Concept of an Integrated Value Model of Business Relationship

1. Concept of an Integrated Value Model of Business Relationship Tibor MANDJÁK Ph.D. The research is sponsored by the Hungarian Research Found OTKA 48560

2. Agenda • Why this research • Business relationship • Research process (done) • Definition • The Integrated Value Model • Some characteristics • How does it help • Research process (going on) An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

3. ISBM/CBIM Academic Workshop, February 13-14, 2003 in Orlando, Florida Integrated Value Model Why? MEMORIES Two managers from Hungary: “The most important in a relationship for me are the revenues…. (this) is the most important, and then follow those we like to work with and we are having a good relationship with, and with whom we even have consultative conversations”. "I deem the personal relationship for very important for me this is the most important. Some say that friendship does not exist in business; I say this is not true, friendship does exist in business and it is very good when it works out. It helps to solve the problem and is important on both sides.” Two quite divergent opinions about the same issue An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

4. Integrated Value Model Why? Business relationship "value is a problematic concept which cannot be ignored" (Wilson and Jantrania 1996 p.63). The authors conclude their research that examines the value of business relationships with these not very encouraging words. What are the reasons for such uncertainty and why is value important? An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

5. 2nd International Value Conference, June 7-8, 2004 Budapest Integrated Value Model Value has many faces Utility (economics) → maximisation Why? VALUE Actions orientation point (sociology) → symbolic and historic How? Social integration (social psychology) → emotional motivation for action What? An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

6. 2nd International Value Conference, June 7-8, 2004 Budapest Integrated Value Model Value has many faces Value is a complex phenomenon made up of economic and social components, that is in all cases perceived and therefore subjective. However, value always depends on the given social and economic situation, and in this coherence it is socially constructed and interiorised by the individual. At different social levels, individual, group, or society, value has different meanings and appears in different ways. VALUE An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

7. Integrated Value Model Why? • To understand what the value of business relationship does mean for the actors • Why the value of business relationship is important if it is so? An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

8. Integrated Value Model Business relationship * Interactive exchange between two organizations * Organizational and managerial FORMS of Connections between two organisations Connectedness with other relationships, actors, organizations build trust, create routines framework and system of single episodes connectedness * Three different levels Exchange episodes Relational Network An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

9. Integrated Value Model Business relationship * Embedded Episodes into the relationship Relationship into the business network Business network into the market Business relationships represent the market for the organizations! An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

10. Complexity of business relationship • Buyer’s transactional or relationship orientation (Jackson 1985) • Different buyers’ orientations need different market offerings (Anderson and Narus 1999) • Tunnel vision of commodity markets (Anderson and Narus 1999) An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

11. Complexity of business relationship • Depends on • Type of the object of transaction (exchange episodes) • Type of the customer purchasing orienation • Previous researches on commodity markets (chemical row materials, electricity): • Different types of supplier – buyer relationships • Different types of customer orientations • For model validation make a research in a commodity industry An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

12. Integrated Value Model Research process (done) Complexity of the value of business relationship multi methods approach STEPS: * Marketing, logistics and strategy literature review * Summarized in a Meta Model of Business Relationship Value * Meta Model enriched with economics, sociology, social psychology value apprehension An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

13. Integrated Value Model Research process (done) STEPS: * Theoretical framework (model) of business relationship value with value indicators * Three qualitative researches for the first validation of the theoretical framework - deep interviews with managers - interactive group interview - international academic interviews * External triangulation results - definition of business relationship value - integrated model of business relationship value An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

14. Integrated Value Model Definition (first part) The value of business relationships is a concept that expresses usefulness and motivation recognised in, or assigned to, a business relationship. Usefulness and motivation are value types that determine the value of business relationships. An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

15. Integrated Value Model Definition (second part) Economic value is the expression of incomes and expenses within the business relationships Social value is the expression of motivation for social interactions related to business relationship (motivation value) The two value types are in close, dialectic interaction with each other. Economic values can be determining through this close interaction. An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

16. Integrated Value Model The model An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

17. Integrated Value Model Some characteristics Business relationship value * Exists and changes in time * Different in different levels * Value components * Value structure * Individual and collective perceptions An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

18. Value level Value types Economic value (utility) Social value (motivation) Exchange episode ·recognition of the product ·importance of the product to the supplier ·suitability of the financial conditions ·personal relationships ·satisfaction with the product ·security of supply of the product Relationship ·profitability of the relationship ·decreasing the transactional costs ·supply potential of the relationship ·smoothness of the relationship (routines) ·security of the relationship ·competence of the supplier Network ·own portfolio management ·network potential ·related effects ·emanation of the relationship ·the supplier’s position in his own industry ·non-market strategy of the supplier Integrated Value Model The buyer’s perception An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

19. Value level Value types Economic value (utility) Social value (motivation) Exchange episode ·possibility of manufacturing the product ·importance of the product to the buyer ·suitability of the financial conditions ·personal relationships ·the buyer’s satisfaction with the product ·security of product sales Relationship ·profitability of the relationship ·decreasing the transactional expenses ·income potential of the relationship ·smoothness of the relationship (routines) ·security of the relationship ·competence of the buyer Network ·own portfolio management ·network potential ·related effects ·emanation of the relationship ·the buyer’s position in his own industry ·non-market strategy of the buyer Integrated Value Model The supplier’s perception An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

20. Integrated Value Model How is it integrated Integrates * different sciences value knowledge * value perception of the vendor and the customer * economic and social value * economic and social value constituents * North American and European research approaches An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

21. 2nd International Value Conference, June 7-8, 2004 Budapest Integrated Value Model How does it help? Possibility of a new cognitive model Tool of the competitiveness Help for decision making Research for measurement An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

22. Integrated Value Model How does it help? * Help decision making about - business relationship itself - resources allocation - portfolio of business relationships - strategic management An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

23. Integrated Value Model How does it help? * Decompose the business relationship value elements - better understanding - measure - estimate - manage (as well separately) * Increase of company’s efficiency An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

24. Integrated Value Model Some research questions What is the connection/relationship between the three levels? Is it hierarchical, or is it parallel? Could it be defined as a value chain? What is the connection between the two value types: the usefulness and motivation types? How do value constituents influence the perceived value of a relationship? An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

25. ISBM/CBIM Academic Workshop, February 13-14, 2003 in Orlando, Florida Integrated Value Model Some research questions How the perception of the same business relationship’s value could be different for the vendor and the customer? Value perception Episode value Relational value Network value High or medium or low High or medium or low High or medium or low VENDOR High or medium or low High or medium or low High or medium or low CUSTUMER An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

26. Integrated Value Model Research process (going on) Our initial assumptions imply that there is a causal structure among the value types. Variables: Value types (economic and social) and value constituents are our latent variables. Value constituents’ indicators are our observed variables. Observed variables are measured with multi-item scales. An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007

27. Integrated Value Model Research process (going on) The integrated model’s test process Three steps: 1.Substantive validity assessment of constituents and scales 2.Substantive validity of the two sub-models (buyer’s and supplier’s perception) separately 3.Model’s structure validity An Integrated Value Model in Marketing with Special Emphasis on Business-to-Business Market Mandják 2007