creating and managing superiou customer value

Woodside, Francesca Golfetto and Michael Gibbert ABSTRACT This first paper examines total benefits and total costs of product–servicedesigns as antecedents to customer value assessment.. S

Skills Volume 9: Getting Better at Sensemaking

Volume 10: Designing Winning Products

Volume 11: Essays by Distinguished Marketing Scholars of

the Society for Marketing Advances Volume 12: Evaluating Marketing Actions and Outcomes Volume 13: Managing Product Innovation

Fabio Ancarani University of Bologna, Bologna, Italy Enrico Baraldi Uppsala University, Uppsala, Sweden Roger Baxter Business School, AUT University,

Auckland, New Zealand Dan N Bellenger Georgia State University, Atlanta,

GA, USA Bruno Busacca Bocconi University, Milan, Italy

Michele Costabile University of Calabria, Arcavacata,

Calabria, Italy Bernard Cova Euromed Marseille, Marseille, France Andreas Eggert University of Paderborn, Paderborn,

Germany Michael Gibbert Bocconi University, Milan, Italy

Francesca Golfetto Bocconi University, Milan, Italy

Stephan C Henneberg Manchester Business School, University

of Manchester, Manchester, UK Andreas Hinterhuber Hinterhuber & Partners and Bocconi

University, Milan, Italy Wesley Johnston Georgia State University, Atlanta,

GA, USA Paul Matthyssens University of Antwerp, Antwerp, Belgium Stefanos Mouzas Lancaster University, Lancaster, UK Gabriela Herrera

Piscopo

Georgia State University, Atlanta,

GA, USA

vii

Thomas Ritter Copenhagen Business School,

Frederiksberg, Denmark

Torkel Stro¨msten Stockholm School of Economics,

Stockholm, Sweden Wolfgang Ulaga HEC School of Management, Paris,

France Koen Vandenbempt University of Antwerp, Antwerp, Belgium Achim Walter Christian-Albrechts-University of Kiel,

Kiel, Germany Sara Weyns University of Antwerp, Antwerp, Belgium Arch G Woodside Boston College, Boston, MA, USA Fabrizio Zerbini Bocconi University, Milan, Italy

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ISSN: 1069-0964 (Series)

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PURCHASING VOLUME 14

CREATING AND

MANAGING SUPERIOR CUSTOMER VALUE

EDITED BY ARCH G WOODSIDE

Boston College

FRANCESCA GOLFETTO

Bocconi University

MICHAEL GIBBERT Bocconi University

United Kingdom – North America – Japan

India – Malaysia – China

Fabio Ancarani Mette P Knudsen

University of Bologna,

Bologna, Italy

University of Southern Denmark, Odense, Denmark

Bocconi University,

Milan, Italy

Baruch College, City University

of New York, NY, USA

University of Calabria,

Arcavacata, Calabria, Italy

University of Innsbruck, Innsbruck, Austria

Bocconi University,

Milan, Italy

Hebrew University, Jerusalem, Israel

Bocconi University, Milan, Italy Bocconi University, Milan, Italy

Manchester Business School,

University of Manchester,

Manchester, UK

Technical University Darmstadt, Darmstadt, Germany

Hinterhuber & Partners and

Bocconi University, Milan, Italy

Boston College, Boston,

MA, USA

Georgia State University,

Atlanta, GA, USA

Bocconi University, Milan, Italy

ix

RESEARCH, AND PRACTICE

Arch G Woodside, Francesca Golfetto and

Michael Gibbert

ABSTRACT

This first paper examines total benefits and total costs of product–servicedesigns as antecedents to customer value assessment It introduces thereader to all the papers in this volume The first half of the paper offers amodel of customer value assessment This section describes researchstudies in industrial marketing contexts that illustrate the core proposi-tions in the model The second half of the paper provides briefintroductions to the papers in this volume; these papers offer furtherevidence supporting the view that discontinuous innovations offer superiorcustomer value but customers tend to eventually become increasinglycomfortable with the status quo and move away from adopting superiorproven technologies This paper advocates being mindful of the market-place dynamics affecting value The volume serves to increase knowledgeand understanding of the dynamic forces affecting changes in customervalue

This first paper includes two objectives First, the paper illustrates the use ofvalue theory and measurement in business-to-business (B-to-B) contexts

Creating and Managing Superior Customer Value

Advances in Business Marketing and Purchasing, Volume 14, 3–25

Copyright r 2008 by Emerald Group Publishing Limited

All rights of reproduction in any form reserved

ISSN: 1069-0964/doi: 10.1016/S1069-0964(08)14001-7

3

Second, the paper introduces advances in research in describing andunderstanding product–service value in business markets – the second half

of this introductory paper provides synopses of the papers in this volume

STRATEGIC STANCE FAVORING THEORY AND

MEASUREMENT OF VALUE

Achieving highly useful sense making about value concept and value metrics

is important because of the substantial evidence that (1) customerassessments of total value in a product–service offering strongly affectacceptance and initial purchase, (2) customer evaluations of valueexperiences relate strongly with retaining them and growing the share ofbusiness that these customers award specific suppliers, and (3) increases indelivered-value implemented strategies relate positively to increases inprofitability (Best, 2009)

Understanding and having the skill to apply useful value metrics areuseful steps in creating alternative product/service-implemented strategiesthat offer high- versus low-value evaluations by customers Also, such skillhelps reduce the value overconfidence bias that is prevalent amongmarketing executives: ‘‘Only 8% of customers describe their experiences

as superior, yet 80% of companies believe the experience they provide isindeed superior’’ (Meyer & Schwager, 2007) Dividing executive perception

of customer share by actual customer share of superior value provides anoverconfidence bias equal to 80/8, or 10.0 Certainly, this share variesamong a set of competing firms in a product market, but most firms canexpect to find an overconfidence bias greater than 1.0 for most of theirproducts–services

Value, from the perspectives of customers and marketers, is a dimensional concept Value as a concept represents a net score that includesmeasurement of total benefits perceived or realized and total costs ofacquiring, using, and disposing of a product or service Eqs (1) through (4)are example value metrics appearing in the B-to-B marketing literature:

multi-Value ¼relative sum of weighted benefits perceived

relative total costs perceived (1)Value ¼relative sum of weighted benefits perceived

relative total costs perceived ð2Þ

Value ¼relative sum of total consequences

relative total costs perceived (3)Value ¼ relative sum of total consequences  relative total costs perceived

(4)Measuring total consequences experienced in acquiring, using, anddisposing of a product or service represents a product or service qualitymetric Customer evaluations of total quality experienced is critical to themeasurement of value realized, but such evaluations represent only one ofthe variables in the formulation of the concept of postexperience valuemetrics The point is that value is a concept distinct from quality

MEASURING PERCEIVED BENEFITS VERSUS

CONSEQUENCES REALIZED

Note that the numerator in Eq (1) calls for measuring benefits perceived for

a given product–service design Such measurement is often done in studiesprobing customers’ acceptances of alternative product–service designsbefore the marketer finalizes what designs to manufacturer and whatdesigns to reject The objective of such studies is to collect customerjudgments useful for marketers in designing product–service prototypes forfurther testing

The numerator in Eq (3) calls for measuring consequences experienced bycustomers Such measurement is often done in studies probing the reasonsfor customer retention, customer decisions to eliminate suppliers, andcustomers’ decisions to increase or decrease the shares of purchaserequirements among competing suppliers

Eqs (1) and (3) provide ratios indicating the relative value of competingproduct–service designs – potentially new designs in the case of Eq (1) andexisting competing designs in the case of Eq (3) Assume for a moment that

a customer judges product–service design (say, design R) and concludes that

R has a weighted benefit sum equal to 120 and that the average among fouralternative product–service designs have a weighted benefit sum equal to 90.Design R’s relative sum of weighted benefits perceived equals 120/90 ¼ 1.33.The relative total benefit of R is quite high with respect to at least one of theother three product–service designs – possibly all three of these alternatives.(The calculations for the components of overall benefit appear later in thischapter.)

Assume that a customer has the following information available for fouralternative product designs How might the customer go about assessing andselecting among these four competing designs?

Design Relative Total Benefits Relative Total Costs Value

of total benefits that a design must achieve and select the design that meets

or surpasses the minimum while offering cost savings – if such an alternativeexists (Woodside & Wilson, 2000) In this example, most customers arelikely to reject design T due to its low relative total benefits (.80) and selectdesign S While design S has lower relative total benefits than design R,design S has above-average relative total benefits in combination withbelow-average relative total costs

The price-benefit performance map in Fig 1 illustrates four product–service value locations The dashed boundary region inFig 1illustrates theproduct–service design values that most customers are willing to buy, andthe three-dimensional box illustration depicts the ideal value location ofsubstantially above-average relative value and substantially below-averagerelative total costs The ‘‘fair-value line’’ represents location points wheretotal relative benefits equal total relative costs

Discontinuous innovations offering exceptionally high total benefitssought by a customer at exceptionally low total costs are examples of anideal product–service design – location I inFig 1 Possibly surprisingly toread, some customers are unwilling to consider such designs for severalreasons These reasons include inertia, status quo bias, and the primacyeffect (i.e., because prior purchases from existing suppliers are resulting inacceptable outcomes, why change?) Fear of failure of the new product–service design, additional work in examining test data, and search forevidence supporting the superior value of the discontinuous innovationwork against its adoption by many customers

A recurring pattern across many industries includes early adoption ofdiscontinuous innovations offering superior value by customers with verylow purchase requirements – with big customers continuing to becomfortable with placing large orders with existing suppliers After two tofive years, rapid growth in purchases and shifts to buying product–servicesbuilt using the new technology occurs; both large suppliers and buyers areslow to buy and build via the new technology platform (Christensen, 2003;

Woodside, 1996)

Creating a ‘‘blue sky ocean’’ is the label given to designing marketingstrategies that include building supplier value into product–service designsfocused on attracting large numbers of customers with low purchaserequirements – thereby avoiding large competitors Such blue oceanstrategies often result in growing new markets and conversion of largecustomers to product–services built on new technology platforms SeeKimand Mauborgne (2005)for a full exposition of blue ocean strategies.Thus, three points are worth taking away from this discussion Due to thehigh-technology electronic revolution, the occurrences of ideal valueproduct–service designs may be infrequent, but they are not rare in the21st century Such ideal product–service designs frequently do not cause arush to adopt among all customers (Christensen, 2003; Woodside, 1996)

V

I

I = Ideal product-service design

Fair Value Line

Fig 1 Price-Benefit Value Map Source: Adapted in part from Best (2009),

Fig 4-17, p 119, andGale (1994)

Conflicts inside both the marketer and customer firms occur among theforces (i.e., individuals and departments) favoring inertia versus the forcesfavoring change – during strategic window instances when product–servicedesigns offering superior value become apparent (Huff, Huff, & Barr, 2001).Eqs (2) and (4) represent calculating difference scores for relative totalbenefits or consequences versus relative total costs The difference scores forthe four designs

Design Relative Total Benefits Relative Total Costs Value

ESTIMATING TOTAL BENEFITS OF ALTERNATIVE

PRODUCT–SERVICE DESIGNS

Customers recognize several categories of benefits that accrue from physicalattributes as well as service attributes for competing suppliers’ product–service offerings This recognition is rarely totally explicit Unconsciousthinking affects (1) recognizing the benefits relevant to evaluating competingproduct–service designs, (2) the evaluation process, and (3) the heuristics(decision rules) that apply to selecting and rejecting designs based onbenefits (Woodside & Wilson, 2000) Even when relative importance weightsare assigned to benefits and a customer multiplies benefit scores by theweights, customers do not rely on the total scores in judging alternativedesigns Rather than applying such a compensatory heuristic, customersapply decision rules that are noncompensatory and most often only partiallyexplicit Customers may go through compensatory computations to learnsomething about what such evaluation scores and then create and usenoncompensatory rules

Such noncompensatory rules often include simple subroutines ‘‘Giveexiting suppliers a second look’’ in the bidding process if a new untried

vendor offers a low price is an example of one such simple heuristic ‘‘Neverbuy from a vendor that I do not know’’ is another simple heuristic.Thus, while asking customers to estimate relative importance scores fordifferent benefits may have some research value, the value of such researchhas severe limits Multiplying relative importance by benefit ratingsand summing does not provide accurate or relevant assessment as to thesteps that customers take to estimating overall values of competingproduct–service designs (Gigerenzer, Todd, & ABC Research Group, 2000;

Woodside, 2003)

As an example of possible benefits that customers may use to evaluateproduct–service offerings, Fig 2 includes four categories of possiblebenefits This example is for relatively new product–service: fiberglass-reinforced plastic (FRP) lampposts for on-street and off-street lightingapplications The benefit categories include product benefits, service and usebenefits, company and brand benefits, and emotional benefits for the buyingfirm Each product–service design under consideration by a buying firm hassome benefits relating to its physical components – its product benefits.Service benefits include ease of use, ease of repair, and ease of installation,among other processes Company and brand benefits relate to thereputation and industry awareness of the vendor Emotional benefits relate

to personality traits, and summary gist executives in the buying firm attach

to the personalities of vendors SeeBest (2009)for a full exposition

• Ease of installation:

two-person crew

• 50% less time to install

• Guaranteed delivery dates

• ½ the concrete in base

compared to alternatives

• 30% longer lifespan

• Non life threat when hit

• Supplier reputation for quality

• Supplier commitment to customers

In the United States, the customer segment buying the largest share oflampposts are electrical utility firms Among these firms, most standards(lamppost requirements) specify a component material: aluminum Suchrequirements prevent consideration of FRP lampposts Also, work torewrite and gain approval for new requirements among large customersrequires substantial time and involvement of several departments Theresults include higher acquisition costs of FRP versus aluminum lampposts,

at least for initial considerations of buying FRP lampposts

Fig 3includes five categories of costs relating to buying product–servicedesigns The categories include prices paid, acquisition costs (i.e., cost ofapproving the vendor and product–service design as acceptable forpurchase), ownership costs (including inventory costs and internal firmshipping costs), maintenance and usage costs, and disposal costs (e.g.,damaged or deteriorating lampposts need replacing)

Fig 4illustrates the value creation process from the perspective of an street building subcontractor who is considering the purchase of 24lampposts for a shopping mall – a relatively small purchase requirement

off-in comparison to the annual purchase requirements of 1,500–4,000

lampposts by many electrical utility firms Customer value here includescomparing the difference between total benefits versus total costs for each oftwo competing lamppost product–service designs This subcontractorrecognizes higher product and service benefits associated with the RFPversus aluminum lampposts and that these differences substantially morethan offset the lower company, brand, and emotional benefits associatedwith the RFP versus aluminum lampposts.

The estimates for total costs of the RFP are lower for the RFP versusaluminum lampposts The difference is mainly due to the lower price paidfor the RFP versus aluminum lampposts

In this example, the net customer value by this subcontractor for the FRPlampposts is more than double the customer value estimate for thealuminum lampposts Such subcontractors examining the two competingproduct–service designs frequently came to this conclusion Consequently,80% of the purchases of FRP lampposts were to small subcontractors;median sales were five lampposts annually per customer

The benefit and cost estimates for the two competing lampposts made

by large customers did not conclude higher customer value for theFRP lampposts Consequently, RFP standards did not achieve approval

Current Standard

(Aluminum Lamp Posts)

New Technology Standard (Fiberglass Reinforced Plastic Lamp Posts)

Price Paid

Acquisition Costs Ownership costs Maintenance Costs Disposal Costs

Product Benefits

Service Benefits

Company or Brand Benefits Emotional Benefits

Fig 4 Customer Value Analysis for Two Competing Products Built on Two

Different Platforms

among almost all large customers during the first 10 years of purchaseavailability of FRP lampposts While most marketers of FRP lamppostsdirected sales calls to large electrical utility firms, only one of these firmsplaced a sizeable order for these lampposts Most large firms continued toview total costs to be greater than total benefits for FRP lampposts, eventhough the price quotes were lower for FRP versus aluminum lampposts(Woodside, 1988).

IDENTIFYING CUSTOMER VALUE HEURISTICS

Customers do not think and purchase on the bases of ‘‘key drivers’’ orimportance ratings They think and act on the bases of contingencyheuristics Here is one example of a contingency decision rule: ‘‘I’m willing

to pay relative price 10 percent higher for product-service from vendor X ifthe total costs are 30% lower and the total benefits for vendor X’s offeringare within 95 percent of vendor Y’s product-service design.’’ Collectinginformation using methods other than asking importance ratings or theidentification of key drivers are possible and often more useful

Think aloud methods include asking buyers and users to describe theirongoing thinking in considering and selecting/rejecting specific competingproduct–service designs [e.g., see Woodside & Wilson (2000) for anapplication of the think aloud method in an industrial purchasing context].The think aloud method is one approach for uncovering customer valueheuristics Building forecasting models of customers’ choices among variouscombinations of benefits and costs is another method B-to-B studies intocustomer preferences frequently apply this second method – often referred

to as conjoint analysis or trade-off analysis

Asking importance and key driver questions do not accurately capturecustomer thinking heuristics in relevant contexts ‘‘We can more accuratelydetermine the benefits that customers value by asking them to make choicesamong products that have different benefits and different prices’’ (Best,

2009, p 130; cf.Louviere & Islam, 2008)

This section illustrates conjoint analysis in an industrial product–servicecontext The application reported here was done by an industrial servicedivision of a large US chemical manufacturing firm The problem faced bythe division was to select and design a new industrial MRO (maintenance,repair, and operating) service that substantial shares of one or more marketsegments would buy The service, shotblasting, is a relatively new furnacetube cleaning innovation introduced commercially as a furnace cleaning

service in the early 1980s The positive features of the new service include thefollowing: (1) scale as well as coke removal; (2) no need to remove furnaceplugs, if present; (3) an entire pass is cleaned in one operation (thus, furnacedowntime is substantially less compared to the time required usingcompeting cleaning methods); and (4) cleaning is conducted in anonflammable, dry nitrogen environment A negative feature of the newservice was the high operator skill and attention required to balance the flow

of propellant in the nitrogen carrier gas to prevent tube damage

CENTRAL MANAGEMENT ISSUES

The shotblasting development and marketing team identified severalmarketing issues related to gaining customer acceptance of the new service.Four service features were selected to learn customer response to substantialchanges in the levels of each attribute The four attributes were:

 price

 cleaning time required

 energy efficiency achieved by the cleaning

 tube damage that may result from the cleaning

Each of these attributes could be changed substantially by managementaction; each was believed by two or more members of the shotblastingdevelopment and marketing team to substantially influence customeracceptance of the new service Specific high, medium, and low levels ofeach attribute were selected for testing based on comparisons with existingattribute levels of competing services For example, the new service wasintroduced into several targeted markets at $22,500, a price believed bymanagement to be close to the very high end of the relevant range of pricesthat would be considered for a cleaning service The lowest price levelselected for testing was $13,000, substantially above the average cost tocustomers for a steam air decoking application but substantially below thecost for turbining (a competing cleaning technology) A price below $13,000for the shotblasting service was not viewed as feasible by the new servicedevelopment and marketing team Three members of the new service teambelieved that substantial market share increase would be achieved at theexpense of turbining if the price of the shotblasting service was set 10%below rather than 12% above the customer’s cost for turbining; thus, a thirdprice of $18,000 for the shotblasting service was tested

Table 1 summarizes the profiles of the existing furnace tube cleaningproduct–services and the three levels tested for each of the four features ofthe new service The upper and lower levels of the relevant ranges shown forshotblasting cleaning time, energy efficiency achieved, and tube damagewere based on comparisons to existing performance levels of turbining andsteam air decoking and what was feasible in practice For instance, theminimum metal loss form of tube damage (.005v) that could be guaranteedwith the use of shotblasting was set as the lower limit of the relevant rangefor the new service The existing levels of tube damage experienced oftenwith the use of the other furnace tube cleaning services were selected as theother tube damage levels for testing Close to a 100% energy cleaningefficiency could be guaranteed with the new cleaning service: the lowestcleaning efficiency offered with the new service was equal to the highest level

of performance achieved by steam air decoking

Thus, management wanted useful information relevant to the followingquestions:

1 Would a price decrease in the new service be likely to cause an increase inmarket share?

2 Would changes in cleaning time across the range of time relevant for theshotblasting service affect market share?

3 Would guaranteeing close to 100% energy efficiency after cleaningincrease market share substantially?

Table 1 Competing Product–Service Design in the Conjoint Study

Steam Air Decoking

Customers participating in this study were each asked to provide theshare of business they would award to each of three product–servicedesigns in solving nine buying problems Each buying problem includedone of nine designs for shotblasting as appearing in Fig 5 Each ofthese nine designs offer different combinations of different levels of price,cleaning time required, energy efficiency achieved by the cleaning, and tubedamage.

Each of the nine designs for shotblasting was pitted against the designs ofthe two competing technologies Fig 6shows an example problem in thisresearch study

Table 2 shows the forecasts of shares of business for alternativeshotblasting designs and the two competing product–services usingcompeting technologies A total of 81 possible shotblasting designs arepossible from 3 levels of four product attributes: 3  3  3  3 ¼ 81 designs.The data for each customer in the study and for all customers in the study

Key:

A: price paid B: Cleaning time C: Energy efficiency

by cleaning D: Tube damage

(D) 005* to 020*

T

(A) $18,000 (B) 4 hours (C) 75%

(D) < 005*

R

(A) $22,500 (B) 4 hours (C) 100%

(D) 005* to 020*

V

(A) $22,500 (B) 14 hours (C) 90%

(D) 1/16*

Fig 5 Nine Shotblasting Furnace Cleaning Treatments

permit individual and total sample forecasts of purchase Multipleregression analysis was the analytical tool for making these forecasts See

Woodside and Pearce (1989)for additional details of this study

Note in Table 2 that dramatic drops in market share for shotblastingoccur when energy efficiency achieved decreases from 90% to 75% while

Assume that you are faced with the potential need to decoke a 2 pass 6" OD, Direct Fired Furnace From the information presented below distribute 100 points among the three processes based on the likelihood that you would use that process to decoke the above furnace

Steam Air Decoking

0.020" Carburization Loss and Thermal Fatigue

$18.000

4 hrs 75%

< 005" Metal Loss

$20.000

120 hrs 95%

> 1/16" Metal Loss

Fig 6 Example Problem from Conjoint Study

Table 2 Example Findings: Forecast of Share of Business from Total

Energy Efficiency

Market Share (%) SAD b Shotblasting Turbining

Energy Efficiency

Market Share (%) SADb Shotblasting Turbining

a High=$22,500; medium=$18,000; low=$13,000.

b SAD ¼ steam air decoking.

dramatic increases in market share occur for steam air decoking Themarket shares for shotblasting with 75 energy efficiency levels fallbelow 10% when this energy efficiency level is combined with a 0625 tubedamage level.

The results of this study vary substantially among different groups ofcustomers segmented by current share of business and by industry type(chemical versus petroleum customers) Consequently, adjustments tomarketing strategies based on the results of the study varied substantially.The key finding inTable 2noted by the marketing manager for shotblastingwas the strong influence of tube damage on market share when tube damagereached a high level (1/16v) but not when it increased from less than 005v to

a range of 005–.020v He provided two implications from these results:(1) severe tube damage had to be prevented from occurring withshotblasting applications and (2) a guarantee of a low amount of tubedamage would not have to be set prohibitively low to possibly influencemarket share positively for shotblasting

MODELING ANTECEDENTS AND

CONSEQUENCES OF CUSTOMERS’

ASSESSMENTS OF VALUE

Fig 7summarizes the much of the discussion in the first half of this paper.This exhibit shows the two forces of total benefits and total costs that affectcustomer assessments of the value of a product–service design Increases intotal benefits cause increases in customer value assessments Increases intotal costs cause decreases in customer value assessments

The consequences of increases in customer value assessments includeincreases in customer acceptance of a product–service design, purchases,share of business awards, and continuing purchases These consequenceslead to increases in the customer’s comfort level and preference towardmaintaining the status quo (Christensen, 2003;Huff et al., 2001;Woodside,

1996) Increasing preference for the status quo reduces the customer’s stancetoward and acceptance of new product–service designs built on provensuperior new technological platforms Executive leadership/stance favoringchange serves as a countervailing force to reduce the customer’s comfortlevel and increase customer acceptance of proven superior technologies;

Huff et al (2001) offer brilliant research illustrating the continuing battlebetween the forces favoring inertia versus change

ADVANCES IN RESEARCH IN VALUE THEORY,

MEASUREMENT, AND PRACTICE

The remaining papers in this volume appear in one of four parts The papers

in Part A focus on advancing conceptualizations of value The papers inPart B focus on metrics and measurement research into value The papers inPart C focus on strategic aspects of value – how to create value The papers

in Part D focus on operational aspects, value propositions, and pricing

Intangible Value in Buyer–Seller Relationships

In the second paper, Roger Baxter identifies dimensions of value provisionthrough relationships in business markets with specific emphasis on theintangible aspects of value, which are important to long-term competitiveadvantage The provision of value to the seller is the prime focus in thispaper The paper discusses the meaning of both the tangible and intangiblerelationship value and the interplay between them and notes the importance

Total Benefits Assessment

by Customer

Total Costs Assessment

by Customer

Customer Value Assessment

of Product-Service Design

Fig 7 Antecedents and Consequences of Customer Value Assessments of

Product–Service Designs

of assessing the intangible part of the value, particularly the part that derivesfrom the human aspects of the relationship.

Final Customers’ Value in Business Networks

In the third paper, Stephan C Henneberg and Stefanos Mouzas explore thevalue of the final customer in business networks The preferences of the finalcustomer define the concept of the network customer The central argument

of this paper is that companies within networks of value-creating ships can act as integrators, which, by interlocking limited valueperspectives, can approximate an absolute value horizon that includesnetwork customer considerations Such interlocking activity constitutes amanagerial challenge

relation-Functions, Trust, and Value in Business Relationships

In the fourth paper, Thomas Ritter and Achim Walter analyze functions ofbusiness relationships and their impact on value perception Applying acustomer perspective, direct relationship functions are concerned aboutpayment, quality, and volume Indirect functions include innovation, access,and scouting The study includes trust and the number of alternativesuppliers The empirical results illustrate the important role of direct andindirect functions for value creation

Customer Value MetricsThe fifth paper focuses on customer value analysis and measurement,framing customer value management as one of the main antecedents of thecompany value creation process The authors, Bruno Busacca, MicheleCostabile, and Fabio Ancarani, build on three main pillars First, thepaper highlights the critical role of customer value in B-to-B markets,focusing on the links between the company’s ability to managecustomer value creation processes and the positive financial and economicoutcomes generated by loyalty effects Second, the paper develops keyanalytical stages for an understanding of customer value The focus is onthe customer value-chain concept, including consideration of thecustomer information and acquisition process and its decision rules Third,

the paper illustrates the measurement process, offering an organizationalframework for selecting the most suitable method for measuring perceivedcustomer value.

Total Cost of Ownership and Customer Value in Business MarketsThe sixth paper explores the use of the total cost of ownership (TCO)approach from the business marketing perspective Gabriela HerreraPiscopo, Wesley Johnston, and Dan N Bellenger describe how TCOprovides a method to estimate all costs associated with the acquisition, use,and disposal of a good or service over the lifetime of the purchase.Organizational buyers can employ TCO analysis to evaluate alternativeofferings from suppliers, to assess ongoing supplier performance, and todrive process improvement Sellers can use TCO models to measure,document, and communicate the value that their offering represents to acustomer in the way of lower costs relative to the next best alternative TCOanalysis can be a powerful selling tool to demonstrate concrete customervalue creation for alternatives that deliver comparable benefits

Linking Customer Value to Customer Share in Business RelationshipsThe seventh paper provides confirmatory evidence supporting the strongassociation between customer value assessment and share of business.Wolfgang Ulaga and Andreas Eggert report findings of a cross-sectionalstudy among purchasing managers in US manufacturing industries thatindicate a positive link between customer value and customer share inbusiness relationships Relationship benefits have a stronger impact oncustomer share than do relationship costs, such that sourcing and operationbenefits appear to represent the most promising levers for effective customershare management The results finally suggest that researchers shouldoperationalize customer share in relative terms when investigating keysupplier relationships across different industries

Configurations and Control of Resource Interfaces in Industrial Networks

In the eighth paper, Enrico Baraldi and Torkel Stro¨msten identify thatthe role of management control receives insufficient attention in the

literature on value creation Their paper investigates the role of control

in value creation in industrial networks The aim is to examine themanagement and control of interfaces between key resources within andbetween firms, in the networks surrounding firms, when they attempt tocreate value All the firms that take part in a value creation process haveboth formal and informal control systems: these firms have budgets,specific routines, reward systems, and sanctioned ‘‘ways to behave.’’The paper relates the IMP (Industrial Marketing and Purchasing)Group’s research on interaction, relationships, and networks with controlliterature and presents a framework for controlling resource interfaces in

a network setting Two in-depth cases illustrate the role of control invalue creation

Creating Superior Value through Network Offerings

In the ninth paper, Bernard Cova and Robert Salle draw on the experiences

of project marketing and solution selling to improve the understanding ofhow to create superior value for customers Project marketing and solutionselling have both developed approaches to deal with complex marketingsituations for a number of years now The upstream mobilization ofcustomer network actors and the downstream enlargement of the contentand scope of the offering are the key features of these approaches

Competence-Based Value Framing for B-to-B Customers

The 10th paper shows how business suppliers set up processes allowing thetranslation of their competencies into value for the customers The authors,Francesca Golfetto, Fabrizio Zerbini, and Michael Gibbert, seek tocomplement the dominant view in which competencies are seen mainly asvaluable for the firm owning the competencies, but not for that firm’scustomers In so doing, the paper contributes to two bodies of research: thenotion of core competencies in strategic management and the notion ofvalue for customer in business marketing These two bodies of researchinteract infrequently thus far, leaving the how question largely unanswered.This question is relevant because competencies are immaterial, tacit, andnon-tradable assets

VALUE DELIVERY AND VALUE-BASED PRICING IN

INDUSTRIAL MARKETS

The 11th paper proposes an own model of customer value conceptualization

in business markets; first, based on several rounds of testing, thistheoretically grounded model in managerial practice indications exists toconclude that this model may offer benefits over current models Second, thepaper provides a comprehensive survey of pricing approaches in industrialmarkets The author, Andreas Hinterhuber, integrates this literatureoverview with own empirical findings Concurrently, the paper summarizesextant research on the link between pricing approach and profitability inindustrial markets Third, the paper proposes a framework for valuedelivery and value-based pricing strategies in industrial markets Proposingsuch a framework is both useful as well as necessary

Value Creation Options for Contract Manufacturers

The twelfth paper studies how suppliers in the highly commoditizedmetalworking industry try to realize new types of customer value Theauthors, Paul Matthyssens, Koen Vandenbempt, and Sara Weyns, identify

‘‘ideal’’ value positions pursued by Belgian contract manufacturers andservice providers in order to survive in an industry characterized by fierceprice competition from low-labor cost countries Further, the paper showshow companies can migrate to these ‘‘ideal’’ value offerings Key successfactors and potential traps for each ideal type are identified Market strategytransition necessitates an internal ‘‘alignment’’ strategy and an external

‘‘coevolution’’ with chain partners

Best, R J (2009) Market-based management Upper Saddle River, NJ: Pearson–Prentice Hall Christensen, C M (2003) The innovator’s dilemma New York: Harper Collins.

Gale, B T (1994) Managing customer value New York: Free Press.

Gigerenzer, G., & Todd, P M.ABC Research Group (2000) Simple heuristics that make us smart New York: Oxford University Press.

Huff, A S., Huff, J O., & Barr, P (2001) When firms change direction New York: Oxford University Press.

Kim, W C., & Mauborgne, R (2005) Blue ocean strategy: How to create uncontested market space and make competition irrelevant Cambridge, MA: Harvard University Press Louviere, J J., & Islam, T (2008) A comparison of importance weights and willingness-to-pay measures derived from choice-based conjoint, constant sum scales and best–worst scaling Journal of Business Research, 61, 903–911.

Meyer, C., & Schwager, A (2007) Understanding customer experience Harvard Business Review, 85(2), 116–126.

Teas, R K (1993) Expectations, performance evaluation, and consumers’ perceptions of quality Journal of Marketing, 57, 18–34.

Tufte, E R (2001) The visual display of quantitative information (2nd ed.) Cheshire, CT: Graphics Press.

Woodside, A G (1988) Marketing success and failures of new lamp post technologies Unpublished industry report Tulane University, New Orleans.

Woodside, A G (1996) Theory of rejecting, superior new technologies Journal of Business & Industrial Marketing, 11(3/4), 25–43.

Woodside, A G (2003) Middle-range theory construction of the dynamics of organizational marketing-buying behavior Journal of Business & Industrial Marketing, 18(4/5), 309–335.

Woodside, A G., & Pearce, W G (1989) Testing market segment acceptance of new designs of industrial services Journal of Product Innovation Management, 6, 185–201.

Woodside, A G., & Wilson, E J (2000) Constructing thick descriptions of marketers’ and buyers’ decision processes in business-to-business relationships Journal of Business & Industrial Marketing, 15(5), 354–369.

BUYER–SELLER RELATIONSHIPS Roger Baxter

ABSTRACT

The provision of value, as a marketing issue, is receiving increasingattention from managers and scholars This attention, in combination withstrong calls for better quantification and stronger measures in marketing,has lead to increased interest in the assessment, quantified where possible,

of the provision of value through buyer–seller relationships This paperidentifies dimensions of value provision through relationships in businessmarkets with specific emphasis on the intangible aspects of value, whichare important to long-term competitive advantage The provision ofvalue to the seller is the prime focus in this paper The paper discussesthe meaning of both tangible and intangible relationship value andthe interplay between them and notes the importance of assessing theintangible part of the value, particularly the part which derives from thehuman aspects of the relationship Despite their importance, the humanaspects of relationships and their contribution to value is a sparse topicamong researchers The paper compares and evaluates potentially usefulrelationship and value conceptualizations The paper discusses studies ofrelationship value and then outlines the results of a recent line of empiricalresearch into the provision of value by a buyer to a seller that utilizes aframework synthesized from the intellectual capital literature This recentresearch conceptualizes the potential for a seller’s relationship with a

Creating and Managing Superior Customer Value

Advances in Business Marketing and Purchasing, Volume 14, 27–98

Copyright r 2008 by Emerald Group Publishing Limited

All rights of reproduction in any form reserved

ISSN: 1069-0964/doi:10.1016/S1069-0964(08)14002-9

27

buyer to provide intangible value to the seller in terms of, first, theresources available in the buyer and second, the capabilities of the buyer’sboundary personnel to aid in facilitating the flow of those resources to theseller The paper also includes the softer human aspects in the dimensions

of value These latter aspects are important to a full assessment of value.The paper concludes with a discussion of aspects of intangible relationshipvalue that need further elucidation and will thus provide opportunities forfuture research

1 INTRODUCTION

The marketing literature expresses concern about the weakness of themarketing paradigm and the consequent lack of involvement of marketingprofessionals in the firm’s strategy formulation process (e.g.,Cravens, 1998;

Doyle, 2000;Gummesson, 1998;Piercy, 1998) At least a partial explanation

of this weakness lies in the inability of sales and marketing managers tovalue the outcomes of their actions Tools to assess value outcomes aretherefore essential for sales and marketing managers, including tools toassess outcomes of relationship management strategies The relationships

a firm has with its customers are among the key providers of value to thefirm and are prime concerns of sales and marketing personnel In fact, they

‘‘contribute to its organizational capital’’ (Hunt, 1997) and comprise animportant part of a firm’s shareholder value (Payne, Holt, & Frow, 2000).The building and maintenance of networks and relationships for competi-tive advantage and hence for performance is therefore a key task for firms(Doyle, 1995) and in particular for their sales and marketing managers.These assets need valuation in such a way that they are seen as a criticalcontribution to the firm and their value needs clear definition

Managers need to be able to clearly demonstrate the value theycreate (Doyle, 2000) in order to argue for a sufficient share of the firm’sresources to develop these market-based assets (Srivastava, Shervani, &Fahey, 1998) for competitive advantage (Barney, 1991) They also need to

be able to design relationship strategies for performance (Varadarajan &Jayachandran, 1999), and to be able to manage their portfolio of customerrelationships effectively (Srivastava, Fahey, & Christensen, 2001) To takethese actions, they need, in turn, to be able to understand the dimensions

of relationship value so that they can assess the worth of individualrelationships Identification of the dimensions of relationship value and theirrelative importance and of scales to measure these dimensions is thus a

useful research goal which is supported by calls for the quantification ofmarket-based assets and their value (Srivastava et al., 1998) and for theprovision of meaningful measures in marketing (Day & Montgomery, 1999).

In the business-to-business context, ‘‘customer profitability analysis’’(Bellis-Jones, 1989;Gattorna & Walters, 1996;Howell & Soucy, 1990;Smith,

1993) is a well-established method which assigns revenues, expenses, assetsand liabilities to customers and algebraically sums their value to reach aprofitability figure for each customer Increased levels of sophistication can beapplied to the basic customer profitability technique by applying,for example, activity-based costing principles (O’Guin, 1991; Turney, 1996)

to better identify the costs that should be assigned to the customer anddiscounted cash flow calculations (Brealey & Myers, 1988) to bring futurecash flows back to a present value However, even with increased levels ofsophistication, the primary focus of customer profitability analysis is themanagement of profitability by way of extrapolation of the past, withparticular focus on the management of costs, rather than on the management

of the value that is potentially available in the future from the intangibleaspect of a relationship Without detailed knowledge of the dimensions ofthe intangible value in the relationship, the customer profitability analysistechnique is largely restricted to assessing those relationship aspects that areeasily quantifiable in dollar terms by the modification and extension ofhistorical cost- and revenue-based accounting information

This lack of knowledge leaves a gap in the available toolbox for managers

in assessing relationship value AsMorgan and Hunt (1999)note, much ofthe value provided by a relationship may comprise intangible aspects, which

at present cannot be readily assessed other than by a manager’s experienceand intuition In order to develop techniques specifically for intangiblevalue assessment, understanding the dimensions of this intangible value

is necessary Development of scales to measure the dimensions of thisintangible relationship value and development of an understanding of itsstructure is thus a useful research goal Elucidating these dimensions andmaking sense of the structure of intangible relationship value is the specificgoal of the study that this paper describes

1.1 Research QuestionRelationships provide value to the relationship partners The IndustrialMarketing and Purchasing (IMP) literature (Hakansson & Snehota, 1982,

1995) makes this point clearly, as do the literatures on the resource-based

view of the firm (Barney, 1991) and the application of the resource-basedview in the marketing literature (Morgan & Hunt, 1999).

Because relationships provide value to the partners, the assessment ofthat value is important so they can be managed effectively As in otherdisciplines, techniques are available for the value assessment of resources

in marketing-related fields For example, techniques for the dollar valueassessment of brands (Keller, 1998) and communications campaigns (Ehling,

1992) are available In these cases the techniques assess the intangible as well

as the tangible aspects of the resource in order to comprehensively assess thevalue Assessment of the intangible value aspects requires knowledge of theattributes or dimensions of the intangible value of the resource Identification

of intangible value dimensions for relationships is therefore essential todeveloping a comprehensive assessment technique for relationship value

A limited, but growing, body of research specific to the value of ships or relationship partners exists For example, techniques for assessment

relation-of ‘‘customer lifetime value’’ (Gupta, Lehmann, & Stuart, 2004; Kumar,Ramani, & Bohling, 2004; Venkatesan & Kumar, 2004) are developingrapidly This set of techniques is principally focused on consumer relation-ships, so given the ‘‘arms length’’ nature of consumer relationships, thetechniques generally consider relationships in an aggregated sense, rather thanrelationship-by-relationship These techniques also strictly do not have therelationship as the unit of analysis They therefore do not provide a basis forthe development of a set of dimensions of intangible relationship value

In the business-to-business relationship literature, however, which isthe focus of this paper, some recent studies research the nature ofintangible value in some depth For example,Walter, Ritter, and Gemu¨nden(2001),Walter and Ritter (2003), andRyssel, Ritter, and Gemu¨nden (2004)

research value from the perspective of the seller in a business-to-businessbuyer–seller relationship.Ulaga (2003)andUlaga and Eggert (2003, 2006a)

do the same from the buyer’s perspective However, in all these studies, themeasures appear to be of drivers of value rather than of manifestations ofvalue and although they do include the intangible aspects of value, theinclusion is limited in its extent Also, these studies do not provide in-depthassessment of the human aspects of relationship value creation Hence furtherresearch is necessary for identifying dimensions of intangible relationshipvalue This necessity leads to the research question for this study:

 what are the dimensions and structure, from the seller’s perspective, of theintangible value which a buyer provides through a business-to-businessbuyer–seller relationship?

This paper describes the study that deals with two related issues in order

to answer the research question:

 what are the dimensions of the manifestations of intangible relationshipvalue?

 what is the structure of this value and what might the outcome be?The paper proposes a set of dimensions and a structure that both utilize

a novel synthesis of a framework from the intellectual capital literature(Roos, Roos, Dragonetti, & Edvinsson, 1997) The paper also proposesfuture financial performance of the relationship as an outcome The studytakes the seller’s perspective, as will be discussed later

The study contributes to the relationship marketing literature and to thebroader business literature by providing a sound theoretical basis fordevelopment of a set of dimensions of the intangible value that is providedthrough a business-to-business buyer–seller relationship, grounded in theresource-based view of the firm (Barney, 1991;Morgan & Hunt, 1999) andgrounded also in the synthesis of a framework from the intellectual capitalliterature The study also contributes by providing some indication ofthe relative importance of each of the value dimensions, by helping toelucidate the structure of intangible relationship value, and importantly,

by accounting for the human dimensions (Varey, 2002) of relationshipvalue provision much better than do existing conceptualizations Once thedimensions and structure of this value provision are understood, thedevelopment of techniques to assess value manifestations will become a realpotential The availability of such assessment techniques will be a valuableaddition to the marketing manager’s toolbox for strategy formulation andhence for resource management

The study provides, in turn, support for the conceptualization, seen in therelationship literature, of a relationship as a value provider (e.g.,Hakansson &Snehota, 1982;Morgan & Hunt, 1999) By demonstrating that managers seerelationship financial performance as an outcome of relationship value, thestudy links the results to the broader performance and strategy literature(Srivastava et al., 2001) The study also provides support for theconceptualization of the flow of information and value through a relationship

as seen in the intellectual capital literature (Roos & Roos, 1997;Roos et al.,

1997) and in the broader management literature (Dierickx & Cool, 1989) Thestudy thereby makes a contribution to the body of knowledge concerning themanagement of the performance of the firm as a whole

The study has some additional theoretical implications For example,some controversy exists in the literature as to whether a relationship is an

entity with value in its own right or is simply a conduit for value transferbetween the relationship partners (e.g.,Ambler & Styles, 1998) The study isbased on a conduit conceptualization and establishes empirical support forthat conceptualization, but later discussion in the paper notes that the entityversus conduit argument is more complex than can be covered by this study.This issue thus provides an avenue for further research.

This research makes a contribution to the intellectual capital literaturebecause this study and the work of Bontis (1998) and Bontis, Chua, andRichardson (2000) appear to represent the few attempts currently tooperationalize the intellectual capital concepts and test them empirically.The application of intellectual capital constructs to assess the value ofintangible value appears to have the potential to be extended into contextsother than relationships, so when further support for the validity isavailable, the operationalization of the constructs assists the development ofresearch in this field

The constructs used as the basis for this research are intangible in nature,and intangibles are a representation of future performance and worth(Contractor, 2001) The study therefore illustrates the linkage betweencurrent intangible value in the form of information flows and future tangiblevalue in the form of future financial performance

1.2 Context of the StudyAlthough this research contributes to the wider literature, data for the studycome from a specific context The scope is as follows The primarycontribution is to the business-to-business relationship marketing literature,and the study is conducted in that context because, as has been noted inearlier sections of this chapter, researchers see a need for tools to assessintangible relationship value in that context

The research problem asks what the ‘‘structure’’ of intangible value is Inthis paper structure means the dimensions of intangible value and the pathsbetween these dimensions and relevant higher-order mediating constructs

A consequence of the need to model the dimensions is the need tomeasure them, so a set of scales for the dimensions is developed The studyhypothesizes future financial performance as an outcome of intangiblevalue, so the paper defines this construct and develops a set of indicators.The linkage of value to future financial performance is tested and this testingprovides an indication of nomological validity of the model

The study is of business-to-business relationships because these areimportant relationships in the broad business context and because thejudgment criteria for, and hence operationalization of, value dimensions will

be somewhat different for these relationships than for business-to-consumerrelationships As noted earlier, the developing literature for business-to-business relationship value assessment (Ulaga & Eggert, 2003;Walter et al.,

2001) is distinct from the customer lifetime value tradition which focuses onconsumer relationships The literature on business-to-business relationshipvalue assessment offers two distinct streams of research because again thecriteria and operationalizations are different for the two perspectives Onestream takes the seller’s perspective (Walter et al., 2001) and the other takesthe buyer’s perspective (Ulaga & Eggert, 2003) The study reported by thispaper is of value from only the seller’s perspective, as the value perceived

to be in a relationship is likely to be quite different for the two partners.The paper later highlights this difference in perspectives

The literature includes a range of relationships types At one end ofthis range is the more formalized and integrated joint venture format,which in the transaction cost economics perspective is seen as close to ahierarchy At the other end of the range is buyer–seller relationshipswhich are closer to the market end of the spectrum described in thetransaction cost economics literature (Williamson, 1975) This study focuses

on buyer–seller relationships, which are particularly important for themarketing discipline and are separately discussed in the marketing literature(Wilson, 1995) The unit of analysis for the study is relationships andrelationship processes, so the survey asks respondents to select a customerwith which they have a relationship as the subject of the questions inthe questionnaire The sample frame is manufacturing industry Althoughthe conceptual framework for the study is general and very likely willapply in service industries, the operationalization for different industrycontexts may be different and a mix of firms supplying services and tangiblegoods may confound the results Hence the study focuses only onmanufacturers

The intellectual capital literature already establishes the model used asthe basis for the dimensions and structure of intangible relationship value

in the study, so the primary analysis techniques used are quantitative,although qualitative analysis of a set of interviews with managersprovides initial validation of the proposed value constructs and theindicators used as their measures For the main empirical testing of themodel, the study surveys randomly selected managers in sales, marketing,and related positions in manufacturing firms The principal quantitative

analysis technique employed is structural equation modeling The analysissupports the model and dimension proposals.

1.3 Key Concepts

To aid understanding of the paper,Table 1defines some of the key conceptsused in the paper The following paragraphs briefly discuss some of theseconcepts

In an assessment of definitions, Harker (1999) concludes that the

‘‘coverage of the underlying conceptualizations of relationship marketingand its acceptability throughout the RM ‘community’ ’’ are best stated in

Gronroos’ (1994)definition This definition clearly states a profit outcomefor relationship marketing, which is a critical point for the conceptualization

of this study

The aim of this study is to go beyond the simple definition of value asbenefits less sacrifices and to identify dimensions of intangible value to theseller in a business-to-business buyer–seller relationship In this paper,dimensions are interpreted as attributes of a construct Hair, Anderson,Tatham, and Black (1998)refer to a dimension as an ‘‘[a]ttribute of a dataelement’’ (p 669), and give the ‘‘age or gender of a customer’’ as an example.Similarly, in physics, a dimension is a property of an object, such as length

or mass Drivers of intangible value are, in contrast, seen as causalantecedents of value For example, Lapierre’s (2000) study of drivers ofcustomer value includes such constructs as the responsiveness, flexibility,and reliability of the seller, which will help create value The distinctionbetween dimensions and drivers of relationship value is fundamental to thestudy’s conceptualization

The focus of the paper is intangible relationship value, which is viewed

as the intellectual capital that is provided by the relationship In theintellectual capital literature (e.g.,Roos et al., 1997), on which this researchdraws extensively, intellectual capital is defined as all that capital that isnot physical or monetary capital Contractor’s (2001) categorization ofintangible value into three groups helps to further clarify the concept Thefirst of these groups is intellectual property, which is formally registered

in the form of patents or brand names The second group comprisesintellectual assets, which are both the registered intellectual property and

‘‘codified but unregistered corporate knowledge’’ such as ‘‘drawings,software, data bases, blueprints, formulae, manuals, and trade secrets.’’

The third category is intellectual capital, which includes both of the first twocategories as well as ‘‘Uncodified Human and Organizational Capital,’’such as ‘‘expertise that resides in the thinking of employees andorganizational routines.’’ The intellectual capital literature (e.g., Roos

et al., 1997) further divides intellectual capital into subcategories which

Table 1 Key Concepts

Value Defined generally, for example by Woodruff (1997), as the excess of the

benefits received from the resource over the cost of (or sacrifice for) the resource However, this definition does not state the attributes of value

or how these can be assessed.

Dimensions Dimensions are defined as attributes of a construct, specifically of

relationship value in this study.

Drivers Drivers of intangible value are defined as its causal antecedents Intangible

relationship value

Intangible relationship value is viewed in the study as the intellectual capital that is provided by the relationship.

Intellectual capital Defined in the intellectual capital literature (e.g., Roos et al., 1997) as all

that capital that is not physical or monetary capital.

Competence That property in a firm, or in this study, of a relationship, that generates

value ‘‘through knowledge, skills talents and know-how of employees’’ (Roos et al., 1997).

Attitude A matter of personality traits and ‘‘covers the value generated by the

behaviour of the employees on the workplace’’ (Roos et al., 1997) Intellectual agility The ability of people to use competences and to apply them and increase

them through learning (Roos et al., 1997) as described by Prahalad and Hamel (1990).

Relationships Seen in this study as a category that includes any useful other

relationships to which the seller gains access to by way of the relationship with its buyer.

Organization Includes databases, process manuals, culture and management styles,

internal networks, and also intellectual property such as patents, trademarks, brands and processes that have legal protection Renewal and

development

Comprises those items ‘‘that have been built or created and that will have

an impact on future value, but have not manifested that impact yet’’ (Roos et al., 1997).

Future financial

performance

The performance of the relationship on a 3-year horizon, in financial terms, as perceived by the seller’s managers.

synthesize into this study’s conceptualization as dimensions of intangiblerelationship value.

Human attributes comprise three of the subcategories described in theintellectual capital literature These attributes are the competence, attitude,and intellectual agility of a firm’s personnel as described in Table 1 and

in this study they are the attributes of the buyer’s boundary personnel whowork in the relationship with the seller The other three subcategoriescommonly in use in the intellectual capital literature describe structuralorganizational attributes, named relationships, organization, and renewaland development, as described inTable 1 This research conceptualizes theseattributes as resources of the buyer to which the seller has access by way ofthe relationship between them

The study’s model of relationship value includes a future financialperformance construct that Table 1 defines as an outcome of that value

By including the future financial performance outcome, the modelrecognizes the profit outcome of relationships in the Gronroos (1994)

definition of relationship marketing in Table 1

1.4 Structure of the PaperThe structure of the remainder of the paper is as follows As a background

to the development of a model for the study, the paper discusses therelationship literature and the relevant value literature The paper thendiscusses the potential for the resource-based view of the firm and theintellectual capital literature to provide the principal bases for a frame-work for the dimensions and structure of intangible relationshipvalue Based on this discussion, the paper proposes value dimensions andscales for their measurement, as well as a structure of intangible relation-ship value in the form of a model synthesized from Roos et al (1997),and an outcome variable named future financial performance of therelationship

The paper then builds on this discussion of the framework by describingthe development of a set of measures to empirically test the proposed modeland the data collection and the data analysis The data analysis supports theproposed model The paper then discusses the conclusions from the dataanalysis, followed by the theoretical and managerial implications of theseconclusions, the limitations of the study and the opportunities for futureresearch

2 RELATIONSHIP THEORIES AND ISSUES

A sound basis in theory is required to achieve the aim of this study, which isthe identification of a set of dimensions and a structure for the manifestation

of relationship value From among the theoretical frameworks commonlyused to describe relationships, the study principally uses the resource-basedview of the firm But many theoretical frameworks can describe and analyzerelationships, so as a comprehensive theoretical basis for later discussion ofvalue assessment, this section of the paper outlines a number of these.Relationship marketing theory appears to be in an early stage of develop-ment In a bibliometric study of the relationship marketing field, wherecitations were analyzed,Cooper, Gardner, and Pullins (1997)conclude thatclusters exist in the literature, but that ‘‘Relationship marketing is intransition’’ and that ‘‘sources for theory building are not on solid ground.’’

Lehtinen (1996) makes a similar point, as do Moller and Halinen (2000)

who argue that ‘‘we do not yet have any developed theory of relationshipmarketing.’’ Their contention is that no one single relationship marketingtheory exists; nor is a single one likely The paper therefore broadly reviewsrelationship theories to develop a sound conceptual background for thisstudy The following sections deal first with the theories that are ofparticular interest to this research, such as transaction cost economics, theIMP approaches, and the resource-based view of the firm Discussion ofother theories follows in somewhat less depth

2.1 Transaction Cost EconomicsThe concepts of transaction cost economics are relevant to this studybecause the literature has commonly used them as a basis for the study ofinterfirm relationships Coase (1937) argues that a firm forms, under themanagement of an entrepreneur, in order to reduce the costs of acquiringresources in a market Coase sees these costs, now known commonly as

‘‘transaction costs,’’ as the ‘‘costs of negotiating and concluding a separatecontract for each exchange transaction which takes place on a market.’’Coase sees the firm on one hand and the price mechanism on the otherhand, as two separate means of resource allocation This view was a majordeparture from classical economic theory, which postulated price as theprincipal mechanism for resource allocation In the case of the firm, resourceallocation was, according to Coase’s theory, accomplished by way of