Examination of Factors Affecting Relationship Continuity

Intention of Buyers in Business to Business Relationships:

A Research Model

Satyajit JenaKalyan K. Guin

Working Paper No.: VGSoM/2010/004

May 2010

© Copyright protected by Vinod Gupta School of Management, Indian Institute of Technology Kharagpur, INDIA. The contents of this paper are preliminary in nature and should only be used for discussion. Users of this paper are requested to ensure that the paper is duly acknowledged and appropriately referenced. The contents of this paper may not be copied and/ or distributed without the permission of the authors. Enquiries and comments regarding this paper may please be addressed to the authors at satyamti@gmail.com and kalyan@vgsom.iitkgp.ernet.in. The authors are solely responsible for the authenticity, accuracy, and originality of the contents of this paper. Vinod Gupta School of Management and Indian Institute of Technology Kharagpur assume no responsibility for the authenticity, accuracy, or originality of the contents of this paper.

Examination of Factors Affecting Relationship Continuity Intention of

Buyers in Business to Business Relationships: A Research Model

Satyajit Jena and Kalyan K. Guin

Satyajit Jena is a senior faculty member in the Corporate Training Institute of Steel Authority of India Ltd. He is currently pursuing his doctoral programme at Vinod Gupta School of Management, IIT, Kharagpur. He specializes in marketing strategy, B to B marketing and strategic management.

Kalyan K. Guin is a Professor and Associate Dean at Vinod Gupta School of Management, IIT Kharagpur. He specializes in marketing, marketing research, supply chain and operations management, and business modelling.

Though buyer-seller relationship has generated lot of interest and has been the central focus in relationship marketing research, there is few empirical research of note, which has investigated the antecedent factors affecting the relationship continuity intention of buyers in Steel industry. The central research question in this paper is defined as: What factors do buyers focus to develop relationship continuity with a particular supplier in steel industry? The second sub question is defined as: What is the relative influence of such factors on relationship continuity intention?

From literature, we could identify broadly two types of factors that affect relationship continuity intention of buyers. The first type can be called dedication based factors and the second constrained based/ calculative factors. Inter-organisational and interpersonal trust and buyer’s dependence are proposed as three important mediating constructs antecedent to buyer’s relationship continuity intention representing dedication based factors and constrained based factors respectively. In our research model we specifically investigate the role of salesperson characteristics in promoting trust through trust of the salesperson. We have identified the antecedent factors of trust, trust in the salesperson, buyer’s dependence and relationship continuity intention in buyer-seller relationships. The constructs identified for our research model are, expertise of the salesperson, likability of the salesperson, similarity of the salesperson, frequency of visit of the salesperson, opportunistic behaviour, communication with supplier, size of supplier, willingness to customize, performance ambiguity, comparison level alternatives and switching cost for the buyer. This paper proposes a model and number of hypotheses pertaining to impact antecedent factors on buyer’s relationship continuity intention in business to business buyer-seller relationships.

Keywords: Business to business marketing, relationship continuity, inter-personal trust, inter-organizational trust, dependence

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1.0 Introduction:

Long-term buyer–seller relationships have been the focus of much research during the

past few years because managers and researchers believe that these relationships

represent one of the greatest resources for developing sustainable competitive advantage

(Dyer & Singh, 1998) for both buyers and sellers (e.g. Wong et al., 2005; Lambe et al.,

2002). In particular, long-term buyer–seller relationships provide a firm faster access to

new technologies or markets; the ability to provide a wider range of goods and services;

economies of scale in joint research and production; access to knowledge beyond a firm's

boundaries; bridges to other firms; sharing of risks; and access to complementary skills

(Johanson & Mattsson, 1987; Powell, 1987). Over the past decade, there is growing

evidence that to be competitive, manufacturing firms are moving away from traditional

approach of adversarial relationship with multitude of suppliers to one of forging longer-

term relationships with few select suppliers. Global firms such as Xerox, Motorola,

General Electric, Ford and others are reducing their supplier base and looking to a few

select suppliers to help them achieve a stronger competitive position. Supplier firm in

long-term relationships are able to achieve higher levels of sales growth compared to

supplier firms using transactional approach to servicing customers (Kalwani &

Narayandas, 2001). Furthermore supplier firms in long-term relationships achieve higher

profitability by reducing their discretionary expenses such as selling, general and

administrative over head costs to a greater extent than their counterparts who employ

transactional approach. Both academics and practitioners have increasingly begun to

embrace the notion that long-term collaborative relationships among trading partners are

good for business and yield improved business performance. In their paper Spekman &

Carraway (2006) have noted that companies that have moved to more collaborative

relationships in their supply chains grew their market capitalization by eight percent or

more and were rewarded with a premium of seventeen to twenty-six percent in their

valuation.

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2.0. Theoretical background and hypotheses:

2.1 Relationship continuity intention:

Retaining buyers or buyer’s relationship continuity intention has emerged as the most

desirable outcome of business to business marketing efforts. Buyer’s relationship

continuity intention is a reflection of its long-term orientation. Buyers with short-term

orientation are concerned with the options and outcomes of the current period, whereas

customers with a long-term orientation focus on achieving future goals and are concerned

with both current and future outcomes. Another difference between short and long-term

orientation also can be explained by the nature of the inter-firm exchanges adopted by the

channel members. Firms with a short-term orientation rely on the efficiency of the market

exchanges to maximize their profits in a transaction, whereas firm with long-term

orientation relies on relational exchanges to maximize their profits over a series of

transactions. Relational exchanges obtain efficiencies through joint synergies, resulting

from investment and exploitation of specialized assets and risk sharing. Both orientations

have the ultimate objective of maximising the outcomes and do not imply any altruistic

motives on part of either buyer or seller.

In marketing literature, researchers (Noordewier et al., 1990; Dwyer et al, 1987) have

attempted to define the characteristics of relationalism. One characteristic proposed by

Noordewier et al. (1990) is ‘expectations of continuity of a relationship,’ which captures

the probability of a future interaction between the buyer and seller. Pioneering work done

by Anderson & Weitz (1989) focused on six factors that determine buyer’s intention of

relation continuity. These factors are, trust between the parties, imbalance of power,

communication between parties, stakes in the relationship, manufacturer's reputation for

‘fair play,’ age of the dyad. Ganesan (1994) studied long-term orientation in a retail

environment. In his study he focused on variables such as relative dependence of retailer,

vendor’s credibility, satisfaction with previous outcome, reputation of vendor, relation

specific investment, environmental volatility and diversity. Doney and Cannon (1997)

integrated the theory developed in several disciplines to determine five cognitive

processes through which industrial buyers can develop trust of a supplier firm and its

salesperson. These processes provide a framework to operationalise the antecedent

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variables of trust. The authors examine the impact of supplier firm and salesperson trust

on buying firm’s current supplier choice and future purchase intentions.

Recently, Damperat and Folibert (2009) studied buyer’s long-term orientation from

dialectical perspective consisting of different levels of variables. They have

conceptualized long-term orientation as inter-organisational level phenomenon that is

predicted by inter-personal level and individual level variables. The individual level

variables are seller expertise and buyer relational orientation where as interpersonal level

variables are frequency of contact, solidarity, cordiality and interpersonal satisfaction.

Review of literature on buyer seller long-term relationship points to the following gaps

which this research will try to address.

Most of the research work in long term buyer seller relationship area focuses on a

specific aspect or theory. Heide and Miner (1992) have proposed to make the BtoB

relationship frameworks more broad based. We could come across only three studies i.e

Anderson and Weitz (1989), Ganesan (1994), Doney and Cannon (1997) which have

used broad based frameworks in their study.

Social exchange theory suggests that interpersonal relationships are critical to close inter-

firm relationships (Metcalf and Frear, 1993). Interpersonal contacts become so extensive

in successful buyer-seller relationships that, according to Frazier et al. (1988), such

relationships involve a “tangled web of relations across functional areas”. In light of the

above observation it does seem that the role of salesperson in BtoB relationship is quite

crucial. Even then, research in this area is quite scanty. Doney and Cannon (1997)

brought to the fore the important role of salesperson in ensuring relationship continuity

intention. The importance of salesperson in creating trust between two interacting

organisation has also been noted by Das and Rangan (2004) in their study of BtoB

relationship development in mature industrial markets.

Most of the majors studies reviewed (particularly earlier studies) in the area of buyer

seller relationships have been conducted in the distribution channel and business to

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consumer (BtoC) context. There are relatively fewer studies which have been conducted

in the business to business (BtoB) environment, which is our context for research.

Further, much of the research work in this area has been in US markets and to some

extent in European markets. In this context, Geyskens et al. (1999), Cunningham and

Green (1984) have raised concerns regarding the external validity of the theories and

have suggested for more studies in other countries.

From literature review, we could identify broadly two types of factors that affect

relationship continuity intention of buyers. The first type can be called dedication based

factors and the second constrained based or calculative factors. Therefore, the inter-

organisational trust (also referred as trust) and buyer’s dependence are proposed as two

important constructs antecedent to buyer’s relationship continuity intention(henceforth

referred as relationship continuity), and they will also be treated as mediating constructs

in this study. In addition, we propose that trust in the salesperson (also referred as inter-

personal trust) will affect relationship continuity through trust. In our research we

specifically investigate the role of salesperson characteristics in promoting trust through

trust of the salesperson. The constructs identified for our research are, expertise of the

salesperson, likability of the salesperson, similarity of the salesperson, frequency of visit

of the salesperson, opportunistic behaviour, communication with supplier, size of

supplier, willingness to customize, performance ambiguity, comparison level alternatives

and switching cost for the buyer. In the following sections each of these constructs is

discussed along with the research hypotheses that specify the linkage of these constructs

both directly and indirectly to the main dependent constructs. First, trust and trust in the

salesperson will be outlined as these are two important constructs proposed as antecedent

to relationship continuity. Subsequently the antecedent factors of these constructs will be

discussed. After this, dependence and its antecedent factors will be outlined. In addition,

several hypotheses will be proposed with trust in supplier organisation, trust in the

salesperson and dependence being the mediating construct.

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2.2 Inter-organisational Trust and Relationship Continuity:

The important role of trust in developing long-term relationships has been emphasized

repeatedly in the marketing channels literature (e.g. Anderson and Weitz, 1989; Dwyer et

al., 1987; Morgan and Hunt, 1994). In fact large amount of research work on trust offers

a great variety of definitions and measurements from different contexts that have been

studied.

Trust has been defined as “the firm’s belief that another company will perform actions

that will result in positive actions for the firms, as well as not take unexpected actions

that would result in negative outcomes for the firm” (Anderson and Narus, 1990). This is

because the presence of trust can reduce the specification and monitoring of contracts,

provide material incentives for co-operation, and reduce uncertainty (Hill, 1990). Trust

established between firms, and between firms and consumers, is one of the fundamental

resources that firms can make use in order to control complexity. Trust is also the

willingness to rely on an exchange partner in whom; one has confidence (Moorman et al.,

1992). Trust has a notion of belief, a sentiment or an expectation about an exchange

partner that results from partner’s expertise, reliability and intentionality. The definition

of trust proposed here reflects two distinct components: (1) credibility, which is based on

the extent to which the buyer believes that the seller has the requisite expertise to perform

the job effectively and reliably and (2) benevolence, which is based on the extent to

which the buyer believes that the seller has intentions and motives beneficial to the buyer

when new conditions arise, conditions for which a commitment was not made. Sellers

who are concerned with outcomes of buyer along with their own will be trusted to a great

extent than sellers who are solely interested in their own welfare. Morgan and Hunt

(1994) have found that trust is central to strengthening relationship with customers. Wolf

(1994) provides prescriptive framework from a practicing manager’s perspective for

creating trust in the alliance between two firms. Doney and Cannon (1997) presented an

framework listing the antecedents and consequence of trust in the relationship between

firms in business markets where trust of the supplier organization and trust of sales

person are both key variables influencing the buyer’s future intention. Rackham and De

Vincentis (1999) have found out in their research that the meaning and role of trust

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changes from trusting the product/ service in transactional selling to trusting the sales

person in consultative selling and trusting supplier firm in strategic selling.

A steel buyer’s trust in the seller positively affects its relationship continuity intention in

three ways: (1) It reduces the risk associated with opportunistic behaviour by the seller,

(2) it increases the confidence of the buyer that short-term inequities will be resolved

over a long period, (3) it reduces the transaction costs in an exchange relationship.

Based on the above argument, we posit that,

H1: Trust in supplier has positive effect on relationship continuity intention of buyers.

2.3 Inter-personal Trust and Inter-organisational Trust:

Inter-personal trust (or trust in the salesperson) is trust placed by the individual in his or

her individual opposite member, while inter-organisational trust is the extent of trust

placed in the partner organisation by the members of a focal organisation (Zaheer, et al.,

1998). Some researchers have treated trust as an anthropocentric notion and therefore

linked it to human beliefs, sentiments, or intentionality (Solomon and Flores, 2001;

Fukuyama, 1995; Rotter, 1967). Morgan and Hunt’s (1994) commitment and trust theory

reinforces the use of inter-personal conceptualisation of trust (Mayer et al.,1995).

Consequently business managers or sales managers have been regarded as initiator of

trust in exchange relationships (Jeffries and Reed, 2000). It can be argued that exchanges

between organisations also includes exchanges between individuals or groups of

individuals (Barney and Hansen, 1994) and people may develop trust in the organisation

through this exchanges (Morgan and Hunt, 1994; Doney and Cannon, 1997).

Although, trust in the salesperson is expected to have a direct positive effect on inter-

organisational trust through the transference process, it is not expected to directly affect

the relationship continuity intention of customer. This argument is also consistent with

the finding of Doney and Cannon (1997). Generally speaking a steel buyer like an

automobile company will not intend to continue its relationship with a steel supplier only

because the particular salesperson is trust worthy. The main reason for a continued

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relationship would be the reliability and benevolence of the steel supplier which basically

means that the buyer has to trust the organization and not merely the salesperson.

The above arguments lead to following hypotheses:

H2: Greater trust in salesperson is associated with greater inter-organisational trust.

H2a: Inter-organisational trust(Trust in supplier) mediates the positive effect of Inter-

personal trust (trust in salesperson) on buyer’s relationship continuity intention

2.4 Salesperson’s Personal Characteristics:

Social exchange theory suggests that reciprocal exchange of positive and valuable

information enhances the trust and commitment in the relationship. Frequent and healthy

exchange is expected to bring the parties closer to each other and foster lasting

relationship. Greater and healthy interaction between the organisations is expected to

facilitate interpersonal and social bonding, which in turn is expected to foster trust. Most

of the time it is the salesperson or key account manager of the steel company who

interacts with customer organisation. Therefore the characteristic of the salesperson will

have significant impact on the trust of the salesperson. In a study in the BtoC context,

Crosby et.al (1990) sought to determine the effects of customer-salesperson similarity,

salesperson expertise and use of relational selling behaviour by salesperson on

customer’s perception of relationship quality. Crosby et.al (1990) findings suggested that

salesperson expertise and use of relational selling behaviour were significant predictor of

relationship quality. Salesperson similarity was not found to be significant predictor

relationship quality. Extending this study to BtoB context, Boles et.al (2000) found

support for their hypothesis regarding positive effect of salesperson expertise on

relationship quality. However, salesperson similarity was not found to be a significant

predictor of relationship quality. Nicholson et al., (2001) studied the mediating role of

interpersonal liking in building trust in channel relationship. The results suggests that

liking of the salesperson has major influence on trust. The other characteristics of the

salesperson like similarity of business values and frequency of visit operate through

liking. In another important study in BtoB context, Doney and Cannon (1997) found that

salesperson related characteristics like, expertise, likability, similarity in values and

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frequency of visit of the salesman were important antecedent factors for buying firm’s

trust in salesperson. Thus, taking cue from the findings of these studies, we have

considered expertise, likability and similarity in values as three important salesperson

characteristic that has positive effect on trustworthiness of the salesperson. Frequency of

visit of the salesperson has been captured in the communication construct which is about

both formal and informal communication.

2.4.1 Expertise of the Salesperson:

Expertise of a salesperson affect a buying firm’s trust by increasing its confidence that a

salesperson can deliver on his or her promises. Empirically, the role salesperson’s

expertise plays in developing trust has received little attention in B2B marketing

literature. Busch and Wilson (1976) found that buyers view salespeople with higher level

of perceived expert power as more trustworthy. In a study examining the use of market

research, Moorman et.al (1992) found that researcher expertise is an important

foundation for trust. As discussed earlier, in their study in insurance industry, Crosby

et.al (1990) showed that perceived expertise of an insurance agent is a significant

predictor of buyer trust. However, it is not expected that, buyers will have relationship

continuity intention simply because of the expertise of the salesperson.

The above arguments lead to following hypotheses:

H3: Expertise of the salesperson will be positively related to buying firm’s trust in the

salesperson.

H3a Trust in the salesperson and Trust in the supplier organisation will mediate the

positive effect of expertise of the salesperson on the relationship continuity intention.

2.4.2 Likability of the Salesperson:

Likability of the salesperson refers to the buyer’s assessment that people in the buying

firm find the salesperson friendly, nice and pleasant to be around. Work by Rotter (1980)

in psychology found positive relationship between a person’s likability and the extent to

which the person is trusted by others. Usually initial trust depends on buyer’s confidence

in predicting the accuracy of statements made by the salesperson. Empirical studies in

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business marketing show that feeling of trust in salespersons are positively related to

liking. Buyers are more confident about the salesperson that they like (Swan and Nolan,

1985). Swan et al (1988) found that likability is a distinct dimension of trust in the

salesperson. Hawes et al (1989) found that buyers attach positive trust earning value to

manufacturer’s representatives who are more likable.

The above arguments lead to following hypotheses:

H4: Likability of the salesperson will be positively related to buying firm’s trust in the

salesperson.

H4a Trust in the salesperson and supplier organisation would mediate the positive

effect of likeability of the salesperson on the relationship continuity intention

2.4.3 Similarity in business values of the Salesperson:

This construct assesses the buyer’s belief that the salesperson shares common interests

and values with people in the buying firm. Similarity can be a cue for expecting the other

party to facilitate one’s goals (Johnson and Johnson, 1972). Buyers who perceive

salespeople to be similar to them could expect such salespersons to hold common beliefs

about what behaviours, goals and policies are appropriate and what are not appropriate.

Similarity is likely to reduce overall uncertainty associated with the trading partner due to

implicit or explicit acceptance of common goal systems and daily procedures. The buyer

perceives that both parties place value on the same issues and does not have to worry

about being taken advantage of. Trust develops because buyer is better able to assess the

salesperson’s intentions. Better understanding of the salespersons motivations also makes

it easier for a buyer to predict the salesperson’s future behaviour. However, empirical

support for the effect of similarity has been mixed. While studying relationship quality in

service context, Crosby et al. (1990) did not find a positive relationship between

similarity of business values and relationship quality. While explaining the non

significant result, the researchers have mentioned that people have inherently low levels

of trust towards salespeople in general and therefore required more than just similarity of

values for developing relationship quality. Whereas, as mentioned earlier, Doney and

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Cannon (1997) has found in their study that similarity of the salesperson is a significant

predictor of salesperson trust.

The above arguments lead to following hypotheses:

H5: Similarity of the salesperson will be positively related to buying firm’s trust in the

salesperson.

H5a Trust in the salesperson and supplier organisation would mediate the positive

effect of similarity of the salesperson on the relationship continuity intention.

2.5 Effect of Communication:

Communication would broadly mean formal as well as informal sharing of meaningful

and timely information between firms (Anderson and Narus, 1990). Communication,

especially timely communication by the supplier firm fosters trust by assisting in

resolving disputes and aligning perceptions and expectations (Moorman et.al, 1992).

Anderson and Narus (1990) have noted that past communication is an antecedent of trust,

but in subsequent periods this accumulation of trust leads to better communication. With

the advent of modern computer and communication technologies, multiple channels of

communication have emerged that has the potential to strengthen the formal

communication system between buyer and supplier organisation. Thus better

communication by the supplier organisation, can lead to greater trust between exchange

partners. Communication in BtoB relationship can also be enhanced through informal

means like visit of the salesperson to the supplier firm (Doney and Cannon, 1997). More

the visits of the salesperson better would be the communication at the interpersonal level

and therefore would positively affect interpersonal trust leading to enhanced

trustworthiness of the salesperson. In an earlier study, Anderson & Weitz (1989) focused

on factors that determine buyer’s intention of relation continuity vis-à-vis a focal

supplier. Communication between suppliers and buyers was found to be major factor that

determines buyer’s relationship continuity intention. However, we believe that better

formal and informal communication does not directly affect relationship continuity

intention. Trust in salesperson and trust in supplier plays mediating roles between

communication and relationship continuity intention.

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The above arguments lead to the following hypotheses:

H6 Better communication will positively related to buying firm’s trust in the supplier

organisation.

H6a Better communication will also be positively related to buying firm’s trust in the

salesperson.

H6b Trust in the salesperson and supplier would mediate the relationship between

communication and relationship continuity intention of the buyer.

H6c Trust in the supplier would mediate the relationship between communication and

relationship continuity intention of the buyer.

2.6 Effect of Opportunistic Behavior:

One of the key behavioural variables that drives transaction cost analysis is opportunism.

Opportunism is defined as “self-interest seeking guile” (Williamson, 1985, p.58).

Examples of opportunistic behaviour are acts like withholding or distorting information

and shirking or failing to fulfil promises or obligations (John, 1984). Taking the need for

self protection into account, new institutional economics identifies a customer’s quest for

self protection against every possible supplier as the primary driver behind business

buying behaviour (Williamson, 1985). If the customer fails to take adequate precautions,

he may find himself exposed to and unprotected from opportunistic attacks by market

partners. Supplier’s behaviour should therefore be driven by the goal to design offerings

that comply with a customer’s need for precaution and at the same time offer value

superior to that of competitive offerings. The most important challenge for business

selling is therefore to overcome the lack of trust from potential transaction partners

(Jacob and Ehret, 2006). When opportunistic behaviour is exhibited by the supplier it will

compel the buying firm to doubt the reliability, benevolence and intentionality of the

supplier. Thus when a buyer believes that a supplier engages in opportunistic behaviour,

such perceptions will lead to decreased trust. Since supplier’s salesperson is the link

between the supplier and the buyer, opportunistic behaviour like non fulfilment of

promises or distortion of information is directly attributable to the actions of the

salesperson. Therefore opportunistic behaviour will also lead to decreased trust of the

salesperson.

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The above arguments lead us to the following hypotheses:

H7 Greater opportunistic behavior will be negatively related to buying firm’s trust on

the salesperson.

H7a Trust on the salesperson and supplier would mediate the negative effect of

opportunistic behavior on relationship continuity intention of the buyer.

2.7 Effect of Supplier Size:

The supplier’s size indicates its overall size and market share position. Supplier size

provides a signal to the buying firm that the selling firm can be trusted (Doney &

Cannon, 1997). Overall size and market share indicates that many other business trust

this supplier enough to do business with it. This suggests that the supplier has

consistently delivered on its promises to others or it would not have been able to maintain

its position in the industry. The other argument is that, less trustworthy and more

opportunistic suppliers operate as fly by night organizations and would be unable to build

sustainable sales volume or market share (Hill, 1990). The salespersons of these fly by

night organisations will not be trusted, since they would be perceived to be interested

only in short-term gains. Therefore, the salespersons of larger organisations will be

perceived to be more trustworthy. However, just because supplier is a large firm, buyer

will not desire to continue its relationship with the supplier.

The above arguments lead us to the following hypotheses:

H8 Larger supplier firms will positively impact the trust in the salesperson.

H8a Larger supplier firms will positively impact the trust in supplier organization.

H8b Trust in the salesperson and supplier will mediate the positive effect of supplier

size on relationship continuity intention of buyer.

H8c Trust in supplier will mediate the positive effect of supplier size on relationship

continuity intention of buyer.

2.8 Effect of willingness to customize:

A supplier can modify or customise its product, production process or services and

administrative procedure to suit the requirement of a buyer. Sometimes these changes can

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be formal and has been laid out in contracts or sometimes these can be informal to cope

with certain unanticipated problems. For example suppliers can agree to reduce deliveries

from the contractually agreed level for a short time to cope with sales down turn for the

buyer organization or change its own product design to address the difficulty in

production process for the buyer. Willingness to customize can be supplier’s offer to

make specialized investments in a relationship to meet the specific needs of its buyers.

These investments can be tangible or intangible. Some examples are, investing in order

processing systems for the convenience of the buyers and reduce the cost of interaction,

adding new plants or equipments.

Williamson (1985) suggests that firms that make specialized investments in a business

relationship are unlikely to engage in untrustworthy behaviour that threatens the

continuation of relationship. Since specialized or idiosyncratic assets can lose substantial

value unless the relationship is continued, buyers could use calculative process to

estimate that cost of untrustworthy behaviour is higher for suppliers with specialized

investments at stake. Further, willingness to make idiosyncratic investments also provides

evidence that the supplier can be believed and it cares for the relationship. Work done by

Ganesan (1994) suggests that buyers trust those suppliers that have made customised

investments on their behalf. Supplier’s willingness to customize acts as signal to the

buyer that, the focal supplier can be trusted to respond to its specific needs (Ford et al.,

1998). Some steel suppliers have invested in specific equipment like secondary refining,

online ultrasonic testing facilities for meeting the specific needs of some customers.

Some of the steel suppliers are also investing in steel service centers to meet the

customized requirements of buyers. Such actions on part of the suppliers will engender

buyer’s trust in them. However if such customisation does not lead to increased trust in

the supplier, then buyer is unlikely to continue the relationship just because the supplier

has shown some willingness to customize.

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The above arguments lead us to the following hypotheses:

H9 Supplier’s greater willingness to customize will positively impact the trust on the

supplier organization.

H9a Trust on the supplier will mediate the positive effect of supplier’s willingness to

customise on relationship continuity intention of buyer.

2.9 Effect of Performance ambiguity:

Performance evaluation ambiguity occurs when it is hard for a buyer to evaluate the

products and services received from a supplier. The buyer may find it difficult to assess if

the delivered product is best that the supplier can deliver or it is a half hearted quality

effort. For example, if a delivery is late, should the buyer interpret that as a deliberate

shortcoming or assume that supplier made full efforts but failed due to factors beyond its

control? If the buyer always gives the supplier the benefit of doubt, it sets itself for

exploitation. On the other hand, if the buyer suspects the intention of the supplier every

time there is a delivery failure, then it will lead to a spiral of joint retaliations. Due to

performance evaluation ambiguity it can be hard to determine whether a supplier faced

unpredictable obstacles while trying to deliver on time or just failed to make a sincere

effort for meeting the delivery schedule (Buckley & Casson, 1988, Hiede & Miner,

1992). When trust is developed based on observing the other party’s actions and

responding to them, performance ambiguity can undermine development of trust between

buyer and seller. Therefore, performance evaluation ambiguity will negatively affect

relationship continuity intention when trust is affected.

The above arguments lead us to the following hypotheses:

H10 Performance evaluation ambiguity of supplier’s products and services will

negatively impact the trust on the supplier organization.

H10a Trust on the supplier will mediate the negative effect of performance evaluation

ambiguity on relationship continuity intention of buyer.

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2.10 Effect of Offer quality:

Offer quality can be conceptualized as consisting of product quality, service quality and

competitive price. In steel industry, these are three important aspects for the buyer. The

importance of product quality is quite obvious, since it has got direct bearing on the

buyer’s output, cost and productivity. Service quality issues in terms of short lead time,

reliability in delivery and faster complaint settlement are very important. A study by

Schorsch (1994) has illustrated the importance of reliability and short lead time in

delivery. Reliability in delivery enables the steel buyers to reduce their inventory size,

whereby they can save on their cost of production. Short lead time helps the buyer in

their production planning process, particularly when their market is also volatile. Short

lead time also help them to order in small lots leading to saving in inventory costs. For

most of the buyers, steel forms a major cost element in their cost structure, buyer looks

for competitive price. Competitive price of steel helps the buyers to maintain their

competitiveness. Over period of time better offer quality helps in developing confidence

of the buyer in their supplier leading to trust in the relationship.

The above arguments lead us to the following hypotheses:

H11 Better offer quality of the supplier will positively impact the trust in the supplier

organization.

H11a Trust in the supplier will mediate the positive effect of supplier’s offer quality on

relationship continuity intention of buyer.

2.11 Dependence on supplier and Relationship continuity:

Dependence can be defined as a firm’s need to maintain its relationship with another to

achieve its goals (Frazier, 1983). Behaviors arising because of one’s dependence on

another are usually in the form of compliance and reflect a need-based, calculative

motivational mechanism. A buyer’s dependence on supplier is the perception of the buyer

regarding the replaceablity or irreplaceability of the supplier and the value received from

conducting business with the particular supplier (Kumar et al., 1998). Dependence on

supplier is considered to be high, when the total cost of replacing the partner is significant

or when there are no alternative suppliers (Brown et al., 1983). Buyers will be tempted to

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maintain relationship with a specific supplier as long as the outcomes received from the

business with the supplier are deemed more valuable than available from alternative

relationships (Lewin and Johnston, 1997).

The above arguments lead us to the following hypothesis:

H12 Buyer’s dependence on supplier positively affects the relationship continuity

intention of buyer.

2.12 Effects of Relationship Termination Cost (Switching Cost):

In industrial markets, if buyers and suppliers are tied together in lasting relationship, then

they tend to make transaction related investments which are relation specific. Rusbult

(1983) views these investments as increasing commitment to a relationship, because they

are relation specific, cannot be transferred from one relationship to another and are lost

on dissolution of the relationship. These investments tend to keep on increasing with

subsequent transactions and tend to accumulate over time. One example of these

investments could be the learning by people in the buyer’s organization about how to

work effectively with the supplier’s representative and products. Other examples could be

development of mutual inventory system such as just in time (JIT) technique, purchase of

specific machinery or designing of products to accommodate capabilities of certain

suppliers. Such non-transferable, irretrievable investments have an impact on the costs of

that party’s current or future transaction with each other. Further, since these investments

are relation specific, their salvage value or its value in another relationship is

substantially low. This gives rise to ‘switching cost’ for the buyers for seeking an

alternate supplier. In their study, Dwyer et al., (1987) mention than a buyer’s anticipation

of high switching cost gives rise to buyer’s interest in maintaining a committed

relationship. Switching costs are therefore, all expected loss from termination and

relationship dissolution expenses. This means that, buyers are likely to become more

dependent on the current relationships, where a substantial amount of capital has already

been invested and therefore would like to continue the relationship. The key issue here is

that relationship termination cost should be significant enough to create dependence

17

condition for the buyer and therefore, the buyer is unlikely to continue the relationship

just because there is some relationship termination cost.

The above arguments lead us to the following hypotheses:

H13 Higher relationship termination cost of the buyer will positively impact the

dependence of the buyer on the supplier organization.

H13a Buyer’s dependence on the supplier will mediate the positive effect of buyer’s

relationship termination cost on the relationship continuity intention of buyer.

2.13 Effects of Comparison Level of Alternatives

The availability of alternatives has a strong impact on the level of bonding to an existing

relationship. If there are better alternatives available, buyers would be more concerned

with those alternatives and want to change the current partner and hence the current

relationship might end as short-term one. Alternatively, if there is limited choice before

the buyer, then there will be greater commitment to the relationship leading to long-term

orientation. Rusbult (1983) in his empirical study has found that, the attractiveness of

alternatives should decrease the commitment to an existing relationship. Another study

by Mummaleni & Wilson (1991) has empirically tested the negative impact of Clalt on

the buyer’s commitment to an existing relationship. This means that if the outcome

obtained by a buyer from the relationship with a supplier exceeds the available outcome

from the other alternative supplier, the buyer will have greater relationship continuity

intention.

The above arguments lead us to the following hypotheses:

H14 Higher availability of comparison level alternatives for the buyer will negatively

impact the dependence of the buyer on the supplier organization.

H14a Buyer’s dependence on the supplier will mediate the negative effect of

availability of comparison level alternatives for the buyer on the relationship continuity

intention of buyer.

18

2.2 Hypothetical Model:

The purpose of this paper is to investigate the research questions: What kinds of factors

lead to buyer’s intention for relationship continuity and what is their relative impact? And

how do inter-organisational trust, interpersonal trust and buyer’s dependence influence

the development of such long-term relationships? To investigate these two research

questions, a conceptual research model is formulated. The plus (+) or minus (-) sign

indicates the hypothetical direction of the effect of each factor in the model. The

hypothesized model of influence of the antecedent factors of buyer’s relationship

continuity intention through trust on supplier organization, trust on salesperson and

buyer’s dependence is illustrated in the path diagram of Figure 1. The items used to

operationalise the constructs used in the model have been largely taken from literature is

given at Annexure-A. The mediation effects of trust of supplier organisation, trust of

salesperson and buyer’s dependence will be tested by using a rival direct effect model

given at Figure-2.

2.3 Conclusion:

We have tried to model BtoB relationship continuity from the perspective of the buyers.

In a BtoB relationship, buyers are the final decision maker regarding the continuity of the

relationship. Conceptually, it could be argued for collecting data about buyer-supplier

relationships from supplier’s perspective or both. However it is usually the

buyer/customer that ultimately makes the decision of whether to purchase from a

supplier. Thus, even if the supplier and buyer have different views, it is the buyer’s view

that is likely to be determinant (Cannon and Perreault, 1999).

19

20

(+)

(-)

(-)

(+)

(+) (-)

(+)

(+)

(+)

(+)

(+)

Figure 1: Hypothetical mediated model

(+)

(+)

(+)

Communication with Supplier

Expertise of Salesperson

Likability of the Salesperson

Similarity of the Salesperson

Trust on Salesperson

Trust on Supplier Firm

Relationship Continuity Intention

Opportunistic Behaviour

Dependence on Supplier Firm

Willingness to customise

Size of Supplier Firm

Performance evaluation ambiguity

Comparison level alt.

Relationship termination cost

21

Communication with Supplier

Expertise of Salesperson

Likability of the Salesperson

Similarity of the Salesperson

Relationship Continuity Intention

Opportunistic Behaviour

Willingness to customise

Size of Supplier Firm

Performance evaluation ambiguity

Comparison level alt.

Relationship termination cost

Figure 2: A rival direct effect model

Trust on Salesperson

Trust on Supplier Firm

Dependence on Supplier Firm

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Annexure A

Items used in study

1. Measures of Relationship Continuity:Source: Lusch and Brown (1996) and Ganesan (1994) 1. We expect our relationship with our major supplier to continue a long time.2. Renewal of the relationship with this supplier is virtually automatic.3. Our relationship with this supplier is enduring.4. Our relationship with this supplier is a long-term alliance.

2. Measures of Buyer’s Trust on the Supplier:Source: Doney & Cannon (1997) 1. This supplier keeps promises it makes to our firm.2. We believe the information that this supplier provides us.3. This supplier is genuinely concerned that our business succeeds.4. When making important decisions, this supplier considers our welfare as well as its own.5. We believe that this supplier keeps our interest in mind.6. This supplier is trust worthy.7. We have found that it is necessary to be cautious with this supplier.

3. Measures of Trust on the Salesperson:Source: Doney & Cannon (1997). 1. This salesperson has been frank in dealing with us.2. This salesperson does not make false claims.3. We do not think this salesperson is completely open in dealings with us.4. This salesperson is only concerned about himself.5. This salesperson does not seems to be concerned with our needs6. The people in my firm do not trust this salesperson

5. Measures of Buyer’s Dependence on Supplier: Source: Ganesan (1994)1. If our relationship was discontinued with this supplier, we would have difficulty in

meeting the demands of our customers.2. This supplier is very important to our future performance.3. It would be difficult for us to replace this supplier.4. We are dependent on this supplier.5. If our relationship were discontinued; we would have difficulty replacing this supplier.6. We are important to this supplier.7. We are a major customer for this supplier.

28

5. Measures of Supplier SizeSource: Doney & Cannon (1997). 1. This supplier is a large company.2. This supplier is industry’s biggest supplier of steel.3. This supplier is a small player in the industry.

6. Measures of Opportunistic BehaviourSource: Achrol & Gundlach (1999) and Zineldin & Fonsson (2000)1. This supplier has not always been sincere.2. This supplier altered facts to get what they want.3. This supplier has breached formal and informal agreements to their benefit.4. This supplier has always provided completely truthful picture when negotiating. 5. This supplier does not give us appropriate and important data/facts.

7. Measures of Willingness to customizeSource: Doney & Cannon (1997). 1. Just for us this supplier is willing to customise its products.2. Just for us this supplier is willing to change its production process.3. Just for us this supplier is willing to change its inventory procedures.4. Just for us this supplier is willing to change its delivery procedures.5. Just for us this supplier is willing to invest in tools and equipments.

8. Measures of Communication with supplier:Source: Zineldin & Fonsson (2000). 1. This supplier keeps us informed of new developments in Research and Development in

their company.2. The supplier gives us immediate information of any delivery problems immediately

when they occur.3. The supplier’s sales personnel frequently visit our place of business.4. The supplier spends lots of time to get to know our personnel and employees.5. The supplier frequently discusses new possibilities with us.

9. Measures of Performance evaluation ambiguity:Source: Hiede & Miner (1992). 1. It is inadequate to evaluate this supplier based only on the price.2. Evaluating the performance of this supplier requires extensive incoming inspection.3. In order to obtain a satisfactory assessment of this supplier’s performance, we need to

conduct on-site inspection at the supplier’s plant.4. Conducting performance evaluations of this supplier requires making sure that they

follow the approved production and quality control procedures.

10 Salesperson Characteristics:Source: Doney & Cannon (1997).

29

10.1 Measures of Expertise of the salesperson:1. This salesperson is very knowledgeable.2. This salesperson knows his/her product line very well.3. This salesperson is not an expert

10.2 Measures of Likability of the salesperson:1. The salesperson is friendly.2. The salesperson is always nice to me.3. This salesperson is someone we like to have around.

10.3 Measures of Similarity of the salesperson:1. This salesperson has values similar to people in our firm.2. This salesperson shares similar interests with people in our firm.3. This salesperson is very similar to people in our firm.

11. Measures of Comparison level alternatives:Heide and John (1988); Geyskens et.al (1996) and Anderson et al. (1994). 1. There are other companies who can supply our steel requirements.2. All suppliers of steel products are about the same and we do not have any preference to

buy from anyone of them.3. It would be difficult to find a better supplier than the current supplier.4. To change this supplier would involve buying from a firm that is clearly inferior to our

current supplier.1. Working together with this supplier puts less strain on our organisation than does

working with other potential suppliers.

12. Measures of Relationship Termination Cost (Switching cost):Source: Ganesan (1994) 1. We have made significant investment dedicated to our relationship with this supplier2. If we switched to a competing supplier, we would lose a lot of investment we have made

for this supplier.3. Our company has invested substantially in personnel dedicated to this supplier.4. If we decide to stop working with this supplier, we would be wasting a lot of knowledge

gained while doing business with them.5. The supplier has gone out of their way to link us with their business.6. The supplier has made changes to their procedures to meet the specific needs of our

company.7. It would be difficult for this supplier to recoup its investments in us if they switched to

another customer.

30

13 Offer Quality:Source: Field study

13.1 Measures of Product quality:1. Steel from this supplier is consistently good.2. The supplier provides the best quality of steel in the industry.3. The steel I obtain from this supplier substantially improves the productivity in our

production processes.4. We sometimes have to reject supplied goods and return them to supplier.

13.2 Measures for Service quality:1. The steel supplier is able to provide wide range of products, which meets my total

requirements.2. This supplier always provides service when it is promised.3. The service people from this supplier are able to solve all our service problems.4. Service from this supplier is always provided very courteously.5. The supplier is very quick to respond to our quality complaints.

13.3 Measures for Price performance:1. The supplier is able to provide steel that is competitively priced.2. This supplier gives us volume discount for many products that we buy from them.3. We often buy specially discounted products from this supplier.

31