Examination of Factors Affecting Relationship Continuity Intention of Buyers in Business to Business Relationships:
A Research Model
Satyajit Jena
Kalyan K. Guin
Working Paper No.: VGSoM/2010/004
May 2010
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Examination of Factors Affecting Relationship Continuity Intention of Buyers in Business to Business Relationships: A Research Model
Satyajit Jena and Kalyan K. Guin
Satyajit Jena is a senior faculty member in the Corporate Training Institute of Steel Authority of India Ltd. He is currently pursuing his doctoral programme at Vinod Gupta School of Management, IIT, Kharagpur. He specializes in marketing strategy, B to B marketing and strategic management.
Kalyan K. Guin is a Professor and Associate Dean at Vinod Gupta School of Management, IIT Kharagpur. He specializes in marketing, marketing research, supply chain and operations management, and business modelling.
Though buyer-seller relationship has generated lot of interest and has been the central focus in relationship marketing research, there is few empirical research of note, which has investigated the antecedent factors affecting the relationship continuity intention of buyers in Steel industry. The central research question in this paper is defined as: What factors do buyers focus to develop relationship continuity with a particular supplier in steel industry? The second sub question is defined as: What is the relative influence of such factors on relationship continuity intention?
From literature, we could identify broadly two types of factors that affect relationship continuity intention of buyers. The first type can be called dedication based factors and the second constrained based/ calculative factors. Inter-organisational and interpersonal trust and buyer’s dependence are proposed as three important mediating constructs antecedent to buyer’s relationship continuity intention representing dedication based factors and constrained based factors respectively. In our research model we specifically investigate the role of salesperson characteristics in promoting trust through trust of the salesperson. We have identified the antecedent factors of trust, trust in the salesperson, buyer’s dependence and relationship continuity intention in buyer-seller relationships. The constructs identified for our research model are, expertise of the salesperson, likability of the salesperson, similarity of the salesperson, frequency of visit of the salesperson, opportunistic behaviour, communication with supplier, size of supplier, willingness to customize, performance ambiguity, comparison level alternatives and switching cost for the buyer. This paper proposes a model and number of hypotheses pertaining to impact antecedent factors on buyer’s relationship continuity intention in business to business buyer-seller relationships.
Keywords: Business to business marketing, relationship continuity, inter-personal trust, inter-organizational trust, dependence
1.0 Introduction:
Long-term buyer–seller relationships have been the focus of much research during the past few years because managers and researchers believe that these relationships represent one of the greatest resources for developing sustainable competitive advantage (Dyer & Singh, 1998) for both buyers and sellers (e.g. Wong et al., 2005; Lambe et al., 2002). In particular, long-term buyer–seller relationships provide a firm faster access to new technologies or markets; the ability to provide a wider range of goods and services; economies of scale in joint research and production; access to knowledge beyond a firm's boundaries; bridges to other firms; sharing of risks; and access to complementary skills (Johanson & Mattsson, 1987; Powell, 1987). Over the past decade, there is growing evidence that to be competitive, manufacturing firms are moving away from traditional approach of adversarial relationship with multitude of suppliers to one of forging longer-term relationships with few select suppliers. Global firms such as Xerox, Motorola, General Electric, Ford and others are reducing their supplier base and looking to a few select suppliers to help them achieve a stronger competitive position. Supplier firm in long-term relationships are able to achieve higher levels of sales growth compared to supplier firms using transactional approach to servicing customers (Kalwani & Narayandas, 2001). Furthermore supplier firms in long-term relationships achieve higher profitability by reducing their discretionary expenses such as selling, general and administrative over head costs to a greater extent than their counterparts who employ transactional approach. Both academics and practitioners have increasingly begun to embrace the notion that long-term collaborative relationships among trading partners are good for business and yield improved business performance. In their paper Spekman & Carraway (2006) have noted that companies that have moved to more collaborative relationships in their supply chains grew their market capitalization by eight percent or more and were rewarded with a premium of seventeen to twenty-six percent in their valuation.
2.0. Theoretical background and hypotheses:
2.1 Relationship continuity intention:
Retaining buyers or buyer’s relationship continuity intention has emerged as the most desirable outcome of business to business marketing efforts. Buyer’s relationship continuity intention is a reflection of its long-term orientation. Buyers with short-term orientation are concerned with the options and outcomes of the current period, whereas customers with a long-term orientation focus on achieving future goals and are concerned with both current and future outcomes. Another difference between short and long-term orientation also can be explained by the nature of the inter-firm exchanges adopted by the channel members. Firms with a short-term orientation rely on the efficiency of the market exchanges to maximize their profits in a transaction, whereas firm with long-term orientation relies on relational exchanges to maximize their profits over a series of transactions. Relational exchanges obtain efficiencies through joint synergies, resulting from investment and exploitation of specialized assets and risk sharing. Both orientations have the ultimate objective of maximising the outcomes and do not imply any altruistic motives on part of either buyer or seller.
In marketing literature, researchers (Noordewier et al., 1990; Dwyer et al, 1987) have attempted to define the characteristics of relationalism. One characteristic proposed by Noordewier et al. (1990) is ‘expectations of continuity of a relationship,’ which captures the probability of a future interaction between the buyer and seller. Pioneering work done by Anderson & Weitz (1989) focused on six factors that determine buyer’s intention of relation continuity. These factors are, trust between the parties, imbalance of power, communication between parties, stakes in the relationship, manufacturer's reputation for ‘fair play,’ age of the dyad. Ganesan (1994) studied long-term orientation in a retail environment. In his study he focused on variables such as relative dependence of retailer, vendor’s credibility, satisfaction with previous outcome, reputation of vendor, relation specific investment, environmental volatility and diversity. Doney and Cannon (1997) integrated the theory developed in several disciplines to determine five cognitive processes through which industrial buyers can develop trust of a supplier firm and its salesperson. These processes provide a framework to operationalise the antecedent variables of trust. The authors examine the impact of supplier firm and salesperson trust on buying firm’s current supplier choice and future purchase intentions.
Recently, Damperat and Folibert (2009) studied buyer’s long-term orientation from dialectical perspective consisting of different levels of variables. They have conceptualized long-term orientation as inter-organisational level phenomenon that is predicted by inter-personal level and individual level variables. The individual level variables are seller expertise and buyer relational orientation where as interpersonal level variables are frequency of contact, solidarity, cordiality and interpersonal satisfaction.
Review of literature on buyer seller long-term relationship points to the following gaps which this research will try to address.
Most of the research work in long term buyer seller relationship area focuses on a specific aspect or theory. Heide and Miner (1992) have proposed to make the BtoB relationship frameworks more broad based. We could come across only three studies i.e Anderson and Weitz (1989), Ganesan (1994), Doney and Cannon (1997) which have used broad based frameworks in their study.
Social exchange theory suggests that interpersonal relationships are critical to close inter-firm relationships (Metcalf and Frear, 1993). Interpersonal contacts become so extensive in successful buyer-seller relationships that, according to Frazier et al. (1988), such relationships involve a “tangled web of relations across functional areas”. In light of the above observation it does seem that the role of salesperson in BtoB relationship is quite crucial. Even then, research in this area is quite scanty. Doney and Cannon (1997) brought to the fore the important role of salesperson in ensuring relationship continuity intention. The importance of salesperson in creating trust between two interacting organisation has also been noted by Das and Rangan (2004) in their study of BtoB relationship development in mature industrial markets.
Most of the majors studies reviewed (particularly earlier studies) in the area of buyer seller relationships have been conducted in the distribution channel and business to consumer (BtoC) context. There are relatively fewer studies which have been conducted in the business to business (BtoB) environment, which is our context for research. Further, much of the research work in this area has been in US markets and to some extent in European markets. In this context, Geyskens et al. (1999), Cunningham and Green (1984) have raised concerns regarding the external validity of the theories and have suggested for more studies in other countries.
From literature review, we could identify broadly two types of factors that affect relationship continuity intention of buyers. The first type can be called dedication based factors and the second constrained based or calculative factors. Therefore, the inter-organisational trust (also referred as trust) and buyer’s dependence are proposed as two important constructs antecedent to buyer’s relationship continuity intention(henceforth referred as relationship continuity), and they will also be treated as mediating constructs in this study. In addition, we propose that trust in the salesperson (also referred as inter-personal trust) will affect relationship continuity through trust. In our research we specifically investigate the role of salesperson characteristics in promoting trust through trust of the salesperson. The constructs identified for our research are, expertise of the salesperson, likability of the salesperson, similarity of the salesperson, frequency of visit of the salesperson, opportunistic behaviour, communication with supplier, size of supplier, willingness to customize, performance ambiguity, comparison level alternatives and switching cost for the buyer. In the following sections each of these constructs is discussed along with the research hypotheses that specify the linkage of these constructs both directly and indirectly to the main dependent constructs. First, trust and trust in the salesperson will be outlined as these are two important constructs proposed as antecedent to relationship continuity. Subsequently the antecedent factors of these constructs will be discussed. After this, dependence and its antecedent factors will be outlined. In addition, several hypotheses will be proposed with trust in supplier organisation, trust in the salesperson and dependence being the mediating construct.
2.2 Inter-organisational Trust and Relationship Continuity:
The important role of trust in developing long-term relationships has been emphasized repeatedly in the marketing channels literature (e.g. Anderson and Weitz, 1989; Dwyer et al., 1987; Morgan and Hunt, 1994). In fact large amount of research work on trust offers a great variety of definitions and measurements from different contexts that have been studied.
Trust has been defined as “the firm’s belief that another company will perform actions that will result in positive actions for the firms, as well as not take unexpected actions that would result in negative outcomes for the firm” (Anderson and Narus, 1990). This is because the presence of trust can reduce the specification and monitoring of contracts, provide material incentives for co-operation, and reduce uncertainty (Hill, 1990). Trust established between firms, and between firms and consumers, is one of the fundamental resources that firms can make use in order to control complexity. Trust is also the willingness to rely on an exchange partner in whom; one has confidence (Moorman et al., 1992). Trust has a notion of belief, a sentiment or an expectation about an exchange partner that results from partner’s expertise, reliability and intentionality. The definition of trust proposed here reflects two distinct components: (1) credibility, which is based on the extent to which the buyer believes that the seller has the requisite expertise to perform the job effectively and reliably and (2) benevolence, which is based on the extent to which the buyer believes that the seller has intentions and motives beneficial to the buyer when new conditions arise, conditions for which a commitment was not made. Sellers who are concerned with outcomes of buyer along with their own will be trusted to a great extent than sellers who are solely interested in their own welfare. Morgan and Hunt (1994) have found that trust is central to strengthening relationship with customers. Wolf (1994) provides prescriptive framework from a practicing manager’s perspective for creating trust in the alliance between two firms. Doney and Cannon (1997) presented an framework listing the antecedents and consequence of trust in the relationship between firms in business markets where trust of the supplier organization and trust of sales person are both key variables influencing the buyer’s future intention. Rackham and De Vincentis (1999) have found out in their research that the meaning and role of trust changes from trusting the product/ service in transactional selling to trusting the sales person in consultative selling and trusting supplier firm in strategic selling.
A steel buyer’s trust in the seller positively affects its relationship continuity intention in three ways: (1) It reduces the risk associated with opportunistic behaviour by the seller, (2) it increases the confidence of the buyer that short-term inequities will be resolved over a long period, (3) it reduces the transaction costs in an exchange relationship.
Based on the above argument, we posit that,
H1: Trust in supplier has positive effect on relationship continuity intention of buyers.