Online Relationship Formation

Irina V. Kozlenkova, Robert W. Palmatier, Eric (Er) Fang, Bangming Xiao and Minxue Huang
Article Snapshot
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Online Relationship Formation
Key Takeaways

What? When it comes to online relationship formation and its payoffs, three aspects are critical: (1) risk-reducing signals, such as communication, reputation, and relational observation; (2) the level of the buyer’s experience; and (3) the relationship type.

So What? The biggest bang for the buck for sellers comes from building reciprocal relationships.

Now What? It would be more effective for sellers to initiate relationships with those buyers whom they have identified by looking through the members who already follow them.

Full Article

​Article Snapshot: Executive Summaries from the Journal of Marketing

This article investigates online relationship formation, performance paoyffs that result from different types of relationships (unilateral, reciprocal) and the most effective relationship-building strategies


...this paper is the first to reveal the dynamic effects of buyer and seller unilateral and reciprocal relationships on online sales, allowing us to investigate and detail differential payoffs across all three types of online relationships...

Overall, the biggest bang for the buck for sellers comes from building reciprocal relationships… reciprocal relationships generate payoffs that are from 60% to 200% greater than those of unilateral relationships.


Research Question

As online shopping evolves, from being primarily transactional to being more relational, sellers seek to form online relationships. This article investigates online relationship formation, identifies the performance payoffs that result from forming different types of online relationships (buyer/seller unilateral vs. reciprocal), and tests the most effective relationship-building strategies.

Methods

In Study 1, we estimated our model using a Cox proportional regression model with longitudinal buyer-level data of an online shopping community in the largest e-commerce site (Taobao.com). In Study 2 we used the same longitudinal data but analyze the impact of unilateral and reciprocal buyer-seller relationships on the sales performance of 336 (seller-level analysis), using a vector autoregressive approachl (VARX). Study 3 is a field experiment with an online seller and 772 buyers, which we used to test managerially actionable strategies for leveraging relationships to grow online sales.

Findings

Study 1 - 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 form reciprocal, versus unilateral, relationships.Study 2 - 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 - the rate of buyer reciprocation of seller-initiated relationships is 70% higher when there is relational observation.

Implications

Sellers should strive to form reciprocal relationships (vs. unilateral) due to much higher paoyffs. To increase the likelihood of potential buyers reciprocating seller-initiated relationships rather than randomly following anyone, sellers should review their existing followers (i.e., intermediaries) and follow those members of the community who are following the intermediaries (vs. following members who lack such intermediaries). Intermediries with high reputations would be best.

Questions for the Classroom

  • Do online relationships pay off for sellers?

  • How much and for how long? What should online sellers do to increase their sales?

  • Why do online buyers follow sellers?


Article Citation: Irina V. Kozlenkova, Robert W. Palmatier, Eric (Er) Fang, Bangming Xiao, and Minxue Huang (2017) Online Relationship Formation. Journal of Marketing: May 2017, Vol. 81, No. 3, pp. 21-40.

doi: http://dx.doi.org/10.1509/jm.15.0430



Author Bio:

 
Irina V. Kozlenkova, Robert W. Palmatier, Eric (Er) Fang, Bangming Xiao and Minxue Huang
Irina V. Kozlenkova is Assistant Professor of Marketing, Broad College of Business, Michigan State University (e-mail: irinak@msu.edu). Robert W. Palmatier is Professor of Marketing and John C. Narver Chair in Business Administration, Michael G. Foster School of Business, University of Washington (e-mail: palmatrw@uw.edu). Eric (Er) Fang is Visiting Professor of Marketing, University of Hong Kong, and Professor of Marketing and James Tower Faculty Fellow, University of Illinois at Urbana-Champaign (e-mail: erfang@illinois.edu). Bangming Xiao is Lecturer in Marketing, College of Economics and Management, Huazhong Agricultural University (e-mail: xiaobangming@mail.hzau.edu.cn). Minxue Huang (corresponding author) is Professor of Marketing, School of Economics and Management, Wuhan University (e-mail: huangminxue@whu.edu.cn). The authors thank the Marketing Science Institute for their helpful comments on an early version of this paper (Marketing Science Institute Working Paper Series 15-126). The authors acknowledge the financial support of the National Natural Science Foundation of China (grant #71602064; 71672132) and the Fundamental Research Funds for the Central Universities, China (grant #2662016QD052).
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