theory Relationship marketers need to understand individual customers roles in their network, identify key influencers among this network, and limit negative network effects to keep problems with single customers from spreading across a larger network Tenet 2: Network theory helps explain relationship marketing effectiveness in consumer markets. Individual customers decisions and behaviors are affected not just by the focal sellers actions but also by the quality, breadth, and composition of their customer-to-customer networks. Palmatier and Steinhoff 2019 86 Enhancing Relationship Marketing Understanding: Relationship Marketing Framework The digital landscape broadens and further substantiates the scope of relationship marketingrelevant mechanisms Media richness (Daft and Lengel 1986) and parasocial interactions (Giles 2002; Horton and Wohl 1956) may contribute insights to existing cognitive relational mechanisms Media richness is particularly well suited to assess customers evaluation of sellers uses of omnichannel communication Parasocial interaction is increasingly relevant for customers who interact with nonhuman salespeople or service providers, such as anthropomorphic, embodied virtual agents, chatbots, or robots

Tenet 3: The constructs of media richness and parasocial interaction capture customers cognitive responses to sellers technology-delivered relationship marketing activities and mediate the impact of such activities on relationship marketing performance. Palmatier and Steinhoff 2019 87 Enhancing Relationship Marketing Understanding: Relationship Marketing Framework Customer-perceived experiences (Lemon and Verhoef 2016) and flow states (Csikszentmihalyi 1975) may drive relationship marketing effectiveness in a conative sense Understanding the drivers that enhance the customer experience can help relationship marketers improve their customer journey and touchpoint design (Lemon and Verhoef 2016) Researchers should seek to identify which online relationship marketing activities (e.g., gamification) are most effective for putting customers into a temporary flow state Tenet 4: Experience and flow constructs capture customers conative responses to sellers technology-delivered relationship marketing activities and mediate the impact of such activities on relationship marketing performance. Palmatier and Steinhoff 2019 88

Enhancing Relationship Marketing Understanding: Relationship Marketing Framework Customer engagement has broadened the range of relationship-relevant customer behaviors, above and beyond transaction-focused loyalty constructs The digital age facilitates and broadens the reach of nonpurchase-related behaviors (Harmeling et al. 2017b; van Doorn et al. 2010) Customer engagement value (CEV) comprehensively measures the customers value to the firm pertaining to customer lifetime value (CLV), customer referral value (CRV), customer influencer value (CIV), and customer knowledge value (CKV) (Kumar 2017; Kumar et al. 2010) Tenet 5: The construct of customer engagement captures customers behavioral responses to sellers relationship marketing activities beyond purchase behaviors. It makes a unique contribution to the overall value of a customer to the firm. Palmatier and Steinhoff 2019 89 Enhancing Relationship Marketing Applications: Relationship Marketing Dynamics Both academics and practitioners call for better descriptions of and actionable guidelines for sellers systematic customer journey designs and management across various channels (Lemon and Verhoef 2016; Marketing Science Institute 2018) For example, research should investigate which communication tools (e.g., interpersonal communication, artificial intelligencebased communication) work best in which stage of the relationship or how and when different investments (e.g., rewards) should be deployed over the course of the relationship

Tenet 6: Specific tools used by sellers, such as to communicate with customers or invest in the relationship, feature differential effects over the course of the customer relationship, such that customer journey designers may systematically maximize their performance impacts. Palmatier and Steinhoff 2019 90 Enhancing Relationship Marketing Applications: Relationship Marketing Dynamics Methodologically, sellers should seek to benefit from the data-rich environments in which customerseller relationships take place and systematically collect and incorporate additional information sources into their models to estimate and predict relationship dynamics Big data (e.g., gathered from social media profiles, omnichannel usage behavior, or online conversations) can add to subjective customer survey data and objective customer relationship data to generate even deeper insights about customers and their relational dynamics Including big data in dynamic relationship marketing models should improve the predictive power of existing and emerging models Tenet 7: Incorporating big data will increase the predictive power of models for determining customer relationship states. Palmatier and Steinhoff 2019 91

Enhancing Relationship Marketing Applications: Relationship Marketing Strategies Relationship marketers toolboxes for building relational mechanisms are growing ever more expansive Future relationship marketing research should go beyond the isolated designs and effectiveness of different tools to determine the relative efficacy of different instruments across relational constructs Tenet 8: Social media company profiles, mobile apps, embodied virtual agents, and augmented reality can enhance customer-perceived seller expertise and communication and drive relational mechanisms, such as commitment, trust, and engagement. Tenet 9: Data privacy policies and reputation signals can enhance customerperceived seller expertise and relationship investments and drive relational mechanisms, such as trust. Tenet 10: Gamification and status bestowal can enhance customer-perceived relationship investments and relationship benefits and drive relational mechanisms, such as gratitude, reciprocity norms, and experience. Palmatier and Steinhoff 2019 92 Enhancing Relationship Marketing Applications: Relationship Marketing Strategies Acknowledging the unintended, negative effects of relationship marketing and learning how to circumvent them remains a priority for research The digital age has brought about substantial threats to customerseller relationships in the form of privacy concerns Building on initial insights that underscore the roles of transparency and perceived control (Martin, Borah, and Palmatier 2017), researchers might consider and investigate privacy policies as strategic relationship marketing tools rather than

as a mere legal duty Ultimately, if sellers cannot overcome customers concerns and distrust when it comes to data privacy, even the best-intended relationship marketing efforts are doomed Tenet 11: Big data and concurrent privacy concerns represent a substantive dark side of relationship marketing in the digital age and may act as existential threats to relationship marketing performance. Palmatier and Steinhoff 2019 93 Enhancing Relationship Marketing Applications: Relationship Marketing Targeting Further research can specify when and for which customers relationship marketing works To date, research on online relationships in the digital age mostly has focused on the main effects of relationship marketing strategies Yet the specific characteristics of relationships in online settings (e.g., anonymity, more channels) suggest that different customers demand different digitally supported relational approaches Tenet 12: In online environments, relationship marketing effectiveness is contingent on various customer factors, such as customer age. Palmatier and Steinhoff 2019 94

Enhancing Relationship Marketing Applications: Relationship Marketing Targeting Field experiments offer an effective method to test the overall impact of relationship marketing efforts empirically and to identify optimal target customers Random customer assignments powerfully circumvent the endogeneity issues that hinder studies that rely on nonexperimental data Researchers also should seek to substantiate and quantify the effectiveness of field experiments for enhancing relationship marketing performance Research should develop field experimental blueprints that both academics and managers can use, distilling the dos and donts Tenet 13: Testing the effects of relationship marketing programs on different groups of customers with field experiments, prior to full roll-outs, increases programs returns on investments. Palmatier and Steinhoff 2019 95 Enhancing Relationship Marketing Applications: Relationship Marketing Targeting The digital age vastly facilitates customer-to-customer interactions and connections, so social relationship marketing is gaining in relevance and sellers must be aware of and ready to manage social effects to their advantage Relationship marketing research should broaden traditional one-to-one approaches to acknowledge that individual customers always are embedded in larger networks of close and distant ties and connections with fellow customers

Revealing a battery of bright- and dark-side group-related mechanisms (e.g., social comparison, status, envy, unfairness, conformity, differentiation, solidarity, identification) helps relationship marketers refine their strategies to mitigate detrimental and promote favorable social effects Tenet 14: Relationship marketing strategies that effectively factor in and deliberately manage social effects (e.g., bystander effects, group effects) rather than exclusively focusing on the target customer increase relationship marketing performance. Palmatier and Steinhoff 2019 96 Takeaways An abundance of research generates knowledge about how relationship marketing works, yet in the digital age, new substantial issues arise that need to be explained more profoundly by relationship marketing researchers Theories that deal with humantechnology interactions can enrich relationship marketing; networked customer-to-customer relations in the digital age also extend the theoretical scope to business-to-consumer relationships Media richness, parasocial interaction, experience, flow, and engagement constitute an expanded battery of relevant relational mechanisms that might mediate the impact of relationship marketing investments on relationship marketing performance Insights on the differential effects of relationship marketing tools over the course of the customer relationship can help marketers design customer journeys with more positive performance impacts Incorporating big data should improve the predictive validity of relationship models

Palmatier and Steinhoff 2019 97 Takeaways (contd.) Emerging relationship marketing tools can stimulate different relational mechanisms Privacy concerns represent a pressing dark side of relationship marketing in the digital age Customers differ in their affinity toward online relationships, so sellers should develop targeted online approaches for various segments Field experiments can increase the return on investments in relationship marketing programs Social effects, such as bystander effects in loyalty programs, social network effects of a one-time reward campaigns, and group conformity effects for product purchases, have greater relevance for relationship marketing in the digital age Palmatier and Steinhoff 2019 98 Thank You Contact us: Robert W. Palmatier and Lena Steinhoff Find us on Amazon: Relationship Marketing in the Digital Age

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