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New wholesale approach

2010

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New wholesale approach 2010

A research about the opportunities to become preferred supplier

Author: Babeth van Wegen

Student number: 1013653

Supervisor Mexx International BV: Drs. R. van der Molen

1st Supervisor Rijksuniversiteit Groningen: N. Campbell, BA(Hons), MSc 2nd Supervisor Rijksuniversiteit Groningen: Dr. M. A. Boorsma

Rijksuniversiteit Groningen, Faculty of Management and Organization Amsterdam, July 2004

© Babeth van Wegen 2004

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Preface

This document before you is the result of research performed to finalize my education Bedrijfskunde at the faculty of Management and Organization of the

RijksuniversiteitGroningen. During six months I did my research at Mexx International BV. I would like to thank my supervisor at Mexx, Rick van der Molen for his comments on my documents and his investments and the time he spent to familiarize me with Mexx.

Besides a lot of thanks goes to the New Product Development and Homeshopping department who allowed me to be part of their business and of their team. This made a positive contribution to my enthusiasm for this research.

The time at Mexx resulted in a broadening of my view on the world of fashion. Clothes you and I see in the store have yet a long way behind them. During my internship I became aware of the fact that clothes are not just articles, but it is the brand and development behind the article that makes it successful. For me shopping changed in opportunities to maximize sales per square meters and visibility of hardware concepts…

I would like to thanks my first supervisor of the university, Nicola Campbell for her advises during my documentation. Thanks to her advice I steer away from possible bumps in the academic road. She always trusted me in steps I wanted to take and supported me in the exploration of theoretical articles. Furthermore thanks goes to my second supervisor, Mrs Boorsma, for her clear vision on the development of my research.

The contribution of retailers and employees of RBV Leaf, SigmaKalon and Euretco made this research of value for Mexx. Thanks for all your information and time.

At least I would thank my friends and family. Without them, my time in Groningen and Amsterdam would not be the greatest student time I could ever expect. Thanks to my family who supported me during my education and their belief in my completion of it.

Finally…

Babeth van Wegen Amsterdam, August 2004

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Management summary

This thesis researches the possibilities of becoming preferred supplier of Mexx’s wholesale business with scope on innovative ways of doing business and building sustainable relationships.

The research objective is: To advise Mexx about how to improve her position as a supplier for their wholesale customers.

The research question is: Which aspects have to change in the way Mexx is doing business and how can Mexx build sustainable relationships so that Mexx enhance its position as a supplier in order to become most preferred supplier?

Innovative ways are translated in this research as possibilities of working with trust-limits and possibilities of e-marketing. Furthermore this research looked at other possible innovations to become preferred supplier.

Sustainable relationships in this research mean looking at the possibilities of more controlled distribution and building partnerships.

First, the possibilities of innovative ways and sustainable relationships according to decision makers inside Mexx are explored. After that, these two dimensions are explored during interviews with retailers of multi-brand stores in the Netherlands. Besides these interviews, benchmarks are executed. Three types of benchmarks are carried out:

Operational Benchmarking: This kind of Benchmarking is also called ‘competitive benchmarking’. It can lead to cost reduction. This benchmark is based on an interview with a franchise partner with four stores: Mango, Mexx, Esprit and Bestseller.

Customer Benchmarking: How can be anticipated on the demands of the market? For this benchmark two other industries are explored, the fast moving consumer good industry and the do-it-yourself industry.

Strategic Benchmarking: A possible market strategy will be related with a possible success in the market. To explore the opportunities in the market

interviews are executed at a retail organisation, in scope of optimising of the relationships between retailers and suppliers.

This resulted in five analyses: Supplier analysis, retailer analysis, operational benchmark, customer benchmark and a strategic benchmark.

After exploring the theory about the relationship between supplier and retailer two variables seems to be important in this relationship: commitment and trust. In order to test these two variables, the commitment-trust theory of Morgan and Hunt is used.

Together with literature of a suppliers’ point of view, which contains the variables trust, commitment, value and cooperation the relationship between supplier and retailer is discussed. Besides, possibilities of category management in the fashion industry are

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This resulted in the next findings:

Concerning decision makers at Mexx:

• Trust limits will be part of the future

• Knowledge of the end consumer must be extended

• Product performance must be improved

• To realize sales via Internet, trust is the most important variable

• Functionality of hardware must be considered

• Partnerships are not yet possible, now there is too less loyalty Results of the retailer analysis showed the next findings:

• Possibilities of trust limits are two sided: retailers working with more than 15 suppliers are positive regarding trust limits. Trust between Mexx and these retailers must be improved

Retailers working with less than 15 suppliers are afraid to loose control of the shopfloor and exclusivity

• Also for sales by Internet these two groups arose: retailers working with a lot of suppliers like sales by Internet, especially a stock system as Esprit. Retailers working with fewer suppliers are not that innovative

• Retailers are content with the stock exchange and return possibilities of the trade- marketing program. Promotion material seemed not to be an important condition due to the misfit with the current collection

• Regarding more control of the shopfloor has negative outcomes for Mexx. Retailers do not want more hardware, their shopfloor is based on feelings but visual

merchandisers resulted in positive results.

Outcomes of the benchmarks:

Operational benchmark:

• Mango performs better on the shopfloor notwithstanding fixed control of selling-in

• The information flow and IT involvement of competitors is better than of Mexx

• Item business is time consuming but proved to be successful

• Proportion forward buy and OTB must be 50/50 instead of 75/25 Customer benchmark

• Most important result of the other industries research is that their shopfloor is based on sales numbers, convince retailers of success of this

• Space planning is also determined for competitors Strategic benchmark

• Trust limits will be part of the future

• EDI will be there in a few years, retailers and suppliers can force each other to work with EDI

• Trade marketing program of Mexx is not really loyal; it creates lazy customers and must be more focused in selling-out.

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• Sustainable relationships can be realized by commitment and trust. Trust means thinking along with retailers, local focus,cooperation, being transparent, sharing knowledge and being honest

• Category management in the fashion industry means working with fewer suppliers These findings resulted in recommendations. These recommendations contains aspects of becoming more selling out focused, an other division of budgets, creating loyalty,

possibilities to improve the trade marketing program of Mexx, improved communication, knowledge of end consumers, control of the shopfloor and use of sales numbers. These recommendations can lead to realize the status of a preferred supplier for Mexx’s wholesale customers.

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Table of contents

Preface ...1

Management summary ...2

Table of contents ...5

Chapter 1 Introduction ...8

1.1.Introduction...8

1.2 History ...8

1.3 Products...8

1.4 Distribution...9

1.5 International brand positioning ...10

1.6 Product line positioning Women ...10

1.7 Liz Claiborne...11

1.8 Introduction to the research ...12

1.8.1 Innovative ways of doing business ...13

1.8.2 Sustainable relationships...14

1.9 Conclusion...15

Chapter 2 Problem statement ...17

2.1 Introduction...17

2.2 Research objective ...17

2.3 Research question ...17

2.4 Sub-questions...17

2.5 Definition of terms ...18

2.6 Conclusion...19

Chapter 3 Research Approach ...20

3.1. Introduction...20

3.2 Preconditions ...20

3.3 Boundaries ...20

3.4 Methodology ...21

3.4.1 Research Strategy...21

3.4.2 Research methods...23

3.5 Conclusion...25

Chapter 4 Mexx from a theoretical point of view...26

4.1 Introduction...26

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4.2 General overview ...26

4.3 Relationships ...27

4.4 Customers’ point of view ...27

Commitment ...28

Trust...28

Commitment and trust ...28

4.4.1 Influences on relationship commitment...29

4.4.2 Influences on relationship commitment and trust ...30

4.4.3 Influences on trust ...30

4.4.4 Outcomes of relationship commitment...31

4.4.5 Outcomes of relationship commitment and trust ...31

4.4.6 Outcomes of trust ...32

4.5 Suppliers’ point of view ...32

4.6 Benchmark literature: category management ...33

4.7 Conclusion...37

Chapter 5 Supplier and retailer analysis ...38

5.1. Introduction...38

5.2 Mexx analysis ...38

5.2.1 Trust-limits ...38

5.2.2 Product performance ...39

5.2.3 e-Marketing and catalogues...40

5.2.4 Siebel and EDI...40

5.2.5 Controlled distribution ...41

5.2.6 Partnerships ...42

5.3 Conclusion...42

5.4 Customer analysis...42

5.4.1 Sales ...42

5.4.2 e-marketing...44

5.4.3 Controlled distribution ...45

5.4.4 Partnerships ...46

5.5 Conclusion...47

Chapter 6 Benchmarks ...49

6.1 Introduction...49

6.2 Operational benchmark...49

6.2.1 Mango ...51

6.2.2 Esprit ...52

6.2.3 Bestseller...52

6.3 Conclusion operational benchmark...53

6.4 Customer benchmark...53

6.4.1 RBV-Leaf...53

6.4.2 SigmaKalon ...55

6.5 Conclusion of the customer benchmark...56

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6.6.1 Sales ...57

6.6.2 e-marketing...58

6.6.3 Controlled distribution ...58

6.6.4 Shopfloor performance ...59

6.6.5 Partnerships ...60

6.7 Conclusion of the strategic benchmark...61

Chapter 7 Conclusions and Recommendations ...62

7.1 Introduction...62

7.2 Conclusions ...62

7.2.1 Supplier’s view of preferred supplier...62

7.2.2 Retailers’ view of preferred supplier ...63

7.2.3 Competitors factors on becoming preferred supplier...66

7.2.4 Learning from other industries ...67

7.2.5 Conclusion of the strategic benchmark...68

7.3 Recommendations...69

7.4 Reflection ...72

Literature ...73

Appendix ...75

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Chapter 1 Introduction

1.1. Introduction

This chapter gives an introduction in Mexx and in the research. Mexx has a great history and also an extended product portfolio. Furthermore for this research it is important to discuss the distribution of Mexx. Finally, these introductions result in an introduction to this research.

1.2 History

In 1980 Mr R. Chadha and P.K. Sen Sharma formed a partnership and establishes the company Amex Fashion B.V. The company started to sell men and women apparel under the brand names Moustache and Emanuelle. These have been designed in the Netherlands and sourced in the Far East, in Germany and the Netherlands.

From 1982 to 1986 the business expanded substantially and distributors in most European Countries has been appointed. In 1982 a separate company was incorporated, controlling the design, promotion and production coordination. In 1983 an office in Hong Kong was established, primary control production and shipping. To simplify and strengthen the company’s market position and it’s product image, it was decided to combine the two brand names and create one international identity, Mexx.

M(oustache) + E(manuelle) + XX (two kisses) = Mexx.

The new name, which geared to the free-spirited, positive-thinking individual, was launched internationally in 13 countries on August 1, 1986.

1.3 Products

Today the company is selling six product lines under the Mexx name:

Mexx Women Mexx Men Mexx Youth

- Mexx Teens

- Mexx Kids - MiniMexx - BabyMexx XX by Mexx Mexx Sport

- Woman - Men Mexx Bags Mexx Licensees

- Mexx Fragrance - Mexx Shoes - Mexx Eyes

- Mexx Body & Beach

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- Mexx Socks - Mexx Times - Mexx Jewels 1.4 Distribution

Mexx distributes to more than fourty countries around the world through a unique distribution network. Although the emphasis is on Europe, the Mexx offer is available in Canada, Middle East, Far East and Africa and since September 2003 Mexx opened their first shop on Fifth Avenue in New York.

To bring the products to the market Mexx’ distribution is organized as follows:

Wholesale: Responsible for the relation with the retailers.

• Independents: these are independent retailers, but also chains. Independents are mostly multi-brand stores.

• Majors: Department stores, like de Bijenkorf and V&D.

• Partners: these are franchisers; Mexx stores where the franchiser is owner of the goods, the building and sales-personal.

Retail:

• Concessions: Mexx selects a partner that will be responsible for the building and personal, but Mexx is still owner of the goods.

• Own retail: Mexx stores

• Factory Outlets (not in The Netherlands) Homeshopping:

• Mexx direct: whole Mexx Catalogue delivered at home

• Book-in-Book: Mexx is offered at Wehkamp and Otto

The headquarters of Mexx is located in Amsterdam. Besides, Mexx has sales offices including Spain, Great Britain, Germany, France, Austria, Sweden, Finland, Denmark

Dept.

stores concept areas and sis

Fran- chise stores

Central inventory management Conces-

sion shop-in- stores

retail 31.7%

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High street conces- sion stores

3rd par- ty mail order+e com Mexx.com

e-shop Mexx

catalo- gue Compa

ny owned stores Inde-

pen- dents

Mexx direct, e-commerce and third mail order

home shopping 2.3%

controlled distribution accounts for 57% of net sales Wholesale business system

mostly pre-order sales

wholesale 59.8%

Figure 1: Distribution channels Mexx

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and in the Middle-East. Production is located in Hong Kong and Europroduction is located in Amsterdam.

This research is written from the headquarters, interviews will take place internally as well externally.

1.5 International brand positioning

The mission statement of Mexx is:

To become the leading fashion and accessories company in Europe by addressing different consumer segments, via multiple brands and channels of distribution, focusing on core markets and to provide sustained premium returns to stakeholders.

Mexx wants to become the brand of preference in the mid-market contemporary segment.

Mexx’ peers are brands like Next, Benetton, Esprit and Massimo Dutti.

1.6 Product line positioning Women

Consumer profile:

27-year old modern woman Lives and works in a European capital city Independent, confident and social Optimistic and open-minded

Charming and humorous Interested in fashion but not a victim Enjoys shopping Travels for work and pleasure

Figure 2: Brand positioning Mexx 2004, based on price and lifestyle Brand positioning

price

lifestyle high

medium

low

innovative contemporary classic gucci

prada versace

armani calvin klein dkny boss

ralph lauren gant

burburry max mara

joseph morgan kookai

tommy hilfiger nautica gap

miss selfridge

hennes &

mauritz zara

marks &

spencer c&a mexx

esprit next benetton massimo dutti

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This table is based on a two scales. Fashion content is based on a scale from 1 to 3. 1 is classic, 2 is casual and 3 is trendy. The price positioning is based on a scale from 0 to 3. 0 is a low price positioning, 3 the highest price positioning of direct competitors.

1.7 Liz Claiborne

In May 2001, Mexx became part of the American fashion company Liz Claiborne Inc.

Liz Claiborne Inc. designs and markets an extensive range of women's and men's fashion apparel and accessories appropriate to wearing occasions ranging from casual to dressy.

The Company also markets fragrances for women and men. Liz Claiborne Inc.'s brands include Axcess, Bora Bora, Claiborne, Crazy Horse, Curve, Dana Buchman, Ellen Tracy, Elisabeth, Emma James, First Issue, J.H. Collectibles, Juicy Couture, Laundry by Shelli Segal, Liz Claiborne, Lucky Brand, Mambo, Marvella, Monet, Monet 2, Realities, Russ, Sigrid Olsen, Trifari and Villager. In addition, Liz Claiborne Inc. holds the exclusive, long-term license to produce and sell men's and women's collections of DKNY® Jeans and DKNY® Active, as well as CITY DKNY® better women's sportswear in the Western Hemisphere. The Company also has the exclusive license to produce women's wear under the Kenneth Cole New York and Reaction Kenneth Cole brand names.

Liz Claiborne Inc. operates the following business segments: Wholesale Apparel,

Wholesale Non-Apparel and Retail. In addition, the Company licenses to third parties the right to manufacture, market and sell at wholesale selected products bearing the

Company's trademarks.

Today, Mexx is part of Liz Claiborne. The takeover leads to opportunities for both companies in terms of growth, Mexx has entered the American market through the use of the infrastructure of Liz Claiborne, and in the future, Liz Claiborne International brands will be introduced on the European market using Mexx expertise.

south europe 1.5

2.5 trendy

Mango

2 3 3 1 1.5 2 fashion content

south europe 0.5

trendy h&m

south europe 1.5

trendy Zara

europe 1

classic Benetton

uk 3

casual French connection

germany 2

casual Esprit

europe 2

smart casual Mexx

heritage price

positioning product

positioning Product line positioning

Figure 3: product line positioning of Mexx

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1.8 Introduction to the research

“Increasing competition leads to shortening product life cycles, pressure on product development activities and the need to reduce the time to market. Time becomes a critical factor obtaining competitive advantage.”1

The reason for this research is to investigate what should be the wholesale approach for the future. In this research the possibilities for Mexx how to become the most preferred supplier in the fashion industry by realizing innovative ways of doing business and to realize sustainable relationships are analysed.

In fact, Mexx has some dimensions to measure how Mexx is performing. These

dimensions are called Mexx’s Key Performance Indicators (KPI’s). The KPI’s, shown in figure 3 contains four different boxes to measure six parameters. The boxes are business, shop, brand and distribution. The six parameters are customer satisfaction, market share, full price check out, sales per m2, brand awareness, brand sympathy, distribution and penetration. This research is mainly focused in optimising box 2.

Cus to m e r s a tis fa ction (p rofita bility)

Box 1

Distribution

Pe ne tra tion

Dis tribution

Awareness

S ym pa th y

Brand

Box 3 Box 4

TQM (Market Share) Bus ine s s

Full price checkout

S a le s p e r M2 a nd s p a ce pro ductivity

Box 2

Shop

Box 2:

Full price checkout: Difference between what Mexx sells to the retailer and what the retailer sells to consumers of full retail price. (Selling in minus selling out)

Space productivity: stock-turn and sales per m2.

Figure 3: Key Performance Indicators

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Staying alive in a high competitive market like the fashion industry is hard in times of economic recession. With the purpose of surviving in the market, a supplier has to fulfil the needs of the end consumers and the retailers. One way of triggering the consumer is speed up your time to market in order to offer the consumer new products more time a year. Esprit for example, the biggest competitor of Mexx picked up this speed and produces 12 times a year a collection. In comparison with Esprit, Mexx produces 4 times a year a collection. Kurt Salmon Associates (KSA), a market research company, has done extensive research to advise Mexx about accelerating speed to market. Conclusion of this research so far is accelerating Mexx time to market from 4 cycles (4 times a year a new collection) to 6 cycles. Mexx is currently evaluating and developing possibilities of reaching this 6 cycles.

Mexx’s time to market is about 12 months (March 2004, Annual schedule Mexx) in general; from an idea develops to the goods reaches the customer’s shop floor. After two weeks concept development, the product development cycle takes place lasting for approximately five months. Thereafter it follows two weeks preparation for sales including the merchandise seminar, before the sales period of about six weeks takes place. The next step after sales is production, followed by shipping, packing and transportation, lasting for around four months all together.

Speed to market will be increased in the coming years. Other suppliers will also increase their speed. In the future, the moments of collection buys will be due to this speed enormous. Retailers it becomes very hard to keep pace with the moments of buys.

Suppliers will anticipate on this to reduce time for them and for retailers.

As well as speeding up the time to market by increased cycles, potentials to innovate the ways of doing business and building sustainable relationships have to be considered.

These two topics, innovative ways of doing business and sustainable relationships are the key issues in this research.

1.8.1 Innovative ways of doing business

Innovation in the relationship can be translated in terms of:

• e-Marketing: sales by the use of the internet;

• De-selection and trust-limits.

In this research other possibilities to become more innovative will be explored.

Currently, the independent retailer comes to the showroom of Mexx and the retailer can select all articles he prefers. The retailer can determine the number of styles and number of options (colours and styles). This is a very complex and time-consuming process of determining a collection.

There are different ways of selecting the collection to speed up the process:

1. De-selection: which means that Mexx determines a part of the collection retailers will sell, and the retailer can drop some styles that don’t fit in his assortment.

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2. Trust-limits: This is the most extreme way of selecting a collection; the retailer decides his budget, Mexx fills this budget by determining all that will be sold in the stores. Consequently, the retailer is concerned with sales to the consumer and Mexx is responsible for the determining of the collection on the shop floor.

Trust-limits are the ultimate form of trust between the supplier, Mexx, and the retailer.

In this study the possibilities of building sustainable relationships will also be analysed.

1.8.2 Sustainable relationships

To facilitate financial relationships with retailers, Mexx introduced in 1997 the “New Wholesale Approach” (NWA). This program is created to ensure Mexx of financial control and brand awareness in the several stores. This system is called ‘controlled distribution’ because it ensures Mexx of a certain gross profit per square meter using hardware concepts and trade marketing concepts. So, the program has financial and

physical aspects.

Mexx developed a pyramid to visualize the different ways of controlled distribution. The upper four levels contain the hardware concepts, the lowest level the trade-marketing concept; this contains the financial controlled distribution aspect of the program. The higher the level, the more controlled distribution is realized.

Hardware concepts: These are shop concepts offered by Mexx to retailers. Hardware concepts ensuring Mexx a certain gross profit and M2. Because the surface of the shop is known, you know how many goods can fill this surface. Also the average price of the goods is known, so the average gross profit of a customer can be calculated. The hardware concepts are visualized in appendix 1.

Mexx Store 100m2 +

Mexx Shop-In-Shop 50 - 80 m2

Mexx Concept Area 30 - 50 m2

Mexx Identity Area 20 - 30 m2

Mexx Financial controlled

distribuition (TM)

Increase Mexx visibility Increase Mexx support

Financial concepts Hardware concepts

Figure 4: Pyramid of controlled distribution

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1. Store: Whole Mexx store, owned and operated by a franchise partner.

2. Shop-in-shop: Mexx furnishes the lightening and floor and the Mexx shop is customized for the store. (For example a shop-in-shop in ‘De Bijenkorf’)

3. Concept areas: Independent retailers, with their own floor and lightening. There is a Mexx corner in the store. Mexx delivers just some hardware. (For example

‘the Sting’)

4. Identity area: Bridge between trade marketing(TM) level, financial part, and Concept Area. Customer gets a light box, some hangers and furniture of Mexx.

5. Trade marketing: This aspect of controlled distribution is not a physical but a financial control. The retailers do not have hardware in the store, but ensure Mexx of a certain sales. In return the retailer receives some privileges in terms of higher mark-up, stock exchange or return and marketing support from Mexx, dependent of the year volume. The retailer reaches a level like favourite, privilege and VIP. The higher the level, the better the support of Mexx. These three labels can be reached without hardware, but also in combination with hardware. The three TM levels can be found in the lower levels of the pyramid, level 4, identity

area and level 3, concept area.

1.9 Conclusion

This research must result in opportunities how to improve the new wholesale approach of Mexx. In order to improve this wholesale approach, this research focus on possibilities to

45.000

2.32 10% E

500

90.000

2.42 15% E

1000

160.000

2.52 15% R

1000 Retailer known

as Privilege

Retailer known as VIP Retailer known

as Favourite

Year volume (purchase per sales point)

1. Mark-up

2. Stock Exchange- /return

3. Promotion material per year (euro)

Figure 5: Trade Marketing concept for the Netherlands involving three types of retailers: Favourite, Privilege and VIP

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innovate the ways Mexx is currently doing business. In order to improve the relationship with the wholesale customers of Mexx, independent retailers, this research is focused on how to build sustainable relationships. These two topics must lead to opportunities for Mexx to become preferred supplier.

The status of preferred supplier contains for Mexx opportunities to get more control over her distribution. 7 years ago Mexx introduced the wholesale approach to realize control.

This wholesale approach contains a trade-marketing program in order to commit independent retailers with Mexx. Through this program Mexx wants to generate loyal customers in order to improve the sales per square meters. This research is done in order to improve this wholesale approach.

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Chapter 2 Problem statement

2.1 Introduction

In this research the problem statement defined by Verschuren (1986) will be used. This definition states the problem statement has to be divided in an objective and a research question. The research question is split into a main question and sub questions. After that, terms used in this research are explained.

2.2 Research objective

The objective of the research explains for who the research will be conducted, what the desired outcome is and why the research is carried out.2 The objective for this research is:

To advise Mexx about how to improve her position as a supplier for their wholesale customers.

2.3 Research question

The research question is a concrete question fitting with the objective. The research question has to make clear which knowledge is needed to reach the objective. The research question will lead to some sub questions that form the research design.3 The central research question in this research is:

Which aspects have to change in the way Mexx is doing business and how can Mexx build sustainable relationships so that Mexx enhance its position as a supplier in order to become most preferred supplier?

2.4 Sub-questions4

In order to answer the research question some sub-questions are formulated. These questions are:

• What are the opportunities of enhancing the relationship between wholesale customers and Mexx in the next future regarding to decision makers of Mexx?

• What do retailers expect from a supplier to be considered as a preferred supplier?

• What are the success and failure factors of fashion competitors that influence whether or not they become a preferred supplier?

• What can Mexx learn from other industries about building sustainable relationships with their retailers and how innovative are they?

2Verschuren, P. (1999)

3Verschuren, P. (1999)

4Verschuren, P. and H. Doorewaard (2000)

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• What are innovative ways of doing business for Mexx and how to improve sustainable relationships with special focus on controlled distribution?

2.5 Definition of terms Long-term collections:

Forward collection: (70%)

Main collection for all divisions. Mexx produces a collection four times a year for all divisions. XX by Mexx is has a 6-cycle (6 times per year a collection).

Short-term collections: (called OTB (open-to-buy)) Mexx Express: (15%)

A short-term capsule collection offering high fashion products, proven seasonal best-sellers, updated styles plus trend fabrics and/or colors. Mexx Express is designed to complement the Main Mexx collection (divisions Women and Men). Every month there is a new collection. These collections are developed in 2 months.

Mexx NOOS (never out of style): (10%)

Products selected because of their time-less design and popularity, their proofed success on the market and their special cost/quality proportion/rate. NOOS-products demand low cost investments.

Repeats: (5%)

Bestsellers from previous mother line collection(s). This is an ongoing ordering process of forward collection from the past.

Additional term:

Siebel:

This is a CRM (Customer Relationship Management) tool to improve the relationship through customer knowledge. Siebel offers:

- Relation Contact Management - Prospect Administration - Documents Handing

- Different order types like Forward, NOOS, Replenishment and Specials

- Management functionality - Order Entry

- Trade Marketing Administration

- Retail Point Maintenance and administration - Service requests

- Siebel Calendar

- Siebel and Central Server Synchronisation

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2.6 Conclusion

In this chapter the research objective and question with his sub questions are described.

The objective of this research is “to advise Mexx about how to improve her position as a supplier for their wholesale customers.” The research question is “Which aspects have to change in the way Mexx is doing business and how can Mexx build sustainable

relationships so that Mexx enhance its position as a supplier in order to become most preferred supplier?” This research question resulted in five sub-questions.

In the next chapters the sub-questions will be analysed in order to answer the research question. First, the research approach is discussed and after a literature overview applied to Mexx will be explored. After that the several analyses will lead to answering of the sub-questions.

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Chapter 3 Research Approach

3.1. Introduction

Before starting the analyses, preconditions are taken into account. These are described in this chapter. Also the boundaries will be discussed. Furthermore, in this chapter the methodology is described. All these elements are visualised in a research model that is used during this research.

3.2 Preconditions

General preconditions:

• Research will be done in six months. Consequence is that the possibilities for data gathering and the scope of the research will be limited.

Preconditions of the RijksUniversiteit Groningen:

• The research and reports has to be done in accordance with the requirements set by the University.

Preconditions of Mexx International B.V.:

• The research has to result in practical and useful recommendations.

3.3 Boundaries

The research is focused on the women division of Mexx International BV. This is the largest division and is further in process than the other divisions in terms of distribution, penetration, controlled distribution and in trade marketing, so it is of high importance to consider the ways of doing business in the future.

women 42%

men 20%

youth 13%

mexxs port 5%

xx by mexx 10%

bags 1%

other 9%

Figure 6: Actual net sales 2003

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Furthermore this research is focused on one of the core markets of Mexx, the

Netherlands. Mexx has three core markets, the Benelux, Germany and France. Mexx started with fashion for women in the Netherlands.

3.4 Methodology

In this part of the strategy of analysis of this research is discussed. Before the methodology of this research will be discussed a research model is drawn.

3.4.1 Research Strategy

This research is based on several analyses. To ensure Mexx of a width overview of the opportunities to become most preferred supplier the research is considered from different points of view.

First of all, the literature review is set up in order to consider the literature overview at length regarding sustainable relationships between supplier and retailer and the

opportunities to do innovative ways of business. In this analysis attention is paid to how the relationship between a supplier and a retailer is perceived in the year 2004 and what is expected from both parties in the future. Afterward the success factors needed to become most preferred supplier are reviewed in order to advise Mexx about becoming preferred supplier. This chapter contains literature from a retailers’ point of view and a suppliers’

point of view, which will be applied to Mexx and her retailers. Furthermore, this chapter contains literature of ‘category management’, in order to learn from other industries working with this management type.

Figure 7: Research model Retailer

Mexx

Literature

Benchmark

Operational

Customer

Strategic

Possibilities of becoming the most

preferred supplier

How to improve the relationship withwholesale customers?

Sustainable relationships

Innovative ways of doing business

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In the supplier analysis the vision of several decision-makers of Mexx are discussed. The main issue of these interviews is the vision of decision makers on innovative ways of doing business and building sustainable relationships. Special attention is paid to strategic issues like what Mexx wants to achieve in the near future and how they think about the realization of these objectives. In addition to this, the possibilities of strengthen the relationship are discussed with the intention of realizing better results.

In scope of the interviews an analysis is realized based on the experiences of customers (retailers). Customers in this research are retailers of multi-brand stores In order to create an independent study; the main issues of this analysis have a general character.

Highlights in the interviews are: what’s your vision of a preferred supplier, which conditions need a supplier to become most preferred, what are the opportunities for innovation, how do retailers think about a partnership with suppliers and what does the competition offer?

Because in this research the possibilities of how Mexx can become most preferred supplier are analysed it is useful to look and analyse other industries. Focus is on their ways of doing (innovative) business, their way of realizing sustainable relationships, relationship with customers and how they handle budgets for the customer. The perfect tool for analysing this is called Benchmarking: Benchmarking is an ongoing discovery and learning activity for improving key business processes. It involves research and the sharing of information among your organizations known as ‘benchmarking partners’.

Benchmarking is often carried out between organizations that have a similar process but belong to different industries.5 Furthermore, it looks to find best practices and high performance, and then measures actual business operations.6 Benchmarking can take place on four areas;7

Operational Benchmarking: this kind of Benchmarking is also called

‘competitive benchmarking’. It can lead to cost reduction.

Customer Benchmarking: how can be anticipated on the demands of the market?

Strategic Benchmarking: a possible market strategy will be related with a possible success in the market.

Business Management Benchmarking: in this benchmark it’s about support departments. Focus is on quality and size of the support.

In this research three of these benchmarks are done to cover as much as possible ways of becoming preferred supplier.

First, an operational benchmark, or a competitive benchmark, concerns a comparison of the competition. Problem is the information gathering8. In this benchmark some

5 Sitnikov, C. (2002)

6 Montgomery County (2003)

7 R. Wal (1994)

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competitors of Mexx are explored to give Mexx insides in the possibilities to innovate and take advantage on competitors.

Next, the customer benchmark is done. In this benchmark different industries are analysed in order to learn from them and looking for opportunities for Mexx. This is called a customer benchmark because the relationship between supplier and customer is reviewed and the way different industries are dealing with their customers is explored.

Results from this benchmarking process helps to advice Mexx about opportunities and threats in building sustainable relationships with their customers.

Realizing a useful customer benchmark the industry comparison should be applicable to the fashion industry.

Several aspects have to be considered in finding a perfect benchmark partner:

• The product must contain emotional value, a so-called emotional product

• The life cycle of the product has to be very short

• The benchmark industry has to work with wholesale partners

• The product of the benchmark industry must be available in a multi-brand store Finally, the strategic benchmark is carried out. This benchmark is based on several open interviews at Euretco. This company forms a bridge between a supplier and customers and informs them and gives advice. This benchmark is conducted to look at possibilities in the future and what the market will do in the next coming years.

Comparing these different field of benchmarks with the results of the Mexx analysis and the retailer analysis, opportunities will arise about how Mexx can become most preferred supplier, which shall result in recommendations for Mexx about what the possibilities are to innovate the way of doing business in order to realize sustainable relationships in scope of becoming most preferred supplier.

3.4.2 Research methods

Since the aim of the research is to advice Mexx how to improve the relationship with wholesale customers, the most appropriate research strategy is a qualitative research.

According to Verschuren en Doorewaard9 the best strategy is a case study because of the following characteristics:

A small number of research units

A “labour-intensive” generating data

The “depth” of the study is more important than the “breadth” of the study

A selective random (strategic random)

Qualitative data and analysis A small number of research units

9 Verschuren, P. and H. Doorewaard (2000)

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In order to examine how Mexx can improve the relationship between Mexx and her wholesale customers it is essential the used dataset is of high quality. To get reliable results it is important that the right decision-makers are involved in this research. The research units are internal and external focused. Internal interviews must be focused on the responsible managers and decision makers that are involved in wholesale.

External interviews will be done by random selective of retailers, buying groups, research agencies and seminars. The benchmarks interviews will be selective based on the internal interviews and relevant articles writing about the topics involved in this research.

‘Labour-extensive’ data generating

Because of the low number of units that are analysed in this research project the data collection has to be labour-intensive. In this study face-to-face interviews with open questions will be used.

Furthermore, observation is used in the sales-process. In addition, documentary analysis is done by analysing strategic plans of Mexx, business plans and presentations. Third, annual reports and strategic plans from other companies will be used. These ways of data gathering will lead to an ‘in-depth’ research.

The ‘depth’ of the study is more important than the ‘breadth’ of the study

As a result it is important for the reliability of this research that the interviews and observation are of high quality the sample is relatively small but qualitative very high.

Devising a New Wholesale Approach is central in this study.

Random selection

First, the choice of sampling technique is dependent on the research questions and objective. These research questions and objective do not need to be estimating

statistically the characteristics of the population from a sample, so this study requires a non-probability sampling. Non-probability sampling contains some manners of sampling.

Purposive sampling enables to use the judgement to select cases that will best enable to answer the research question and to meet the objective.10 In this study the unit of analysis will be Mexx key figures, customers (retailers of independents), competitors and key figures of the benchmark industries. These units have been chosen selective because they will help to find a qualitative solution for the problem statement. Concerning the retailers, Mexx made a selection of professional retailers.

Qualitative data and analysis

Because this study includes a low number of research-units, it is preferable that the collected data will be analysed in a qualitative way. Internal interviews were carried out informally to maximize understanding before undertaking the external interviews. These external interviews were semi-structured.

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3.5 Conclusion

This research is focused on the women division of Mexx, because this division is the largest division and further in process than other divisions.

The research strategy contains several aspects. First a literature overview is given applied to Mexx. This literature contains to points of view; from a retailers’ point of view and a suppliers’ point of view. Also category management is discussed in order to fulfill useful benchmarks.

After the literature chapter, the supplier analysis is discussed. This analysis contains points of view of decision makers inside Mexx. The next analysis is the retailer analysis.

Based on interviews with independent retailers, this analysis is done. After that the several benchmarks are carried out. These benchmarks contain an operational benchmark, also called competitive benchmarking. This benchmark is based on the way other

competitors are doing business with their wholesale.

The second benchmark is a customer benchmark. This benchmark explores other industries how they are dealing with their customers and how they try to answer the demand of the market.

Finally, a strategic benchmark is carried out. This benchmark supports the two other benchmarks and deals with strategic opportunities for Mexx. All these analyses together will lead to answering the research question so that the objective will be reached.

The methodology of this research is as follows. This study has the characteristics of a case study because of the small number of research numbers, labour-intensive data generation, the depth of the study, selective random and qualitative data and analysis.

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Chapter 4 Mexx from a theoretical point of view

4.1 Introduction

In this chapter the several literature used in this research is discussed. This literature is divided in several parts. First, a general overview of trade marketing is explained. After that the literature from two points of view are presented: retailers’ point of view and suppliers’ point of view. After that, category management is argued because of the importance of it in the benchmark analyses.

4.2 General overview

Scientific research can be divided in theoretical research and practical research.

Theoretical research (basic research) is research just focused on contributing to solute a certain problem in the theory shaping. In contrast, practical research has the intention to contribute to an intervention changing an existing practical situation11 the findings of practical research (applied research) are of practical relevance and are of direct value to managers in organisations. Basic research findings are of significance and value to society in general. This research has a practical base, with academic standards as foundations.

As stated below business-to-business relationships involve a lot of parties. In the next figure the different forms of marketing and their mutual relationships are visualized. The trade marketing relationship is the one this research is based on. Mexx is in this case the manufacturer of the end products and the retailers are the different wholesale partners (independents, franchise partners and majors).12

Figure 8: Positioning of business marketing, 13 pag 15

11 Verschuren, P. and H. Doorewaard (2000)

12 Biemans, W. (2000)

Supplier of components

Retailer

Mexx; Manufacturer of end products

Supplier of services Supplier of

capital goods

Consumer Trade marketing

Retail marketing

Consumer marketing Business Marketing

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As a result the relationship between manufacturers of end products, in this case Mexx, and the retailer have to be analysed in order to answer the objective. Mexx’ current focus is almost fully on sales. By introducing the trade-marketing program, Mexx realised more durable relationships. With this literature overview a broader scope of the possibilities to build relationships with your customers is given.

In this chapter the several literature about supplier customer relationships is explored.

First a model is used to analyse variables that are of influence on the customers view on the relationship with the supplier. After that the value of the retailer to Mexx is explored.

Based on these two topics the reality is explored in the several analyses.

4.3 Relationships

In order to realize sustainable relationships, the relationship between supplier and retailer should be long-term orientated. A stronger relationship could lead to opportunities regarding innovative ways of business, like trust-limits and e-marketing, because of the fact that relationships are based on trust and collaboration. Consequently, reaching that, both parties are willing to maintain their relationship by investing in ways of doing business.

On the other hand, innovative ways of business could help building sustainable

relationships. When Mexx is very innovative it could be easily to work with Mexx what could result in sustainable relationships.

Literature is focused on the relationship between suppliers and retailers. Most of it is related to the cooperation between them. Giordano stated that many companies today focus only on parts of their business and not the entire business such as products and product differentiation, others focus on strategic marketing programs, or promotions or becoming the low priced. Goal is to focus on all these elements, giving you a competitive advantage and becoming the supplier of choice. First priority of any company should be retention of the customer for they will continually reward you with their business based upon your performance and commitment. Furthermore, trust between two companies is the glue that protect and shields from competitive predators and must be earned

continuously over time through performance. Trust should be a key goal in the

company’s culture. Once you employ and practice all elements for becoming the supplier of choice, the good news is that this becomes your culture and you therefore have a built- in competitive advantage.14

The relationship is analysed in to views. First, a literature overview is given of the view to customers. After that, the view of the supplier is explored.

4.4 Customers’ point of view

Building relationships between suppliers and customers is becoming a hot topic. A number of variables are influencing this relationship. Morgan and Hunt studied the effects of commitment and trust in the relationship.

14 Giordano, R. (2002)

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Commitment

Anderson and Weitz15 formulated commitment as: “Commitment entails a desire to develop a stable relationship, a willingness to make short-term sacrifices to maintain the relationship, and the confidence in the stability of the relationship.”

According to Anderson and Weitz commitment of the retailer in the relationship with the manufacturer is influenced by the reputation of the manufacturer. They stated that the commitment of the retailer would grow in case of the retailers’ perception of a manufacturer as a trustworthy partner is increased. The cause of this statement can be found in the risk-reducing character of the reputation.

Trust

Trust is one of the key issues in a sustainable relationship between a supplier and retailers. Trust is a relationship and the consequences for both parties are formulated according to Anderson and Naurus (1986): “Trust has been defined as the firm’s belief that another company will perform actions that will result in positive outcomes for the firm, as well as not take unexpected actions that would result in negative outcomes for the firm.”

An important dimension of trust is “commitment”. Anderson and Weitz (1992) formulated commitment as: “Commitment entails a desire to develop a stable

relationship, a willingness to make short-term sacrifices to maintain the relationship, and the confidence in the stability of the relationship.”

According to Anderson and Weitz (1992) commitment of the retailer in the relationship with the manufacturer is influenced by the reputation of the manufacturer. They stated that the commitment of the retailer would grow in case of the retailers’ perception of a manufacturer as a trustworthy partner is increased. The cause of this statement can be found in the risk-reducing character of the reputation.

In line with Andaleeb, trust constitutes the belief, attitude or expectation of a party that the relationship partner’s behavior or its outcomes will be for the trusting party’s own belief.16

Commitment and trust

Morgan and Hunt introduced a model concerning these two variables, the commitment trust theory. They define commitment as an exchange partner believing that an ongoing relationship with another is so important as to warrant maximum efforts at maintaining it;

that is, the committed party believes the relationship is worth working on to ensure that it endures indefinitely.17

Trust is according to Morgan and Hunt besides commitment the key variables regarding the relationship between supplier and customer. They are key variables they encourage marketers to work at preserving relationship investments by cooperating with exchange partners, resist attractive short-term alternatives in favour of the expected long-term benefits of staying with existing partners and view potentially high-risk actions as being

15Anderson, E. en James A. Naurus (1984)

16 Andaleeb (1992)

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Acquiescence

Propensity to leave

Cooperation

Functional Conflict Trust

Uncertainty Relationship

Commitment

Opportunistic Behavior Communication

Shared Values Relationship

benefits Relationship

termination costs +

+ + + +

+

+ -

+

+

-

- +

prudent because of the belief that their partners will not act opportunistically. In short, commitment and trust lead directly to cooperative behaviours.

This theory linked these two variables to five antecedents and five outcomes and tested them in reality.

Figure 9: The key mediating variable (KMV) model of relationship marketing18

This theory will in this study been applied to Mexx in order to explore possibilities in the relationship to become more long-term focused en to realize sustainable relationships.

Next the five antecedents will be discussed and the possibilities to adapt them on the relationships between the customer and Mexx will be discussed.

4.4.1 Influences on relationship commitment

Relationship termination costs

Termination costs are all expected losses from termination and result from the perceived lack of comparable potential alternatives partners, relationship dissolution expenses, and sustainable switching costs. These expected termination costs lead to an ongoing

relationship being viewed as important, thus generating commitment to the relationship.

In this research the termination costs can be translated in the deal with the supplier.

During the relationship a deal arose between Mexx and retailers applied on the retailer.

Switching costs in this relationship means years of investments in the supplier and knowing the brand. Because the fashion industry is an emotional industry a retailer have

18 Morgan and Hunt (1994)

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to invest in the feeling with the brand and knowing the products. Switching to another supplier means years of investment to realize a good shopfloor performance.

Relationship benefits

Morgan and Hunt stated that if firms receive superior benefits from their relationship, relative to other options, on such dimensions as product profitability, customer satisfaction, and product performance, they will be committed to the relationship.19 Superior benefits in the fashion context can be translated in collections offering the market demand, quality issues and shopfloor- and product performance. Suppliers in the fashion branch have to generate these topics in order to be competitive.

4.4.2 Influences on relationship commitment and trust

Shared values

Shared value is the only antecedents of influence of both key variables. Shared values is the extent to which partners have beliefs in common about what behaviors, goals, and policies are important and unimportant, appropriate or inappropriate, and right or wrong.

Norms for example are shared values.

Regarding the relationship between Mexx and retailers shared values are the culture of both companies. According to Kotler culture is defined as the shared experiences, stories, beliefs and norms that characterize an organization.20 Shared norms are an important antecedent of relationships due to the personal feelings coming up in interactions during the relationship.

4.4.3 Influences on trust

Communication

Anderson and Naurus define communication as “ the formal as well as informal sharing of meaningful and timely information between firms”.21 Cannon and Perreault suggest more open sharing of information is indicated by the willingness of both parties to share important information. In fashion apparel industry, frequent communication between retailers and suppliers can expedite quick and accurate response to volatile market, and reduce the costs of impact of inaccurate forecasts.22 Effective communication is crucial to maintain a long-term buyer-relationship and achieve high performance.23

Applied on this research two important ways of communication have to be explored:

1. Communication between retailer and Mexx: This concerns the communication between the sales executive and the retailer. The role of the sales executive plays an important role in analyzing the relationship between supplier and customer.

The sales executive has direct contact with retailers. One reason for the critical nature of a salesperson’s role is developing quality to develop strong lines of

19 Morgan and Hunt (1994)

20 Kotler (1998)

21 Anderson, James and James A. Naurus (1990)

22 Fisher (2002)

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communication with the customer. This enables them to understand what a particular buyer expects from a supplier.24

2. Communication of sales numbers: Possibilities of communicate an information flow concerning sales numbers is in progress. In this research the possibilities of electronic communication must be explored in order to build sustainable

relationships and become more innovative. The introduction of EDI has started but the use of it is marginal. In this research the willingness of the retailer to work with EDI will be explored and the opportunities that will arose using EDI. EDI reduces costs, time delays, and errors associated with paper-based information.25 Furthermore, according to Johnson, point-of-sale data can be used to develop strategic category plans, monitor space allocations and measure performance.26 Opportunistic behavior

Regarding the literature this antecedent has a negative influence on trust. Morgan and Hunt explored the term opportunistic behavior in the literature and concluded

opportunistic behavior can be defined as ‘self-interest seeking with guile’. As such, ‘ the essence of opportunistic behavior is deceit-oriented violation of implicit or explicit promises about one’s appropriate or required role behavior.

Accordingly, Morgan and Hunt posit that when a party believes that a partner engages in opportunistic behavior, such perceptions will lead to decreased trust and commitment. 27 In this research opportunistic behavior is translated in promises from one party in the relationship to another party.

4.4.4 Outcomes of relationship commitment

Acquiescence and propensity to leave

Acquiescence is defined according to Morgan and Hunt as the degree to which a partner accepts or adheres to another’s specific requests or policies, and they posit that

relationship commitment positively influence acquiescence, whereas trust influences acquiescence only through relationship commitment.

4.4.5 Outcomes of relationship commitment and trust

Cooperation

Cooperation refers to situations in which parties work together to achieve mutual goals. A partner committed to the relationship will cooperate with another member because of a desire to make the relationship work. Deutsch suggest in the article of Morgan and Hunt based on the prisoners’ dilemma cooperation requires trust. According to Anderson and Naurus, once trust is established, firms learn that coordinated, joint efforts will lead to outcomes that exceed what the firm would achieve if it acted solely in its own best.

24 Boles, J. (1997)

25 Kurt Salmon Associates (1996)

26 Johnston, W. ea. (2001)

27 Morgan and Hunt (2002)

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4.4.6 Outcomes of trust

Functional conflict

When disputes are resolved amicably, such disagreements can be referred as functional conflict because they prevent stagnation, stimulate interest and curiosity, and provide a medium through which problems can be aired and solutions arrived at. Morgan and Hunt posit that it is trust that leads a partner to perceive that future conflict episodes will be functional.

Uncertainty

Uncertainty in decision-making refers to the extent to which a partner has enough information to make key decisions, can predict the consequences of those decisions, and has confidence in those decisions. Trust decreases a partner’s decision-making

uncertainty because the trusting partner has confidence that the trustworthy party can be relied on.

The relationship between the antecedents, the key variables and outcomes are tested in a retail setting and all 13 are positive correlated. In this research this model is applied on the relationship retailer Mexx and the correlation of the antecedents to the variables to the outcomes are explored.

4.5 Suppliers’ point of view

The model of Morgan and Hunt, showed on page 26, can provide Mexx opportunities to strengthen the relationship with their retailers. From another point of view, an

examination of what the retailer is given to Mexx in the relationship must be given.

Walter and his colleagues, in an article of Möller, have used the direct and indirect value function dichotomy for identifying the following value functions in a business

relationship from a supplier’s perspective28: Direct value functions:

Profit function: refers to the relative direct revenue from a customer

Volume function: refers to the volume of business generated by a customer

Safeguard function: refers to the possibility of ‘guarantee’ a level of business and revenues through contractual arrangements with specific customers

In-direct value functions:

Innovation function: refers to the possibility of product and process innovation with a particular customer

Market function: refers to the possibility of accruing new customers/ distributors through a reference impact of a particular customer

Scout function: refers to the market and other information that can be reached from the working environment through a particular customer

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