How important is marketing during the earliest phase of a customer’s relationship with a firm?
McIntire Professor Irina Kozlenkova recently explored the question in “Multichannel Customer Onboarding,” part of the Marketing Science Institute (MSI) Working Paper Series.
In the paper co-written by the 2019 MSI Young Scholar with Stephen A. Samaha, Jordan W. Moffett, and Robert W. Palmatier, the authors examine those crucial first moments of customer communication and provide evidence about how the efforts made during that brief period create the foundation for relationships that provide positive, long-lasting financial effects for the firm.
By evaluating multiple channels (including face-to-face, phone, and email) early in customer relationships, the paper examines the effect of communication on customer spending with the firm versus spending with its competitors. The authors find that communication across all channels has a significantly greater positive impact when initiated during the onboarding period compared with communication attempted later in the relationship.
Kozlenkova says their data show that face-to-face communication between the firm and the customer has a 19 times greater impact on spending (also known as “share-of-wallet” or “performance”) if it occurs in the first month of the relationship than if it happens two years later. There are significant financial effects as a result of that early communication—firms that miss leveraging those interactions during the brief onboarding period face significantly reduced customer spending even after five years.
“Most firms today are communicating with their customers simultaneously through multiple channels, such as face-to-face, phone, email, and chat,” says Kozlenkova. “Previous research showed conflicting findings on whether utilizing different communication channels at the same time is beneficial or harmful to firm’s performance. We reconcile the contradictory results by discovering that in our dataset all interaction effects between different communication channels switch from being advantageous (synergistic) to disadvantageous (substitutive) to the firm’s financial performance after about five months from the start of the customer relationship.”
Another important finding concerns the use of richer communication channels (e.g., face-to-face) that provide a proportionally larger benefit early in the relationship compared with leaner channels (e.g., email). Kozlenkova says that “managers should note the incremental benefits of richer communication carefully, because even if leaner communication channels are cheaper, they cannot offer the full benefits of rich, early communication.”
Employing lower-cost channels may render firms incapable of building sufficient loyalty early on, and “because onboarding benefits are available for a limited time only, firms that fail to capitalize on the relationship-building benefits of rich, early communication may not be able to reap the benefits later in the exchange either. You only get to make a first impression once,” she says.
Currently, the authors are attempting to create what they call a “quasi-field experiment” in order to further validate and demonstrate the strength of their findings.
Stephen A. Samaha is Executive Research Fellow, Foster School of Business, University of Washington. Jordan W. Moffett is a Ph.D. candidate, Department of Marketing, E.J. Ourso College of Business, Louisiana State University. Robert W. Palmatier is Professor, Department of Marketing, and John C. Narver Endowed Professor in Business Administration, Foster School of Business, University of Washington.