Academic journal article Academy of Marketing Studies Journal

The Role of Explicit Contracts and Cooperative Norms on Fairness in Buyer-Seller Relationships

Academic journal article Academy of Marketing Studies Journal

The Role of Explicit Contracts and Cooperative Norms on Fairness in Buyer-Seller Relationships

Article excerpt

ABSTRACT

This research develops and tests a model that examines the effect of explicit contracts and cooperative norms on buyer's perceived fairness in the relationship. Data were collected in a business-to-business setting. Responses were received from 234 key informants. The model was tested using structural equation modeling. Findings indicate that the cooperative norms that develop in a relationship are a key indicator of buyer's perception of fairness in that relationship. However, explicit contractual agreements do not have an effect on buyer's perceived fairness in the relationship.

INTRODUCTION

Companies are beginning to focus on maintaining long-term relationships with customers. There are numerous reasons behind this trend. One reason is that long term customer relationships provide a sustainable competitive advantage (Day, 1994). Another reason is that retaining customers is more profitable than obtaining new customers (Curasi & Kennedy, 2002; Kalwani & Narayandas, 1995; Reichheld, 1994). Also, heightened competition has made it more difficult to obtain new customers. It has been suggested that existing customers should be viewed as strategic assets that must be protected (Webster, 1994). Concerted efforts to build and enhance relationships with customers are one way for firms to protect their "strategic customer assets."

Fairness in relationships has been found to be associated with customer satisfaction, commitment and loyalty to the relationship (Patterson, Johnson & Spreng, 1997; Seiders & Berry, 1998; Sindhav, 2001; Brown, Cobb & Lusch, 2005). Whether or not a customer perceives a relationship as fair can be dependent upon the customer's perception that the outcomes they receive are equitable given their contribution to the relationship (Brown, Cobb & Lusch, 2005). Firms often do spell out expectations of both parties by developing detailed explicit contractual agreements. However, it is difficult to contractually provide contingencies and solutions for every possible situation that can arise in a buyer-seller relationship. Consequently, firms develop unwritten and implicit norms that also govern the perception of fairness in the relationship. The purpose of this research is to examine whether or not customers' perception of fairness can be managed through the use of explicit and implicit contracts in the buyer-seller relationship.

EXPLICIT CONTRACTS

Explicit contracts are detailed and binding contractual agreements that specify the buying and selling firms' obligations and roles (Cannon & Perreault, 1999). They are important in structuring and controlling relationships between firms (Cannon and Perreault, 1999). Legal contracts are entered into at the corporate level (Cunningham & Turnbull, 1982) but all individuals involved in the buyer-seller relationship are bound by the terms of the contract. Explicit contracts provide two primary benefits to exchanging parties. First, explicit contracts provide the protections available through the legal system should something go wrong (Beale & Dugdale 1975). Second, they regulate the relationship by furnishing a plan for the future (Macneil 1980). For example, Bowersox (1990) notes that contracts pertaining to inter-firm logistics systems should detail contingency plans for dissolution of the relationship.

Explicit contracts may become liabilities if they reduce the flexibility of the relationship partners in adapting to environmental changes (Reve 1986). It is almost impossible for a contract between two firms to account for every possible set of circumstances and interactions that arise. This becomes even more difficult as the relationship evolves over time. Relational contracting literature stresses the importance of norms in addition to legal contracts to operationalize formal and informal governance between firms. The relational contracting paradigm has its roots in the sociology of contracts (Macneil, 1980). …

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