Managing Seller–Buyer Relationships during New Product Development*

Ineffective relationship management with potential buyers during new product development (NPD) can be an important contributor to new product failure in technology‐based, industrial markets. However, empirical research on managing these relationships remains underdeveloped. This study addresses this deficiency by developing an empirically based taxonomy of relationship approaches used by sellers to develop technology‐based, industrial innovations, identifying situational characteristics that correlate with the choice of a particular relationship approach, and evaluating sellers' satisfaction with their relationship approach. The study's conceptual model is rooted in transaction cost analysis (TCA) and draws from extant literature on seller–buyer relationships during NPD. It was tested with data from 334 small to mid‐sized firms in a variety of technology‐based industrial markets. The results indicate that sellers use three basic relationship approaches during NPD: a bilateral approach, a buyer‐guided approach, and a seller‐guided approach. While the bilateral approach relies on a mutual exchange of information, the buyer‐guided and seller‐guided approaches do not. Juxtaposed with the high levels of satisfaction experienced by sellers in the sample, the study suggests that no one relationship approach is universally desirable. Therefore, managers may need to engage in a portfolio of relationship approaches with buyers during NPD; further, these approaches should correlate with buyer‐related (i.e., perceived buyer knowledge and prior relationship history) and innovation‐related (i.e., product customization and technological uncertainty) characteristics. Collectively, these results can help sellers optimize their relationships with buyers during NPD.     

Relationship quality as a resource to build industrial brand equity when products are uncertain and future-based

This article extends our understanding of industrial branding and the influence of buyer–seller relationships by examining key constructs within an industrial context where products are uncertain and future-based. SEM results elicited from 249 buyer surveys empirically validate satisfaction, trust and commitment as dimensions of relationship quality, and show that buyer–seller relationship quality facilitates direct and indirect seller brand equity accruals. Findings reveal that while focusing on sellers' corporate and product brands is good advice for building buyer–seller relationships, seller resource allocations to these areas should vary depending upon the selected target market segment(s). Findings support that sellers should place more focus on developing quality relationships with buyers than they should in focusing on the non-relational attributes of their corporate brands; however, if sellers choose to bypass building high quality customer relationships, they should instead funnel resources into their product brand offerings. Findings demonstrate that buyers credit their own skills and acumen when evaluating products with which they are confident, and ascribe increased value to the involvement of the seller as their attitude and certainty decrease. These findings provide strategic guidance to the sellers of uncertain and future-based industrial products.     

Ethnicity in housing markets: Buyers,sellers and agents

This paper examines how ethnicity related to cultural differences arising from ethnic background affects housing market transactions in the Atlanta metro area. Using both the US Census and Wikipedia approaches to infer ethnicity from individuals' names, we find that the interplay of buyer, seller, and agent ethnicity composition affects interaction in the housing market. Sellers working with listing agents in the same ethnic group set higher listing prices and enjoy higher selling prices and quicker sales. Agents working with same ethnicity buyers yield higher prices and liquidity. Even though sellers only communicate with buyers through their agents, houses sold by sellers to buyers of same ethnicity have higher prices and sell faster. And while the ethnic mix of agents and their clients matter, the ethnic mix of agents in the transaction does not.     

The origins of power in buyer–seller relationships

Who, or what, holds power in business-to-business buyer–seller relationships is a debate at the heart of power theory. Power in buyer–seller relationships is variously seen as the property of organizations, individuals or relationships yet to be theoretically valid and useful to management, integration of these schools of thought needs to be operationalized. This paper opens up future research avenues through identifying how buyers and sellers understand the origins of power and the nature of self perceived and countervailing power. The paper presents results from 10 focus groups of both buyers and sellers revealing the underlying origins of experienced power. The results support the proposition that power in buyer–seller relationships is a pluralistic concept and that extant theories focused on organizational, individual or relational elements of power are independently too narrow in their reflections of the power construct; rather, they are all part of the same broad construct.     

Online content match-making in B2B markets: Application of neural content modeling

Business-to-business (B2B) sellers need to enhance content marketing and analytics in an online environment. The challenge is that sellers have data but do not know how to utilize it. In this study, we develop a neural content model to match the content that B2B sellers are providing with the type of content that buyers are seeking. The model was tested with two experiments using a dataset that combines cookie-based browsing data from 74 B2B seller companies over a period of fourteen months. In total, the data comprises 180 million browsing sessions tracked via 11.44 million cookies from 34,170 buyer companies. In the first experiment, we study the content in the sellers' own channels, and in the second experiment we study paid channels. With these experiments, we illustrate that browsing data can be combined with marketing content data to evaluate and improve the content-marketing efforts of B2B seller firms. Since the development of digital information technologies (DITs) has made the B2B buying process more buyer driven, our neural content modeling approach can be used to create B2B analytics that re-empower the sellers.     

Value creation and firm sales performance: The mediating roles of strategic account management and relationship perception

Research on relationship management has extolled the virtue of sellers creating value for their customers. Indeed, loyal relationships, defined as repeated business exchanges, tend to flourish when firms create and deliver value to their customers. While few argue this premise, questions remain regarding the precise delineation of a firm's value creation competence and the mechanism by which it influences the firm's performance. In the current study, the authors define the value creation competence concept and find empirical evidence for its positive effects on firm sales performance (e.g., new customer leads, close rates, retention, revenue, etc.). Interestingly, the results suggest this effect is mediated by strategic account management and the perception of the relationship held between buyer and seller. Both of these findings have implications in establishing that a firm's value creation competence translates into improved sales performance, mediated by strategic account management and relationship perceptions.     

Organizational and institutional barriers to value-based pricing in industrial relationships

In their effort to differentiate themselves from cost-driven rivals, many industrial companies are beginning to serve their customers through value-based offerings. Such companies often engage actively in collaborative value creation with their customers. To capture a fair share of the value created, they need to adopt a value-based pricing approach. Therefore, value-driven competition necessitates value-based pricing (VBP). The present study explores the barriers to exercising value-based pricing and suggests ways to overcome those obstacles in putting value-based pricing into action in B2B sales. The study is implemented as an exploratory multi-case study applying an abductive research methodology. Our cases show that industrial sellers try to understand and influence their customers' desired value perception, influence customer-perceived value (CPV), and improve their bargaining position as means to overcome these barriers to improved value capture. Hence, our findings deepen the current understanding of value-based pricing in industrial buyer–seller relationships. In doing so, it contributes to the literature on customer value, organizational capabilities, business models, and sales management in previously unexplored areas. Moreover, the study provides guidance to business practitioners willing to develop value-based pricing as part of their business model.     

Assessing the Market Value of Real Estate Property with a Geographically Weighted Stochastic Frontier Model

In this study we consider the problem of sellers, buyers and real estate appraisers in determining the price for a house, taking into account the characteristics of the house and its location as well as the goals of these three different parties. The appraiser's job is to determine the fair market value of the house, while the buyer and seller want to find, respectively, the lowest and highest feasible price for it. We combine recent developments in geography and econometrics to develop an approach that determines local estimates of property values from the perspectives of the buyer, seller and appraiser, taking into account the characteristics of the house as well as its location. We illustrate our approach analyzing closing prices in one residential real estate market.     

When Do Large Buyers Pay Less? Experimental Evidence

The rise of mega‐retailers has precipitated a growing literature on large‐buyer discounts. According to Rotemberg and Saloner [1986] and Snyder [1998], large buyers' ability to obtain price discounts depends on their relative size and the degree of seller competition. I test experimentally implications of this theory concerning the number of sellers and the sizes of buyers in the market. The results track the comparative‐statics predictions to a surprising extent. Subtle changes in the buyer‐size distribution or number of sellers can create or negate large‐buyer discounts. The results highlight the previously unexplored role of the demand structure in determining buyer‐size discounts.     

Modelling the effect of buyer and seller power on the margins of commodity plastics

In the last decade, large sectors of the chemical and plastics industries in the U.S.A. and West Europe have suffered drastic declines in price and gross margin during periods of low use of industry capacity. This paper shows that the major changes in gross margin observed for some commodity plastics can be modelled successfully in terms of the balance between buyer power and seller power. These industries have visibility of prices and industry occupacity and comparable concentrations of sellers and important buyers. The modelling follows Burgess (1982) in expressing buyer and seller power as simple functions of buyer and seller concentrations, industry occupacity and ‘cohesion’ between sellers. This work provides a first practical test of this new approach. It is shown that the model fits the observed data best if the ‘cohesion’ declines as occupacity declines. It is suggested that the approach would be useful in understanding the behaviour of other ‘near-commodity’, capital-intensive businesses, and in helping to distinguish between those businesses where margins are likely to remain relatively stable and those which might face drastically declining margins if the industry occupacity declines or new entrants change the balance between sellers and buyers.     

Trust and the Flexible Firm: International Comparisons

Japanese and German manufacturers are more successful than their counterparts in Britain and France in achieving organizational flexibility, which depends on labor-management trust and cooperation. This trust developed in Germany and Japan over the post-World War II decades through the institutionalization of a system of labor-management consultation. This paper examines the role of power and social norms to explain why trust-building systems of joint consultation take hold in one place and not in another.     

Using experiments to compare the predictive power of models of multilateral negotiations

We conduct unstructured negotiations in a laboratory experiment designed to empirically assess the predictive power of models of the multilateral negotiations observed in diverse strategic settings. For concreteness we consider two sellers negotiating with a buyer who wants to make only one trade, and we categorize the models by whether introducing a second seller to bilateral negotiations always, never, or sometimes increases the buyer's payoff. Our experiment features two scenarios within which the three categories of models have observationally distinct predictions: a differentiated scenario with one high-surplus seller and one low-surplus seller, and a homogeneous scenario with identical high-surplus sellers. In both scenarios the buyer tends to trade with a high-surplus seller at terms indistinguishable from those in bilateral negotiations with a high-surplus seller, meaning that introducing a competing seller does not substantially affect the observed terms of trade. Our findings match the predictions from models in the never-matters category, supporting their use when modeling multilateral negotiations.     

Experimenting with purchase history based price discrimination

Many purchases of differentiated goods are repeated, giving sellers the opportunity to engage in price discrimination based upon the shopper's previous behavior by either offering loyalty discounts to repeat buyers or introductory rates to new customers. Recent theoretical work suggests that loyalty discounts can be profitable to sellers when customer preferences are not stationary and sellers can pre-commit to prices for repeat buyers, but otherwise returning customers can be expected to pay the same or more than new buyers. This paper reports behavior in controlled laboratory experiments designed to empirically test the impact of these factors on pricing strategies. The results generally support the comparative static predictions of the theoretical model. When customer preferences are fixed over time, sellers attempt to lure customers from their rival. Price pre-commitment for repeat shoppers when buyer preferences vary over time resulted in modest loyalty pricing, but the discounts are not as prevalent as predicted as sellers rarely price below cost. Behaviorally, price pre-commitment to loyal customers is found to reduce prices overall.     

Exclusionary discounts

We consider a two-period model with two sellers and one buyer. Although we assume it is efficient for the buyer to purchase from both sellers in each period, we show that when the buyer's valuations are inter-temporally linked and at least one seller is financially constrained, exclusion can sometimes arise in equilibrium (i.e., the buyer purchases all of its requirements from the same seller in each period). The exclusionary equilibria are supported by contract offers in which the excluding seller's incremental price to supply the contestable part of demand is below its marginal cost and sometimes negative. Our findings contribute to the literatures on market-share contracts, bundling, all-units discounts, and loyalty discounts.     

Market structure and business performance: An evaluation of buyer/seller power in the pims database

This paper explores the patterns of buyer and seller structure among business units in the PIMS database and how buyer/seller structure is related to profit outcomes, both long-term through the product life cycle and short-term between periods of boom and recession. Businesses with a favourable structure (few sellers, many buyers buying items of low importance) typically maintain margins through the product life cycle, but if there are many sellers facing few and determined buyers, margins and profitability are likely to deteriorate in recession and to continue to decline through the life cycle.     

The bonding effects of relationship value and switching costs in industrial buyer–seller relationships: An investigation into role differences

Despite the established importance of buyer–seller relationships in B-to-B markets, research to determine the differential effects that keep suppliers and customers in a relationship has been scarce. Referring to transaction cost analysis, this study investigates how switching costs and relationship value as perceived by each side unfold their bonding forces in such a relationship. Based on a large scale survey administered in Germany, Korea, New Zealand, and Argentina among marketing/sales and purchasing managers the study shows that relationship value has a stronger impact on intentions for relationship enhancement, search for alternatives and switch intention than switching costs for both buyers and sellers. Only with regard to relational tolerance and only for buyers do switching costs play a greater role than relationship value. Furthermore, buyers base their future relationship intentions more on the current state of the relationship than suppliers. Our results suggest that role differences must be taken into account when studying institutional arrangements in B-to-B markets.     

Warranty,Seller Reputation,and Buyer Experience: Evidence From EBAY Used Car Auctions

Using data from the eBay car auction market, we test several predictions regarding warranties, seller reputation and buyer experience in the determination of the final price. We find that the presence of a warranty generates a price premium, but that its magnitude decreases when the seller has a more established reputation. Compared to private sellers, professional dealers, who are ‘repeated‐game players’ in the market, benefit less from a warranty and its substitutability for seller reputation is relatively small. In addition, a buyer with greater experience tends to pay less for a warranty or for a professional dealership.     

Bilateral strategic groups: The market for nontactical navy information systems

Although recent studies of strategic groups have provided much insight into the nature of intra-industry rivalry, most studies have focused on the strategies of seller firms. In this paper we argue that the bilateral exchange between groups of buyers and sellers in adjacent markets should be made explicit. Within this bilateral context, the market for non-tactical Navy infomation systems is empirically examined. Strategic groups are developed for both seller and buyer industries, and the interaction between these groups are explored over time. In particular, two market interventions, the imposition of industrial funding procedures in 1984 and a Life-Cycle requirement order in 1988, were examined with respect to their impact on seller/customer exchanges and vertical integration strategies. Significant changes in strategies were noted, and explained within a transaction cost framework.     

Adding co-creation as an antecedent condition leading to trust in business-to-business relationships

Trust enjoys wide acceptance among scholars as a key facilitator of inter-organisational relationship development, and successful relationship development demands an understanding of what drives the propensity to trust between organisations within both cognitive and affective dimensions of trust. The six most salient antecedents of trust within contemporary trust literature have been identified as satisfaction, communication, competence, shared values, benevolence and integrity. This research suggests that co-creation is also an important antecedent of trust in business-to-business relationships. Co-creation is described here as the active participation, interactions and collaboration of the buyer and seller and other actors in the marketing exchange to develop a deeper understanding of the customer problem solving context.The relative strength of the cognitive and affective aspects of trust antecedents, the moderating influence of business experience and seniority on the relationship between significant antecedents and trust is also explored. The analysis uses statistical tools and then probes deeper using fuzzy-set qualitative comparative analysis (fsQCA).     

Renegotiation of Listing Contracts, Seller Opportunism and Efficiency: An Economic Analysis

When a property owner engages a real estate broker to sell his or her property, the parties enter into a listing contract which entitles the broker to a commission if a ready, willing and able buyer is found before the contract expires. While a limit on the duration of the contract provides the broker with an incentive to work hard to find a buyer, it also creates the potential for seller opportunism. In particular, sellers have an incentive to renegotiate a lower commission as the end of the contract approaches. The paper concludes that, from an efficiency perspective, courts should generally enforce such renegotiations, given that transaction costs between brokers and sellers are ordinarily low.