Tibor Mandják
The value of business relationships
Chair of marketing
Director of studies: Berács József
Budapest University of Economic Sciences and Public Administration
Faculty of Business Administration
The value of business relationships
Ph.D. dissertation
Tibor Mandják
Budapest, 2002
Table of content
Introduction 10
1. Some introductory thoughts about the essentials of marketing 11
1.1 Exchange 12
1.2 General marketing and specific marketing 13
1.3 The relationship of marketing with some sciences 15
2. Inter-organizational marketing 16
2.1 The organization as a buyer 16
2.2 Special features of inter-organisational markets 18
2.3 The market as network, some problems of mutual dependence 20
3. the marketing understanding of Business relationships 22
3.1 Content and development of business relationships 22
3.2 The network 25
4. the problematic of the value of business relationships 27
4.1 Some value concepts 27
4.1.1 Some characteristics of the concept of value in economics 28
4.1.2 Some characteristics of the concept of value in sociology 31
4.1.3 Some characteristics of the concept of value in social psychology 33
4.2 The value of business relationships 35
4.3 Why is the knowledge of the value of business relationships important? 35
4.4 Different analyses of the value from the points of view of the supplier and the buyer 36
4.4.1 Value at the level of exchange episodes 37
4.4.1.1 The value of exchange episodes from the point of view of the buyer 37
4.4.1.2 The value of the exchange episode from the point of view of the supplier 39
4.4.2 Value at the level of the relationship 40
4.4.2.1 The value at the level of the relationship, from the point of view of the buyer 40
4.4.2.2 The value at the level of the relationship, from the point of view of the supplier 41
4.4.2.3. Common values at the level of the relationship 43
4.4.3. Value at the network level 44
5. Theoretical model of the value of business relationships 46
5.1. Conceptualisation of the theoretical model of business relationships. 47
5.2. The statement of the model’s dimensions and indicators. 55
5.2.1. Separation of economic and non-economic (social) dimensions 55
5.2.2. Systemization of economic and non-economic (social) elements (indicators) 56
5.2.2.1. The components of the value of business relationship at the level of exchange episodes 56
5.2.2.2. The components of a business relationship at the relationship level 59
5.2.2.3. The components of a business relationship at the network level 62
6. Hypotheses and research programme 65
6.1 Some research hypotheses 66
6.2 Some important questions of the research programme 72
6.3 What has do be done? 73
7. Some thoughts about the qualitative research 75
7.1 A short epistemological by-pass 75
7.2 Qualitative researches in management science 78
7.2.1 The theory of management situation 79
7.2.2 The theory of management situation and the qualitative research 81
7.3 The comparison of qualitative and quantitative research methods 82
7.3.1 Trustfulness, validity and universalization 83
7.3.2 The complementary nature, methodological pluralism 85
8. Results of qualitative researches 86
8.1 What, Why, How? The value of a business relationship in practice 86
8.1.1 The group of the interviewees, the description of the data collection 87
8.1.2 The value of business relationships in the businessmen’s point of view 90
8.1.2.1 The content and the elements of a business relationship 90
8.1.2.2 Why is it (would it be) good to know the value of a business relationship 95
8.1.2.3 How is (would be) this value measurable? 98
8.1.3 The experiences of the interviews 100
8.2 An instant picture of the structure of the value of business relationships 101
8.2.1 Structure, perception and causal mapping 101
8.2.2 Introduction of the research process 103
8.2.3 The example of a big French company 104
8.2.4 Some remarks 111
8.3 Specification of the model, international expert questioning 113
8.3.1 The participants and the process of questioning 114
8.3.2 The experts’ remarks 114
8.3.3 Summary of the specialists’ opinions 124
9. Results of research 129
9.1 Verification of the suppositions, triangulation of the qualitative research results 129
9.1.1 The value of business relationships in virtue of the common components of the results of the studies 131
9.1.2 Comparison of the suppositions and the results of the research 132
9.2 The empirical model of the value of business relationships 135
10. Summary 145
Acknowledgements 155
annexes 156
Applied bibliography 171
Table of figures
Figure 1: The fields of marketing 14
Figure 2: Theoretical model of the value of business relationship 47
Figure 3: The individual causality map of the project manager 107
Figure 4: The individual causality map of the production manager 108
Figure 5: The individual causality map of the purchasing manager 109
Figure 6: The collective causality map of the value of a business relationship 110
Table of tables
Table 1: The structure of the metamodel describing the value of business relationship 37
Table 2: Statements about the value of business relationships at the level of exchange episodes 48
Table 3: Statements about the value of business relationships at the relationship level 49
Table 4: Statements about the value of business relationships at the network level 50
Table 5: The elements of business relationships at the level of the exchange episode 51
Table 6: The elements of business relationships at the relationship level 52
Table 7: The elements of business relationships at the network level 53
Table 8: The value of business relationships at the level of exchange episodes 57
Table 9: The value of business relationships at the relationship level 59
Table 10: The value of business relationships at the network level 62
Table 11: Some characteristics of the theoretical model. 89
Table 12: Components of the value of business relationships based on the opinion of company executives 95
Table 13: Fields of decision, based on the opinion of company executives about where is (would be) necessary to know the value of business relationships 97
Table 14: The components of the value of the studied business relationship 106
Table 15: The Canadian researcher’s suggestion for new indicators 116
Table 16: The remarks of the researcher from New-Zealand about some original indicators 117
Table 17: The new indicators suggested by the French researcher 119
Table 18: The new indicators suggested by the American researchers 120
Table 19: The Australian researcher’s remarks concerning some indicators 122
Table 20: The English researcher’s remarks concerning some indicators 123
Table 21: The most important new indicators reflecting the specialist’s theoretical posings. 127
Table 22: The comparison of the methods used for the analysis of the value of business relationships 130
Table 23: The empirical model of the value of business relationships 138
Table of annexes
Annex 1: Deep interview draft 157
Annex 2: The model sent to the experts 159
Annex 3: Definition of the indicators of the model sent to the experts 163
Annex 4: List of the universities of the answering researchers 170
To Ági and Bendi
Introduction
Dear Reader!
I am asking for your understanding, for your patience and above all for your Opinion!
I am asking for your understanding and your patience because of the topic, for your opinion concerning the nature of writing. The value of business relationships will be dealt with through the next pages. We understand business relationships as the interactive exchange relationship between two organisations. Hence, the value of business relationships, this complicated and complex phenomenon is in the centre of our examination. To be exact, we will try to determine what this value means for the participants of this relationship that is for the buyer and for the supplier.
The value of business relationships fundamentally influences the decisions related to the relationship. It influences what the supplier of the buyer should do concerning the given business relationship, whether he should develop it, maintain it or close it. However, the value of business relationships influence also the supplier and the buyer in their considering one of their business relationships as the most important or less essential.
Organisations procure the resources that are important to them through their business relationships and they sell the products they manufacture or the services they provide through their business relationships. Hence, business relationships mean the market for organisations. The decisions related to the market are marketing decisions, which obviously have strategic and tactical consequences. Our topic, the value of business relationships, is thus closely linked to the basic problems of inter-organisational marketing.
The complicated and complex nature of the topic makes it necessary to examine the concept of value from several sides, to try and define it using and integrating the results of different scientific fields. By using the results of literature research, we will create the theoretical model of the value of business relationships. During the conceptualisation of the model, we will define the indicators of the value of business relationships. We will present the research steps necessary for the operation of the conceptualised model and we will deal with some questions concerning verification. With the triangulation of the results of our qualitative studies conducted with three different methods, we will compare theory to practice. By mixing the results of the two approaches, we will finally define the value of business relationships and we will finalise the empirical model that describes this value.
1. Some introductory thoughts about the essentials of marketing
Thinking about the essentials of marketing, the first logical step would be to start from the concept of marketing. Marketing does not lack definitions. There are also a lot of definitions concerning the essentials of marketing. In the introduction study of his book, Baker (2000) refers to a research conducted in the mid-1990’s in which about a hundred different marketing definitions had been analysed in their contents. However, the results showed that the concept of marketing was in a constant change, that upon the effect of the changes in market environment, marketing approach becomes useful in more and more fields of economy and society, that within marketing, the attention has shifted from isolated transactions towards relationships and that marketing can be understood as a fundamentally adaptive, flexible, international and open method of approach. Researchers have however drawn the attention to the fact that a greater theoretical strictness would be necessary and desired to characterise marketing definitions despite the large number of determinations of different kinds (Baker 2000).
Baker later concludes that the many different definitions polarise around two points of view. One of the approaches regards marketing as a company function, which is essentially the normative approach to marketing and is fundamentally but obviously not exclusively peculiar to the “founders” of marketing management school (e.g. Kotler 1967, McCarthy 1960 or Drucker 1954). This school, "what is beyond doubt is the fact that from around 1960 onwards marketing thinking and practice has been dominated by the marketing management school of thought." (Baker 2000 p.11) regards marketing function, similarly to other fields of business activity (production, finance, and human resources) as a total of analysis, planning and control. It is the task of the marketing (manager) to give answers to the solution of the market problems that lay in front of the company through the combination and conscious application of the marketing mix (the four Ps). The marketing function (manager) creates demand for the company’s standardised products during the realisation of the optimal marketing mix and, with the help of mass and individual communication, forms and influences consumer preferences and delivers the products to the consumers through the management of distribution channels (Webster 1992). In this understanding, the essentials of marketing are the consideration of the consumers’ needs and not directly the realisation of profits. The financial result appears as the “reward” for the suitable satisfaction of the consumer’s needs (Webster 1992, Baker 2000). Consumer orientation constitutes the basics of marketing orientation and in the meantime the essentials of marketing conception (Levitt 1960).
As per Baker’s analysis, at the other pole, we can find those approaches that do not regard marketing as a function first of all, but as a way of thinking, a business, and company management philosophy. This approach also starts from the consumer’s needs, but emphasises the strategic importance of the satisfaction to be offered to the consumer (for example Lambin 1999, Day 1994 or Grönroos 2000). The consideration of the consumer’s needs is necessary at all levels of company activity; it is indispensable and not only the task of one company function. The approach of marketing has become process-centred and the “commander” of the processes is the final consumer (Webster 1991, Lambin 1999, Alajoutsijärvi and Tikkanen 2000). The strategic importance of marketing is not only determining in the relationship of the company and the market, but also inside the organisation. The collection of information coming from the market, its processing and distribution within the organisation (Day 1994, Anderson and Narus 1999) is not only one of the most important characteristics of a learning organisation (Slater and Narver 1995), but also the basics of creation of durable competition advantages (Day 1994, Hooley 2000). In this approach, the relationships become of outstanding importance from the point of view of marketing.
Marketing, as a philosophy does obviously not forget the importance of application of marketing tools, but emphasises their nature as tools, whose application depends on the strategic objectives (Lambin 1999, Webster 1991). Besides its strategic nature, this approach puts an important but not exclusive role to relationship marketing (Baker 2000), which it understands as an interactive process whose central element is relationship building, influenced by the given social conditions (Grönroos 1994).
1.1 Exchange
Concerning the essentials of marketing, Tomcsányi concludes that the basic problem of the participants (characters) of the market – the producers, the distributors, the consumers – is to know what they should offer for ‘sale’ and how they should do it, or rather what and how they should choose to provide themselves with: ‘to purchase’ from what is available.” (Tomcsányi 1994 p.1.) to solve the market participants’ problems, there is need for exchange, or to be more exact, for market exchange. Well, formulating in the most general way, it is just this exchange that is the essential of marketing. (Bagozzi 1975, Baker 1976, Tomcsányi 1994, Grönroos 1990, Lambin 1999, Baker 2000). According to Baker, the mutually advantageous exchange relationships constitute the essentials of marketing (Baker 1976, Baker 2000). According to Tomcsányi’s formula, “in society – especially in economy – the exchange processes that take place are based on agreements and on mutual advantages” (Tomcsányi 1994 p.9.). The condition of mutually advantageous exchange is that both parties have at their disposition unused goods that are necessary or desirable for the partner. It is necessary for the successful exchange relationship that the parties are aware of their sacrifices concerning the manufacturing of the goods they offer and of the advantages of these goods for the partner (Tomcsányi 1994). With the realisation of mutual advantages, exchange value is being created and the participants’ satisfaction is being increased. For the realisation of the exchange, it is necessary that the parties be able to decide freely about the participation in the exchange (Lambin 1999). The parties are interested in the exchange as long as the exchange means some advantage for them. This value or rather its interpretation can obviously be different (Baker 2000).