A RE-EXAMINATION OF THE COMMITMENT-TRUST THEORY

A Re-Examination of the Commitment-Trust Theory A RE-EXAMINATION OF THE COMMITMENT-TRUST THEORY Stavros P. Kalafatis Kingston Business School United Kingdom Hamish Miller IMS International United Kingdom ABSTRACT This paper reports on the results of a replication study of the -trust model proposed by Morgan and Hunt (1994). The research has applied the model in a health care environment and attempted to test the generalisability of the model and the stability of the hypothesised paths between the constructs and variables involved. Although the results have provided some support as to the stability of the model they have also indicated the need to, (a) develop more robust measurement scales, (b) test for different conceptualisations of the relationships (i.e. as the original authors stated the evaluation of alternative or extended model specifications), (c) examine the behaviour of its variables and constructs under differing market conditions and for different subpopulations, and (d) investigate the impact of market structures, e.g. number of competitors, on the hypothesised effects of the variables and constructs. 12th IMP Conference 399

Stavros P. Kalafatis Hamish Miller INTRODUCTION Over the past 10 or so years there has been clear evidence to suggest that, in business marketing, the nature of buyer-seller interactions has changed from, adversarial to relationship building, and consequently emphasis has moved away from discrete transactions and towards relational exchanges. At the same time, as Nevin (1995) points out, in recent years, the term relationship marketing has become a 'popular buzzword in both the academic and business press'. His review of the relevant literature indicates that the concept has been used to reflect different perspectives such as directing the flow of promotional efforts towards individuals targeted through database analysis, treating each customer as a segment of one, keeping in touch with customers after a sale has been completed etc. The emergence of relationship marketing (RM) as a driving force in business exchanges, and marketing literature in general, is clearly demonstrated by the fact that a number of authors view this concept as representing a 'fundamental reshaping of the field' (Webster, 1992) which has led towards a genuine paradigm shift in marketing (Gronroos, 1994; Piercy & Cravens, 1995). The increased attention paid to relationship forming factors is further highlighted by the fact that since Dwyer et al. (1987) stated that 'The lack of attention to antecedent conditions and processes for buyer-seller exchange relationships is a serious omission in the development of marketing knowledge' a number of studies have been published which have attempted to define the variables that influence success or failure in business relationships (see among others, Metcalf et al., 1992; Gronroos, 1995; Boyle et al., 1992; Ganesan, 1993 & 1994; Grundlack & Cadotte, 1994; Heide & John, 1990 & 1992; Norris & McNeilly, 1995; Robicheaux & Coleman, 1994). This paper does not attempt to provide a review of the relevant literature. The interested reader is directed to a number of publications that offer excellent overviews on the topic of RM and its implications in terms of buyer-seller relationships, 400 University of Karlsruhe

A Re-Examination of the Commitment-Trust Theory development and management of channels of distribution, formation of strategic alliances etc. (see among others Ford, 1990; Special Issue of the Journal of the Academy of Marketing Science, 1995; European Journal of Marketing, 1996). Instead we provide an empirical examination of trust and as mediating variables in RM. Commitment has long been established as an important element in the understanding of organisational buying behaviour and as Ford (1990) states, together with adaptation and conflict, form a central part of the IMP model. A relatively recent formal definition of is provided by Moorman et ol. (1992) who state that represents 'an enduring desire to maintain a valued relationship', something that Morgan and Hunt (1994) argue is sustained though the continuity of shared values. Trust is viewed by Rotter (1967) as a generalised expectation and is defined as 'a willingness to rely on an exchange partner in whom one has confidence' (Moorman et al, 1992). As a consequence it conveys a confidence in interpersonal or inter-organisational behaviour (Gundlach & Murphy, 1993) and is determined by the level of responsibility and. Research interest in trust and is growing and these two variables have been found to be relevant in such a diverse range of business activities as organisational buying behaviour (Ford, 1990), dissemination of market intelligence (Matlz & Kohli, 1996; Moorman, 1995), employee performance (Ghoshal & Bartlett, 1995), channel conflict (Kumar et al, 1995; Mohr & Spekman, 1994), interpersonal cooperation and team building (Korsgaard et al, 1995; McAllister, 1995), business ethics (Hosmer, 1994), international trade (Yamagishi & Yamagishi, 1994) etc. RESEARCH FRAMEWORK, AIM AND OBJECTIVES The -trust model proposed by Morgan and Hunt (1994) provides the framework of the research presented here. 12th IMP Conference 401

Stavros P. Kalafatis Hamish Miller In their paper they posit that, in RM, relationship and trust are mediating variables which link five antecedents (i.e. ' termination costs', ' benefits', 'Shared values', 'Communications' and 'Opportunistic behaviour') and five outcomes (i.e. 'Acquiescence', 'Propensity to leave', 'Cooperation', 'Functional conflict', and 'Uncertainty'). The model, its hypothesised paths and the respective sign of the relationships are presented in Figure 1 and following the notation of the authors it is referred to as the KMV (key mediating variable) model in the remainder of this paper. The KMV model was tested in the US car tire retailer sector. The solution was found to have a satisfactory fit and the results provided support for twelve of the thirteen hypothesised paths and their signs (the only one not supported was between ' benefits' and 'Commitment'). Therefore, and following examination of the KMV against a competing model, Morgan and Hunt (1994) conclude that 'These findings imply that relationship and trust are not only important variables in marketing relationships,... but also are key mediating variables in these relationships'. Figure 1: The KMV model 402 University of Karlsruhe

A Re-Examination of the Commitment-Trust Theory The main aim of the research presented here has been to test the generalisability of the KMV model. More specifically, the objectives are: a) to test the importance of and trust in the formulation of buyer-seller relationships within the UK health care sector, b) to develop and adapt the key mediating variables of the KMV model, and c) to identify and justify possible modifications to the KMV model. METHODOLOGY The research was carried out in the health care sector, and specifically the market for the provision of care for diabetes within the UK. The target population was defined as 'All health care professionals who were involved in the purchasing of products pertaining to the treatment and management of diabetes within the UK'. This broad definition includes most of the UK hospitals and encompass doctors, nurses and pharmacists. The rationale for applying the KMV model to this sector is based on: a) The belief that the two main variables, i.e. and trust, are necessary in the successful marketing of health care products. For a health care professional to use a company's product(s) they must have considerable trust to the sales representative of the company and they must be convinced of the company's long term to the sector. b) The health care sector represents a sufficiently different environment from the one in which the model was original tested and consequently offers the potential for testing the generalisability of the KMV model. 12th IMP Conference 403

Stavros P. Kalafatis Hamish Miller The sample was drawn, using proportional stratification, from two sources, (a) the British Diabetic Association and Royal College of Nursing Directory, and (b) the Becton Dickinson file (the file contains the names of doctors with an interest in diabetes and pharmacists responsible for purchasing products related to the management of diabetes). Although the authors of the original paper made the model measures available to us it was, nevertheless, decided to carry out a small number of in-depth interviews with health care professionals in order to, (a) obtain some initial feedback on the concept of relationships between buyers and sellers in their sector, and (b) to make any necessary changes in terms of terminology, contents etc. in the measures of the KMV model. As in the original study a seven point Likert scale was used. Given the wide dispersion of the target population it was decided to use a self-administered postal questionnaire for the collection of the data and the Total Design Method proposed by Dillman (1978) was adopted. In total, 850 questionnaires were mailed out and 208 completed and usable questionnaires were received. Given the target population and the known problems associated with researching the medical professions the resulting response rate of 24.5% as considered to be satisfactory. The usual tests of non-response error (i.e. limited follow-ups, comparison of early and late responses etc.) were carried out and we were satisfied as to the representativeness of our sample. RESULTS Reliability and Validity of Constructs Before evaluating the overall model the measurements of each of the reflective constructs were assessed for unidimensionality. Table 1 presents the characteristics of the constructs, the number of items contained in each scale as proposed in the 404 University of Karlsruhe

A Re-Examination of the Commitment-Trust Theory Morgan and Hunt (1994) paper and the number of items employed in the present study. The original scales were revised in order to, (a) make them more relevant to the sector under examination, and (b) reflect the results of the reliability analysis carried out. The findings indicate that the reflective scales posses considerable internal consistency (Cronbach's oc for the constructs were higher than the widely employed threshold of.70 - Churchill, 1979). The validity and reliability of the constructs is also reaffirmed (the estimates, using confirmatory factor analysis, for both reliability and variance extracted exceed their respective recommended levels of 0.70 and 0.50 - Hair et al, 1995). We can therefore, conclude that the results support the proposed structure of the constructs employed. Table 1: Measures of construct reliability and validity Constructs 11 TrustR terminating costsr benefitsf Shared valuesr Communication1" Opportunistic behaviourf AcquiescenceF Propensity to leavef CooperationF Functional conflictf Uncertainty^ Original no of items 7 7 5 4 5 4 3 1 3 5 2 10 Revised no of items F = Formative scale; R = Reflective scale 4 5 3 3 4 3 3 1 3 5 2 6 Cron- Mean Reli- Varibach's a A. ability ance extracted.940.871.973.901.914.819.911.675.866.831.873.698.826.775.858.603 12th IMP Conference 405

Stavros P. Kalafatis Hamish Miller Testing the KMV Model Overall, the analytical approach followed was very similar to the one adopted by Morgan and Hunt (1994). In particular: a) the covariance matrix was analysed using LISREL VII, b) each single-indicant loading of the formative scales was fixed at.950, c) the reflective measures were fixed to their corresponding coefficient alpha values, and d) the exogenous constructs were allowed to correlate (i.e. the O matrix was freed). The results presented in Table 2 indicate, (a) satisfactory fit to the data (GFI =.881 and RMSV =.094), and (b) at cc=.05 provide support for eight of the thirteen hypothesised paths. Looking at the focal elements of the model the following conclusions can be drawn: Antecedents to ' ' and 'Trust': ' benefits', 'Shared values' and 'Trust' were the antecedent of ' ' that are supported by the results. As for 'Trust', the paths supported are 'Shared values' and 'Opportunistic behaviour'. Consequences /outcomes of ' ' and 'Trust': All the hypothesised consequences of the ' ' are supported, while none no hypothesised consequences associated with 'Trust' are supported. 406 University of Karlsruhe

A Re-Examination of the Commitment-Trust Theory Table 2: Hypothesised paths Estimates T- values terminating costs benefits Shared values Shared values ~* ~~* "^ -» Trust -.025.247.245.344 -.618 3.314** it 3.082** * 4.357** * Communications Opportunistic behaviour -> Trust -* Trust -.098 -.208-1.147 3.655** ~* Acquiescence.512 6.405** * ~~* Propensity to leave -.278 4.825** * Trust ~~* Cooperation ~>.202.584 4.090** * 9.318** * Trust "* Cooperation.080 1.423 Trust ~* Functional conflict.153 1.926 Trust ""* Uncertainty.098 1.638 5C2 = 275.14; df = 43; p =.000 GFI =.881; AGFI 0.094 * p < 0.05; p<0.01; p < 0.001 =.868; RMSR - 12th IMP Conference 407

Stavros P. Kalafatis Hamish Miller The significance of the correlations between the exogenous constructs is presented in Table 3. The results provide considerable evidence of shared influence of the exogenous constructs on the endogenous constructs. It is indicated that with the exception of 'Communications' there is significant correlation between all other pairs of exogenous constructs. The above, when considered in combination with the results presented in Table 2, raise some interesting issues for two of the exogenous constructs: a) 'Communications': This construct does not appear to contribute in any substantive way to the development of trust and. It is believed that, given the sector under examination - the products involved were prescription only products - this is not surprising/unexpected. In this sector, the provision of information by itself is perceived as an inappropriate way of communicating, instead informal communications between the manufactures and health care professionals and views of opinion leaders represent the main flow of information. b) ' Terminating Costs': Although the path of this construct, as hypothesised in the KMV model, is not supported it has, nevertheless been found to be significantly correlated to all other exogenous constructs. The explanation can be found in Morgan and Hunt's (1994) paper where they state that '.. could explore types of termination costs other than the economic costs studied here'. It is believed that, for the sector under examination, despite the recent restructuring of the British health case system, financial considerations have secondary importance to performance and conformity to standards. 408 University of Karlsruhe

A Re-Examination of the Commitment-Trust Theory Table 3: Correlations between exogenous constructs ETC RB SV COM OB terminating costs (RTC) benefits (RB) Shared values (SV) Communications (COM) Opportunistic behaviour (OB) 2.399* 3.668* 3.887* ** ** -.680 3.534*.004 ** 2.333* 4.487* 4.024* ** ** -1.726 p < 0.05; p<0.01; p < 0.001 Model Modification/Development The improvement in overall model fit, as indicated by the modification index, was then consulted in terms of the impact of unestimated relationships. The need to examine the effects of antecedents on consequences/outcomes is also stated in the original Morgan and Hunt (1994) paper. Indirect effects: The results presented in Table 4 provide support for, (a) only four of the twenty one indirect effects that were found to be significant in the original paper, and (b) four of the eight significant direct effects of the rival model specified by Morgan and Hunt (1994). The influence of the ' benefits' construct is further highlighted by the fact that it exhibits a significant modification index with all five consequences/outcomes. The 'centrality' of this concept is believed to reflect the importance of the products under consideration in terms of the patients' overall well being, i.e. 12th IMP Conference 409

Stavros P. Kalafatis Hamish Miller high level of product performance is required in order to ensure correct/appropriate diagnosis and subsequent treatment. Within the context of the present study ' benefit' is believed to reflect, (a) the respondents' desire to provide the best possible clinical care, and (b) the severity of incorrect decisions or actions taken. In other words, the relationship between manufacturers and health care professionals reflects a common, overriding, aim which is to provide high quality care. This is believed to manifest itself in a relationship structure in which Trust' is superseded by the importance of ' benefits'. 410 University of Karlsruhe

A Re-Examination of the Commitment-Trust Theory Table 4: Indirect effects terminating costs terminating costs terminating costs benefits benefits benefits benefits benefits Communications Opportunistic behaviour Opportunistic behaviour Trust 14.861» Acquiescence 14. Uncertainty 28.272 > Acquiescence 11.682 Modification index* Propensity to 21.214# leave Cooperation 34.890* Functional conflict 7.493 > Uncertainty Cooperation Propensity leave Cooperation 5.109 21.643 to 5.039 11.167 * * Only those exceeding the recommended value of 3.84 (Hair et al, 1995) are quoted. @ Significant indirect effect in the original KMV model # Significant direct effect in the rival model Reciprocal causality: In a similar way to indirect effects, there are clear indications of reciprocal causality between almost all the endogenous constructs (Table 5). Of particular interest are 12th IMP Conference 411

Stavros P. Kalafatis Hamish Miller 'Cooperation' (exhibits reciprocal causality with five of the six endogenous constructs) and, to a lesser extent, 'Acquiescence' and 'Functional conflict' (both exhibit reciprocal causality with four endogenous constructs). The continuous evaluation (in the form of clinical trials), modification and adaptation of products as well as efforts by the manufacturers to encourage use of their products is seen as resulting in increased levels of 'Cooperation'. The same explanation is offered in terms of 'Functional conflict' and 'Acquiescence', i.e. continuous product adaptation, based on feedback obtained from health care professionals, results in an evolving process of product improvement which in turn reduces hostility and disagreements and ensures that the views of both parties receive due consideration. CONCLUSIONS We feel that the results reported here provide partial support to the overall stability of the KMV model and offer some evidence as to its generalisability. The GFI measures of fit are very similar between the two studies and the directions of the causal relationships appear to be stable. Certain indirect paths identified by the original study, e.g. ' terminating costs' and 'Acquiescence', 'Opportunistic behaviour' and 'Propensity to leave' have also been confirmed. The position of 'Commitment' and 'Trust' as 'key mediating variables' appears, on the whole, to be justified and the hypothesis and the structural relationship between Trust' and 'Commitment' is supported. Furthermore, the two main suggestions for further research expressed in the original paper have been found to apply. 412 University of Karlsruhe

A Re-Examination of the Commitment-Trust Theory Table 5: Reciprocal causality Trust Acquiescence Acquiescence Acquiescence Acquiescence Propensity to leave Propensity to leave Propensity to leave Propensity to leave Cooperation Cooperation Cooperation Cooperation Cooperation Functional conflict Functional conflict Functional conflict Functional conflict Uncertainty Uncertainty Uncertainty ~~* Functional conflict "^ Acquiescence ~^ ~~* Propensity to leave ~~* Cooperation ~~* Functional conflict ~* Acquiescence ~~* Cooperation ~^ Functional conflict ~* Uncertainty ~* -* Trust "^ Acquiescence ~> Propensity to leave ~* Functional conflict ""* "* Acquiescence ~~* Cooperation ~* Uncertainty ~* Acquiescence ~* Propensity to leave ~* Functional conflict Modification index 9.757 5.999 12.932 6.760 16.430 21.392 6.766 22.148 6.234 11.195 25.555 4.664 18.274 22.151 23.484 6.756 16.305 17.223 4.715 4.374 11.325 4.715 * Only those exceeding the recommended value of 3.84 (Hair et al, 1995) are quoted. 12th IMP Conference 413

Stavros P. Kalafatis Hamish Miller More specifically, the findings presented here have highlighted the need for, 1. alternative approaches to construct measurement has been highlighted. The call for a more thorough examination of some of the scales, e.g. ' terminating costs', 'Communications' etc. is supported. 2. the redefinition and further development of the KMV model, through the closer examination of: i) the direct effects (for example, the lack of support for the 'Trust'-^'Uncertainty' path can easily be explained by the fact that in the health case sector unless a product has officially been approved cannot be used or prescribed, consequently uncertainty in terms of product performance does not exist), ii) indirect effects (for example, see comments on the link between ' benefits' and 'Cooperation'), and iii)the inter-construct relationships (see debate on reciprocal causality), appears to offer an avenue for a better conceptualisation of the roles that and trust play in RM. At the same time the present research has identified the following issues that either need to be addressed or may have confounded the reported results: 1. Construct relationships may depend on the sector under investigation, in which case the generalisability of the model is in question. 2. The aggregation of respondents, i.e. examination of the combined views of health care professionals with differing responsibilities, seniority etc., may have distorted the results. 414 University of Karlsruhe

A Re-Examination of the Commitment-Trust Theory REFERENCES Boyle, B., Dwyer, F.R., Robicheaux, R.A. and Simpson, J.T. (1992), "Influence Strategies in Marketing Channels: Measures and Use of Different Structures", Journal of Marketing Research XXIX (November):462-473. Churchill, G.A. (1979), A Paradigm for Developing Better Measures of Marketing Constructs, Journal of Marketing Research 16 (February):64-73. Dillman, D.A. (1978); Mail and Telephone Surveys: The Total Design Method; New York:John Wiley Dwyer, F.R., Schurr, P.H. and Oh, S. (1987), "Developing Buyer- Seller s", Journal of Marketing 51(April):ll-27. European Journal of Marketing (1996) Volume 30 No 2 Ford, D. (editor) (1990), Understanding Business Markets, San Diego:Academic Press. Ganesan, S. (1993), "Negotiation Strategies and the Nature of Channel s", Journal of Marketing Research XXX(May): 183-203. Ganesan, S. (1994), "Determinants of Long-Term Orientation in Buyer-Seller s", Journal of Marketing 58(April):l-19. Ghoshal, S. & Bartlett, C.A. 91996); Rebuilding Behavioural Context - A Blueprint for Corporate renewal; Sloan Management Review 37(2):23-36. Gronroos, C. (1995), Marketing: The Strategy Continuum; Journal of the Academy of Marketing Science 23(4):252-254. 12th IMP Conference 415

Stavros P. Kalafatis Hamish Miller Gronroos, C. (1994), From Marketing Mix to Marketing: Towards a Paradigm Shift in Marketing, Management Decision 32(2):4-20. Gundlach, G.T. and Cadotte, E.R. (1994), "Exchange Interdependence and Interfirm Interaction: Research in a Simulated Channel Setting", Journal of Marketing Research XXXI(November):516-532. Hair, J.F., Anderson, R.E., Tatham, R.L. and Black, W.C. (1995), Multivariate Data Analysis; 4th edition, New York:Macmillan Publishing Company. Heide, J. & John, G. (1990); Alliances in Industrial Purchasing: The Determinants of Joint Action in Buyer-Seller s; Journal of Marketing Research, 52(January):24-36. Heide, J. & John, G. (1992); Do Norms Matter in Marketing s?; Journal of Marketing 56(April):22-44. Hosmer, L.T. (1994); Strategic-Planning as if Ethics Mattered; Strategic Management Journal 15:17-34. Journal of the Academy of Marketing Science (1995); Special Issue on Marketing Volume 23 No 4. Korsgaard, M.A., Schweiger, D.M. & Sapienza, H.J. 91995); Building Commitment, Attachment and Trust in Strategic Decision-Making Teams - The Role of Procedural Justice; Academy of Management Journal 38(l):60-84. Kumar, N., Scheer, L.K. & Steenkamp, J.B.E.M. (1995); The Effects of Perceived Interdependence on Dealer Attitudes; Journal of Marketing Research 32(3):348-356. McAllister, D.J. (1995); Affect-Based and Cognition-based Trust as Foundations for Interpersonal Cooperation in Organisations; Academy of Management 38(l):24-59. 416 University of Karlsruhe

A Re-Examination of the Commitment-Trust Theory Maltz, E. & Kohli, A.K. (1996); Market InteUigence Dissemination Across Functional Boundaries; Journal of Marketing Research 33(1):47-61. Metcalf, L.E., Frear, C.R. and Krishnan, R. (1992), "Buyer-Seller s: An Application of the IMP Model", European Journal of Marketing 26(2):27-46. Mohr, J. & Spekman, R. (1994); Characteristics of Partnership Success - Partnership Attributes, Communication behaviour, and Conflict-Resolution Techniques; Strategic Management Journal 15(2): 135-152. Moorman, C. (1995); Organisational Market-Information Process - Cultural Antecedents and New Product Outcomes; Journal of Marketing Research 32(3):318-335. Moorman, C., Zaltman, G & Deshpande, R. (1992); s Between Providers and Users of Marketing Research; Journal of Marketing Research 29(August):314-329. Morgan, R.M. and Hunt, S.D. (1994), The Commitment-Trust Theory of Marketing, Journal of Marketing 58(July):20-38. Nevin, J.R. (1995), Marketing and Distribution Channels: Exploring Fundamental Issues; Journal of the Academy of Marketing Science 23(4):337-334. Norris, G.D. & McNeilly, K.M. (1995); The Impact of Environmental Uncertainty and Asset Specificity on the Degree of Buyer-Supplier Commitment; Journal of Business-to-Business Marketing 2(2):59-85 Piercy, N.F. and Cravens, D.W. (1995), "The Network Paradigm and the Marketing Organisation", European Journal of Marketing 29(3):26-34. 12th IMP Conference 417

Stavros P. Kalafatis Hamish Miller Robicheaux, R.A. and Coleman, J.E. (1994), "The Structure of Marketing Channel s", Journal of the Academy of Marketing Science 22(1):38-51. Rotter, J. (1967); A New Scale for the Measurement of Interpersonal Trust; Journal of Personality 35(4):651-665. Webster, F.E. Jr. (1992), Industrial Marketing Strategy; 3rd edition, New York:John Wiley & Sons. Yamagishi, T. & Yamagishi, M. (1994); Trust and Commitment in the United States and Japan; Motivation and Emotion 18(2):129-166. 418 University of Karlsruhe