murry, heide_managing promotion program participation within manufacturer-retailer-relationships

8/8/2019 Murry, Heide_Managing promotion program participation within manufacturer-retailer-relationships

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John P. Murry, Jr. & Jan B. Heide

Managing Promotion ProgramParticipation WithiniVianufacturer-Retailer Reiationships

The authors report the results of a study that examines retailer participation in manufacturer-sponsored promotioprograms. Two particular aspe cts of participation are studied, namely, (1) retailer agreement \o participate in poinof-purchase programs and (2) retailer cotvpliatice with established agreements. Previous research in marketineconomics, sociology, and organization theory suggests that participation is influenced by two types of variableThe first is the nature of the interpersonal relationship that exists between the boundary personnel in the retailerand m anufacturer's firms. The se cond are various organization-level variables, including incentive premiums (promotional allowan ces) a nd mon itoring efforts. The authors extend previous res earch by exam ining both the independent and joint effects of these factors on retailer participation. On the basis of an empirical study involving conjoint task, the authors show that the presence of a strong interpersona l relationship does not diminish the impotance of other variables , such as incentives. Within the limits of the conjoint task, the results also sug gest that intepersonal relationships are less important determinants of participation than economic incentives. The authors dicuss the implications of the study for marketing theory and practice.

T he importance of developing more productive rela-tionships between manufacturers and retailers is rec-ognized widely. A particularly important aspect ofthese relationships is retailer participation in manufacturer-sponsored in-store display programs. A recent industry sur-vey found that 74% of retailers agree that promotionallowances enhance their profitability, yet 65% believe theydo not receive their fair share of manufacturers' promotiondollars {Progressive Grocer 1995). Retailers believe theyshould receive better rew ards, because two-thirds of all con-sumer purchase decisions are made in the retail store, ratherthan prior to store visits (Point-of-Purchase AdvertisingInstitute/DuPont 1986). From a manufacturer's perspective,more than $70 billion currently is invested in trade promo-tions {Progressive Grocer 1995), with more than $12 billionspent on point-of-purchase (POP) materials {MarketingNews 1996). However, 85% of manufacturers believe themoney given to retailers is ineffectively spent, and only 19%consider these expenditures good value {Progressive Grocer1995). For example, a recent survey of retailers found that40 % of all manufacturer-supplied POP displays are neverused (Shutt 1995). It is not surprising that manufacturers

John P. Murry, Jr. is an assistant professor, Weatherhead School of Man-agement, Case Western Reserve University. Jan B. Heide is an associateprofessor, School of Business, University of Wisconsin-Madison. Bothauthors contributed equally to the article. The financial support of the Mar-keting Science Institute and Promo Edge is gratefully acknowledged. Theauthors also gratefully acknowledge the assistance of Kerry Meline withpretesting and data collection and of Lisa Menendez with data collection,preparation, and analysis. They also appreciate the help and commentsfrom Jon Austin, Gilbert Churchill, Deb Dahab, Anne Miner, ChristineMoorman, Sarah Schulfz, Jagdip Singh, and Dan Smith at different stagesof this project.

consider gaining retailer participation their single moimportant problem regarding displays {P-O-P & SigDesign 1996).Several hypotheses exist regarding why gaining particpation in display programs is problematic. In sominstances, participation is impeded because of goal incom

patibility (Ouchi 1980) between the parties in question. Anoted by Ganesan (1993), retailers and manufacturers oftepossess systematically different orientations toward therelationships. For example, manufacturers typically want place a given display at minimal expense, whereas retailetry to maximize profit per square foot.There are other instances, however, in which retailehave been found to act in an opportunistic fashio(Williamson 1996) by using a priori allowances from maufacturers, which enhance their own margins, with no intetion of setting up the display {Chain Store Age 1996; Waters 1989). In some cases, opportunism is benign in natu(Miner 1987), in that retailers simply overcommit themselves, given the available floor and shelf space . Schultz anRobinson (1992) note that supermarkets typically carmore than 10,000 different items yet usually can accommdate only 20 display programs. This creates intense comptition among manufacturers that need to access this scarspace, as well as a substantial task for retailers that mucoordinate the turnover of displays in the store. In summarit is clear that participation is not the default behavibetween manufacturers and retailers.

Aside from the managerial significance of studyinretailer participation in display programs, the preseresearch also will make theoretical contributions. CuiTentlseveral different research streams focus on the antecedeconditions that promote certain relationship behaviors limit opportunism. For example, economic theory (Kle


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and Leffle r l98 1;T else r 1980) has explored the capa bility ofincentive structures to produce certain patterns of behavior.Researchers in organization theory (Eisenhardt 1985; Ouc hi1980) have focused on monitoring, and sociologicalre.search (Gra nove tter 1985; Sea bright, Lev int ha l, and Fich-man 1992) has explored the effects of social networks andinterpersonal attachments.

In spite of the important insights that have been gener-ated in previous research, key questions remain unansw ered.The literature mentioned previously rarely distinguishesbetween different behaviors within a given relationship. Inthe manufacturer-retailer context, manufacturers frequentlysucceed in obtainin g agreements fro m retailers to p articipatein promotional programs. At the same time, retailers oftenfail to follow up on their original promotion agreements(Crim min s 1990; Mathews 1995), How ever, it is not clearbased on past research what the mechanisms are that in f lu -ence compliance or whether they differ from those thataffect initial agreement,

Furthemiore, the various theoretical factors identified inprevious research rarely have been examined join tly. T his isproblematic for three reasons. First, and perhaps mostimportant, mechanisms such as interpersonal attachments,incentives, and monitoring manifest themselves in real-lifesituations in different combinations (Bradach and Eccles1989), As such, appropriate theory tests should exa mine theeffect of any one of the relevant mechanisms while explic-itly controlling for the others. Second, a joint test of the dif-ferent mechanisms will allow a test of their relative impor-tance in a relationship. Third, an unresolved question iswhether the different mechanisms interact in some fash-ionby undermining each other, serving as substitutes, orcreating synergistic effects. For example, given strong pre-existing personal relationships between the boundary per-sonnel in the two firms, incentives may have limited effectson retailer participation. Unfortunately, given the focus inprevious research on individual factors, litt le is known abouteither their relative importance or combined influence.

The rest of the article is organized in the following fash-ion: In the next section, we develop our conceptual frame-work and present the research hypotheses. This is followedby a discussion o f the research m ethod and results. We dis-cuss the implications of the study in the final section.

Determinants of RetailerParticipation and CompiiancePrevious research in sociology (Granovetter 1985), politicalscience (Axelrod 1984), economics (Klein and Leff ler1981), and organiza tion theory (Ouc hi 1980) have ide ntifiedthree general mechanisms for structuring relationshipsbetween parties that are motivated by self-interest. Theseare (I) interpersonal attachments, designed to reduce oreliminate goal incompatibility between the parties in thefirst place, (2) the use of incentives, which make it econom-ically attractive for a party to engage in particular behaviors,and (3) monitoring efforts, intended to reduce informationasymmetries that otherwise might permit noncompliance.These mechanisms and their specific effects are discussedsubsequently.

Interpersonal AttachmentsThe recent literature on relationship marketing (e,g,, Mor-gan and Hunt 1994; Wilson 1995) would suggest thatretailer participation is influenced by the nature of the inter-personal attachments that exist between the boundary per-sonnel in the respective firms. Scholars currently disagree,however, about the actual direction of the effect. Specifi-cally, two independent streams of research suggest thatstrong interpersonal attachments can impede rather thanpromote participation. First, using transaction cost logic(e,g,, W ill iams on 1996), establishing a close relat ionship issynonymous with removing a relat ionship from marketgovernance. Although a shif t away from market-basedexchange is advantageous in some respects, it is problem-atic in others, primarily because parties' incentives to per-form may diminish (D'Aveni and Ravenscraf t 1994;Phil l ips 1982), For example, both Moo rma n, Zaltman, andDeshpande (1992) and Seabright, Levinthal, and Fichman(1992) note that though close relationships often persistover time, quality or performance in such relationships maysuffer as the parties begin to take the relationship forgranted. Second, early sociologica l work on the concept oftie strength (e,g,, Granovetter 1973) suggests that weak tiesare often useful because they foster sources of new infor-ma tion. As such, programs that are presented by new sales-people actually may have success in securing participation.Many manufacturers indirectly promote the use of weakties by systematically rotating salespeople across retailaccounts. In summary, contrary to the positive outcomesthat are attributed intuitively to close relationships, it isconceivable that they wil l fai l to inf luence or wil l evenimpede retailer part icipat ion.

Other research, howeve r, gives a different account o f therole that interpersonal attachments play in relationships.Early work on boundary-spanning behavior (e,g,, Adams1976; Salancik 1977) suggests that strong interpersonal rela-tionships should increase the likelihood of participation.More recent work on "clans" (Ouchi 1980), "sociallyembedded relations hips" (Frenzen and Davis 1990; Gra-novetter 1985), and "soc ial conte xt" (Gu lati 1995; Hakans-son and Snehota 1995) makes similar points. The core argu-ment underlying tbis literature is that the existence of astrong interpersonal relationship reflects prior selectionand/or soc ialization processes between the parties (Cha tman1991), The effect of such processes is to align the goals ofthe parties in question (E isenha rdt 1985) and reduce thelikelihood of subsequent opportunistic behavior. In the con-text at hand, this should man ifest itself in b oth a higher like -lihood of manufacturers obtaining agreement from retailersand more conscientious follow-through on the initial agree-ment (i,e., compliance). In hypothesis form,

H |: Interpersonal attachments between retail managers andmanufacturer salespeople increase the likelihood thatretailers (a) agree to participate in display programs and(b) comply with established agreements,incentive DesignResearch in game theory (e,g,, Axelrod 1984; Fudenbergand Ma skin 1986) suggests that participation can be pro-


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sumer product manufacturers systematically monitor retail-ers (or comp liance with their display programs (Shutt 1995).However, the published literature does not provide guidanceas to whether these investments are worthwhile in the sensethat monitoring influences agreement or compliance.Conceptually, monitoring is designed to promote partic-ipation in a different fashion than are some of the otherstrategies discussed. For example, both interpersonal attach-ments and incentive premiums are designed to enhance aretailer's motivation to participate directly by creating con-vergent interests in the relationship (Kumar, Scheer, andSteenkamp 1995). In contrast, monitoring influences moti-vation only indirectly by reducing information asymmetrythat otherwise would permit noncompliance. The morestringent a manufactu rer's monitoring efforts, the greater thechances of detecting and punishing noncompliance (Eisen-hardt 1985). In tum, detecting noncompliance not onlyenables a manufacturer to hold back future rewards but alsocreates uncomfortable social pressures on the retailer. Ineffect, the measurement process itself serves as an enforce-ment device (Blau 1955; Blau and Scott 1962).Although much of the previous literature tends to dis-cuss the effects of monitoring in general, it is important toconsider the specific effects on agreement and compliance.Perrow (1986) notes that monitoring by its nature is anobtrusive management approach. As such, though monitor-ing can be capable of producing compliance with alreadyestablished agreements, manufacturers that are known toengage in systematic monitoring actually may create disin-centives for program participation in the first place. Statedin hypothesis form,

H^: Moniloring efforts will (a) decrease the likelihood thatretailers agree to participate in display programs and (b)increase the likelihood that they comply with establishedagreements.

Contingent E ffectsThe main premise of the preceding discussion is that inter-personal attachments, incentive design, and monitoring havethe capability to influence the different dimensions ofretailer participation. Consistent with existing theory, thediscussion has been limited so far to the independent effectof each mechanism. In actual settings, however, these mech-anisms will manifest themselves in various combinations.Therefore, their contingent effects should be considered.As discussed previously, incentive premiums, monitor-ing, and payment method op erate at the organization level inthe sense that they are independent of the persons constitut-ing a particular relationship. However, to the extent thatstrong interpersonal attachments exist in a given situation,the goals of the parties will tend to converge (Eisenhardt1985), and investments in structural mechanisms may beless important. That is, a strong interpersonal attachmentmay represent utility in its own right and serve as a func-tional substitute for incentive premiums with respect to bothagreement and compliance. Similarly, a strong attachmentmay reduce the need for performance-based incentives andmonitoring to induce compliance. The preceding discussionis summarized in the following hypothesis:

H5: Interpersonal attachments will decrease the positive effect(a) that incentive premiums have on agreement and com-pliance and (b) that performance-based payment method.sand monitoring have on compliance.Consider next the possible interactions between the two

incentive factors. Our previous discussion suggests thatincentive premiums would increase retailer agreement toparticipate in display programs (H2a). We posit, however,that adm inistering incentives in a performance-based fash-ion will undermine this effect. Recall from our initial dis-cussion of the adverse selection phenomenon that the effectof administering payments in a contingent fashion is toscreen retailers that are inclined opportunistically and haveno intention of complying with established agreements.Thus, though we expect incentive premiums to increaseagreement, we hypothesize that this effect will decrease aspayments become more restrictive and that some retailerswill have a disincentive to participate in the program.Stated formally,

H,;: The positive effect of incentive premiums on agreementwill decrea.se when the incentives are administered in aperformance-based fashion.We propose a parallel negative interaction between theincentive factors on compliance, though for a different rea-son. Recall that both premiums and payment method arehypothesized to increase compliance. This expectation isbased on each m echanism 's capability to create a self-enforc-ing agreement (Telser 1980). As such, however, it could beargued that they are functional substitutes for each other andthat the effect of one should diminish when the other is pre-sent. From a practical point of view, this suggests the possi-

bility that firms can reduce their investments in paying pre-miums and still achieve com pliance, as long as incentives arepaid on the basis of actual performance. In hypothesis form,H7: The positive effect of incentive premiums on compliancewill decrease when incentives are paid in a performance-ba.sed fashion.

Relative Importance of FactorsThe tendency in previous research to examine attachments,incentives, and monitoring separately has made it impossi-ble to determine their relative importance. However,researchers from different areas frequently offer conjecturesabout relative effectiveness. For example, Frenzen andDavis (1990) note that economic research typically de-'emphasizes the role of personal relationships. In contrast,Larson (1992) attaches greater importance to social contextthan formal mechanisms.

Industry observation suggests that retailers are fre-quently skeptical about manufacturers' motivation for initia-tives such as promotional programs, category management,and efficient consumer response systems. As an executivefrom Safeway grocery chain recently noted, "Retailers don'twant more partnerswe want more profits" (ProgressiveGrocer 1993, p. 9). This suggests skepticism at the retaillevel regarding the economic payback from developing rela-tionships and that structural factors such as incentive premi-ums should have a stronger influence on participation.


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In light of the lack of clear conceptual foundations, wedo not offer formal predictions regarding relative effective-ness. However, as is discussed subsequently, the conjointdesign used in our empirical study enables us to undertake apreliminary assessment of relative importance post hocwithin the constraints of the factor levels studied.

Research MethodThe nature of our research questions presented importantchallenges in the selection of a research design. It was nec-essary first to obtain the relevant data from the retailer sideof the relationship, because it is retailers' perceptions of therelevant conditions (e.g., attachments, incentives) that influ-ence their decisions to participate in a manufacturer's pro-gram. H owever, the retrospective survey approach that oftenis used to study channel relationships appeared ill-suited tothe task at hand, given the need to study compliance. Recallthat compliance pertains to honoring or failing to honor apreviously established agreement. Although noncompliancecan happen for a variety of reasons, we were concemed thatasking questions ex post about a retailer's actual compliancebehavior might introduce social desirability biases into theretailers' responses (Mick 1996) and limit severely our abil-ity to capture this phenomenon.

To overcome this problem, we decided to examineretailers' responses to a series of display program scenariosusing conjoint analysis. Specifically, on the basis of exten-sive pretests, we constructed a series of display programscenarios, which varied systematically in terms of our fourtheoretical variables: individual-level attachm ents, incentivepremiums, payment method, and monitoring. The conjointscenarios were administered through a mail survey to retailmanagers in two different industries. The managers in eachindustry were assigned randomly to either an agreement ora compliance situation and asked to evaluate each programscenario using a ranking and a rating task. As is describedsubsequently, the compliance task was constructed carefullyto be as unobtrusive as possible. In this particular situation,we believed a conjoint approach, though sacrificing somedegree of realism, enhanced our chances of capturing thefocal phenomena. As is discussed subsequently, however,we included an alternate set of measures in the surveyinstrument to allow for a multimethod assessment of ourresults (Campbell and Fiske 1959),

Three additional considerations motivated the use of theconjoint approach. First, it enables us to examine the effectsof variables that currently are not widely used. Recall fromour previous discussion that performance-based incentivesare rare. Second, from a theory testing standpoint, it permitsus to isolate our focal theoretical variables in an experimen-tal design with orthogonal factors. Third, it provides anopportunity to examine the relative importance of the vari-ous factors.Research! ContextThe research was conducted with retail manag ers from inde-pendent grocery and retail liquor stores. These particularcontexts were chosen for several reasons. First, preliminary

(i.e., salesperson-store manager attachments, financiaincentives, and monitoring) all manifest themselves in thesesettings to varying degrees. Second, industry observation(e.g,, P-O-P Times 1993) suggests that considerable variation exists in these settings in terms of retailer agreemenand compliance with manufacturer-initiated programsThird, we limited our focus to itidependent stores to ensurethat the store manager in question would be both (1) responsible for the store's decisions regarding POP programs (asopposed to chain stores, where merchandising decisionoften are made by a corporate merchandising manager) and(2) knowledgeable about the relevant study variablesFourth, by explicitly examining two industries, we wereable to increase the generalizability of our theory.Pretestitig and Developm ent of ConjointScenariosA total of 30 liquor and grocery store managers were interviewed to develop the conjoint scenarios and accompanyingsurvey materials. These managers were the key decisionmakers in their stores regarding participation and ultimatcompliance with manufacturer-sponsored display programsThe first set of interviews verified the importance of thbasic research issues, provided the necessary industry terminology, and provided feedback on the appropriateness of thconjoint factor levels (i.e., amount of financial incentive)Upon completion of these interviews, the managers werdebriefed, and the materials were modified on the basis otheir feedback. The next set of interviews were conductedwith new managers to confirm that the revised conjoint scenarios were both understandable and realistic. In totalapproximately 40 hours of personal interviews were devotedto pretesting.The four factors that constitute the conjoint task and thlevels of each are shown in Table 1. The interpersonaattachments factor varied in terms of whether the manufac

TABLE 1Conjoint Factors and Levelsfor Liquor Store SampleI. Interpersonal AttachmentsA, The sa lesperson is completely new,B. The salespe rson has becom e a person al friend,

II. Incentive Premium^A, A 15% case discount is provided.B, A 30 % case discount is provided ,III. Payment MethodA, The discount is paid on all orders placed during thepromotion period,B, The discount is paid on all cases sold d uring the p romotion period,IV. MonitoringA, The manufacturer rarely monitors whethe r the displais set up during the promotion period,B, The manufacturer closely m onitors whether the dis-play is set up during the promotion period,aThe magnitude of the case discounts in the grocery store samp


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turer's .salesperson was completely new or a personal friendof the retail manager. The term friend was adopted fro m theextant literature, which uses the term to describe the pres-ence of a strong interpersonal t ie (Eisenhardt andSchoonhoven 1996; Larson 1992). In contrast, a "co m -pletely new" salesperson describes a relationship with noprior social capital (Frenzen and Davis 1990). Our fieldinterviews confirmed that this terminology dist inguishedclearly between strong and weak personal relationships. Thesize of the incentives offered was either the industry stan-dard or a premiu m case discount. Our pretests revealed thatthe industry standard case discounts were 15% and 5% inthe liquor and grocery industries, respectively. Premium dis-counts were 30% and 20% in the two industries. The pay-ment method factor was discounts paid either on all ordersplaced during the promotion period (traditional approach) oronly on cases actually sold (performance-based approach).Finally, the monitoring factor varied in terms of whether themanufacturer rarely or closely monitored the retailer'sbehavior. Notice that the monitoring factor is designed tocapture only the retailer's perception of monitoring per se,rather than how monitoring actually is conducted. In princi-ple, manufacturers can monitor in a variety of ways, includ-ing specific store audits by manufacturer representatives orinspections by salespeople during regular visits. Our objec-tive here is to capture the retailer's perception of mo nitorin gregardless of the strategy used by the manufacturer.

To enhance the realism of the task, a full-profileapproach (Green and Srinivasan 1990) was used in adm inis-tering the scenarios. In other word s, each scenario shown tothe managers simultaneously described some combinationof all four factors. For example, one program scenario was(I ) presented by a salesperson w ith whom the store managerwas a personal frien d, (2) provide d a superior financialincentive, (3) paid the incentive in a contingent fashion, and(4) involved no monitoring.

A full factorial design was implemented by describingeach scenario on I of 16 separate cards (i.e., four factors bytwo levels). The cards were accompanied by a brief ques-tionnaire, which, in addition to a general introduction to thestudy and background questions, included a description ofthe participation taskeither an agreement or a compliancetask. The questionnaire also included a set of Likert items,which asked respondents to indicate the importance of vari-ous program features. The respondents who were assignedto the agreement task were asked to evaluate each programscenario and indicate the likelihood that they would agree toparticipate in the program. As is discussed subsequently, arating measure was used in the final analysis. However, tofacilitate and ensure variation on the rating measure, therespondents first were requested to complete a ranking task(Alwin and Krosnick 1985). Specifically, the respondentswere asked to sort the cards into piles and rank each scenariosubsequently from I to 16. Following the ranking task, theywere requested to com plete a ten-point rating scale, indicat-ing the likelihood that the program in question would be dis-played in the store.The respondents who were assigned to the compliancetask were asked to envision a situation in which they onlyhad floo r space available fo r 15 displays during a given time

period yet m istakenly had agreed to feature 16. The respon-dents then were asked to indicate which programs weremost likely to be displayed. Again, the ranking task pre-ceded the administration of the rating measure.Sampling and Data CollectionThe sampling frames for the study were two national mailinglists purchased from the American List Council, which con-tained names of managers of independent liqu or and groce rystores. Initiall y, tw o systematic random samples of 2732 and3373 names, respectively, were drawn from the lists. Subse-quently, each person on the list was contacted personally bytelephone to (1) establish whether he or she was responsiblefor m aking de cisions regarding display programs, (2) secureparticipation in the study, and (3) verify the ma iling address.As an incentive to participate in the study, we promised tomake a $5 donation to the American Red Cross for eachcompleted survey. In total, 1268 liquor store and 1020 gro-cery store managers were identified and agreed to partici-pate. In the remainder of the cases, the appropriate personcou ld not be reached or refused to participate in the study.

The managers who agreed to participate were mailed apacket consisting of a cover letter, a brief survey instrumentthat included background information and instructions, and16 cards, each describing a display program scenario. Themanagers were assigned randomly to receive either theagreement or the compliance task.Reminder calls were made two to three weeks after thesurveys were mailed. Of the surveys mailed out, 215liquor store and 208 grocery store surveys were returnedfor response rates of 17% and 20% , respec tively. In spiteof the inherent dif f iculty of administering conjoint tasksby m ail (L ou vie re 1988), these response rates are consis -tent with those obtained in more tradit ional distr ibut ionchannel surveys.

Possible nonresponse bias was evaluated using theextrapolat ion method of Armstrong and Overton (1977).Our respondents fell into two different categories, namely,(1) those who returned the survey materials without subse-quent contact and (2) those who only completed the taskafter a telephone call. The latter category was deemed rep-resentative of actual nonrespondents. A comparison betweenthe two groups with respect to annual sales volume andnumber of employees showed that no significant differencesexist. Moreover, no significant differences were found in thedifferent measures of program features. Thus, nonresponsebias does not appear to be a concem.Tests of Hypo ttiesesPrior to hypotheses testing, the surveys were examined toidentify cases with missing data. In the liquor store sample,40 surveys contained excessive amounts of m issing data andwere excluded from further an alysis. In some of these casesthe respondent only had completed the background ques-tions and ignored the conjoint task. In others, the ratingmeasures were incomplete. Twenty-four similar cases wereelimin ated from the grocery store sample. Thu s, the analysiswas based on a sample of 175 liqu or store (101 agreementand 74 compliance scenarios) and 184 grocery store (91agreement and 93 compliance scenarios) cases.


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The hypotheses were tested by a series of ordinary leastsquares regression models. An effects coding scheme(Cohen and Cohen 1983) was used to represent the differentlevels of the theoretical factors. Using this scheme, the firstlevel of each factor (e.g,, standard incentives) was coded as- 1 , and the other (e.g., incentive premiums) as +1, Interac-tions were defined by multiplicative cross-product termsbetween the relevant factors (Green and deSarbo 1979; Lou-viere 1988), As noted by Aiken and West (1991), effectscoding is advantageous in that it produces main and interac-tion effects that are readily interpretable and orthogonal,similar to standard ANOVA procedures.

We used the following model testing procedure: P rior tothe model estimation, the respondent raw ratings were stan-dardized to zero mean and unit standard deviation (Greenand deSarbo 1978). Next, four different models were esti-mated, one for each task (agreement and compliance) andsample (liquor and grocery). Each model included termscorresponding to the main effect for each factor (H1-H4), aswell as the relevant interaction terms (H5-H7), The estima-tion results for the final models are shown in Table 2.

As can be seen from Table 2, the adjusted R2 (.24 to .41)for the models indicates that they provide a reasonable basison which to evaluate the individual coefficients. The t-statistics associated with the interpersonal attachment betasindicate that this factor has a significant and positive effectin both samples on agreement (tuqupr = 5.01, and tgrocery =6.14) and compliance (^[\c^^,or - 6.67, and tgroêry = 1-83),Thus, H] is supported, A similar set of results was found forincentive premiums on agreement {iw^ûor - 17,04, and tgô-cery = 28,21) and compliance (tii^ôr = '8.17, and

19,50), which provides support for H2. Adm inistering incentives in a performance-based fashion has a significant andnegative effect on agreement in both samples (tnîor =-18,03, and tgr^cery - -11-87) in accordance with H3.1, However, in contrast with H^^,, which predicted a positive effof perfomiance-based incentives on compliance, our resultshow that this payment method actually has a negative effec( liquor = -1 8 ,4 7 , and tgrocery - -9 ,1 6 ), A sim ilar patte rn waobserved for monitoring. Greater monitoring decreases thlikelihood of agreement in both samples (t|iquor=-2,14, andtgrocery = -1-42), as H4a predicts. In contrast with H41,, monitoring decreases compliance in both samples (t|iq,ior-1,64, and tgmcery " -1-15), However, the effect in the grocery sample is not significant.

Consider next the contingent effects. None of the interactions involving attachmen ts is significant, in contrast wilH5, However, consistent with Hg, the interaction betweeincentive premiums and payment method is negative ansignificant for agreem ent in both sam ples (t||(n,,,r = -3 ,05and tgrocery = -1-66), With respect to compliance (H7), theris a significant and negative effect in the grocery sample (- -2,33) and no statistically significant effect in the liquosample (t = -,36),

Finally, the conjoint design provides an opportunity texamine the relative importance of the different mechanisms. The importance weights in Table 3 were calculateby dividing the part-worth range for the factor by the totarange (Green and deSarbo 1978). Although the conjoinmethod does not provide a statistical test to examine differences across the weights, two results are reasonably apparent. First, the calculated importance weights for the conjoin

TABLE 2Regression Models

Independent VariableAttachmentsIncentive PremiumPayment MethodMonitoringAttachments xIncentive PremiumIncentive Premium xPayment MethodAttachments xPayment MethodAttachments xMonitoring

AgreementLiquor Sample

StandardizedCoefficient.10,36

- ,38- .05- .01- ,07

d

dR2 adjusted

t-value5,01a

17.04a-18.03a

-2.13b- .17

-3,05a

I = .3O

Grocery SampleStandardizedCoefficient

,12.58

- . 24- ,03

,03- , 03

d

dR2 adjusted

t-value6,14a

28,2ia-11,87a

-1,42=1,26

-1,66b

1 = ,41

ConfiplianceLiquor Sample

StandardizedCoefficient,15.42

- .43- .04

,07,01,01,01

R2 adjustec

t-value6,67a

18,17a-18,47a

-1,64b,03,36,42,58

l = ,38

Grocery SampleStandardizedCoefficient

.04

.44- . 20- . 03- .01- , 05

,01,01

R2 adjusted

t-valu1,83

19.50-9,16-1 ,15

- ,03-2,33

.37,57

= ,24ap< ,01 ,bp < ,05,


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TABLE 3Conjoint Factor Importance Weights:Agreement and Com pliance

Conjoint FactorAttachmentsIncentive PremiumPayment MethodMonitoring

Importance W eightsAgreement

Liquor.12.40.42.06

Grocery.13.59.25.03

ComplianceLiquor Grocery

.15 .05.40 .62.41 .29.04 .04

factors are stable across the independent samples. In partic-ular, the relative importance ranking ofthe four factors wasidentical across both samples, and the magnitude of theactual weights was similar.Second, the overall pattern that emerges is that theincentive premium and payment method factors dominateinterpersonal attachments and monitoring. Regarding theagreement decision, the weights for attachments across theliquor and grocery samples were .12 and .13, and for moni-toring .06 and .03, respectively. In contrast, the derivedweights for incentive premiums were .40 and .59, and forpayment method .42 and .25 across the liquor and grocerysamp les, respectively. A similar pattern emerged in the com-pliance task. The weights for attachments were .15 and .05,and for monitoring .04 and .04 across the liquor and grocerysamples, respectively. By comparison, the weights forincentive premiums were .40 and .62 across the liquor andgrocery samples, whereas for payment method the weights

were .41 and .29 across these samples. As in all conjointstudies, the importance weights should he interpreted cau-tiously because they depend on the specific factor levelsincluded in the study.The calculated importance weights offer an opportunityfor evaluating the validity of our results. In addition to theconjoint materials, we included in the survey instrument aset of Likert items designed to describe directly the impor-tance of the various theoretical factors as currently viewedby retailers. We limited ourselves to measuring interper-sonal attachments, incentive premiums, and monitoring,because performance-based payment methods are not usedcommonly yet. These Likert items constitute a systemati-cally different research method from the conjoint task andpermit a test of convergent validity using Campbell andFiske's (195 9) criteria. An inspection of the m ean ratings onthese items reveals the same pattern as the conjoint results;that is. incentive premiums were the most important inllu-ence on participation, interpersonal attachments were thesecond most important factor, and monitoring was the leastimportant factor. The convergence across methods providesconfidence in our findings.

DiscussionIn the remainder of this article, we discuss the implicationsthese findings have for advancing theory and provide pre-scriptions for managing retailer relationships.

Ttie Determinants of ParticipationThe main goal of this research project was to enhance ourcurrent understanding of the factors that influence programparticipation in manufacturer-retailer relationships. Con-sider now the specific results that were obtained and theoverall pattem that emerges from them. Frenzen and Davis(1990) demonstrate the importance of the market embed-dedness concept in a consumer setting. The present researchextends this finding by demonstrating that close personalrelationships contribute significantly to retailer participationin promotional programs. This result questions the validityof the concem that such relationships induce complacency.It is noteworthy, however, that though the effect of personalrelationships on participation was significant, it was lessimportant than the effect of incentives. Furthermore, thepresence of strong interpersonal attachments did not dimin-ish the effect of incentives, as originally anticipated. Thisresult questions the skepticism often expres.sed by sociolog-ical researchers (e.g., Perrow 1982, 1986) about the rolesplayed by formal govemance mechanisms. It also questionswhether personal attachments represent sufficient utility toserve as substitutes for financial incentives.

Consider next the effects of payment method and moni-toring. Unlike attachments and premiums, these factorswere found to have consistent negative effects on bothagreement and compliance. Notice further that the observednegative influences of monitoring and payment method oncompliance contradicts our initial predictions. It is conceiv-able that this result may be due to a negative response fromthe study participants to payments being administered in anew fashion (i.e., performance-based). Recall that the pre-sent industry practice is to make payments available toretailers ex an te, that is, irrespective of subsequent behavior.However, the fact that monitoring also was found todecrease compliance suggests a second explanation. Thesetwo mechanisms differ from both incentives and interper-sonal relations in that they are attempts by the manufacturerto limit the retailer's freedom to make decisions. Perfor-mance-based pay and monitoring may be viewed as signalsof manufacturer distrust. Ultimately, such signals may cau.seretailers to devalue the relationship and respond by non-com pliance. Alternatively, trying to control retailers throughsuch obtrusive methods (Perrow 1986) may initiate psycho-logical reactance that causes rebellion even to the point ofviolating established agreements.These conclusions are consistent with findings fromJohn (1984), who finds that bureaucracy (which includesovert control mechanisms such as monitoring) actuallyincreases channel member opportunism. From a practicalviewpoint, this implies that firms are better off trying toachieve compliance in other waysfor example, throughincentive premiums. Although offering premiums repre-sents a cost to the manufacturer, it is conceivable that thecosts may be lower than the ones associated with ongoingmonitoring.The method of payment also reduces participation in a

different fashion. First, the negative interaction betweenincentive premiums and payment method on the agreementdecision suggests that more restrictive payment methods


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undermine the positive effect of incentive premiums. Sec-ond, there was also a negative interaction between these fac-tors on compliance in the grocery sample. Although thisresult is consistent with our original prediction, recall thatour initial theoretical argument was based on the expecta-tion that each of these factors would have positive effects oncompliance in its own right and thus might serve as a func-tional substitute. However, the negative main effect of per-formance-based incentives makes this argument question-able. Rather, the negative interaction is more likely due tothe payment method undermining the effect of the incentivepremiums.Manageriat tmpticationsA recent industry survey found that manufacturers c onsiderpoor retailer participation their most pressing concem whenusing POP advertising and displays (Shutt 1995). The pre-sent research provides guidance for addressing this problem .In particular, interpersonal attachments, incentive premi-ums, payment method, and monitoring all demonstrated sig-nificant influences on both retailer agreement and compli-ance with display programs. These mechanisms also hadindependent rather than contingent effects on retailers'decisions. The key implication for manufacturers is thatperformance on one mechanism will not substitute for per-formance on others. For example, increasing incentive pre-miums will not compensate for losses in participation due toweak interpersonal attachments. Maximizing retailer partic-ipation requires concurrent and effective management ofeach of the mechanisms.

The findings also suggest that the personnel practices inmany consum er product companies may foster ineffectiveretailer relations. In particular, manufacturers often use theposition of account sales representatives to educate newemployees about the category before promoting them intoeither marketing or sales management positions. The presentfindings indicate that this practice may have substantial buthidden costs to the extent that the resulting increase in sales-person turnover undermines program participation. By defi-nition, new salespeople will have weak interpersonal attach-ments with retailers, which in turn decreases retailer partic-ipation with programs. The lack of a significant interactionbetween Interpersonal attachments and incentive premiumsalso suggests that a loss in retailer participation due toweaker attachments cannot be recovered by increasing theincentive premiums offered.

At first glance, our results suggesting that personal rela-tionships are less important in promoting participation thanincentives may appear somewhat discouraging. However,there are two important issues that must be addressed. First,it is possible that crafting personal relationships has impor-tant competitive im plications that are unaccounted for in ourstudy. Specifically, incentive programs may be relativelyeasy to match and result in parity or limited differentiationacross manufacturers. In contrast, personal relationships,once crafted, m ay be more difficult to duplicate. Second, theinterpersonal relationship conjoint factor may have over-simplified the nature and power of personal relationsh ips. Inparticular, the relationship between a sales representative

rather than a single one as suggested in our design (i.e., per-sonal friend versus completely new). Further research couldbe directed toward exploring these issues.Finally, managers must be particularly careful whendesigning incentive and monitoring programs. As expected,both performance-based incentives and monitoringdecreased retailers' initial agreement to participate. Agencytheory suggests that this finding is at least partially due tothe ability of these mechanisms to serve as screens thateliminate certain retailers a priori. This is important becausemanufacturers currently have little recourse against retailersthat accept trade payments without performing agreed func-tions. However, manufacturers also must be cautious whenusing performance-based incentives and monitoring becauseof the risk of lowering compliance by creating retailer reac-tance. It should be possible to minimize this risk by devel-oping appropriate personal relationships. In particularnonopportunistic retailers must be educated about the detri-mental effects that channel opportunism ultimately has ontheir own profitability. If successfully implemented, perfor-mance-based incentives and monitoring have the potentiato drive down the costs of retailer opportunism withoutadversely affecting brand sales.

A particular word of caution is appropriate regardingmonitoring. The industry evidence presented initiallyshowed that monitoring is a frequently used strategy bymanufacturers (Shutt 1995). Our results, however, suggesthat monitoring has a considerably lower impact than theother mechanisms. Considered in combination with thecosts typically associated with m onitoring (Beatty and Zajak1994), screening strategies based on payment method maybe preferable.Limitations and Further Researct)Some potential limitations of this project should be notedPerhaps most important, this study's focus is limited to twoparticular forms of relationship behavior, namely, a party'choice whether to agree and comply with promotion programs. Although these are common industry, they are alsconceptually distinct from situations in which the partiework together and have integrated their respective role(Anderson and Narus 1990). Furthermore, the unit of analysis in this study is a particular exchange episode in a relationship (Ha kansson and Sneh ota 1995), as oppo.sed to threlationship in general. Given this particular focus, some othe independent variables in our study (e.g,, incentive premiums) are short-term tools designed to intluence agreement and compliance at the level of a particular program.

Furthermore, though the conjoint methodology useoffers several benefits in terms of unobtrusiveness and control over extraneous influences, it possesses some inherenlimitations. First, this procedure limited the number of factors we could study. Second, though every attempt wamade to create realistic conjoint scenarios, the evaluationprovided by the survey respondents may not capture completely their behaviors in a real-life situation. Thus, a goafor further research is to conduct a field experiment to validate the results from the current study. Such a study woulrequire the assistance of a consumer product manufacture


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vary in certain respects (i.e., incentive structures). Percep-tions of interpersonal attachments may be ascertained a pri-ori through a retailer survey. To overcome possible prob-lems with self-report measures on agreement and/or com pli-ance, these measures would be obtained from the manufac-turer's sales force. Thus, though the present study generatesnew insights, further research can extend our efforts.

Finally, factors not examined in this re.search may workeither in isolat ion or in combination with incentives, moni-

tor ing, and interpersonal relations to inlluence participationand compliance. For example, manufacturers that provideretailers with merchandising expertise are typically moresuccessful in getting support for their programs. Similarly,manufacturers sell ing high-demand product l ines havepower that influences retailers' decisions. It will be impor-tant for further research to examine more fully how the rel-ative sources of manufacturer and retailer power interact toinfluence agreement and compliance.

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