Examination of Factors Affecting Relationship Continuity Intention of Buyers in Business to Business Relationships: A Research Model

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1 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 Copyright protected by Vinod Gupta School of Management, Indian Institute of Technology Kharagpur, INDIA. The contents of this paper are preliminary in nature and should only be used for discussion. Users of this paper are requested to ensure that the paper is duly acknowledged and appropriately referenced. The contents of this paper may not be copied and/ or distributed without the permission of the authors. Enquiries and comments regarding this paper may please be addressed to the authors at satyamti@gmail.com and kalyan@vgsom.iitkgp.ernet.in. The authors are solely responsible for the authenticity, accuracy, and originality of the contents of this paper. Vinod Gupta School of Management and Indian Institute of Technology Kharagpur assume no responsibility for the authenticity, accuracy, or originality of the contents of this paper.

2 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

3 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 longerterm 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

4 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 3

5 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 interfirm 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 4

6 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 interorganisational 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 interpersonal 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. 5

7 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 6

8 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. 2.3 Inter-personal Trust and Inter-organisational Trust: Inter-personal trust (or trust in the salesperson) is trust placed by the individual in his or her individual opposite member, while inter-organisational trust is the extent of trust placed in the partner organisation by the members of a focal organisation (Zaheer, et al., 1998). Some researchers have treated trust as an anthropocentric notion and therefore linked it to human beliefs, sentiments, or intentionality (Solomon and Flores, 2001; Fukuyama, 1995; Rotter, 1967). Morgan and Hunt s (1994) commitment and trust theory reinforces the use of inter-personal conceptualisation of trust (Mayer et al.,1995). Consequently business managers or sales managers have been regarded as initiator of trust in exchange relationships (Jeffries and Reed, 2000). It can be argued that exchanges between organisations also includes exchanges between individuals or groups of individuals (Barney and Hansen, 1994) and people may develop trust in the organisation through this exchanges (Morgan and Hunt, 1994; Doney and Cannon, 1997). Although, trust in the salesperson is expected to have a direct positive effect on interorganisational trust through the transference process, it is not expected to directly affect the relationship continuity intention of customer. This argument is also consistent with the finding of Doney and Cannon (1997). Generally speaking a steel buyer like an automobile company will not intend to continue its relationship with a steel supplier only because the particular salesperson is trust worthy. The main reason for a continued 7

9 relationship would be the reliability and benevolence of the steel supplier which basically means that the buyer has to trust the organization and not merely the salesperson. The above arguments lead to following hypotheses: H2: Greater trust in salesperson is associated with greater inter-organisational trust. H2a: Inter-organisational trust(trust in supplier) mediates the positive effect of Interpersonal trust (trust in salesperson) on buyer s relationship continuity intention 2.4 Salesperson s Personal Characteristics: Social exchange theory suggests that reciprocal exchange of positive and valuable information enhances the trust and commitment in the relationship. Frequent and healthy exchange is expected to bring the parties closer to each other and foster lasting relationship. Greater and healthy interaction between the organisations is expected to facilitate interpersonal and social bonding, which in turn is expected to foster trust. Most of the time it is the salesperson or key account manager of the steel company who interacts with customer organisation. Therefore the characteristic of the salesperson will have significant impact on the trust of the salesperson. In a study in the BtoC context, Crosby et.al (1990) sought to determine the effects of customer-salesperson similarity, salesperson expertise and use of relational selling behaviour by salesperson on customer s perception of relationship quality. Crosby et.al (1990) findings suggested that salesperson expertise and use of relational selling behaviour were significant predictor of relationship quality. Salesperson similarity was not found to be significant predictor relationship quality. Extending this study to BtoB context, Boles et.al (2000) found support for their hypothesis regarding positive effect of salesperson expertise on relationship quality. However, salesperson similarity was not found to be a significant predictor of relationship quality. Nicholson et al., (2001) studied the mediating role of interpersonal liking in building trust in channel relationship. The results suggests that liking of the salesperson has major influence on trust. The other characteristics of the salesperson like similarity of business values and frequency of visit operate through liking. In another important study in BtoB context, Doney and Cannon (1997) found that salesperson related characteristics like, expertise, likability, similarity in values and 8

10 frequency of visit of the salesman were important antecedent factors for buying firm s trust in salesperson. Thus, taking cue from the findings of these studies, we have considered expertise, likability and similarity in values as three important salesperson characteristic that has positive effect on trustworthiness of the salesperson. Frequency of visit of the salesperson has been captured in the communication construct which is about both formal and informal communication Expertise of the Salesperson: Expertise of a salesperson affect a buying firm s trust by increasing its confidence that a salesperson can deliver on his or her promises. Empirically, the role salesperson s expertise plays in developing trust has received little attention in B2B marketing literature. Busch and Wilson (1976) found that buyers view salespeople with higher level of perceived expert power as more trustworthy. In a study examining the use of market research, Moorman et.al (1992) found that researcher expertise is an important foundation for trust. As discussed earlier, in their study in insurance industry, Crosby et.al (1990) showed that perceived expertise of an insurance agent is a significant predictor of buyer trust. However, it is not expected that, buyers will have relationship continuity intention simply because of the expertise of the salesperson. The above arguments lead to following hypotheses: H3: Expertise of the salesperson will be positively related to buying firm s trust in the salesperson. H3a Trust in the salesperson and Trust in the supplier organisation will mediate the positive effect of expertise of the salesperson on the relationship continuity intention Likability of the Salesperson: Likability of the salesperson refers to the buyer s assessment that people in the buying firm find the salesperson friendly, nice and pleasant to be around. Work by Rotter (1980) in psychology found positive relationship between a person s likability and the extent to which the person is trusted by others. Usually initial trust depends on buyer s confidence in predicting the accuracy of statements made by the salesperson. Empirical studies in 9

11 business marketing show that feeling of trust in salespersons are positively related to liking. Buyers are more confident about the salesperson that they like (Swan and Nolan, 1985). Swan et al (1988) found that likability is a distinct dimension of trust in the salesperson. Hawes et al (1989) found that buyers attach positive trust earning value to manufacturer s representatives who are more likable. The above arguments lead to following hypotheses: H4: Likability of the salesperson will be positively related to buying firm s trust in the salesperson. H4a Trust in the salesperson and supplier organisation would mediate the positive effect of likeability of the salesperson on the relationship continuity intention Similarity in business values of the Salesperson: This construct assesses the buyer s belief that the salesperson shares common interests and values with people in the buying firm. Similarity can be a cue for expecting the other party to facilitate one s goals (Johnson and Johnson, 1972). Buyers who perceive salespeople to be similar to them could expect such salespersons to hold common beliefs about what behaviours, goals and policies are appropriate and what are not appropriate. Similarity is likely to reduce overall uncertainty associated with the trading partner due to implicit or explicit acceptance of common goal systems and daily procedures. The buyer perceives that both parties place value on the same issues and does not have to worry about being taken advantage of. Trust develops because buyer is better able to assess the salesperson s intentions. Better understanding of the salespersons motivations also makes it easier for a buyer to predict the salesperson s future behaviour. However, empirical support for the effect of similarity has been mixed. While studying relationship quality in service context, Crosby et al. (1990) did not find a positive relationship between similarity of business values and relationship quality. While explaining the non significant result, the researchers have mentioned that people have inherently low levels of trust towards salespeople in general and therefore required more than just similarity of values for developing relationship quality. Whereas, as mentioned earlier, Doney and 10

12 Cannon (1997) has found in their study that similarity of the salesperson is a significant predictor of salesperson trust. The above arguments lead to following hypotheses: H5: Similarity of the salesperson will be positively related to buying firm s trust in the salesperson. H5a Trust in the salesperson and supplier organisation would mediate the positive effect of similarity of the salesperson on the relationship continuity intention. 2.5 Effect of Communication: Communication would broadly mean formal as well as informal sharing of meaningful and timely information between firms (Anderson and Narus, 1990). Communication, especially timely communication by the supplier firm fosters trust by assisting in resolving disputes and aligning perceptions and expectations (Moorman et.al, 1992). Anderson and Narus (1990) have noted that past communication is an antecedent of trust, but in subsequent periods this accumulation of trust leads to better communication. With the advent of modern computer and communication technologies, multiple channels of communication have emerged that has the potential to strengthen the formal communication system between buyer and supplier organisation. Thus better communication by the supplier organisation, can lead to greater trust between exchange partners. Communication in BtoB relationship can also be enhanced through informal means like visit of the salesperson to the supplier firm (Doney and Cannon, 1997). More the visits of the salesperson better would be the communication at the interpersonal level and therefore would positively affect interpersonal trust leading to enhanced trustworthiness of the salesperson. In an earlier study, Anderson & Weitz (1989) focused on factors that determine buyer s intention of relation continuity vis-à-vis a focal supplier. Communication between suppliers and buyers was found to be major factor that determines buyer s relationship continuity intention. However, we believe that better formal and informal communication does not directly affect relationship continuity intention. Trust in salesperson and trust in supplier plays mediating roles between communication and relationship continuity intention. 11

13 The above arguments lead to the following hypotheses: H6 Better communication will positively related to buying firm s trust in the supplier organisation. H6a Better communication will also be positively related to buying firm s trust in the salesperson. H6b Trust in the salesperson and supplier would mediate the relationship between communication and relationship continuity intention of the buyer. H6c Trust in the supplier would mediate the relationship between communication and relationship continuity intention of the buyer. 2.6 Effect of Opportunistic Behavior: One of the key behavioural variables that drives transaction cost analysis is opportunism. Opportunism is defined as self-interest seeking guile (Williamson, 1985, p.58). Examples of opportunistic behaviour are acts like withholding or distorting information and shirking or failing to fulfil promises or obligations (John, 1984). Taking the need for self protection into account, new institutional economics identifies a customer s quest for self protection against every possible supplier as the primary driver behind business buying behaviour (Williamson, 1985). If the customer fails to take adequate precautions, he may find himself exposed to and unprotected from opportunistic attacks by market partners. Supplier s behaviour should therefore be driven by the goal to design offerings that comply with a customer s need for precaution and at the same time offer value superior to that of competitive offerings. The most important challenge for business selling is therefore to overcome the lack of trust from potential transaction partners (Jacob and Ehret, 2006). When opportunistic behaviour is exhibited by the supplier it will compel the buying firm to doubt the reliability, benevolence and intentionality of the supplier. Thus when a buyer believes that a supplier engages in opportunistic behaviour, such perceptions will lead to decreased trust. Since supplier s salesperson is the link between the supplier and the buyer, opportunistic behaviour like non fulfilment of promises or distortion of information is directly attributable to the actions of the salesperson. Therefore opportunistic behaviour will also lead to decreased trust of the salesperson. 12

14 The above arguments lead us to the following hypotheses: H7 Greater opportunistic behavior will be negatively related to buying firm s trust on the salesperson. H7a Trust on the salesperson and supplier would mediate the negative effect of opportunistic behavior on relationship continuity intention of the buyer. 2.7 Effect of Supplier Size: The supplier s size indicates its overall size and market share position. Supplier size provides a signal to the buying firm that the selling firm can be trusted (Doney & Cannon, 1997). Overall size and market share indicates that many other business trust this supplier enough to do business with it. This suggests that the supplier has consistently delivered on its promises to others or it would not have been able to maintain its position in the industry. The other argument is that, less trustworthy and more opportunistic suppliers operate as fly by night organizations and would be unable to build sustainable sales volume or market share (Hill, 1990). The salespersons of these fly by night organisations will not be trusted, since they would be perceived to be interested only in short-term gains. Therefore, the salespersons of larger organisations will be perceived to be more trustworthy. However, just because supplier is a large firm, buyer will not desire to continue its relationship with the supplier. The above arguments lead us to the following hypotheses: H8 Larger supplier firms will positively impact the trust in the salesperson. H8a Larger supplier firms will positively impact the trust in supplier organization. H8b Trust in the salesperson and supplier will mediate the positive effect of supplier size on relationship continuity intention of buyer. H8c Trust in supplier will mediate the positive effect of supplier size on relationship continuity intention of buyer. 2.8 Effect of willingness to customize: A supplier can modify or customise its product, production process or services and administrative procedure to suit the requirement of a buyer. Sometimes these changes can 13

15 be formal and has been laid out in contracts or sometimes these can be informal to cope with certain unanticipated problems. For example suppliers can agree to reduce deliveries from the contractually agreed level for a short time to cope with sales down turn for the buyer organization or change its own product design to address the difficulty in production process for the buyer. Willingness to customize can be supplier s offer to make specialized investments in a relationship to meet the specific needs of its buyers. These investments can be tangible or intangible. Some examples are, investing in order processing systems for the convenience of the buyers and reduce the cost of interaction, adding new plants or equipments. Williamson (1985) suggests that firms that make specialized investments in a business relationship are unlikely to engage in untrustworthy behaviour that threatens the continuation of relationship. Since specialized or idiosyncratic assets can lose substantial value unless the relationship is continued, buyers could use calculative process to estimate that cost of untrustworthy behaviour is higher for suppliers with specialized investments at stake. Further, willingness to make idiosyncratic investments also provides evidence that the supplier can be believed and it cares for the relationship. Work done by Ganesan (1994) suggests that buyers trust those suppliers that have made customised investments on their behalf. Supplier s willingness to customize acts as signal to the buyer that, the focal supplier can be trusted to respond to its specific needs (Ford et al., 1998). Some steel suppliers have invested in specific equipment like secondary refining, online ultrasonic testing facilities for meeting the specific needs of some customers. Some of the steel suppliers are also investing in steel service centers to meet the customized requirements of buyers. Such actions on part of the suppliers will engender buyer s trust in them. However if such customisation does not lead to increased trust in the supplier, then buyer is unlikely to continue the relationship just because the supplier has shown some willingness to customize. 14

16 The above arguments lead us to the following hypotheses: H9 Supplier s greater willingness to customize will positively impact the trust on the supplier organization. H9a Trust on the supplier will mediate the positive effect of supplier s willingness to customise on relationship continuity intention of buyer. 2.9 Effect of Performance ambiguity: Performance evaluation ambiguity occurs when it is hard for a buyer to evaluate the products and services received from a supplier. The buyer may find it difficult to assess if the delivered product is best that the supplier can deliver or it is a half hearted quality effort. For example, if a delivery is late, should the buyer interpret that as a deliberate shortcoming or assume that supplier made full efforts but failed due to factors beyond its control? If the buyer always gives the supplier the benefit of doubt, it sets itself for exploitation. On the other hand, if the buyer suspects the intention of the supplier every time there is a delivery failure, then it will lead to a spiral of joint retaliations. Due to performance evaluation ambiguity it can be hard to determine whether a supplier faced unpredictable obstacles while trying to deliver on time or just failed to make a sincere effort for meeting the delivery schedule (Buckley & Casson, 1988, Hiede & Miner, 1992). When trust is developed based on observing the other party s actions and responding to them, performance ambiguity can undermine development of trust between buyer and seller. Therefore, performance evaluation ambiguity will negatively affect relationship continuity intention when trust is affected. The above arguments lead us to the following hypotheses: H10 Performance evaluation ambiguity of supplier s products and services will negatively impact the trust on the supplier organization. H10a Trust on the supplier will mediate the negative effect of performance evaluation ambiguity on relationship continuity intention of buyer. 15

17 2.10 Effect of Offer quality: Offer quality can be conceptualized as consisting of product quality, service quality and competitive price. In steel industry, these are three important aspects for the buyer. The importance of product quality is quite obvious, since it has got direct bearing on the buyer s output, cost and productivity. Service quality issues in terms of short lead time, reliability in delivery and faster complaint settlement are very important. A study by Schorsch (1994) has illustrated the importance of reliability and short lead time in delivery. Reliability in delivery enables the steel buyers to reduce their inventory size, whereby they can save on their cost of production. Short lead time helps the buyer in their production planning process, particularly when their market is also volatile. Short lead time also help them to order in small lots leading to saving in inventory costs. For most of the buyers, steel forms a major cost element in their cost structure, buyer looks for competitive price. Competitive price of steel helps the buyers to maintain their competitiveness. Over period of time better offer quality helps in developing confidence of the buyer in their supplier leading to trust in the relationship. The above arguments lead us to the following hypotheses: H11 Better offer quality of the supplier will positively impact the trust in the supplier organization. H11a Trust in the supplier will mediate the positive effect of supplier s offer quality on relationship continuity intention of buyer Dependence on supplier and Relationship continuity: Dependence can be defined as a firm s need to maintain its relationship with another to achieve its goals (Frazier, 1983). Behaviors arising because of one s dependence on another are usually in the form of compliance and reflect a need-based, calculative motivational mechanism. A buyer s dependence on supplier is the perception of the buyer regarding the replaceablity or irreplaceability of the supplier and the value received from conducting business with the particular supplier (Kumar et al., 1998). Dependence on supplier is considered to be high, when the total cost of replacing the partner is significant or when there are no alternative suppliers (Brown et al., 1983). Buyers will be tempted to 16

18 maintain relationship with a specific supplier as long as the outcomes received from the business with the supplier are deemed more valuable than available from alternative relationships (Lewin and Johnston, 1997). The above arguments lead us to the following hypothesis: H12 Buyer s dependence on supplier positively affects the relationship continuity intention of buyer Effects of Relationship Termination Cost (Switching Cost): In industrial markets, if buyers and suppliers are tied together in lasting relationship, then they tend to make transaction related investments which are relation specific. Rusbult (1983) views these investments as increasing commitment to a relationship, because they are relation specific, cannot be transferred from one relationship to another and are lost on dissolution of the relationship. These investments tend to keep on increasing with subsequent transactions and tend to accumulate over time. One example of these investments could be the learning by people in the buyer s organization about how to work effectively with the supplier s representative and products. Other examples could be development of mutual inventory system such as just in time (JIT) technique, purchase of specific machinery or designing of products to accommodate capabilities of certain suppliers. Such non-transferable, irretrievable investments have an impact on the costs of that party s current or future transaction with each other. Further, since these investments are relation specific, their salvage value or its value in another relationship is substantially low. This gives rise to switching cost for the buyers for seeking an alternate supplier. In their study, Dwyer et al., (1987) mention than a buyer s anticipation of high switching cost gives rise to buyer s interest in maintaining a committed relationship. Switching costs are therefore, all expected loss from termination and relationship dissolution expenses. This means that, buyers are likely to become more dependent on the current relationships, where a substantial amount of capital has already been invested and therefore would like to continue the relationship. The key issue here is that relationship termination cost should be significant enough to create dependence 17

19 condition for the buyer and therefore, the buyer is unlikely to continue the relationship just because there is some relationship termination cost. The above arguments lead us to the following hypotheses: H13 Higher relationship termination cost of the buyer will positively impact the dependence of the buyer on the supplier organization. H13a Buyer s dependence on the supplier will mediate the positive effect of buyer s relationship termination cost on the relationship continuity intention of buyer Effects of Comparison Level of Alternatives The availability of alternatives has a strong impact on the level of bonding to an existing relationship. If there are better alternatives available, buyers would be more concerned with those alternatives and want to change the current partner and hence the current relationship might end as short-term one. Alternatively, if there is limited choice before the buyer, then there will be greater commitment to the relationship leading to long-term orientation. Rusbult (1983) in his empirical study has found that, the attractiveness of alternatives should decrease the commitment to an existing relationship. Another study by Mummaleni & Wilson (1991) has empirically tested the negative impact of Clalt on the buyer s commitment to an existing relationship. This means that if the outcome obtained by a buyer from the relationship with a supplier exceeds the available outcome from the other alternative supplier, the buyer will have greater relationship continuity intention. The above arguments lead us to the following hypotheses: H14 Higher availability of comparison level alternatives for the buyer will negatively impact the dependence of the buyer on the supplier organization. H14a Buyer s dependence on the supplier will mediate the negative effect of availability of comparison level alternatives for the buyer on the relationship continuity intention of buyer. 18

20 2.2 Hypothetical Model: The purpose of this paper is to investigate the research questions: What kinds of factors lead to buyer s intention for relationship continuity and what is their relative impact? And how do inter-organisational trust, interpersonal trust and buyer s dependence influence the development of such long-term relationships? To investigate these two research questions, a conceptual research model is formulated. The plus (+) or minus (-) sign indicates the hypothetical direction of the effect of each factor in the model. The hypothesized model of influence of the antecedent factors of buyer s relationship continuity intention through trust on supplier organization, trust on salesperson and buyer s dependence is illustrated in the path diagram of Figure 1. The items used to operationalise the constructs used in the model have been largely taken from literature is given at Annexure-A. The mediation effects of trust of supplier organisation, trust of salesperson and buyer s dependence will be tested by using a rival direct effect model given at Figure Conclusion: We have tried to model BtoB relationship continuity from the perspective of the buyers. In a BtoB relationship, buyers are the final decision maker regarding the continuity of the relationship. Conceptually, it could be argued for collecting data about buyer-supplier relationships from supplier s perspective or both. However it is usually the buyer/customer that ultimately makes the decision of whether to purchase from a supplier. Thus, even if the supplier and buyer have different views, it is the buyer s view that is likely to be determinant (Cannon and Perreault, 1999). 19

21 Size of Supplier Firm Communication with Supplier Expertise of Salesperson (+) (+) (+) (+) (+) Likability of the Salesperson (+) Trust on Salesperson (+) Trust on Supplier Firm (+) Similarity of the Salesperson Opportunistic Behaviour (-) (+) (-) (+) Relationship Continuity Intention Willingness to customise Dependence on Supplier Firm Performance evaluation ambiguity (-) (+) Comparison level alt. Relationship termination cost Figure 1: Hypothetical mediated model 20

22 Size of Supplier Firm Communication with Supplier Expertise of Salesperson Likability of the Salesperson Trust on Salesperson Trust on Supplier Firm Similarity of the Salesperson Opportunistic Behaviour Relationship Continuity Intention Willingness to customise Dependence on Supplier Firm Performance evaluation ambiguity Comparison level alt. Relationship termination cost Figure 2: A rival direct effect model 21

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