What Is the Social Exchange Theory Business?


Vincent White

The Social Exchange Theory is a concept in business that focuses on the principles of social interaction and relationships. It suggests that people engage in exchanges to maximize their rewards and minimize their costs. In the context of business, this theory helps us understand how individuals make decisions based on their perceptions of the benefits they will receive from a particular relationship or transaction.

Understanding the Social Exchange Theory

The Social Exchange Theory was first introduced by sociologist George Homans in the 1950s and later developed by Peter M. Blau. It is based on the assumption that humans are rational beings who weigh the costs and benefits of every interaction.


  • Intrinsic Rewards: These are intangible benefits such as a sense of belonging, recognition, or personal satisfaction that individuals perceive from engaging in an exchange.
  • Extrinsic Rewards: These are tangible benefits such as money, goods, or services that individuals receive as a result of their participation in an exchange.


  • Opportunity Costs: These are the sacrifices individuals make by choosing one option over another. For example, if someone decides to invest time and resources into a new business venture, they may have to give up other opportunities like leisure activities or spending time with family.
  • Economic Costs: These are the monetary expenses incurred during an exchange. For example, purchasing raw materials for manufacturing products or paying wages to employees.

The Role of Trust

In any exchange, trust plays a vital role. When there is trust between parties involved, it reduces perceived risks and increases the likelihood of successful exchanges.

Trust is built over time through consistent and reliable behavior. It is important for businesses to establish trust with their customers, suppliers, and employees to foster positive and long-lasting relationships.

Applications in Business

The Social Exchange Theory has several applications in business:

Customer Relationship Management (CRM)

CRM systems are designed to manage and analyze customer interactions throughout the customer lifecycle. By understanding the social exchange dynamics, businesses can tailor their offerings and services to meet the individual needs of their customers, thus enhancing the overall customer experience.

Employee Motivation and Retention

The Social Exchange Theory can also be applied to understand employee motivation and retention. By offering attractive rewards, such as competitive salaries, recognition programs, and opportunities for growth and development, businesses can increase employee satisfaction and loyalty.

Supplier Relationships

In business-to-business relationships, the Social Exchange Theory helps companies evaluate the benefits and costs associated with engaging specific suppliers. By considering factors such as product quality, reliability, pricing, and payment terms, businesses can make informed decisions that maximize value for both parties involved.


The Social Exchange Theory provides valuable insights into human behavior within the context of business relationships. By understanding the principles of social exchange, businesses can create mutually beneficial relationships with customers, employees, suppliers, and other stakeholders. This theory reminds us that successful exchanges are built on trust, effective communication, and a fair distribution of rewards and costs.