Social Exchange Theory

Social exchange theory generally conceptualizes interaction as a series of social exchanges that explain the development, maintenance, and deterioration of interpersonal relationships. The underlying explanatory mechanism is the value that participants place on the symbolic and material behaviors that constitute the relationship relative to other relationships. Exchange behaviors, including one’s own relational investments and outcomes, are evaluated subjectively in terms of rewards and costs. Relationship management decisions are made based on the assessment of costs relative to benefits. This entry first describes the principles of social exchange theories and then describes how these are reflected in current approaches to corporate reputation.

Principles of Social Exchange Theories

In general, social exchanges can be viewed as analogous to economic exchanges that are negotiated between people who pursue their own self-interests. Both parties must be relatively satisfied with the outcomes of the exchange, or perceive a lack of alternatives for obtaining the desired resources obtained through the exchange, for the exchange to continue. Economic exchanges typically are evaluated more objectively and are less emotionally attached to the specific exchange partners. In contrast to economic exchanges, social exchanges may seem less rational and involve material or symbolic resources or rewards, such as love, status, social approval, respect, information, and goods, that vary in their perceived value for different individuals. A person may ascribe greater significance to some resources over others and place greater value on the resources provided by particular exchange partners. An interpersonal relationship develops through the exchange of resources that are sufficient to satisfy the interactants’ needs and induce them to continue the social exchange.

Internal social cognition processes are central to relational decision making in social exchange theories. Individuals’ perceptions, expectations, evaluations, and mental calculations of rewards and costs are subjective and occur at the intrapersonal level. Though each relationship can be evaluated in terms of its unique cost-benefit ratio relative to resource acquisition, each relationship also exists within a larger constellation of relationships developed by the focal individual. Hence, the outcomes derived from a relationship can be compared with past and current relationships (a comparison level) as well as relationships that may be cultivated in the future (a comparison level of alternatives). This means that satisfaction with the resources obtained through a specific relationship can be affected by a person’s current and potential access to a larger network of relationships that also can provide the desired rewards. Social exchange theories predict that relationships will be maintained when the perceived rewards of engaging in those exchanges outweigh the perceived costs and/or there is a dearth of options for securing the desired resources.

Although they are intuitively appealing, social exchange theories can be difficult to apply for several reasons. Exactly what tangible and intangible resources and rewards are being exchanged is not always obvious to observers. Moreover, interactants also may find it difficult to articulate these investments and outcomes that are presumed to be associated with relational satisfaction. Social exchanges are jointly constructed and can change over time. This means that both parties in an exchange relationship make individual-level decisions about their relational satisfaction. Either party may decide to end the exchange based on their perceived cost-benefit ratios. Additionally, the relational costs and benefits also can fluctuate over time. Exchange theories also can fail to account for “irrational relationships,” where people remain in seemingly costly relationships (e.g., those that seem physically and emotionally abusive) that offer few rewards. Examining an individual’s entire network of relationships, along with the cognitive processes that presumably underpin relationship decision making, is a highly complex task. In spite of these challenges, the principles associated with social exchange theories continue to influence our approaches to understanding interpersonal relationship processes as well as person-organization relationship processes.

Implications for Corporate Reputation

The explanatory mechanisms underlying social exchange theories are evident in conceptualizations of corporate reputation as well as in approaches to cultivating positive reputations through stakeholder relationship management. Corporate reputations comprise the perceptions and evaluations stakeholders ascribe to corporations and/or their interactions with corporations. As with interpersonal relationships, social cognition processes provide the framework that guides the real or imagined exchanges with the corporation.

Ostensibly, stakeholders are motivated to initiate exchange relationships with corporations because they desire a resource—that is, a product or service—and understand that they must contribute to the relationship via money and/or support to obtain that resource. As in interpersonal relationships, weighing one’s contributions to as well as one’s outcomes from the exchange entails a subjective evaluation. The subjective nature of evaluations explains why some consumers are willing to pay exorbitant prices for so-called prestige products and why some consumers hold higher expectations from customer service. Stakeholders who aspire to an exchange relationship with a corporation (e.g., hope to one day afford a Jaguar car or a Norwegian cruise) can imagine or vicariously experience a positive exchange experience. Stakeholder assessments of exchange satisfaction, which are likely to extend beyond the physical product or service to include its symbolic value, as well as perceived alternatives for securing the desired resource, affect decision making about whether to maintain or terminate the relationship with the corporation.

Social exchange relationships can be developed and maintained symbolically through social media (e.g., Facebook “likes,” Twitter posts, online chats) and actual contact (e.g., invitations to open houses, personalized service, and product samples or coupons). The popularity of terms such as engagement, conversation, authenticity, and customer relationship marketing directs corporations to view stakeholder relationships as long-term investments rather than one-time exchanges. Corporations are advised to recognize relationship building and maintenance as key to economic and reputational success.