The four components of a customer relationship - and how to influence them
As part of a new series, Michael Wu, principal scientist of analytics at Lithium Technologies, shares research findings on the relationship between social networks and communities. In the latest part of this series, Michael looks at the four components to relationships and how brands can influence trust and reciprocity to build customer relationships.
Are your relationships important to you? I think that most of you would answer “yes,” since most people value their interpersonal relationships and want to develop them and maintain them. But are relationships (e.g. with customers) important to business? As more businesses shift towards a service-centric and subscription-based economy, customer relationship will definitely become more important. Companies are realizing that it is the repeated purchase from loyal customers rather than the initial point of sales that is generating the most revenues. Unlike the traditional, product-centric, and sales-based economy, the point of sales is actually the beginning of a long term relationship with your customers.
Many companies understand this paradigm well and are making strides here. They start (or attempt) to engage their customers through various channels (both traditional and social media) with the goal to build stronger customer relationships. But what are they attempting to build? What is a relationship anyway? Have you ever wondered what your customer relationship management (CRM) system is actually managing? If you dig into the data in your CRM system, what kinds of relationship data will you find? In today’s article, I want to discuss the topic of relationship from a sociology perspective and try to understand it at a deeper level.
The components of a relationship
Everyone seems to know the concept of relationship, but no one seem to be able to define it precisely, or knows how to measure it. The definition of relationship from dictionary.com actually looks nothing like the definition from the Merriam-Webster’s dictionary. But when sociologists speak of relationship, they mean a tie or a connection between two entities (these entities may be people, companies, cities, or even nations).
One reason that I like the sociologists’ perspective is because not only do they make the distinction between the presence and absence of relationships (ties or connections), they also introduce the concept of tie strength. This allows us to talk about the strength of the relationship (i.e. weak ties vs. strong ties). Moreover, sociologists have gone further and developed ways to quantify the strength of a tie.
- Time: amount of time spent together
- Intensity: emotional intensity and the sense of closeness
- Trust: intimacy or mutual confiding
- Reciprocity: amount of reciprocal services
Subsequently sociologists have identified numerous predictors of tie strength. These predictors are contextual variables that are correlated with the strength of a relationship, but they are not the actual the relationship itself. This is a subtle but important point, because some of the components (i.e. time and reciprocity) can be measured, whereas others (i.e. intensity and trust) are not well-suited for measurement. As with any quantity that cannot be measured directly, statisticians can still obtain an estimate of their relative value by forecasting them with predictors.
Consider the first component, time, as an example. The actual amount of time that was spent together comprises the relationship. It is a part of the relationship. But the duration of relationship is only a predictor of tie strength; it is not the relationship. Likewise, the frequency of encounter is another predictor of tie strength, but not the relationship itself.
In fact, duration and frequency are both poor predictors of tie strength. Frequency tends to over-estimate the tie strength between neighbors, co-workers, or other people who happen to meet regularly due to situational constraints. However, there may not be any strong emotional intensity or trust between them. On the other hand, duration tends to over-estimate the strength of relationships between relatives. Because we tend to know relatives for a long period of time (we probably trust them too), but we may not actually spend much time together to develop the relationship. See the subtle differences here?
Similarly, homophily (the similarity in education, occupation, social-economic status, political profile, religion, etc), multiplexity (the overlap of interests, topics, or social contexts), and emotional support (amount of advice given/received) are all reasonable predictors of tie strength. However, they do not constitute the relationship itself as Granovetter defined it.
In the business of relationship
So why and how is this important for business? If you care about your customers and your relationship with them, then this will be important:
- By deconstructing a relationship into four components we have a better chance at quantifying the strength of any relationship. This will enable us to rank the strength of relationships and identify weak ties that potentially need attention.
- By understanding why a tie is weak, we can focus on the problematic components when trying to restore the relationship. For example, should you focus on developing trust or spending more time together?
- Finally, if we can understand which components we can affect, then we can build relationships more effectively, whether it is interpersonal relationships or customer relationships.
Prof. Peter Marsden (now at Harvard Univ.) and Prof. Karen Campbell (now at Vanderbilt Univ.) were among the early pioneers who carried out a full-scale statistical model to measure the strength of ties in social networks. They’ve found that time and intensity are the strongest and most fundamental components among the four. That means they are also the most difficult to affect. This is because time is often a scarce resource, and it only contributes positively to the relationship if the desire to spend time together is mutual. Otherwise, spending more time together can actually hurt the relationship by turning the intensity component negative (i.e. turning love to hate). So as a business, if you want to build stronger customer relationships by spending more time with them, then you better understand when your customers actually want to spend time with you.
The intensity component is even more fundamental and more difficult to manipulate, because part of it is just genetics, over which we have no control. Although not impossible, it is generally difficult for businesses and brands to create a sense of closeness and strong emotional intensity with their customers. For example, brands are starting to leverage Green Business initiative to boost the intensity component of their customer relationships. This creates a sense of “we are in this together for a greater cause” and it will increase the emotional intensity of customers with your brand. Since this leads to a stronger customer relationship, the net result is increased customer loyalty and higher customer lifetime value (CLV). Despite this, the intensity component in customer relationships is still much weaker than those in interpersonal relationships. So if you are a brand, don’t try too hard on this component.
So where should companies focus their effort in building stronger customer relationships? The answer is building trust and increasing reciprocity. Trust and reciprocity are two components of relationships that companies can impact effectively. Clearly greater trust can lead to higher adoption rate and therefore greater CLV. With social media, companies nowadays have many ways to build trust. They can institute a blog or tweet program to enabling company-to-customer transparency, or launch a community to enabling customer-to-customer transparency. Whatever you do, just remember this: being authentic and transparent is the key to building trust between any entities.
Finally, increasing reciprocity is another easy way for brands to build strong relationships with their customers. Remember that reciprocity is defined to be the amount of reciprocal services. So it is not just you serving your customers. You should let your customers serve you too (This is a key point to remember). Let them help you by letting them help other customers and reward them properly. This will create a cycle of reciprocity can sustain itself. Aside from the added benefit of reducing support cost, implementing a co-creation strategy is one of is the most effective way to increase reciprocity between your brand and your customers.
So what have we learned today? I am hoping that we’ve learned that there are four components to a relationship: Time, intensity, trust, and reciprocity.
- Time and intensity are the most fundamental and most difficult to leverage by companies.
- The intensity component is usually much stronger in interpersonal relationships when compared to customer relationships.
- Trust and reciprocity are the two components that companies can leverage effectively for building a stronger customer relationship.
- Brands can build trust by being more transparent and authentic, and they can increase reciprocity by implementing co-creation strategies.
Alright, I hope this post offered you a different perspective and gave you a deeper understanding on relationship from a sociological perspective. By understanding the sociology of relationship, we can leverage it in a business setting by applying it to the analysis of customer relationships. This is the power of science: finding general theories that can be applied again and again to different situations (provided that the assumed conditions of the theory are satisfied).
Michael Wu, Ph.D. is the principal scientist of analytics at Lithium Technologies. Michael was voted a 2010 Influential Leader by CRM Magazine for his work on predictive social analytics and its application to social CRM. You can follow him on Twitter at mich8elwu. This post originally appeared on the Lithosphere.