Relationship Quality in Business-to-Business Relationships

Transcription

1 Marion A. Kempeners Relationship Quality in Business-to-Business Relationships Eindhoven University of Technology Graduate School of Industrial Engineering and Management Science Department of Accounting, Finance and Marketing PO Box MB Eindhoven The Netherlands Telephone: Fax: Paper for 11 th IMP Conference, Manchester Abstract In today's business world a strong relationship with customers gives the supplier the competitive edge. An important factor in the relationship between supplier and customer is the quality of relationship, which determines the probability of continued interchange between supplier and customer in the future. In previous research mainly commitment, trust and satisfaction are seen as determinants of relationship quality. These elements are intangible, more psychological elements of the relationship itself. More tangible elements outside the relationship deserve also attention, while these elements influence relationship quality substantially. All elements can be divided into four groups mentioned in decreasing order of importance: relational, personal, organisational and environmental. In addition, a tool is proposed by which customers can be classified and the quality of relationships for each customer type can be determined and improved. 1629

2 Relationship quality Especially the last few years relationship management is seen as valuable means for business-to-business markets by suppliers and customers, contrary to several years ago when there was more emphasis on transactions (Christopher, Payne and Ballantyne 1991; Evans and Laskin 1994). A shift is noticeable in Webster's (1992, p.5) range of marketing relationships from transactions and repeated transactions to long term relationships and buyer-seller partnerships. The importance of long term relationships is increasing for many suppliers and customers. Customers decrease their number of suppliers and increase their outsourcing (Van Weele 1994). Suppliers notice that their performance depends not only on their own efforts, skills and resources, but also on the efforts, skills and resources of other companies that buy their products or services. (Wilkinson and Young 1994). The customer is a valuable asset for (he company. Customers and especially the important key accounts provide continuity and are contributory to the success of the company. The quality of the relationship determines the probability of continued interchange between supplier and customer in the future. A high relationship quality supposes a good relationship, whereas a low relationship quality supposes a bad relationship. Christopher, Payne and Ballantyne (1991) have argued that in markets where companies offer similarly high levels of product quality, the quality of an ongoing relationship becomes a way of gaining competitive advantage. This paper starts with discussing previous research on relationship quality. The concept of relationship quality is not mentioned very much in the relationship management literature. Some articles highlight the concept, but a clear explanation of the term relationship quality is not given by any of the authors. Also, these articles identify different elements influencing relationship quality. Primarily, these elements are intangible, more psychological elements of the relationship itself, like trust or commitment. However, little notice is given to more tangible elements outside the relationship deserve also attention, while these elements influence relationship quality substantially. For example, market position or company image have a considerable effect on relationship quality. These additional elements will be identified and classified into four groups of elements and positioned into a model. Furthermore, a tool is proposed by which customers can be classified and the quality of relationships for each customer type can be determined and improved. 1630

3 Previous research on relationship quality Relationship quality is not a widely used concept in the relationship management literature. In some articles (Holmlund and Kock 1995, Szmigin 1993) relationship quality is mentioned concerning business-to-bustness services, but these anicles generally highlight the quality of services instead of the quality of relationships. However, some authors do highlight the concept of relationship quality and these will be discussed below. Often relationship quality has been discussed as a bundle of intangible value that augments products and results in an expected interchange between customers and sellers (Lagace, Dahlstrom and Gassenheimer 1991). Some studies of relationship quality have identified individual components of relationship quality, using concepts and measurement devices used in social psychology. Analogies have been drawn between customer-seller relationships and relationships within families. (Wray, Palmer and Bejou 1994). According to these authors the components of relationship quality are complex, with significant interaction between the contributory components. It is not precisely clear which elements determine or predict relationship quality. Relational elements influencing relationship quality Crosby, Evans and Cowles (1990) advanced and tested a model that examines the nature, consequences and antecedents of relationship quality in services selling, as perceived by the customer. Relationship quality is viewed by Crosby et.al. as a higher order construct composed of at least two dimensions: trust in the sales person and satisfaction with the salesperson. High relationship quality means that the customer can rely on the salesperson's integrity and has confidence in the salesperson's future performance because the level of past performance has been consistently satisfactory. Lagace, Dahlstrom and Gassenheimer (1991) and Wray, Palmer and Bejou (1994) extended the work of Crosby et.al. They too, see relationship quality as a construct, consisting of trust and satisfaction. Morgan and Hunt (1994) do not use the term relationship quality. Their concept of 'the commitment-trust theory', however, shows certain similarities with the model of Crosby et.al. Successful relationship management requires commitment and trust, which are key elements, because: they encourage marketeers to work at preserving relationship investments by cooperation with exchange partners; resist attractive short-term alternatives in favour of the expected long-term benefits of staying with existing partners; view potentially high-risk actions as prudent because of the belief that their partners will not act opportunistically. 1631

4 Therefore, when both commitment and trust are present, this will lead directly to cooperative behaviour that is conducive to relationship management success, but commitment is the central element in Morgan and Hunt's theory. Commitment, trust and satisfaction in relationships According to this previous research three elements influencing relationship quality can be identified - commitment, trust and satisfaction - and will be discussed in brief below. Commitment Commitment is identified as an important element among others by Anderson, Hakansson and Johanson (1994); Dwyer, Schurr and Oh (1987); Han, Wilson and Dant (1993) and as we have seen before by Morgan and Hunt (1994). Morgan and Hunt define relationship commitment as an exchange partner believing that an ongoing relationship with another partner is so important as to warrant maximum efforts at maintaining it. The committed party believes that the relationship is worth working on to ensure that it endures indefinitely. According to Anderson, Hakansson and Johanson (1994) relationship commitment captures the perceived continuity or growth in the relationship between two firms. This continuity is a closely related construct, which reflects each firm's perception of the likelihood that the relationship will continue. Also, Dwyer, Schurr and Oh (1987) identify inputs, durability and consistency as major themes in commitment. All these definitions of commitment show the definitive objective of relationship management: long term relationships. Trust Social psychology and related fields outside marketing have addressed the importance of trust in interpersonal dyads. More recently the role of trust in long term relationships has received more attention. (Dwyer, Schurr and Oh 1990). Trust is, even more than commitment, mentioned as a key element in the relationship management literature, (e.g. Anderson and Weitz (1989); Crosby, Evans and Cowles (1990); Dion, Easterling and Miller (1995); Ganesan (1994); Han, Wilson and Dant (1993); Lagace, Dahlstrom and Gassenheimer (1991); Morgan and Hunt (1994); Wray, Palmer and Bejou (1994).) Trust is mentioned by sellers as the important element in relationship management. Morgan and Hunt (1994) define trust as existing when one party has confidence in an exchange partner's reliability and integrity. Ganesan (1994) uses the definition of Moorman, Zaltman and Deshpande (1992) 'trust is the willingness to rely on an exchange partner in whom one has confidence'. The reason that trust is such a necessary ingredient for long-term orientation is that it shifts the focus to future conditions. According to Dion, Easterling and Miller (1995) interpersonal trust is the binding force in most productive customer/seller relationships. They define trust as a 'reliance upon information received from another person about uncertain environmental states and their accompanying outcomes in a risky situation'. In relationships characterized by trust, customers can rely on information provided by sellers. They even say that (rust is reciprocal and a perceptual concept 'it is in the minds of both customers and sellers'. 1632

5 Furthermore, trust has a positive influence on sales outcomes. It has been shown that trust of the seller is an important variable: that can help win new customers; that is an aid to cooperation; that has led to a customer becoming more willing to inform a salesperson about future buying needs; that influences buyer-seller interaction. Also, development of trust has been related, in part, to a customer's personality, the salesperson's characteristics and behaviour and to the customer's attribution of the salesperson's trustworthiness and other characteristics. Clearly, trust is a critical element in developing successful relationships. Satisfaction Satisfaction is also mentioned as an important element in relationship quality (e.g. Crosby, Evans and Cowles (1990); Lagace, Gassenheimer and Dahlstrom (1991) and Wray, Palmer and Bejou (1994)). According to Fiocca and Snehota (1994) satisfied customers are the basis of satisfactory economic and financial performance for any business enterprise. Satisfied customers: are less price sensitive, are more loyal; buy more, which affects positively the margins and profits; talk positively about the company products; want different products from the same seller; seem to stimulate companies to innovate and develop products that can affect positively the growth performance over time. Satisfied customers are thus an asset of the company. According to Ganesan (1994) there is a significant relationship between satisfaction with outcomes and commitment to a relationship. It is not surprising (hat a feature of a good relationship is satisfied partners. (Han, Wilson and Dam 1993). Concluding from the above, satisfied customers lead to higher levels of relationship quality. The relationship quality model It is remarkable that in previous research only the intangible, more psychological elements of the relationship itself have been mentioned, because more tangible elements have considerable effects on relationship quality as well. For example, services can lead to customer satisfaction and commitment and therefore influences relationship quality (Van der Hart, Wollaert and Wouters 1994). All elements can be divided into four groups mentioned in decreasing order of importance: relational, personal, organisational and environmental. The group of relational elements trust, satisfaction and commitment were discussed before. The other three group of elements - personal, organisational and environmental - will be discussed below. 1633

6 Personal elements A relationship must ultimately depend on the interaction of the individuals who participate. At least two individuals are involved, more commonly several individuals from different functional areas at different levels are involved (Campbell 1985; Hakansson (ed.) 1982). The various personal elements influence the relationship in a direct way. The personal elements can include relational selling behaviour and salesperson attributes. According to Crosby, Evans and Cowles (1990) relational selling behaviour includes mutual disclosure, cooperation and contact intensity. Contact intensity is the frequency with which the salesperson communicates (face-to-face or indirectly) with the customer, either for personal or business purposes. Salesperson attributes include similarity (appearance, lifestyle and socioeconomic status) and expertise. The general assumption is that salespeople perceived as similar to the customer are more likely to be successful, all other things being equal. Furthermore, salesperson expertise is noted as an important determinant of sales performance. Organisational elements The relationship between seller and customer will depend on the organisational elements of the parties involved. According to Hakansson {ed.) (1982), technology, size, structure and strategy are organisational aspects that can influence a relationship. Campbell (1985) distinguishes relative size, preferred interaction style, relative familiarity and centralization of purchasing as organisational elements. The relative size of the two companies is obviously important. It is more likely that a large company with considerable resources has a greater possibility of dominating its customers or suppliers than a small company has. When both companies are around the same size it is more likely that the power is well balanced and an equal relationship exists. Also, the organisational structure of the selling and buying company is important. According to Verra (1993) the structure of the selling company has to be the same as the buying company e.g. a centralized buying company requires a centralized selling company. This guarantees that both parties communicate on the same level. Other organisational elements can be based on the well-known marketing tools, the Four Ps: product, price, place (distribution) and promotion. These Four Ps include several aspects (partly based on Brand 1994 and Kotler 1988): Product: features, options, services, quality, technology, packaging, sizes, performance etc. Price: list price, discounts, credit terms, price image of the company, purchasing, operating costs etc. Distribution: availability, reliability, customer service etc. Promotion: general reputation, regular information bulletins, customer days etc. All these elements will influence the relationship. For example, a selling company with an excellent market reputation, quality products with fair prices and with reliable delivery is likely to keep its customers. A selling company which launches a new product with poor product quality can easily lose its customers, although a relationship already exists. 1634

7 Environmental elements Companies interact with each other in an environmental setting. This setting is a more or less given situation for the company. The environmental setting, however, can influence a relationship. Several aspects of the interaction environment can be distinguished (Hakansson (ed.) 1982; Campbell 1985): Market structure The market structure depends in part on the concentration of both buyers and sellers and the number of alternate partners. With many competitors, for instance, it is hard to maintain the relationship, but it is also much more necessary. Dynamism The degree of dynamism in the market affects the relationship. Buyers in dynamic markets tend to use competitive buying strategies to protect themselves from being tied to a partner who cannot keep pace. Internationalization The degree of internationalization of the business environment not only affects the number of buyers and sellers but may also affect the company's organization in needing, for example, foreign sales agents or special knowledge about a certain country. Position in the manufacturing channel The relationship between buyer and seller can be influenced by the relationships the seller as well as the buyer have. The social system When trying to establish a relationship with a foreign buyer cultural differences, governmental and trade regulations can influence the relationship. Doing business in a certain market can require a 'language' and knowledge of the rules. The model as shown in figure 1 is partly based on the nested approach for industrial market segmentation from Shapiro and Bonoma (1984). They identified five general segmentation criteria, which they have arranged like a set of Russian wooden dolls. Moving from the outer nest towards the inner, these criteria are: demographics, operating variables, customer purchasing approaches, situational factors, and personal characteristics of the customer. The same idea can be used for describing relationship quality. Moving from the outer nest to the inner nest, these elements are: environmental, organisational, personal and relational elements. Moreover, this model shows some similarities with The Interaction Approach from the IMP Group (Hakansson (ed.) 1982) and Campbell (1985). 1625

8 L Environmental Organisational Personal A :A Relational *\ i 1*1 r r T 1 J elements V elements elements elements Figure 1. The relationship quality model. Assessing measures for relationship quality Relationship, personal, organisational and environmental elements can be helpful in an attempt to measure relationship quality. For example, contact intensity can be fairly easy measured. A possible way of measuring the element is to link the relationship elements with activities a seller can undertake to influence the relationship. By means of a survey it can be asked which activities the seller already undertakes. This gives an impression about the present relationship quality. The next step is to determine the desired relationship quality and to compare the desired relationship quality with the measured relationship quality. Finally, when necessary, the relationship quality can be adjusted. Customer classification Companies have all sorts of customers, for example, very important customers (so-called key accounts) who buy extensive quantities or very small, unimportant customers. All customers a company have, can be classified into fairly homogeneous groups. The assumption is that the relationship quality differs for each customer type. The objective of relationship management is to realize a high-quality relationship with the important customers. Campbell and Cunningham (1983) distinguish four customer types: tomorrow's customer, today's special customer, today's regular customer and yesterday's customer. For each type a different relationship quality is required. (See figure 2) 1636

9 Sales volume Tomorrow's customer 1 Today's special customer High Today's regular customer Average Yesterday's customer Age of relationship New Old Average Old Profitability of customer to supplier High Average Marketing resources High High Average Relationship quality Enhance High Average Figure 2. Customer classification and relationship quality (based on Campbell and Cunningham 1983). Thus the way relationship quality can be assessed consists of the following steps: 1. Analysis and classification of customers into customer types. 2. Determination of desired relationship quality for each customer type. 3. Measuring the quality of the present relationship. 4. Adjustment of present relationship to the desired relationship quality. These steps are shown in figure 3: Present Relationship Quality Compare Customer Classification T Desired Relationship Quality Adjust Present Relationship Quality Desired Relationship Quality Figure 3. The proposed tool. By means of the proposed tool the present relationship quality can be evaluated. By comparing the desired relationship quality with the present quality, the present quality can be adjusted.

10 Further research The proposed tool and relationship quality model will be further developed by means of a case study design. Approximately between five and ten case studies will be carried out in companies that produce capital or bulk goods. The First case study in a subsidiary of a large Dutch industrial company has been finished yet. During these case studies the relationship quality model and tool will be tested and improved. Conclusions Especially the last few years relationship management is seen as valuable means for business-to-business markets by suppliers and customers. A factor of significance in the relationship between supplier and customer is the quality of relationship. In previous research mainly commitment, trust and satisfaction are seen as determinants of relationship quality. These elements are intangible, more psychological elements of the relationship itself. More tangible elements have also considerable effects on relationship quality. Four groups of elements can be distinguished relational, personal, organisational and environmental - and placed in a relationship model. By means of this model the concept of relationship quality is better understandable. In addition, a tool is proposed by which customers can be classified and the quality of relationships for each customer type can be evaluated and improved. This tool can be very valuable for companies who like to improve their relationship with their customers. References Anderson, E. and B. Weitz (1989), 'Determinants of Continuity in Conventional Industrial Channel Dyads', Marketing Science, vol.8, no. 4, pp Anderson, J.C., H. Hakansson and J. Johanson (1994), 'Dyadic Business Relationships Within a Business Network Context', Journal of Marketing, vol. 58, October, pp Brand, M.J. (1994), 'Een simulaliemodel voor het koopgedrag van organisaties; implicates voor industriele marketeers', Maandblad voor Accountancy en Bedrijfseconomie, vol. 68, no.7/8, pp (Dutch text). Campbell, N.C.G. and M T. Cunningham (1983), 'Customer Analysis for Strategy Development in Industrial Markets', Strategic Management Journal, vol. 4, pp Reprinted in: D. Ford (ed.)(1990). Understanding Business Markets; Interaction. Relationships and Networks, Cambridge. Campbell, N.C.G. (1985), ' An Interaction Approach to Organizational Buying Behaviour', Reprinted in: D. Ford (ed.) (1990), Understanding Business Markets; Interaction, Relationships and Networks, Cambridge. Christopher, M., A. Payne and D. Ballantyne (1991), Relationship Marketing; Bringing quality, customer service and marketing together, Oxford.

11 Crosby, L.A., K.R. Evans and D. Cowles (1990), 'Relationship Quality in Services Selling: An Interpersonal Influence Perspective', Journal of Marketing, vol. 54, July, pp Dion, P., D. Easterling and S.J. Miller (1995), 'What Is Really Necessary in Successful Buyer/Seller Relationships', Industrial Marketing Management, vol. 24, no. 1, pp Dwyer, F.R., P.M. Schurr and S. Oh (1987), 'Developing Customer-Seller Relationships', Journal of Marketing, vol. 51, April, pp Evans, J.R. and R.L. Laskin (1994), 'The Relationship Marketing Process: A Conceptualization and Application', Industrial Marketing Management, vol. 23, pp Fiocca, R and I. Snehota (1994), 'Customer Focus and Management of Buyer-Seller Relationships', In: W.G. Biemans and P.N. Ghauri, Proceeding of 10th IMP Annual Conference, Groningen. Ganesan, S. (1994), 'Determinants of Long-Term Orientation in Buyer-Seller Relationships', Journal of Marketing, vol. 58, no. 2, pp Man, S.L., D.T. Wilson and S.P. Dant (1993), 'Buyer-Supplier Relationships Today', Industrial Marketing Management, vol. 22, pp Hart, H.W.C. van der, M.A.M. Wollaert and J.P.M. Wouters (1994), 'De servicemix; Uitgangspunt voor succesvol relatiemanagement', Bedrijfskunde, vol. 66, no. 4., pp (Dutch text). Holmlund, M. en S. Kock (1995), 'Buyer Perceived Service Quality in Industrial Networks', Industrial Marketing Management, vol. 24, pp Hakansson, H. (ed.) (1982), International Marketing and Purchasing of Industrial Goods; An Interaction Approach. Reprinted in: D. Ford (ed.) (1990), Understanding Business Markets; Interaction, Relationships and Networks, Cambridge. Kotler, P. (1988), Marketing Management; Analysis, Planning, Implementation and Control, 6th ed., Englewood Cliffs, New Jersey. Lagace, R.R., R. Dahlstrom and J.B. Gassenheimer (1991), 'The Relevance of Ethical Salesperson Behavior on Relationship Quality: The Pharmaceutical Industry', Journal of Personal Selling & Sales Management, vol. 6, no. 4, pp Moorman, C., G. Zaitman and R. Despande (1992), 'Relationships Between Providers and Users of Market Research: The Dynamics of Trust Within and Between Organizations', Journal of Marketing Research, vol. 14, August, pp Morgan, R.M. and S.D. Hunt (1994), The Commitment-Trust Theory of Relationship Marketing', Journal of Marketing, vol. 58, July, pp Shapiro, B.P. and T.V. Bonoma (1984), 'How to Segment Industrial Markets', Harvard Business Review, vol. 62, no. 3, pp Szmigin, l.t.d. (1993), 'Managing Quality in Business-to-Business Services', European Journal of Marketing, vol. 27, no. 1, pp Verra, G.J. (1993), 'Account management: samenwerking tussen divisies', Verkopen!, no. 6, pp (Dutch text). Webster Jr., F.E. (1992), 'The Changing Role of Marketing in the Corporation', Journal of Marketing, vol. 56, October, pp Weele, A.J. (1994), Purchasing Management; Analysis. Planning and Practice, London. Wilkinson, I.F. and L.C. Young (1994), 'Business Dancing; Understanding and Managing Interfirm Relations', In: W.G. Biemans and P.N. Ghauri, Proceeding of 10th IMP Annual Conference, Groningen. Wray, B., A. Palmer and D. Bejou (1994), 'Using Neural Networks Analysis to Evaluate Buyer-Seller Relationships', European Journal of Marketing, vol. 28, no. 10, pp