Page 227 - Marketing Management

204 PART 3 CONNECTING WITH CUSTOMERS

partner (investments in company-specific training, equipment, and operating procedures or
systems). 62 They help firms grow profits and achieve their positioning. 63 Xerox worked closely
with its suppliers to develop customized processes and components that reduced its copier
manufacturing costs by 30 percent to 40 percent. In return, suppliers received sales and volume
guarantees, an enhanced understanding of their customer’s needs, and a strong position with
Xerox for future sales. 64
Specific investments, however, also entail considerable risk to both customer and supplier.
Transaction theory from economics maintains that because these investments are partially sunk,
they lock firms into a particular relationship. Sensitive cost and process information may need to
be exchanged. A buyer may be vulnerable to holdup because of switching costs; a supplier may be
more vulnerable because it has dedicated assets and/or technology/knowledge at stake. In terms of
the latter risk, consider the following example. 65
An automobile component manufacturer wins a contract to supply an under-hood
component to an original equipment manufacturer (OEM). A one-year, sole-source
contract safeguards the supplier’s OEM-specific investments in a dedicated production
line. However, the supplier may also be obliged to work (noncontractually) as a partner
with the OEM’s internal engineering staff, using linked computing facilities to exchange
detailed engineering information and coordinate frequent design and manufacturing
changes over the term of the contract. These interactions could reduce costs and/or
increase quality by improving the firm’s responsiveness to marketplace changes. But they
could also magnify the threat to the supplier’s intellectual property.
When buyers cannot easily monitor supplier performance, the supplier might shirk or cheat and
not deliver the expected value. Opportunism is “some form of cheating or undersupply relative to an
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implicit or explicit contract.” It may entail blatant self-serving and deliberate misrepresentation that
violates contractual agreements. In creating the 1996 version of the Ford Taurus, Ford Corporation
chose to outsource the whole process to one supplier, Lear Corporation. Lear committed to a contract
that, for various reasons, it knew it was unable to fulfill. According to Ford, Lear missed deadlines,
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failed to meet weight and price objectives, and furnished parts that did not work. A more passive
form of opportunism might be a refusal or unwillingness to adapt to changing circumstances.
Opportunism is a concern because firms must devote resources to control and monitoring that
they could otherwise allocate to more productive purposes. Contracts may become inadequate to
govern supplier transactions when supplier opportunism becomes difficult to detect, when firms
make specific investments in assets they cannot use elsewhere, and when contingencies are harder
to anticipate. Customers and suppliers are more likely to form a joint venture (instead of signing a
simple contract) when the supplier’s degree of asset specificity is high, monitoring the supplier’s
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behavior is difficult, and the supplier has a poor reputation. When a supplier has a good reputa-
tion, it is more likely to avoid opportunism to protect this valuable intangible asset.
The presence of a significant future time horizon and/or strong solidarity norms typically
causes customers and suppliers to strive for joint benefits. Their specific investments shift from
expropriation (increased opportunism on the receiver’s part) to bonding (reduced opportunism). 69

New Technology and Business Customers
Top firms are comfortable using technology to improve the way they do business with their business-
to-business customers. Here are some examples of how they are redesigning Web sites, improving
search results, leveraging e-mails, engaging in social media, and launching Webinars and podcasts to
improve their business performance.
• Chapman Kelly provides audit and other cost containment products to help firms reduce their
health care and insurance costs. The company originally tried to acquire new customers
through traditional cold calling and outbound selling techniques. After it redesigned its Web
site and optimized the site’s search engine so the company’s name moved close to the top of
relevant online searches, revenue nearly doubled. 70
• Hewlett-Packard launched a “Technology at Work” e-mail newsletter to focus on retention of
its current customers. The newsletter’s content and format were based on in-depth research
to find out what customers wanted. Hewlett-Packard measures the effects of the newsletter
carefully and found that e-mailing product updates helped avoid inbound service calls, saving
millions of dollars. 71