FUNCTIONS, TRUST, AND VALUE IN BUSINESS RELATIONSHIPS

Thomas Ritter and Achim Walter

ABSTRACT
Managers and academics alike focus on value creation in business relationships. This paper adds to existing literature by analyzing functions of business relationships and their impact on value perception. Applying a customer perspective, direct relationship functions are concerned about payment, quality, and volume. Indirect functions include innovation, access, and scouting. Furthermore, trust and number of alternative suppliers are included in the study. The empirical results illustrate the important role of direct and indirect functions for value creation. Understanding these functions is instrumental for driving customer value, both for the supplier and the seller. Direct functions do have a much stronger impact on value than indirect functions that still do have a signicant impact. Thus, increasing direct function fulllment is much more effective in order to gain key supplier status than relying only on indirect functions. But indirect functions may offer ample differentiation opportunities. Being a strong driver of relationship value, trust is also driven by function fulllment. Thus, relationship value depends on rational elements (functions) and social elements (trust). Availability of alternative suppliers increases the importance of relationship function fulllment on customer value and customer trust. In highly competitive

Creating and Managing Superior Customer Value Advances in Business Marketing and Purchasing, Volume 14, 129146 Copyright r 2008 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1016/S1069-0964(08)14004-2

129

130

THOMAS RITTER AND ACHIM WALTER

markets, suppliers need clear understanding and communication of relationship value in order to succeed.

INTRODUCTION
The value concept receives signicant attention in business marketing and purchasing (Anderson, Jain, & Chintagunta, 1993; Parasuraman, 1997; Ulaga & Eggert, 2006; Wilson & Jantrania, 1994). The basic notion is that industrial markets make sense only when applying the concept of value. Anderson and Narus (2004) see customer value as the cornerstone of business market management because of the predominant role that functionality or performance plays in business markets. The literature provides two perspectives of relationship value: a supplier and a customer perspective. From the supplier perspective (e.g., Walter, Ritter, & Gemunden, 2001), customer value is the contribution of a customer, a customer group, or all customer relationships to a suppliers business results. The customer perspective (e.g., Ulaga & Eggert, 2006; Walter, Muller, Helfert, & Ritter, 2003) focuses on the value of a supplier relationship for a customer. Various actors may perceive the value creation the most prominent actors are the customer and the supplier. As such, at least four perspectives on relationship value exist in all business relationships (see Fig. 1 for an illustration). This paper applies the buyer perspective both in terms of perception and value creation. Hypotheses focus on the impact of relationship function fulllment on customer-perceived customer value. A study of 303 business relationships contributes to the theoretical arguments. Managerial conclusions and research implications conclude the paper.

CUSTOMER RELATIONSHIP VALUE

No common denition of customer value exists in the marketing literature. The description of customer value focuses either on the offering (most common) or on the relationship (increasingly adopted). Most denitions of customer value draw on the quality and costs of a focal product exchange (Zeithaml, 1988). Most studies assess the perceived trade-off between benets and sacrices (Anderson & Narus, 2004; Flint, Woodruff, & Gardial, 1997; Ulaga & Eggert, 2006). Anderson and Narus (2004) propose to summarize

Functions, Trust, and Value in Business Relationships

Supplier perceives customer value $ Customer perceives own value

131

Supplier

Relationship

Customer

Supplier perceives own value

Customer perceives supplier value

Fig. 1.

Value Perspectives in a Business Relationship.

customer value in a nancial measurement: ( . . . ) value in business markets is the worth in monetary terms of the economic, technical, service, and social benets a customer rm receives in exchange for the price it pays for a market offering. However, this approach is often not applicable because of valuation problems. Consequently, the measurement of the perceived customer value employs mostly multi-attributive approaches and/or decompositionary measurements (Anderson et al., 1993). For the purpose of this study, customer relationship value equals the overall trade-off between the multiple benets and sacrices of a supplier relationship perceived by the customer.

RELATIONSHIP FUNCTIONS
Several models and theories on relationship functions emerged over the past two decades (Anderson, Hakansson, & Johanson, 1994; Cunningham & Homse, 1986; Hakansson & Johanson, 1993; Ulaga & Eggert, 2006; Walter et al., 2001). Functions of supplier relationships are areas of suppliers contribution to customer business in this study. The fulllment of these functions is valuable for a customer if the customer is appreciative and perceptive of these contributions. Functions are potential drivers of customer relationship value; they are the reasons why a customer should be interested in exchange with a supplier.

132

THOMAS RITTER AND ACHIM WALTER

Even though perceived value relates to a relationship, relationship functions may relate to outside the relationship. Here, this paper departs from Homans (1961, p. 7) notion that ( . . . ) the reward each gets from the behavior of the other is relatively direct and immediate. To determine the value of a supplier relationship in business markets, indirect connections between the exchange partners and involved other parties must be considered as well (Blau, 1964). Anderson et al. (1994) consider such outside effects as indirect functions. Therefore, relationship functions are either direct or indirect functions (Hakansson & Johanson, 1993; Walter et al., 2001). Direct functions of a supplier relationship have an immediate effect on the economic goals of the customer rm. Indirect functions have an indirect inuence as their valueincreasing effects are connected to other relationships or future action, that is, the economic effects developed outside or later in the supplier relationship.

Direct Relationship Functions In cases where the supplied product or service is an important part of the customers offering (like the microprocessor to a computer or the seat module to a car), customers concerns center around quality because the delivery contributes to (or reduces in negative cases) the quality the customer produces for his or her customers. Taking a view inside the customers operations, supplies might support operations by being reliable, easy to use, or easy to maintain issues that directly impact the processes and the protability of the customer. In addition, less critical purchases (often called C products) are not important enough to spend a lot of effort on quality problems. Thus, quality is always a customer concern regardless the product category. The quality function is a holistic one, including product quality, delivery performance, and service support. The payment function covers the nancial, monetary side of the relationship. Depending on the purchasing orientation (Anderson & Narus, 2004), customers focus on purchasing price, total cost of ownership, or net present value (Cannon & Homburg, 2001; Ulaga & Eggert, 2006). This function also includes different payment methods to mirror a shift from product exchange to service exchange (Vargo & Lusch, 2004), where industrial products are not any longer sold upfront but paid according to usage. Such leasing or operation management models change the payment structure from an upfront lump sum toward a revenue stream for the supplier, which is related to the economic success of the customer.

Functions, Trust, and Value in Business Relationships

133

Regarding the volume function of a relationship, rms move from wide supplier bases with fragmented purchasing power to smaller supplier bases if not even single source arrangements. Obviously, volume and payment functions are related, as suppliers normally offer discounts for higher volumes. Besides price impacts, allocating larger purchases to selected suppliers allow customers to inuence suppliers, to gain consistency within the supply (no variations between suppliers), and to reduce communication costs by focusing on one rather than many suppliers. All three direct relationship functions inuence the economic goals of the customer. Hypothesis 1. The better a supplier relationship fullls direct relationship functions, the higher the perceived customer relationship value. Indirect Relationship Functions Suppliers can also fulll a scout function by passing on relevant technical or market-related information. This activity is especially of interest because rms need information about their environment and sense their markets in order to maneuver successfully (Day, 1994). Suppliers usually have particular knowledge about their own industry as well as their customers industry and competitive situation as they potentially supply other rms in these markets. If a supplier fullls the scout function, the customer can realize a time advantage compared to competitors and eventually decrease market research costs. Beyond pure information exchange, suppliers can be valuable partners for their customers product and process innovation. The innovation function can have many faces: developing innovative ideas, supplying innovative components and production facilities, or engaging in a collaborative development project. By using suppliers resources, customers can speedup their development process, engage in larger, riskier and long-term oriented projects, and also have wider technological input. In addition, suppliers may fulll an access function when she or he helps the customer to establish contacts with new, potential exchange partners or inuential people (e.g., opinion leaders, celebrities). These contacts can be with other suppliers but also with customers, industry associations, or governmental institutions. Hereby, the supplier can take an active role by bringing the customer together with potential partners. However, customers can also use relationships with prestigious suppliers as reference and, thus, the supplier plays a more passive role. The value effect of the access function depends on the value of the new relationships. The new partners can, for

134

THOMAS RITTER AND ACHIM WALTER

example, show a large procurement volume, offer low prices, become innovation partners, or themselves have a large network in the industry. Hypothesis 2. The better a supplier relationship fullls the indirect functions, the higher the perceived relationship value for the customer.

CUSTOMER TRUST
The importance of trust in relationships increased over the last 20 years (Andaleeb, 1992). Consequently, trust is one of the major determinants of models explaining business relationships (Wilson, 1995). Therefore, this study explicitly studies the inuence of customer trust on relationship value. Moorman, Zaltman, and Deshpande (1992) dene trust as ( . . . ) a willingness to rely on an exchange partner in whom one has condence. Generally, trust involves not only the belief in the benevolence in the partners actions, but also the vulnerability against the partner (Morgan & Hunt, 1994, p. 23). An organization that trusts their partners expects ( . . . ) that another company will perform actions that will result in positive outcomes for the rm, as well as not take unexpected actions that would result in negative outcomes for the rm (Anderson & Narus, 1990, p. 45). Trust involves the capability to delegate responsibility so that the own area of responsibility is reduced, hereby creating free capacities for other tasks. A trusting partner assumes to receive a good offer or a fair deal. Reduced control and higher exibility (Dwyer, Schurr, & Oh, 1987; Morgan & Hunt, 1994; Ring & Van de Ven, 1994) leave the customer in a position to perceive high relationship value, at least to assume such a perception. Hypothesis 3. The more a customer trusts a supplier, the higher she or he values the relationship with this supplier. A customer trusts a supplier when the supplier consistently fullls relevant functions for the customer (Ganesan, 1994; Geyskens, Steenkamp, & Kumar, 1999). Customers interpret the fulllment of relationship functions as suppliers investments in the relationship, which in turn is a foundation of trust. Hypothesis 4. The more a supplier fullls relationship functions, the more the customer will trust the supplier.

Functions, Trust, and Value in Business Relationships

135

AVAILABILITY OF ALTERNATIVE SUPPLIERS

Relationships are very complex. External factors of the exchange processes between the partners directly inuence relationships (Hakansson, 1982). Therefore, the importance of relationship functions for customer trust and relationship value varies according to market and situational factors. Although a variety of supply market factors can inuence the development and output of relationships, the availability of alternative suppliers (replaceability), and in this context the comparison level of alternatives, is a key variable across different streams of marketing literature (Anderson & Narus, 1990; Cannon & Perreault, 1999). The availability of alternative suppliers is the degree to which a customer rm has alternative sources of its needed resources. In order to achieve high relationship value, suppliers need to perform better when alternative suppliers are available. When many suppliers compete to sell goods to a customer it is easier for the customer to get reasonable prices, quality, know-how, and market information. At the same time, differentiated function fulllment may be the key point of differentiation. Therefore, the linkages between direct and indirect functions and relationship value are likely to be stronger when the customer has more alternative suppliers to choose from, because the customer is aware of the differences in the market and the importance of those for value creation. Hypothesis 5. The impact of direct and indirect relationship functions on customer-perceived relationship value is stronger when the customer has alternative sources of supply. In a supplier relationship that fullls relationship functions to a high degree, the customer has sound reasons for the development of trust. When a company can choose between several suppliers, past experiences with a supplier become the focal point for decision. With alternatives available, only relatively stronger function fulllment can serve as building blocks for trust. Hypothesis 6. The impact of relationship functions on the customer trust is stronger when the customer has alternative sources of supply.

EMPIRICAL STUDY
A total of 745 purchasing professionals were initially called by phone and motivated to complete the questionnaire. The telephone contacts served as a

136

THOMAS RITTER AND ACHIM WALTER

basis to ensure that the selected person is knowledgeable to report on the constructs under investigation. The empirical work yielded a total of 303 usable questionnaires, equal to a 41% response rate. Most of the responses came from mechanical engineering (19%), vehicle manufacturing (18%), electronics industry (10%), chemical industry (10%), and metal-processing industry (7%). The suppliers of these respondents are all manufacturers and mainly operate in the electronics industry (42%), mechanical engineering (19%), and chemical industry (9%). The average number of employees on the part of the customers is 15.913 (median 500). The supplier companies employ 744 persons on average (median 300). All constructs measurements employ seven-point multiple-item scales. Measurement development follows procedures that Anderson and Gerbing (1988) recommend. Building on the conceptual research on relationship value, four items measure this construct including value of supplier relationships as perceived trade-off between benets and sacrices (Walter et al., 2001), value depending on role perceptions of the respondents, value as a measure relative to the offerings of competitors (Anderson & Narus, 2004), and value as a multi-attribute concept (Wilson, 1995). Customer trust measurement adapts the ve-item scales of Kumar, Scheer, and Steenkamp (1995) and Ganesan (1994). The direct relationship functions use seven items following the research of Sheth and Sharma (1997). The indirect relationship functions employ suggestions by Anderson et al. (1994) and Hakansson and Snehota (1995). The moderator variable availability of alternative suppliers is measured by a single item: the degree to which the supplier can be replaced easily. This notion of replaceability of a focal partner as a measurement of dependence is used in several empirical studies of marketing channels (e.g., Heide & John, 1988). The results of a LISREL analyses show that the measurement models satisfy all reliability and validity requirements of existing marketing literature (Anderson & Gerbing, 1988). Not only the global t criteria of the developed scales but also their details are more than satisfactory (see Appendix D). Discriminant validity between the ve factors is also given applying the criterion suggested by Fornell and Larcker (1981) (see Appendix E).

RESULTS
Tables 1 and 2 show the results of the regression analyses. The data supports all hypotheses. Furthermore, the model explains a substantial portion of the

Functions, Trust, and Value in Business Relationships

137

Table 1.
Independent Variable Main effects Direct functions (H1) Indirect functions (H2) Customer trust (H3)

Regression Results Relationship Value.

Model 1 Model 2 0.28 0.17 0.31 Model 3 0.26 0.16 0.29

Interaction effects (H5) Availability of alternative suppliers X Direct functions Indirect functions Moderating variable Availability of alternative suppliers R2 (adjusted R2) DR2 F Note: n 303. po0.05. po0.001. w po0.10 (one-tailed test). 0.41 0.17 (0.16) 0.17 59.88 0.27 0.47 (0.47) 0.30 66.56

0.07w 0.08 0.26 0.49 (0.48) 0.02 46.54

Table 2.
Independent Variable Main effects (H4) Direct functions Indirect functions

Regression Results Customer Trust.

Model 1 Model 2 0.31 0.18 Model 3 0.30 0.16

Interaction effects (H6) Availability of alternative suppliers X Direct functions Indirect functions Moderating variable Availability of alternative suppliers R2 (adjusted R2) DR2 F Note: n 303. po0.05. po0.01. po0.001. 0.23 0.05 (0.05) 0.05 16.27 0.15 0.20 (0.20) 0.16 25.94

0.14 0.02 0.14 0.22 (0.21) 0.02 17.04

138

THOMAS RITTER AND ACHIM WALTER

variance of the dependent variable, relationship value (49%). The three inuencing factors direct functions, indirect functions, and customer trust are signicant predictors of relationship value of a supplier relationship (supporting H1, H2, and H3). Relationship functions explain a moderate proportion of the variance of customer trust (22%), thus supporting H4. The moderating variable availability of alternative suppliers shows negative effects on relationship value and customer trust. The negative inuence on customer trust supports Cannon and Perreaults (1999) argument that customers are more likely to cooperate with their suppliers if they have none or only a few alternatives and, therefore, are more dependent on their supplier. If a customer has several available alternatives, she or he will be less likely to develop trust with a given supplier based on value creation unless additional circumstances apply. This outcome holds also for the negative effect of availability of alternative suppliers on relationship value. The easier a supplier can be replaced (especially in case of commodities), the less the realized advantages will be different from competitors offerings. This result is not surprising. However, the analysis of availability of alternative suppliers highlights interesting additional insights. The results of the hierarchical regression analysis for relationship value as dependent variable (Table 1) show the expected positive signicant interaction effects of availability of alternative suppliers and direct functions as well as availability of alternative suppliers and indirect functions. Moreover, the results in Table 2 show a positive signicant interaction effect of availability of alternative suppliers and direct functions on customer trust. The expected interaction effect between availability of alternative suppliers and indirect functions on customer trust is not signicant. Thus, with increasing competition, function fulllment gains importance for countering the direct negative effect with a positive indirect effect.

DISCUSSION AND OUTLOOK

This study shows that relationship functions and customer trust explain a considerable amount of the customer-perceived relationship value. Direct relationship functions have a much stronger impact on perceived value than indirect ones. As such, highlighting its direct value contributions in order to gain key supplier status is important for a supplier rm. However, this highlighting should not lead to neglecting indirect relationship functions.

Functions, Trust, and Value in Business Relationships

139

Indirect functions do have a signicant impact on relationship value and thus offer differentiation potential. The result is important for both, marketing and purchasing managers. On the supplier side, differentiation and revenue potential exist in indirect value functions. It is a worthwhile exercise to investigate the potential for increasing customer value perceptions based on innovation, market access, and information. Also, sales directors must analyze their current sales peoples reward systems in order to nd the right balance between direct and indirect functions. Short-term oriented reward systems work for direct functions because results can be seen in a short period of time. However, a short-term orientation fails in motivating personnel to exploit indirect functions of relationships because of a time gap between input and outcome. Typically, current reward systems favor direct value functions beyond the reasonable level. Firms need to develop and implement new reward systems in order to foster indirect functions of relationships. On the customer side, rms can improve their supplier evaluation practice by including all functions, not only direct ones. Many supplier evaluation systems are very much oriented toward direct functions. Such practice opens for a lack of supplies with regards to innovation, market access, and information. This is of particular concern in dynamic, innovation-driven, and networked industries, where indirect functions are inputs to key success factors. In addition, customer trust has a major impact on relationship value. This highlights the importance of good working relationships between suppliers and customers. To some extent, this result supports the notion that not only rational arguments (i.e., functions) but also social arguments (i.e., trust) drive relationship value. Therewith, the study contributes to existing relationship value models by employing a relationship function perspective as well as by analyzing the role of trust. Some managers say that as long as value is created, everything is good in the relationship. While value creation is the reason to have a relationship, the above attitude actually brings relationships at risk. Our results suggest that low levels of trust harm relationship value perception. As such, troublesome relationship management processes may lower relationship value to a point where the customer will terminate the relationship because of a lack of perceived value creation. Also, function fulllment is one possible mechanism to drive trust and, thus, functions are a powerful predictor of the overall relationship strength. Trust needs to be earned and relationship functions are one feasible and measurable way of achieving this.

140

THOMAS RITTER AND ACHIM WALTER

Furthermore, the results on availability of alternatives further develop an understanding of relationship functions as drives of relationship value. When alternatives exist, customer value perception decreases. The interaction effect, however, signals increased importance of fullling relationship functions in competitive markets. If a rm operates in a highly competitive market regarding goods and services, it is of paramount importance to fulll on the relationship functions in order to minimize the directly negative impact of alternative supply sources. This poses a practical challenge to managers because they often give up in competitive markets and operate under the assumption of commodity markets. However, as our results suggest, even when alternatives exist, function fulllment is a source of differentiation and a means to increase relationship value perception indirectly. This paper analyzes the relationship between relationship functions, creation of trust, and value in a relationship. But the present study not only provides answers to important questions concerning value creation through relationships, but it also raises questions for further research. Research on the preconditions and antecedents for the fulllment of different functions is underdeveloped. Does a relation exist between the development stage of a relationship and value creation? In addition, the question of value sharing (Anderson, 1995; Wilson, 1995) is important. When a relationship creates value for both partners, both partners benet from this situation and have a strong incentive to continue the relationship. Are there typical combinations of relationship function fulllment in a relationship? Business relationships exist for creating value and value creation relationships are vital for the future survival of the company. Thus, an understanding of the drivers of relationships value perception is of paramount importance. Firms need to adopt value assessment tools as well as implement value-delivering processes inside and between rms in order to stay competitive.

REFERENCES
Andaleeb, S. S. (1992). The trust concept: Research issues for channels of distribution. Research in Marketing, 11, 134. Anderson, J. C. (1995). Relationships in business markets: Exchange episodes, value creation, and their empirical assessment. Journal of the Academy of Marketing Science, 23, 346350. Anderson, J. C., & Gerbing, D. (1988). Structural equation modeling in practice: A review and recommended two-step approach. Psychological Bulletin, 103, 411423.

Functions, Trust, and Value in Business Relationships

141

Anderson, J. C., Hakansson, H., & Johanson, J. (1994). Dyadic business relationships within a business network context. Journal of Marketing, 58, 115. Anderson, J. C., Jain, D. C., & Chintagunta, P. K. (1993). Customer value assessment in business markets: A state-of-practice study. Journal of Business-to-Business Marketing, 1, 329. Anderson, J. C., & Narus, J. A. (1990). A model of distributor rm and manufacturing rm working partnerships. Journal of Marketing, 54, 4258. Anderson, J. C., & Narus, J. A. (2004). Business market management: Understanding, creating, and delivering value (2nd ed.). Upper Saddle River, NJ: Prentice Hall. Blau, P. M. (1964). Exchange and power in social life. New York: John Wiley & Sons. Cannon, J. P., & Homburg, C. (2001). Buyer-supplier relationships and customer rm costs. Journal of Marketing, 65, 2973. Cannon, J. P., & Perreault, W. D. J. (1999). Buyer-seller relationships in business markets. Journal of Marketing Research, 36, 439460. Cunningham, M. T., & Homse, E. (1986). Controlling the marketing-purchasing interface: Resource development and organisational implications. Industrial Marketing and Purchasing, 1, 327. Day, G. S. (1994). The capabilities of market-driven organizations. Journal of Marketing, 58, 3752. Dwyer, F. R., Schurr, P. H., & Oh, S. (1987). Developing buyer-seller relationships. Journal of Marketing, 51, 1127. Flint, D. J., Woodruff, R. B., & Gardial, S. F. (1997). Customer value change in industrial marketing relationships: A call for new strategies and research. Industrial Marketing Management, 26, 163175. Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research, 18, 3950. Ganesan, S. (1994). Determinants of long-term orientation in buyer-seller relationships. Journal of Marketing, 58, 119. Geyskens, I., Steenkamp, J.-B., & Kumar, N. (1999). A meta-analysis of satisfaction in marketing channel relationships. Journal of Marketing Research, 36, 223238. Hakansson, H. (1982). International marketing and purchasing of industrial goods: An interaction approach. Chichester: John Wiley & Sons. Hakansson, H., & Johanson, J. (1993). Industrial functions of business relationships. Advances in International Marketing, 5, 1329. Hakansson, H., & Snehota, I. (1995). Developing relationships in business networks. Boston: International Thomson Press. Heide, J. B., & John, G. (1988). The role of dependence balancing in safeguarding transactionspecic assets in conventional channels. Journal of Marketing, 52, 2035. Homans, G. C. (1961). Social behavior: Its elementary form. London: Routledge & Kegan Paul. Kumar, N., Scheer, L. K., & Steenkamp, J.-B. (1995). The effects of supplier fairness on vulnerable resellers. Journal of Marketing Research, 32, 5465. Moorman, C., Zaltman, G., & Deshpande, R. (1992). Relationships between providers and users of market research: The dynamics of trust within and between organisations. Journal of Research in Marketing, 29, 314328. Morgan, R. M., & Hunt, S. D. (1994). The commitment-trust theory of relationship marketing. Journal of Marketing, 58, 2038.

142

THOMAS RITTER AND ACHIM WALTER

Parasuraman, A. (1997). Reections on gaining competitive advantage through customer value. Journal of the Academy of Marketing Science, 25, 154161. Ring, P. S., & Van de Ven, A. H. (1994). Developmental processes of cooperative interorganizational relationships. Academy of Management Review, 19, 90118. Sheth, J. N., & Sharma, A. (1997). Supplier relationships: Emerging issues and challenges. Industrial Marketing Management, 26, 91100. Ulaga, W., & Eggert, A. (2006). Value-based differentiation in business relationships: Gaining and sustaining key supplier status. Journal of Marketing, 70, 119136. Vargo, S. L., & Lusch, R. F. (2004). Evolving to a new dominant logic of marketing. Journal of Marketing, 68, 117. Walter, A., Muller, T., Helfert, G., & Ritter, T. (2003). Functions of industrial supplier relationships and their impact on relationship quality. Industrial Marketing Management, 32, 159169. Walter, A., Ritter, T., & Gemunden, H. G. (2001). Value-creation in buyer-seller relationships: Theoretical considerations and empirical results from a suppliers perspective. Industrial Marketing Management, 30, 365377. Wilson, D. T. (1995). An integrated model of buyer-seller relationships. Journal of the Academy of Marketing Science, 23, 335345. Wilson, D. T., & Jantrania, S. (1994). Understanding the value of a relationship. Asia-Australia Marketing Journal, 2, 5566. Zeithaml, V. A. (1988). Consumer perceptions of price, quality, and value: A means-end model and synthesis of evidence. Journal of Marketing, 52, 222.

APPENDIX A. INDICATORS
Relationship Functions Suppliers can provide different benets to their customers, for example, covering a large demand volume, supplying innovative products, and/or delivering information on the procurement market. How do you rate the following potential functions regarding your benet of this supplier relationship? (1 very little, 7 very strong) Cost Function  Products that are good value for money.  Low purchasing prices. Volume Function  Long-term delivery promises for the products delivered.  Complete coverage of your total demand for the products.

Functions, Trust, and Value in Business Relationships

143

Quality Function  Functionality of the products delivered.  Reliability of the products delivered.  Realization of our product requirements. Access Function  Intermediation of contacts to prospective customers of your company.  Intermediation of contacts to prospective other suppliers of your company.  Intermediation of contacts to relevant third parties (technology companies, consultants, marketing service providers, and so on).  Direct reference with possible business partners. Scout Function  Information on your procurement market.  Information on your competitors.  Information on relevant third parties (technology companies, consultants, marketing service providers, and so on).  Information on developments in your market. Innovation Function     Ideas for new products/services of your company. Development of your products/services. Development of your manufacturing processes. New technological know-how for your company.

Relationship Value  Considering all benets and sacrices associated with this supplier relationship, how would you assess its value? (1 very low, 7 very high)  The value of the relationship with this supplier is in comparison with alternative supplier relations very high. (1 strongly disagree, 7 strongly agree)

144

THOMAS RITTER AND ACHIM WALTER

 All in this entire supplier relationship has a high value for our rm. (1 strongly disagree, 7 strongly agree)  How do you rate the value of all performance contributions that your company gains from this supplier (e.g., volume, market information, technologies)? (1 very low, 7 very high)

Customer Trust (1 Strongly Disagree, 7 Strongly Agree)

 When making important decisions, the supplier is concerned about our welfare.  When we have an important requirement, we can depend on the suppliers support.  We are convinced that this customer performs its tasks professionally.  The supplier is not always honest to us (reverse scored).  We can count on the suppliers promises made to our rm.

APPENDIX B
Table B1.
Construct

Results of the Measurement Model Direct Functions.

Standardized Factor Loading (CFA) 0.88 0.84 0.86 0.60 0.81 0.83 0.71 0.66 0.83 0.69 Item to Cronbachs Explained Construct Variance TotalAlpha Variance Reliability Extracted Correlation (EFA)

Indicator

Payment function PF 1 PF 2 Volume function VF 1 VF 2 Quality function QF 1 QF 2 QF 3 Direct functions DF 1 DF 2 DF 3

0.74 0.74 0.51 0.51 0.69 0.72 0.62 0.46 0.50 0.51

0.85 0.67 0.82

86.7 75.7 73.8

0.86 0.70 0.83

75.5 54.7 61.3

0.67

61.1

0.77

53.2

Note: w2 28:92; p 0.002; GFI 0.973; AGFI 0.932; CFI 0.978; RMSEA 0.073. 11 po0.001.

Functions, Trust, and Value in Business Relationships

145

APPENDIX C
Table C1.
Construct

Results of the Measurement Model Indirect Functions.

Indicator Standardized Factor Loading (CFA) 0.85 0.80 0.83 0.86 0.77 0.72 0.79 0.79 0.78 0.83 0.83 0.83 0.83 0.84 0.59 Item to Cronbachs Explained Construct Variance Alpha Variance Reliability extracted Total(EFA) Correlation

Access function

AF 1 AF 2 AF 3 AF 4 Scout function SF 1 SF 2 SF 3 SF 4 Innovation InF 1 function InF 2 InF 3 InF 4 Indirect functions IF 1 IF 2 IF 3

0.80 0.76 0.77 0.80 0.71 0.67 0.70 0.71 0.73 0.77 0.77 0.76 0.62 0.61 0.48

0.90

77.5

0.90

69.9

0.85

69.5

0.85

59.0

0.89

75.2

0.89

66.8

0.74

66.3

0.80

57.8

Note: w2 107:96; p 0.000; GFI 0.945; AGFI 0.916; CFI 0.974; RMSEA 0.060. 51 po0.05. po0.001.

APPENDIX D
Table D1.
Construct Indicator

Results of the Measurement Model.

Item to Cronbachs Explained Construct Variance TotalAlpha Variance Reliability Extracted Correlation (EFA)

Standardized Factor Loading (CFA) 0.89 0.83 0.93 0.85 0.71 0.72 0.74 0.70 0.77 0.57 0.65 0.72

Relationship value RV 1 (C1) RV 2 RV 3 RV 4 Customer trust CT 1 (C2) CT 2 CT 3 CT 4 CT 5 Direct functions DF 1 (C3) DF 2 DF 3

0.85 0.80 0.87 0.82 0.65 0.63 0.66 0.65 0.71 0.46 0.50 0.51

0.93

82.5

0.93

76.6

0.85

62.6

0.85

53.0

0.67

61.1

0.68

41.6

146

THOMAS RITTER AND ACHIM WALTER

Table D1.
Construct Indicator Standardized Factor Loading (CFA) 0.76 0.76 0.60 0.92a

(Continued ).

Item to Cronbachs Explained Construct Variance Alpha Variance Reliability Extracted Total(EFA) Correlation

Indirect functions IF 1 (C4) IF 2 IF 3 AS 1 Availability of alternative suppliers (C5)

0.62 0.61 0.48

0.74

66.3

0.75

50.5

0.85

85.0

Note: w2 182:87; p 0.000; GFI 0.928; AGFI 0.897; CFI 0.961; RMSEA 0.057. 95 po0.001. a Variance of error term was xed at 15%.

APPENDIX E
Table E1. Discriminant Validity of Constructs. C1 C2 C3 C4 C5

0.77 C1 C2 C3 C4 C5 0.77 0.53 0.42 0.51 0.85 0.34 0.41 0.16 0.20

Variance extracted 0.53 0.42 0.51 Squared correlation of constructs 0.29 0.11 0.07

0.85

0.12 0.06

0.01