Online Relationship Marketing
Irina V. Kozlenkova, Eric (Er) Fang, Bangming Xiao, and Robert W. Palmatier, 2015, 15-126
In online marketplaces, shopping communities have emerged to enhance the shopping experience and reinsert the “personal interaction” into the retail purchasing process. In response, sellers are implementing online relationship marketing (RM) programs to facilitate interactions and relationship formation in these communities. How effective are such efforts in improving sales performance?
To address that question, Irina Kozlenkova, Eric Fang, Bangming Xiao, and Robert Palmatier evaluate data from an online shopping community in Taobao.com, the largest e-commerce platform in China, managed by Alibaba. They examine six months of longitudinal daily data for new buyers and sellers as they form unilateral (buyer-to-seller and seller-to-buyer) and bilateral (reciprocated) relationships in the online community.
Consistent with a buyer’s need to reduce uncertainty, (1) communication, (2) seller’s reputation, and (3) relationship clustering have positive effects on relationship formation, although the effects of communication and clustering diminish as the buyer gains experience. Consistent with a seller’s need to reduce the cost of finding customers, (1) communication, (2) behavioral similarity, and (3) relational similarity improve sellers’ likelihood to form a relationship, although these effects are differentially moderated by time spent in the online community.
Elasticity and marginal returns analyses provide additional managerial insights. Of the buyer-to-seller online RM strategies, relationship clustering is the most effective, generating $210 in additional sales per week for a 1% increase in clustering, which is 9% higher than the marginal return from seller’s reputation ($193) and 117% higher than that from communication ($97). However, when dealing with experienced buyers, seller’s reputation becomes the most effective strategy, increasing weekly sales by $293 with a 1% increase in reputation—a 76% higher payoff than relationship clustering ($166) and 240% higher than the payoffs of communication ($86).
Buyer-to-seller strategies generate about 10 times more dollars in sales than seller-to-buyer strategies. The payoffs of the different types of seller-to-buyer strategies are relatively similar to each other. Relational similarity generates $16 in marginal weekly sales for a 1% increase, behavioral similarity generates $15, and communication generates $14. This effect is more pronounced for new buyers.
Of the three types of relationships, the number of buyer-to-seller relationships possessed by a seller generates the highest payoff. On average, a 1% increase in the number of buyer-to-seller relationships increases weekly sales by $58, almost four times more than the number of seller-to-buyer relationships ($14) and three times more the number of reciprocated relationships ($19).
Over time, however, the payoffs of building unilateral buyer and seller relationships become less important, and bilateral (reciprocated) buyer–seller relationships become more important for generating sales.
For sellers, the biggest bang for the buck comes from the number of buyer-initiated relationships and RM strategies associated with their growth. Online sellers can proactively provide the information that buyers seek to help them feel more comfortable with their purchasing decisions.
The largest marginal returns from experienced buyers come from seller’s reputation, so sellers also need to take the time to formulate strategies that will improve their reputations (e.g., develop mechanisms to encourage reviews from past customers, address customer problems to prevent negative reviews).
It is also important to invest in reciprocated relationships. They generate superior returns from enhanced loyalty, higher share of wallet, and positive word of mouth, all of which take time to emerge.
Irina V. Kozlenkova is Assistant Professor of Marketing, Broad College of Business, Michigan State University. Eric (Er) Fang is Associate Professor of Marketing and James Tower Faculty Fellow, University of Illinois at Urbana-Champaign. Bangming Xiao is a Doctoral Candidate, Wuhan University, China, and Visiting Scholar, University of Illinois at Urbana-Champaign. Robert W. Palmatier is Professor of Marketing and John C. Narver Chair in Business Administration, Michael G. Foster School of Business, University of Washington.
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