Relationship Transparency in Business Markets: a Conceptualisation and Empirical Investigation

This paper introduces the notion of relationship transparency. It delineates this new construct from the IMP Group’s interaction model and the customer integration literature. Relationship transparency is conceptualized as a complex construct that consists of three dimensions: vendor transparency, customer transparency, and process transparency. Empirical data gathered in a cross sectional survey among 960 purchasing managers in Germany shows that vendor transparency contributes to the overall success of a relationship. In addition to the more conventional methods of delivering value to the customer, establishing superior transparency can become a new source of competitive advantage in business markets. 1. Relationship Transparency A New Source of Competitive Advantage? In today’s quickly changing markets, vendors are constantly looking for new sources of competitive advantage. As many products become almost identical, competing on product quality alone offers little chances for differentiation. Therefore, IMP literature has repeatedly emphasized that the nature of the exchange relationship makes a difference and becomes a deciding factor in business markets (IMP Group, 1982; Hallén/Sandström, 1991). Recently, relationship transparency has been suggested as a potential source of competitive advantage in business markets (Bliemel/Eggert, 1998). Within a transparent business relationship, customers feel well informed about the relevant characteristics of the exchange process and its actors. Relationship transparency is expected to deliver value to the customer and to contribute to satisfaction as it minimizes the perceived need to constantly search for information and to test the market for better alternatives. Consequently, vendors who have established superior relationship transparency may posses a competitive advantage. The antecedents and consequences of relationship transparency, however, have hardly been researched yet. Relationship transparency has neither been thoroughly conceptualized nor has 75 Corresponding author. Institutional address: Lehrstuhl für Marketing, Postfach 3049, 67653 Kaiserslautern, Germany. Tel.: ++49-631 2053116; fax ++49-631 2053394; e-mail: [email protected] 76 Institutional address: Heinrich-Heine-Universität, Lehrstuhl für Marketing, Geb. 23.32, Universitätsstraße 1, 40225 Düsseldorf, Germany. Tel.: ++49-211 8111349; fax ++49-211 8115226; e-mail: [email protected] its role within a relationship marketing strategy been empirically investigated. This paper contributes to relationship marketing literature by focusing on this new concept. Specifically, it aims at three research questions: 1. How can relationship transparency be delineated from relationship marketing’s body of knowledge? 2. How can relationship transparency be conceptualised in a business-to-business setting? 3. Does transparency lead to favourable outcomes from an empirical point of view? In an attempt to answer these questions, the rest of the paper is organized as follows. Firstly, we show that the IMP Group’s interaction model and the concept of customer integration can both shed light on the concept of relationship transparency. Secondly, we provide a definition of relationship transparency and differentiate it from uncertainty and information. Next, we develop and empirically test a conceptual model that links one of the components of relationship transparency (i.e. vendor transparency) to behavioral outcomes such as repurchase intention, search for alternatives, and word-of-mouth. Finally, we discuss a number of theoretical and managerial implications. 2. Theoretical Insights into the Concept of Relationship Transparency Relationships in business networks involve a complex pattern of interaction between and within each company. The focus of this paper will be on interorganizational exchange, omitting intraorganizational (in)transparencies. Scrutinizing the IMP Group’s interaction approach (e.g. IMP Group, 1982; Håkansson/Snehota, 1995), the interaction model (e.g. IMP Group, 1982, pp. 15; IMP Group, 1997, p. 8) includes several elements that can be linked to the concept of relationship transparency. The variables describing the elements and the process of interaction as well as the relationship atmosphere can be used to explain the role of transparency in business relationships, meaning the degree of being informed about the important elements of a relationship. Concerning single episodes, four elements of exchange have been dealt with in the literature: product or service exchange, information, financial, and social exchange (IMP Group, 1982, p. 16). All these elements touch on aspects of transparency. Most important will be the consideration of the product or service that is being exchanged. As has often been stated, experience and credence goods that the customer cannot evaluate prior to purchase pose difficulties in the exchange process (e.g. Nelson, 1970; Darby/Karni, 1983). Its tangibility, complexity, in short: the nature of the product affects transparency. Furthermore, the degree of transparency clearly also depends on the buyer’s and the vendor’s know-how as well as on their exchange pattern. Most of all, information and social exchange seem to be the important elements of episodes (IMP Group, 1982, pp. 16) that are linked to the construct of transparency albeit it has to be noted that the term ”information exchange” might also include all the other three elements stated above. As aspects of the exchange process are not fully formalized, they are rather based on mutual trust than legal criteria (IMP Group, 1982, p. 17). Social exchange episodes can enforce a routinization in a relationship between buyer and vendor. Both parties bear clear expectations of the roles and responsibilities of either partner (IMP, 1997, S. 10). Routinization as well as trust can also enforce opportunism of one partner (Williamson, 1985, pp. 47) if control mechanisms in the relationship have not been established or remain unused. In such a case, the partner who is being treated opportunistically by the other one, knowingly or unknowingly lacks in transparency. Therefore, trust, routinization, and transparency counteract in a relationship. The other element in the interaction model that is relevant for the understanding of the transparency construct is interaction atmosphere (Hallén/Sandström, 1991; Sutton-Brady, 1997). It has been described as depending upon the distribution of power between the parties, the state of conflict or co-operation and overall closeness or distance in the relationship as well as the parties’ mutual expectations (IMP Group, 1997, p. 14; IMP Group, 1982). An operationalization of atmosphere is problematic as what seems to be the creator of a certain atmosphere (the actions of the parties) is also to be considered as being influenced by it (Sutton-Brady, 1997; Hallén/Sandström, 1991). All these aspects clearly call for a certain degree of transparency for both sides that will be dynamic and relationship-specific. Therefore, relationship transparency appears to be relevant for both, the vendor and the buyer. Whereas the problems of uncertainty connected with low transparency have often been dealt with from the customer’s viewpoint, the vendor’s uncertainty concerning an exchange is not frequently made a topic. But it has to be pointed out that intransparency on the vendor’s behalf can hinder efficient transactions because the vendor is misinterpreting or omitting certain relevant facts. For instance, a vendor might not consider delivering innovative products to a comparatively small company as the criteria of customer valuation that are applied only comprise potential turnover and omit aspects such as reputation, lead user potential, or reference value of the potential customer. The concept of customer integration can shed light on these problems in business relationships (Kleinaltenkamp/Jacob, 1997; Helm/Kuhl, 1997) implying that in an interaction both parties are not only confronting each other but share their resources. As a matter of fact, most transactions in business markets call for an interaction of both parties during the production and marketing process as e.g. in the development of an innovative paint robot for a car manufacturer, the production of a customized bottling plant, or in integrative business services such as business consultancy (Helm/Kuhl, 1997, p. 241). In order to reach high quality output, the customer’s input into production processes such as know-how, personnel, information etc. must conform to the vendor’s requirements. These external factors necessary for the exchange comprise resources that for a certain time are left to the disposal of the vendor by the buying firm and are integrated with the internal production factors of the vendor within one production process (Engelhardt et al., 1993, p. 401; Kleinaltenkamp/Jacob, 1997, p. 2). Meant are such resources the vendor needs for his own performance and cannot acquire via the market. They have to be obtained exclusively from an individual customer. Evidently, these are by no means singularly defined factors (e.g. “the customer” as a person) brought to the vendor but “bundles of factors” that represent sets of different objects such as goods, legal rights, persons, information etc. (Engelhardt et al., 1993, p. 401; Kleinaltenkamp/Jacob, 1997, p. 3). The “integrativity” that is the degree of the customer’s participation in the production of goods and services (Engelhardt et al., 1993, p. 406; Helm/Kuhl, 1997, p. 243) is closely linked to transparency. Integrativity of transactions causes uncertainty, for the vendor as well as for the buyer. First, the assessment of the production process poses problems because the buyer is unable to rate the vendor’s ability and willingness in respect of the production process and the quality of the final product itself (product uncertainty). When hiring a business consultant, the customer does not know beforehand if the solutions the consultant will come up with can be implemented, or if he will conform to confidentiality of internal data and do his utmost to resolve the customer’s problem. The vendor is uncertain in view of the customer’s integration ability and willingness as well as concerning the quality of the external factor (factor uncertainty; Helm/Kuhl, 1997, pp. 243). The supplier of a bottling plant will need exact information about the amount, density, or flammability of the liquids to be processed. The consultant has to rely on the customer’s information concerning competent contacts within the customer’s organization, the ability of the customer to supply the necessary data. As the buyer influences the process output, the vendor is rendered unable to independently control production process, suitability, moment, and intensity of the customer’s participation. For the buyer, integrativity means he is at least partly enabled to influence the vendor’s internal processes (Engelhardt et al., 1993, p. 421) as providing external factors influences the efficiency of the production process. On the other hand, he faces a higher purchase risk as he is uncertain in respect to the vendor’s ability to adapt to his individual needs and the handling of the external factor left to the vendor’s disposal. Figure 1 illustrates an integrative production process. Buyer Vendor Process output Internal factors (to be supplied by the vendor) External factors (to be supplied by the buyer) Figure 1: The Integrative Production Process In order to grant optimal integration, there has to be process evidence (Kleinaltenkamp/Jacob, 1997, pp. 13; Fließ, 1996) that is closely linked to transparency. The integration process can be visualized using blueprints that show different contact or integration points of the external factor as well as detailed information about intervention depths, moment, duration, and intensity. Such visual plans are helpful for vendor and buyer in order to augment process consciousness and transparency (Kleinaltenkamp/Jacob, 1997, pp. 14) as they enable the parties to understand each other’s inputs into the process. In augmenting process knowledge and giving all relevant information about the own company, the parties will feel informed about the relationship characteristics and gain in transparency. 3. Relationship Transparency: The Construct Relationship transparency can be deemed a complex construct related to the actors as well as the interaction process between them. Furthermore, the different perspectives of the vendor and the buyer have to be considered. Whereas vendor and buyer transparency will be evaluated only by the opposite party, interaction transparency will be perceived by both actors. The comprehensive construct relationship transparency refers to the fact that relevant actions or characteristics of the one party cannot be judged reliably by the other one. Figure 2 shows the three different aspects of relationship transparency that are relevant during the whole process of interaction. relationship transparency vendor transparency customer transparency process transparency Figure 2: The Three Components of Relationship Transparency Relationship transparency can be defined as the degree up to that each party subjectively feels informed about the relevant characteristics of the counterpart’s input and output of the relationship. Although this understanding of the construct might imply that transparency is equal to information this is not the case. Transparency depends on the individual in the sense that it calls for a subjective, cognitive level of relationship evaluation, and therefore, the notion of perception plays an important role (Sutton-Brady, 1997, p. 6). As a hypothetical construct, it is connected to uncertainty. Cox states that ”[...] by ‘definition‘, information is the antidote for uncertainty” (Cox, 1967, pp. 80) which would imply that the state of being informed signifies certainty. In our understanding though, transparency is the subjective impression of the interacting party that he or she is informed about the relevant aspects. This can be a delusion. Therefore, the three terms of uncertainty, information, and transparency may be positioned in a triangle as shown in figure 3. Information Uncertainty Transparency Figure 3: Interdependence of Transparency, Uncertainty, and Information Information is a prerequisite to reduce uncertainty in many cases, but it might also serve to increase uncertainty if formerly unknown or unnoticed aspects appear to be of consequence and call for action, and the actor does not know how to handle this. For example, information on technological innovations will force a buyer who was thinking about a pure rebuy to reconsider his suppliers and already chosen products. As he might lack knowledge on the innovation himself, he will be uncertain because of the new information. Moreover, it is often more convenient to reduce decision making efforts by only considering selected information. Therefore, Cox’s phrase might not always hold true. Information is also the foundation for transparency as already mentioned in the definition above. Again, (redundant) information can also veil aspects of a relationship and therefore reduce transparency. A buyer might not always be interested in getting to know all the aspects of a certain production process; too much information especially on facts that are not central for his own problem solving will rather obscure transparency. Given the limited information processing and storing facilities all individuals have to cope with and also keeping in mind the definition of transparency that dealt with the clearness of those aspects of a relationship that the actor subjectively feels are relevant, gaining in transparency will be a matter of quality of information rather than quantity. Finally, transparency will reduce uncertainty in most cases but might also complicate a process and therefore strengthen uncertainty in others. In some cases, a buyer might not want to know how a vendor achieved a certain goal. Even besides illegal actions such as bribing or ecologically hazardous production processes, some buyers will only be interested in the solution for their problem, not the processes the vendor had to follow to find an appropriate solution. Furthermore, sharing the details of e.g. a vendor’s production process or his problems in getting the needed personnel or materials obviously foster transparency but not on a subject relevant for the buyer. Here again, transparency appears to be close to “understanding” which has been analysed as one of the dimensions of relationship atmosphere (Sutton-Brady, 1997, pp. 9). As a requirement for the emergence of understanding between the parties each of them needs to urge for gaining as much information about the other one as possible; and the information acquired concerns all aspects of doing business (Sutton-Brady, 1997, p. 9) thereby evidently fostering vendor, customer, and process transparency. 4. Model Development and Testing As has been shown above, the IMP Group’s interaction model and the concept of customer integration provide a theoretical foundation for analysing transparency. Relationship transparency has been conceptualised as a complex construct that consists of three factors: vendor transparency, customer transparency, and process transparency. For an empirical test of the complex concept of relationship transparency, one of its components vendor transparency has been chosen. The degree of vendor transparency describes the buyer’s subjective evaluation of being informed about the vendor’s characteristics and his business processes. The vendor’s uncertainty is not been dealt with in this paper (see e.g. Helm/Kuhl, 1997), and interaction transparency has been the topic of a number of IMP-related publications (e.g. Sutton-Brady, 1997) and is also focused in the customer integration literature (e.g. Fließ, 1996). Therefore, it will not be contained in the model below which most certainly should not imply that it were to be left out in more comprehensive models on relationship transparency. Due to the complexity of the construct, selecting one part for a first exploration seems to be more appropriate as in a first step the psychological and behavioural consequences of transparency have to be outlined. 4.1. The Conceptual Model Bliemel and Eggert (1998, p. 64) have argued that vendor transparency should influence customers’ behavioural intentions by increasing customer-perceived value and satisfaction. Vendor transparency is expected to contribute to customer-perceived value as it minimizes the need to constantly search for information and test the market for better alternatives. Moreover, it should have the potential to increase customer satisfaction. Spreng, MacKenzie and Olshavsky (1996) provide a rationale for this assumption. According to their findings, satisfaction consists of two dimensions: attribute satisfaction and information satisfaction. Vendor transparency should at least have a considerable potential to increase the latter dimension. It has been shown elsewhere (cf. Eggert/Ulaga 2000) that customer value is an important antecedent of satisfaction which is by itself a strong predictor of behavioural intentions. Altogether, we posit the following propositions: Proposition 1: Vendor transparency increases customer-perceived value. Proposition 2: Vendor transparency increases customer satisfaction. Proposition 3: Customer-perceived value increases customer satisfaction. Proposition 4a: Customer satisfaction increases the word-of-mouth intentions. Proposition 4b: Customer satisfaction reduces the search for alternatives. Proposition 4c: Customer satisfaction increases the repurchase intentions. 4.2. The Empirical Study Empirical data were gathered in a cross-sectional survey among purchasing managers in Germany. A randomized sample of 960 purchasing managers was contacted in a telephone survey and invited to participate in the study. Respondents received a standardized questionnaire by fax. They were asked to rate their supplier relationships on a number of 5point rating-scales (anchor: ”strongly agree” vs. ”strongly disagree”). A total of 342 responses were obtained. Since the key informant methodology was used to collect the data, the competency of the respondents was assessed in accordance with Kumar, Stern and Anderson (1993). 41 questionnaires did not meet the screening requirements leading to a net sample size of 301. All relevant constructs mentioned above were measured on multi-item scales. As recommended by Churchill (1979) and Nunnally (1978), several steps were taken to ensure the content validity of the scales. First of all, a set of possible items was generated based on a literature review. These items were subject to an item-sort task administered to 19 doctoral students in business administration. Two indices proposed by Anderson and Gerbing (1991) were computed for each item to find out which ones were difficult to assign correctly. Based on these two indices, items for the questionnaire were selected. The questionnaire was pretested on 30 purchasing managers. After some minor adjustments, the resulting items were included in the final survey (see appendix for items). 4.3. Data Analysis and Results Consistent with Gerbing and Anderson (1988), unidimensionality, reliability, and convergent validity of the scales were assessed. In order to obtain an adequate measurement model, two items measuring relationship transparency, one item measuring customer-perceived value and two items measuring customer satisfaction were dropped. The scales measuring repurchase intention, search for alternatives, and word-of-mouth intentions fulfilled standard requirements immediately. The following table reports item loadings, individual item reliability, Cronbach’s alpha, and average variance extracted of the refined measurement models. The scale properties confirm unidimensionality, reliability, and convergent validity. Construct Item item loading t-value individual item reliability Cronbach’s Alpha average variance extracted Vendor 2 0.71 standardized 0.60 Transparency 3 0.98 13.58 0.96 0.85 0.78