Return on relationships: conceptual understanding and measurement of mutual gains from relational business engagements

Abstract

PurposeRelationship is based on the idea of creating a win‐win situation for parties involved in a business engagement. The purpose of the article is to develop a model of mutual value creation and reciprocal return on relationships (RORR) assessment, which enables calculation of joint and separate gains from a relational business engagement.Design/methodology/approachThe approach takes the form of a conceptual analysis, which is tested empirically through a real‐life case. The empirical part is based on a longitudinal empirical study including several empirical cases.FindingsFollowing a practice matching process, resulting in mutual innovation and aligning of their processes, resources and competencies, the parties in a business engagement make investments in the relationship. This enables the creation of joint productivity gains. Valuation of joint productivity gains produces an incremental value, which can be shared between the parties through a price mechanism. Finally, based on this shared value and costs of investments in the relationship by the parties, a reciprocal return on the relationship can be assessed and split between the business parties.Research limitations/implicationsThe study addresses dyadic business engagements only. The findings enable calculation of reciprocal return on relationships (RORR) and form a basis of further development of marketing metrics and financial contribution of marketing, and of developing financial measures of intangible assets called for by the finance and investor communities.Practical implicationsUsing the conceptual model and corresponding metrics, the financial outcome of the development of customer relationships as well as an assessment of the return on relationships with customers can be established.Originality/valueThe approach to assess the value of customer relationships as a two‐sided endeavor is novel, as well as the joint productivity construct and the value sharing approach, and the way of assessing ROR as a reciprocal measure that can be split between the business parties.