Integrating transactional and relational exchange into the study of Exchange Orientation in customer relationships

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Integrating transactional and relationalexchange into the study of ExchangeOrientation in customer relationshipsAurlia Lefaix-Durand & Robert KozakPublished online: 23 Jul 2010.

To cite this article: Aurlia Lefaix-Durand & Robert Kozak (2009) Integrating transactional andrelational exchange into the study of Exchange Orientation in customer relationships, Journal ofMarketing Management, 25:9-10, 1003-1025, DOI: 10.1362/026725709X479345

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INTRODUCTION AND PURPOSE

Relationship marketing is said to differ from transaction marketing in that it broadens the marketing focus beyond technical aspects of exchange to include relational elements, considers multiple stakeholders, and emphasises long-term and

JOURNAL OF MARKETING MANAGEMENT, 2009, Vol. 25, No. 9-10, pp. 1003-1025ISSN0267-257X print /ISSN1472-1376 online Westburn Publishers Ltd. doi: 10.1362/026725709X479345

Integrating transactional and relational exchange into the study of Exchange Orientation in customer relationships

Aurlia Lefaix-Durand, Universidad Torcuato Di Tella, Argentina*Robert Kozak, The University of British Columbia, Canada

Abstract The purpose of this paper is to propose a new conceptual and operational tool, exchange orientation (EO), which favours a better understanding of the coexistence of transactional and relational exchanges in contemporary marketing. First, the literature was reviewed across business management fields to identify the constructs that play a central role in interfirm exchange. The concept of EO was then developed and characterised according to levels of trust, cooperation, commitment, communication, time orientation, interdependence, proximity, coordination, regulation, and structure of exchange. A multiple case study was finally used to empirically investigate EO in 58 customers relationships from the perspective of three wood products manufacturers. This study of EO is a first step in eliciting hybrid marketing practices within the same business context. It also points to the need for the strategic management of customer relationships based on the actual and desired value and orientation of exchange.

Keywords Interfirm exchange, Customer relationships, Transaction marketing, Relationship marketing, Hybrid marketing practices, Exchange orientation.

JOURNAL OF

MARKETINGMANAGEMENT

*Correspondence details and biographies for the authors are located at the end of the article.

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Journal of Marketing Management, Volume 25

collaborative relationships between buyers and sellers (Morgan and Hunt 1994; Payne and Holt 2001; Ravald and Grnroos 1996). The advent of relationship marketing in academia two decades ago led to distinguishing between transactional exchange and relational exchange (Anderson and Narus 1991; Dwyer et al. 1987; Morgan and Hunt 1994). In a comparison between these two exchange types, Sheth and Shah (2003, p. 628) characterised transactional exchange by its short-term nature or by one-time exchange, with no commitment beyond the limited interaction between trade actors, and relational exchange by long-term commitments and the desire for collaboration between trade actors. This widely accepted definition reflects the tendency in marketing theory to adopt dichotomous approaches of interfirm exchange. This paper puts forth exchange orientation (EO) as a new conceptual and operational tool that helps to integrate both types of exchange and enrich the characterisation of interfirm exchange along the transactional / relational continuum.

The need for developing this tool resides in the fact that dichotomous approaches of exchange do not help to explain the co-existence of exchange types in contemporary marketing practices. These approaches include studies that come from a paradigm shift perspective proclaiming a transition from transaction to relationship marketing (e.g., Grnroos 1994; Gummesson 1997; Ravald and Grnroos 1996), as well as studies in what can be called a contingent approach suggesting that exchange type is context-specific and dependent on the offerings (goods vs. services), the markets (business-to-consumer vs. business-to-business markets), or the industry structure (atomised vs. concentrated industries) in question (e.g., Grnroos 1985; Grnroos 1991; Sharma and Pillai 2003; Sheth and Shah 2003). However, recent studies in industrial, service, and international marketing have started not only to document the simultaneous relevance of both types of exchange within the same context, but also the existence of a hybrid form between transactional and relational exchange (e.g., Coviello et al. 2002; Chaston 2000; Styles and Ambler 2003). These empirical findings contradict dichotomist approaches and raise questions regarding the causes and consequences of this co-existence. Why and when is it appropriate for an organisation (or a whole value-creating network) to adopt one or both types of exchange? What exactly is this hybrid form? Are the consequences of this hybrid form a superior exchange strategy or a stuck-in-the-middle impasse? By proposing a framework and methodology to integrate exchange types in the study of exchange orientation, this paper is a first step toward answering these questions.

REVIEW OF THE LITERATURE: THREE KEY ELEMENTS OF INTERFIRM

EXCHANGE

Due to the diversity of approaches and the general adoption of a reductionist inquiry mode1, the literature dealing with interfirm exchange offers a dense contribution to knowledge, but generally precludes a holistic understanding of the phenomenon. To develop a bigger picture understanding of interfirm exchange, we reviewed the literature in marketing, business strategy, operations management, research and development, and information systems. Three key elements of interfirm exchange

1 A reductionist inquiry mode implies the separate analysis of a phenomenons constituent parts as opposed to studying the interrelations between the constituent parts in a holistic manner (see Meyer et al. 1993).

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Lefaix-Durand and Kozak Integrating transactional and relational exchange 1005

emerged from this review: the situation of exchange; the behaviours in exchange; and the governance of exchange. Each is discussed in turn.

First, the literature indicates that exchange between firms is contextually embedded in a situational factor, using Ganesans (1993) terminology. Studies on clustering and supply chains have placed the notion of proximity between organisations at the core of discussions on enhanced business performance (Ahuja 2000; Conway and Swift 2000; Evans and Bridson 2005; Nielson 1998; Oerlemans and Meeus 2005; Porter 1998). Research based on both the transaction costs theory (Williamson 1975, 1979) and relational exchange theory (Dwyer et al. 1987; Macneil 1980) have emphasised the role of dependence (and symmetry of dependence, i.e., interdependence) between organisations as well as time orientation to explain the performance of exchange (Chen and Paulraj 2004; Haugland 1999; Heide and John 1988, 1990; Kumar et al. 1995). For instance, the transaction costs theory states that it is possible to reduce opportunistic risks and transaction costs in business by establishing long-term relationships with trade partners. Relationships with long-term orientations have been shown to be conducive to improved performance of interdependent members within a distribution channel (Ganesan 1994; Gassenheimer et al. 1989).

Second, the behaviours of trade actors in the exchange process are central to understanding the nature of exchange. Notably, the establishment of relational exchange presupposes the existence of commitment, cooperation, communication, and trust between firms; four constructs that have been highly correlated in the literature. For instance, commitment between firms has been positively correlated to interfirm cooperation (Dwyer et al. 1987; Fontenot and Wilson 1997) and communication has been shown to positively influence cooperation (Anderson and Narus 1990). In turn, cooperation has been positively correlated to economic and non-economic relationship outcomes (e.g., friendships between managers) (Anderson et al. 1994; Geyskens et al. 1999). Trust is considered to be one of the most important antecedents to communication, commitment, and cooperation (Geyskens et al. 1999; Gundlach et al. 1995).

Lastly, a large portion of the literature deals with the governance of exchange (i.e., the mechanisms used to organise and control interfirm exchange). Work based on the power / influence theory and the contractual approach has focused on exchange regulation, which mainly centres on contractual agreements and interfirm influence strategies (Antia and Frazier 2001; Brown et al. 1995; Frazier and Rody 1991; Gaski and Nevin 1985; Heide and John 1992; Lusch and Brown 1982). For example, a non-coercive use of power between firms positively affects exchange relationship performance, whereas a coercive use of power and a high level of centralisation both hinder such performance (Boyle and Dwyer 1995; Heide 2003). In parallel, the literature on supply chains and networks underlines the influence of exchange coordination and structure on interfirm exchange outcomes (Chen and Paulraj 2004; Hkansson 1982; Hkansson and Snehota 1995; Harland et al. 2004; Heide and John 1990). For instance, an efficient coordination in supply chain has positive impacts on organisational performance (Tan et al. 2002), while networked forms of organisations foster strategic partnerships which can generate competitive advantage for organisations (Jarillo 1988).

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CONCEPTUAL AND OPERATIONAL DEVELOPMENT: INTEGRATING

TRANSACTIONAL AND RELATIONAL EXCHANGES INTO EXCHANGE

ORIENTATION

Early definitions positioned relationship marketing as being concerned exclusively with relational exchange (e.g., Morgan and Hunt 1994; Nevin 1995). More recent conceptualisations position relationship marketing as dealing with exchange (in a general sense) between buyers and sellers, integrating elements of both transactional and relational exchange. For instance, Gummesson (2004, p. 136) proposed that to conceptually incorporate transaction marketing in relationship marketing, transaction marketing can be defined as the zero point on a relationship scale. Following this notion, we develop the concept of exchange orientation (EO) using the key elements and related concepts identified in the literature review.

We define EO as the position of exchange along the transactional / relational continuum. In this study, we propose that EO be characterised according to levels of proximity, interdependence, long-term orientation, commitment, communication, cooperation, trust, regulation, coordination, and structure of exchange. To illustrate this proposition, one can envision a series of cursors on the continuums presented in Figure 1. The more cursors are on the extreme right of the continuums, the more relational the exchange orientation between firms is. In contrast, cursors positioned at the left side of the continuums are indicative of a more transactional exchange orientation.

We chose these ten concepts to characterise exchange orientation because they have received the greatest amount of attention across business research fields and have been empirically investigated for their impact on exchange outcomes, such as organisational performance (e.g., Anderson et al. 1994; Boyle and Dwyer 1995; Gassenheimer et al. 1989; Heide 2003; Oerlemans and Meeus 2005). In addition, they have been shown to be strongly interrelated (e.g., J. C. Anderson and Narus 1990; Dwyer et al. 1987; Fontenot and Wilson 1997; Ganesan 1993, 1994; Kothandaraman and Wilson 2000; Tan et al. 2002). In other words, these ten concepts account for a large portion of the

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FIGURE 1 Conceptualisation of exchange orientation

KEY ELEMENTS CONCEPTS CONTINUUMSSituation of

exchangeProximityInterdependenceTime orientation

DistantIn/dependentShort-term

CloseInterdependentLong-term

Behaviour of exchange

CommitmentCommunicationCooperationTrust

OpportunistOccasional/limitedNon-cooperativeUntrusting

CommittedFrequent/extensiveCooperativeTrusting

Governance of exchange

RegulationCoordinationStructure

Explicit/coerciveFragmentedDyadic

Normative/non-coerciveIntegratedNetworked

Exchange Orientation Transactional Relational

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nomological network2 of interfirm exchange and represent a strong basis to support the study of exchange orientation. Relying on previous research, we operationalised these concepts into multidimensional constructs. For each construct, definitions and measurement indicators are presented below and summarised in Appendix 1.

Proximity

The concept of proximity between organisations includes the notions of geographic location and spatial distance between facilities (Oerlemans and Meeus 2005; Porter 1998), perceptions of closeness, i.e., the existence of close and working relationships (Hkansson 1982; Nielson 1998), and perceptions of technical and cultural proximity, i.e., similarities in technological background, national culture, legal and political systems, market structures, business practices, and language (Ahuja 2000; Conway and Swift 2000; Evans and Bridson 2005).

Interdependence

Dependence between organisations is said to naturally emerge from repeated interaction episodes over time (Dwyer et al. 1987; Macneil 1980). It has been defined as a firms need to maintain a relationship with a partner to achieve its goals (Heide and John 1988). Dependence can be determined by the outcomes given comparison level for alternatives, i.e., the overall economic, social, and technical outcomes available to the firm from the best alternative exchange relationship (Anderson and Narus 1990, p. 43). Common indicators of dependence are the level of specificity of human and technical assets invested in relationships (Handfield and Bechtel 2002; Haugland 1999; Heide 1994; Nielson 1998), the level of irreplaceability of trade partners (Joshi and Stump 1999; Morgan and Hunt 1994; de Ruyter et al. 2001) and, their contribution to one anothers sales and profits (Anderson and Weitz 1989; Kim 1999). Interdependence characterises the mutuality (or symmetry) of dependence between firms (Anderson and Narus 1990; Heide and John 1988).

Time orientation

The time orientation of exchange (short-term vs. long-term) is not only a matter of past duration but also of expected continuity of exchange over time (Chen and Paulraj 2004; Ganesan 1994; Heide and John 1990; Kumar et al. 1995). The notion of time horizon has also been used to measure the time orientation of relationships in a context of procurement. Time horizon has been determined by how a manufacturer assesses the effectiveness and profitability of a supplier relationship. The relationship is short-term oriented if the evaluation is made on a transaction-by-transaction basis, and is long-term oriented if the relationship is evaluated over a series of transactions (Joshi and Stump 1999).

Commitment

Commitment in interfirm exchange has been defined as the belief of an exchange partner that an ongoing relationship with another firm is important enough to warrant maximum efforts aimed at maintaining it, including short-term sacrifices (Geyskens

2 A nomological network is defined as the representation of the constructs of interest in a study, their observable manifestations, and the interrelationships among and between them (see Cronbach and Meehl 1955).

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et al. 1999; Kumar et al. 1994; Morgan and Hunt 1994). Commitment is often opposed to opportunistic behaviour which is defined as the pursuit of self-interest with guile (Joshi and Stump 1999), and translates, for instance, in withholding or distorting information, failing to fulfil promises or obligations, late payments, and delivery of substandard products (Parkhe 1993).

Communication

Communication can be defined broadly as the formal, as well as informal, sharing of relevant, reliable, and timely information between firms (Anderson and Narus 1990; Morgan and Hunt 1994). The extent and depth in which trade partners communicate can be determined by the frequency of information exchange between actors, the type of communication tactics or methods/media used, and the content or type of information (i.e., proprietary, technical or social information) (Andersen 2001; Kim 1999; Spekman et al. 2002; Tatikonda and Stock 2003; Wiertz et al. 2004). Overall, higher levels of communication are reflected by communication that is more interpersonal, that has greater frequency, and that transmits richer and more complex information (Tatikonda and Stock 2003). Using the concept of information sharing, scholars also insist on the importance of two-way dyadic interchanges, i.e., the reciprocity (or symmetry) in information exchange between buyers and sellers (Chen and Paulraj 2004; de Ruyter et al. 2001).

Cooperation

Cooperation has been defined as the extent to which trade partners voluntarily undertake similar or complementary actions to achieve mutual outcomes or singular outcomes with expected reciprocation over time (Anderson and Narus 1990). Cooperation emerges when firms goals are compatible (Parsons 2002), and translates into joint action and conflict solving. Joint action has been defined as the extent to which parties undertake similar or complementary actions jointly, rather than unilaterally (Heide and John 1990; Kim 1999). Conflict solving can be defined as the search for mutually acceptable compromises without having to resort to formal procedures (de Ruyter et al. 2001: 274).

Trust

Trust has been defined as the willingness to rely on an exchange partner with whom one has confidence (Moorman et al. 1993; Morgan and Hunt 1994). Common to all different definitions used to conceptualise trust is the notion that it constitutes the belief, attitude, or expectation that ones partner will act in a predictable manner, will keep his/her word, and will perform actions resulting in positive outcomes (Anderson and Narus 1990; Dwyer et al. 1987; de Ruyter et al. 2001; Spekman et al. 2002; Walter et al. 2003). Its development largely depends on interpersonal variables such as shared values, perceived expertise, honesty, benevolence, competence, reliability, and predictability (Handfield and Bechtel 2002; Moorman et al. 1993).

Regulation

The notions of power, centralisation of decision-making, and formalisation have been used to determine degrees and forms of exchange regulation. Power has been defined as the ability of an entity to control or influence the behaviour of another entity or to impose ones will on others (Dwyer et al. 1987; Lusch and Brown 1982). The use of

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power among firms is translated into influence strategies which can either be coercive (e.g., promises, threats, and legalistic pleas) or non-coercive (e.g., information exchange, requests, recommendations, and discussions about business strategy) (Brown et al. 1995; Frazier and Rody 1991). The level of bureaucracy characterising the exchange is determined by the importance of centralisation (i.e., the degree to which decision-making authority is concentrated, as opposed to shared, within the channel system) and formalisation (i.e., the extent to which decision making is regulated by explicit rules and procedures) (Boyle and Dwyer 1995; Geyskens et al. 1999; Heide and John 1992). Finally, contractual agreements are said to vary along a continuum ranging from the explicit (when they are formalised by written contracts establishing legal bonds) to the implicit or normative (when based on social bonds and expected behaviours) (Lusch and Laczniak 1987).

Coordination

Coordination in the exchange process refers to the ways in which activities, resources, and competences of firms are planned and integrated. The levels of logistics and resources integration between firms and inter-penetration of their boundaries are said to be important determinants of exchange coordination (Harland et al. 2004; Heide and John 1990). Integration can be effected with regard to physical resources (such as manufacturing equipment and technology), human resources (e.g., by means of extensive human interaction and cross-transfer of staff between firms), or processes (for instance, by the use of Vendor-Managed or Co-Managed Inventory systems which enable suppliers to assess stock-data level via Electronic Data Interchange and to take the necessary replenishment actions) (Harland et al. 2004). Information technologies play a central role in coordination because they enable functional, geographical, and inter-temporal coordination of managerial decisions (Shapiro 2001). In this way, higher levels of coordination and planning in interfirm exchange are usually associated with an extended use of the Internet (e.g., for email exchange and funds transfer) and with the use of various inter-organisational information systems, such as Vendor-Managed or Co-Managed Inventory systems (VMI/CMI), Electronic Data Interchange (EDI); Collaborative Planning Forecasting and Replenishment (CPFR); Enterprise Resource Planning (ERP) systems; and electronic marketplaces (Gallivan and Depledge 2003).

Structure

A new form of exchange coordination, the network organisation, is said to have emerged over the past two decades in reaction to a business environment becoming more and more turbulent and connection-rich (Achrol 1997; Ritter 1999). Early debates attempting to determine whether this type of organisation represents an intermediate form of coordination between markets and hierarchies (Thorelli 1986) or whether it is an entirely new organisational form characterised by its own logic of exchange (Powell 1990) have led to the latter interpretation prevailing (Josserand 2004). Yet, the linguistic chaos and confusion underlying studies on network organisations still often generate diverse, varied, inconsistent, and contradictory findings (Borgatti and Foster 2003, p. 996). The notion of structure in interfirm exchange is indeed highly complex as it is intertwined with many other concepts (like regulation, power, and interdependence) (Fombrun 1986). We propose considering the structural dimension in exchange governance from the interaction approach standpoint, using the notion of structural embeddedness. The interaction

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approach has established that transactions can only be examined as episodes in often long-term, embedded, and complex interfirm relationships (Hkansson 1982). The network organisation is then perceived as an aggregate structure of interconnected business relationships (Hkansson and Snehota 1995). Close to concepts of interconnectedness, connectivity, and network complexity which describe the links that lie within a network (Abrahamson and Fombrun 1992; Antia and Frazier 2001), structural embeddedness represents the extent to which a dyads mutual contacts are connected to one another (Jones et al. 1997, p. 924). It is measured by the number of participants involved in the exchange, the likelihood these participants will interact in the future, and the likelihood they will communicate openly about their interactions.

Generally, the measure developed in this study included variables and items that were tested empirically in the supporting literature. However, some variables needed to be adapted to practices in the research context due to a lack of information in the literature. This was the case for the structure construct, as well as for the dimensions of joint action (cooperation construct) and type of trade agreements (regulation construct). Preliminary interviews with experts in the field were used to define a list of elements which helped assess the structure of exchange, a list of possible cooperative practices, and a list of possible trade agreements (Appendix 1). These lists were then used in a questionnaire developed to assess exchange orientation in customer relationships. The next section presents the methodology developed to achieve this objective.

METHODS: A MULTIPLE-CASE STUDY IN THE STRUCTURAL WOOD

PRODUCTS SUPPLY CHAIN

An empirical study was undertaken to investigate the orientation of interfirm exchange between suppliers and customers along the transactional / relational continuum. We contextualised this study in the Canadian supply chain of structural wood products for the North American residential construction because wood products suppliers marketing strategies have been said to be shifting from a production orientation towards more of a customer focus (Juslin and Hansen 2002; Lewin and Johnston 1997; Vlosky et al. 1998). Thus, the likelihood was high that both transactional and relational orientations of exchange could be observed in the current marketing practices for this supply chain. This study relies on a qualitative approach because of the complexity of the phenomenon under scrutiny. A multiple-case study research design was chosen over other qualitative approaches as it allowed for the investigation of large numbers of variables, and facilitated the extraction of sensitive information about exchange with customers (Creswell 1998; Eisenhardt 1989; Yin 2003).

The research protocol for this case study was designed in accordance with Yins (2003) recommendations and included multiple data sources for triangulating findings: face-to-face semi-structured interviews; face-to-face and telephone structured interviews using questionnaires (including open-ended and close-ended questions); direct observation; and documentation analysis. Data was collected over a five month period between February 2007 and July 2007. All survey instruments were made available in both French and English according to each informants preference.

Three Canadian companies manufacturing structural wood products were


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selected using the principle of strategic case selection (Hillebrand et al. 2001; Strauss and Corbin 1998) in order to capture the complexity of the trade of structural wood products. Variation was sought in the size of trade actors (small, medium, and large companies), in product types (lumber, engineered wood products, and prefabricated components for roofs, floors, and walls), in customer types (component manufacturers, wholesalers/distributors, retailers, and general contractors), and in market locations (Canada and the United States). At the time of the data collection, Companies 1 and 2 were among the largest Canadian wood product manufacturers and sold to wholesalers/distributors, retailers, and component manufacturers across Canada and the U.S. Data collection and analysis focused on the lumber division of Company 1 (~ CAN$1B in revenues in 2006) and the engineered wood products (EWP)3 division of Company 2 (~ CAN$70M in revenues in 2006). Company 3 was comparatively smaller, but ranked as a medium-sized manufacturer of structural wood-based components (walls, floors, and roofs). They sold to general contractors, homebuilders, and land developers in Eastern Canada and the North-eastern U.S. (~ CAN$20M in revenues in 2006).

Six senior managers in sales and marketing in the three case companies participated in this case study4, each agreeing to assess orientations of exchange with some of their customers. As a first step in the research protocol, the participants were asked to intuitively position two to four customers into each of the quadrants of a framework labelled the value / orientation (VAL/OR) matrix, based on two axes: exchange value (very low to very high) and exchange orientation (very transactional to very relational). To assist with positioning customers on the value axis, the informants were asked to think about customers that were either of significantly lower or higher importance to their companies. To assist with positioning customers on the exchange orientation (EO) axis, the informants were provided with a basic definition of exchange types, which stated:

when price counts fi rst with a customer and where business is characterised by one-at-a-time deals, the customer is generally approached using a transactional exchange orientation; when trust, cooperation, and the continuity of the relationship over time are more important determinants in the deal than price, the customer is generally approached using a relational exchange orientation.

This exercise resulted in the selection of 58 customer relationships 19 high value customers and 13 low value customers situated in a relational exchange orientation; 13 high value customers and 13 low value customers situated in a transactional exchange orientation.

In-depth interviews were then conducted in order to collect information pertaining to each companys motivations and interests in initiating, developing, maintaining, or interrupting exchange with the selected customers. Next, accounting data for sales and profits related to selected customers were also analysed to better understand what the value of a customer is in suppliers opinions. Finally, some phone calls and email exchanges between supplier informants and their selected customers

3 EWP are wood products made by combining wood and wood fibres with other materials (e.g. glues, adhesives, and binders).

4 Informant contacts were made through two research organisations and benefactors of this study: CIBISA (Industrial Chair on Engineered Wood Products for Structural and Appearance Applications, www.cibisa.ulaval.ca) and FORAC (Research Consortium on Electronic Business in the Forest Industry, www.forac.ulaval.ca).


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were observed to better understand the dynamics within these relationships. Finally, using questionnaires, the exchange orientation of each of the 58 selected customer relationships was quantified according to participants perceptions of the key elements of exchange. The questionnaires were administered during structured interviews and relied on a seven-point continuous scale presented in the following manner: Please indicate for each customer selected how the following elements rate on a scale ranging from (1) very low to (7) very high: [indicators). Informants were asked to successively rate each indicator, dimension, and construct used to operationalise EO (Appendix 1). This rigorous procedure (and the in-vivo control for consistency that was carried out) ensured that informants had a common understanding of the concepts used for profiling EO. Therefore, the ratings provided can be considered an acceptable basis for comparison across the 58 selected customer relationships.

Finally, within-case and cross-case data analyses and interpretation were performed following Eisenhardts (1989) recommendations. Axial coding was used to analyse qualitative data (Strauss and Corbin 1998), while means were computed for the values that participants provided with the continuous interval scale questions in the questionnaires. Triangulation of data was conducted using both the qualitative and quantitative results as a means to confirm, cross-validate and corroborate findings (Creswell 2003: 217). Results were then sent to the primary informants for review and comment.

FINDINGS AND DISCUSSION: EXCHANGE ORIENTATION VARIES

WITH THE VALUE OF CUSTOMERS

The selection of 58 customers using the value/orientation (VAL/OR) matrix led to the emergence of a new taxonomy based on four customer categories. Illustrative labels are provided for each category of customers (Figure 2). These labels emerged from the informants descriptions about their motivations and interests in dealing

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FIGURE 2 Positions of analysed customer relationships in the Value / Orientation (VAL/OR) Matrix

PROMISINGCUSTOMERS

(n=13)

STRATEGICCUSTOMERS

(n=19)

QUESTIONABLECUSTOMERS

(n=13)

SUPPORTIVECUSTOMERS

(n=13)

High

Low

Transactional Relational

EXCHANGEVALUE

EXCHANGEORIENTATION

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with the selected customers.Emergent themes from the in-depth interviews revealed that selected customers

in a relational exchange orientation were considered to be either strategic (high value) customers or supportive (low value) customers. According to informants, strategic customers purchase high volumes, generate significant sales revenues, and pay fair prices, in long-term, collaborative, and often difficult to replace relationships. On the contrary, supportive customers individually represent a rather insignificant portion of the total business, but have been purchasing for a long time often upwards of 15 or 20 years and help to stabilise sales volumes and/or profits by purchasing periodic volume surpluses and by-products. Selected customers in a transactional exchange orientation were considered to be either promising (high value) customers or questionable (low value) customers. Promising customers had strong growth potential or were occasionally involved in high volume/profitable deals; they were newcomers or buyers that had purchased with irregularity and low reorder predictability over many years. Finally, questionable customers purchased insignificant annual volumes of products, with limited profits for the manufacturer, and interactions generally over price and volume were perceived to be pointless and time-consuming.

The questionnaire results served to precisely characterise exchange in the 58 selected customer relationships according to levels of proximity, interdependence, long-term orientation, commitment, communication, cooperation, trust, regulation, coordination, and networked structure of exchange. Means were computed for the values that participants provided with the continuous interval scale questions5. Based on the average values obtained for each construct, Figure 3 shows how exchange with customers in a transactional orientation differs from exchange with customers in a relational orientation.

5 Scale from 1: very low to 7: very high

FIGURE 3 Profiles of exchange with transactional and relational customers

1

2

3

4

5

6

7Proximity

Interdependence

Long-term orientation

Commitment

Communication

Cooperation

Trust

Regulation

Coordination

Networked Structure

Exchange with 'Relational' Customers

Exchange with 'Transactional' Customers

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Figure 3 illustrates two distinct profiles of exchange orientation with selected customers. These profiles suggest that the conceptualisation of EO proposed in this study does help to position exchange more precisely along the transactional / relational continuum, using the ten selected constructs. A gap is observed, however, between constructs which reveal a marked distinction between orientations (like interdependence, time-orientation, commitment, and communication), and constructs for which the difference observed between the two orientation profiles is not as noticeable as the literature suggests (like proximity, cooperation, trust, regulation, coordination, and structure of exchange). At first sight, this observation questions the relevance of using the above mentioned constructs to characterise exchange orientation. Yet, information collected during in-depth interviews and the feedback on these results obtained from study participants suggest alternative explanations.

First, the constructs of proximity, coordination, and structure may indeed be of lesser relevance but this could well be context-specific to the supply chain analysed. Indeed, participants mentioned that the nature and history of the trade of structural wood products in North America have forced suppliers to deal with and assimilate significant geographic distances, in markets where cultural and technical differences were perceived to be relatively minor. Studying other industrial or geographic settings could lead to the observation of a wider divergence between transactional and relational orientation profiles with regards to the proximity dimension. Similarly, other business settings involving more advanced coordination and networked structure of exchange could point to a higher relevance of these constructs in characterising exchange orientation. Indeed, the specialised literature and the information collected empirically in this study suggest that electronically-based coordination and networked forms of organisation have been introduced in the wood products and construction industries relatively recently and, thus far, only to a limited extent. This early stage of diffusion may explain why the relational exchange profile does not differentiate significantly from the transactional profile on these dimensions. This is an aspect that needs to be further investigated in future research.

Second, results with regards to the constructs of cooperation, trust, and regulation contrast surprisingly with the results of previous research. The supporting literature suggests that exchange with relational customers would be characterised by a significantly higher level of trust and cooperation and a significantly lower level of formal regulation, than exchange with transactional customers. Results from the questionnaires in this study show, however, few differences in this regard between the two exchange profiles. One way to approach this inconsistency has been to more carefully consider the notion of exchange value. Interviews revealed that informants seemed equally ready to trust and cooperate with customers that were actually or potentially valuable customers. Notably, several informants discussed ways to turn promising customers into strategic customers and how to develop more of a relational exchange orientation with these transactional, yet high value customers. They perceived cooperation and trust to be instrumental in doing so, not necessarily viewing these dimensions as resulting only from long-term oriented relationships. This is consistent with the literature on trust which questions its role as an antecedent to or a consequence of many of the behavioural variables involved in relationship development. Overall, the value of exchange appeared to be an important factor to take into account when studying exchange orientation. Figure 4 illustrates the characterisation of exchange according to the value of the 58 selected customers in this case study. It shows an amplified divergence between the two profiles (low-

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value and high-value customers), not only in trust, cooperation, and regulation, but in most of the other dimensions under scrutiny6.An important result of this study is the observation that perceptions of exchange orientation vary with perceptions of exchange value. The characterisation of exchange in each category of customers positioned in the VAL/OR matrix provides additional evidence to support this observation (Figure 5).

Exchange with strategic customers (high value/relational orientation) was described as being oriented towards the long-term and was characterised by high levels of interdependence, communication, trust, commitment, and cooperation. On the other hand, exchange with questionable customers (low value/transactional orientation) rated lower than all other categories on all dimensions, was thought of as short-term, and was characterised by low levels of commitment and poor communication, cooperation, and coordination. Interestingly, exchange with promising customers (high value/transactional orientation) was similar to exchange with supportive customers (low value/relational orientation), but rated higher on dimensions like interdependence, commitment, communication, and trust. One possible interpretation of this surprising observation is that participants intuitively thought of their promising customers as being less relationally orientated than what was revealed by a thorough examination. Another possible interpretation is the potential existence of an intermediate exchange orientation, residing somewhere between clearly transactional and clearly relational orientations. Figure 5 (overleaf) suggests that exchange with promising and supportive customers is characterised by a somewhat equivalent EO in this intermediate position. This supports the notion that there are no clear-cut types of exchange (Anderson and

6 The exceptions being the constructs of proximity and structure, possibly due to the context-specific nature of the study, mentioned earlier.

FIGURE 4 Profiles of exchange with low value and high value customers

1

2

3

4

5

6

7Proximity

Interdependence


Commitment

Communication

Cooperation

Trust

Regulation

Coordination

Networked Structure

Exchange with 'High Value' Customers

Exchange with 'Low Value' Customers

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Narus 1991) and raises questions that need to be addressed by future research. For instance, does an intermediate orientation represent a transition phase (e.g., from a promising to a strategic status)? Or is such an orientation sustainable in and of itself?

Furthermore, findings suggest that this intermediate exchange orientation (i.e., an orientation that is neither clearly transactional nor clearly relational) should be distinguished from the hybrid form of exchange orientation (i.e., the simultaneous existence of transactional, intermediate, and relational exchange types). By situating the hybrid form beyond the industry level to within an organisation itself (since each participating company dealt with customers in both transactional, intermediate, and relational exchange orientations), this study supports and extends previous findings about plural marketing practices put forth by the Contemporary Marketing Practices (CMP) research program (Coviello et al. 2002; Pels et al. 2004). However, it also points to a distinct area of study, while leading to a new taxonomy based on customer relationships instead of marketing practices. This distinction opens new research avenues regarding the strategic management of customer relationships.

CONCLUSIONS: TOWARDS THE STRATEGIC MANAGEMENT OF

CUSTOMER RELATIONSHIPS

In summary, the following conclusions have been drawn from this research:

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FIGURE 5 Profiles of exchange in four categories of customers

1

2

3

4

5

6

7Proximity

Interdependence


Commitment

Communication

Cooperation

Trust

Regulation

Coordination

Networked Structure

Exchange with 'Strategic' Customers Exchange with 'Supportive' Customers

Exchange with 'Promising' Customers Exchange with 'Questionable' Customers

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y Interfirm exchange and its orientation along the transactional/relational continuum can be precisely characterised according to levels of proximity, interdependence, long-term orientation, commitment, communication, cooperation, trust, regulation, coordination, and networked structure of exchange between organisations;

y An intermediate exchange orientation (i.e., an orientation that is neither clearly transactional nor clearly relational) needs to be distinguished from the hybrid form of exchange, which can be defined as the simultaneous use of transactional, intermediate, and relational exchange orientations to serve customers;

y A hybrid form of exchange has been empirically observed in this study, illustrating how transactional and relational types of exchange can co-exist within the same business context (at the supply chain level, but also within an organisation itself);

y The notion of exchange value emerges as a central mechanism to understand why and when a specific exchange orientation with customers is appropriate, and supplements explanations based on the types of offerings, markets, or industry structures proposed in previous research;

y By combining the exchange orientation and value of exchange with customers, a new taxonomy emerges which distinguishes between strategic, promising, supportive, and questionable customers, and therefore suggests a novel approach for segmenting customer bases into cohesive portfolios of customers.

Each of these conclusions helps to address the questions formulated in the introduction of this paper and offers potential for future research. As in any qualitative study, findings were not intended to be representative of the population of manufacturing companies under scrutiny, but to provide insight for a deeper understanding of the phenomenon of interfirm exchange. This research was conducted within the North American supply chain of structural wood products and its structure in terms of customer relationships may not reflect the supply chain of other industrial sectors/geographic regions. However, the concept of exchange orientation and the methodology developed in this case study are transferable to any other industrial or service sectors with appropriate adaptation.

To conclude, the present research puts forth the concept of exchange orientation (EO), which allows for an integration and a broader characterisation of transactional and relational exchanges between organisations. This concept is operationalised into a tool that can help researchers and managers to measure and monitor EO in customer relationships over time. At the conceptual and methodological levels, this work presents a novel approach for integrating transactional and relational exchanges and bridging transaction and relationship marketing. The notion of EO offers an alternative perspective one favouring integration rather than dichotomy to other notions used to depict plurality in contemporary marketing, such as paradigms (e.g., Grnroos 1994; Gummesson 1997), practices (e.g., Coviello et al. 2002; Pels et al. 2004), and logics (e.g., Vargo and Lusch 2004). Such integration offers potential gains for suppliers through the management of their customer relationships based on a consideration of the appropriate exchange orientation. At the managerial level, this study suggests that customer base segmentation criteria and strategic objectives regarding relationship portfolio management can be modified to better integrate the concepts of exchange orientation and exchange value. This study therefore advocates the strategic management of customer relationships according to the existing and

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desired exchange orientation and exchange value, as an alternative to customer profitability used in current customer relationship management (CRM) practices.

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APPENDIX 1

Operationalisation of exchange orientation

CONSTRUCTSDimensions

INDICATORS (References)

Proximity

Closeness Existence of: numerous person-to-person contacts; close personal and working relationships (Hkansson 1982; Nielson 1998)

Geographic proximity

Distance between facilities (Oerlemans and Meeus 2005; Porter 1998)

Cultural proximity Similarities in: national culture, legal and political systems, market structure, business practices and language (both general and technical vocabulary) (Conway and Swift 2000; Evans and Bridson 2005)

Technical proximity Similarities in technological background (e.g., equipment, software) (Ahuja 2000)

Interdependence

Technical and human specificity

Levels of: adaptation in products, production, equipment for customer; interactions at facilities; specific training of people in charge of customer; difficulty (time/efforts) to switch to other customer or supplier; costs (money/risk) involved in switching (Handfield and Bechtel 2002); Haugland 1999; Heide 1994; Nielson 1998)

Irreplaceability Levels of irreplaceability of: customer, supplier (Joshi and Stump 1999; Morgan and Hunt 1994; de Ruyter et al. 2001)

Contribution Current and expected (2 year horizon) contribution to one anothers business (sales/purchasing volume, profits) (Anderson and Weitz 1989; Kim 1999)

Mutuality of dependence

Dependence: towards customer, of customer, in the relationship (Anderson and Narus 1990; Heide and John 1988)

Time Orientation

Duration and expected continuity

Duration of relationship: Expectation for continuing the relationship (both customer and supplier sides) (Chen and Paulraj 2004; Ganesan 1994; Heide and John 1990; Kumar et al. 1995)

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Time horizon Length of time on which the effectiveness and profitability of relationship is assessed (both customer and supplier sides) (Joshi and Stump 1999)

Commitment

Willingness to stay and propensity to leave

Desire (for both customer and supplier) to maintain the relationship even at the price of short-term sacrifices; propensity to terminate the relationship within the next: one year, two years (Geyskens et al. 1999; Kumar et al. 1994; Morgan and Hunt 1994)

Opportunism Levels of opportunistic behaviour of: customer, supplier, and in the relationship (Joshi and Stump 1999; Parkhe 1993)

Communication

Frequency of exchange and media used

Frequency of: information exchange; interactions / face-to-face, phone, e-mail, instant messenger, facsimile, video-conference (Andersen 2001; Spekman et al. 2002; Tatikonda and Stock 2003; Wiertz et al. 2004)

Content and quality of information; Reciprocity

Levels of: proprietary or sensitive information exchanged; technical information exchanged (e.g., ordering and billing); social information exchanged (e.g., outside of work, family); informality, relevance, timeliness of exchange; Reciprocity in information exchange (Chen and Paulraj 2004; Kim 1999; de Ruyter et al. 2001; Wiertz et al. 2004)

Cooperation

Willingness to partner

Willingness to work together as partners (Anderson and Narus 1990; Morgan and Hunt 1994; Tatikonda and Stock 2003)

Joint action Extent to which the following activities are undertaken jointly (as opposed to unilaterally): product design, new product development, problem analysis and resolution, long-range planning and inventory levels / reserved production capacity, delivery solutions (e.g., inventory management), promotion programs, local / regional advertising, performance review, strategic planning and development (Heide and John 1990; Kim 1999)

Goal congruence Compatibility of objectives (Parsons 2002)

Conflict solving and accommodation

History of noticeable conflicts in relationship and resolution (arrangement, neutral third party, lawsuits, etc.); levels of: conflict and tensions in relationship; mutual accommodation to solve conflicts (Achrol 1997; de Ruyter et al. 2001).

Trust

Benevolence, honesty, competence, reliability and predictability

Levels of: benevolence, honesty, competence, reliability, and predictability (for customer, for supplier, in the relationship) (Anderson and Narus 1990; Dwyer et al. 1987; Handfield and Bechtel 2002; Moorman et al. 1993; Spekman et al. 2002; Walter et al. 2003)

Lefaix-Durand and Kozak Integrating transactional and relational exchange

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Shared values Levels of common belief in: important goals; appropriate behaviours (Heide and John 1992; Morgan and Hunt 1994)

Regulation

Use of power and influence strategies

Use of power / control: on customers decisions, of customer; Symmetry of power use; Use of: coercive influence (e.g., promises, threats) and non-coercive influence (e.g., requests, recommendations) on customer, of customer (Brown et al. 1995; Dwyer et al. 1987; Frazier and Rody 1991; Gaski and Nevin 1985; Lusch and Brown 1982)

Centralisation and formalisation

Levels of: decision-making concentration and formalisation of decision-making process (e.g., procedures) in company (sales decisions), customer (purchasing decisions), relationship (Boyle and Dwyer 1995; Geyskens et al. 1999; Heide and John 1992; Lusch and Laczniak 1987)

Specification of trade agreements

Levels of specification of agreements on: pricing, gross margin levels, product attributes, volume, minimum order sizes, sales quota, delivery, installation and use of material, partners selection, payment, delay penalties, claims and return goods policy; Type of trade agreements: spot market, lumber futures, quarterly contracts, yearly contract, long-term agreement (over a year), semi or exclusive arrangements (Handfield and Bechtel 2002; Lusch and Laczniak 1987)

Coordination

Integration Levels of integration in: physical resources (e.g., technology), human resources (e.g., transfer of staff), processes (e.g., Vendor-Managed Inventory); interpenetration of firms boundaries (Harland et al. 2004; Heide and John 1990)

Logistics coordination

Levels of: coordination for collecting, handling, transporting, warehousing, and inspecting products (Chen and Paulraj 2004)

Information systems

Use of: inter-organisational information systems (e.g., tracking delivery), VMI/CMI, EDI, CPFR, ERP systems; electronic marketplaces (Gallivan and Depledge 2003; Shapiro 2001)

Structure

Transparency and structure of supply chain

Levels of knowledge on who are: customers customers; products end-user; customers other suppliers (and their offerings/pricing); for customer: suppliers suppliers, other customers (and their orders/pricing); distribution channel: one-step or two-steps (Antia and Frazier 2001; Hkansson 1982; Hkansson and Snehota 1995)

Embeddedness Levels of: interconnectedness with other actors when dealing with customer; networked exchange (vs. dyadic exchange) when dealing with customer (Abrahamson and Fombrun 1992; Jones et al. 1997; Ritter 2000)

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ABOUT THE AUTHORS AND CORRESPONDENCE

Aurelia Lefaix-Durand is a Visiting Professor in the Business School at the University Torcuato Di Tella, Buenos Aires (Argentina), where she teaches courses in International Marketing and Business Management. Native of France, she completed her MBA and PhD in Business Administration programs in Canada. Her research interests are situated at the crossroad of marketing, strategic management and supply chain management, as they revolve around value creation and business relationships in industrial settings (value-creating networks, relationship value, exchange orientation, customer relationship management).

Corresponding author: Professor Aurlia Lefaix-Durand Escuela de Negocios #101, Universidad Torcuato Di Tella 1010 Saenz Valiente, Capital Federal 1428, Buenos Aires, Argentina.

T +54 11 5169 7371 F +54 11 5169 7347 E [email protected]

Robert Kozak is a Professor in the Faculty of Forestry at the University of British Columbia, Canada. His research and teaching interests revolve around sustainable business management practices and issues and providing business solutions to complex problems related to sustainable development, forestry, wood products and the emerging conservation economy. Current research interests include strategies for forest-dependent communities in transition, value-added wood products, forest certification, supply chain management in the forest sector, corporate social responsibility, and forest products marketing.

Professor Robert Kozak, The University of British Columbia, Faculty of Forestry, 4040 2424 Main Mall, Vancouver, British Columbia, Canada V6T 1Z4

T +1-604 822 2402 F +1-604 822-9104 E [email protected]

Lefaix-Durand and Kozak Integrating transactional and relational exchange

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Documents

Integrating transactional and relational exchange into the study of Exchange Orientation in customer relationships