Relationship value dimensions: identifying a viable model

This paper describes alternative models of intangible value, in business to business buyerseller relationships, to the one reported by Baxter and Matear (2004). The perspective is that of the seller. Using Baxter and Matear’s dimensions, it provides theoretical arguments, based on the resource based view, the intellectual capital literature, and other conceptual bases, for the model as compared with three rival models. The empirical evidence to date in support of the original model is discussed. Introduction Given the calls in recent years for the development of better quantification and better measures in marketing (Day and Montgomery, 1999; Srivastava, Shervani, and Fahey, 1998), and generally increased interest in value from a marketing perspective (Lindgreen and Wynstra, 2005), it is not surprising that there is increasing interest in the study of the value of buyer-seller relationships. Value is seen as a prime driver of relationship management, from both the buyer’s and the supplier’s perspective (Anderson and Narus, 1999; Lindgreen et al., 2006), and of competitive advantage (Woodruff, 1997). A distinction can be made between two major streams of research on buyer-seller relationship value. The first stream is the “customer lifetime value” approach (Fader, Hardie, and Lee, 2005; Gupta, Lehmann, and Stuart, 2004; Venkatesan and Kumar, 2004), which in principle extrapolates aggregated information from the past. The second stream attempts to understand the drivers and/or dimensions of relationship value in some detail at the level of the individual relationship, and is particularly applicable in the business to business context, where it is viable to consider individual relationships (e.g. Baxter and Matear, 2004; Ulaga and Eggert, 2005; Walter, Ritter, and Gemunden, 2001). Of the examples cited, Ulaga and Eggert’s (2005) perspective is of the value delivered to the customer, whereas the perspective of the Walter and Ritter (2003) and the Baxter and Matear (2004) studies is of the value to the seller provided by the buyer in a business to business context, as it is for this paper. Value can be seen at its most fundamental level as the trade-off between benefits and sacrifices (Woodruff, 1997), and will ultimately be “reflected in superior financial performance” (Srivastava, Fahey, and Christensen, 2001). Taking a financial perspective, value is the discounted sum of future cash flows (Brealey and Myers, 1988). But for these concepts to be meaningful in the management of relationships, managers need to know what it is they should manage. This means that an understanding of the drivers and/or dimensions of value is required. Thus Walter and Ritter (2003) study the drivers or causes of relationship value and Baxter and Matear (2004) study the dimensions or outcomes of relationships. The dimensions of value as proposed and tested by Baxter and Matear are the subjects of this paper, in order to further clarify their conceptualisation. In particular, it discusses the modelling of their dimensions, after discussing research on relationship value more broadly. The value that flows through relationships can be both tangible and intangible. Customer profitability analysis techniques to assess the more tangible resources are well known (BellisJones, 1989; Howell and Soucy, 1990). They are applied by extrapolating revenues and costs and then discounting to present value (O'Guin, 1991; Turney, 1996; Wallis, 1997), preferably using activity based costing. However, effective assessment of the value of a relationship requires that its less intangible aspects are also assessed. Vargo and Lusch (2004) note the importance of the intangible, service-based, aspects of value in marketing endeavours. Among these intangible aspects, the human aspects of a relationship are of critical importance. Varey (2002, page 39) has pointed out that relationship-based marketing “thrives on insight, constant change, creativity, and humanistic values”. This paper therefore focuses on the intangible value aspects, including the human aspects, of relationships. If quantitative tools for intangible relationship value assessment are to be developed, the first step is to identify value dimensions. Varey (2002, page 57) has made a point that in relationship marketing, “we must consider relational process and outcome indicators”, so it is necessary to identify constructs that express processes and outcomes when looking for dimensions that will represent the provision of value. This is in contrast to those constructs that are expressions of inputs to, or drivers of, value as expressed in Walter and Ritter’s study (2001). The relationship is therefore conceptualised as a conduit (Ambler and Styles, 2000) and the unit of analysis is the relationship and its capabilities for provision of value to the seller, rather than the unit of analysis being value itself. Identification of a conceptual model The search for dimensions of intangible relationship value led Baxter and Matear (2004) to identify two distinct value aspects. The first of these comprises resources that are available from a buyer that will have value for a seller, the subject firm in this paper, and are described in the competence literature (e.g. Sanchez and Heene, 1997) as “addressable resources”. They do not “belong” to the seller, but are usable by the seller. They can be conceptualised as operand resources (Vargo and Lusch, 2004) because they are processed by transmission through the relationship to the seller. As dimensions of relationship value, they will be Varey’s (2002) “outcome indicators” because they will represent the outcomes that are available through the relationship. The second of these aspects of relationship value represents Varey’s (2002) “process indicators”, which can be seen as operant resources (Vargo and Lusch, 2004) because they facilitate the flow of the operand resources and represent processes that facilitate access to the seller, through the relationship, of the addressable resources in the buyer. Identification of intangible relationship value dimensions requires a suitable conceptual framework. Morgan and Hunt (1999) provide useful descriptions of the resources that are available to one firm through a relationship with another firm in terms of the resource based view of the firm (Barney, 1991). These descriptions can be categorised as tangible resources and intangible resources. The intangible resources can be further categorised into (i) the knowledge-based resources that can be accessed through the relationship and (ii) the human aspects of the relationship, which can be interpreted as facilitation capabilities specific to that relationship. This classification is a conceptual starting point for a set of dimensions of intangible relationship value, but the dimensions need to be operationalised. The intellectual capital (IC) literature (e.g. Roos et al., 1997), which has a similar grounding to the resource based view in the work of Penrose (1959), suggests a way to operationalise these dimensions. The basis of the IC concepts is that the capital in a company comprises both financial (tangible) capital, comprising physical capital and monetary capital, and intellectual (intangible) capital, characterised as human capital and structural capital. It provides descriptions of the domains of a set of constructs that are very closely related to the relationship resources categorised by Morgan and Hunt (1999). It also clearly distinguishes between tangible and intangible resources on one hand, and then between human and other aspects within the intangible set of resources. On the basis of an operationalisation that synthesises the IC representation of intangible value, Baxter and Matear (2004) tested a model of intangible relationship value that comprises a set of first and second order dimensions, as illustrated in Fig. 1. The model also includes a future financial performance construct as a test of nomological validity.