Which of the following characterizes organizational buyer-seller relationships?

ABSTRACT - Buyer decision-making uncertainty (DMU) causes many negative consequences to buyer decision-making, such as increased perceived risk and the damping of buyer beliefs on product performance and costs. The marketing literature is replete with studies on how the buyer can reduces its own DMU and how the seller can help, yet most of the existent research targets at only non-relational sources of uncertainty, mainly information availability and customer knowledge. There is still limited theoretical insight and empirical evidence as to how the seller can utilize relationship-building approaches to lessen the buyer uncertainty problem. We intend to fill this void in marketing research by formulating an integrated model on both relational and non-relational sources of buyer uncertainty. A future empirical testing of this model would allow for the estimation of relative efficacy of various relational and non-relational factors in affecting decision-making uncertainty. Introduction

Citation:

Tao Gao, Yunfeng Wang, M. Joseph Sirgy, and Monroe M. Bird (2002) ,"An Integrative Model on the Antecedents of Buyer Decision-Making Uncertainty in Organizational Purchasing", in AP - Asia Pacific Advances in Consumer Research Volume 5, eds. Ramizwick and Tu Ping, Valdosta, GA : Association for Consumer Research, Pages: 41-47.

Asia Pacific Advances in Consumer Research Volume 5, 2002      Pages 41-47

AN INTEGRATIVE MODEL ON THE ANTECEDENTS OF BUYER DECISION-MAKING UNCERTAINTY IN ORGANIZATIONAL PURCHASING

Tao Gao, Hofstra University, USA

Yunfeng Wang, Hebei University of Technology, China

M. Joseph Sirgy, Virginia Tech, USA

Monroe M. Bird, Virginia Tech, USA

[The first author thanks the Frank G. Zarb School of Business, Hofstra University, for a summer research grant.]

ABSTRACT -

Buyer decision-making uncertainty (DMU) causes many negative consequences to buyer decision-making, such as increased perceived risk and the damping of buyer beliefs on product performance and costs. The marketing literature is replete with studies on how the buyer can reduces its own DMU and how the seller can help, yet most of the existent research targets at only non-relational sources of uncertainty, mainly information availability and customer knowledge. There is still limited theoretical insight and empirical evidence as to how the seller can utilize relationship-building approaches to lessen the buyer uncertainty problem. We intend to fill this void in marketing research by formulating an integrated model on both relational and non-relational sources of buyer uncertainty. A future empirical testing of this model would allow for the estimation of relative efficacy of various relational and non-relational factors in affecting decision-making uncertainty. Introduction

INTRODUCTION

Many consumer decisions and organizational buying decisions alike are characterized by high degrees of buyer uncertainty (Bunn and Clopton 1993; Henthorne,LaTour, and Williams 1990; Kline and Wagner 1994; Moriarty and Kosnik 1989). Decision-making uncertainty (DMU) refers to the difficulty in predicting the outcomes of a purchase decision in terms of the likely performance and likely costs (Collis 1992; Kohli 1989). According to Duncan (1972), it can be further understood in terms of the adequacy of available information, the predictability of the consequences of the decision, and the inability to assign probabilities to the occurrence of possible outcomes. Decision-making uncertainty has been found to hamper, but not facilitate, buyer decision-making and the marketing literature is replete with studies on the adverse effects of DMU on buyer decisions. First, coupled with high purchase importance, uncertainty becomes perceived risk (Bauer 1960; Cunningham 1967), which hinders buyer decisions and necessitates risk reduction strategies (Bourgeois 1985; Cunningham 1967; Duncan 1972; Leblebici and Salancik 1981; Urbany, Dickson, and Wilkie 1989). Second, uncertainty connotes the level of confidence in buyer judgments, dampens the strength of buyer beliefs, and undermines the efficacy of seller performance enhancement and cost cutting programs as perceived by the buyer (Raden 1985; Wilkie and Pessemier 1973; Smith and Swinyard 1988). Third, even if deciding to enter into a transaction or relationship featured by high degrees of decision-making uncertainty (e.g., after realizing that no pain, no gain), the buyer may still need to invest substantially in transaction governance to safeguard its interests (Williamson 1985). Finally, Ganesan (1994) has found that uncertainty in the buying environment discourages the long-term orientation held among retail buyers.

Recognizing the importance of uncertainty/risk reduction, marketing scholars have answered the challenge with numerous studies on how consumers and organizational buyers can, by themselves, reduce decision-making uncertainty (Dowling and Staelin 1994; Henthorne, LaTour, and Williams 1990; Kline and Wagner 1994; Rosellus 1971). Recognizing that "high level of uncertainty sways the team project toward an extensive search of information" (Brossard 1998), a growing number of authors have also addressed how sellers can help their customers with risk handling efforts through targeted promotional elements (Brossard 1998; Jackson, Keith, and Burdick 1987), effective risk communication (Bord and O’Connor 1990), improved buyer-seller interaction (LaTour and Manrai 1989), and supplier support in the form of training and incentives (Deeter-Schmelz et al. 2001). Yet, most of these latter research efforts have been targeted at only non-relational sources of uncertainty, notably information availability and customer knowledge.

Until now, the marketing literature still sheds limited light on how the seller can utilize various relationship-building approaches (Dwyer, Schurr, and Oh 1987) to lessen the buyer uncertainty problem. In a separate research stream in marketing, scholars using the transaction cost reasoning (e.g., Heide and Weiss 1995; Noordewier, John, and Nevin 1990) have also embraced the construct of decision-making uncertainty, or a particular source of it, external (or environmental) uncertainty. However, research in this tradition has mostly dealt with the issue of designing transaction governance mechanisms under uncertain situations, but not reducing uncertainty itself.

In this study, we want to fill the void in organizational buying research by exploring whether seller’s relationship building practices influence the amount of decision-making uncertainty perceived by the buyer. Specifically, we focus on the effects of three seller-side relational variables, seller trust, seller commitment, and dependence on buyer decision-making uncertainty. We will investigate whether they reduce buyer uncertainty directly or through an indirect route mediated by a buyer-side relational variable, buyer trust. In order to compare the relative efficacy of relational constructs versus various product, buyer, and external (or environmental) factors in affecting decision-making uncertainty, we modeled the tacitness of product attributes, buyer knowldge, and purchasing environmental uncertainty along with the relational antecedents of buyer DMU.

NON-RELATIONAL SOURCES OF DECISION-MAKING UNCERTAINTY IN ORGANIZATIONAL BUYING

In the organizational purchasing context, decision-making uncertainty arises from various product-related, decision-maker related, buying environmental, and relational sources. An extensive literature review by the authors has revealed several most studied non-relational determinants of uncertaintyBthe tacitness of product attributes, customer knowledge, and environmental conditions.

Tacitness ofProduct Attributes

Tacitness ofproduct attributes is the degree to which the content and performance of the product cannot be easily communicated and understood without the buyer using the product first and seller continuously helping with its application process (Alford and Sherrell 1996). The difficulty in communication is not caused by a lack of buyer knowledge, but is inherent in the product or service offering itself. This factor is particularly salient in exchanges involving complex technology or management skills. One example is the business software products such as ERP or CRM packages sold by Oracle, IBM, or SAP, where even the most sophisticated business buyers may have worries on what precisely the product can do for them and whether the new information system can smoothly connect with or replace their existing decision support system. Two other concepts in the marketing literature bear similarity with the tacitness of product attributes: experience quality (Nelson 1970) and credence quality (Darby and Karni 1973). Experience quality refers to product attributes that consumers cannot evaluate before the purchase of a good, rather, they may only discern these attributes during or after purchase of the good. Credence quality refers to product attributes that consumers may not be able to evaluate even after purchase and consumption, due to the level of knowledge required to understand the good’s performance (Darby and Karni 1973; Alford and Sherrell 1996). Both experience and credence qualities add to the level of uncertainty a purchaser may feel in a decision. In many organizational purchasing situations, especially those concerning technology intensive products, the exchange does not end with the shipment of products. Rather, to a varying degree, the buyer may need continued technical patronage from the selling firm regarding the proper application of the product to the attainment of preset purchasing goals. It can thus be proposed that the lack of information and lack of standards at times associated with tacit product attributes combine to increase the perceived uncertainty about the outcome of the exchange.

Customer Knowledge

Customer knowledge, the degree to which the customer is familiar with the product or service, can be interpreted as the difference between what is known and what could be known. Knowledge is enhanced by information exposure, familiarity, and experience (Alba and Hutchinson 1987; Anderson, Engledow, and Becker 1979; Johnson and Russo 1984), and is diminished by not knowing relevant information that is typically available to or acquired by other customers. Thus, it is independent of the construct we just described, tacitness of product attributes. The latter refers to the type of information that cannot be normally acquired or known without first using the product. Research has shown that consumers with higher knowledge levels tend to be more confident in their judgments about the assessed target, either a product or a brand, than low knowledge consumers (Laroche, Kim, and Zhou 1996; Park and Lessig 1981). Alternatively, the former may tend to search more information to increase the decision confidence than the latter, even when they do not feel very confident about their judgments. Typically, consumer researchers use confidence (equated to certainty in judgment) level as the opposite of decision-making uncertainty (Urbany, Dickson, and Wilkie 1989). Previous research also demonstrates that customer task-performance ability may arise from the accumulated customer knowledge (Cordell 1997), and the presence of consumer ability can help enhance the level of confidence and decrease the level of uncertainty the buyer feels about the purchasing outcome. These findings about the consumer knowledge indicate a negative effect of customer knowledge on the level of customer decision-making uncertainty. We expect the same observation to be true for organizational buyers as well.

External Environment

Whatever occurs in the environment of an organizational buying decision is also likely to affect the degree of uncertainty experienced by the buyer (cf. Achrol and Stern 1988). The marketing discipline, especially the channel literature, is rich in studies of firm external environments (Achrol and Stern 1988; Heide and John 1990). The external environments surrounding the organizational buying decision can typically be categorized into two dimensions: (1) the range of environmental activities, or the diversity or complexity of the environment, and (2) the rate of change among those activities, or dynamism of the environment (Leblebici and Salancik 1981). In marketing, Achrol, Reve, and Stern (1983) classified channel environments into four sectors: input sector, output sector, competitive sector, and regulatory sector. Apparently, disturbances in any environmental sector may restrain the organizational buyer’s ability to acquire and assimilate relevant information in making purchase decisions, and can elevate the level of buyer perceived uncertainty. In addition, previous research has shown that the dynamism dimension is a more important contributor to decision-making uncertainty.

Summarizing the writings above, we establish the following first hypothesis regarding the effects of non-relational factors on buyer DMU in an organizational purchasing setting:

H1: The decision-making uncertainty as perceived by an organizational buyer in purchasing would be higher if

a: the tacitness of product attributes is the higher

b: the buyer’s knowledge on the product to be purchased is lower

c: the business environment surrounding the purchase is more uncertain.

RELATIONAL ANTECEDENTS TO BUYER DECISION MAKING UNCERTAINTY

In addition to the aforementioned non-relational sources of uncertainty, the nature of the buyer-seller relationship may also impact the degree of uncertainty perceived by the buyer. Williamson (1985) has offered excellent accounts of the uncertainty caused by a partner’s behavioral intention and the effect of this type of uncertainty on designing and managing exchange relationships. As he points out, economic agents may sometimes fail to disclose relevant information and may in fact disguise and distort it. They may also adopt business strategies designed to create additional business uncertainty for their rivals (i.e., horizontal competitors and sometimes, exchange partners), which can unfortunately, in the setting of a buyer-seller transaction, contribute to buyer confusion. The emerging literature on inter-firm trust in marketing and management suggests a close linkage between trust and opportunism (Bradach and Eccles1989; Mayer, Davis, and Schoorman 1995). Trust has been found to deter the threat of opportunism and enhance the purchaser’s certainty about the outcome of the exchange (Bord and O’Conner 1990; Johnston and Lewin 1996). Next, we will explore how buyer trust and other seller-side relational variables help reduce the buyer’s perceived uncertainty in a purchase decision.

Buyer Trust as a Determinant of Buyer DMU

We define trust as perceived reliability and integrity of an exchange partner and view it in terms of three dimensions: competence, consistency, and benevolence (cf. Morgan and Hunt 1994; Pruitt 1981; Rotter 1967). In the organizational buying context, trust is the buyer’s assessment of the supplier based on all the information the buyer receives about the offering as well as information about past behaviors of the supplier. As viewed by Morgan and Hunt (1994), and Smith and Barclay (1997), trust has a behavioral dimension. That is, trusting reflects reliance on the other partner and involves uncertainty and vulnerability on the part of the trustor. We reason that trust leads exchange partners to make "risky" decisions because they perceive the situation as having considerably less uncertainty of adverse consequences. Buyer trust in the seller is established when the former believes in not just the latter’s intention of willingness to keep its promises, but its capability to deliver competent, satisfying performance. Buyer trust may also incur additional behavioral consequences: promoting the reciprocal trust on the part of the seller.

In addition, buyer trust may serve as a countervailing force to seller opportunism because of the threat of retaliation. If a firm does behave opportunistically against a trusting partner, the costs of such behavior can be quite high. "A breach of trust may push people back into the market, even if it is costly to themselves; and that prospect may inhibit the breach in the first place" (Bradach and Eccles 1989, p. 111). Put formally, the following hypothesis can be advanced:

H2: The decision-making uncertainty as perceived by an organizational buyer would be lower if the buyer’s trust in the seller is higher.

FIGURE 1

A MODEL ON THE ANTECEDENTS OF BUYER DECISION-MAKING UNCERTAINTY IN ORGANIZATIONAL PURCHASING

Direct Effects of Seller Commitment and Dependence on Buyer DMU:

Previous research implies that seller commitment decreases an organizational buyer’s decision-making uncertainty in purchase. A key characteristic of relationship commitment is that the parties purposefully and consistently engage resources to maintain the relationship over an extended period of time (Dwyer, Schurr, and Oh 1987). In the context of an organizational buying decision, this would mean that the buyer has less difficulty in predicting the outcomes of the purchase. Indeed, one major benefit accruing to mutually committed relationship partners is the certainty of mutually anticipated roles and goals (Dwyer, Schurr, and Oh 1987). Williamson (1985) further notes that reciprocal or joint commitment can lead to stable long-term relationships through aligning participants’ incentive structures and enhancing their confidence in each other’s behaviors (Gundlach, Achrol, and Mentzer 1995).

Similarly, seller dependence is expected to impact an organizational buyer’s perceived uncertainty with regard to the purchase outcomes. Dependence is defined as the extent to which there are equivalent or better alternatives available in the market (Emerson 1962; Heide and John 1988). When the interdependence is unilateral, the more dependent party is made vulnerable to the whims of the less dependent party (Etgar and Valancy 1983). In other words, dependence creates uncertainty for the weaker partner. The higher the seller’s dependence on a buyer, the more vulnerable the seller is on the behavior of the buyer and its actions. A more vulnerable seller faces higher switching costs and is less capable to recover from any possible adverse consequences out of an unsuccessful selling effort. This may lead the seller to be more mindful about the buyer’s perception of its behaviors, and in order to gain access to the dominant party’s resources, the dependent party may willingly contribute more resources to the exchange (Buchanan 1992). The value of the supplier’s goods and servicesand its willingness to invest in specific programs with the buyer will in turn help the buyer reach important performance goals. Therefore, as a buyer recognizes the relative high dependence of the supplier on itself, it should be more confident about the outcome of the purchase relationship.

The above discussion suggests the following hypothesis:

H3: The decision-making uncertainty as perceived by an organizational buyer would be lower if

a. the buyer perceived the seller’s commitment in the business relationship to be greater.

b. the buyer perceived the seller’s dependence on the buyer to be higher.

Determinants of Buyer Trust

Based on the exchange theory principle of reciprocity (Blau 1964), mutual trusting behaviors and perceptions of trustworthiness must exist for a relationship to become stable and long lasting (Anderson and Weitz 1992; Smith and Barclay 1997). This is because "trust entails trust" and "mistrust breeds mistrust" (cf. McDonald 1981). This paper adopts this position and suggests that the existence and extent of mutual trust between buyers and suppliers constitutes a key indicator of the quality of the relationship. Similarly, Crosby et al. (1987) view trust as an important aspect of the quality of a relationship.

Past research has indicated a positive effect of commitment on trust as well. In organizational purchasing, the supplier’s willingness to place itself at risk signals a desire to cooperate to the buyer, and shows that the benevolence of the supplier’s motives (Lindskold 1978; Strub and Priest 1976; Doney and Cannon 1997). Aside from the intention facet, a committed supplier is also likely to expend added time and resources to adapt to specific requirements of the purchasing firm. As a result, the seller’s capability to offer satisfying products or services may increase. Once properly noted, the enhanced seller ability can translate into a higher buyer confidence in seller performance. Williamson (1985) further notes that reciprocal or joint commitment can lead to stable long-term relationships through aligning participants’ incentive structures and enhancing their confidence in each other’s behaviors (Gundlach, Achrol, and Mentzer 1995). Therefore, commitment by the seller to a relationship with the buyer should promote buyer’s overall trust in the seller.

Furthermore, seller dependence may have a positive effect on buyer trust, because dependence creates opportunities to understand each other and work together, which often leads to increased trust. In a transactional sense, minor relationships (i.e., low dependence) warrant neither time, effort, nor opportunity costs for extensive interaction (Gundlach and Cadotte 1994; Anderson and Weitz 1992). As long as interaction is a major source of trust, low dependence reduces the opportunity for the development of mutual trust between two exchange partners. In contrast, high and mutual dependency relationships usually involve extensive personal interaction, information exchange, and resource integration. The opportunities for intensive interactions in a balanced dependence relationship provide a field where mutual trust can emerge and develop.

To summarize the above discussions, we put forward the following hypothesis:

H4: The organizational buyer’s trust in the seller will be greater if

a. The organizational seller is perceived as more trusting of the buyer.

b. The organizational seller is perceived as more committed to the relationship the buyer.

c. The organizational seller is perceived as more dependent on the relationship the buyer.

THEORETICAL CONTRIBUTIONS

Many organizational purchases are characterized by high degrees of buyer decision-making uncertainty (DMU). Existent research has revealed its many negative consequences to buyer decision-making, such as increased perceived risk, the damping of buyer belief strength, and the lessening of the efficacy of seller performance enhancement and cost cutting programs. Recognizing the importance of uncertainty/risk reduction, marketing scholars have answered the challenge with numerous studies on how organizational buyers can reduce decision-making uncertainty by themselves, and how the seller can help. Yet most of the existent research targets at only non-relational sources of uncertainty, mainly information availability and customer knowledge. There is still limited theoretical insight and empirical evidence as to how the seller can utilize relationship-building approaches to lessen the buyer uncertainty problem. Separately, marketing scholars using the transaction cost reasoning have approached the issue of buyer decision-making uncertainty, or a particular source of it, external uncertainty. However, this research has traditionally dealt with the issue of designing transaction governance mechanisms under uncertain situations, but not reducing uncertainty itself.

In this study, we intended to fill the void in organizational buying research by exploring whether seller’s relationship building practices influence the amount of decision-making uncertainty perceived by the buyer. Base on our extensive review of the decision-making uncertainty/perceived risk literature, very few marketing studies (or studies in related fields) have done the following three things: studying buyer decision-making uncertainty as a dependent variable and exploring ways of uncertainty reduction; examining how seller-side and buyer-side relational variables can help mitigate the problem; and empirically testing the model. Our study reported herein has involved all three tasks. To the best of our knowledge, this has been the first major effort at modeling both relational and non-relational sources of buyer decision-making uncertainty and conduct empirical model testing on this issue using a relatively large national sample. To certain extent, this research may have filled an important void in organizational buying research.

MANAGERIAL IMPLICATIONS

Buyer decision-making uncertainty (DMU) incurs many negative consequences to buyer decision-making, such as increased perceived risk, the damping of buyer beliefs, and the undermining of the efficacy of seller performance enhancement and cost cutting programs. As such, organizational marketers have an important practical stake in understanding the following issues:

What Causes the Uncertainty Problem?

Pending on empirical testing, our model identifies the tacitness of product attributes, buyer knowledge, and external environmental uncertainty as the major non-relational sources of buyer uncertainty problem. Specifically, the decision-making uncertainty as perceived by an organizational buyer in purchasing would be higher if the tacitness of product attributes is the higher, the buyer’s knowledge on the product to be purchased is lower, and the business environment surrounding the purchase is more uncertain.

Does A Good Relationship Help?

According to our model, a trust-based buyer-seller relationship does help reduce the decision-making uncertainty as perceived by an organizational buyer. Specifically, the decision-making uncertainty as perceived by an organizational buyer is lower if the buyer’s trust in the seller is higher; and the organizational buyer’s trust in the seller will be greater if the seller is perceived as more trusting of the buyer. Similarly, seller trust, seller commitment, and seller dependence are postulated to positively impact buyer trust (for the indirect effects on buyer DMU) and they also directly reduce buyer decision-making uncertainty.

FUTURE RESEARCH

Several future research opportunities spawn from the current research effort. First, the conceptual model proposed here can be tested with data to be collected from a sample frame representative of organizational buyers, such as the members of the National Association of Purchasing Managers in the United States and similar associations in other countries. International comparative studies can be conducted if data are available from multiple countries.

Since this research is mainly about determinants of organizational buyers’ perceptions of the decision-making uncertainty, the survey questionnaires can be sent to informants in one side of the dyadBthe buying firm. While drawing on multiple informants from each buyer firm is desirable, the use of knowledgeable single informants, such as purchasing managers in buying forms should be a reasonable alternative. Prior research indicates that purchasing managers either exert primary influences on or have sufficient first-hand information about an organization’s purchasing decisions (Jackson, Keith, and Burdick 1984). By using a single informant, it should not be intended to get only the purchasing manager’s view on the decision process. Rather, the purpose needs to be finding a knowledgeable person who is able to report the aggregate thinking of the buying center as a group. Furthermore, the use of a single source is likely to generate relatively more candid responses from informants, given the political nature of many important purchase decisions (Kohli 1989). Another caution in data collection is about the use of unilateral source, the buyer. While all constructs expounded in the model are based on buyer perceptions, this study is nevertheless one on the nature of buyer-seller relations in organizational purchasing and the consequences of such relationships. Because to what extent the supplier’s and the buyer’s perceptions of relationship state would be converged is unknown, the collection of bilateral data would have been highly desirable. Furthermore, it should be mentioned that multiple indicators are desirable for the measurement of all antecedents of buyer decision-making uncertainty.

Further studies in this area are also encouraged to adapt this model to the consumer decision-making context. Two observations in this regard are in order. First, consumers purchase products and services for final consumption, not for further processing or resale; therefore, concepts signifying many events in the external environment, such as the competition sector, the input sector, and the output sector may not readily apply to consumers. Accordingly, the term external uncertainty may connote to a greater degree events in the regulatory, macroeconomic, political, and international relations sectors. For example, the recent terrorist attacks on the United States and the happenings in its aftermath may have increased the uncertainty among consumers on whether to buy certain products or services. The mass media are replete with reports on how Americans, and indeed people across the world, are readjusting their priorities in life and work, which inevitably shake some former convictions about what products and services are truly desirable. Examples coming to mind include house purchasing, vacation planning, business or leisure traveling, and schooling and working away from family and friends. Second, the relationships between consumers and marketers are rarely characterized by bilatral dependency, mutual trust, or mutual commitment. As such, the relational sources of consumer decision-making uncertainty may be simplified to only include buyer trust.

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Authors

Tao Gao, Hofstra University, USA
Yunfeng Wang, Hebei University of Technology, China
M. Joseph Sirgy, Virginia Tech, USA
Monroe M. Bird, Virginia Tech, USA,

Volume

AP - Asia Pacific Advances in Consumer Research Volume 5 | 2002

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