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Building, measuring, and profiting from customer loyalty

George F. Watson IV & Joshua T. Beck & Conor M. Henderson & Robert W. PalmatierKeywords: Customer loyalty, Relationship marketing, Content analysis, Meta-analysis, Word of mouth
Achieving customer loyalty is a primary marketing goal, but building loyalty and reaping its rewards remain on- going challenges. Theory suggests that loyalty comprises atti- tudes and purchase behaviors that benefit one seller over com- petitors. Yet researchers examining loyalty adopt widely vary- ing conceptual and operational approaches. The present inves- tigation examines the consequences of this heterogeneity by empirically mapping current conceptual approaches using an item-level coding of extant loyalty research, then testing how operational and study-specific characteristics moderate the strategy → loyalty → performance process through meta- analytic techniques. The results clarify dissimilarities in loy- alty building strategies, how loyalty differentially affects per- formance and word of mouth, and the consequences of study- specific characteristics. Prescriptive advice based on 163 studies of customer loyalty addresses three seemingly simple but very critical questions: What is customer loyalty? How is it measured? and What actually matters when it comes to cus- tomer loyalty?
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Business-to-Business Buying: Challenges and Opportunities

Rajdeep Grewal & Gary L. Lilien & Sundar Bharadwaj & Pranav Jindal & Ujwal Kayande & Robert F. Lusch & Murali Mantrala & Robert W. Palmatier & Aric Rindfleisch & Lisa K. Scheer & Robert Spekman & Shrihari SridharKeywords: B2B buying, Sophistication of sellers, Technological changes, Emerging markets
In this article, we lay out the challenges and research opportunities associated with business-to-business (B2B) buy- ing. These challenges and opportunities reflect four aspects of B2B buying that the Institute for the Study of Business Markets (ISBM: has identified through a Delphi-like pro- cess: (1) the changing landscape of B2B buying, (2) the increas- ing sophistication of sellers, (3) the impact of technological changes, and (4) the increasing importance and growth of emerg- ing markets. For each of these four areas, we identify the relevant background, key issues, and pertinent research agendas.
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The effects of customer acquisition and retention orientations on a firm’s radical and incremental innovation performance

Todd J. Arnold & Eric (Er) Fang & Robert W. PalmatierKeywords: Radical innovation, Incremental innovation, Innovation performance, Customer acquisition, Customer retention
The effect of a firm’s strategic focus on acquiring new customers and/or retaining existing customers (cus- tomer acquisition and retention orientations) on innovation performance is evaluated. With dyadic primary data collected from 225 strategic business units, the authors demonstrate that a firm’s focus on customer acquisition enhances its radical innovation performance but hinders its incremental innovation; a firm’s strategic orientation toward customer retention has the opposite effects. These effects are mediated by both customer knowledge development and the firm’s resource configuration decisions. In addition, the authors provide insight into the impact of managerial decision trade-offs when implementing customer engage- ment strategies. The results suggest that the effect of customer acquisition and retention orientations on customer knowledge and investment decisions, and ultimately on innovation performance, is amplified when a firm consis- tently implements a specific engagement strategy. Imple- menting a dual strategy by attempting to focus on both acquiring and retaining customers undermines resource configuration decisions, with diverse effects on both radical and incremental innovation.
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Understanding loyalty program effectiveness: managing target and bystander effects

Lena Steinhoff & Robert W. PalmatierKeywords: Loyalty program, Bystander effect, Reward programs, Reward elements, Relationship marketing
Loyalty programs are a ubiquitous marketing tactic, yet many of them perform poorly and the reasons for loyalty program failure remain unclear to both marketing managers and researchers. This article presents three studies—two ex- periments and one survey—in support of the notion that a greater understanding of loyalty program performance de- mands an expanded theoretical framework. Specifically, re- searchers and managers must account for loyalty programs’ effects on both target and bystander customers in the firm’s portfolio, the simultaneous effects of three performance- relevant mediating mechanisms (gratitude, status, unfairness), and the contingent effects of program delivery (rule clarity, reward exclusivity, reward visibility) on specific mediating linkages. The results provide insights into why and when loyalty programs fail and into the complex trade-offs man- agers face. Loyalty programs have opposing effects on target and bystander customers’ loyalty and sales. While rule clarity suppresses both negative bystander as well as positive target effects, reward visibility enhances both types of effects. Exclusive rewards offer a means to alleviate negative bystand- er effects without affecting targets. The article both conceptu- ally and empirically establishes a comprehensive analysis framework that can help marketing managers and researchers evaluate and improve loyalty program effectiveness.
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Understanding Relationship Marketing and Loyalty Program Effectiveness in Global Markets

Joshua T. Beck, Kelly Chapman, and Robert W. PalmatierKeywords: relationship marketing, loyalty programs, culture, economic development, international marketing
Relationship marketing (RM) and loyalty programs (LPs) are key differentiation strategies for firms facing increasing global competition. Accordingly, global interest in RM and LPs has surged, though researchers examining these mar­ keting activities typically apply U.S.-centric frameworks to international research contexts. To understand how RM and LPs may be influenced by factors that distinguish global markets, this review offers a comprehensive framework of both RM and LP mechanisms and considers how cultural and developmental contingency factors may alter the effects of these mechanisms on seller performance. The results from this review produce eight propositions about where spe­ cific RM and LP strategies should be most effective. By considering these mechanisms jointly, the authors also simulta­ neously delineate RM and LP theories and broaden the scope ofglobal research in both domains.
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A Comparative Longitudinal Analysis of Theoretical Perspectives of Interorganizational Relationship Performance

Robert W. Palmatier, Rajiv P. Dant, & Dhruv GrewalKeywords:
Four theoretical perspectives currently dominate attempts to understand the drivers of successful interorganizational relationship performance: (1) commitment–trust, (2) dependence, (3) transaction cost economics, and (4) relational norms. Each perspective specifies a different set and distinct causal ordering of focal constructs as the most critical for understanding performance. Using four years of longitudinal data (N = 396), the authors compare the relative efficacy of these four perspectives for driving exchange performance and provide empirical insights into the causal ordering among key interorganizational constructs. The results demonstrate the parallel and equally important roles of commitment–trust and relationship-specific investments as immediate precursors to and key drivers of exchange performance. Building on the insights gleaned from tests of the four frameworks, the authors parsimoniously integrate these perspectives within a single model of interfirm relationship performance consistent with a resource-based view of an exchange. Managers may be able to increase performance by shifting resources from “relationship building” to specific investments targeted toward increasing the efficacy or effectiveness of the relationship itself to improve the relationship’s ability to create value. Moderation analysis indicates that managers may find it productive to allocate more relationship marketing efforts and investments to exchanges in markets with higher levels of uncertainty.
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Achieving relationship marketing effectiveness in business-to-business exchanges

Robert W. Palmatier & Lisa K. Scheer & Kenneth R. Evans & Todd J. ArnoldKeywords: Relationship marketing, Exchange inefficiency, Relational governance, Relationship orientation, Trust, Business-to-business
Relationship marketing research and practice operate according to the paradigm that firms should invest in relationship marketing to build better relationships, which will generate improved financial performance. However, findings that relationship marketing efforts vary in their effectiveness across customers and may even be detrimental to performance challenge this belief. This article, therefore, offers a theoretical model that addresses three key issues: 1) what factors determine a customer’s need for relational governance (relationship orientation); 2) what mediating mechanism captures the negative effects of relationship marketing on performance (exchange inefficiency); and 3) how does a customer’s relationship orientation determine the effectiveness of relationship marketing, thus allowing for effective segmentation. The authors demonstrate in an empirical study that the trust in the salesperson and exchange inefficiency both mediate the effect of relationship marketing on seller financial outcomes. In addition, customers’ relationship orientation moderates the impact of relationship marketing on both trust and exchange inefficiency.
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Creating Effective Online Customer Experiences

Alexander Bleier, Colleen M. Harmeling, and Robert W. PalmatierKeywords: online customer experience, online design elements, online retailing, Taguchi design, web design
Creating effective online customer experiences through well-designed product web pages is critical to success in online retailing. How such web pages should look specifically, however, remains unclear. Previous work has only addressed a few online design elements in isolation, without accounting for the potential need to adjust experiences to reflect the characteristics of the products or brands being sold. Across 16 experiments, this research investigates how 13 unique design elements shape four dimensions of the online customer experience (informativeness, entertainment, social presence, and sensory appeal) and thus influence purchase. Product (search vs. experience) and brand (trustworthiness) characteristics exacerbate or mitigate the uncertainty inherent in online shopping, such that they moderate the influence of each experience dimension on purchases. A field experiment that manipulates real product pages on affirms these findings. The results thus provide managers with clear strategic guidance on how to build effective web pages.
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Customer Centricity First, The Pain

Ju-Yeon Lee, Shrihari Sridhar, Robert W. PalmatierKeywords: View Full Paper

Customer Loyalty to Whom? Managing the Benefits and Risks of Salesperson-Owned Loyalty

Robert W. Palmatier, Lisa K. Scheer, and Jan-Benedict E.M. SteenkampKeywords:
In a study of 362 buyer–salesperson dyads using triadic data (from buyer, salesperson, and sales manager), the authors examine both a customer’s overall loyalty to the selling firm and the customer’s loyalty vested specifically in his or her salesperson. They find that only salesperson-owned loyalty, a newly identified construct, directly affects the more tangible seller financial outcomes of sales growth and selling effectiveness, whereas both salesperson-owned loyalty and loyalty to the selling firm increase the customer’s willingness to pay a price premium. A longitudinal study verifies that the positive effect of salesperson-owned loyalty on sales growth persists over time. However, because salesperson-owned loyalty simultaneously increases the seller’s risk of losing business if the salesperson defects to a competitor, managers need to manage effectively the benefit–risk trade-off. Increasing relationship-enhancing activities and value received by the customer builds both salesperson-owned loyalty and loyalty to the selling firm. The loyalty-building impact of relationship-enhancing activities is moderated by selling-firm consistency and by the selling firm’s and salesperson’s loyalty-capturing strategies.
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Customer Relationships Evolve - So Must Your CRM Strategy

A new way of classifying business relationships can boost long-term profitability.
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Customer-Centric Org Charts Aren’t Right for Every Company

Ju-Yeon Lee, Shrihari Sridhar, and Robert W. PalmatierKeywords: Organizational structureView Full Paper

Data Privacy: Effects on Customer and Firm Performance

Kelly D. Martin, Abhishek Borah, Robert W. PalmatierKeywords: data breach, consumer vulnerability, privacy, spillover effects, big data
Although marketers increasingly rely on customer data, firms have little insight into the ramifications of such data use and do not know how to prevent negative effects. Data management efforts may heighten customers’ vulnerability worries or create real vulnerability. Using a conceptual framework grounded in gossip theory, the authors link customer vulnerability to negative performance effects. Three studies show that transparency and control in firms’ data management practices can suppress the negative effects of customer data vulnerability. Experimental manipulations reveal that mere access to personal data inflates feelings of violation and reduces trust. An event study of data security breaches affecting 414 public companies also confirms negative effects, as well as spillover vulnerabilities from rival firms’ breaches, on firm performance. Severity of the breach hurts the focal firm but helps the rival firm, which provides some insight into mixed findings in prior research. Finally, a field study with actual customers of 15 companies across three industries demonstrates consistent effects across four types of customer data vulnerability and confirms that violation and trust mediate the effects of data vulnerabilities on outcomes.
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Dependence and interdependence in marketing relationships: meta-analytic insights

Lisa K. Scheer & C. Fred Miao & Robert W. PalmatierKeywords: Dependence, Interdependence, Relationship value dependence, Switching cost dependence, Relationships, Channels, Meta-analysis, Measurement
The authors conduct a meta-analysis to examine dependence and interdependence in marketing relationships. Analyses reveal that dependence affects performance primar- ily through relationship quality and cooperation, while inter- dependence has substantial direct effects as well as effects mediated through relationship-specific investments and coop- eration. Regarding relationship context, effects of dependence are stronger in channel relationships than end-user relation- ships and for services than goods; interdependence does not display the same pattern. Regarding methodological context, dependence measures that emphasize relationship value ver- sus switching costs have different moderating effects; greater general dependence content is associated with weaker effect sizes for dependence but conversely greater effect sizes for interdependence. These results suggest that new insights can be gained by distinguishing relationship value and switching cost components of dependence and by investigating the possibility that the conceptual domain of interdependence differs from that of dependence. Future research that strives for greater precision in the measurement of dependence and interdependence constructs and that simultaneously examines dependence and interdependence is recommended.
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Direct and Indirect Effects of Buyers and Sellers on Search Advertising Revenues in Business-to-Business Electronic Platforms

Eric (ER) Fang, Xiaoling Li, Minxue Huang, Robert W. PalmatierKeywords: search advertising, platform, price per click, click-through rate, network effects
Platform companies such as increasingly rely on search advertising as a revenue source. This study examines (1) the direct effect of new and existing buyers and sellers on platform advertising revenue, (2) their indirect effect through two intermediary performance variables (buyer’s click rate and seller’s click price), and (3) how the effects differ between launch and mature stages of the search advertising service. Unique data collected from a leading transactional business-to-business electronic platform suggest that new buyers click on more search advertisements than existing buyers, especially after the firm’s buyers and sellers have learned and adapted to the service (mature stage). New sellers tend to outbid existing sellers in the mature stage, but the opposite is true when the service is newly introduced (launch stage). Because existing sellers can more effectively send quality signals in the launch stage, attracting existing, rather than new, sellers has a greater effect on click rate in the launch stage; however, the opposite is true in the mature stage. Attracting new buyers also has a greater effect on click rate and price, especially in the mature stage. Finally, using cost data from the platform, this article examines the economic returns of attracting new and existing buyers and sellers with respect to advertising revenue.
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Does customer-centric realignment pay off?

Kim PedersonKeywords: relationship marketingView Full Paper

Dynamic Relationship Marketing

Jonathan Z. Zhang, George F. Watson IV, Robert W. Palmatier, & Rajiv P. DantKeywords: hidden Markov models, relationship marketing
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.
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Effect of Customer-Centric Structure on Long-Term Financial Performance

Ju-Yeon Lee, Shrihari Sridhar, Conor M. Henderson, Robert W. PalmatierKeywords: customer-centric structure; customer satisfaction; coordinating cost; competitive environment; financial performance
Firms with a customer-centric structure—an organizational design that aligns each business unit with a dis- tinct customer group—are expected to exhibit superior performance compared to firms that are internally structured. Top executives invoke these customer-centric beliefs when initiating corporate reorganizations. How- ever, a lack of empirical evidence linking these customer-centric structures to better long-term financial per- formance raises doubts if corporate structure can truly foster customer centricity and better position a firm to satisfy customers and hence exhibit superior performance. The current research addresses this question by using longitudinal data (1998–2010) that links Fortune 500 firms’ corporate-level structure to performance. Utilizing a dueling mediator model with allowance for endogeneity in firm’s organizational structure choice, the study reveals that a corporate-level customer-centric structure translates to greater customer satisfaction, but simul- taneously adds coordinating costs. Further explaining customer-centric structure’s record of mixed success, the benefits of increased customer satisfaction diminish (1) as competitors have already adopted customer-centric structures, (2) in fragmented markets where competitors leave few unique customer needs unaddressed, and (3) in less profitable industries. Ultimately, we show that aligning corporate structure around customers pays off only in specific competitive environments.
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Effect of salespeople’s acquisition–retention trade-off on performance

Robert E. Cartera, Conor M. Hendersonb, Inigo Arronizc, Robert W. PalmatierKeywords: customer acquisition, customer retention, relationship marketing, sales management, contingency theory, portfolio management
This research examines the impact of the acquisition–retention resource allocation at the individual salesperson level – that is, the proportion of their time dedicated to acquisition versus retention activities – on their sales performance. We extend prior research that investigates the acquisition–retention trade-off below (i.e., customer value approach) or above (i.e., firm portfolio approach) the salesperson’s perspective by also incorporating many ‘within-firm’ factors that are critical to capturing the contingent nature of the allocation decision. The results suggest that firms can double their sales gains by implementing a trade-off strategy that customizes the acquisition allocation at the salesperson level. Using matched triadic data gathered from 227 salespersons, 106 supervisors and the seller’s database, the authors find an inverted U-shaped linkage between the proportion of time allocated to acquisition activities and sales performance. Moderation analyses show that salespeople’s optimal acquisition allocation depends on their knowledge breadth and job commitment, their supervisor’s experience and job commitment and the quantity and quality of the prospects in their relationship portfolio.
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Effect of Service Transition Strategies on Firm Value

Eric (Er) Fang, Robert W. Palmatier, & Jan-Benedict E.M. SteenkampKeywords: service ratio, solution selling, service transition strategies, Tobin’s q, resource-based view, firm value
The authors investigate the effectiveness of service transition strategies for generating shareholder value by evaluating secondary data pertaining to 477 publicly traded manufacturing firms during 1990–2005. The impact of a firm’s transition to services on firm value (as measured by Tobin’s q) remains relatively flat or slightly negative until the firm reaches a critical mass of service sales (20%–30%), after which point they have an increasingly positive effect. Furthermore, the effect of service sales on firm value depends on both firm and industry factors. Service transition strategies are more effective at enhancing value when the service offerings are related more to the firm’s core business and when firms have more available resources (i.e., resource slack). The impact of adding services to core products on firm value amplifies as industry turbulence increases but diminishes when the firm’s core products are in high-growth industries.
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Effects of customer and innovation asset configuration Strategies on Firm Performance

Eric (ER) Fang, Robert W. Palmatier, Rajdeep GrewalKeywords: configuration theory, resource-based view, marketing assets, asset breadth, asset depth, innovation
Both customer and innovation assets are important to firm performance. Prior research has mostly examined these assets at the firm level and has not distinguished between the effects of asset depth relative to competitors and asset breadth across different segments. Using configuration theory and the resource-based view of the firm, the authors propose that how these assets interact to influence performance depends on both depth and breadth because these features reflect whether the assets are likely to create and/or appropriate value when deployed. Empirical results from two studies—one using secondary data and another using primary data from a survey of senior managers— indicate that performance is highest when firms employ configurations using deep customer and broad innovation assets or deep innovation and broad customer assets. in contrast, firm performance variability decreases in the presence of deep–deep and broad–broad asset configurations. the effect of configuration strategies on firm performance also is typically greater in dynamic than in stable environments.
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Factors Influencing the Effectiveness of Relationship Marketing: A Meta-Analysis

Robert W. Palmatier, Rajiv P. Dant, Dhruv Grewal, & Kenneth R. EvansKeywords:
Relationship marketing (RM) has emerged as one of the dominant mantras in business strategy circles, though RM investigations often yield mixed results. To help managers and researchers improve the effectiveness of their efforts, the authors synthesize RM empirical research in a meta-analytic framework. Although the fundamental premise that RM positively affects performance is well supported, many of the authors’ findings have significant implications for research and practice. Relationship investment has a large, direct effect on seller objective performance, which implies that additional meditated pathways may explain the impact of RM on performance. Objective performance is influenced most by relationship quality (a composite measure of relationship strength) and least by commitment. The results also suggest that RM is more effective when relationships are more critical to customers (e.g., service offerings, channel exchanges, business markets) and when relationships are built with an individual person rather than a selling firm (which partially explains the mixed effects between RM and performance reported in previous studies).
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Group Marketing: Theory, Mechanisms, and Dynamics

Colleen M. Harmeling, Robert W. Palmatier, Eric (Er) Fang, & Dainwen WangKeywords: group marketing, group dynamics, conforming purchase behavior, dynamic group influence, group norms
Group marketing uses the psychological mechanisms underlying group influence to drive customer behaviors that are beneficial to the firm. It is predicated on the firm’s ability to guide two necessary and sufficient conditions: (1) a customer’s awareness of an affiliation with the focal group and (2) exposure to group norms. By examining what it means to be affiliated with a group; determining how group norms are inferred, applied, and maintained; and testing a wide variety of ways in which these conditions become manifest, this research demonstrates the theoreti- cal foundations of group marketing. Groups influence purchase behaviors by altering information and identity appraisals during decision making. Time in a purchase domain emerges as a critical determinant of the strength of group influence. Although previous research has suggested that social influence diminishes over time, a longitudinal field study and an experiment reveal that this prediction holds only when information appraisal dominates; an opposite effect arises when identity appraisal dominates. Group efficacy strengthens, but product price weakens, the effects of groups on purchase behaviors.
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How Companies Can Measure the Success of their Relationship Marketing Investments

Keywords: Marketing, Attribution, ROI, Measurement, Relationship MarketingView Full Paper

If It Takes a Village to Foster Innovation, Success Depends on the Neighbors: The Effects of Global and Ego Networks on New Product Launches

Eric (ER) Fang, Jongkuk Lee, Robert W. Palmatier, Shunping HanKeywords: ego network density, ego network diversity, global network centrality, incremental new products, breakthrough new products
Launching breakthrough and incremental new products is vital to firm performance; it also resonates with both ego (i.e., directly connected partners) and global (i.e., interconnected ties in an industry) network perspectives. Prior research has listed several ego network– and global network–level factors that affect innovations, but this study goes a step further, to reveal the interactions of these factors as critical product launch mechanisms. An analysis of alliance networks in the consumer packaged goods industry from 1990 to 2010 shows that a central position in a global network represents a double-edged sword: it improves a firm’s incremental new product launches but harms its breakthrough new product launches. Furthermore, a firm’s ego network (manifested as density and diversity) and R&D capability enable it to leverage its global network position by enhancing the benefits for incremental new products and mitigating its hazards for breakthrough new products. This study’s findings thus offer new insights into the role of ego and global networks in facilitating or hindering new product launches.
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Influence of customer participation on creating and sharing of new product value

Eric Fang & Robert W. Palmatier & Kenneth R. EvansKeywords: New product development, Dependence, Equity, Customer participation, Relationship marketing, Institutional arrangement, Innovation
This research applies an institutional arrangement perspective to develop an end-to-end model for the interaction between customers and upstream suppliers to develop a new product to understand how new product value is created and shared. The model is empirically tested by collecting primary data from 188 manufacturers across different industries. The research demonstrates that customer participation affects new product value creation by improving the effectiveness of the new product development process by enhancing information sharing and customer-supplier coordination and by increasing the level of customer and supplier specific investments in the product development effort. In addition, increasing the formalization of the customer participation process enhances both customer and supplier relationship-specific investments in the new product development process. The impact of customer participation on the customer's share of the new product value pie is more complex than is first apparent. Based on the dependence and equity perspectives the results suggest that exchange partners' power (relative dependence) positively influences a partner's ability to capture new product value, but this power is offset by a desire of exchange partners to ensure the distribution of value is “fair” and reflects each party's contribution to the value creation.
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Interfirm Relational Drivers of Customer Value

Robert W. PalmatierKeywords: relationship marketing, interorganizational relationships, business-to-business marketing, network theory, customer value
This article integrates social network and exchange theory to develop a model of customer value based on three relational drivers: relationship quality (the caliber of relational ties), contact density (the number of relational ties), and contact authority (the decision-making capability of relational contacts). The results suggest that the value generated from interfirm relationships derives not only from the quality of customer ties (e.g., trust, commitment, norms), as is typically modeled, but also from the number and decision-making capability of interfirm contacts and the interactions among relational drivers. Moderator analysis of customer characteristics suggests that increasing contact density benefits sellers that have customers with high employee turnover rates, whereas building relationships with key decisions makers generates the highest returns among customers that are more difficult to access. The conceptual model of the impact of interfirm relational drivers on customer value receives support from dyadic data across 446 business-to-business exchanges.
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Online Relationship Formation

Irina V. Kozlenkova, Robert W. Palmatier, Eric (Er) Fang, Bangming Xiao, Minxue HuangKeywords: online shopping, e-commerce, shopping communities, reciprocity, relationship marketing
As online shopping evolves from being primarily transactional to being more relational, sellers aim to form online relationships. This article investigates online relationship formation, identifies the performance payoffs that result from forming different types of online relationships (unilateral vs. reciprocal), and tests the most effective relationship- building strategies. Study 1, based on a longitudinal buyer-level analysis of an online shopping community, reveals that buyers use community-, seller-, and buyer-generated signals to identify suitable relationship partners and reduce online shopping risk. These signals generally diminish in importance as buyers gain experience but become more important when buyers are forming reciprocal relationships. Study 2 evaluates the dynamic payoffs of online relationship formation (seller-level analysis) on sales; the effect on sales of reciprocal relationships is three times greater and lasts seven times longer than that of seller-initiated, unilateral relationships. Study 3 is a field experiment testing managerially actionable strategies for leveraging relationships to grow online sales. Tenets arising from differences between online and offline relationships, together with the results from the three studies, inform an emerging theory of online relationships.
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Poisoning Relationships: Perceived Unfairness in Channels of Distribution

Poisoning Relationships: Perceived Unfairness in Channels of DistributionKeywords: relationship marketing, contracts, fairness, channels, equity theory, opportunism, conflict
Understanding how relationships are damaged is a critical component in building and preserving strong distribution channels. Using longitudinal data from a Fortune 500 firm and its channel members, this research shows that perceived unfairness truly acts as “relationship poison” by directly damaging relationships, aggravating the negative effects of both conflict and opportunism, and undermining the benefits of using contracts to manage channel relationships. Surprisingly, at low levels of perceived unfairness, conflict and opportunism have small or even insignificant effects on channel member outcomes, which implies that research investigating the negative impact of conflict and opportunism on exchange outcomes may need reevaluation because these effects are contingent and may vary depending on the levels of perceived unfairness. In addition, the findings support the premise that using contracts to manage channel relationships represents a double-edged sword that suppresses the negative effects of conflict and opportunism while aggravating the negative effect of unfairness.
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Relational selling: Past, present and future

Denni Arlia, Carlos Bauerb, Robert W. PalmatierKeywords: Relational selling, Relationship marketing, Review paper, Tenets, Salesperson
Relational selling is at a crossroads: Some trends undermine salespeople's ability to build strong relationships (e- commerce, buying norms), but others emphasize the importance of such links (services, solutions). To anticipate the future of relational selling, this comprehensive review of research and practice seeks to clarify the impact of the changing conditions. Specifically, this study assesses relational selling from three perspectives. Perspective 1 is a temporal lens that reflects the evolution of relational selling, to delineate how it has changed over time. Perspective 2, a theoretical lens, then encompasses the key theories that provide a theoretical underpinning of relational selling and that can be refocused on emerging conditions to understand its future effectiveness. Finally, with an empirical lens in Perspective 3, this study identifies which relationship strategies are most effective and in what conditions. By combining these perspectives, this article derives six key tenets to guide managerial practice and research in relational selling.
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Relationship Velocity: Toward A Theory of Relationship Dynamics

Robert W. Palmatier, Mark B. Houson, Rajiv P. Dant, Dhruv GrewalKeywords: relationship, velocity, latent growth curve, life cycle, commitment velocity, theory of relationship dynamics
The dynamic components of relational constructs should play an important role in driving performance. To take an initial step toward a theory of relationship dynamics, the authors introduce the construct of commitment velocity— or the rate and direction of change in commitment—and articulate its important role in understanding relationships. In two studies, the authors demonstrate that commitment velocity has a strong impact on performance, beyond the impact of the level of commitment. In Study 1, modeling six years of longitudinal data in a latent growth curve analysis, the authors empirically demonstrate the significance of commitment velocity as a predictor of performance. In Study 2, the authors use matched multiple-source data to investigate the drivers of commitment velocity. Both customer trust and dynamic capabilities for creating value through exchange relationships (i.e., communication capabilities for exploring and investment capabilities for exploiting opportunities) affect commitment velocity. However, trust and communication capabilities become less impactful as a relationship ages, while investment capabilities grow more important. The authors offer three post hoc tenets that represent initial components of a theory of relationship dynamics that integrates two streams of relationship marketing research into a unified perspective.
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Research: A Strong Privacy Policy Can Save Your Company Millions

Kelly D. Martin, Abhishek Borah, and Robert W. PalmatierKeywords: security, privacyView Full Paper

Returns on Business-to-Business Relationship Marketing Investments: Strategies for Leveraging Profits

Robert W. Palmatier, Srinath Gopalakrishna, and Mark B. Houston Keywords: relationship marketing, customer relationship management, marketing strategy, financial outcomes, allocation, hierarchical linear modeling
Firms invest heavily in different types of business-to-business relationship marketing activities in the belief that such programs bolster their bottom line. In this study, we develop and test a conceptual model that links customer-specific relationship marketing investments to short-term, customer-specific financial outcomes. Data from a matched set of 313 business customers covered by 143 salespeople of 34 selling firms indicate that investments in social relationship marketing pay off handsomely, financial relationship marketing investments do not, and structural relationship marketing investments are economically viable for customers serviced frequently. We conceptualize relationship marketing in a context involving nested participants (customers, salespeople, selling firms) and employ a hierarchical linear modeling approach to account for observations that are not independent. Across the three hierarchical levels, the impact of the financial, social, and structural components of relationship marketing investments and the potential moderating factors offer valuable insights into contextual factors and managerial strategies for leveraging relationship marketing investments. In an attempt to suggest normative guidelines to managers, we extend our analysis to a simple resource allocation model that describes the optimal mix of relationship marketing resources based on firm strategies.
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Review of the theoretical underpinnings of loyalty programs

Conor M. Henderson, Joshua T. Beck, Robert W. PalmatierKeywords: Loyalty programs; Status; Habit; Relationship; Relationship marketing
A review of the extant literature reveals that the theoretical underpinnings of the majority of loyalty program research rest on psychological mechanisms from three specific domains—status, habit, and relational. We propose that to understand how loyalty programs actually work, a broader, more holistic research perspective is needed to account for the simultaneous effects across these three theoretical domains as well as both cross-customer and temporal effects. The contribution of this approach is a fresh research agenda advanced in 15 research propositions.
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Sales channel integration after mergers and acquisitions: A methodological approach for avoiding common pitfalls

Robert W. Palmatier, C. Fred Miao, Eric FangKeywords: Joint ventures, Mergers and acquisitions, Manufacturers' representatives, Affiliation bias, Sales channels, Balanced-scorecard
This article addresses the integration of sales channels after mergers and acquisitions (M&A) by appraising the strengths, weaknesses, and biases associated with the four most common frameworks for evaluating sales channels (sales management, historical performance, strategic fit, and customer choice) for their appropriateness in a post-M&A context. The authors develop a methodological approach that uses a balanced- scorecard framework to guide managers through the sales channel integration process, and then apply this approach to the merger of two industrial firms' sales organizations across 21 territories. In so doing, they reveal various pitfalls and propose and test some analytical corrections. Longitudinal performance data support comparisons across the different evaluative frameworks; in particular, the sales management and customer choice frameworks provide the most insight into channel partners' post-integration performance. The results support the premise that channel integration can be improved by accounting for factors unique to the M&A context and using an approach that triangulates multiple perspectives. © 2006 Elsevier Inc. All rights reserved.
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Structural marketing: using organizational structure to achieve marketing objectives

Ju-Yeon Lee & Irina V. Kozlenkova & Robert W. PalmatierKeywords: Organizational structure, Structural marketing, Customer-centric structure, Innovation, Relationship marketing
Academics and business practitioners increasingly recognize the importance of organizational structure in mar- keting. Yet research examining the effects of different organi- zational structure design elements on marketing outcomes remains fragmented and scarce. Accordingly, this article seeks to synthesize and extend understanding of how firms use their organizational structural elements to achieve marketing objec- tives, and to offer a new perspective of structural marketing. In support of this research goal, a cross-disciplinary review of organizational structure, its types, and its characteristics, in combination with theories relevant to the field of marketing, informs an assessment of empirical findings from marketing literature. This synthesis introduces the concept of structural marketing; the article offers both theoretical tenets and testable propositions in support of an initial framework for using organizational structure design elements as strategic market- ing variables. Illustrative business cases reinforce these tenets, conceptual arguments, and managerial insights.
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Supply Chain Management and Retailer Performance: Emerging Trends, Issues, and Implications for Research and Practice

Shankar Ganesan, Morris George, Sandy, Robert W. Palmatier, Barton WeitzKeywords:
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Synergistic Effects of Relationship Managers’ Social Networks on Sales Performance

Gabriel R. Gonzalez, Danny P. Claro, & Robert W. PalmatierKeywords: relationship marketing, social capital, network theory, network synergy, network overlap
This article integrates relationship marketing and social network perspectives to develop and test a model that links objective sales performance with the informational and cooperative benefits that stem from relationship managers’ (RMs’) social capital structure (brokerage and density) and relations (formal and informal networks). The authors demonstrate the effect of cross-network and overlap-network synergies on performance. Data about both formal and informal networks of 464 employees, including 101 RMs, demonstrate that RMs’ performance improves with cross-network synergy when informational benefits from wide-reaching, nonoverlapping ties in the informal network combine with the cooperative benefits of a densely interconnected formal network. In addition, the effects of formal and informal social capital structure on performance increase significantly when RMs have a high degree of network overlap between their formal and informal networks.
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The effect of firms' structural designs on advertising and personal selling returns

Ju-Yeon Lee, Shrihari Sridhar, Robert W. Palmatier Keywords: Structural marketing, Customer-centric structures, Advertising, Personal selling, Promotional mix elasticity
Firms make substantial investments in advertising and personal selling to improve their perfor- mance, but it is unclear how returns on the promotional mix vary across different corporate- level organizational structures. This article identifies and integrates two structural designs that foster customer alignment, namely, structural type (i.e., organizing corporate-level business units around customer instead of product groups) and structural granularity (i.e., dividing a firm into smaller business units), then investigates how these customer-aligned structural de- signs moderate the effects of the promotional mix on firm performance. An analysis of 14 years of longitudinal, multisource, secondary data reveals that the performance effect of investments in advertising and personal selling are enhanced by customer-aligned structural designs. However, the synergistic effects of joint investments in advertising and personal selling get suppressed in customer-aligned structures because functional fragmentation results from internal inefficiencies and complexities. To specify the tensions involved across the different structures, the authors conduct a post hoc analysis and thereby derive organizational structure–specific guidelines.
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The Evolution of Marketing Channels: Trends and Research Directions

George F. Watson IV, Stefan Worm, Robert W. Palmatier, Shankar GanesanKeywords: Marketing channels, Retailers; Wholesalers, Franchisors; Distributors
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The Role of Culture in International Relationship Marketing

Stephen A. Samaha, Joshua T. Beck, Robert W. PalmatierKeywords: international relationship marketing, individualism–collectivism, power distance, uncertainty avoidance, masculinity–femininity
International research on relationship marketing (RM), it is unclear whether or how RM should be adapted across cultures. The authors adopt Hofstede’s dimensions of culture to conduct a comprehensive, multivariate, metaregression analysis of 47,864 relationships across 170 studies, 36 countries, and six continents. To guide theory, they propose four tenets that parsimoniously capture the essence of culture’s effects on RM. Study 1 affirms these tenets and emphasizes the importance of taking a fine-grained perspective to understand the role of culture in RM because of the high degree of heterogeneity across different cultural dimensions and RM linkages. For example, the magnitude of individualism’s effect is 71% greater on RM than other cultural dimensions, whereas masculinity has almost no effect; however, accounting only for individualism ignores significant moderating effects of power distance and uncertainty avoidance dimensions. To guide managers, Study 2 adopts a country-level approach and reveals that RM is much more effective outside the United States such that relationships are 55% more effective, on average, for increasing business performance in Brazil, Russia, India, and China.
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The Role of Customer Gratitude in Relationship Marketing

Robert W. Palmatier, Cheryl Burke Jarvis, Jennifer R. Bechkoff, & Frank R. KardesKeywords: gratitude, reciprocity, relationship marketing, customer relationship management, loyalty programs
Most theories of relationship marketing emphasize the role of trust and commitment in affecting performance outcomes; however, a recent meta-analysis indicates that other mediating mechanisms are at work. Data from two studies—a laboratory experiment and a dyadic longitudinal field survey—demonstrate that gratitude also mediates the influence of a seller’s relationship marketing investments on performance outcomes. Specifically, relationship marketing investments generate short-term feelings of gratitude that drive long-lasting performance benefits based on gratitude-related reciprocal behaviors. The authors identify a set of managerially relevant factors and test their power to alter customer perceptions of relationship marketing investments to increase customer gratitude, which can make relationship marketing programs more effective. Overall, the research empirically demonstrates that gratitude plays an important role in understanding how relationship marketing investments increase purchase intentions, sales growth, and share of wallet.
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Transformational Relationship Events

Colleen M. Harmeling, Robert W. Palmatier, Mark B. Houston, Mark J. Arnold, Stephen A. SamahaKeywords: transformational relationship events, relationship marketing, relationship life cycle, turning point theory, customer engagement
Exchange events are fundamental building blocks of business relationships and essential to relationship development. However, some events contribute to incremental relationship development, as predicted by life cycle theories, whereas others spark “turning points” with dramatic impacts on the relationship. Such transformational relationship events are encounters between exchange partners that significantly disconfirm relational expectations (positively or negatively); they result in dramatic, discontinuous change to the relationship’s trajectory and often reformulate the relationship itself. With a three-study, multimethod design, the authors (1) establish a foundation for differentiating dramatic and incremental exchange events on the basis of relational versus product expectations and disconfirmations, thus revealing that strong relationships benefit product disconfirmations but harm relational disconfirmations, and (2) conceptualize, define, and differentiate transformational relationship events from other types of disconfirming events and then link them to exchange performance.
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Trust at Different Organizational Levels

Eric (Er) Fang, Robert W. Palmatier, Lisa K. Scheer, & Ning LiKeywords: trust, interorganizational relationship, strategy, performance
The authors explore the effects of trust at three distinct organizational levels in a marketing collaboration: interorganizational trust between collaborating firms, each firm’s agency trust in its own representatives assigned to a collaborative entity (coentity), and intraentity trust among the representatives assigned to the coentity. Dyadic survey and longitudinal objective performance data from 114 international joint ventures indicate that trust at each level has unique effects but similarly influences the collaborating firms’ resource investments or the coentity’s use of those resources. Interorganizational and agency trust motivate resource investments in the coentity, particularly in the context of a differentiation strategy, whereas intraentity trust promotes coordination within the coentity, and interorganizational trust and a differentiation strategy magnify that effect. Intraentity trust can also undermine coentity responsiveness to environmental change, especially when joined by interorganizational trust between collaborating firms and formalized decision making within the coentity. These findings demonstrate that managing and building trust at multiple levels is critical to the success of interorganizational marketing collaborations.
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Uncle Sam Rising: Performance Implications of Business-to-Government Relationships

Brett W. Josephson, Ju-Yeon Lee, Babu John Mariadoss, and Jean L. JohnsonKeywords:
This article uses multimethod approaches to develop a conceptual foundation for and empirical evidence of the performance implications of business-to-government (B2G) relationships. In-depth interviews reveal unique characteristics that differentiate B2G exchanges from commercial exchanges (e.g., procurement mission; regulations and oversight; scale, scope, and planning horizon) and highlight the resultant cost–benefit trade-offs for firms in this environment. Empirical longitudinal analyses of secondary data show that a firm’s government customer emphasis (firm revenue dependence on B2G relationships) exerts a positive nonlinear effect on firm value but also increases firm risk (idiosyncratic and systematic). Government customer breadth and depth are two critical customer portfolio characteristics that moderate these effects. High government customer breadth creates more costs associated with an increasing government customer emphasis, mitigating the positive nonlinear effect on firm value. However, breadth provides diversification benefits that alleviate the increase in idiosyncratic risk that comes with greater government customer emphasis. Deep B2G relationships give firms key customer domain knowledge and insights, which help counteract the increased idiosyncratic and systematic risks of government customer emphasis. The authors discuss the implications for marketing theory and practice.
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Understanding Retail Managers’ Role in the Sales of Products and Services

Todd J. Arnold, Robert W. Palmatier, Dhruv Grewal, Arun SharmaKeywords: Retail chain-level activities, Store manager behaviors, Service versus product sales
This research investigates the influence of retail chain-level activities (e.g., district supervisor directives and policies) and store manager behaviors on the sale of physical products versus services. Using data gathered within a U.S.-based retail automotive parts chain, the authors discover that to sell services, especially in competitive environments, store managers should focus on sales planning and transformative leadership behaviors, which accentuate both the long-term planning horizon and the effects of managerial actions. In less competitive environments though, a more transactional approach (e.g., selling orientation) can be effective for selling services. Alternatively, to sell products, store managers’ selling effort appears to be the most important driver of success, and a transformative leadership approach may be detrimental when the retailer faces a high level of direct competition. In total, the findings suggest that corporate chain activities, such as the level and clarity of store managers’ goals and supervisor monitoring, influence store manager behaviors, which in turn affect the sale of physical products and services.
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Understanding the Effects of Plural Marketing Structures on Alliance Performance

Eric (ER) Fang, Jongkuk Lee, Robert W. Palmatier, Zhaoyang GuoKeywords: marketing alliance, plural structure, dyadic structure, interfirm relationships, dependence balancing
A plural alliance structure involving multiple downstream partners has become increasingly popular, yet investigations of marketing alliances continue to address mainly dyadic structures. The authors present learning and dependence balancing as key mechanisms to understand the relative performance differences between plural and dyadic structures, as well as the determinants of effective collaboration in a plural structure. Two complementary studies test the performance of plural and dyadic structures in a wide range of high-tech industries. The analysis of both plural and dyadic structure alliances in an event study shows that plural structures outperform dyadic structures for the upstream firm when marketing alliances extend to product-related tasks, the upstream firm has more alliance experience, or the industry is growing fast; however, dyadic structures perform better when the upstream market is more competitive. A second study, focusing only on plural structure alliances, shows that horizontal relationship factors (i.e., market overlap and prior relationship between downstream partners) interact with the upstream firm’s greater alliance experience and reputation to lead to better returns for the upstream firm.
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Use of relationship marketing programs in building customer–salesperson and customer–firm relationships: Differential influences on financial outcomes

Robert W. Palmatier, Lisa K. Scheer, Mark B. Houston, Kenneth R. Evans, Srinath GopalakrishnaKeywords: elationship marketing, Relationship quality, Perceived control, Entitativity, Customer relationship management
Despite the conventional wisdom that relationship marketing will generate favorable financial results, extant marketing research provides inconsistent evidence for this effect. Here, we investigate this important question: Does a firm's relationship marketing truly pay off by enhancing financial outcomes? We examine the effects of relationship marketing on a buyer's concurrent person-to-firm relationship with the selling firm and his/her interpersonal relationship with the salesperson. Drawing on social judgment and attribution theories, we offer and test a theoretical model explicating (1) how a seller's social, structural, and financial relationship marketing programs affect buyer relationship quality with the salesperson and the selling firm and (2) how those relationship qualities ultimately generate seller financial outcomes. Relationship marketing programs indeed build buyer relationship quality, but whether those relationship-building effects reside with the salesperson or the selling firm depends on buyer perceptions regarding salesperson versus selling firm control of those programs. Buyer relationship quality with both salesperson and selling firm positively affect seller financial outcomes, but the effect of relationship quality with the selling firm is enhanced as perceived selling firm consistency increases. Employing triadic data from matched buyer, salesperson, and sales manager, this research presents an end-to-end empirical examination of how a seller's relationship marketing affects its financial outcomes through the buyer's relationships with the salesperson and selling firm.
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