MANAGING RELATIONSHIPS IN A SERVICE TRIAD: a case study in a shop-‐in-‐shop context

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MANAGING RELATIONSHIPS IN A SERVICE TRIAD: a case study in a shop-‐in-‐shop context

Master thesis, MSc Supply Chain Management

University of Groningen, Faculty Economics and Business Administration

May 20, 2017

FRANCA WAANDERS S 2053225

f.h.m.waanders@gmail.com

Supervisor H. Broekhuis

Co-‐assessor

K. Scholten

Words: 14894

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ABSTRACT

The aim of this research is to investigate how relationships in service triads are managed in

order to enhance the customer experience and what the role of the dominant function and

of interplay in governance is. An in-‐depth multiple case study was performed to obtain

information of a shop-‐in-‐shop in the apparel industry in the Netherlands. The findings show

that the contractual agreements in the buyer-‐supplier relationship indicate how the

customer experience is managed when relational governance is dampened. When

contractual and relational governance enable each other, both governance mechanisms

influence the customer experience. Substitution of governance is found in two cases with a

safeguarding contract. Complementarity in governance is found in two cases with a

dominant function of coordination. Furthermore, this study is the first to show how the

dominant function of a contract influences the interplay in contractual and relational

governance in service triads.

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1. INTRODUCTION ... 5

2. THEORETICAL FRAMEWORK ... 7

2.1 Value exchange in service triads ... 7

2.1.1 The buyer in the service triad ... 7

2.1.2 The supplier in the service triad ... 9

2.1.3. Customers in service triads ... 9

2.2 Managing the buyer-‐supplier relationship ... 13

2.2.1 Contract-‐ and relational governance ... 13

2.2.2 Functions of contracts ... 14

2.2.3 Interplay ... 15

2.3 The dominant function of contracting and interplay in service triads ... 16

3. METHODOLOGY ... 17

3.1 Research setting ... 18

3.2 Case selection ... 18

3.3 Variables ... 19

3.4 Data collection ... 21

3.4.1 Management of relationships ... 22

3.4.2 Customer experience ... 22

3.5 Quality of research customer experience ... 23

3.6 Data organization and analysis ... 25

3.6.1. Analysis qualitative data ... 25

3.6.2 Analysis quantitative data ... 25

4. FINDINGS ... 27

4.1 Sub question 1: The dominant function of a contract and interplay ... 27

4.2. Results of the customer survey ... 32

4.3 The customer experience in service triads ... 35

5. DISCUSSION AND CONCLUSION ... 43

6. REFERENCES ... 47

Appendix A: Operationalization of customer experience ... 51

Appendix B: Interview protocol – English ... 52

Appendix C: Customer survey ... 59

Appendix: Closed questions on function of contract

²

... 61

Appendix E: Establishment dominant function of contract ... 62

Appendix F: Definition of codes ... 63

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Appendix G: List of codes ... 64

Appendix H: First order quotes example ... 65

Appendix I: Results regression analysis ... 67

Appendix J – Outline of data collection ... 68

Appendix K – Factor analysis ... 68

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1. INTRODUCTION

In services it is not uncommon that suppliers directly deliver services to the customers on behalf of the buyer (Li & Choi, 2009; Niranjan & Metri, 2008). In these so-‐called triads buyer, suppliers and customer all have direct relationships with one another in which value is exchanged. This means the buyer ‘outsources’ delivering the service to the supplier of which the customer is the recipient. So, the buyer may act as a bridge between supplier and customer, i.e. the buyer connects supplier and customer. In the created situation, the buyer is vulnerable to opportunistic behavior of the supplier (Li & Choi, 2009). When the customer does not experience value anymore from the buyer, the supplier can decide to skip the buyer (Mena, Humphries, & Choi, 2013). This results in the buyer losing its position of a bridge. Due to the risks in such a relationship between buyer and supplier, it is important to the buyer to manage and safeguard the relationship with the suppliers since the interests of all three parties need to be aligned (Wynstra, Spring, & Schoenherr, 2015).

Managing buyer-‐supplier relationships is often an interplay between contractual and relational governance (Cao & Lumineau, 2015). Contractual governance is the formal relationship where a contract is crafted and managed. Whereas relational governance encompasses the informal relationship and is formed by trust and relational norms (Huber, Fischer, Dibbern, & Hirschheim, 2013). The contract that is closed between buyer and supplier can have multiple functions (i.e. safeguarding, coordination of relationships and adaptation mechanisms). Often one function is dominant (Heide, 1994; Schepker, Oh, Martynov, & Poppo, 2014). The dominant function of a contract may influence the interplay between contractual-‐ and relational governance in inter-‐organizational relationships (Schepker et al. 2014, p.218; Reuer & Ariño 2007; Cao & Lumineau, 2015), such as buyer-‐

supplier relationships in a triadic setting. For example, a very detailed contract may signal a lack of trust, which may influence the relationship between organizations (Cao & Lumineau, 2015). In particular in a triadic setting with its own dynamics that differ from the dynamics in a dyadic setting (Wynstra et al., 2015), controlling the relationship is especially important (van Iwaarden & van der Valk, 2013). Controlling the relationship is done by an in interplay in contractual and relational governance. Because of this need for controlling the relationship in service triads, it is especially interesting and needed to see how the function of a contract plays a role. Nevertheless, it remains unclear how a dominant function influences the interplay (Cao & Lumineau, 2015; Reuer & Ariño, 2007; Schepker et al., 2014).

It has been found that when service triads are not managed correctly it can lead to underperforming relationships and service failures can occur (Ferguson, Paulin, & Bergeron, 2005; Modi, Wiles, & Mishra, 2015; Wacker, Yang, & Sheu, 2016). However, research on service triads is still in the exploratory phase (Broekhuis & Scholten, 2016).

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In a triadic chain the buyer and supplier influence the third actor, the customer (Wynstra et al., 2015). As such, the customer experience is build up by both buyer and supplier (Broekhuis & Scholten, 2016). Previous research on service triads investigated how customers’ experiences are influenced by contractual agreements (Broekhuis & Scholten, 2016). Yet, it was not empirically investigated how (a) customers experience both buyer and supplier in their joint effort to deliver an adequate service to customers and (b) how buyer’s efforts to manage different suppliers is reflected in these customer experiences. This is relevant as ultimately the customer experience is a critical performance determinant (Ferguson et al., 2005). Therefore the customer experience will act as a performance parameter in this research and will be the focus of this research. Henceforth the research question will be:

How are relationships in service triads managed in order to enhance the customer experience?

Sub question 1: How does the dominant function of a contract influence the interplay between contractual and relational governance in service triads?

Sub question 2: How do customers experience the services from both buyer and supplier in service triads?

This research contributes to an in-‐depth understanding of service triads in the following ways. First, the influence of the dominant function of contracts on the interplay between contractual-‐ and relational governance will be shown. In the past, the main function of a contract was to safeguard the relationship. Nowadays, the focus is shifting towards other dominant functions of contracts (Schepker et al. 2014; Cao & Lumineau, 2015). It has been indicated the function of a contract plays a role in the interplay in governance (Reuer &

Ariño, 2007; Schepker et al., 2014) and previous research indicated that it should be investigated (Reuer & Ariño, 2007). Also, contracts are often only studied as ways to safeguard a relationship. This, while it has been shown only studying the safeguarding function makes only for parts of the relationship to be understood (Schepker et al., 2014).

Last, research on the customer experience in service triads only gathered data on the supplier influencing the customer experience. This research evaluates the customer experience as being build up by both buyer and supplier simultaneously. This build up is what characterizes the service triad and should therefore be understood in research (Broekhuis & Scholten, 2016). To the best of our knowledge, this research is the first that tries to show how aspects of governing the relation between buyer and supplier influences customer experience.

From a managerial point of view this research provides useful insights on how to increase customers’ experiences in a joint effort for buyers and suppliers in a service triad context.

The customer experience is important in a service triad context and should therefore be

managed correctly (Mena et al., 2013). Moreover, it will be shown how management of the

buyer-‐supplier relationship will influence the customer experience.

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A multiple case study was conducted in order to answer the research question. This method is suitable because in-‐depth information on the service triads needed to be obtained. Also, it allowed for this specific setting to be researched with multiple variables investigated simultaneously. The setting of a shop-‐in-‐shop was chosen since it allowed studying whether customers of the same buyer experience the services from multiple suppliers, with whom the buyer closes and manages different contracts, differently.

The theoretical background discusses the value exchange in service triads, the governance of the buyer-‐supplier relationship and the customer experience. After the theoretical background, the methods of analysis will be presented. Thereafter, the results will be presented. Furthermore, a discussion and conclusion is presented based on the derived results.

2. THEORETICAL FRAMEWORK

2.1 Value exchange in service triads

In a service triad, three actors (buyer, supplier and customer) interact with each other and exchange value (see figure 1). For each actor in the service triad chain it is important to ensure the position they have (Li & Choi, 2009). Section 2.1 discusses the value each actor offers in the service triad.

Figure 1. Service triad adapted from Wynstra et al. (2015) 2.1.1 The buyer in the service triad

In a service triad the buyer is often the initiator of the triad and acts as a ‘bridge’ between supplier and customer (Li & Choi, 2009). In this bridging position, the buyer ‘outsources’

parts of the service delivery to the supplier, and this supplier delivers their services directly to the buyer’s customers (Li & Choi, 2009). A service offering consists of three main parts (see Grönroos 2000), that all can be outsourced in a service triad: core services, facilitating services (and goods), and supporting services (and goods). The role of the buyer in this position can vary depending on which part of the service offering the buyer subcontracts to suppliers (see table 1).

This research focuses on the buyer being a ‘connector’ that outsources core services; we

assume that – as we are interested in how the customer experience is build up -‐ the core

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service has the largest influence in the evaluation of the customer experience (Arnold 2000;

Modi et al. 2015).

Participating in a service triad can have multiple advantages for the buyer (Wagner & Benoit, 2015). One advantage is brand equity, which can be defined as the buyer its perception of the skills and abilities of the supplier in designing and marketing salable services (Wagner &

Benoit, 2015). In service triads the buyer can borrow brand equity of the supplier to increase sales and improve its position towards the customers (Wynstra et al., 2015). Another advantage is merchandising support, which can be defined as the ability of the supplier to support sales (Wagner & Benoit, 2015). The support of sales entails merchandising activities such as pricing, stocking, visual merchandising and placement of shop-‐in-‐shops (Jerath &

Zhang, 2010). This becomes an advantage for the buyer when he does not need to perform those activities anymore since the supplier takes care of them.

In order to ensure that the supplier acts in the buyer its interests, the buyer agrees on contractual arrangements with the suppliers and might build a relationship with suppliers.

Table 1. Service package and the role of the buyer in service triad Part of the

service package (based on Grönroos, 2000)

Definition of part of

service package Buyer’s bridging role when outsourcing this service (based on Arnold, 2000)

Description of

buyer’s role Example

Core services The reason a company is on the market

Connector By subcontracting

parts of core service to different suppliers, the buyer establishes its own portfolio of core services

Shop-‐in-‐shop services

Facilitating

services Services required to make it possible for customer to use the core services

Coordinator By subcontracting parts of the

facilitating services to a supplier, the buyer makes it possible for the customer to use the core service

Supplier delivers maintenance services directly to buyer’s customers (see e.g. Finne and Holmström (2013)

Supporting

services Auxiliary services that increase the value of the service and/or differentiate the core service from other organizations

Booster By subcontracting

parts of the

supporting services the buyer can differentiate/

increase the value of the core service

Coffee corner that

offers exclusive

coffee within an

organization

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(Ellram, Tate, & Billington, 2007; van Iwaarden & van der Valk, 2013). The governance of the buyer-‐supplier relationship will be discussed in paragraph 2.2.

2.1.2 The supplier in the service triad

The supplier is the ‘outsourced’ party in the service triad. The supplier delivers the service on behalf of the buyer directly to the customer. This implies that both, the buyer and customer, are highly dependent on the supplier. This high level of dependency is especially visible in triads where the supplier is a co-‐creator of the core services that constitute the customer experience (Baraldi, Proença, Proença, & de Castro, 2014).

Being part of a service triad has several advantages for suppliers. First, the supplier gains access to the clientele of the buyer that would otherwise have been out of its reach (Jerath

& Zhang, 2010). Thus, the buyer is an (extra) sales channel for the supplier (Jerath & Zhang, 2010). Secondly, in a service triad, due to the activities of the buyer, the supplier experiences a decrease in costs of its own operations (Govindan & Chaudhuri, 2016). This decrease in costs for the supplier is possible due to the fact that suppliers do not have the costs of switching and selecting organizations the supplier wants to do business with (Khan & Burnes, 2007).

As shown, the supplier plays a crucial role in a service triad. Because of the before mentioned risk of opportunism in service triads, the buyer-‐supplier relationship should be governed. The buyer-‐supplier relationship will be discussed in paragraph 2.2.

2.1.3. Customers in service triads

In a service triad, the customer is the recipient of services delivered by both the buyer and supplier(s). Thus both buyer and supplier shape the customer experience (Broekhuis &

Scholten, 2016; Wynstra et al., 2015). The definition of the customer experience is twofold.

First, the customer experience is build up over time, and does not depend on one single interaction. Second, the customer experience is personal. It is an internal and subjective response to interactions with an organization (Gentile, Spiller, & Noci, 2007). The evaluation of this customer interaction depends on the comparison between expectations and the stimuli coming from the interaction with the organization. (Lemke et al. 2011; Beltagui et al.

2015; Verhoef et al. 2009; Gentile et al. 2007;).

Customers can have experiences on multiple facets of the service delivery. When evaluating the customer experience, several criteria can be considered. Table 2 shows these criteria based upon current literature.

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Table 2. Customer evaluation criteria of the customer experience

Source Research title Criteria influence the customer

experience Verhoef et al.,

2009 Customer experience creation:

determinants, dynamics and management strategies

-‐ Perception of brand -‐ Social environment -‐ Service interface

-‐ Previous dynamics of customer experience

-‐ Service delivery -‐ Price

Lemke et al.,

2011 Customer experience quality: an exploration in business and

consumer contexts using repertory grid technique

-‐ Communication encounter -‐ Service encounter

-‐ Consumption encounter Beltagui et al.,

2015 Measuring the deliverable and impressible dimensions of service experience

-‐ Evaluation of employee -‐ Evaluation of environment

(sensory design elements) -‐ Impressible dimension of service

delivery (absorption, adventure, community, spontaneity)

Koul & Mishra,

2014 Customer perceptions for store attributes: a story of traditional retail stores in India

-‐ Portfolio of services -‐ Store image

-‐ Availability of products -‐ Personnel of retailer -‐ Perception of price Broekhuis &

Scholten, 2016 The influence of buyer-‐supplier contractual arrangements on customer experiences in a service triad context

-‐ Product availability

-‐ Assortment attractiveness -‐ Value for money

-‐ Physical attractiveness of the store

-‐ Interaction with or attitude of personnel

Brandhofer &

Reinauer, (2016)

The formation of customer experience through offline-‐online channel integration

-‐ Customer related determinants (e.g. involvement in service) -‐ Company related determinants

(e.g. personnel, store layout, assortment, service offering) -‐ Offer related determinants (e.g.

price-‐quality, brand equity, additional services)

-‐ Situational (e.g. atmosphere) -‐ Environmental determinants (e.g. retail layout, economic situation)

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This research considers a combination of the different criteria that influence the customer experience. These are perceived to be relevant in service triads: (1) product availability, (2) portfolio attractiveness, (3) value for money, (4) physical attractiveness of the facility and (5) interaction with or the attitude of personnel. Previous research on service triads only considered the customer experience as provided by the supplier (Broekhuis & Scholten, 2016). This research extends on this by including the buyer in the customer experience. The reason for this is that the buyer plays an important role in providing the customer experience, both as the party that chooses which services to subcontract to what kind of suppliers, but also in its connecting and enhancing role (see Table 1), and therefore should not be overlooked (Wynstra et al., 2015). Table 3 provides an overview of the criteria and their conceptual definition. In table 3 the different criteria will be discussed and be placed in the context of service triads.

Portfolio attractiveness as described in table 3, encompasses both the portfolio of the buyer and supplier. First, the portfolio of the buyer consists of the different services and/or suppliers. The buyer can establish a portfolio of services by subcontracting suppliers that deliver the services directly to buyer’s customers (Jerath & Zhang, 2010). The customer evaluates the attractiveness of this portfolio. Second is the attractiveness of the portfolio of the supplier. The portfolio of the supplier is the assortment of products and services available from each supplier. Each supplier can have an assortment appealing to the customer (Chernev & Hamilton, 2009).

The second criterion, attractiveness of the store, encompasses both the store of the buyer and the designated area of the supplier. The total store image as well as the different ‘shops’

of the different suppliers needs to be appealing to the customer. Meaning the retail layout needs to be attractive and have a catching atmosphere (Brandhofer & Reinauer, 2016).

Important in a shop-‐in-‐shop retail store is the recognizability of the different brands because customers need to be able to find the different brands if they search for it (Jerath & Zhang, 2010).

The third criterion, product availability is considered one of the triggers of sales (Steinhart, Mazursky, & Kamins, 2013). In the different shop-‐in-‐shops as well as in the store of the buyer, the products need to be available for purchase. If the product is not available, it cannot be sold. This gives the customer a negative experience. However, research also suggests that the lack of product availability can give a feeling of scarcity and ‘hard to get’.

This feeling triggers the customer to desire the product even more (Steinhart et al., 2013). In a service triad setting, both the buyer and supplier can influence the product availability.

When a service is not available, the buyer and supplier will produce a less satisfying experience.

Value for money refers to the price level of the offered services in relation to the quality of

the service (Brandhofer & Reinauer, 2016). For the buyer this means setting up a portfolio of

services (previously discussed) where the price-‐quality is appealing for the customer. For the

supplier this means the assortment of services and products they offer needs to have a

proper trade-‐off between price and quality for the customer.

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Table 3. Customer experience criteria and conceptual definition Criterion

Definition Buyer Supplier

Product availability The product or service is available for purchase (Steinhart et al., 2013)

Within the store of the buyer, the products and/or services the customer wants to buy are available for purchase.

Within the shop of the supplier within the store of the buyer (shop-‐in-‐

shop), the products and/or services the customer wants to buy are available for purchase.

Portfolio attractiveness The degree of which the customer finds the assortment pleasing their needs (Chernev

& Hamilton, 2009)

Within the store of the buyer, the customer finds the portfolio of different suppliers appealing.

Within the shop-‐in-‐shop, the customer finds the assortment of products and/or services

appealing.

Value for money

The overall assessment by the customer of the utility and superiority of a product or service of what is received and what is given (money)

(Pauwels & D’Aveni, 2016)

Within the store of the buyer, the customer finds the trade-‐

off between price and quality appealing. The buyer decides on the different suppliers and thus should make a portfolio with a good price-‐quality dimension.

Within the shop-‐in-‐shop, the products and/or services have a good trade-‐off between price and quality.

Physical attractiveness of the store

The impression of the store image that the customer has (Dabholkar, Thorpe and Rentz, 1996; Dichter, 1985; Schmitt (1999) in Gentile et al. (2007)), for instance based on its lay out.

The store of the buyer is physically attractive (e.g. lay-‐

out, catching atmosphere, recognizable brands).

The designated area of the supplier is attractive to the customer.

Interaction with or attitude of personnel

The overall assessment of the interaction and

communication between customer and personnel in the service encounter as

experienced by the customer depending on helpfulness, skills, knowledge and problem solving capabilities

(Brandhofer & Reinauer, 2016)

Dependent on whom, buyer or supplier, provides personnel. Personnel can be personnel of the buyer, or every supplier can provide personnel.

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The fifth criterion is personnel, which plays an important role. In the store of the buyer, personnel interacts with the customer and therefore plays an important role in the customer experience. Personnel needs to be accessible, competence, recognize the customer, be helpful, offer a personalization of the service and needs to willing to solve problems of the customer (Brandhofer & Reinauer, 2016).

The above discussed criteria might be important in a service triad and aimed to be managed in the buyer-‐supplier relationship in order to enhance the customer experience. Buyer and suppliers can have different views on how to deliver a service (Brown, 2015), and this underlines the relevance to align their interests and interactions to create an optimal customer experience. The governance of the buyer-‐supplier relationship is discussed in section 2.2.

2.2 Managing the buyer-‐supplier relationship 2.2.1 Contract-‐ and relational governance

Organizations craft governance arrangements to regulate the buyer-‐supplier relationship (Poppo & Zenger, 2002; Wacker et al., 2016). The two governance mechanisms at play are contractual and relational governance (Cao & Lumineau, 2015). Contractual governance highlights the importance of contracts between organizations in order to formal safeguard the relationship. Relational governance relies on the informal structure and the self-‐

enforcement of each party (Cao & Lumineau, 2015).

Contractual governance entails the formal contract and refers to the extent to which the relationship is governed by a formal and written contract (Cao & Lumineau, 2015). The contract describes the outcomes, expected behavior and the level of flexibility to uncertainties and contingencies that might emerge. The contractual agreements can be used to prevent for opportunism of one of the organizations (Cao & Lumineau, 2015; Huber et al., 2013; Rai, Keil, Hornyak, & Wüllenweber, 2012). In service triads, opportunism of one of the parties is considered a risk (Li & Choi, 2009). A contract can be used to mitigate this risk (Cao

& Lumineau, 2015). Establishing a contract involves multiple phases (Broekhuis, Scholten, &

Hodenpijl, 2016). This research will focus on contract management of an already established and crystalized relationship.

Relational governance encompasses the informal management of the relationship and is

formed by trust and relational norms (Cao & Lumineau, 2015). Trust refers to the confidence

in a partner’s competences and intentions (Rai et al., 2012). Relational norms are about

shared expectations of the partner’s behavior (Cao & Lumineau, 2015). Relational

governance can guide in unforeseen events as it allows for more flexibility compared to

contracts (Huber et al., 2013). Therefore, relational governance can also guard against

opportunism in a relationship (Ferguson et al., 2005).

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Organizations use contractual and relational governance simultaneously to organize the relationship. The debate in contractual and relational governance lies within the relationship and the interaction between them and it is unknown whether they complement or substitute each other (Carson, Madhok, & Tao, 2006; Goo, Kishore, Rao, & Nam, 2009; Klein Woolthuis, Hillebrand, & Nooteboom, 2005; Mellewigt, Madhok, & Weibel, 2007; Poppo &

Zenger, 2002; Tiwana, 2010). Chapter 2.2.3 builds further on this through a thorough discussion on the interplay between contractual and relational governance.

2.2.2 Functions of contracts

Contracts can have different functions, i.e., safeguarding, coordinating relationships and providing adaptation (Heide, 1994; Schepker et al., 2014). In contracts, often one of these functions is dominant (Schepker et al., 2014). The different functions of contracts differ in aim and focus of agreements made (see table 4). The dominant function stems from the trade-‐off organizations make in the main purpose the contract should have (Schepker et al., 2014).

Table 4. Functions of contracts and differences (adapted from Schepker et al., 2014)

Function Aim Focus of agreements

Safeguarding Limit the risk of doing business and prevent for opportunism

High level of detail,

completeness of the contract, assignment of control and decision rights

Coordinating relationships Reducing uncertainty and complexity in the

coordination of relational characteristics

Provisions for information sharing, division of roles and responsibilities, specification of information sharing and

monitoring of the process Adaptation Mechanism Set up adaptation

mechanisms to guide unforeseen uncertainty in the environment

Agree on tolerance zones, identify payoff schemes, provisions for adapting to environmental contingencies

The safeguarding function aims to reduce the risk of doing business and prevents for opportunism of one of the parties, so called ‘safeguarding’ (Heide 1994; Schepker, 2014).

Safeguarding mechanisms in contracts are recognized by a high level of contractual specification, the assignment of control and decision rights and completeness (Klein Woolthuis et al., 2005; Schepker et al., 2014).

The coordination function aims to organize the contracting relationship. Since tasks are

completed across organizational boundaries, a high level of coordination is required. To

provide this level of coordination the contract (1) defines roles and responsibilities, (2)

defines provisions for monitoring the outcomes and (3) specifies information-‐sharing (Klein

Woolthuis et al., 2005; Schepker et al., 2014).

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Adaptation mechanisms in contracts aim to adapt to unforeseen circumstances and contingencies in the environment of organizations (Heide, 1994; Rai et al., 2012; Schepker et al., 2014). Including adaptation mechanisms in contracts is useful because adaptation mechanisms permit adjustments as events unfold (Heide, 1994). Contracts with a dominant function of adaptation can be recognized by agreements on tolerance zones, identified payoff schemes and provisions for adaptation (Schepker et al., 2014).

2.2.3 Interplay

It is evident that contractual and relational governance influence each other in some way (Cao & Lumineau, 2015; Carson et al., 2006; Huber et al., 2013; Klein Woolthuis et al., 2005;

Mellewigt et al., 2007; Poppo & Zenger, 2002; Rai et al., 2012; Tiwana, 2010). Some researchers state that contractual-‐ and relational governance substitute each other while others found that they are complementary (Huber et al., 2013; Poppo & Zenger, 2002) (see table 5).

Table 5: Four perspectives of governance and interplay Substitution: Contractual and relational

governance replace each other because they are functional equivalents

Complementary: Contractual and relational governance compensate for each other’s weaknesses

Substitution: Contractual governance

dampens formation of relational governance because contractual governance is stronger

Complementary: Contractual and relational governance facilitate each other to work and thus enable each other

The substitution perspective argues that the governance mechanisms either replace each other since they are functional equivalents or that they dampen each other due to the strength of one (Huber et al., 2013). Functional equivalence means that one governance mechanism replaces the other because they do the same thing or perform the same function. In the case of dampening, one governance mechanism has more strength and therefore outperforms the other or has more impact. An example of dampening is a detailed contract that gives a signal of distrust to the other party and therefore limits the function of relational governance (Goo et al., 2009; Huber et al., 2013).

The complementary perspective argues that the governance mechanisms increase the use and possibly the effectiveness of each other since they compensate or enable each other (Huber et al., 2013). Governance mechanisms enable each other when the use of one facilitates the use of the other (Tiwana, 2010). Compensation happens when one governance mechanism compensates for the weakness of the other governance mechanism.

An example is contractual governance covering for the limited ability of relational

governance to safeguard against risks in the relationship (Huber et al., 2013).

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2.3 The dominant function of contracting and interplay in service triads

So far, it is known that the dominant function of a contract plays a role in the interplay in governance (Schepker et al., 2014). Yet, it is unknown how the dominant function of a contract influences the interplay since research on this topic is still in the exploratory phase (Reuer & Ariño, 2007; Schepker et al., 2014). Furthermore, only ideas have been proposed on how a dominant function could influence the interplay in governance (Reuer & Ariño, 2007). For example, a safeguarding contract might be associated with more contractual governance due to a signal of mistrust. When a contract is meant to control the relationship, a partner organization can question whether the intentions of the other party are good and thus prevent for relational governance to establish (Cao & Lumineau, 2015), However, safeguarding contracts might also need relational governance to ensure guarding against opportunism. This is needed because contractual agreements cannot cover management of the entire relationship (Klein Woolthuis et al., 2005). When a contract is meant to coordinate a relationship it is possible the organization will experience a feeling of commitment and understanding and thus might already support strong relational governance (Cao &

Lumineau, 2015). However, coordination contracts might also induce stronger contractual governance because the coordination provisions in the contract facilitate the exchange and behaviors of organizations, and thus there is less need for relational governance (Lumineau

& Malhotra, 2011). Adaptation contracts have barely been researched, this since they are upcoming contracts (Schepker et al., 2014). Adaptation contracts might signal for strong relational governance since adaptation contracts promote flexibility in the relationship (Schepker et al., 2014).

Research on interplay in governance in triadic chains suggests relational governance is of importance to align the interests in the buyer-‐supplier relationship (Ferguson et al., 2005;

Van der Valk & Van Iwaarden, 2011). However, alignment of interests can be achieved by both contractual and relational governance (Poppo & Zenger, 2002). When analyzing interplay in triadic chains, the buyer-‐supplier relationship is often studied as a dyadic relationship (Hartmann & Herb, 2015). To the best of our knowledge, this is the first research that combines the dominant function of contracting and interplay in governance in service triads.

Research on the customer experience in service triads is mainly focused as being perceived by either buyer or supplier. It has been only proposed the customer experience is build up by both buyer and supplier, and it is implied in the described value exchanges (Broekhuis &

Scholten, 2016). The value creation for customers is dependent on the joint-‐effort of the buyer and supplier. The joint-‐effort is difficult to assess since organizational boundaries become blurred in service triads due to the co-‐development of the service by buyer and supplier (Baraldi et al., 2014). Furthermore, the co-‐development of the service is highly dependent on the agreements between buyer and supplier (Jerath & Zhang, 2010).

Ultimately it is the buyer who decides on the suppliers it outsources to, and thus the buyer

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decides on the value creation (Jerath & Zhang, 2010). This means still is much unknown on the customer experience in service triads.

The previous discussion of literature led to the formulation of the following research question and sub questions:

How are relationships in service triads managed in order to enhance the customer experience?

Sub question 1: How does the dominant function of a contract influence the interplay between contractual and relational governance in service triads?

Sub question 2: How do customers in service triads experience the services from both buyer and supplier?

The conceptual model that can be derived can be seen in figure 2.

Figure 2. Conceptual model of the dominant function, interplay and the customer experience

3. METHODOLOGY

The aim of this paper was to investigate how the relationships in service triads are managed in order to enhance the customer experience. More specifically, what the influence is of the dominant function of the contract on the interplay between contractual and relational governance and how customers experience the services from both buyer and supplier in service triads. To do this, the sub questions as mentioned in the theoretical section of this paper (2.3) need to be answered. A multiple case, multiple method study approach was used since it provides the opportunity to study complex phenomena and gather rich data (Eisenhardt, 1989; Ellram, 1996; Yin, 2009). The following reasons show why a case study is most appropriate for this research question. First, research on service triads is still in the exploratory phase (Broekhuis et al., 2016; van Iwaarden & van der Valk, 2013). Even less is known about the customer perspective in service triads (Wynstra et al., 2015). Furthermore, this research topic is considered complex, due to the nature of the underlying and unclear relationship of the variables researched in service triads. When studying complex phenomena, case study research is appropriate for information-‐rich cases because they would be too complex for surveys (Yin, 2009).

To avoid the impact of observer bias and to improve analytic generalizability of the results

multiple cases will be included (Voss, Tsikriktsis, & Frohlich, 2002).

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3.1 Research setting

This research was executed in a shop-‐in-‐shop environment. Shop-‐in-‐shops are service triads in which department stores subcontract retail services to suppliers (Jerath & Zhang, 2010).

The idea behind the shop-‐in-‐shop environment is that both buyer and supplier benefit from the symbiotic relationship (Broekhuis et al., 2016). This research investigates the offline shop-‐in-‐shop environment since the designated space of the supplier in a retail store provides a clear understanding to the customer about the presence and role of suppliers.

This research was conducted in a shop-‐in-‐shop retail store with multiple branches in the Netherlands. This particular organization was of interest because the buyer closed different types of contracts with different brands. This allowed for the assessment of the same buyer while investigating different suppliers, meaning this setting allowed investigating the different buildup of customer experience at the same buyer.

The unit of analysis is the service triad between buyer, supplier and customer. Multiple supply chains were investigated; this implied that of multiple buyer-‐supplier-‐customers triads the way of governance in the buyer-‐supplier relationship was investigated as well as the experiences of their customers.

3.2 Case selection

To answer the research question, four embedded cases of service triads were studied. Cases were selected based on the dominant function of the contract that was closed (see 2.2.2). As such, it could be investigated how the dominant function of a contract influences the interplay and then the customer experience. Furthermore, the duration of the contract had to exceed two years in order for the contract to have adapted to a definite shape (see table 6). If the contract has a more definite shape, decisions in contract management are taken more deliberately. Other descriptives of the cases are also presented in table 6.

Table 6. Case selection criteria and descriptives

Selection criteria Case A Case B Case C Case D Case selection criterion

Dominant function of

contract Safeguarding Coordinating Safeguarding Coordination

Descriptives

Percentage of buyers’ sales per department (e.g.

woman’s, men’s, youth)

2% 10% 6% 16%

Duration of contract > 24 months > 24 months > 24 months > 24 months

Type of brand Women

clothing Male

clothing Male and female clothing

Women clothing

Because the buyer recently acquired new stores, the buyer also acquired the responding

contracts. This led to renegotiations of some contracts and thus it is hard to indicate the

MANAGING RELATIONSHIPS IN A SERVICE TRIAD: a case study in a shop-­‐in-­‐shop context

MANAGING RELATIONSHIPS IN A SERVICE TRIAD: a case study in a shop-­‐in-­‐shop context

Master thesis, MSc Supply Chain Management

University of Groningen, Faculty Economics and Business Administration

May 20, 2017

FRANCA WAANDERS S 2053225

f.h.m.waanders@gmail.com

Supervisor H. Broekhuis

Co-­‐assessor

K. Scholten

Words: 14894

ABSTRACT

The aim of this research is to investigate how relationships in service triads are managed in

order to enhance the customer experience and what the role of the dominant function and

of interplay in governance is. An in-­‐depth multiple case study was performed to obtain

information of a shop-­‐in-­‐shop in the apparel industry in the Netherlands. The findings show

that the contractual agreements in the buyer-­‐supplier relationship indicate how the

customer experience is managed when relational governance is dampened. When

contractual and relational governance enable each other, both governance mechanisms

influence the customer experience. Substitution of governance is found in two cases with a

safeguarding contract. Complementarity in governance is found in two cases with a

dominant function of coordination. Furthermore, this study is the first to show how the

dominant function of a contract influences the interplay in contractual and relational

governance in service triads.

TABLE OF CONTENTS

1. INTRODUCTION ... 5

2. THEORETICAL FRAMEWORK ... 7

2.1 Value exchange in service triads ... 7

2.1.1 The buyer in the service triad ... 7

2.1.2 The supplier in the service triad ... 9

2.1.3. Customers in service triads ... 9

2.2 Managing the buyer-­‐supplier relationship ... 13

2.2.1 Contract-­‐ and relational governance ... 13

2.2.2 Functions of contracts ... 14

2.2.3 Interplay ... 15

2.3 The dominant function of contracting and interplay in service triads ... 16

3. METHODOLOGY ... 17

3.1 Research setting ... 18

3.2 Case selection ... 18

3.3 Variables ... 19

3.4 Data collection ... 21

3.4.1 Management of relationships ... 22

3.4.2 Customer experience ... 22

3.5 Quality of research customer experience ... 23

3.6 Data organization and analysis ... 25

3.6.1. Analysis qualitative data ... 25

3.6.2 Analysis quantitative data ... 25

4. FINDINGS ... 27

4.1 Sub question 1: The dominant function of a contract and interplay ... 27

4.2. Results of the customer survey ... 32

4.3 The customer experience in service triads ... 35

5. DISCUSSION AND CONCLUSION ... 43

6. REFERENCES ... 47

Appendix A: Operationalization of customer experience ... 51

Appendix B: Interview protocol – English ... 52

Appendix C: Customer survey ... 59

Appendix: Closed questions on function of contract

... 61

Appendix E: Establishment dominant function of contract ... 62

Appendix F: Definition of codes ... 63

Appendix G: List of codes ... 64

Appendix H: First order quotes example ... 65

Appendix I: Results regression analysis ... 67

Appendix J – Outline of data collection ... 68

Appendix K – Factor analysis ... 68

1. INTRODUCTION

How are relationships in service triads managed in order to enhance the customer experience?

Sub question 1: How does the dominant function of a contract influence the interplay between contractual and relational governance in service triads?

Sub question 2: How do customers experience the services from both buyer and supplier in service triads?

From a managerial point of view this research provides useful insights on how to increase customers’ experiences in a joint effort for buyers and suppliers in a service triad context.

The customer experience is important in a service triad context and should therefore be

managed correctly (Mena et al., 2013). Moreover, it will be shown how management of the

buyer-­‐supplier relationship will influence the customer experience.

2. THEORETICAL FRAMEWORK

2.1 Value exchange in service triads

Figure 1. Service triad adapted from Wynstra et al. (2015) 2.1.1 The buyer in the service triad

In a service triad the buyer is often the initiator of the triad and acts as a ‘bridge’ between supplier and customer (Li & Choi, 2009). In this bridging position, the buyer ‘outsources’

This research focuses on the buyer being a ‘connector’ that outsources core services; we

assume that – as we are interested in how the customer experience is build up -­‐ the core

service has the largest influence in the evaluation of the customer experience (Arnold 2000;

MANAGING RELATIONSHIPS IN A SERVICE TRIAD: a case study in a shop-‐in-‐shop context

MANAGING RELATIONSHIPS IN A SERVICE TRIAD: a case study in a shop-‐in-‐shop context

Co-‐assessor

of interplay in governance is. An in-‐depth multiple case study was performed to obtain

information of a shop-‐in-‐shop in the apparel industry in the Netherlands. The findings show

that the contractual agreements in the buyer-‐supplier relationship indicate how the

2.2 Managing the buyer-‐supplier relationship ... 13

2.2.1 Contract-‐ and relational governance ... 13

buyer-‐supplier relationship will influence the customer experience.

assume that – as we are interested in how the customer experience is build up -‐ the core

Shop-‐in-‐shop services

(Ellram, Tate, & Billington, 2007; van Iwaarden & van der Valk, 2013). The governance of the buyer-‐supplier relationship will be discussed in paragraph 2.2.

As shown, the supplier plays a crucial role in a service triad. Because of the before mentioned risk of opportunism in service triads, the buyer-‐supplier relationship should be governed. The buyer-‐supplier relationship will be discussed in paragraph 2.2.