Understanding customer value in business to business relationships

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Understanding Customer Value in Business-to-
Business Relationships
Ajay Menon , Christian Homburg & Nikolas Beutin
To cite this article: Ajay Menon , Christian Homburg & Nikolas Beutin (2005) Understanding
Customer Value in Business-to-Business Relationships, Journal of Business-to-Business
Marketing, 12:2, 1-38, DOI: 10.1300/J033v12n02_01
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Understanding Customer Value
in Business-to-Business Relationships
Ajay Menon
Christian Homburg
Nikolas Beutin
ABSTRACT. Although literature emphasizes the importance of creat-
ing value for the customer in business-to-business marketing, our under-
standing of this concept is limited. Against this background, this paper
examines the antecedents of customer value within the context of busi-
ness-to-business relationships. In a departure from previous conceptual-
izations of value, the paper introduces the concept of core benefits and
add-on benefits as well as purchasing price, acquisition costs, and opera-
tions costs to the business-to-business marketing literature. The impact
of product, relational, and supplier characteristics on the perceived ben-
efits and sacrifices are examined. Results from a survey of 981 purchas-
ing managers across multiple manufacturing product categories in the
United States and in Germany provide support for the hypotheses proposed
Ajay Menon is Dean of the College of Business, Colorado State University, 129
Rockwell Hall, Fort Collins, CO 80523 (E-mail: menon@lamar.colostate.edu).
Christian Homburg is Chair of the Marketing Department, University of Mannheim,
L 5, 1, 68131 Mannheim, Germany (E-mail: prof.homburg@bwl.uni-mannheim.de).
Nikolas Beutin is Managing Director/Partner, Homburg & Partners, Willy-Brandt-
Platz 7, 68161 Mannheim, Germany (E-mail: nbeutin@homburg-und-partner. de).
The authors would like to thank the Institute for the Study of Business Markets
(ISBM) in the United States and the Deutsche Forschungsgemeinschaft (DFG) in Ger-
many for their generous financial support of this project. The authors also thank Joseph
P. Cannon, Dave Gilliland, Marko Grozdanovic, Ken Manning, Anil Menon, and
Sundar Bharadwaj for their helpful comments on a previous draft of the article and ac-
knowledge the research assistance provided by Jeff Kraft, Steve Shattuck, and Jan
Morgan in the United States.
Journal of Business-to-Business Marketing, Vol. 12(2) 2005
Available online at http://www.haworthpress.com/web/JBBM
 2005 by The Haworth Press, Inc. All rights reserved.
Digital Object Identifier: 10.1300/J033v12n02_01 1
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in this paper. Managerial implications and directions for future research
are identified following a discussion of the results. [Article copies available
for a fee from The Haworth Document Delivery Service: 1-800- HAWORTH.
E-mail address: <docdelivery@haworthpress.com> Website: <http:// www.HaworthPress.
com> © 2005 by The Haworth Press, Inc. All rights reserved.]
KEYWORDS. Customer value, business-to-business relationships, cus-
tomer benefits and sacrifices, product, relational, and supplier character-
istics
Both in practice and in academic research, the issue of customer value has
emerged as critical for customer relationship management efforts and achiev-
ing organizational goals. Customer value has been referred to as “the corner-
stone of business market management” (Anderson and Narus 1999, p. 5). It is
considered to be an important determinant for creating satisfaction, and more
recently as a driver of customer loyalty (Bearden and Teel 1983; Fornell 1992;
Fornell et al. 1996; Gale 1994; Treacy and Wiersma 1995). Given its signifi-
cance to organizational performance, an issue of keen interest in research and
practice appears to be the determinants of customer value (Grisaffe and Kumar
1998; Holbrook 1994; Lapierre 2000; Treacy and Wiersma 1995). It has been
suggested that understanding the components of customer value will allow
firms to better manage the customer value delivery process (Parasuraman
1997; Slater and Narver 1992; Woodruff 1997).
A firm’s ability to manage customer value drivers will depend on a
broad-based understanding of the value construct. However, research in mar-
keting thus far has lagged in the systematic investigation of the value construct
(Parasuraman 1997; Sinha and DeSarbo 1998; Woodruff 1997).
The discussion of customer value has its roots in modeling purchase deci-
sions and goes all the way back to the seminal works of Kotler (1967) and
Leavitt (1967) who were to our knowledge among the first to address this is-
sue. The literature on supplier selection in the 1960s indirectly addressed cus-
tomer value as a relevant factor in vendor selection decisions (e.g., Dickson
1966). This stream of research was further developed in the organizational
buying behavior literature where the kind of benefits customers get from prod-
ucts and services where analyzed in a relational buyer-seller context (Bonoma
and Zaltman 1978; Lehmann and O’Shaughnessy 1974; Robinson, Faris, and
Wind 1967; Sheth 1973; Webster and Wind 1972). The Industrial Marketing
and Purchasing (IMP) Group expanded this research direction in the 1980s by
analyzing and conceptualizing business relationships as interactive and
2 JOURNAL OF BUSINESS-TO-BUSINESS MARKETING

dyadic (Håkansson 1982; Möller and Laaksonen 1986). This dyadic approach
has then been extended to a network approach (Anderson, Håkansson, and
Johanson 1994; Ford 1990). Despite these attempts to analyze and conceptual-
ize business relationships, customer value was not regarded as a central con-
struct and not looked at in its fundamental sense. Especially a detailed
conceptualization, definition, and analysis of the antecedents has not been
performed.
Since then, a few studies have examined the issue of customer value as a fo-
cal construct from a consumer product perspective (e.g., Bolton and Drew
1991; Dodds, Monroe, and Grewal 1991; Zeithaml 1988). As Woodruff
(1997) points out “ . . . because existing customer value theory typically as-
sumes the . . . (individual or end consumer) context, new research should focus
on building theory to understand how customers perceive value from
long-term relationships” (p. 150). Given the increasing focus on customer
value as a basis for establishing enduring business-to-business relationships
(Anderson and Narus 1998, 1999), our review of literature indicates that re-
search oriented efforts to systematically conceptualize and empirically ana-
lyze customer value in business-to-business relationships have been few
(exceptions are, e.g., Anderson, Jain, and Chintagunta 1993; Grisaffe and
Kumar 1998; Walter, Ritter and Gemünden 2001).
The advances made in the literature regarding business-to-business rela-
tionships notwithstanding, our current understanding of customer value in
business marketing is lacking in such a way that it is not yet fully developed
(e.g., Parasuraman 1997; Walter, Ritter, and Gemünden 2001). Much of the
contemporary literature on customer value takes a broad view of value drivers
by not delving more deeply into the nature and scope of benefits and sacrifices
that determines the customer value construct. As such, the determinants of
customer value in business markets remain unclear and largely under-ex-
plored. Especially in an era of relationship marketing, where many firms strive
for enduring relationships, the determinants of a customer value assessment
need to be considered.
Against this background, the purpose of this paper is to advance our current
understanding of customer value in business-to-business relationships by pro-
viding a systematic analysis of the determinants of customer value. Customer
value is conceptualized as being dependent on benefits received and sacrifices
made by customers. In this paper, we argue that benefits should be categorized
to include “core benefits” and “add-on benefits.” With reference to Anderson
and Narus (1999, p. 5), we evaluate the benefits with regard to customer value
separately from the sacrifices as it has also been done by other researchers be-
fore (cf. Grewal, Monroe, and Krishnan 1998; Sinha and DeSarbo 1998).
Moreover, a more precise view of sacrifices in a business-to-business relation-
Menon, Homburg, and Beutin 3

ship context needs to consider a lifetime view of costs. Such a treatment of
costs would consider acquisition costs and operations costs in addition to the
basic purchase price of a product (cf. Anderson and Narus 1999). We believe
such a conceptualization will provide a finer decomposition of the typically
discussed components of value–benefits and sacrifices. Furthermore, we ana-
lyze how product, relational and supplier characteristics affect the different
types of benefits and sacrifices. The resulting deeper understanding of what
drives customer value can help firms allocate and manage appropriate re-
sources needed to deliver superior customer value.
CONCEPTUALIZING CUSTOMER VALUE
IN BUSINESS-TO-BUSINESS RELATIONSHIPS
Figure 1 describes the general relationships proposed in this paper. As sup-
ported by the literature it suggests that customer value is a function of the ben-
efits offered by the seller and the sacrifices made by the customer for these
benefits (e.g., Anderson and Narus 1999; Zeithaml 1988). Benefits offered by
the seller take the form of core benefits and add-on benefits (cf. Bitner,
Gwinner, and Gremler 1998; McMurrian and Wilson 1996, Thompson 1998).
Sacrifices refer to the purchasing price, acquisition costs, and operations costs
Product
Characteristics
Product Quality
Service Quality
Relational
Characteristics
Trust
Joint Working
Supplier
Characteristics
Flexibility
of the Supplier
Commitment
of the Supplier
CB: H (+)
PP: H (+)
AC: H (–)
OC: H (–)
3a
3b
3c
3d
CB: H (+)
PP: H (+)
OC: H (–)
4a
4b
4c
CB: H (+)
AC: H (–)
5a
5b
AB: H (+)
AC: H (–)
OC: H (–)
6a
6b
6c
AB: H (+)
AC: H (–)
OC: H (–)
7a
7b
7c
AB: H (+)
OC: H (–)
8a
8b
Benefits
Core Benefits
(CB)
Add-on Benefits
(AB)
Purchasing Price
(PP)
Acquisition Costs
(AC)
Operations Costs
(OC)
Sacrifices
Customer
Value
CV: H (+)1a
CV: H (+)1b
CV: H (–)2a
CV: H (–)2b
CV: H (–)2c
FIGURE 1. Overview of Hypothesis

for the buyer (cf. Claycomb and Frankwick 1997; Dahlstrom and Nygaard
1999; Grönroos 1997; Ravald and Grönroos 1996). Further, the figure pre-
sents antecedents of core benefits and add-on benefits. In the following sec-
tions, we discuss each of these constructs and present our rationale for the
proposed hypotheses. The way our hypotheses have to be understood is that
the hypotheses always mean “all other parameters being equal” (ceteris pari-
bus assumption).
In our rationale we do not explicitly consider a possible interrelatedness be-
tween benefits and sacrifices. But since these constructs are affected by the
same antecedents we implicitly take the relationship between benefits and
costs into account. Furthermore, this paper looks at business relationships in
an isolated dyadic way (see also Anderson and Narus 1990; Dwyer, Schurr,
and Oh 1987) as compared to, e.g., Anderson, Håkansson, and Johanson (1994)
or Ford and McDowell (1999) who look at business relationships from a net-
work perspective.
Customer Value
Value is often defined and explicated in terms of a trade-off between bene-
fits and sacrifices (Anderson, Jain, and Chintagunta 1993; Anderson and
Narus 1999; Woodruff 1997; Zeithaml 1988). Following this approach, we de-
fine customer value as a business customer’s overall assessment of the utility
of a relationship with a vendor based on perceptions of benefits received and
sacrifices made. Like in previous marketing studies (Forbis and Mehta 1981;
Gardial et al. 1994; Holbrook 1996; Ravald and Grönroos 1996), customer
value is viewed from the customer’s evaluation of the experience as opposed
to a valuation of the customer–a perspective typically found in finance.
Benefits
As stated earlier, benefits take two forms–core benefits and add-on benefits
(cf. Bitner, Gwinner, and Gremler 1998; McMurrian and Wilson 1996; Thomp-
son 1998). We define core benefits as the degree to which the supplier offers a
set of minimum attributes required by an organizational buyer. Core benefits
are said to be the basic features required and viewed as a “must” for a relation-
ship to exist. In business-to-business markets these might include specific
product quality and pre- or post-sales service. These core requirements for a
relationship have to be met completely by the supplier to be in the consider-
ation set of the customer. This conceptualization of core benefits is akin to
concepts such as relationship “qualifiers” (Doney and Cannon 1997), “basic
requirements” (Thompson 1998), “core value” (Grönroos 1997) or “core ele-

ments” (Anderson and Narus 1999). Therefore we assume a positive relation-
ship between core benefits and the perceived customer value.
Add-on benefits are those attributes, typically not required, that assist the
customer in selecting a supplier from among a qualified set of potential sup-
pliers. Add-on benefits can be viewed as “thrill-factors” that differentiate the
suppliers. These imply going beyond the basic denominator provided by all
qualified vendors and identifying attributes that create “added value” and
form an “attractor” attribute in a buyer-seller relationship (Grönroos 1997;
Thompson 1998). Add-on benefits have been alluded to in the business service
literature where concepts such as “additional service” and “value added cus-
tomer service” have been discussed at length (Grönroos 1997; McMurrian and
Wilson, 1996). In summary, we expect a positive relationship between add-on
benefits and perceived customer value.
Based on our conceptualization and following our definition, we propose:
H1a: The greater the perceived core benefits, the greater the perceived cus-
tomer value.
H1b: The greater the perceived add-on benefits, the greater the perceived
customer value.
Sacrifices
While the contemporary marketing literature has recognized value as a
function of benefits and sacrifices, much of the treatment of value has only
considered purchase price as the sacrifice customers consider in contemplat-
ing value (cf. Butz and Goodstein 1996; Grisaffe and Kumar 1998; Ulaga and
Chacour 2001; Wind 1990). In a departure from the past treatment of customer
value, in this paper, we take the broader view of costs and view sacrifices not
only as purchase price but also to include additional costs associated with the
entire relationship between the buyer and the seller (cf. Anderson and Narus
1999; Lapierre 2000). Such a conceptualization, in our opinion, is responsive
to the growing concern among managers about total costs incurred in a rela-
tionship, and the increased call by scholars to examine more closely the life
cycle cost (Ravald and Grönroos 1996; Shank and Govindrajan 1993) or,
“costs of running the system” (Williamson 1975, 1985, 1996).
More recently, the emerging literature on cost management in marketing
(Cannon and Homburg 1998; Dahlstrom and Nygaard 1999) provides a
broader perspective on the types of costs (sacrifices) to be considered when
evaluating a business relationship. One such breakdown describes three types
of costs associated with a buyer-seller relationship–direct purchase price, ac-

quisition costs and operations costs (Cannon and Homburg 1998). We discuss
these costs next.
The purchase price refers to the monetary sacrifices made by the buyer in
purchasing the product (cf. Day 1990; Monroe 1990; Zeithaml 1988). The
purchase price is defined as the actual price charged by the supplier for the
product at the time of transactional exchange. As the purchase price repre-
sents a sacrifice a customer has to make we assume that it will have a negative
influence on customer value.
Acquisition costs refer to costs resulting from acquiring and storing the
products involved in the transaction. Expenditures and efforts related to order-
ing, delivering, storing products, as well as monitoring supplier performance,
coordinating and communicating with the supplier (cf. Cannon and Homburg
1998; Ellram 1990, 1996; Zenz 1994) contribute to the acquisition costs in-
volved in a buyer-seller relationship. It is worth emphasizing that often times,
supplier’s marketing and other operating policies can have a significant im-
pact on the customer’s acquisition costs. As an example, a lack of confidence
in the quality of goods provided by the supplier can force the customer firm to
carry more inventory. This lack of confidence can also increase the adminis-
trative costs required to ensure that the incoming products meet the customer’s
stated specifications.
Finally, operations costs refer to costs incurred by the customer in the
day-to-day operations of its business. These costs reflect expenditures for re-
search and development, manufacturing, internal coordination and cost asso-
ciated with downtime. Writings in the quality management (Gyrna 1988a),
purchasing and materials management (Zaheer, McEvily, and Perrone 1999),
and cost accounting (Gyrna 1988b) areas suggest that firms can influence
costs of operations by managing the supplier relationships. As an example,
improved quality of incoming raw materials and component parts will reduce
the need for rework (Fine 1983) and thus keep operations costs lower.
Overall, it is well known that “value developed in long-term relationships
was created through better cost management” (Wilson 1995, S.342; see also
Kalwani and Narayandas 1995; Williamson 1996) which implies that lower
costs lead to higher customer value.
Thus we formulate the following hypotheses even though we know that
they are not all new. However, an empirical comparison of the strength of the
different types of cost effects (sacrifices) on customer value might provide fur-
ther insights. Following the above, we hypothesize that:
H2a: The greater the purchasing price, the lower the perceived customer
value.

H2b: The greater the acquisition costs, the lower the perceived customer
value.
H2c: The greater the operations costs, the lower the perceived customer
value.
ANTECEDENTS OF BENEFITS AND SACRIFICES
Perceptions of benefits and sacrifices, we posit, are influenced by several
characteristics that indirectly determine customer value. After screening the
relevant literature on possible influence factors of customer value a set of
product, relational, and supplier characteristics were identified. We elaborate
on these selected factors next.
Product Characteristics
Characteristics of the product received by the customer will have a strong
influence on the customer’s perception of value. In this context the rich tradi-
tion of the quality literature in the study of customer value argues for a closer
and detailed view of quality characteristics and their impact on customer value
(e.g., Bolton and Drew 1991; Day 1990; Ulaga and Chacour 2001; Zeithaml
1988). Even though other dimensions (e.g., design, individuality, packaging)
have already been discussed with regard to customer value, product quality
(e.g., Humphreys and Williams 1996; Menon, Jaworski, and Kohli 1997) and
service quality (Homburg and Garbe 1999; McMurrian and Wilson 1996;
Parasuraman and Grewal 2000) are seen as critical for customer value in busi-
ness-to-business relationships by most authors. Thus for the purposes of this
paper, we focus on the role of two major quality dimensions–product and ser-
vice quality.
Product Quality. Product Quality is defined as the extent to which a deliv-
ered product meets the customer’s requirements (cf. Garvin 1988; Zeithaml
1988). It has been suggested that product quality is critical for delivering cus-
tomer value (Menon, Jaworski, and Kohli 1997). In business-to-business rela-
tionships, the quality of the supplier’s product has a critical impact on the
customer’s own product output, and thus the success of the customer’s com-
pany (Dodds, Monroe, and Grewal 1991; Fornell et al. 1996). Organizations
typically are unwilling to compromise on the quality level of the incoming
products and consider product quality to be a key criterion to qualify potential
vendors (Dertouzos, Lester, and Solow 1989). To even be included in a buying
firm’s consideration set, suppliers must demonstrate the ability to deliver a

requisite level of product quality. Thus we conclude that product quality has a
positive impact on the customer’s perception of core benefits.
Manufacturing high quality products requires systems and processes that
ensure the desired level of quality. The increased level of resources deployed
to assure high quality outputs adds to the supplier’s overall operating costs.
Superior quality products require superior component parts and raw materials
(Phillips, Chang, and Buzzell 1983). These higher quality components or
higher-grade materials will increase the supplier’s cost of goods sold. Addi-
tionally, business customers, utilizing their own self-reference criteria, are
aware that quality control processes come at a cost and that it increases the
supplier’s operations cost. These increased costs are traditionally recouped
through the price charged for the product. As such, the business customer an-
ticipates (and are often prepared to pay) a higher purchase price for products
that have superior quality. Hence we conclude that higher product quality will
be reflected in a higher price of the product.
Quality of components and raw materials will have drastic effects on a
company’s operations. When the customer perceives high product quality lev-
els, it does not have to establish costly processes to ensure that the inspection
and monitoring processes are effective in weeding out products of unaccept-
able quality levels. When the level of quality supplied is reliable, there is no
need for additional mechanisms (or processes) for a higher level of coordina-
tion between itself and the supplier’s firm to ensure that the order is fulfilled in
the required specifications. Ravald and Grönroos (1996) argue that “a reliable
long-term quality in all episodes eliminates . . . supplier relationship costs”
(p. 26). On the other hand, an erratic quality supply source can force the cus-
tomer to “hoard up” required products and thus increasing its inventory and
processing costs. Taken together, the level of product quality has a negative
impact on the customer’s acquisition costs.
A firm that purchases lower quality materials will have a higher manufac-
turing cost due to rework, downtime, or scrap (Cannon and Homburg 1998).
Failures in the manufacturing process create uncertainty and problems that are
likely to increase internal coordination costs (e.g., between manufacturing,
R&D, sales, and purchasing). Thus we suggest that a supplier’s product qual-
ity will have a negative impact on the customer’s operations costs.
Therefore, we expect that:
H3a: The greater the quality of the supplier’s product, the greater the per-
ceived core benefits.
H3b: The greater the quality of the supplier’s product, the greater the pur-
chase price.

H3c: The greater the quality of the supplier’s product, the lower the acqui-
sition costs.
H3d: The greater the quality of the supplier’s product, the lower the opera-
tions costs.
Service Quality. Service Quality is a measure of how well the delivered
technical and business process service matches customer expectations re-
garding the structure, the process and the outcome of the service (cf.
Donabedian 1980; Zeithaml, Berry, and Parasuraman 1996). Service Quality
refers to the knowledge and competence of the supplier’s service staff and to
the ability of the supplier to address issues related to the product purchased in
an expedient manner. Industrial services include pre-purchase services such as
engineering, services delivered in conjunction with the purchase such as train-
ing of the operations staff, and after sales services such as technical mainte-
nance (Homburg and Garbe 1999). Increasingly, business customers are
moving away from the purchase of individual goods to the purchase of entire
bundles that include the tangible good and all the accompanying services.
There is ample evidence in business practice that customer service is becom-
ing more critical in business-to-business contexts (Homburg and Garbe 1999)
and is increasingly required by business customers (Lambert and Harrington
1989). In business markets, the service capabilities of a vendor are a more ex-
plicit consideration in purchase decisions than is commonly seen in consumer
markets. A supplier’s service quality becomes an integral part of the vendor
selection criteria. We therefore assume that service quality of the supplier has
a positive impact on the customer’s perception of core benefits.
Providing superior level service requires investment in people, processes
and systems. Training and retention of high quality service personnel is partic-
ularly cost intensive. In addition, the infrastructure systems needed to facili-
tate quick and efficient customer service require substantial investments. We
anticipate these costs to be reflected in a higher price charged to the customer.
Hence we conclude that higher levels of service quality of the supplier lead to
higher purchase prices.
Prompt responses and accurate solutions to resolve customer problems will
reduce costs resulting from downtime due to the delay in getting a corrective
action from the supplier. Such downtimes, in turn, require coordination be-
tween the various functional units of a company thus increasing internal coor-
dination costs. We therefore argue that a high level of service quality will
reduce the customer’s operations costs.
Therefore, we propose the following hypotheses:

H4a: The greater the quality of the supplier’s service, the greater the per-
ceived core benefits.
H4b: The greater the quality of the supplier’s service, the greater the pur-
chase price.
H4c: The greater the quality of the supplier’s service, the lower the opera-
tions costs.
Relational Characteristics
The relationship between exchange partners has been the focus of a sub-
stantial number of research in the late 1980s and throughout the 1990s (e.g.,
Dwyer, Schurr, and Oh 1987; Doney and Cannon 1997; Morgan and Hunt
1994). The extant literature points to the growing relevance of managing at-
tributes of the relationship as a means of enhancing relationship value (e.g.,
Gassenheimer, Houston, and Davies 1998; Lapierre 1997). In this paper, we
focus on two such relational characteristics–trust and joint working between
the buyer and the seller. Trust has been found to be an integral part of business
relationships (see Doney and Cannon 1997). In business marketing with the
emerging model of closer alignment of buyer and seller organizations to
achieve relationship goals, joint working arrangements have gained increas-
ing prominence as a valuable business model (Heide and John 1990; Osborn
and Hagedoorn 1997; Sriram, Krapfel, and Spekman 1992). Other relational
characteristics that are discussed in the relevant literature as, e.g., image, soli-
darity, communication, reputation, tolerance or flexibility are implicitly con-
sidered within our conceptualization and operationalization of trust, joint
working and the supplier characteristics (commitment and supplier flexibil-
ity). In the following we focus on the influence of the relational characteristics
trust and joint working on customer value.
Trust. Defined as the perceived credibility and benevolence of the supplier
as viewed by the customer (cf. Doney and Cannon 1997; Ganesan 1994;
Kumar, Scheer, and Steenkamp 1995), trust has assumed a central role in
inter-organizational relationships (Dwyer, Schurr, and Oh 1987; Morgan and
Hunt, 1994) and is a key characteristic of long-term commercial relationships
(Ganesan 1994). Trust among parties in inter-organizational relationships en-
ables each entity in the relationship to focus on the long-term benefits of the
relationship (Ganesan 1994). Research suggests that trust enhances open com-
munications and problem solving (Morgan and Hunt 1994), reduces conflict
(Anderson and Narus 1990) and increases satisfaction (Anderson and Narus
1990). Frazier et al. (1994) suggest trust between a buyer and seller allows for

more open sharing of information and ideas that would be beneficial to both
parties. In business-to-business settings sharing of costs, profits, long-term
goals, and objectives, in order to improve the quality of the transaction to
better suit the needs of the parties, is risky and therefore requires a high level
of trust. Trust-based relationships with suppliers are central to a firm’s ability
to compete effectively in today’s highly competitive marketplace. The above
discussion leads us to the conclusion that trust has a positive impact on core
benefits.
In a competitive marketplace, when time and effort required to evaluate and
qualify vendors is critical to the success of the firm, a trusted vendor affords
reduced acquisition costs. Since trust is the belief that a supplier will perform
in a manner that has the customer’s interest in mind, firms will rely on a trust-
worthy vendor for its needs rather than embark on a time-consuming and ex-
pensive search for new vendors. Research suggests that trust reduces the
perception of risk associated with opportunistic behavior, reduces transaction
costs and increases confidence in the supplier (Ganesan 1994). Thus, a cus-
tomer who trusts a supplier is likely to have lower costs associated with moni-
toring supplier performance and carrying inventory, which in turn reduces the
customer’s acquisition costs.
Therefore, we propose:
H5a: The greater the trust in the supplier, the greater the perceived core
benefits.
H5b: The greater the trust in the supplier, the lower the acquisition costs.
Joint Working. Joint Working refers to the parties in a relationship engag-
ing in combined decision-making and problem solving (cf. Mohr and
Spekman 1994; Nielson 1997). The literature in purchasing management
points to a strong relationship between joint working and lower total costs
(e.g., Landeros and Monczka 1989; Larson 1994; Philling and Zhang 1992).
In the business-to-business setting, joint working arrangements can occur over
a large set of issues, for example, product design and development, value anal-
ysis and target costing, quality control, and logistics and delivery systems (cf.
Anderson and Narus 1990; Nielson 1997; Trelevan 1987).
Anderson, Lodish, and Weitz (1987) and Dwyer and Oh (1988) suggest that
when parties in a relationship participate and make joint decisions about goals
and plans affecting the outcome of the relationship, the relationship is typi-
cally successful. Specifically with respect to relationship outcomes, Mohr and
Spekman (1994) found that partnerships that have higher levels of joint work-
ing arrangements tend to yield higher sales. In addition, Heide and John

(1990) argue that joint actions are a signal that the two parties acknowledge
that the relationship is important to each other. Drawing on these previous
studies, we argue that the supplier’s ability and willingness to work jointly on
issues related to the transaction will be an added point of differentiation.
While they are not often considered to be a necessary condition, joint working
arrangements are useful conditions that help a customer firm select a supplier
from among competing vendors. In summary, we conclude that joint working
is positively related to the perceived add-on benefits.
Joint working reduces vendor monitoring costs as a result of the closeness
between buyers and suppliers. Sriram, Krapfel, and Spekman (1992) conclude
that collaborative efforts between exchange partners reduce the probability
that any one of the exchange partners will behave opportunistically and thus
will reduce transaction costs (p. 309). In addition, the higher level of commu-
nication between the companies resulting from the joint working arrange-
ments provide for a better understanding of the needs, requirements, and
expectations of each party (cf. Mohr, Fisher, and Nevin 1996). Joint working
arrangements will therefore allow the supplier to anticipate the customer’s
needs better and deliver products to the customers in appropriate quantities
and specifications thus reducing the customer’s inventory and delivery-related
costs. Following the above discussion, we argue that joint working arrange-
ments will reduce the customer’s acquisition costs.
When the buyer and the seller work jointly (e.g., in product development),
there are several opportunities to ensure that the specifications needed for pro-
ducing the customer’s end product are met (Larson 1994). This reduces the
chance for misspecified products reaching the customer’s factory floor (cf.
Schonberger 1982). Since the incoming component parts or materials are of
the required specifications, the customer’s downtime due to faulty parts is re-
duced, if not eliminated (Shetty 1986; Mohr and Spekman 1994). In addition,
collaboration with suppliers in R&D provides opportunities for reducing costs
as a result of sharing knowledge and thus reducing costly corrective actions
(cf. Anderson and Narus 1990; Heide and John 1990). Thus, when the cus-
tomer and the supplier work jointly, the customer’s operations costs will be re-
duced. In summary, we propose the following hypotheses which are to our
knowledge new in the context of the customer value discussion:
H6a: The greater the joint working the greater, the perceived add-on bene-
fits.
H6b: The greater the joint working, the lower the acquisition costs.
H6c: The greater the joint working, the lower the operations costs.

Supplier Characteristics
When examining supplier characteristics, we include supplier flexibility
and supplier commitment in our discussion. Each of these constructs has a rich
history in the relationship marketing literature and has been found to be impor-
tant for business relationships (Anderson and Narus 1998; Claycomb and
Frankwick 1997; Kale and Barnes 1992). Nevertheless there are other supplier
characteristics such as advertising activities, problem solving capability, and
supplier trustworthiness that are discussed as possible drivers of customer
value (cf. Humpreys and Williams 1996; Ravald and Grönroos 1996;
Zeithaml 1988). However, these characteristics are either more relevant in a
consumer context (advertising activities) or aspects that are considered within
the conceptualization and operationalization of the relational characteristics
(trust and joint working).
Flexibility of the Supplier. Flexibility of the Supplier refers to the extent to
which the supplier is willing and able to make adaptations to accommodate
the customer’s changing needs (Cannon and Homburg 1998; Noordewier,
John, and Nevin 1990). Typically, such accommodation takes the form of
quick responses to sudden, often unanticipated customer needs. A flexible
supplier may apply rules and policies loosely to accommodate a particular
customer’s request (Cannon and Homburg 1998).
Adjusting to the changing needs of the customer is considered to be a suc-
cess factor in relationship management (Kale and Barnes 1992). While many
suppliers offer quality goods and services, a supplier who is willing to accom-
modate a customer’s unique business needs makes “life easier” for the cus-
tomer. The opportunity to work with a supplier who is accommodating
reduces anxiety stemming from market demands or economic demands. A
flexible supplier, therefore, affords a useful convenience for the buyer. These
conveniences offered by the supplier make it easier for the customer to do
business with the supplier, and in turn help the customer distinguish between
vendors who offer similar tangible products or service products. The flexibil-
ity demonstrated by the supplier therefore becomes the winning element in the
buyer’s decision criteria. We therefore expect flexibility to influence add-on
benefits positively.
Suppliers making short-term adjustments to delivery schedules and quanti-
ties provide a useful benefit that is discretionary and yet beneficial. Flexible
suppliers afford customers the opportunity to reduce inventory costs. When
the supplier is flexible to accommodate the customer’s volume need, the cus-
tomer does not have to maintain a high level of product inventory (Cannon and
Homburg 1998). Also, knowing that the supplier is willing to fulfill unantici-
pated raw material or component needs reduce the cost associated with identi-

fying and securing additional qualified suppliers. Thus we expect that
flexibility will influence acquisition costs negatively.
In addition, supplier flexibility can help the customer reduce operations
costs by avoiding lengthy factory downtime resulting from unexpected spike
in demand (cf. Noordewier, John, and Nevin 1990). If the supplier is not able
to accommodate these unexpected spikes in demand, the customer can incur
higher operating cost resulting from downtime. This leads us to the conclusion
that flexibility has a negative impact on operations costs.
Following the above discussion, we propose the following hypotheses:
H7a: The greater the flexibility of the supplier, the greater the perceived
add-on benefits.
H7b: The greater the flexibility of the supplier, the lower the acquisition
costs.
H7c: The greater the flexibility of the supplier, the lower the operations
costs.
Commitment of the Supplier. Commitment of the Supplier is defined as an
enduring desire and effort on the part of the supplier to maintain a valued
relationship with the customer (cf. Moorman, Zaltman, and Deshpandé 1992,
p. 316; Morgan and Hunt 1994, p. 23). As credible commitments increase in
magnitude and symmetry, social norms arise. Social norms reinforce the at-
tachments to one another over time through increased investment intentions.
Our conceptualization of supplier commitment takes into account the sup-
plier’s willingness to make short-term sacrifices, invest in a relationship, and
be tolerant of the buyer’s mistakes (for example, mistakes in ordering or out-
lining product specifications). Since commitment is a behavioral trait that
takes into account both transaction specific behavior and also social traits (dis-
play of patience, willingness to defend the customer, etc.), we view commit-
ment to be a desirable attribute in a vendor as opposed to a mandated
requirement leading us to argue that such attributes tend to be relationship
winners. A higher commitment of one supplier, however, can serve as a choice
criterion that qualifies this one supplier over other potential vendors (Doney
and Cannon 1997). This is not to suggest that supplier commitment by itself,
without qualifying attributes of product quality, etc., will help the potential
vendor get selected as a supplier (Fontenot et al. 1997). Therefore, we propose
the commitment of the supplier to increase the add-on benefits to a customer in
a relationship.

Supplier commitment suggests that the supplier is willing to deploy the
necessary resources to help the customer firm succeed and that the welfare of
the customer is often considered in the supplier’s actions. It can be argued that
these considerations by the supplier will help reduce the customer’s opera-
tions costs (Morgan and Hunt 1994). During times of manufacturing problems
highly committed suppliers will be willing to infuse their own resources to
help resolve the problem thus preventing increased operations costs. Suppli-
ers, convinced of the long-term benefits accruing from a relationship with the
customer, are highly motivated to reduce downtime and solve other problems
that might arise in the customers’ operations. Also, highly committed suppli-
ers having a long-term orientation towards the relationship will deploy their
own resources towards the product development initiatives of the customer
thus reducing the customer’s R&D costs. We therefore expect that supplier
commitment will decrease a customer’s operations costs.
Considering the potential influence of commitment, we suggest that:
H8a: The greater the commitment of the supplier, the greater the perceived
add-on benefits.
H8b: The greater the commitment of the supplier, the lower the operations
costs.
METHODOLOGY
Sample and Data Collection
Collecting data in more than one country increases the generalizability of
findings. Until now most empirical studies have focused on a single country
(e.g., Grewal, Monroe, and Krishnan 1998; Sinha and deSarbo 1998; Walter,
Ritter, and Gemünden 2001). In contrast to this approach we have conducted a
multiple country study. Data for the study was collected in the US and in Ger-
many. In the US, 2,500 members of the National Purchasing Manager’s Asso-
ciation were taken from the association’s membership database. Similarly in
Germany, 2,500 purchasing managers were identified from the listing main-
tained by a commercial provider. In identifying possible respondents, we
stratified across different company size categories and three different indus-
tries (the chemical, mechanical, and electrical industries–SIC 28-38) with
identical stratification procedures across countries. Each of the possible re-
spondents was mailed a cover letter, questionnaire, and postage paid return en-
velope. Each of the respondents was asked to consider the most recent

relationship with a supplier for a product the company purchases frequently.
Furthermore we asked the respondent to classify the underlying product into
one of three categories (production material, component part or raw material).
In our data we find an almost equal distribution between the three product cat-
egories in both countries. Due to duplicate, incomplete, or missing addresses a
total of 4,775 questionnaires were sent out (2,475 in Germany and 2,300 in the
US). Four weeks later, each non-respondent received a reminder letter and an-
other copy of the questionnaire. The process described above yielded 528
completed questionnaires in Germany (giving a response rate of 22%) and 453
completed questionnaires in the US (giving a response rate of 20%), combin-
ing for an overall response rate of 21%.
Following Armstrong and Overton (1977) we tested non-response bias by
comparing early versus late respondents. More than half of the sample had an-
swered after receiving the reminder. All indicator variables as well as demo-
graphic variables (e.g., size of firm, number of employees, product category,
industry) were tested for differences. No significant differences were found
between early and late respondents suggesting that non-response bias is not a
problem with this data set.
Measure Development and Assessment
Measure Development. All of the constructs in our study were measured us-
ing multi-item scales (with the exception of purchasing price). Items were
generated based on interviews with selected members of buying centers and a
review of the extant literature. The questionnaire was first designed in Eng-
lish. To ensure translation equivalence the questionnaire was translated into
German and back translated into English by a second person as proposed by
Douglas and Craig (1983). The original and back-translated versions were
then compared for conceptual equivalence and translation errors and refined
where necessary. The resulting version was pre-tested and further refined on
the basis of comments from purchasing managers in the United States and
Germany.
Operationalization of Scales. There exist alternative ways to operationalize
constructs according to measurement theory (Bollen 1984; Cohen 1990).
Some constructs have only a very limited and specific focus and can there-
fore be measured using a single item (e.g., purchasing price in this study).
Latent variables with multiple items can be operationalized either in a reflec-
tive or formative way. When measures of a construct present unique aspects,
the construct can be viewed as a composite or a sum (Bagozzi 1994). If a la-
tent construct reflects such a total across different sources, formative oper-
ationalizations are required to measure such a construct effectively (Howell

1987). Following Cannon and Homburg (1998) we operationalized acquisi-
tion and operations costs using formative measures as items of these costs
need not be correlated, measuring a particular type of cost, but still contribute
to the total costs. Formative scales cannot be analyzed with respect to reliabil-
ity and validity since there exists no standardized statistical techniques for do-
ing so (Cohen 1990).
Configural and Metric Invariance. Following Steenkamp and Baumgartner
(1998), the first step in our analysis was to ensure configural and metric
invariance of the two samples. Configural invariance implies that the factorial
structure underlying a set of observed measures is the same across groups.
Furthermore we tested if metric invariance was supported. This stronger test
of invariance implies that the units of measurement or scale intervals are
equivalent across groups. We analyzed the measurement invariance across the
two different countries by means of multiple-group confirmatory factor analy-
sis with LISREL VIII (Jöreskog and Sörbom 1993). We found the constructs
to display full configural invariance and full metric equivalence. Also, we
found the reliabilities to be about the same in both countries. In summary,
given these findings, pooling the data from the two countries is appropriate.
Assessment of Measures. A complete list of the measures and the item
reliabilities are available in the appendix. Some measures were taken from
previous research and modified to be appropriate within the context of our
study. However, many of the measures were developed uniquely for this re-
search. The summary statistics (means, standard errors, ranges and variances)
for the measurement scales of the sample is found in Table 1. The results re-
veal that respondents used the full range of possible answers with reasonable
variance.
Statistical procedures used to validate the reflective measures included as-
sessments of item and scale reliability, unidimensionality, and convergent va-
lidity (Anderson and Gerbing 1988). In order to assess measurement validity,
confirmatory factor analyses were run with LISREL VIII (Jöreskog and
Sörbom 1993). Analyses were conducted separately for each construct as well
as for the whole measurement model consisting of all constructs.
The coefficient alpha values range from .69 for core benefits to .93 for flex-
ibility exceeding the threshold value of .70 recommended by Nunnally (1978)
with the exception of core benefits. Generally, a composite reliability of at
least .60 is considered desirable (Bagozzi and Yi 1988, p. 82). The encoun-
tered composite reliability values range from .80 for the core benefits to .94 for
trust. Usually, the average variance extracted of a construct should exceed .50
according to Bagozzi and Yi (1988) which is seen in our model with values
ranging from .58 for core benefits to .80 for flexibility. The item reliabilities
displayed in the appendix are high as well.

Discriminant Validity. With regard to discriminant validity, we did a series
of model tests to explore differences when constraining the correlation be-
tween a pair of constructs to 1.0. The chi-square difference between the con-
strained model proved to be statistically significant from the unrestrained
model for all constructs thus indicating discriminant validity. We also used the
test suggested by Fornell and Larcker (1981) by comparing the average vari-
ance extracted to the squared correlation between all pairs of latent constructs
to ensure discriminant validity. Again, results indicated discriminant validity
between the constructs.
RESULTS
Figure 1 provides an overview of the hypothesized main effects. The hy-
pothesized model was estimated by structural equation modeling using
LISREL VIII (Jöreskog and Sörbom 1993). We assumed a reliability of .85
(equivalent to an error variance of .15 times the variance) for the formative
scales for the purpose of model estimation as suggested by Jöreskog and
Sörbom (1993).
TABLE 1. Summary Statistics for Measurement Scales
number average
of reliability variance
Construct Name items mean/SD range
a
(a/r)
b
extracted
Customer Value 4 5.06/1.22 1.00/7.00 .87/.90 .68
Core Benefits 3 5.94/1.02 1.00/7.00 .69/.80 .58
Add-On Benefits 6 4.77/1.33 1.00/7.00 .88/.90 .60
Purchasing Price
c
1 3.58/1.25 1.00/7.00 --/-- --
Acquisition Costs
c
5 3.43/0.89 1.00/7.00 --/-- --
Operations Costs
c
4 3.45/0.87 1.00/7.00 --/-- --
Product Quality 3 5.91/1.01 1.00/7.00 .70/.82 61
Service Quality 8 5.68/0.96 1.75/7.00 .91/.93 66
Flexibility of the Supplier 4 5.37/1.24 1.00/7.00 .93/.94 80
Trust 7 5.63/1.05 1.14/7.00 .92/.94 69
Joint Working 5 4.48/1.55 1.00/7.00 .84/.91 67
Commitment of the Supplier 6 5.42/1.00 1.50/7.00 .88/.91 63
a
The possible range for all measures was 1 through 7.
b
Reports coefficient alpha and composite reliability.
c
Reliability and average variance extracted are not applicable for single-item measures and formative scales.

The results of the LISREL analysis are shown in Table 2. Each of the over-
all fit-measures (c2/df, GFI, AGFI, CFI, and RMSEA) compare favorably to
standards suggested in the literature (Bagozzi and Yi 1988; Baumgartner and
Homburg 1996; Bentler 1990). It is also worth noting that the explained vari-
ance with respect to perceived customer value in our model is 69%, indicating
that our conceptualization of the benefits and sacrifices captures the essence of
the customer value construct.
TABLE 2. Results of LISREL Estimation (Standardized coefficients)
Dependent Variables
Core
Benefits
Add-on
Benefits
Purchasing
Price
Acquisition
Costs
Operations
Costs
Customer
Value
Antecedents
Product Characteristics
Product Quality .20a
.23a
.19a
Ϫ.03
Service Quality .10
b
Ϫ.47
a
.02
Relationship
Characteristics
Trust .51
a
Ϫ.26
a
Joint Working .13
a
Ϫ.11
a
Ϫ.14
a
Supplier Characteristics
Flexibility of the Supplier .08
a
Ϫ.38
a
Ϫ.28
a
Commitment
of the Supplier
.51
a
Ϫ.27
a
Determinants
Benefits
Core Benefits .23a
Add-On Benefits .57
a
Sacrifices
Purchasing Price Ϫ.19
a
Acquisition Costs Ϫ.02
Operations Costs Ϫ.15
a
Fit statistics: χ
2
(1,094 d.f.) = 2,290.17 (p < .01); GFI = .99; AGFI = .99, CFI = .99, RMSEA = .037
a
P < .01
b
P < .10

Effects of Benefits and Sacrifices on Customer Value
Our first set of hypotheses dealt with the impact of benefits and sacrifices
on customer value in a business-to-business relationship. Customers actively
strive to increase the value they receive from a relationship by seeking to in-
crease the benefits received while reducing the sacrifices made. We therefore
argued that benefits increase the perceived customer value whereas sacrifices
(price and costs) lower the perceived customer value. Hypothesis H1a states
that the greater the perceived core benefits, the greater the perceived cus-
tomer value. Our results supports this hypothesis (b61 = .23, p < .01). Simi-
larly, our results support hypothesis H1b which states that the greater the
perceived add-on benefits, the greater the perceived customer value (b62 =
.57, p < .01).
H2a, stating that the greater the purchasing price, the lower perceived cus-
tomer value, is also supported (b63 = Ϫ.19, p < .01). With respect to H2b, we
proposed the greater the acquisition cost, the lower the perceived customer
value. Our results do not support this hypothesis (b64 = Ϫ.02, p = ns). Finally,
H2c states that the greater the operations costs, the lower the perceived cus-
tomer value. We found support for H2c (b65 = Ϫ.15, p < .01).
Effects of the Antecedents of Benefits and Sacrifices
Our second set of hypotheses dealt with the impact of product, relational,
and supplier characteristics on benefits and sacrifices.
Product Characteristics. Regarding product characteristics, we examined
the impact of product quality and service quality. Hypothesis H3a states the
greater the quality of the supplier’s product, the greater the perceived core
benefits. Our results support this hypothesis (g11 = .20, p < .01). Hypothesis
H3b argues that the greater the quality of the supplier’s product, the greater
the purchase price. This hypothesis was supported by our results (g31 = .23,
p < .01). On the other hand H3c, which predicted that the greater the quality of
the supplier’s product, the lower the customer’s acquisition costs, was not
supported (g41 = .19, p < .01). Similarly, H3d predicted that the greater the
quality of the supplier’s product, the lower the customer’s operations costs.
Our results did not support this hypothesis (g51 = Ϫ.03, p = ns).
We formulated three hypotheses that examined the impact of service qual-
ity on benefits and sacrifices. Specifically, H4a states that the greater the ser-
vice quality, the greater the perceived core benefits. Our results do not support
this hypothesis on the conventional 5% significance level (g12 = .10, p < .06).

However, we do find significance on the 6% level. H4b states that the greater
the quality of the supplier’s service, the greater the purchase price. We found
significant support for this hypothesis (g32 = Ϫ.47, p < .01). Finally, H4c states
that the greater the quality of the supplier’s service, the lower the customer’s
operations costs. Our results indicate that service quality does not have a sig-
nificant effect on the operations costs (g52 = .02, p = ns).
Relational Characteristics. With respect to relational characteristics, recall
that we examined the effects of trust and joint working arrangements on bene-
fits and sacrifices. H5a states that the greater the trust, the greater the per-
ceived core benefits. Our results strongly support this hypothesis (g13 = .51,
p < .01). H5b indicates that the greater the trust, the lower the acquisition
costs. Our results support this hypothesis (g43 = Ϫ.26, p < .01).
With respect to joint working, we argued that joint working arrangements
in a relationship have a positive effect on perceived add-on benefits. More for-
mally, H6a states that the greater the joint working, the greater the perceived
add-on benefits. Our results support this hypothesis (g24 = .13, p < .01). H6b
states that the greater the joint working, the lower the acquisition costs. We
find support for this hypothesis in our results (g44 = Ϫ.11, p < .01). Similarly,
our last hypothesis in this set, H6c, states that the greater the joint working, the
lower the operations costs. We find support for this hypothesis (g54 = Ϫ.14, p <
.01).
Supplier Characteristics. Our final set of hypotheses examines the impact
of supplier characteristics on benefits and sacrifices. Specifically, we investi-
gate the effects of supplier flexibility and supplier commitment on benefits
and sacrifices. H7a states that the greater the flexibility of the supplier, the
greater the perceived add-on benefits. Our results support this hypothesis
(g25 = .08, p < .01). However, though statistically significant on the .01 level,
the antecedent flexibility of the supplier in comparison to joint working and
commitment of the supplier has a much lower influence on add-on benefits. In
addition, we state in H7b that the greater the flexibility of the supplier, the
lower the acquisition costs. This hypothesis is also supported in our results
(g45 = Ϫ.38, p < .01). Finally, in H7c we state that the greater the flexibility of
the supplier, the lower the customer’s operations costs. Again, our results sup-
port this hypothesis (g55 = Ϫ.28, p < .01).
The final relationship of interest to us in this paper was the impact of sup-
plier commitment on benefits and sacrifices. We proposed that supplier com-
mitment would have a positive impact on perceived add-on benefits. In
particular, H8a stated that the greater the commitment of the supplier, the
greater the perceived add-on benefits. We found strong support for this hy-

pothesis (g26 = .51, p < .01). Compared to the other two antecedents of add-on
benefits (flexibility and joint working) the practical significance of commit-
ment of the supplier is much higher (.51 vs. .13 and .08). Finally, we state in
H8b that greater the commitment of the supplier, the lower the operations
costs. Again, our results support this hypothesis (g46 = Ϫ.27, p < .01).
DISCUSSION
Effective business market management requires a clear assessment of cus-
tomer value in the marketplace. It has been argued that business marketing
must have as its cornerstone the concept of customer value (Anderson and
Narus 1999). Indeed, for customer value to become the cornerstone of busi-
ness marketing, managers and academic researchers must have a detailed un-
derstanding of the components of customer value. The purpose of this study is
to provide a precise conceptualization of customer value in business-to-busi-
ness relationships.
In this paper, we agree with the contemporary conceptualization of cus-
tomer value that views benefit and sacrifice as determinants of customer
value. However, in a departure from previous treatment of the value construct,
we argue that benefits should be categorized to include “core benefits” and
“add-on benefits” and that, a more precise view of sacrifice needs to include a
comprehensive set of costs. So as to provide a complete view of sacrifice in a
business relationship, we include “acquisition costs” and “operations costs.”
in addition to the basic “purchase price.” By adopting a comprehensive view
of both benefit and sacrifice, we put forth a more robust conceptualization of
customer value in business-to-business relationships. Finally, we examine a
selected set of variables that demonstrate the impact of product, relational and
supplier characteristics on the evaluation of benefits and sacrifices. Several in-
teresting and important findings emerge from this study. We discuss them
next.
One interesting finding is the significant influence of add-on benefits on
customer value. Add-on benefits, recall, refer to those attributes that influence
buyers in their selection of a supplier from among qualified vendors. Our re-
sults suggest that add-on benefits have a stronger influence on customer per-
ceived value than core benefits. A reason for this finding could be that while
core benefits are influential drivers of customer value, it is a criterion on which
all qualified vendors perform well. Customers appear to view add-on benefits
to be the differentiator for customer value among providers of equal core ben-
efits. Therefore, issues such as supplier flexibility, supplier commitment, and

joint working arrangements that influence add-on benefits become increas-
ingly critical in shaping customer value in business-to-business marketing.
A second finding of importance is the stronger overall impact of benefits
(both core and add-on) on perceived customer value relative to the impact of
sacrifices on perceived customer value. This finding suggests that when as-
sessing value in business relationships, customers tend to focus more on the
overall benefits that accrue from the relationship and less on the sacrifices in-
volved.
A third interesting finding is the similar influence of price and operations
cost on perceived customer value. Our results indicate that operations costs are
just as important and influential in determining perceived customer value, as is
purchasing price. We did not find a significant impact of acquisition costs on
perceived customer value. This could be due to the transparent nature of pur-
chase price and operations costs relative to acquisition costs. In addition, it
could be that acquisition costs are less significant in magnitude relative to op-
erations costs and thus tend not to be monitored easily.
A fourth finding in our study is that trust is a strong driver of benefits and
sacrifices. Clearly, our results indicate that trust (i.e., the customer trusting the
supplier) influences core benefits that business customers consider necessary
in business relationships. In fact, our results indicate that trust has a stronger
impact on core benefits than the product characteristics. In addition, our re-
sults support our reasoning that trust will reduce acquisition costs. Indeed, our
results provide further support for previous conclusions regarding the central
role trust plays in buyer-seller relationships (Doney and Cannon 1997;
Ganesan 1994).
Consistent with our theoretical reasoning, our results indicate a strong im-
pact of supplier flexibility on costs. Our findings suggest that flexible suppli-
ers help reduce a customer’s acquisition and operations costs. Similarly, our
results supported the theory-based arguments for a strong positive impact of
product quality on core benefits and price.
We did, however, have some unanticipated findings in our study. For in-
stance, we had argued that high product quality would reduce the supplier’s
acquisition costs. However, our results indicate otherwise. One explanation
for this finding could be that superior product quality requires higher coordi-
nation and greater interaction between the buyer and the supplier (cf. Menon,
Jaworski, and Kohli 1997). The efforts involved in coordinating and interfac-
ing with the supplier to ensure high product quality can result in the buyer’s
higher acquisition costs.
In addition, we were surprised to find that neither product nor service qual-
ity had a significant impact on operations costs. One possible explanation for
these non-significant findings could be that the respondents, who were pur-

chasing managers, might not be closely aligned with the manufacturing pro-
cess and as such, do not see the impact of quality on operations costs first
hand.
Finally, we had expected high service quality to increase the purchasing
price. In fact, our results indicate the opposite. One possible explanation for
this finding is that delivering superior service quality requires optimizing in-
ternal processes and systems that will ultimately reduce the supplier’s service
delivery costs. It is possible that in business arrangements, these cost savings
are shared with the customer in the form of lower prices.
Implications for Practice
Our results point to several implications for the practicing manager. First,
contrary to the general belief in a cost-driven economy, our study found that
benefits have a greater impact on perceived customer value than sacrifices
(price and costs). Thus, we encourage managers to emphasize benefits accru-
ing from a relationship and not focus solely on lowering the purchase price and
related costs when managing customer value.
Second, our results highlight the importance of operations cost on per-
ceived customer value. Supply firms, by optimizing their internal processes
and systems, can help reduce the customer’s operations costs. Ensuring
on-time delivery of components and raw materials, getting involved in the
customer firm’s manufacturing and R&D strategy making processes, and de-
ploying resources needed to ensure a smooth relationship with the customer
will help reduce the customer’s operations costs. Therefore, the supplier does
not have to rely solely on the price dimension (although price continues to be a
key determinant of perceived customer value) when managing perceived cus-
tomer value.
Third, our findings highlight the importance of relational and supplier char-
acteristics as determinants of benefits. Our results support and further substan-
tiate the critical roles trust and commitment play in business arrangements.
Based on our findings, we believe that supplier activities aimed at enhancing
customer value should not be limited to tangible product or process related is-
sues. In fact, managers must make relationship specific investments that will
help increase customers’ trust and improve the perception of the supplier’s
commitment in the mind of the customer.
Finally, our results indicate that in business relationships, joint working ar-
rangements will help increase the business customer’s perception of value re-
ceived. Participants in our study found joint working arrangements to be an
add-on benefit and a factor that helped them differentiate potential suppliers.
Therefore, managers should incorporate the buyer’s viewpoints when discuss-

ing issues that have a direct impact on the buyer and include the buyer when-
ever possible in the decision making process.
Limitations and Suggestions for Future Research
The primary objective of our paper was to put forth a conceptualization of
customer value that provides a deeper understanding of the construct within
the business-to-business marketing context. In doing so, we confined our ex-
amination of the drivers of benefits and sacrifices to a limited set of variables.
Admittedly, further understanding of the drivers of core benefits, add-on bene-
fits, purchasing price, acquisition costs, and operations costs in business-to-
business marketing will require an examination of additional product, rela-
tional and supplier characteristics and their interrelatedness.
Moreover, a detailed analysis of the possible relationships between the dif-
ferent benefits and costs might provide further insight into the complex con-
struct of customer value. With regard to the possible interdependencies one
might look at trust as a moderating variable. In this context, a dyadic view
(supplier and customer view) on customer value could possibly provide fur-
ther insights.
Our examination of customer value in business arrangements is based on a
static analysis of the buyer-seller relationship at a point in time. A more robust
approach to studying customer value in business-to-business relationships
would be based on a dynamic analysis of the issues we studied. Such an analy-
sis will allow managers to understand the differing impact of the product, rela-
tional, and supplier characteristics on perceived customer benefits and
sacrifices at various stages of the buyer-seller relationship.
We used perceptual measures of benefits, costs and customer value. Future
research might relate the independent variables in our study to objective mea-
sures of benefits, costs, and customer value. While we do not expect such anal-
ysis would lead to substantially new insights about the conceptualization of
the value construct, it might provide more specific results on the magnitude of
impact the different types of benefits and sacrifices will have on customer
value.
Finally, our examination of perceived customer value does not incorporate a
contingency perspective. Indeed, the influence of benefits and sacrifices on cus-
tomer value can and will vary under differing customers (e.g., German suppli-
ers, American customers), relationship contexts (e.g., relationship networks,
cooperation), and environmental situations (e.g., competitive situation). Con-
sidering these factors would be worth an analysis. As such, we also believe
that future examination of customer value in a relationship context should
consider the impact of power, customer dependency, customer size, customer

capabilities, past experiences, and corporate culture on the relationship be-
tween benefits, sacrifices and customer value. Similarly, a finer grained analy-
sis of the impact of product, relational, and supplier characteristics on benefits
and sacrifices should consider potential moderator effects on the relationships.
CONCLUSION
A strong focus on customer value can have a significant impact on business
market management. Creating and managing customer value in business rela-
tionships require a comprehensive understanding of what constitutes customer
value. The impetus for this study has been the clarion call for a better concep-
tualization and understanding of the customer value construct. This paper ex-
tends our understanding of the customer value construct by categorizing
benefits into core and add-on benefits. In addition, the paper takes a broader
view of sacrifices to include purchase price, acquisition costs, and operations
costs. We believe that such a categorization of benefits and sacrifices will help
managers to focus on the key drivers of customer value, and therefore better
manage each component of customer value. For indeed, customer value will
be the cornerstone of business marketing in the 21st century.
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APPENDIX
Measures and Item Reliability
Scale name, response cue, and individual items
Item
Reliabilitya
Customer value (strongly agree–strongly disagree)
For the costs incurred, we find the benefits offered by this supplier to be of high value. .76
This supplier provides the best value for us. .74
The benefit we receive from the relationship with this supplier far outweigh the
price/costs we incur.
.44
We receive high value from this supplier. .76
Core benefits (strongly agree– strongly disagree)
The relationship with this supplier meets our basic needs. .55
As a company, this supplier meets the minimum requirements we have for the consid-
eration of a supplier.
.42
We are pleased with the core benefit of the relationship with this supplier. .78
Add-on benefits (strongly agree–strongly disagree)
This supplier offers useful benefits beyond our basic needs. .63
Additional benefits offered by this supplier were a reason for selecting it as a vendor. .54
The relationship with this supplier provides us value beyond a simple transaction. .67
In general, this supplier's overall offering is better than what other vendors provide in
the marketplace.
.43
The relationship with this supplier provides us much more benefit than basic benefit
we would generally expect.
.76
As a company, this supplier exceeds the requirements we have for a vendor. .59
Purchasing price (How do each of the following costs compare with the costs incurred in your
company's other supplier/vendor relationships? Costs much higher–much lower)a
Purchasing price.
Acquisition costs (much higher–much lower)
a
Inventory carrying costs.
Ordering costs.
Delivery costs.
Costs of coordination and communication between your company and this supplier.
Administrative costs.
Operation costs (much higher–much lower) a
Manufacturing costs.
Research and development costs.
Costs of coordinating within your firm.
Costs associated with downtime.
a
Item reliability cannot be calculated for formative and single-item measures.

Scale name, response cue, and individual items
Item
Reliability
Product quality (strongly agree–strongly disagree)
This supplier's product satisfies the basic criteria established for this product. .55
We have had no problems with this product. .45
This supplier's product meets all of our established standards. .86
Service quality (strongly agree–strongly disagree)
We find the employees of this supplier to be friendly. .56
We find the employees of this supplier to be very knowledgeable. .68
We are able to reach the employees of this supplier whenever we need them. .55
We receive prompt answers to our inquiries from this supplier's staff. .68
The advice and suggestions we get from this supplier's staff are always helpful. .68
Our problems are always quickly resolved by this supplier's staff. .74
The service employees of this supplier do high quality work. .67
The technical service provided by this supplier typically leads to the desired result. .58
Joint working (strongly agree–strongly disagree)
Our two companies jointly make many important technical decisions that might impact
our relationship with each other.
.64
Our two companies jointly decide on the goals and objectives for our relationship with
each other.
.60
In many cases, our two companies mutually agree before making major technical de-
cisions that might impact our relationship with each other.
.72
Our two companies jointly solve many of our technical problems. .74
Both companies actively provide input into this product's development process. .65
Flexibility of supplier (strongly agree–strongly disagree)
This supplier is flexible enough to handle unforeseen problems. .75
This supplier handles changes well. .81
This supplier can readily adjust its inventories to meet changes in our needs. .80
This supplier is flexible in response to requests we make. .85
Trust (strongly agree–strongly disagree)
This supplier keeps promises it makes to our company. .58
We believe the information that this supplier provides to us. .67
This supplier is genuinely concerned that our business succeeds. .71
When making important decisions, this supplier considers our welfare as well as its own. .67
We trust this supplier keeps our best interests in mind. .78
This supplier is trustworthy. .83
We find it necessary to be cautious when dealing with this supplier. (R) .63
Commitment of supplier (strongly agree–strongly disagree)
This supplier defends us when others criticize us. .55
This supplier is very committed to us. .79
This supplier is willing to dedicate whatever people and resources it takes to grow our
sales.
.67
This supplier is willing to make sacrifices to help us out from time to time. .66
This supplier is patient with us when we make mistakes that inconvenience it. .60
This supplier expects to be our supplier for a long time. .50
(R) Reversed-scored items.

EXECUTIVE SUMMARY
Both in practice and in academic research, the issue of customer value has
emerged as critical for customer relationship management efforts and achiev-
ing organizational goals. Customer value is considered to be an important de-
terminant for creating satisfaction, and more recently as a driver of customer
loyalty. Given its significance to organizational performance, an issue of keen
interest in research and practice appears to be the determinants of customer
value. It has been suggested that understanding the components of customer
value will allow firms to better manage the customer value delivery process.
In this paper, we explored the question: What are the antecedents of cus-
tomer value within the context of business-to-business relationships? More
specifically we explored the role of key constructs that determine customer
value from a consumer perspective. In this context we agree with the contem-
porary conceptualization of customer value that views benefit and sacrifice as
determinants of customer value. However, in a departure from previous treat-
ment of the value construct, we argue that benefits should be categorized to in-
clude “core benefits” and “add-on benefits” and that, a more precise view of
sacrifice needs to include a comprehensive set of costs. So as to provide a
complete view of sacrifice in a business relationship, we include “acquisition
costs” and “operations costs,” in addition to the basic “purchase price.” By
adopting a comprehensive view of both benefit and sacrifice, we put forth a
more robust conceptualization of customer value in business-to-business rela-
tionships.
Our first set of hypotheses dealt with the impact of benefits and sacrifices
on customer value in a business-to-business relationship. We hypothesized
that benefits (core benefits and add-on benefits) increase the perceived cus-
tomer value whereas sacrifices (price and costs) lower the perceived customer
value.
Finally, we examine a selected set of variables that show the impact of
product, relational and supplier characteristics on the evaluation of benefits
and sacrifices. Hence our second set of hypotheses dealt with the impact of
product, relational, and supplier characteristics on benefits and sacrifices.
In contrast to other approaches we have conducted a multiple country
study. Data for the study was collected in the US and in Germany. In the US,
2,500 members of the National Purchasing Manager’s Association were taken
from the association’s membership database. Similarly in Germany, 2,500
purchasing managers were identified from the listing maintained by a com-
mercial provider. In identifying possible respondents, we stratified across dif-
ferent company size categories and three different industries (the chemical,
mechanical, and electrical industries–SIC 28-38) with identical stratification

procedures across countries. Each of the possible respondents was mailed a
cover letter, questionnaire, and postage paid return envelope. Due to dupli-
cate, incomplete, or missing addresses a total of 4,775 questionnaires were
sent out (2,475 in Germany and 2,300 in the US). Four weeks later, each
non-respondent received a reminder letter and another copy of the question-
naire. The process described above yielded 528 completed questionnaires in
Germany (giving a response rate of 22%) and 453 completed questionnaires in
the US (giving a response rate of 20%), combining for an overall response rate
of 21%.
On an overall basis, our empirical analyses provide support for our theoreti-
cal reasoning. We essentially find support for our hypotheses. That is, we
showed that perceived core benefits and add-on benefits have a positive im-
pact on the perceived customer value. Moreover we showed that add-on bene-
fits have an even stronger influence on customer perceived value than core
benefits. We also showed that the purchasing price and the operations costs
have a negative impact on perceived customer value. In this context we dem-
onstrate the strong impact of product, relational and supplier characteristics on
the evaluation of benefits and sacrifices.
Our results point to several implications for the practicing manager. First,
contrary to the general belief in a cost-driven economy, our study found that
benefits have a greater impact on perceived customer value than sacrifices
(price and costs). Thus, we encourage managers to emphasize benefits accru-
ing from a relationship and not focus solely on lowering the purchase price and
related costs when managing customer value.
Second, our results highlight the importance of operations cost on per-
ceived customer value. Supply firms, by optimizing their internal processes
and systems, can help reduce the customer’s operations costs. Ensuring
on-time delivery of components and raw materials, getting involved in the
customer firm’s manufacturing and R&D strategy making processes, and de-
ploying resources needed to ensure a smooth relationship with the customer
will help reduce the customer’s operations costs. Therefore, the supplier does
not have to rely solely on the price dimension (although price continues to be a
key determinant of perceived customer value) when managing perceived cus-
tomer value.
Third, our findings highlight the importance of relational and supplier char-
acteristics as determinants of benefits. Our results support and further substan-
tiate the critical roles trust and commitment play in business arrangements.
Based on our findings, we believe that supplier activities aimed at enhancing
customer value should not be limited to tangible product or process related is-
sues. In fact, managers must make relationship specific investments that will

help increase customers’ trust and improve the perception of the supplier’s
commitment in the mind of the customer.
Finally, our results indicate that in business relationships, joint working ar-
rangements will help increase the business customer’s perception of value re-
ceived. Participants in our study found joint working arrangements to be an
add-on benefit and a factor that helped them differentiate potential suppliers.
Therefore, managers should incorporate the buyer’s viewpoints when discuss-
ing issues that have a direct impact on the buyer and include the buyer when-
ever possible in the decision making process.

Understanding customer value in business to business relationships

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Understanding customer value in business to business relationships