Tibor Mandják
The value of business relationships
Chair of marketing
Director of studies: Berács József
BudapestUniversity of Economic Sciences and Public Administration
Faculty of Business Administration
The value of business relationships
Ph.D. dissertation
Tibor Mandják
Budapest, 2002
Table of content
Introduction...... 10
1.Some introductory thoughts about the essentials of marketing
1.1Exchange
1.2General marketing and specific marketing
1.3The relationship of marketing with some sciences
2.Inter-organizational marketing
2.1The organization as a buyer
2.2Special features of inter-organisational markets
2.3The market as network, some problems of mutual dependence
3.the marketing understanding of Business relationships
3.1Content and development of business relationships
3.2The network
4.the problematic of the value of business relationships
4.1Some value concepts
4.1.1Some characteristics of the concept of value in economics
4.1.2Some characteristics of the concept of value in sociology
4.1.3Some characteristics of the concept of value in social psychology
4.2The value of business relationships
4.3Why is the knowledge of the value of business relationships important?
4.4Different analyses of the value from the points of view of the supplier and the buyer
4.4.1Value at the level of exchange episodes
4.4.1.1The value of exchange episodes from the point of view of the buyer
4.4.1.2The value of the exchange episode from the point of view of the supplier
4.4.2Value at the level of the relationship
4.4.2.1The value at the level of the relationship, from the point of view of the buyer
4.4.2.2The value at the level of the relationship, from the point of view of the supplier
4.4.2.3.Common values at the level of the relationship
4.4.3.Value at the network level
5.Theoretical model of the value of business relationships
5.1.Conceptualisation of the theoretical model of business relationships.
5.2.The statement of the model’s dimensions and indicators.
5.2.1.Separation of economic and non-economic (social) dimensions
5.2.2.Systemization of economic and non-economic (social) elements (indicators)
5.2.2.1.The components of the value of business relationship at the level of exchange episodes
5.2.2.2.The components of a business relationship at the relationship level
5.2.2.3.The components of a business relationship at the network level
6.Hypotheses and research programme
6.1Some research hypotheses
6.2Some important questions of the research programme
6.3What has do be done?
7.Some thoughts about the qualitative research
7.1A short epistemological by-pass
7.2Qualitative researches in management science
7.2.1The theory of management situation
7.2.2The theory of management situation and the qualitative research
7.3The comparison of qualitative and quantitative research methods
7.3.1Trustfulness, validity and universalization
7.3.2The complementary nature, methodological pluralism
8.Results of qualitative researches
8.1What, Why, How? The value of a business relationship in practice
8.1.1The group of the interviewees, the description of the data collection
8.1.2The value of business relationships in the businessmen’s point of view
8.1.2.1The content and the elements of a business relationship
8.1.2.2Why is it (would it be) good to know the value of a business relationship..
8.1.2.3How is (would be) this value measurable?
8.1.3The experiences of the interviews
8.2An instant picture of the structure of the value of business relationships
8.2.1Structure, perception and causal mapping
8.2.2Introduction of the research process
8.2.3The example of a big French company
8.2.4Some remarks
8.3Specification of the model, international expert questioning
8.3.1The participants and the process of questioning
8.3.2The experts’ remarks
8.3.3Summary of the specialists’ opinions
9.Results of research
9.1Verification of the suppositions, triangulation of the qualitative research results
9.1.1The value of business relationships in virtue of the common components of the results of the studies
9.1.2Comparison of the suppositions and the results of the research
9.2The empirical model of the value of business relationships
10.Summary
Acknowledgements
annexes
Applied bibliography
Table of figures
Figure 1: The fields of marketing
Figure 2: Theoretical model of the value of business relationship
Figure 3: The individual causality map of the project manager
Figure 4: The individual causality map of the production manager
Figure 5: The individual causality map of the purchasing manager
Figure 6: The collective causality map of the value of a business relationship
Table of tables
Table 1: The structure of the metamodel describing the value of business relationship..
Table 2: Statements about the value of business relationships at the level of exchange episodes
Table 3: Statements about the value of business relationships at the relationship level
Table 4: Statements about the value of business relationships at the network level
Table 5: The elements of business relationships at the level of the exchange episode
Table 6: The elements of business relationships at the relationship level
Table 7: The elements of business relationships at the network level
Table 8: The value of business relationships at the level of exchange episodes
Table 9: The value of business relationships at the relationship level
Table 10: The value of business relationships at the network level
Table 11: Some characteristics of the theoretical model.
Table 12: Components of the value of business relationships based on the opinion of company executives
Table 13: Fields of decision, based on the opinion of company executives about where is (would be) necessary to know the value of business relationships
Table 14: The components of the value of the studied business relationship
Table 15: The Canadian researcher’s suggestion for new indicators
Table 16: The remarks of the researcher from New-Zealand about some original indicators
Table 17: The new indicators suggested by the French researcher
Table 18: The new indicators suggested by the American researchers
Table 19: The Australian researcher’s remarks concerning some indicators
Table 20: The English researcher’s remarks concerning some indicators
Table 21: The most important new indicators reflecting the specialist’s theoretical posings.
Table 22: The comparison of the methods used for the analysis of the value of business relationships
Table 23: The empirical model of the value of business relationships
Table of annexes
Annex 1: Deep interview draft...... 157
Annex 2: The model sent to the experts...... 159
Annex 3: Definition of the indicators of the model sent to the experts...... 163
Annex 4:List of the universities of the answering researchers...... 170
To Ági and Bendi
Introduction
Dear Reader!
I am asking for your understanding, for your patience and above all for your Opinion!
I am asking for your understanding and your patience because of the topic, for your opinion concerning the nature of writing. The value of business relationships will be dealt with through the next pages. We understand business relationships as the interactive exchange relationship between two organisations. Hence, the value of business relationships, this complicated and complex phenomenon is in the centre of our examination. To be exact, we will try to determine what this value means for the participants of this relationship that is for the buyer and for the supplier.
The value of business relationships fundamentally influences the decisions related to the relationship. It influences what the supplier of the buyer should do concerning the given business relationship, whether he should develop it, maintain it or close it. However, the value of business relationships influence also the supplier and the buyer in their considering one of their business relationships as the most important or less essential.
Organisations procure the resources that are important to them through their business relationships and they sell the products they manufacture or the services they provide through their business relationships. Hence, business relationships mean the market for organisations. The decisions related to the market are marketing decisions, which obviously have strategic and tactical consequences. Our topic, the value of business relationships, is thus closely linked to the basic problems of inter-organisational marketing.
The complicated and complex nature of the topic makes it necessary to examine the concept of value from several sides, to try and define it using and integrating the results of different scientific fields. By using the results of literature research, we will create the theoretical model of the value of business relationships. During the conceptualisation of the model, we will define the indicators of the value of business relationships. We will present the research steps necessary for the operation of the conceptualised model and we will deal with some questions concerning verification. With the triangulation of the results of our qualitative studies conducted with three different methods, we will compare theory to practice. By mixing the results of the two approaches, we will finally define the value of business relationships and we will finalise the empirical model that describes this value.
1.Some introductory thoughts about the essentials of marketing
Thinking about the essentials of marketing, the first logical step would be to start from the concept of marketing. Marketing does not lack definitions. There are also a lot of definitions concerning the essentials of marketing. In the introduction study of his book, Baker (2000) refers to a research conducted in the mid-1990’s in which about a hundred different marketing definitions had been analysed in their contents. However, the results showed that the concept of marketing was in a constant change, that upon the effect of the changes in market environment, marketing approach becomes useful in more and more fields of economy and society, that within marketing, the attention has shifted from isolated transactions towards relationships and that marketing can be understood as a fundamentally adaptive, flexible, international and open method of approach. Researchers have however drawn the attention to the fact that a greater theoretical strictness would be necessary and desired to characterise marketing definitions despite the large number of determinations of different kinds (Baker 2000).
Baker later concludes that the many different definitions polarise around two points of view. One of the approaches regards marketing as a company function, which is essentially the normative approach to marketing and is fundamentally but obviously not exclusively peculiar to the “founders” of marketing management school (e.g. Kotler 1967, McCarthy 1960 or Drucker 1954). This school, "what is beyond doubt is the fact that from around 1960 onwards marketing thinking and practice has been dominated by the marketing management school of thought." (Baker 2000 p.11) regards marketing function, similarly to other fields of business activity (production, finance, and human resources) as a total of analysis, planning and control. It is the task of the marketing (manager) to give answers to the solution of the market problems that lay in front of the company through the combination and conscious application of the marketing mix (the four Ps). The marketing function (manager) creates demand for the company’s standardised products during the realisation of the optimal marketing mix and, with the help of mass and individual communication, forms and influences consumer preferences and delivers the products to the consumers through the management of distribution channels (Webster 1992). In this understanding, the essentials of marketing are the consideration of the consumers’ needs and not directly the realisation of profits. The financial result appears as the “reward” for the suitable satisfaction of the consumer’s needs (Webster 1992, Baker 2000). Consumer orientation constitutes the basics of marketing orientation and in the meantime the essentials of marketing conception (Levitt 1960).
As per Baker’s analysis, at the other pole, we can find those approaches that do not regard marketing as a function first of all, but as a way of thinking, a business, and company management philosophy. This approach also starts from the consumer’s needs, but emphasises the strategic importance of the satisfaction to be offered to the consumer (for example Lambin 1999, Day 1994 or Grönroos 2000). The consideration of the consumer’s needs is necessary at all levels of company activity; it is indispensable and not only the task of one company function. The approach of marketing has become process-centred and the “commander” of the processes is the final consumer (Webster 1991, Lambin 1999, Alajoutsijärvi and Tikkanen 2000). The strategic importance of marketing is not only determining in the relationship of the company and the market, but also inside the organisation. The collection of information coming from the market, its processing and distribution within the organisation (Day 1994, Anderson and Narus 1999) is not only one of the most important characteristics of a learning organisation (Slater and Narver 1995), but also the basics of creation of durable competition advantages (Day 1994, Hooley 2000). In this approach, the relationships become of outstanding importance from the point of view of marketing.
Marketing, as a philosophy does obviously not forget the importance of application of marketing tools, but emphasises their nature as tools, whose application depends on the strategic objectives (Lambin 1999, Webster 1991). Besides its strategic nature, this approach puts an important but not exclusive role to relationship marketing (Baker 2000), which it understands as an interactive process whose central element is relationship building, influenced by the given social conditions (Grönroos 1994).
1.1Exchange
Concerning the essentials of marketing, Tomcsányi concludes that the basic problem of the participants (characters) of the market – the producers, the distributors, the consumers – is to know what they should offer for ‘sale’ and how they should do it, or rather what and how they should choose to provide themselves with: ‘to purchase’ from what is available.” (Tomcsányi 1994 p.1.) to solve the market participants’ problems, there is need for exchange, or to be more exact, for market exchange. Well, formulating in the most general way, it is just this exchange that is the essential of marketing. (Bagozzi 1975, Baker 1976, Tomcsányi 1994, Grönroos 1990, Lambin 1999, Baker 2000). According to Baker, the mutually advantageous exchange relationships constitute the essentials of marketing (Baker 1976, Baker 2000). According to Tomcsányi’s formula, “in society – especially in economy – the exchange processes that take place are based on agreements and on mutual advantages” (Tomcsányi 1994 p.9.). The condition of mutually advantageous exchange is that both parties have at their disposition unused goods that are necessary or desirable for the partner. It is necessary for the successful exchange relationship that the parties are aware of their sacrifices concerning the manufacturing of the goods they offer and of the advantages of these goods for the partner (Tomcsányi 1994). With the realisation of mutual advantages, exchange value is being created and the participants’ satisfaction is being increased. For the realisation of the exchange, it is necessary that the parties be able to decide freely about the participation in the exchange (Lambin 1999). The parties are interested in the exchange as long as the exchange means some advantage for them. This value or rather its interpretation can obviously be different (Baker 2000).
As per Grönroos’ definition, the essentials of marketing are that, beside the realisation of profit, one creates, maintains and develops a relationship with customers and other partners in which the participants’ objectives meet. This is possible with mutually advantageous exchange and with the mutual respect of promises made to each other (Grönroos 1990).
1.2General marketing and specific marketing
Putting it in a general formula, the essentials of marketing are the knowledge and the realisation of mutually advantageous exchange relationships. The dialectic unity of marketing approach (philosophy) and action (function). The market knowledge of marketing is based on the knowledge of the customers and of the competitors. Combining market knowledge with the fundamental abilities of the organisation, it becomes possible to determine the circle of customers to whom the organisation can offer a higher level of satisfaction of needs than its competitors. For the objectives determined this way, the conscious, integrated and synergic use of the marketing tools is necessary. In this context, one can differentiate strategic marketing, which includes the market knowledge and the choice of customers from operative or tactical marketing, essentially the application of marketing tools, based on the strategic marketing and which targets the realisation of strategic goals (Lambin 1999).
When we put the mutually advantageous exchange in the centre of marketing, we practically talk about the relationship between the organisation and the market, about the basic importance of this relationship. On the market, the organisation can have relationships with its customers, its competitors and with other actors of the market (e.g. authorities, social associations, and political parties). The relationships formed this way and within them the activity of the organisation fundamentally depends on the needs, demands, requirements, market situation of the other party and on many other factors, basically on the other party’s behaviour. The behaviour of the partner and especially of the customer is fundamentally different, in case we consider the end consumer (individuals, households) or some intermediate consumer (organisations) (Webster 1991, Lambin 1999). Simplifying a bit, this difference appears at the two large fields of marketing, in the marketing of consumer goods and in the inter-organisational marketing. This relation is showed by figure 1.
Figure 1: The fields of marketing
The figure shows that general marketing, depending on the type of consumer and therefore on the consumer’s behaviour, can appear in different concrete forms, namely in the form of marketing of consumer goods, or rather of inter-organisational marketing.
The general marketing includes the principle of mutually advantageous exchange that is the essential of marketing, strategic marketing and tactical marketing, which express the dialectic unity of marketing approach and function. General marketing becomes concrete in the different forms of specific marketing.
In the case of marketing of consumer goods, it is the consumer behaviour of end consumers that is individuals and households that influence and modify general marketing. In the case of inter-organisational marketing, it is the purchasing behaviour of organisations that represents the modifying factor. The two partial fields or the two different behavioural forms do not exist insularly, but can effect each other through different market (e.g. intermediary sellers) and social (e.g. belonging to some kind of group or organisation) relationships. This effect is shown by the double arrow to be found in the figure.
1.3The relationship of marketing with some sciences
Considering its essentials, marketing can seem simple, but it deals in reality with very complicated issues. During its development, it has integrated the results of numerous sciences (Webster 1992, Hunt 1991, Michel et al. 2000, and Baker 2000). Among social sciences, we may mention economics and sociology as the especially rich sources of thoughts and theoretical constructions (Baker 2000).