Transactions vs. Relationships: What Should the Company Emphasize? Gila E. Fruchter Bar-Ilan University Simon P. Sigué Athabasca University The relevance of transactional and relational marketing variables in relational exchanges is now well established in the marketing literature. However, the knowledge about their relative effectiveness and their optimal mix over time remains very sparse. An analytical model is proposed to help determine optimal decision rules for transactional and relational marketing efforts. Some of the main results are as follows: (a) If the seller benefits from the inter- action between the transactional marketing effort and buyer’s commitment, then the seller’s optimal decision rules change over time and depend on the level of the part- ners’ commitment. (b) Otherwise, the seller’s optimal de- cision rules for the two types of marketing are constant over time. (c) The seller should allocate more resources to relational marketing at the beginning of a relational ex- change and, later on, should allocate more resources to transactional marketing. Keywords: relational exchange; commitment; trust; op- portunism; optimal control; relational mar- keting effort; transactional marketing effort The growing emphasis on relationship marketing in the marketing literature may lead to the belief that traditional marketing mix variables play a secondary role or no role at all in relational exchanges. In fact, some marketing schol- ars have minimized the role of traditional marketing vari- ables by arguing that they represent only a partial picture of economic exchanges (e.g., Grönroos 1991, 1994; Gummesson 1997). Building and maintaining close and strong relationships with buyers seems to be a key concept in the new marketing paradigm (e.g., Berry 1995; Grönroos 1994; Parvatiyar and Sheth 2001; Sheth and Parvatiyar 1995). Although this argument is strongly shared in the mar- keting literature, intuition, evidence in the marketplace, and recent empirical research suggest that traditional mar- keting variables still play a significant role in the way firms conduct their businesses (Coviello et al. 2002; Hultman and Shaw 2003). The question, then, is why marketing practitioners still invest in traditional marketing variables when developing close relationships with their buyers. The economic sociology literature, which has claimed that economic transactions are embedded in social rela- tionships, provides a theoretical explanation for the double consideration of traditional marketing variables and rela- tionship marketing variables (Granovetter 1985; Wathne, Biong, and Heide 2001). Two of the seven principles of embeddedness listed by Hunt and Arnett (2003) can be used to justify the simultaneous use of transactional and relational marketing efforts. The first principle claims that human action should not be oversocialized. This principle advises on the danger of ignoring the importance of the in- trinsic economic value of an exchange to the exclusive benefit of its social advantages. The second principle The authors thank Ashutosh Prasad, the editor, and three anonymous reviewers for valuable suggestions and Vince Ambrock for copy- editing assistance. The second author acknowledges the support of a grant from Athabasca University. The usual disclaimer applies. Journal of Service Research, Volume 8, No. 1, August 200518-36 DOI: 10.1177/1094670505276629 © 2005 Sage Publications