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

Presented at thePresented at the

Networks and Complex SystemsNetworks and Complex SystemsA talk series at Indiana University BloomingtonA talk series at Indiana University Bloomington

September 18, 2006September 18, 2006

Constance Elise Porter, Ph.D.Constance Elise Porter, Ph.D.Assistant Professor of MarketingAssistant Professor of Marketing

University of Notre DameUniversity of Notre Dame

Marketing focuses on the exchange Marketing focuses on the exchange process, making it relational, process, making it relational, by definition.by definition.

• Relationship marketing is a dominant Relationship marketing is a dominant paradigm of marketing practice. paradigm of marketing practice. (Dwyer, Schurr and Oh (Dwyer, Schurr and Oh 1987; Morgan and Hunt 1994)1987; Morgan and Hunt 1994)

– It emerged in the B2B arena because the number of relationships It emerged in the B2B arena because the number of relationships managed were smaller (e.g. B2B sales)managed were smaller (e.g. B2B sales)

– Is is now dominant in the B2C arena via due to technology-laden Is is now dominant in the B2C arena via due to technology-laden concepts such as “CRM and “One-to-One Marketing”concepts such as “CRM and “One-to-One Marketing”

• Marketing researchers and practitioners seek Marketing researchers and practitioners seek to understand relational behavior:to understand relational behavior:– Between firms and customers/consumers (traditional)Between firms and customers/consumers (traditional)– Among customers/Among business partners (emerging work in Among customers/Among business partners (emerging work in

customer collaboration, customer/professional customer collaboration, customer/professional communities/knowledge networks)communities/knowledge networks)

The fundamental premise of this The fundamental premise of this talk….talk….

Because marketing is relational, Because marketing is relational, social network theory (SNT) helps to social network theory (SNT) helps to advance marketing theory and advance marketing theory and practice.practice.

Discussion TopicsDiscussion Topics1.1. A Historical PerspectiveA Historical Perspective

• How does the marketing perspective compare to the sociological How does the marketing perspective compare to the sociological perspective?perspective?

2.2. How has SNT advanced relationship marketing thought How has SNT advanced relationship marketing thought and practice?and practice?• What are the three key perspectives of SNT that have influence What are the three key perspectives of SNT that have influence

marketing theory and practice?marketing theory and practice?• How have researchers used these perspectives to advance How have researchers used these perspectives to advance

marketing theory and practice?marketing theory and practice?

3.3. A Look at the FutureA Look at the Future• How do current trends reflect the importance of SNT to marketing How do current trends reflect the importance of SNT to marketing

thought and practice?thought and practice?• How could social network theory enhance my investigation of How could social network theory enhance my investigation of

relationship marketing in virtual communities?relationship marketing in virtual communities?

A Historical PerspectiveA Historical Perspective

Marketers use basic SNT concepts, but Marketers use basic SNT concepts, but questions and methods differ.questions and methods differ.

Points of Alignment:Points of Alignment:• Networks are socially connected actorsNetworks are socially connected actors (more than 2) (more than 2)• Resources (e.g. information) are transferred among actors in a Resources (e.g. information) are transferred among actors in a

networknetwork• There is a flow of resources within the networkThere is a flow of resources within the network

Points of Difference:Points of Difference:• SN theorist (and early marketing researchers) seek to describe SN theorist (and early marketing researchers) seek to describe

individual actors and their relations/patterns of connectionsindividual actors and their relations/patterns of connections– Sociometric theory….Whole Network…Software tools (e.g. UCINET and KRACKplot)Sociometric theory….Whole Network…Software tools (e.g. UCINET and KRACKplot)

• Contemporary marketing researchers tend to examine specific Contemporary marketing researchers tend to examine specific marketing outcomes related to influence in social networksmarketing outcomes related to influence in social networks

– Psychometric theory…Sample/Ego-centered…SPSS/SAS for regression techniques Psychometric theory…Sample/Ego-centered…SPSS/SAS for regression techniques

Centrality also is important to both, but Centrality also is important to both, but marketers apply the concept differently.marketers apply the concept differently.Social Network TheoristsSocial Network Theorists• ““Between-ness”Between-ness”

– The frequency with which an The frequency with which an actor is intermediary to other actor is intermediary to other nodes and controls the flow nodes and controls the flow of resourcesof resources

• DegreeDegree– The number of actors with The number of actors with

whom an individual has a whom an individual has a direct connectiondirect connection

Marketing ApplicationsMarketing Applications• Word of MouthWord of Mouth

– Actors:Actors: opinion leaders, opinion leaders, gatekeepers/market mavens and gatekeepers/market mavens and followersfollowers

• Those who are likely to Those who are likely to influenceinfluence others others • Those who know and provide information Those who know and provide information

but have no but have no influenceinfluence• Those who are likely to be Those who are likely to be influenced influenced via via

passive or active solicitation of infopassive or active solicitation of info– Profile of actorsProfile of actors

• Knowledgeable, involved, confident, activeKnowledgeable, involved, confident, active– ContentContent

• Valence (positive or negative)Valence (positive or negative)• Product attributes (new, important, Product attributes (new, important,

distinctive, risky)distinctive, risky)

• Diffusion of Innovations (borrowed Diffusion of Innovations (borrowed from Rogers) & New product adoptionfrom Rogers) & New product adoption

Finally, marketers tend to take a Finally, marketers tend to take a relational perspective of networks.relational perspective of networks.

(exception: Hopkins, Henderson and Iacobucci 1995)(exception: Hopkins, Henderson and Iacobucci 1995)

Relational PerspectiveRelational Perspective• focuses on the extent to which focuses on the extent to which

all actors are interconnectedall actors are interconnected

– RelationsRelations (strands): (strands): content, direction and and strengthcontent, direction and and strength

– Ties:Ties:

Weak/Strong based on frequency Weak/Strong based on frequency of social contact, importance of of social contact, importance of relationrelation

– MultiplexityMultiplexity

the number of relations in a tie the number of relations in a tie

Positional PerspectivePositional Perspective• focuses on equivalence of focuses on equivalence of

actors in a subgroup actors in a subgroup based on social stratabased on social strata– Does not assume social Does not assume social

relationsrelations

– Assumes structural Assumes structural equivalenceequivalence

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

The Most Popular SNT The Most Popular SNT perspectives used in Marketingperspectives used in Marketing

• The Structural PerspectiveThe Structural Perspective

• The Socio-Economic PerspectiveThe Socio-Economic Perspective

• The Socio-Cognitive PerspectiveThe Socio-Cognitive Perspective

The Structural Perspective: The Structural Perspective: ““The structure of relations drives marketing outcomes.”The structure of relations drives marketing outcomes.”

• Typical Research Questions:Typical Research Questions:– How do relationships influence consumer choice of How do relationships influence consumer choice of

brands, referral sources and information-seeking brands, referral sources and information-seeking strategies?strategies?

– How do social networks influence behavior and How do social networks influence behavior and outcomes in an industrial marketing contextoutcomes in an industrial marketing context

• Typical MethodsTypical Methods– Interviews and surveys (consumer marketing)Interviews and surveys (consumer marketing)– Case studies, interviews, document analysis and other Case studies, interviews, document analysis and other

qualitative methodsqualitative methods

Typical Variables Examined within The Typical Variables Examined within The Structural Perspective Structural Perspective

SocialSocialStructureStructure

•Interpersonal RelationsInterpersonal Relations•Strength of TieStrength of Tie•Membership in a subgroup for one goodMembership in a subgroup for one good•CentralityCentrality•Cosmopolitaness (out-network ties)Cosmopolitaness (out-network ties)

OutcomesOutcomes

•Brand CongruenceBrand Congruence•Brand Congruency for Multiple BrandsBrand Congruency for Multiple Brands•Flow of Communication across subgroupsFlow of Communication across subgroups•Diffusion of InnovationDiffusion of Innovation•Likelihood of Activation as a referral sourceLikelihood of Activation as a referral source•InfluenceInfluence

Findings based on the Structural PerspectiveFindings based on the Structural Perspective

• Brand congruence exists within social cliquesBrand congruence exists within social cliques– even for privately consumed productseven for privately consumed products ((Reingen et al 1984)Reingen et al 1984)

• Strong ties Strong ties andand Weak ties affect marketing Weak ties affect marketing

outcomesoutcomes – Strong ties are more likely to be activate as a referral sources…Strong ties are more likely to be activate as a referral sources…– ……but consumers also actively seek information from weak ties in but consumers also actively seek information from weak ties in

situational conversationsituational conversation (Reingen and Kernan 1986; Brown and Reingen (Reingen and Kernan 1986; Brown and Reingen 1987)1987)

• Individual influence in the buying systems in a Individual influence in the buying systems in a

B2B contextB2B context (Ronchetto, Hutt and Reingen 1989)(Ronchetto, Hutt and Reingen 1989)

The Socio-Economic PerspectiveThe Socio-Economic Perspective ““Utility maximization is enhanced by social ties”Utility maximization is enhanced by social ties”

• Typical Research Questions:Typical Research Questions:– Do social ties between buyers and sellers improve the Do social ties between buyers and sellers improve the

likelihood of a transaction?likelihood of a transaction?

– How does the value of information moderate the effect How does the value of information moderate the effect of social structure on relationship outcomes? of social structure on relationship outcomes?

• Typical MethodsTypical Methods– Surveys and simulationsSurveys and simulations

Typical Variables Examined within Typical Variables Examined within the Socio-Economic Perspective:the Socio-Economic Perspective:

SocialSocialStructureStructure

•Tie StrengthTie Strength•Relational EmbeddednessRelational Embeddedness•Knowledge RedundancyKnowledge Redundancy

OutcomesOutcomes

•Likelihood of PurchaseLikelihood of Purchase•Willingness to communicate w/in networkWillingness to communicate w/in network•Information & Knowledge acquisitionInformation & Knowledge acquisition•New Product/Process CreativityNew Product/Process Creativity•Speed of New Product DevelopmentSpeed of New Product Development

•Degree of Indebtedness to hostessDegree of Indebtedness to hostess•Moral Hazard/Information ValueMoral Hazard/Information Value

ModeratorsModerators

Findings based on the Socio-Economic Findings based on the Socio-Economic PerspectivePerspective

• Social tie strength increases likelihood of Social tie strength increases likelihood of transactions between buyer and sellertransactions between buyer and seller (Frenzen (Frenzen and Davis 1990)and Davis 1990)

– This effect is moderated by perceptions about potential This effect is moderated by perceptions about potential opportunism in opportunism in WOM information exchangesWOM information exchanges (e.g. non- (e.g. non-reciprocating behavior)reciprocating behavior) (Frenzen and Nakamoto 1990)(Frenzen and Nakamoto 1990)

• Weak ties are not that strong in B2BWeak ties are not that strong in B2B– The more valuable the info, the less powerful is the weak The more valuable the info, the less powerful is the weak

tietie (Frenzen and Nakamoto 1990)(Frenzen and Nakamoto 1990)

– Weak ties among horizontal partners are less powerful Weak ties among horizontal partners are less powerful than among vertical alliance partners.than among vertical alliance partners. (Reindfleisch and Moorman (Reindfleisch and Moorman 2001)2001)

The Socio-Cognitive Perspective:The Socio-Cognitive Perspective:“Cognition mediates the effects of social relations.” “Cognition mediates the effects of social relations.”

(Bansal and Voyer 2000, Gilly et al 1991, Houston et al. 2001, Ward and Reingen 1996)(Bansal and Voyer 2000, Gilly et al 1991, Houston et al. 2001, Ward and Reingen 1996)

• Typical Research Questions:Typical Research Questions:– What is the relationship between social structure and What is the relationship between social structure and

cognitive structure?cognitive structure?

– How do changes in social structure affect existing How do changes in social structure affect existing social identity, social ties and beliefs?social identity, social ties and beliefs?

• Typical MethodsTypical Methods– Interviews surveys, simulations and case studiesInterviews surveys, simulations and case studies

The Socio-Cognitive Perspective:The Socio-Cognitive Perspective:Typical Variables ExaminedTypical Variables Examined

SocialSocialStructureStructure

•Tie StrengthTie Strength•PositionPosition•Physical DistancePhysical Distance•Strata (Profession)Strata (Profession)•Org RestructuringOrg Restructuring

CognitionCognition OutcomesOutcomes

•Group Cognitive StructureGroup Cognitive Structure•Subgroup Cognitive StructureSubgroup Cognitive Structure•Individual Cognitive StructureIndividual Cognitive Structure•Expertise (sender and receiver)Expertise (sender and receiver)•Business Unit IdentityBusiness Unit Identity•Manager BeliefsManager Beliefs

•Info SeekingInfo Seeking•Purchase Decision InfluencePurchase Decision Influence•Efficient use of Efficient use of •network resourcesnetwork resources•Inertia of Social StructureInertia of Social Structure

The socio-cognitive perspective inserts cognitionThe socio-cognitive perspective inserts cognition into the structural perspective, to better explain outcomes.into the structural perspective, to better explain outcomes.

A Look at the Future…A Look at the Future…

Consumers and marketers are Consumers and marketers are engaged by social media.engaged by social media.

• BlogsBlogs– Over 50 million people read blogsOver 50 million people read blogs (forbes.com; Lenhart and Fox 2006)(forbes.com; Lenhart and Fox 2006)

– 27% of bloggers want to influence what other people think27% of bloggers want to influence what other people think– 29% of bloggers want to motivate others to take action29% of bloggers want to motivate others to take action

• Social Networking SitesSocial Networking Sites– MySpace MySpace hit #1 on web —29 billion pageviews during two weeks in July hit #1 on web —29 billion pageviews during two weeks in July

2006..beating Yahoo and Google (cnn.com)…2006..beating Yahoo and Google (cnn.com)…

– FacebookFacebook …over half of college students use …over half of college students use • (Mark Chassman (Facebook), Carol Phillips (Brand Amplitude)—Jan 2006(Mark Chassman (Facebook), Carol Phillips (Brand Amplitude)—Jan 2006

• Virtual CommunitiesVirtual Communities– 84% of Americans visit or obtain info from VCs84% of Americans visit or obtain info from VCs … …more than more than

participate in transactions online… participate in transactions online… (Horrigan 2001)(Horrigan 2001)……

Young consumers dominate the Young consumers dominate the use of social media. use of social media.

(Forrester 2006)(Forrester 2006)

• Younger consumers lead in cross channel useYounger consumers lead in cross channel use– 54% of Gen Yers research online and buy offline54% of Gen Yers research online and buy offline

– Gen Xers also are more likely to have researched and Gen Xers also are more likely to have researched and purchased a product onlinepurchased a product online

– Gen Xers also dominate online shopping Gen Xers also dominate online shopping

• Younger consumers are:Younger consumers are:– more likely to be influenced by “what’s hot/what’s not”more likely to be influenced by “what’s hot/what’s not”

– more likely to read a blogmore likely to read a blog• Older consumers prefer face-to-face interactions Older consumers prefer face-to-face interactions

• Older consumers are more brand loyal.Older consumers are more brand loyal.

Marketing researchers are re-Marketing researchers are re-engaged with the sociological aspects engaged with the sociological aspects

of consumer behavior.of consumer behavior.

• Using brand communities and Using brand communities and virtual customer communities virtual customer communities – Focus on fostering consumer relationships and Focus on fostering consumer relationships and

achieve relationship marketing outcomesachieve relationship marketing outcomes (Balasubramanian and Mahajan 2001; Devaraj, Porter and Sun 2006; Dholakia et al 2004; (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)Kozinets 2002; Muniz and O’Ginn 2001; Porter and Donthu 2004; Schouten and Koenig 2002)

Questions for future research Questions for future research integrating SNT and marketingintegrating SNT and marketing

• Marketing across culturesMarketing across cultures– We know very little about the role of culture in social networks…We know very little about the role of culture in social networks…

any new studies could inform us!any new studies could inform us!

• Leveraging social media to drive marketing Leveraging social media to drive marketing relationshipsrelationships – Viral marketing via the InternetViral marketing via the Internet– Social Networking Sites Social Networking Sites – Blogging Blogging – PodcastingPodcasting– Instant MessagingInstant Messaging

Interdisciplinary research opportunities are plentiful!Interdisciplinary research opportunities are plentiful!

Findings from My ResearchFindings from My Research

My QuestionsMy Questions

• Is it possible for marketers to proactively manage Is it possible for marketers to proactively manage VCs in a way that fosters trust? If so, what should VCs in a way that fosters trust? If so, what should they do and what type of outcomes should they they do and what type of outcomes should they expect?expect?

• Does gender matter in the trust formation process Does gender matter in the trust formation process in marketer-sponsored VCs?in marketer-sponsored VCs?

• What is the relative value of marketer-sponsored What is the relative value of marketer-sponsored vs. consumer-initiated virtual communities?vs. consumer-initiated virtual communities?

Study 1:Study 1: Relational Trust & Relational Trust & Attribution Theory in Virtual Attribution Theory in Virtual

Communities…Communities…

Embeddedness

Content

Interaction

Sociability FrameworkSociability Framework

Cooperation with NPD

Info Sharing

Loyalty

SharedValues

Respect

Opportunism

Attribution TheoryAttribution Theory

Relationship Marketing FrameworkRelationship Marketing Framework

Trust

Perceived EffortPerceived Effort of Marketerof Marketer Relational OutcomesRelational OutcomesCognitive Response of the Community MemberCognitive Response of the Community Member

FindingsFindings

• Marketers can form trust-based relationships Marketers can form trust-based relationships in virtual consumer communities that they in virtual consumer communities that they sponsor. sponsor. (Porter and Donthu 2006; Devaraj, Porter and Sun 2006)(Porter and Donthu 2006; Devaraj, Porter and Sun 2006)

– Sponsor efforts related to Content and Sponsor efforts related to Content and Embeddedness drive beliefs and trustEmbeddedness drive beliefs and trust

– Trust leads to valuable outcomesTrust leads to valuable outcomes (info, npd, loyalty, (info, npd, loyalty, positive word-of-mouth, brand preference)positive word-of-mouth, brand preference)

– Opportunism has little influence on trust formationOpportunism has little influence on trust formation

Perceived Degree of

Consumer Embeddedness

Perceived Quality Of

Community Content

Perceived Degree Of Community

Interaction

Trust ina

CommunitySponsor

Belief About A Sponsor’s

Sense of Shared Values

Belief AboutSponsor

Opportunism

Belief AboutA Sponsor’s

Sense of Respect

GENDER

Study 2:Study 2: Social Role Theory and Uses and Social Role Theory and Uses and Gratifications Paradigm of Trust Formation Gratifications Paradigm of Trust Formation

in Virtual Communitiesin Virtual Communities

FindingsFindings

• Gender moderates the trust formation process Gender moderates the trust formation process of younger consumers.of younger consumers.– Gender moderates trust influences of content, Gender moderates trust influences of content,

embeddedness and interactionembeddedness and interaction• For males,For males, sponsor efforts regarding content and sponsor efforts regarding content and

embeddedness are more salient trust influencersembeddedness are more salient trust influencers

• For femalesFor females, sponsor efforts regarding interaction and , sponsor efforts regarding interaction and embeddedness are more salientembeddedness are more salient

– No moderation by gender with direct determinants No moderation by gender with direct determinants of trustof trust

Study 3: Study 3: The Value of Virtual Communities: The Value of Virtual Communities: A Test of Competing Models A Test of Competing Models

• Both member-initiated and firm-sponsored Both member-initiated and firm-sponsored virtual customer communities can be valuable to virtual customer communities can be valuable to marketers, based on relational trust in the marketers, based on relational trust in the sponsor.sponsor. (Devaraj, Porter and Sun 2006)(Devaraj, Porter and Sun 2006)

– Member perceptions of information quality drive trust Member perceptions of information quality drive trust and value in member-initiated virtual communitiesand value in member-initiated virtual communities

– Sponsor efforts drive trust and value in firm-sponsored Sponsor efforts drive trust and value in firm-sponsored communitiescommunities

• Higher value is derived from firm-sponsored Higher value is derived from firm-sponsored communitiescommunities

Questions??Questions??