RETAILERS’ CHOICE OFSUPPLIERS AND PRODUCTS

Working paper no 49

March 1997

MAPP

CENTER FOR MARKEDSOVERVÅGNING, -VURDERING OG BEARBEJDNING TIL FØDEVARESEKTOREN

CENTRE FOR MARKET SURVEILLANCE, RESEARCH AND STRATEGY FOR THE FOOD SECTOR

•T

HE

AARHUS SCHO

OL

•

O

FBUSINESS

RETAILERS’ CHOICE OFSUPPLIERS AND PRODUCTS

Tommy Holm HansenHans Skytte

The Aarhus School of Business

EXECUTIVE SUMMARY

1. Across Europe retailers have grown in size and turnover. Centralised buyingorganisations have enabled retailers to act as gatekeepers to the consumermarkets. Therefore, knowledge about retailers’ and trade buyers’ buyingbehaviour has become important to producers when developing their marketingstrategies.

2. The purpose of this paper is to review previous research on retailer buyingbehaviour in order to establish a state-of-the-art knowledge before launching anEurope-wide empirical study.

3. We reviewed the volumes from 1975 to 1996 of the Journal of Marketing, theJournal of Marketing Research, the Journal of Retailing, the European Journalof Marketing, the International Review of Retail, Distribution and ConsumerResearch and the Journal of Marketing Channels. The reference lists of allarticles were scrutinised for further references. This search resulted in 69references being reviewed in this paper.

4. No conceptual model of retailer buying behaviour has gained wide acceptanceand this might be the reason that the research findings appear scattered andunrelated. We try to overcome this by organising the findings along the lines ofa conceptual model by Sheth.

5. One reason that the results seem scattered and unrelated could be that mostof the research has been explorative in nature, trying to get a feeling of aparticular part of retailer buying behaviour.

6. Most of the previous research has been concerned with generating lists ofcriteria used by retailers when deciding whether or not to accept a new product.No definitive list has emerged, but of course price, quality, manufacturer imageand reliability are frequently mentioned.

7. Other areas that have caught the interest of researcher are: the role of buyingcommittees, the relationship with manufacturers, European buying alliances,the use of information, retail buyer task, sales man influences, acceptances oftrade deals, country or origin effects and new information technology.

8. We conclude that more research is needed to understand the retailers’ choiceof products and manufacturers. We think that instead of generating lists ofbuying criteria, researchers should think of linking background variables withbuying criteria in order to increase the explanatory power of the research. Inparticular we believe that characteristics of the buying organisation, the buyingcentre and the products would be valuable characteristics to link to the buyingcriteria. Furthermore, we believe it would be rewarding to study the areas ofbusiness negotiations, own labels, manufacturer trade marketing andinformation technology.

Introduction 1Purpose and methodology of the literature review 2A model of retailer buying behaviour 3The Sheth model 3Research findings 5

Inter-organisational factors 5Intra-organisational factors 6Merchandise requirements 6Choice calculus 8Competitive structure 9Corporate image 9Relative marketing effort 9Business negotiations 10

New constructs/variables 11Inter-organisational factors 12Intra-organisational factors 13Buyer attributes 13Relationships with suppliers 14

Methodological issues in previous research 15Comments on the Sheth model 16Future research 17References 19

INTRODUCTION

Marketing has a long tradition of stressing the importance of suppliers’ stayingclose to their customers. How manufacturers and producers can stay close totheir customers and create value for them has been widely researched inrelation to end-users and to industrial customers but not much in relation toretailers in general or in relation to food retailers.

When food producers want to sell their products to consumers they almostalways have to sell them to retailers first (Davies, 1990). Retail chains havebecome a kind of gatekeeper to consumer markets (Hirschman & Stampfl,1980). If the retailers do not accept the products, it is almost impossible for theproducers to market them. Earlier, producers were used to selling their products‘through’ wholesalers and retailers and ‘to’ the consumers, but this is not thecase nowadays. Now the retail chains, in most countries in Europe, have grownso large and powerful that often the wholesalers are eliminated, their functionsare shifted either forwards or backwards in the channel, and the retail chainsbuy the products directly from the producers – if they accept the products andwant to sell them, and then the retailers manage much of the consumer market-ing. Therefore, knowledge about retailers’ and trade buyers’ buying behaviourhas become important to producers when developing their marketing strategies.

In order to understand retailers’ buying behaviour, the manufacturer could usemodels of organisational buying behaviour like, eg, Webster and Wind (1972) orSheth (1973). However, a number of factors justify that retailer buyingbehaviour should be treated as a special case of organisational buying. Sheth(1981, p. 181) noted that “a retailer is more like a consumer in what he buys,and more like a producer in how he buys his merchandise”. More specificallyretailer buying behaviour is characterised by the following points:

• retailers buy finished products primarily, but sell more than just the prod-ucts, ie a shopping experience (Davies, 1993)

• the retail buyer is not only responsible for controlling cost but also respons-ible for generating revenue (Wagner, Ettenson & Parrish, 1989)

• in industrial buying the decision is often influenced by engineers or pro-duction people. In retail, the decision is influenced by marketing, logisticsand merchandising (Swindley, 1992)

• retailers are members of different retail buying associations which maylimit the number of suppliers to choose among (Robinson & Clarke-Hill,1995)

• as own labels are becoming more and more widespread in retailing, theretail buyer becomes more and more involved in product development,sales forecasting, market analysis etc. (Swindley, 1992)

• the structure of the individual chain will often give the buying centre avery complex structure. A listing at headquarters does not mean that theproduct will be on the shelves in all chains or all the stores (HartvigLarsen & Jensen, 1994a, 1994b, 1994c)

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• developments in information technology have given the retailer decisiontools that differ from the ones used by industrial buyers (McLaughlin &Hawkes, 1995; Swindley, 1992)

As a first step towards an elaborate understanding of retailer buying behaviour,a literature review of a number of international journals was conducted. Thefindings of the review will be incorporated into the next step which is anempirical study on food retailers’ buying behaviour in a number of Europeancountries.

PURPOSE AND METHODOLOGY OF THE LITERATURE REVIEW

The purpose of this review was to examine the research that has been conductedon retailer buying behaviour and to use these results as a starting point for ourown studies.

As a starting point the search for research results on retailer buying behaviourwas limited to searching databases and reviewing the volumes from 1975 to1996 of the Journal of Marketing, the Journal of Marketing Research, theJournal of Retailing, the European Journal of Marketing, the InternationalReview of Retail, Distribution and Consumer Research and the Journal ofMarketing Channels. The reference list of every article was scrutinised forfurther references. This approach resulted in a total of 108 references related toretailer buying behaviour, not all of which are referred to in this review as someare explorative, and others report results that are only peripheral to retailerbuying behaviour. The 69 references used in this review are distributed over theyears as shown in table 1.

Table 2 shows the distribution of references on type of publication. The leadingjournals on retailer buying behaviour are the International Review of Retail,Distribution and Consumer Research and the Journal of Retailing, in which tenand seven articles, respectively, were published.

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Table 1. Distribution of references used

-1959 1960-69 1970-79 1980-89 1990-

1 5 12 19 32

Table 2. Type of publication

Journal Magazine Books PhD.- Conference Working papersarticles articles theses proceedings and reports

38 4 7 6 6 8

A MODEL OF RETAILER BUYING BEHAVIOUR

Several authors have noted the lack of a conceptual model of retailer buyingbehaviour (Cravens & Finn 1983; Grunert, Hartvig Larsen, Madsen & Baads-gaard, 1996; Keaveney 1995; McGoldrick & Douglas 1983). The lack of acommon conceptual model contributes to the fact that the findings on retailerbuying behaviour appear scattered and unrelated.

However, a few attempts have been made at conceptualising retailer buyingbehaviour (Sheth 1981; Sauer 1982; Cravens & Finn 1983; McGoldrick &Douglas 1983; McLaughlin & Rao 1990). An attempt will be made in this paperto organise the findings on retailer buying behaviour according to Sheth’smodel. This conceptualisation was chosen as it has the advantage of being broadand not based on the findings from a single retailer or product category. Themodel is shown in figure 1.

At this point, a few comments on the structure of this review are appropriate.First, the Sheth model is briefly explained. Secondly, the major findings arediscussed under the headings of each construct in the Sheth model. Wheneverresearch findings are not captured by the model, we will modify the model toinclude these findings. Thirdly, the different methodologies are discussed.Finally, suggestions for future research are outlined.

THE SHETH MODEL

Merchandise requirements. The merchandise requirements are the buyingmotives and criteria used by the retailer to evaluate different product offerings.Sheth proposed that these are influenced by inter-organisational1 and intra-organisational factors.

Inter-organisational factors. There are a number of factors separating oneretailer from another and according to the Sheth model these factors will in-fluence the merchandise requirements and make them different from oneretailer to another. The inter-organisational factors are retailer size, retailertype, retailer location and management mentality.

Intra-organisational factors. Obviously, the merchandise requirements are notthe same for every product that the retailer buys. Type of merchandise, productpositioning, regulatory constraints and type of decision are the factors that theSheth model uses to account for these differences.

Choice calculus. This construct captures retailers’ decision rules (heuristics).This could be trade-off, dominant or sequential choice calculus.

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1 Sheth used the term inter-organizational in a way that may be a little different from its current reference towhat takes place between companies. Sheth refers to interorganizational factors as those that distinguish oneretailer from another.

Source: Sheth (1981)

Supplier accessibility. The construct of supplier accessibility can be compared tothe concept of the evoked set from consumer research, ie the suppliers that theretailer would consider in a given buying situation. This is not necessarily thetotal number of suitable suppliers as the competitive structure, corporate imageand relative marketing effort by suppliers influence which suppliers areconsidered by the retailer.

Competitive structure. The competitive structure of the supply industry couldlimit the number of suppliers available to the retailer. This would be the case ifthe distribution of products are based on exclusive distribution.

Corporate image. The image of a supplier may influence the accessibility of sup-pliers negatively or positively. Sheth mentions that eg manufacturers fromcertain countries may have a more positive image than manufacturers fromother countries.

Relative marketing effort. Supplier accessibility is also influenced by the relativemarketing effort by suppliers. The different amounts and quality of suppliermarketing influence which supplier the retailer finds suitable for doing busi-ness with.

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Figure 1. The Sheth model

Retailer sizeRetailer type

Retailer locationManagement

mentality

Type of merchandising

Product positioningRegulatory constraints

Type of decision

Merchandiserequirements

Choice calculus

Ideal supplier/product choice

Actual supplier/product choice

Supplieraccessibility

Businessnegotiatons

Marketdisturbance

Businessclimate

Company'sfinancialposition

Corporateimage

Competitivestructure

Relativemarketing

effort

Intra-organisationalfactors

Inter-organisationalfactors

Ideal supplier/Product choice. This construct captures the supplier/productchoice that would be the outcome of a rational and formal decision-making pro-cess given the merchandise requirements and the accessible suppliers. Shethmentions that the actual and the ideal supplier choice do not always correspondas there are some intervening factors: the business climate, business negotia-tions, market disturbance and company’s financial position. Sheth hasseparated these factors from other determinants “..because their influence onbuying decisions cannot be anticipated or modelled” (Sheth, 1981, p. 187).

Business negotiations. The negotiations between the manufacturer and theretailer are important in establishing the terms of trade and whether there willbe any trading. If negotiations break down, the retailer will have to settle for aless than ideal supplier.

Market disturbance. This construct includes completely unexpected events likestrikes, disasters, force majeure, economic sanctions etc.

Business climate. This construct refers to macro-economic trends and eventsthat will influence the buying decision.

Company’s financial position. The retailer’s financial position may influence thebuying decision, eg retailers with limited liquidity will tend to be more inter-ested in good credit terms.

RESEARCH FINDINGS

In this section the research findings on retailer buying behaviour will be relatedto the Sheth-model.

Inter-organisational factors

Davies (1994a) studied the relation between retailer size and the delisting of 290products in supermarkets. Using a chi-square test and factor analysis he foundthat small retailers were more likely to delist for low sales and give otherreasons2 for delisting than large multiple retailers. However, Davies points outthat buyers from small retailers are different in many ways from large retailbuyers and that these factors may very well account for the difference.

McGoldrick and Douglas (1983) studied the buying behaviour of multiple retail-ers and Cash & Carry (a wholesaler with limited functions). They found differ-ences between the various retailer types. The most significant difference seemedto be a tendency for multiple retailers to remain in contact with the suppliersat regular intervals, including those with whom they did not trade. In the Shethmodel this suggest a relation between retailer type and business negotiations.

McGoldrick and Douglas (1983) also asked the respondents to rate 19 potentialmerchandise requirements on a seven-point scale. Although there were differ-

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2 “Other reasons” means other reasons than sales volume too low, gross profit margin too low, net profit margintoo low, poor delivery, wrong price point, buyers’ opinion of potential sales, other parties’ opinion of potentialsales, price too high, price rise (from supplier) too high, change of (retailer) strategy.

ences in the order of the most important merchandise requirements, the samefive criteria were mentioned as the most important ones. This result suggeststhat retailer type is not an important factor influencing the merchandisingrequirements, but it must be analysed in other settings.

Intra-organisational factors

Two studies have investigated the relationship between type of merchandiseand the merchandise requirements. Unfortunately the two studies are not easilycompared. Shipley (1985) found that between

• resellers of consumer goods in general,• resellers of shopping goods and • resellers of convenience goods

differences were small, and generally requirements like quality, price/mark-upand delivery were rated higher than requirements where there was a difference.Some differences were that among convenience goods reseller advertising, salespromotion and packaging are often rated higher than among resellers of shoppinggoods and consumer goods. Resellers of shopping goods often rate after-salesservice higher than do resellers of consumer goods in general and conveniencegoods. Wagner, Ettenson and Parrish (1989) used another categorisation of type ofmerchandise when investigating the differences in merchandise requirementsacross women’s ready-to-wear, men’s ready-to-wear, women’s accessories andhome products. Using ANOVA they found differences in the use of selling history3

and mark-up. The home product division was not as prone to using selling historyas the other divisions. In both the accessories and home division mark-up had alarger impact on the buying decision than did mark-up in the men’s division.

As one might expect, an own label (ie the variable product positioning) in a prod-uct category influences the buying decision to the extent that new products aremore often rejected than in categories with no own labels (Nilsson & Høst, 1987).

Merchandise requirements

In a comprehensive review of merchandise requirement studies, Nilsson andHøst (1987) identified no less than 394 criteria reported in 34 studies. Theproblem with previous studies of merchandise requirements has been that “Theresearchers identify different criteria, use different and incomparable definitionsor – most often – no definitions at all, and generally also refrain from presentingthe characteristics of their objects of study.” (Nilsson & Høst 1987, p. 41) The lastpoint stresses that even though merchandise requirements are the most re-searched construct4 it is difficult to draw any conclusions as regards any rela-tions to the other constructs.

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3 How the manufacturers products have sold in the past.4 See Arora 1975; Banting & Blenkhorn 1988; Bauer 1980; Berens 1970; Berens 1971; Borden 1968; Brown &Purvar 1980; Cravens & Finn 1983; Davies 1995; Doyle & Weinberg 1973; Fairhurst & Fiorito 1990; Feige &Tomczak 1995; Gordon 1961; Graf 1968; Grashof 1970; Heeler, Kearney et al. 1973; Hileman & Rosenstein 1961;Irrgang 1989; Kristensen & Strandskov 1996; McGoldrick & Douglas 1983; McLaughlin & Rao 1990;McLaughlin 1995; McNeill 1962; Montgomery 1975; Nilsson & Høst 1987; Nilsson 1977; Pellegrini & Zanderighi1991; Sauer 1982; Shaw, Dawson et al. 1992; Shipley 1985; Sternquist 1994; Sweitzer 1974; Wagner, Ettensonet al. 1989; Wall, Sommers et al. 1994.

Nilsson and Høst (1987) systematised the many criteria and concluded thatthey could be reduced to a framework of 10 categories and 25 sub-categories ascan be seen in figure 2. This framework can classify merchandise requirementsreported in studies not included in the review by Nilsson and Høst. Therefore itseems that the framework captures most of the possible merchandise require-ments, but for the time being no significant relations to neither the intra-organisational nor the inter-organisational variables are found.

Many of the studies on merchandise requirements were only interested in iden-tifying the criteria for new products presented to retailers. However, assort-ments are reviewed from time to time and research shows that a poor salesperformance is the main reason for products being deleted from the assortment(Gordon 1961; Grashof 1970; Nilsson 1977; Ettenson & Wagner 1986; Wagner,Ettenson et al. 1989; McLaughlin & Rao 1990; Davies 19955).

Nilsson and Høst tried to explain the acceptance, rejection, deletion and reten-tion of products using logit analysis to analyse 54 decision cases each dealingwith a product category. The 54 product categories contained a total of 506 prod-ucts (87 new products and 419 old ones).

The main findings suggest that a manufacturer brand has a higher likelihoodof being accepted if the price is relative low, if the product introduction isfollowed up with a marketing campaign and if there is not a distributor’s brand(own label) in the product category (see figure 3). On the other hand if a distri-butor brand is present in the category, only price and the manufacturer’scampaign explain whether a product will be accepted or not.

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5 Davies (1995) explicitly studied the delisting situation and he found that low sales volume was the numberone reason for delisting a product followed by the buyer’s opinion of potential sales. Surprisingly net marginwas only number five.

Figure 2. Merchandise requirements

A. Profitability and salesA1 Overall profitability A2 Rate of turnoverA3 Sales potential

B. Economic conditionsB1 Supplier’s priceB2 Gross marginB3 Allowances and rebatesB4 Support of co-operative advertisingB5 Credit termsB6 Other financial conditions

C. Assortment considerationsC1 Existence of private brandsC2 Relations to other products

D. Consumer evaluationD1 Overall consumer valueD2 Retail priceD3 Product’s physical characteristicsD4 Product’s psychological

characteristicsD5 Packaging

E. Supplier marketingE1 Introductory marketing campaignE2 Continual marketing

F. Supplier characteristicsF1 Supplier representativeF2 Reputation and reliabilityF3 Sales force organisationF4 Services and functionsF5 Other characteristics

G. Competitive considerationsH. Distributive factors

H1 Transportation adaptationH2 Store adaptation

I. Tactical considerationsJ. Salesman presentation

Source: Nilsson & Høst (1987)

Source: modified from Nilsson and Høst (1987, p. 129)

With regard to the retention/deletion decision the study suggests that a producthas a better chance of being retained if

• the size of product category is large. This is because large productcategories consist of many basic products that are not often changed.

• the size of the product group increases (excluding the product in question)

• there is no distributor brand (this is only true for manufacturer brands)

• the sales trend of the product is positive. This should come as no surpriseas current sale is seen as the best indicator of future sale.

When we are only considering the distributor brand it is the sales trend of theproduct, and the number of warehouses carrying the product that explain theretention/deletion of a product. The number of warehouses carrying the productis used as an indicator of future sales and profit.

Choice calculus

As mentioned choice calculus captures the decision rules used by the retailer.This raises the question of who actually makes the buying decision. Is it a singledecision or does the concept of a buying centre apply to retailing? It seems thatin department stores the buyer makes the decision autonomously (Ettenson &Wagner 1986; Wagner et al. 1989; Fairhurst & Fiorito 1990; Keaveney 1995). Ingrocery retailing, several researchers have pointed to the importance of abuying committee (Hileman & Rosenstein 1961; Borden 1968; Mooney 1972;Nigut 1972; Arora 1975; Hutt 1975; Bauer 1980; McGoldrick & Douglas 1983;

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Figure 3. Main results of Nilsson and Høst (1987)

Manufacturerbrands

• Distributorbrand

• Price• Manufacturer

campaign

Both manu-facturer brandsand distributor

brands

• Price • Manufacturer

campaign

All productgroups

• Size of prod-uct category

• Growth inproductcategory size

• Distributorbrand

• Sales trend ofproduct

Distributorbrands

• Sales trend ofproduct

• Number ofregionalwarehousescarrying theproduct

• Sales trend ofproductcategory

• Package size• Products

uniqueness• Share of prod-

uct category’ssales volume

Acceptance/rejection ofnew products

Retention/deletion ofcurrent products

Variablesnot used

Nilsson & Høst 1987; McLaughlin & Rao 1990). It seems that the existence of acommittee does not influence the buying decision in a major way as thecommittee normally adheres to the buyer’s recommendations (Arora 1975;McLaughlin & Rao 1990; Nilsson & Høst 1987).

Heeler et al. (1973) studied which heuristic models (compensatory, conjunctive,disjunctive, random) best described whether a product was accepted or rejected.They used these models on a number of decisions already made and found thatthe compensatory rule was the one that had the highest predictive power.

Competitive structure

Sheth expected the competitive structure of the supply industry to influence thesupplier accessibility and retailer buying behaviour. The preliminary research byBrown and Purvar (1980) investigated how the horizontal competition influencesthe use of merchandise requirements, but they did not find any major differences.

Sheth expected the competitive structure of the supply industry to influence thesupplier accessibility and retailer buying behaviour. Brown and Purvar (1980)investigated how the horizontal competition influences the use of merchandiserequirements. However, whether the retailer felt he had only or he had moresuppliers to choose from did not influence the merchandise requirements.

Corporate image

According to Sheth the image of different suppliers is likely to alter the numberof suppliers considered. The effect of corporate image on retailer buying beha-viour finds empirical support. For new products, there is a significant relation be-tween the manufacturer’s image and the likelihood of the retailer accepting theproduct (Grashof 1970; Doyle & Weinberg 1973; Hirschman & Mazursky 1982;Wright 1985; Banting & Blenkhorn 1988; McLaughlin & Rao 1990; Pellegrini &Zanderighi 1991; Ganesan 1994). For instance Pellegrini and Zanderighi foundthat a new product from an established supplier had a one-to-two chance of beingaccepted. For a new supplier with a new product the ratio was one to five.

Part of the corporate image is due to the manufacturer’s country of origin. Re-search suggests that the country of origin does have an effect on the supplieraccessibility as some countries are perceived to manufacture products of highquality, deliver on time etc. (Chang & Sternquist 1994; Sternquist 1994; Wall,Sommers et al. 1994). However, the relationship is very dependent on the speci-fic context, making it difficult to derive any general conclusions from the studies.

Several of the mentioned studies suggest reliability6 as one of the buildingblocks of corporate image. Reliability refers to delivery on time and a good salesrecord. A good sales record is important in the sense that the buyer sees it as anindicator that the product will sell well. High reliability increases the likelihoodthat the supplier will be accepted.

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6 It would have been interesting to learn whether a distinction was made between perceived and experiencedreliability but unfortunately this is not clear from the studies.

Relative marketing effort

Different suppliers put different amounts and quality into their marketingefforts. This influences which suppliers the retailer perceives as being suitablefor doing business with.

So far research has mainly focused on the role of the salesman. Most have founda positive relation between a good sales presentation and the actual supplier/product choice (Arora 1975; Graf 1968; McLaughlin & Rao 1990; Pilling &Eroglu 1994; Sweitzer 1974). However, some researchers have concluded thatthe salesman has no influence on actual supplier/product choice (Borden 1968;Montgomery 1975; Nilsson 1977). However, as Nilsson argues, these studieswere not thorough, as compared to the other studies and this superficiality mayaccount for the difference.

Both Sweitzer (1974) and Arora (1975) found that the salesman’s task empathy7

and planning and preparation are positively related to the buyer’s intention tobuy the presented product.

With increased concentration on virtually every retail market, trade deals/promotions have gained importance but as Walters (1989) notes “little is knownabout what causes retailers to support one manufacturer trade deal and notanother” (p. 254). Using a linear logit model to estimate the impact of differentfactors, Walters’ (1989) own study supported the hypotheses that “to receivegreater levels of deal support, increasingly large trade incentives must be presentin the deals” (p. 269) and “the time elapsed since a product category was lastpromoted affects retailer support levels” (p. 269). Deal support was considered tobe reducing price, placing ads in local papers and in-store displays.

Business negotiations

The negotiations between the manufacturer and the retailer are of course vitalin establishing the terms of trade and whether there will be any trading.Despite the obvious importance of the business negotiations only a few studieshave investigated aspects of this interaction (Lindqvist 1983; Dawson & Shaw1989; Knox & White 1991; Shaw, Dawson & Harris 1992; Ossiansson 1995;Runyan & Sternquist, 1995; Bowlby & Foord 1995). Except for the study byLindqvist and the Runyan and Sternquist study, which will be discussed in thebuyer attribute section, these studies have had a very explorative character, sofindings are not conclusive. A common thread in these studies is the emphasison closer and long-term relationships between manufacturer and retailer. It isnot uncommon for relationships to last 6-8 years (Knox & White 1991; Shaw,Dawson et al. 1992). As such it seems like a model of retailer buying behaviourshould incorporate some kind of dynamism that would capture the differentkinds of negotiations that take place between the retailer and the manufacturer.Lindqvist (1983) analysed 44 manufacturer - retailer negotiations by interview-ing both parties. He found that negotiations can be split into three categories:

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7 Task empathy can be explained as the salesman’s ability to understand the tasks of the buyer.

• Annual contracts, ie negotiations where the parties agree upon the generalterms of trade or whether there will be any trading at all.

• Joint marketing campaigns, ie negotiations where the parties agree uponjoint national marketing campaigns.

• Product negotiations, ie negotiations where the manufacturer offers theretailer a new product group or product.

It is almost exclusively the last category of negotiations that has caught theresearchers’ attention although only a few researchers have analysed it as anegotiation; most have analysed it from a pure retailer perspective, iemerchandise requirements.

General items agreed in negotiations are (Lindqvist 1983; Bowlby & Foord1995):

For food products it is not uncommon that the retailers also want to check themanufacturer’s suppliers, ie they need to be able to fulfil certain criteriaspecified by the retailer.

It has not been possible to identify any research findings associated with thebusiness climate, the company’s financial position and market disturbance.

NEW CONSTRUCTS/VARIABLES

In the following, a number of constructs and variables suggested by the researchcited will be presented. Their implications for the Sheth model are shown infigure 4, where the added variables and constructs are shown in bold. In figure4 we have altered the Sheth model a bit in order to show the number of studiesthat have investigated certain relations. Unfortunately, a high number does notindicate a well-established knowledge of the relationship. The figures are mere-ly indicative of what relations have caught the researchers’ interest.

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• Price

• Time of payment

• Stock keeping

• Co-operative activities

• Volume

• Delivery times and physicaldistribution

• Product quality and specifications

• Manufacturers assortment withretailer

Inter-organisational factors

Research shows that today’s retailer is not a simple organisation. On many Euro-pean markets there are large retailers operating on the market with many dif-ferent retail concepts (discount, hypermarkets, supermarkets etc.). The way buy-ing is organised is different from one retailer to another. Some have a centralbuying unit through which all buying takes place. In other groups the differentconcepts or even the individual store has some degree of autonomy to decidewhich products they want to buy. Research suggests that centralisation andformalisation influence business negotiations (Feige & Tomczak 1995: HartvigLarsen & Jensen 1994a; 1994b; 1994c; Lindqvist 1983). Research has not pro-vided a clear picture yet, but the study by Feige and Tomczak suggests that

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Figure 4. The Sheth model revised

Productcharacteristics

EDI

Regulatoryconstraints

Productpositioning

Type ofdecision

Type ofmerchandise

Buyingassociation

Retailer type

Centralisation

Formalisation

Retailer size

Retailer location

Managementmentality

(7)

(1) (1)

(4)

(4)

(2)

(9) (18)

(1)

(1)

(1)

(1)

(1)

(1)

(1)

(2)

(3)

(5)

(3)

Merchandiserequirements

Choicecalculus

Supplieraccessibility

Competitivestructure

Relativemarketing

effort

Corporateimage

Marketdisturbance

Relationshipswith suppliers

Businessnegotiations

Businessclimate

Company'sfinancialposition

Buyerexperience

Ideal supplier/product choice

Actual supplier/product choice

(34)

centralised retailers do not think of the manufacturer’s service8 as a relevantmerchandise requirement. This is probably explained by the fact that cen-tralised retailers are large enough to handle the service functions themselves.

Research has suggested that the retailer’s membership of a buying associationmight influence the supplier accessibility as the association dictates whichsuppliers the retailer can do business with (Shooshtari 1988; ErhvervsfremmeStyrelsen [Danish Agency for Development in Trade and Industry] 1994; Shaw,Dawson et al. 1994; Weinstein 1994; Robinson & Clarke-Hill 1995). A retailercan join an association for several reasons but a major driving force has been adesire to gain bargain power and economies of scale.

Intra-organisational factors

Previous research has shown that newness (Montgomery 1975; Nilsson 1977)and quality (Doyle & Weinberg 1973; Montgomery 1975; Wright 1985;McLaughlin 1995; Kristensen & Strandskov 1996) are always important deter-minants of the actual supplier/product choice. The findings also suggest thatthere are product-specific characteristics that influence merchandise require-ments. To account for these findings the construct product characteristics isproposed. Product characteristics account for the difference between acceptedand not accepted products within the same product line. On the other hand typeof merchandise accounts for the differences in merchandise requirements thatare due to different product lines, ie clothing, food products etc.

Davies (1995) found that EDI9 had a stabilising effect on the relationship, ie amanufacturer using EDI was less in danger of being delisted by the retailer.This finding suggests that EDI influences the actual product/supplier choice.

Using regression analysis, Fairhurst and Fiorito (1990) found that type ofdecision was one of two major factors influencing the retailers’ GMROI, whichis “calculated by dividing gross margin dollars by average inventory at retail”(Fairhurst & Fiorito, 1990, p. 92-93). When buyers moved from straight rebuy tomodified rebuy it had a positive effect on GMROI. This is probably due to thefact that in a modified rebuy the buyer shops around and is more focused onprices.

Buyer attributes

This construct was deliberately omitted from the Sheth model as he wanted tobuild a model at the organisational level. However, using regression analysis totest the influence of several of the Sheth model’s constructs on GMROI. Fair-hurst and Fiorito (1990) found that “..the construct which was added to Sheth’smodel, personal attributes of the buyer, indicated stronger statistical significancethan either of the constructs from the original model” (p. 98). In particular theyfound that the buyer’s experience was one of two major influences on GMROI.

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8 Manufacturer service offerings are: manufacturers’ information policy, DPP (direct product profitability) andspace management offers, manufacturer representatives competence, tailor-made promotions andmanufacturers’ guidance to store personnel (authors translation).9 Electronic Data Interchange.

Gender has been found to influence the result of the business negotiations in aminor way (Neu et al., 1988; Runyan & Sternquist, 1995). Runyan and Stern-quist used MANOVA to determine the effect of buyer attributes on the negotia-tion behaviour, and they found that female buyers negotiate advertising supportmore frequently than male buyers, while male buyers engage in negotiations onterms of trade more often. Using questionnaires and a negotiation simulationNeu et al. (1988) found few differences between men and women, except in thenegotiation simulation where men tended to achieve higher individual profitsand used more time negotiating.

Runyan and Sternquist (1995) found that experience is a major factor inexplaining the difference in negotiation results. This suggests a link from buyerattributes to business negotiations.

The buyer’s experience has also been found to influence the merchandise require-ments. Unfortunately the results are mixed. Davies (1994a, 1995) studied thedelisting of products and found that inexperienced buyers were more inclined touse objective criteria (net margin and price) for delisting products as opposed tothe more experienced buyers who used less objective measures. On the otherhand Ettenson and Wagner (1986) found that more experienced buyers usedmark-up and sales record as buying criteria. Fairhurst and Fiorito (1990) foundthat experience had a positive effect on the retailers’ GMROI.

Relationships with suppliers

As mentioned in the section on business negotiations, research certainly pointsto the fact that relationships between manufacturers and retailers are longterm. According to research this has implications for the actual supplier/ prod-uct choice. This is illustrated by the Pellegrini and Zanderighi study mentionedearlier which showed that retail buyers are more inclined to accept a productfrom an established supplier than from a new one. Dawson and Shaw’s (1989)study of 42 multiple retailers and 60 of their suppliers revealed 9 factors thatfacilitate greater co-operation between retailers and suppliers:

• High and consistent quality

• Need for flexible response

• Joint product development work required

• Specific delivery systems required

• Frequent contact through frequent ordering

• Wide product ranges required from a limited number of suppliers

• High physical degrees of product differentiation

• Strong manufacturer brands

• Small number of suppliers

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Lindqvist (1983) found that among manufacturers a good relationship with theretailer was seen as the number one factor positively influencing the manu-facturer’s negotiation position (retailers rated it number 3). Davies (1994b)gives some hints as to what a good relationship is. In his survey of 125 retailbuyers he found that good relationships were associated with words like“businesslike” and “co-operative”. These terms are so significant in describingthe relationship that they can be used to predict whether a supplier will be de-listed as a result of one single product of his being delisted (Davies 1995). Theresults of Davies’ (1994b) study of how the relationship influences actualsupplier/product choice is summarised in figure 5.

METHODOLOGICAL ISSUES IN PREVIOUS RESEARCH

Much of the early research discussed in this paper was very explorative andqualitative (Gordon, 1961; Hileman & Rosenstein, 1961; Hirschman & Mazur-sky, 1982; McNeill, 1962; Nigut, 1958; Nilsson, 1977). The researcher typicallyinterviewed a few buyers in a few supermarkets or attended buying committeemeetings.

Later on, most studies have applied the following research strategy: First, ashort review of previous research and a few pilot interviews are conducted. Thena questionnaire, often with Likert-scales, is compiled and administered to anumber of buyers. Statistical analysis is typically limited to frequency tablesand calculation of mean-scores, but factor analysis and analyses of variance arealso used. Unfortunately, few of the studies reveal deep insight into the metho-

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Figure 5. Research findings by Davies (1994b)

Hypothesis

A failed or failing relationship will:

• be associated with a high level ofconflict

• not be perceived as co-operative• be more likely where roles are not

clearly defined• not be described as a partnership

• will have no social dimension• be typified by little exchange of

information between the partiesconcerned

• be one where there is littleexchange of market data

• be one where there is little contactbetween the parties

• be one where there was little tradesupport from the supplier

Finding

Not supportedSupported

Not supportedSupported in the context of largeretailersSupported

Supported

Supported

Supported

Not supported

dology used. Simple things as sample size, type of scale and response rate areoften omitted from the reporting of the results. This makes it difficult for otherresearchers to judge which research strategies are the most appropriate.

A number of researchers have used different versions of a mixed fractionalfactorial design. This approach generates a number of hypothetical product/supplier profiles that are evaluated by the respondent. The results are typicallysubjected to an ANOVA-analysis yielding an identification of the most import-ant factors. Examples are Ettenson and Wagner 1986; Wagner, Ettenson et al.1989; Kline and Wagner 1994; Pilling and Eroglu 1994.

A few researchers have tried to model the buying decision by investigating anumber of buying decisions and using different statistical methods (discri-minant, regression, logit etc.) to predict whether a product will be accepted ornot. Despite their different approaches most researchers achieved a success rateof 70-85%. Examples are Doyle and Weinberg 1973; Heeler, Kearney et al. 1973;Montgomery 1975; Nilsson and Høst 1987; McLaughlin and Rao 1990.

COMMENTS ON THE SHETH MODEL

In this section we will give our comments on the usefulness of the Sheth modelas a model of retailer buying behaviour. The section on new constructs hasalready pointed to some potential flaws of the model.

The model is static and we think this might be a disadvantage if the model is tocapture the dynamic and on-going relationships that prevail in today’s retailingenvironment. A dynamic model would also make it easier to take into accountthe different types of purchases. We believe the buying behaviour to be quitedifferent according to whether eg the retailer is reordering goods, negotiating anew annual contract with a completely new supplier or negotiating with anown-label supplier.

The model is a very rational and deductive model. It was intended as a modelon the organisational level and as such it does not include any buyer attributes;however, research suggests that this might be a serious flaw in the model.

Business negotiations are made between a supplier and a retailer but how egretailer characteristics like size, type and management mentality influence thenegotiations are not taken into account in the Sheth model. We find the under-standing of which factors influence business negotiations to be fundamental tothe understanding of retailer buying behaviour.

Having used the Sheth model to map retailer buying behaviour, and havingtried to incorporate the research findings into the model, we hope to haveprovided a clear state-of-the-art knowledge on retailer buying behaviour anddocumented the need for further research.

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FUTURE RESEARCH

Our review of the retailer buying behaviour literature has shown that the areahas suffered from lack of a common conceptual framework. As a consequencethe literature appears scattered and unrelated. In this section some importantfuture research questions are proposed.

The Sheth model suggests that different factors influence merchandise require-ments and it could be argued that the many different lists of merchandiserequirements that research has generated support this suggestion. However, asis evident from the short paragraphs on inter/intra-organisational factors, littleis known about what these different factors are and about their relationshipwith merchandise requirements. Future research may want to focus onrevealing these factors and their relation to merchandise requirements.

From speaking with practitioners and reading trade magazines, it has becomeapparent that retailers and manufacturers do not negotiate every transactionthat takes place during the life span of their relationship. Instead, there is a tra-dition of making annual contracts, in which the general terms of trade aresettled, if the manufacturer is accepted as a supplier. In the course of the yearthere may be negotiations with regard to specific promotions or product introduc-tions. Research on the introduction of new products has been widely reported inthe literature, but little is known on the factors influencing the negotiation of theannual contract or trade promotions. The construct of business negotiations isseen as one of the most important ones to elaborate on as it is an under-research-ed construct that seems to have a huge influence on the actual choice of supplier/product. Furthermore, if it is true, as many claim (Bowlby & Foord 1995; Og-bonna & Wilkinson, 1996), that retailers have gained negotiation power in recentyears, it would be interesting to learn how this influences business negotiations.

Most large retailers are complex organisations that differ in degrees of centrali-sation and formalisation. How these organisational differences influenceretailer buying behaviour remains unknown, but it would seem that a manu-facturer would need a different approach to a highly centralised and formalisedretailer than a retailer with the opposite characteristics. This is also muchrelated to the question of the composition of the buying centre or whether abuying centre does indeed exist. As previous research with very few exceptionshas used a single respondent from each retailer, researchers must implicitlyhave assumed that buying decisions are made autonomously by the retail buyer.Some previous research has dealt with buying committees, but their compo-sition and influence on retailer buying behaviour remains uncertain. Revealingthe buying centre, ie finding the decision makers that influence a product’s wayfrom the listing of the manufacturer to the product actually being put on theshelf, must be a priority for research in retailer buying behaviour.

The link between relative marketing effort and supplier accessibility must be ofpertinent interest to manufacturers and researchers, yet little is known about themanufacturers’ opportunities with regard to influencing supplier accessibility.

With own labels becoming a major factor in today’s retailing, it is frustrating towitness that virtually nothing is known about the buying of own labels and how(or if) own labels influence the buying of branded products.

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New technologies as category management, space management, check-outscanners and EDI are rapidly being adopted by retailers across Europe. Howthese technologies influence retailer buying behaviour also remains uncertain.

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