The influence of power injustice on buyer supplier relationships within online service triads.

(1)

The influence of power injustice on buyer supplier relationships

within online service triads.

MSC Supply Chain Management

University of Groningen, Faculty of Economics and Business

January 28, 2019

Master Thesis

IVO TEMMINK

Studentnumber: 2742969

e-mail:

i.h.h.temmink@student.rug.nl

Supervisor

Prof. dr. H. Broekhuis

Co-assessor

Prof. dr. K.J. Roodbergen

Word count: 11.841

(2)

2

ABSTRACT

Purpose: The purpose of this study is to investigate how power asymmetry and organizational interdependence is managed between buyer and supplier within online service triads, explore how this affects value appropriation and investigate how this affects the perceived justice and continuity of the relationships.

Design/Methodology/Approach: Empirical evidence is gathered by means of multiple case study research. Semi-structured interviews are conducted and company reports are studied to generate in-depth insight.

Findings: Power is often not balanced in the relationship between buyer and supplier. In practice this power balance is accepted by both parties, when they are able to continue their business. This study shows which sources of power lead to the different levels of relational interdependency and how this affects the value appropriation process.

Practical implications: In order to create perceived fairness between buyer and supplier, sources of power and how they affect the relational interdependency should be understood. The level of substitutability and the access to valuable resources are important factors to gain more power in a relationship, when the weaker entity could not access this sources the power balance is hard to restore. Originality/Contributions: This study shows a new business model for online service platforms, namely a situation in which the suppliers are shareholders. This creates a situation with high relational interdependence. Further, this study shows evidence that the value appropriation process is not relevant for the continuity of the relationship.

(3)

3

Table of tables and figures

Figure 2.1: Service supply chains versus service triads ... 8

Figure 2.2: Conceptual framework ... 12

Table 3.1: General information about the platforms. ... 14

Table 3.2: Overview interviewees. ... 15

Table 4.1: Overview power balances and relational interdependency. ... 18

Table 4.2: Overview of the business models per platform. ... 20

Table 4.3: Overview of the variables per case ... 25

(5)

5

1. INTRODUCTION

On first sight, Thuisbezorgd.nl looks like the ideal solution for individual restaurants who fail to launch their own successful click and buy website. Restaurants get a boost in visibility in exchange for a percentage per transaction. But in reality it is not as favourable as it looks, due to its position as market leader, the platform is able to demand high commission fees (NRC, 2017). This fee is increasing at such a high rate, that restaurant owners decided to collaborate and developed their own platform. (NU, 2018). Nowadays, some internet platforms are so big and powerful that they can set unilateral prices and conditions. Restaurant owners state that relationship conditions deteriorate and power relations are lost (AD, 2018). From this problematical case the question arises how big platforms can appropriate so much value per transaction that a big perceived injustice in power between the restaurants occurs.

An important factor for cooperation and long-term relationships between buyer and supplier is the value appropriation and perceived justice within the buyer-supplier relation (Brito & Miguel, 2017). Value appropriation relates to the share of value created that each organization earns within a transaction. If the return of a transaction is as expected or even higher, both parties are willing to engage in new transactions and allocate more effort and resources into this relationship (Griffith, Harvey & Lusch, 2006). On the other hand, if one of the organizations fails to deliver the expected returns, ultimately the relationship may end.

Value appropriation is not symmetric in most of the cases (Cox, Ostrom, Sadiraj, & Walker, 2012), this may result in disturbed relationships and a perception of unfairness within an online service triad. In current literature there is a lack of understanding how the total value created in an online service triad is distributed between buyers and suppliers and how perceived justice affects relationship continuity between firms. Brito & Miguel (2017) found that there could be value created and appropriated within and outside a dyadic relationship, whereby the stronger buyer will seek to appropriate value primarily inside the dyad and the weaker supplier will appropriate most of the value outside of the dyad. Yet, to date empirical research has not investigated how value is appropriated outside of the dyad, or how perceived justice affects value appropriation.

(6)

6 other two actors (Bastl et al., 2016). This results in a situation whereby the customer’s satisfaction and perceived relationship strength with the service platform (the buyer) is dependent upon the effort and performance of the service supplier (Geyskens, Raassens, & Wuyts, 2014). Service triads can be found in both offline and online business; in this study we focus on online service triads, because e-commerce will take over brick-and-mortar stores and therefore will be much more relevant for future literature (Richter & Street, 2017). In addition, much is already written about relationship management and bases of power in offline businesses, but relationship management in e-commerce can be influenced by other factors which will be explored in this research. Therefore the online context is more appropriate.

A case study of Brito and Miguel (2017) already explored the relationship between power, governance and value in collaboration and showed that the value created in dyads is not restricted to a single connection in the supply chain. For a triadic perspective, this implies that a BSR could become valuable because of the relationship between the supplier and the customer. However, no in-depth evidence has been provided about how relationships with suppliers need to be managed in order to create fair value appropriation and long-term relationships. Brito and Miguel (2017) propose that perceived justice has limited influence on the continuity of a relationship. In contradiction, Goyal and Trada (2017) found that unfair value appropriation may result in opportunistic behaviour and the end of the relationship

Therefore, this study aims to fill up these gaps in literature by analysing value appropriation and justice from a triadic perspective. Here, we address two research questions: (1) How does power

asymmetry and relational interdependence between buyer and supplier influence value appropriation within online service triads? and (2) How does value appropriation between buyer and supplier affect the perceived justice and relationship continuity between buyer and supplier within online service triads? This will be investigated by means of an explorative multiple case study among different

online service platforms, that differ in terms of perceived justice and degree of cooperation.

(7)

7 By answering this research question, this paper makes three contributions. First, only little empirical evidence is available about power and value appropriation related to multi-sided platforms and service triads, which creates the need to explore the field more (Hagiu & Wright, 2015; Laudien & Täuscher, 2018). This will be one of the first studies to analyse the influence of the business model on power balance and injustice beyond a dyadic perspective. As service supply chains are shifting towards a triadic perspective, the implications of these shift have to be explored. Secondly, the success of platform businesses like Airbnb and Uber is so remarkable that discussion about how hard they are to build is often ignored. For every successful platform, there are many more that struggle or fail (Choudary, Parker, & Van Alstyne, 2016). This study tries to find results that can guide managers of platforms and service providers to appropriate as much value as possible. Finally, Brito and Miguel (2017) imply that contract termination is caused by misaligned goals between buyer and suppliers in terms of relational objectives (e.g. short-term profit versus collaboration). On the other hand, Goyal and Trada (2017) state that relationships end due to unfair exploitation of power on the buyer side. The results of this research will be very useful to solve this contradiction in literature.

(8)

8

2. THEORETICAL BACKGROUND

This section will explain different theories related to buyer-supplier relationships, power injustice and online service triads that will help to explain the influence of power injustice on buyer-supplier relationships. The starting point of this theoretical background are the papers of Laudien & Täuscher (2018) and Brito & Miguel (2017). In these papers they fill a gap in the literature by empirical research on multi-sided platforms and power asymmetry. With these papers as a starting point, the theoretical framework was broadened.

The chapter is structured as follows: First, the difference between traditional service supply chains and new service triads is explained. Thereafter, the relation between power and interdependence is explained. Where after the focus is shifted to value creation and appropriation within a buyer-supplier relationship. In the last section, the phenomenon of justice in buyer-supplier relationships is explored.

2.1 Buyer Supplier Relationships in Online Service Triads

Rather than speaking of service supply chains, it is better to speak of online service triads (Figure 1). Instead of the traditional situation whereby the buyer acts as reseller, the customer (C) requests a service from the buyer (B), who has outsourced the service to a specialist provider (S). This third party provides the service through direct interaction with the customer (Wendyn Van Der Valk & Van Weele, 2011). A supplier could act in multiple triadic settings and value created in one setting, could also affect the value creation and appropriation in another setting.

Figure 2.1: Service supply chains versus service triads

(9)

9 provider, because the service provider is the organization with increasing customer contact (Choi & Li, 2009).

Despite this new triadic relationship, Van Der Valk and Van Iwaarden (2011) emphasize the importance of the relationship between buyer and supplier within the service triad. Buyer-supplier relationships (BSRs) are a unique form of alliance. Such alliances have three primary characteristics: vertical relationships, power asymmetry and connections with direct or indirect partners (Brito & Miguel, 2017). In BSRs, different forms of governance mechanisms are adopted that range between contractual and relational (Hingley, 2005). Contractual governance is based on formal contracts, short-term gains and unilateral investments (Brito & Miguel, 2017). The two main functions of contracts are to control opportunism, which derive from misaligned incentives, and to coordinate the expectations of all parties involved (Lumineau & Malhotra, 2011). Relational governance is targeting long-term agreements, trust and mutual commitment (Dyer & Singh, 1998), there is an expectation of high continuity, knowledge sharing and development of asset specificity. Both parties invest effort and resources to specific relationships to create more value (Dyer & Singh, 1998). Between these two opposite ends of the spectrum, there is the complementarity of contractual-relational governance (Cao & Lumineau, 2015). In fact, a combination of both governance mechanisms can be adopted to maximize value creation and improve the performance of the relationship (Cao & Lumineau, 2015).

When the dependency between parties is high, a collaborative BSR can reduce environmental uncertainty, but contractual control mechanisms are also required in online service triads (Brito & Miguel, 2017). Therefore, organizations need to periodically assess their power position and interdependence to determine the appropriate set of long-term governance mechanisms (Dyer & Singh, 1998). Thus the concepts of power and interdependency are intrinsically related, the next section will elaborate about the relationship between power and interdependency.

2.2 Power and Interdependence

Dependence between two organizations occurs when one of both firms does not control all the necessary resources to achieve a certain goal and depends on the scarce resources of the other party (Emerson, 1976). The dependence of the one organization upon the other and the power of one organization over the other is determined by the importance of the resource and the availability of substitutes in the market (Caniëls & Gelderman, 2007).

(10)

10 power improves , because it will not be easy for the supplier to find a similar platform to invest the same amount of resources.

Interfirm power is defined as the ability of one firm to influence the intentions and actions of another party (Benton & Maloni, 1999). There are several bases of power, which are commonly grouped as mediated and non-mediated sources of power. Mediated power represents influence efforts that are deliberately engaged by the most powerful party to guide the response of the less powerful firm, this includes coercive, reward and manipulative power bases (Ashenbaum & Terpend, 2012). Non-mediated power is not specifically exercised to manipulate the target and the most powerful party may not be aware that this source of power exists. Bases of non-mediated power are expert, referent and legitimated power (Ashenbaum & Terpend, 2012).

The use of certain bases of power can affect the relationship between buyer and supplier in distinct ways. So can the use of coercive power by the powerful party in a collaborative relationship lead to lower commitment by the target, which may cause the withdrawal of the target firm (Benton & Maloni, 1999; Combs & Crook, 2006). But power could also have a positive effect, reward, expert and referent power may strengthen the commitment in a relationship, because weaker firms want to be identified with the stronger firm. (Benton & Maloni, 1999; Flynn, Hoi, Huo, Yeung, & Zhao, 2007).

Although there is a lot of research based on the effect of power on buyer-supplier relationships, it is not yet conclusive. Benton and Maloni (1999) suggest that non-coercive power bases (reward power and the non-mediated sources) have a positive effect on the strength and the performance of a relationship, whereas coercive power has an adverse effect on the relationship. On the other hand, Zhao et al. (2007) found evidence that using the appropriate base of power can improve integration and reduce opportunistic behaviour. Krause and Terpend (2015) show that , unequal distribution of power in buyer-supplier relationships can improve suppliers’ capabilities in terms of quality, innovation, delivery and flexibility. Besides these different bases of power, Brito and Miguel (2017) came up with two complementary perspectives within power asymmetry: buyers’ exploitation of power and suppliers’ tolerance to power, which results in acceptance of perceived unfairness by the supplier. The use of different power bases and perspective have a cumulative effect on long-term relationships and therefore also on value creation and appropriation (Cao & Lumineau, 2015), which will be discussed in the next section.

2.3 Value Creation and Appropriation

(11)

11 substitutes in the market as well as the previous experience with a buyer. When calculating these opportunity costs, a supplier should consider all the costs of supplying to a buyer and the possibility of using their resources for another transaction (Brito & Miguel, 2017).

However, value cannot only be evaluated in terms of economic value. Lindgreen and Wynstra (2005) argue that firms should also include non-financial gains, such as social benefits, innovation and technical capabilities that result in profitable gains in the long term rather than in the short term. On top of that, buyers and suppliers should look out for opportunities outside the existing buyer supplier relationship to increase their bargaining power (Lindgreen & Wynstra, 2005).

The share that each firm depends on its internal resources and resource interdependence, as well as on their power position in the bargaining process (Brandenburger & Stuart, 1996). If continuation is not a priority, the most powerful firm could appropriate a larger share of the value created. On the other hand, when interdependency between the two firms is high, the stronger firm will not exploit its bargaining power and share the gains to avoid conflicts (Combs & Crook, 2006). It is important for both parties that the division of value will not limit commitment and investments towards the relationship, such that it will not obstruct value creation in the future. Therefore, it is important that there is justice in the distribution of value if the aim is to continue the relationship.

2.4 Perception of justice

Power justice refers to the perceived fairness in a specific transaction or relationship. Recent meta-analysis show four different types of organizational justice: Distributive justice, procedural justice, informational justice and interpersonal justice (Colquitt, Conlon, Ng, Porter, & Wesson, 2001; Ellis, Lamont, & Reus, 2009; Huang, Liu, Luo, & Zhao, 2012). Distributive justice refers to the perceived fairness in terms of gains, and is closely related to balance between costs and benefits of the transaction (Ellis et al., 2009). Procedural justice relates to the decision making process, if the procedures of making and implementing decisions are fair, organizations will easier accept outcomes they do not favour (Ellis et al., 2009). The last two types are associated with the human aspect in social interactions, such as interpersonal relationships and treatment of communication (Brito & Miguel, 2017; Huang et al., 2012).

(12)

12 2017). This study investigates if these findings hold in a triadic perspective and how the third party could affect this relationship.

2.5 Conceptual Framework

The conceptual model indicates four theoretical dimensions that describe the dynamics of a service triad: Power asymmetry, relational interdependence, value appropriation and perception of justice.

Power asymmetry could be divided in to two complementary perspectives: exploitation of power on the buyer side and tolerance to power on the supplier side. The power symmetry between buyer and supplier is affected by the interdependence between both sides. If the supplier makes unilateral resource investments, he gains more power in the negotiation process. Interdependence between buyer and supplier can be seen as a risk avoidance strategy among buyers, because a strong bond with the supplier creates a priority position for the buyer. On the supplier side, interdependency can assure survival due to large-volume orders.

The power position of both organizations is of great importance for the value appropriation. The side with the dominant power position can appropriate relative most of the value created within the relationship, but might not do so for because the weaker firm might perceive a certain division as unfair. Yet, a firm could also appropriate value outside of the buyer-supplier relationship and accept a certain level of unfairness in the specific BSR. The supplier might appropriate value in two different ways. First, there could be value created and appropriated in the relationship with the customer in an online service triad. Due to the increasing customer contact, the supplier could gain useful insight into customer needs and use these for providing a service that fits better with the demand and to innovate their own services.

On top of that, a supplier could create value in another service dyadic or triadic setting due to learning effect and improving the suppliers reputation. It is important for suppliers to realize that value created in a BSR can create spill overs to another relationship. When a supplier is allowed to sell his product on a certain platform, customers could get an improved brand image. Because customers could associate the platform with high quality products (Adetunji Adegbesan & Higgins, 2010). If the weaker side does not accept the power imbalance and is not able to restore this, it might end the relationship which could have big impact on the business of both sides. The conceptual framework to analyse the relationships between the different concepts is shown in Figure 2.2 down below.

(13)

13

3. METHODOLOGY

The main purpose of this study is to identify how power asymmetry and relational interdependence influence value appropriation within online service triads and how value appropriation affects perceived justice and relationship continuity between buyer and supplier within online service triads. Given the exploratory nature of this research, a multiple case was executed. A case study is the most appropriate way to explore a real-life phenomenon and it is specifically suitable as the variables could not completely be defined beforehand and other variables might come into play during the research (Yin, 2009). The case study provided the opportunity to study several online service triads in their natural setting and evidence gathered from an multiple case study is often more compelling than from a single case and the external validity is increased (Frohlich, Tsikriktsis, & Voss, 2002). So due to the fact that relationship management in online service triads is hardly present in current literature, a multiple case study is the best way to fill this gap. The setting in which the case study was conducted is the Dutch service industry, this setting was chosen because it enables to do a cross market research to find out if there are differences between those markets and it increases that increases the generalizability of the results.

3.1 Case Selection

The unit of analysis for this research is the relation between the buyer (online service platform) and the service supplier within an online service triad, with the focus on value appropriation and justice. Buyer-supplier relationship management (BSR) between buyer and supplier could be aggregated in dimensions of joint action and relationship continuity (Heide & John, 1990). As the goal of this paper is to find out the relation between value appropriation and perceived justice and relationship continuity, this is the appropriate unit of analysis.

(14)

14 situation in which the platform was the most powerful entity, in one case the suppliers were the most powerful and in the final case the power was balanced.

Selecting these combinations of different relationship types and perceived power allows the investigation of the effects of varying service triads. Moreover, replicating characteristics over the three cases allows for structured comparison of relationship and power related effects which enables generalization among cases.

Case B & D are replicated literally based on the degree of openness and perceived power balance, therefore they should produce similar results. In contradiction, case A was replicated theoretically with the opposite characteristics of the first two cases, this should result in contrary results, but for predictable causes (Frohlich et al., 2002). Case A & E have the same degree of openness, but a different power balance. This should reveal the importance of the perceived power balance on the perceived justice and relationship continuity. Case C is an unique case with balanced power, which should once again show the importance of the perceived power balance. An overview of the case selection criteria is visualized in Table 3.1.

Platform Open/ closed Perceived power balance Type of products/Service

Size of platform Business model

Service triad A

Closed platform

Supplier has the most power.

Garden supplies -100.000 different product -8 different suppliers

The suppliers are shareholders of

the platform. Win/loss is shared with all the shareholders. Service triad

B

Open platform

Platform has the most power.

Hairdressing -Over 1 million appointments per year -Almost 6000 different suppliers The platform receives a fixed amount per time

period with additional commission per transaction. Service triad C Open platform Power was balanced.

Online auctions -15 Million unique visitors per month. -350 million turnover.

The platform receives a fee per

transaction from both supplier and

buyer Service triad

D

Open platform

Platform has the most power. Vacation house rentals - Over 8.000 vacation houses. - 20 million turnover The platform receives a fee per

transaction from the supplier. Service triad E Closed platform

Platform has the most power. Construction supplies - Almost 400 physical stores - 100 million turnover

(15)

15 3.2 Data Collection

In order to collect rich data, semi-structured interviews with different actors within the service triad were conducted. Semi-structured interviews made exploration of opinions and perceptions of the interviewees easier and enabled to get more information about complex issues like relationships between platform and service providers (Barriball & While, 1994). In three cases, an interview was conducted with a representative from the supplier side and a representative from the buyer side who is well-informed about the relationship. The interviewees were selected on their function and experience within the buyer-supplier relationship, which should guarantee more reliable insights. For service triad C, only one interview was conducted with a representative from the buyer side due to time constrictions. The case with service triad E is solely composed based on secondary data. Moreover, in all cases additional background information was derived by reviewing company documents, reports and documentation on the website. These documents are not only been used to acquire rich data, but also to constrain instrumental bias, create triangulation and increase the validity of the research (Jick, 1979). The data has been collected by a single researcher during the months November and December. The interview data has been collected during face-to-face or telephone/skype-calls. An overview of the interviewees can be found in table 3.2.

Besides the interviews, additional secondary was gathered via multiple ways. The first step in the process of gathering additional data, was looking up the website of all the platforms. A website provides general information about the website and how they operate. As case A was a new platform to the market, the owner gave access to the pitch that was used at the founding of the platform. The supplier of case B obtained me access to the business side of the platform, which allowed me to get more in-depth information about the communication between buyer and supplier. The account manager of platform C provided me with some data about new suppliers, that showed how fast

Category Business Function interviewee

Type of interview Time

Multi-sided platform A

e-Fulfilment Owner/Manager Telephone 35 min Multi-sided

platform B

e-Fulfilment Owner/Manager Telephone 30 min Multi-sided

platform C

e-Fulfilment Account manager Face-to-face 45 min Multi-sided

platform D

e-Fulfilment Account manager Skype 40 min Service

provider A

Supplier platform A Owner/Manager Face-to-face 35 min Service

provider B

Supplier platform B Owner/Manager Telephone 25 min Service

provider D

(16)

16 suppliers can grow on the basis of the platform. As case E was fully build based on secondary data, the Dutch newspaper Financieel Dagblad had a big archive with articles about this platform. The secondary online sources for case E are added in the coding scheme in Appendix C. The secondary data was also very helpful to make a case description, which could be found in Appendix B.

3.3 Data Analyses

All the interviews have been recorded and were transcribed within 72 hours after the interview, thereafter the transcript is checked by the interviewees for verification and possible additions, which was not often the case in practice. The data has been coded and analysed using ATLAS.ti software, and followed the analysation process of data reduction, data display and establishing conclusions (Huberman, Miles, & Saldaña, 1994). The coding was executed in a deductive manner, meaning the first list of codes was used based on the concepts of this study and was expanded during the process when the data revealed new relevant concepts (Corley, Gioia, & Hamilton, 2012). During the first step, useful and relevant quotes were identified and marked as first-order codes. Quotes were considered as relevant when they included an explanation of how power asymmetry and relationship interdependence were related, and how this affected the value appropriation process and perceived justice within the online service triad. In the next step, the findings of these first-order codes are transformed to second-order codes which include a more concise description about the interpretation of the quote. Finally, the second-order codes are linked to related concepts of the conceptual model.

(17)

17

4. FINDINGS

4.1 Power asymmetry and relational interdependence

We first analysed how the interplay of power asymmetry and relational interdependence differs among the service triads. Service triad B, D and E show a situation where the platform has the most power, the source of this power is non-mediated according to Ashenbaum & Terpend (2012) ‘You could not

really speak of a power (im)balance. We offer a service with our platform, the supplier could take it or leave it.’ (Platform B) and ‘We follow a standardized business model. If you want to offer your service on our platform, there are standardized fees’ (Platform D). These two platforms show that there is no

space for negotiation about the commission fee within the service triad, Platform B underlines this an extra time: ‘Our national coverage is excellent, there a plenty of suppliers per area to perform that

service, so there is no need for us to negotiate about fees’. Despite the business model at platform E is

a bit different, they were a physical store that went online and is using a multichannel strategy nowadays. It shows also similarities, namely the power asymmetry is also in favour of the platform. ‘Our suppliers have to comply with the e-commerce formula, otherwise we can intervene and impose a

fine. These fines are most of the time related to failing to meet the delivery standards ’ (Platform E).

This source of power could be defined as mediated by Terpend & Ashenbaum (2012), because coercion power is the power to punish the weaker partner if it not act in the desired way. All the suppliers of triads B, D and E confirm this power asymmetry between platform and supplier, but they make use of the platform nevertheless to generate revenue. ‘I build this business based on platform B,

it really helped me grow to where we are now and it offers me a fulltime job in a market that I like’ (Supplier platform B). This shows that the supplier is dependent on platform B to make a revenue, but

platform B could easily run his business without supplier B. This is in contrast with platform E, in this case the platform and his supplier are both dependent of the relationship. ‘We’re dependent on the

platform to steer us into strategic directions, but the platform needs us to generate profit. Without our services, they are in big trouble regarding the delivery and returns of the product’ (Supplier platform E), but ‘Because the platform is not aware of day to day business, they need our input for operational and tactical steering’ (Supplier platform E)

The supplier of platform D show yet another situation where the platform has the most power, he indicates that the digitalization has globalized the market that he is operating in, so that he had to increase his visibility on the internet. ‘We cannot operate in the old fashion way anymore, we have to

increase our visibility by making use of different channels, so we can take a chunk at various ways’ (Supplier platform D). This statement gives away that he does not want to create interdependency with

Platform D, which he confirms. ‘For platform D we are just one of many suppliers, but we need to

(18)

18 Table 4.1 shows a recapitulation of the findings and show that with the same power asymmetry, different outcomes in terms of relational interdependence are possible. For the supplier of platform B, it is necessary to survive as a business. ‘Everything is ordered online nowadays, I would probably not

even survive without the orders from platform B (Supplier platform B). This indicates that the supplier

is dependent on platform B, but not the other way around. As long as the supplier generates revenue by using platform B as an important delivery and sales channel and in this way can assure survival, the supplier will be happy with the relationship. On the other hand, service triad E shows mutual interdependence between both entities, the supplier underlines this with the following statement: ‘Big

investments are made from both sides into this ongoing relationship, backing out of this will cost both sides a lot of money’ (Supplier platform E). So in this case large investments and the fear of high sunk

costs, will be a good reason for both organizations to continue with the relationship. In service triad D, both supplier and platform don’t feel dependent on each other. Platform D feels not dependent because there are many substitutes., and supplier D not because the supplier uses a multi-platform strategy in which he prevents his company of becoming being dependent on a single platform.

So different outcomes in term of relational interdependence are possible, but these differences exists for reasons of different strategies. The supplier of platform B saw the potential of the platform and choose to become dependent. However, the strategy of the platform was to get a supplier base as big as possible, which undermines the interdependency. Service triads E also indicates a deliberate choice in strategy to invest a high amount of resources into the relationship, which resulted in high interdependency between platform and supplier. On the other hand, platform D has made his choice in advance that high dependency could also become a risk and therefore applied a multi-platform strategy. Therefore this results imply that relational interdependency is a strategical choice and did not arise during the relationship.

While in service triad B, D and E the platform was the most powerful entity, in service triad C platform and supplier experience a balanced relationship, i.e. there is not one party more powerful than the other and they experience mutual dependency. ‘The balance in power is split almost 50/50’ and ‘The one quarter it is 60/40, whereas the next quarter it could be 40/60’ (Platform C). The fluctuation in the balance is caused by the spent resourced on the platform side ‘We visit his office regular, after

# Power balance Relational interdependency

Service triad A Supplier is the most powerful entity. Relational interdependency is high Service triad B Platform is the most powerful entity. Supplier is dependent on the platform,

not the other way around. Service triad C Power between supplier and platform is

balanced.

(19)

19

such meetings I feel often that the supplier values the platform more, because I convinced him what we can offer’(Platform C) or by the stock that is delivered by the supplier ‘If we find out that the supplier gained access to a new valuable supplier, we must sometimes give in and accepts his conditions’ (Platform C). The main cause of this power balance is the relational interdependency between both

parties. ‘The supplier is an absolute business man, he saw the opportunity in working with us and with

the right support he developed into the biggest supplier within our cluster’ (Platform C). This supplier

grew so fast, that a joint long-term vision was composed for the grow of both companies. ‘This

supplier has valuable resources that no other supplier is able to deliver’ and ‘Due to the collaboration between platform and supplier, the revenue of the supplier grew by 6000% over the last three years’ (Platform C). This case shows that integration between both companies, could deliver a power balance

where both companies could benefit a lot. This integration is only possible because both parties could offer each other valuable resources and capabilities, if this is not the case a power balance is often hard to create. ‘When a new seller comes on board, we firstly analyse his potential if its high, medium or

low. We do a lot of research to make sure that the sellers on our platform are good businesses before we take further actions’ (Platform C).

In service triad A, the supplier had the most power in the relationship. This is confirmed by both sides. ‘We want to compete online, because we also see a shift in the market. But our business is still very

traditional, so online sales has not our priority’ (Supplier platform A) and ‘Our negotiation position is weak, because the size of the offline business. We are only representative of a small share of the total sales’ (Platform A). Nevertheless, the interdependency between both parties is high, due to the

business model of the platform. ‘We could not operate without each other. Because the service

suppliers are also shareholders of the platform, they also benefit from the growth of the platform. (Platform A) and ‘We founded this platform together with eight service suppliers. If one supplier decides to leave, most of his investment in this platform will be gone’ (Platform A). So also in this

case, mutual investments are a reason for high relational interdependency. On the other hand, this shows that the right business model, creates interdependency between platform and supplier. So the choice to make suppliers shareholder of your platform, improves the relational interdependency which results in a situation where the less powerful entity secures relational continuity.

(20)

20 could help to grow the company. Case C shows that if both parties dedicate valuable resources to a relationship, collaboration can help to grow and if both parties dedicate a similar amount of resources, a power balance can be created. In case E is shown that despite the platform has the most power, the weaker entity could be indispensable and relational interdependency could be high

4.2 Value Creation and Appropriation

Value appropriation can be approached from different angles. This section starts with monetization, this dimension is easy measurable and came forward in all cases. The first way of money division between platform and supplier is a fee per transaction. In total three different options of a transaction fee were found. The first option is a transaction fee at the supply side. ‘We ask the supplier a

commission fee of 12% of the total price that is asked, so inclusive sale taxes’ (Platform D). This

model is defined as an on-demand offline service (Laudien & Täuscher, 2018), which is the most common business model for online servicing. Platform C uses another business model, and asks for a transaction fee from both supplier and customer. ‘As a platform we have two clients: The first client is

the seller and the other client the buyer, so we have a commission fee at both sides. For a seller its 12.5% and for a buyer its 9% per item’ (Platform C). This Double sided commission fee model is

common in customer-to-customer markets and categorized as peer-to-peer offline services by Laudien and Täuscher (2018), however this research shows that this business model is also used in the business-to-consumer market.

The commission fee for the supplier is around the same for different platforms and in different markets, which the service provider of platform D confirmed ‘We sell our service via multiple

platforms and the commission fee differs from 10 to 16%’ (Supplier platform D). The third option is a

fixed fee per time period with an additional commission per transaction. ‘We demand a fixed fee of 15

euro per month, to guarantee a cash flow. On top of that we ask a small commission of 45 cent per transaction (Platform B). The business structures of the different platforms are summarized in table

4.2 down below.

# Business model

Service triad A The suppliers are shareholders of the platform. All the wins and losses are shared by the shareholders.

Service triad B The fixed fee is €15,- per month, an additional fee

of 45 cent is demanded per transaction.

Service triad C The platforms receives a transaction fee of 12.5%

from the supplier and 9% from the buyer

Service triad D The platform receives a transaction fee of 12% from the supplier

Service triad E The suppliers are shareholders of the platform.

Profit will belong to the store within the commercial area of the buyer.

(21)

21 For new suppliers on the platforms there is no space to negotiate about the amount of commission. ‘If you want to sell on our platform, you have to accept our price’ (Platform B) and ‘The

commission fee is set, you can take it or leave it’ (Platform D). But if the sales of a supplier grows and

the revenue is increasing, platforms are not steadfast anymore and show that they see mutual interests. ‘For established suppliers we work with a ranking system. As that the sales volume grow, the

commission fee can fluctuate between 25 and 45 cent per transaction’ (Platform B) and ‘We have a commercial structure, so depending on the business potential. Sometimes we have suppliers with massive stock, there is some commercial initiatives that we can take. For this big suppliers it is obviously a different story than for someone who just starts selling’ (Platform C). This shows that

when the sales revenue grows, the more powerful a platform becomes, and the interdependency with the supplier increases. Therefore they fear that big suppliers will leave the platform and offer commercial initiatives. ‘In the past we lost important suppliers, because the board did not allow us to

negotiate with them: It was take it or leave it. But in the end it is better to take a smaller share than nothing at all’ (Platform D). The importance of a supplier is based on the total volume of sales or

the access to unique resources. ‘We screen our suppliers based on the potential turnover, ambition and

opportunities for growth’ (Platform D) and ‘Even an individual who wants to get rid of his unique collection could become very lucrative for us’ (Platform C).

The second option of monetization that came forward from the cases was win/loss sharing through shares, this model was not found by Täuscher and Laudien (2018) and therefore gives new insights to practice. ‘All the costs of the platform are divided by the eight service suppliers. As a result of this

business model, the end result of our platform is zero every year’ (Platform A) and ‘All of the physical stores are shareholders of the platform, so therefore we do not ask a fee per transaction’ (Platform E).

This manner of monetization seems to increase the relational interdependency between platform and the supplier. ‘This structure increases the cohesion between the suppliers. If one of us messes up,

customers will probably not come back to the platform, which has an influence on the profit of all of us’(Supplier platform A) and ‘Because we all benefit from increasing revenue, it is our obligation to perform as best as possible’ (Supplier platform E). So this way of monetization encourage the

suppliers, even if they are less powerful, to create as much value as they can. And when more value is created, more value can be appropriated by both platform and supplier.

Besides money, there is also intellectual value created and appropriated within the online service triad. This dimension is relatively more hard for managers to estimate. ‘As a changing company, you learn

(22)

22 learning is very important to create value now and also in the future. ‘We are a changing company, we

change today and we are going to change in the future. But implementing those changes is way easier than it was 2 years ago because we learned as an organization on the way’ (Platform C) and ‘Due to our experience in the field, we were able to came up with guidelines for suppliers about desirable behaviour’ (Platform D).

Platform C confirms that value can be appropriated within or outside the online service triad, as was expressed in previous literature (Brito & Miguel, 2017). ‘We are able to transfer knowledge

gained in a relationship to another relationship. In my time as an account manager I learned how supplier work and what they expect from us’ (Platform C). Both organizational learning and

knowledge transmission can be stimulated by platform and suppliers. The suppliers of platform B show knowledge transmission by organizing informal sessions between suppliers ‘I know people who

also supply to this platform. We often have informal talks about our experience with the platform so we can help each other to appropriate more value’ (Supplier platform B). Platform C shows that

organizational learning could also be stimulated by the platform, they have a group of key suppliers who help to stimulate innovation. ‘We have a group of important suppliers for our company. An effect

of these groups is that they can change our platform into their favour so that both sides benefit’ (Platform C). At the supply side of platform D, value appropriation outside the service triad was also

shown. ‘Due to the fact that I have to deal with multiple platforms, I am in contact with different

account managers and I learn from my experiences with those different people’ (Supplier platform D)’.

Value appropriation outside the service triad is not visible at closed platforms, these are platforms where not everybody can apply to sell their service or goods. Only a strict number of suppliers that are carefully chosen by the platform are able to sell their products. The reason for this phenomenon is that managers do not have to deal with other platforms. ‘We have a contract with this

platform and are only allowed to sell via their channel. Only the customer is the changing entity in the service triad, therefore we are not aware if we appropriate value outside this triad’ (Supplier platform A).

The rate of innovation is another dimension of value appropriation for both platform and supplier within the service triad. The different power balances show a relation with the innovation rate of the service triad. The results show that when the platform has the most power, or at least a balanced power ratio, the innovation rate at the platform is high. ‘Over the last years we developed quite fast as a

(23)

23 rate is confirmed by other platforms. ‘Suppliers help us to constantly improve our platform and

services’ (Platform B) and ‘Without the feedback of our suppliers we would not achieved this much’ (Platform D).

In contradiction, in the situation where the suppliers are the most powerful entity (case A), the innovation rate of the platform seems to be low. ‘Our suppliers do not show interest in the platform

over the weekend. If someone orders a product on Friday, it will not be processed until Monday morning. Which is frustrating at times’ (Platform A). Chen, Tsou, Ya, and Huang (2009) state that

service delivery is the most important source for innovation, so when the supplier do not see the importance of delivery quality, it will be hard to create a high innovation rate. The supplier of platform A confirms that he thinks that innovation is not his business. ‘We started this relationship with

platform A, as a return we expect that the platform constantly improves. Therefore we pay the platform owner’ (Supplier platform A). This is also the case at platform E. ‘Our suppliers seem to deliver a minimum viable product, they do not want to spend additional resources into our servicing’ (Platform E). Therefore this research shows that the power ratio has a big influence on the rate of

innovation.

Platform D shows on top of monetization and organizational learning an entire other way of value creation and appropriation. ‘For every sale that is made via our channel, we plant a tree. So

everyone could appropriate value if a transaction is made. Because in the end we all benefit from a greener planet’ (Platform D). With this initiative everyone appropriates a little bit of value a

transaction, even if you are not even aware of the transaction.

4.3 Perception of justice

The data retrieved from the interviews shows that there is no causal relationship between value appropriation and perceived justice, and therefore show that an asymmetric power balance is clearly not the same as an unfair power balance. The interview with platform C shows that an symmetric power relationship can be perceived as an justified power relationship. ‘I think it is fair, like I said we

invested a lot of time in this relationship and his knowledge is invaluable actually’ (Platform C). But

in all the other cases, where the power was not in balance, all the organizations perceived the relationship as fair. ‘50% of the costs are divided proportional and the other 50% is a ratio of the

turnover. Therefore, if we make less profit through the platform, we have to pay less. With this model we think it is fair for everyone’ (Supplier platform A), ‘You do not pay for our additional service if it does not lead to customer orders, therefore I think it is reasonable’ (Platform B) and ‘Every platform in our market asks for somewhat the same fee, where this platform is in the middle. I think the new customers that you get in return, justify this commission fee’ (Supplier platform D).

The main reason that the weaker entity accepts and justifies the power imbalance, is that it is not part of their day to day business. ‘We just pay the commission fee to the platform, we do not have contact

(24)

24 and ‘I did not go to university, I just want to carry out the job that I love. I do not care about power

ratios’ (Supplier platform B). Besides that they do not really care about the power balance, they see

the reason why they have to pay a commission fee and what they get in return. The first factor that justifies the power balance are high investments of the other side. ‘We have to pay this fee for a

reason, they invest a lot of money in marketing. As a solely company we would not be able to be high in the search machines’ (Supplier platform D)’ and ‘We invested a lot of time into building this relationship with the supplier. And in the end time is money’ (Platform C). The next factor is that the

platform helps the supplier grow. ‘We started this relation three years ago and in that time his sales

on the platform increased with 6000%’ (Platform C) and ‘On average, we generate 9.1 new customers per supplier per month. So our platform can help your business grow’ (Platform B). The third and

final factor that was found is that the platform is necessary to assure survival. ‘Such a big share of our

turnover is generated through the platform, I am not sure if we could exist without it’ (Supplier platform B).

Only one of the service triads (Triad C) showed a balanced power ratio. This balanced ratio was the result of initiatives of both sides to gain it. If you want to gain more power as a supplier, you must possess valuable resources that no other supplier can deliver. ‘He has resources within that category to

be able to get the stock, that we will not regularly see. He knows people to obtain really valuable stock. Volume wise he offers really exciting things’ (Platform C) and ‘Because of his valuable resources, commercial initiatives were possible’ (Platform C). For platforms the substitutability of

suppliers was the main source of power, so when a platform has a big supplier base, he is able to pressure the suppliers more. ‘We have around 6000 suppliers, so losing out on one will not hurt our

business’ (Platform B) and ‘Our supplier base is big enough, so smaller suppliers could not really pressure our platform’ (Platform D).

When both parties have access to resources which can pressure the other entity, the power balance can be restored. At service triad C was visible that both parties integrate their businesses and created big relational interdependency. ‘We build a strategy together. And in the long-term, I see a lot

more potential in the partnership because I know how he sees his business’ (Platform C). But such a

level of integration is only possible, when both parties access valuable resources. In the other cases was visible that businesses accept the power imbalance, as long as they are able to make a living out of it.

(25)

25

Case A Case B Case C Case D Case E

Power Asymmetry

Supplier is the most powerful

entity

Platform is the most powerful entity

Power is balanced Platform is the most powerful

entity

Platform is the most powerful

entity Sources of power -Relevance digital

channel -Substitutability -Volume discount -Expert power -Volume discount -Substitutability -Volume discount -Coercion power Relational Interdependence Relational interdependency is high One-sided dependency of the supplier Relational interdependency is high Relational interdependency is low Relational interdependency is high Sources of interdependence -Sunk costs -Mutual benefits -Assure survival supplier -Need for growth

supplier

-Unequal investments

-Valuable resources -Need for growth

supplier -Integration -Unequal investments -Multi platform strategy -Sunk costs -Mutual benefits Value Appropriation Suppliers are shareholders of the platform

Fixed fee per month and transaction fee

for the supplier

Transaction fee for both supplier

and customer

Transaction fee for the supplier

Suppliers are shareholders of

the platform Perceived Justice Perceived fairness Acceptance Perceived fairness Acceptance Perceived fairness

Table 4.3: Overview of the variables per case

Case B & D were replicated literally, both were open platforms with the platform as the most powerful entity within the online service triad. In practice, the cases showed a lot of similarities around the sources of power. Both suppliers were small organizations, who did not really affect the turnover of the platform and have a lot of substitutes in the market. The platforms indicated that they have a standardized offer for small suppliers, which they could accept or decline, there is no space for negotiation about the terms of the contract. Both platforms stated that their relationship management is focused on the bigger suppliers, who they can offer discounts based on the volume of the sales. Despite both suppliers experienced a big imbalance in power, they countered the situation in different ways. In case B the supplier accepted the imbalance, because the supplier was an start-up that saw an opportunity to develop a company alongside the platform, where the platform helped the supplier grow due to generation of new customers. The supplier in case D was already longer in business and did not want to become dependent on a single platform, therefore the supplier uses a multi-platform strategy to spread his income over more platforms. Both platforms did not describe the current situation as particular fair, but they did accept the situation to guarantee an income.

(26)

26 the big suppliers. But the platform had a business model that enhanced a high relational interdependency and guaranteed the start-up from supplies. Namely, there was a structure created where all of the suppliers owned a 10% share of the platform. The suppliers invested in the establishment of the platform and therefore were not interested in leaving the platform due to high sunk costs. On top of that the powerful suppliers experience the mutual benefits of the platforms, namely an increase in sales and expansion of their market. In contradiction to the situation where the less powerful entity accepts the power balance, the power balance is accepted as fair in this situation by both platform and supplier.

Case E differs from case A, because in this situation the platform is the most powerful entity. Both cases have a business model in which the suppliers are shareholders, but in case E the supplier base is a lot larger (400 instead of 8) and the brand is already in offline business for almost 50 years. Therefore different sources of power were identified, where in case A the platform gained its power from the shift in consumer behaviour and the importance of an online channel, in case E a more hierarchical structure is visible where the platform is able to punish the suppliers for failing the contracts. However, the relational interdependency was high in both cases and was caused by high investments and benefits for platform and supplier. This resulted in a situation where all the parties involved described the situation as fair.

(27)

27

5. DISCUSSION

The research had two sub questions which tried to explore the influence of justice within online service triads. On the first sub question, how power asymmetry and relational interdependence influence value appropriation within online service triads, was found that there is a strong relationship between the interplay of power asymmetry and relational interdependency, and the way how value is appropriated. To understand these relationships, it is important to know which sources of power lead to which relational interdependence. This is visualized in figure 5.1.

Figure 5.1: Overview of underlying mechanisms

This research shows three sources of high relational interdependence between platform and supplier. The first source is integration, due to information sharing and joint long-term planning the organizations in case C became very dependent on each other. Integration could also arise from the business model, in case A & D the suppliers were shareholders of the platform, which fostered integration. The second source is the access to valuable resources, all the cases were relational interdependence was high, the other entity had no control over resources that were necessary for their business, this is in line with the work of Emerson (1976) and shows that this source does not differ from the traditional offline markets. The final source of high relational interdependency is the fear for high sunk costs if the relationship determines, this source forces organizations to continue the relationship. This is in contradiction with the current literature (Arkes & Blumer, 1985; Gullstrand & Persson, 2015), which suggest that sunk costs should not be considered in the decision to continue a relationship.

(28)

multi-28 channel strategies. Such multi-channel strategies were already identified (Grewal et al., 2006; Inman, Kannan, & Verhoef, 2015) as an strategy for risk management in the offline setting.

One-sided relational dependency is caused by unequal investments on the platform side, and the need for growth and assuring survival on the supplier side. With one-sided relational dependency, the supplier is dependent on the platform, but not the other way around. In case B the supplier became very dependent on the platform, because the platform was able to make investments in marketing that the supplier solely could not afford. On the supplier side, the customers from the platform were necessary for the supplier to develop the organization and even assure survival in the start-up phase. The substitutability of the supplier is also determinative for one-sided relational dependency, also in this case it is the most important power source that reduces the dependency of the platform on the supplier.

In the online context was shown, that there is no standard situation regarding power asymmetry, both platform or supplier could be the most powerful entity. Case B and D show a situation where the platform was by far the most powerful entity.. In these cases it was very clear that the powerful platform dominates the value appropriation process, there was no option for the weaker supplier to influence the amount of commission. In a situation where the power was balanced (case C) or the supplier has the most power (case A), the results show that suddenly there is space for negotiation about the commission fee. Therefore this research shows that if an organization is able to create a better power position, it can help both platforms and suppliers to appropriate more value per transaction.

When an organization creates relational interdependency, their power position could be improved. However, the relationship between power asymmetry and relational interdependence cannot be qualified as causal, because with a big power asymmetry, cases of both low and high relational interdependence are found. Further, the relationship between the openness of the platform and the relational interdependency is shown. Closed platforms show a higher relational interdependence than open platforms. This is a finding which was not mentioned in the literature yet and therefore is a new contribution to the existing interdependency literature.

Another factor that affects the total appropriated value is the level of innovation. This research demonstrates that the innovation rate is higher when the platform is the most powerful entity. Powerful platforms focus on continuous improvement and customer delight, whereas powerful suppliers want high quantities instead of quality.

(29)

29 be fair or at least acceptable, which does not affect the continuity of the current relationship. A reason behind the relational absence between value appropriation and perceived justice and the fact that all interviewees judge the value appropriation this way, is that all the service triads that are investigated are still in business. Goyal and Trada (2017) found in their research that perceived injustice leads to the termination of a relationship, all of the investigated relationships are still running so the reasoning behind the fair perceived justice is logical according to literature.

The data of case A, B, and D shows that suppliers do not focus on profit optimization at the expense of deteriorating the relationship, they accept the current state and try to improve their products to gain more sales. This is in line with the results of Brito and Miguel (2017) who indicate that the perceived justice in value appropriation does not affect the continuity of the relationship.

(30)

30

6. CONCLUSION

This thesis investigated how power asymmetry and relational interdependence affect the continuity of a relationship. Semi-structured interviews with four platforms and three of their suppliers in the online service industry were conducted to answer this question. Consistent with the literature (e.g. Brito & Miguel, 2017) it has been found that there is a strong relationship between power asymmetry and relational interdependence and how it influences value appropriation. When the relational interdependency is high, practice shows that the platform accepts a lower commission fee and suppliers appropriate more value than when the relational interdependency is low. Hence, a lack of valuable resources caused problems with the collaboration between buyer and supplier and therefore a not negotiable commission fee is used for smaller suppliers. Further, when the platform is the most powerful entity, the focus on innovation is higher. The data shows that powerful suppliers do not focus on quality anymore, but shift away to volume focus. When the platform has a power surplus, innovation and the focus on customer delight are way higher. Finally, perceived justice does not affect the continuity of the relationship. Managers of the weaker entity do always want to appropriate more value within a relationship, but they do not let this harm the relationship continuity. This resulted in a situation where service providers accept the current value appropriation process. When less powerful platforms want to change the current value appropriation process, they need to gain access to valuable resources to compete against the platform, but this is often hard in practice.

(31)

31

The influence of power injustice on buyer supplier relationships within online service triads.