Advances in Relationship Marketing Thought and Practice: The Influence of Social Network Theory

1. Advances in Relationship Marketing Thought and Practice: The Influence of Social Network Theory Presented at the Networks and Complex Systems A talk series at Indiana University Bloomington September 18, 2006 Constance Elise Porter, Ph.D. Assistant Professor of Marketing University of Notre Dame

2. Marketing focuses on the exchange process, making it relational, by definition. • Relationship marketing is a dominant paradigm of marketing practice. (Dwyer, Schurr and Oh 1987; Morgan and Hunt 1994) • It emerged in the B2B arena because the number of relationships managed were smaller (e.g. B2B sales) • Is is now dominant in the B2C arena via due to technology-laden concepts such as “CRM and “One-to-One Marketing” • Marketing researchers and practitioners seek to understand relational behavior: • Between firms and customers/consumers (traditional) • Among customers/Among business partners (emerging work in customer collaboration, customer/professional communities/knowledge networks)

3. The fundamental premise of this talk…. Because marketing is relational, social network theory (SNT) helps to advance marketing theory and practice.

4. Discussion Topics • A Historical Perspective • How does the marketing perspective compare to the sociological perspective? • How has SNT advanced relationship marketing thought and practice? • What are the three key perspectives of SNT that have influence marketing theory and practice? • How have researchers used these perspectives to advance marketing theory and practice? • A Look at the Future • How do current trends reflect the importance of SNT to marketing thought and practice? • How could social network theory enhance my investigation of relationship marketing in virtual communities?

5. A Historical Perspective

6. Marketers use basic SNT concepts, but questions and methods differ. Points of Alignment: • Networks are socially connected actors (more than 2) • Resources (e.g. information) are transferred among actors in a network • There is a flow of resources within the network Points of Difference: • SN theorist (and early marketing researchers) seek to describe individual actors and their relations/patterns of connections • Sociometric theory….Whole Network…Software tools (e.g. UCINET and KRACKplot) • Contemporary marketing researchers tend to examine specific marketing outcomes related to influence in social networks • Psychometric theory…Sample/Ego-centered…SPSS/SAS for regression techniques

7. Social Network Theorists “Between-ness” The frequency with which an actor is intermediary to other nodes and controls the flow of resources Degree The number of actors with whom an individual has a direct connection Marketing Applications Word of Mouth Actors: opinion leaders, gatekeepers/market mavens and followers Those who are likely to influence others Those who know and provide information but have no influence Those who are likely to be influenced via passive or active solicitation of info Profile of actors Knowledgeable, involved, confident, active Content Valence (positive or negative) Product attributes (new, important, distinctive, risky) Diffusion of Innovations (borrowed from Rogers) & New product adoption Centrality also is important to both, but marketers apply the concept differently.

8. Relational Perspective focuses on the extent to which all actors are interconnected Relations (strands): content, direction and and strength Ties: Weak/Strong based on frequency of social contact, importance of relation Multiplexity the number of relations in a tie Positional Perspective focuses on equivalence of actors in a subgroup based on social strata Does not assume social relations Assumes structural equivalence Finally, marketers tend to take a relational perspective of networks.(exception: Hopkins, Henderson and Iacobucci 1995)

9. How has SNT advanced relationship marketing thought and practice?

10. The Most Popular SNT perspectives used in Marketing • The Structural Perspective • The Socio-Economic Perspective • The Socio-Cognitive Perspective

11. The Structural Perspective: “The structure of relations drives marketing outcomes.” • Typical Research Questions: • How do relationships influence consumer choice of brands, referral sources and information-seeking strategies? • How do social networks influence behavior and outcomes in an industrial marketing context • Typical Methods • Interviews and surveys (consumer marketing) • Case studies, interviews, document analysis and other qualitative methods

12. Typical Variables Examined within The Structural Perspective Social Structure Outcomes • Brand Congruence • Brand Congruency for Multiple Brands • Flow of Communication across subgroups • Diffusion of Innovation • Likelihood of Activation as a referral source • Influence • Interpersonal Relations • Strength of Tie • Membership in a subgroup for one good • Centrality • Cosmopolitaness (out-network ties)

13. Findings based on the Structural Perspective • Brand congruence exists within social cliques • even for privately consumed products(Reingen et al 1984) • Strong ties and Weak ties affect marketing outcomes • Strong ties are more likely to be activate as a referral sources… • …but consumers also actively seek information from weak ties in situational conversation(Reingen and Kernan 1986; Brown and Reingen 1987) • Individual influence in the buying systems in a B2B context(Ronchetto, Hutt and Reingen 1989)

14. The Socio-Economic Perspective“Utility maximization is enhanced by social ties” • Typical Research Questions: • Do social ties between buyers and sellers improve the likelihood of a transaction? • How does the value of information moderate the effect of social structure on relationship outcomes? • Typical Methods • Surveys and simulations

15. Typical Variables Examined within the Socio-Economic Perspective: • Degree of Indebtedness to hostess • Moral Hazard/Information Value Moderators Outcomes Social Structure • Tie Strength • Relational Embeddedness • Knowledge Redundancy • Likelihood of Purchase • Willingness to communicate w/in network • Information & Knowledge acquisition • New Product/Process Creativity • Speed of New Product Development

16. Findings based on the Socio-Economic Perspective • Social tie strength increases likelihood of transactions between buyer and seller(Frenzen and Davis 1990) • This effect is moderated by perceptions about potential opportunism in WOM information exchanges (e.g. non-reciprocating behavior)(Frenzen and Nakamoto 1990) • Weak ties are not that strong in B2B • The more valuable the info, the less powerful is the weak tie(Frenzen and Nakamoto 1990) • Weak ties among horizontal partners are less powerful than among vertical alliance partners.(Reindfleisch and Moorman 2001)

17. The Socio-Cognitive Perspective:“Cognition mediates the effects of social relations.” (Bansal and Voyer 2000, Gilly et al 1991, Houston et al. 2001, Ward and Reingen 1996) • Typical Research Questions: • What is the relationship between social structure and cognitive structure? • How do changes in social structure affect existing social identity, social ties and beliefs? • Typical Methods • Interviews surveys, simulations and case studies

18. The Socio-Cognitive Perspective:Typical Variables Examined Outcomes Social Structure Cognition • Group Cognitive Structure • Subgroup Cognitive Structure • Individual Cognitive Structure • Expertise (sender and receiver) • Business Unit Identity • Manager Beliefs • Info Seeking • Purchase Decision Influence • Efficient use of • network resources • Inertia of Social Structure • Tie Strength • Position • Physical Distance • Strata (Profession) • Org Restructuring The socio-cognitive perspective inserts cognition into the structural perspective, to better explain outcomes.

19. A Look at the Future…

20. Consumers and marketers are engaged by social media. • Blogs • Over 50 million people read blogs(forbes.com; Lenhart and Fox 2006) • 27% of bloggers want to influence what other people think • 29% of bloggers want to motivate others to take action • Social Networking Sites • MySpace hit #1 on web —29 billion pageviews during two weeks in July 2006..beating Yahoo and Google (cnn.com)… • Facebook…over half of college students use • (Mark Chassman (Facebook), Carol Phillips (Brand Amplitude)—Jan 2006 • Virtual Communities • 84% of Americans visit or obtain info from VCs …more than participate in transactions online… (Horrigan 2001)…

21. Young consumers dominate the use of social media. (Forrester 2006) • Younger consumers lead in cross channel use • 54% of Gen Yers research online and buy offline • Gen Xers also are more likely to have researched and purchased a product online • Gen Xers also dominate online shopping • Younger consumers are: • more likely to be influenced by “what’s hot/what’s not” • more likely to read a blog • Older consumers prefer face-to-face interactions • Older consumers are more brand loyal.

22. Marketing researchers are re-engaged with the sociological aspects of consumer behavior. • Using brand communities and virtual customer communities • Focus on fostering consumer relationships and achieve relationship marketing outcomes(Balasubramanian and Mahajan 2001; Devaraj, Porter and Sun 2006; Dholakia et al 2004; Kozinets 2002; Muniz and O’Ginn 2001; Porter and Donthu 2004; Schouten and Koenig 2002)

23. Questions for future research integrating SNT and marketing • Marketing across cultures • We know very little about the role of culture in social networks…any new studies could inform us! • Leveraging social media to drive marketing relationships • Viral marketing via the Internet • Social Networking Sites • Blogging • Podcasting • Instant Messaging Interdisciplinary research opportunities are plentiful!

24. Findings from My Research

25. My Questions • Is it possible for marketers to proactively manage VCs in a way that fosters trust? If so, what should they do and what type of outcomes should they expect? • Does gender matter in the trust formation process in marketer-sponsored VCs? • What is the relative value of marketer-sponsored vs. consumer-initiated virtual communities?

26. Perceived Effort of Marketer Cognitive Response of the Community Member Relational Outcomes Content Shared Values Info Sharing Trust Cooperation with NPD Embeddedness Respect Interaction Loyalty Opportunism Sociability Framework Attribution Theory Relationship Marketing Framework Study 1: Relational Trust & Attribution Theory in Virtual Communities…

27. Findings • Marketers can form trust-based relationships in virtual consumer communities that they sponsor. (Porter and Donthu 2006; Devaraj, Porter and Sun 2006) • Sponsor efforts related to Content and Embeddedness drive beliefs and trust • Trust leads to valuable outcomes (info, npd, loyalty, positive word-of-mouth, brand preference) • Opportunism has little influence on trust formation

28. Study 2: Social Role Theory and Uses and Gratifications Paradigm of Trust Formation in Virtual Communities GENDER Perceived Quality Of Community Content Belief About A Sponsor’s Sense of Shared Values Perceived Degree of Consumer Embeddedness Belief About A Sponsor’s Sense of Respect Trust in a Community Sponsor Belief About Sponsor Opportunism Perceived Degree Of Community Interaction

29. Findings • Gender moderates the trust formation process of younger consumers. • Gender moderates trust influences of content, embeddedness and interaction • For males, sponsor efforts regarding content and embeddedness are more salient trust influencers • For females, sponsor efforts regarding interaction and embeddedness are more salient • No moderation by gender with direct determinants of trust

30. Study 3: The Value of Virtual Communities: A Test of Competing Models • Both member-initiated and firm-sponsored virtual customer communities can be valuable to marketers, based on relational trust in the sponsor.(Devaraj, Porter and Sun 2006) • Member perceptions of information quality drive trust and value in member-initiated virtual communities • Sponsor efforts drive trust and value in firm-sponsored communities • Higher value is derived from firm-sponsored communities

31. Questions??