Relationship-Based Competitive Advantage

Relationship-Based Competitive Advantage: The Role of Relationship Marketing in Marketing Strategy Robert M. Morgan UNIVERSITY OF ALABAMA

Shelby Hunt TEXAS TECH UNIVERSITY

Relationship marketing research to date has focused for the most part on two sets of issues. First, what are the benefits of relationship marketing adoption? Second, how are marketing relationships built and maintained? Although these are important questions for researchers to address, we believe an understanding of the strategic impact of relationship marketing is equally important. We hold that relationship marketing should only be adopted when it offers, or contributes to, a firm’s competitive advantage—a competitive advantage that, it is hoped, proves sustainable. As a first step toward better understanding the strategic role of relationship marketing, adopting a resource-based approach, we first clarify the role that resources gained through relationships may play in marketing relationships. Then we isolate and discuss the various kinds of resources that might be gained through relationships. Finally, we develop five propositions for assessing the strategic worth of these resources in marketing relationships. J BUSN RES 1999. 46.281–290.  1999 Elsevier Science Inc. All rights reserved.

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roponents of relationship marketing encourage firms to seek partners for long-term marketing relationships; for example, focusing on customer retention rather than customer capture (Kotler, 1991; Vavra, 1992). However, it is clear that enthusiasm for relationship marketing should be tempered with concern for not only selecting appropriate partners, but also for engaging in relationships only when it is expected that relationship marketing is consistent with the firm’s overall marketing strategy. In short, relationship marketing should be practiced when it offers, or contributes to, a firm’s strategy for achieving a competitive advantage—a sustainable competitive advantage. These relationship-based competitive advantages (RBCAs) drive the success of relationship marketing. Indeed, as Ganesan (1994) notes, “most firms Address correspondence to Robert M. Morgan, Associate Professor of Marketing, Department of Management and Marketing, Culverhouse College of Commerce and Business Administration, University of Alabama, P. O. Box 870225, Tuscaloosa, AL 35487-0225, USA. Journal of Business Research 46, 281–290 (1999)  1999 Elsevier Science Inc. All rights reserved. 655 Avenue of the Americas, New York, NY 10010

overlook the sustainable competitive advantage that can be created through long-term relationships.” Similarly, we suggest, academics have neglected the search for explanations as to how to create sustainable competitive advantages based on relationships. Therefore, it is important that relationship marketing scholars begin to theorize how competitive advantages can be built through marketing relationships. Although the strategy literature offers a variety of approaches that might contribute to understanding RBCAs, resource-based theory (Conner, 1991; Penrose, 1959; Wernerfelt, 1984) is especially promising. In the creation of sustainable competitive advantages, resource-based theory emphasizes the strategic importance of the firm’s own resources, which are defined as any entity, tangible or intangible, that the firm has at its disposal to “enable it to produce efficiently and/or effectively a market offering that has value for some market segment or segments” (Hunt and Morgan, 1995, p. 6). Basic resources—variously categorized as financial, legal, physical, human, organizational, informational, and relational (Barney, 1991; Hofer and Schendel, 1978; Hunt and Morgan, 1995)—are combined to create higher-order resources, or competencies, from which the firm can achieve a competitive advantage (Foss, 1993; Hunt and Morgan; Langlois and Robertson, 1995; Prahalad and Hamel, 1990; Teece and Pisano, 1994). Building on resource-based theory, scholars have examined the potential competitive advantage of competencies built on a variety of foundational resources. In marketing specifically, competitive advantages in services (Bharadwaj, Varadarajan, and Fahy, 1993) and market orientation (Hunt and Morgan, 1995) have been examined. Problems arise, however, when the firm lacks a full complement of the basic resources necessary to create competencies and, through them, marketplace positions of competitive advantage. As Levine and White (1961) have noted, resources are often in scarce supply, creating the need for cooperative interorganizational exchange. Thus, organizations must acquire the resources through purchases in the marketplace ISSN 0148-2963/99/$–see front matter PII S0148-2963(98)00035-6

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(transactional exchange), the acquisition of firms having resources (vertical integration), creating or developing the resources internally, or through partnership with other organizations (relational exchange). Resource-based theory, therefore, can contribute to explaining the strategic nature of marketing relationships. Specifically, firms engage in relationships when compatible partners are identified whose complementary resources, when combined with their own resources, provide competitive advantages; that is, RBCAs. There are numerous examples of marketing resource and contexts wherein sharing resources might provide organizations with competitive advantage. For example, the retail outlets provided by a relationship partner, as in many international alliances, may allow a firm to achieve geographical coverage of critical markets that would not be readily available outside of the relationship. Building relationship marketing theory requires isolating the kinds of resources that can be secured through marketing relationships, determining the potential RBCAs, before assessing the sustainability of the individual RBCAs. Advantages are only sustainable to the extent that the resources that produce them cannot be purchased; that is, they are immobile, and/or they cannot be easily imitated, or substitutes cannot be found (Barney, 1991; Dierickx and Cool, 1989). This paper enhances our understanding of relationshipbased competitive advantages. Drawing on the expanding literature of relationship marketing, interorganizational relationship, and resource-based theories, we first clarify the strategic role of resources in marketing’s cooperative relationships— relationships characterized by commitment and trust. We then isolate and discuss the potential resources to be gained from such relationships and their contribution to the efficiency and effectiveness of participating firms. Finally, we develop five propositions for assessing the strategic worth of these resources in marketing relationships.

Strategic Role of Resources in Marketing Relationships Theoretical discussions of interorganizational relationships and resources often focus on transaction cost analysis (TCA) or resource-dependence theory. For example, transaction cost theory holds that idiosyncratic investments; that is, resources whose value is relationship specific, necessarily risk opportunistic behavior (Williamson, 1975). Because TCA assumes universal opportunism, this negative view of the effects of sharing valuable resources has been criticized by organizational scholars as “guilt by axiom,” at worst, or misguided, at best (Donaldson, 1990; Ghoshal and Moran, 1996; Hill, 1990). Likewise, in resource-dependence theory, resources are seen to provide their owners with power and control (Achrol and Stern, 1988; Aldrich, 1979; Frazier, 1983a,b; Pfeffer, 1981). As Oliver (1991, p. 943) notes, “resource dependence theorists, in particular, propose that organizations

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‘seek to avoid being controlled’ in exchange relations and that an organization’s aversion to establishing interorganizational connections will be proportional to the loss of autonomy anticipated to result from relationship formation.” Simply put, resource-dependence theory holds that firms enter relationships not only cautiously, but reluctantly, because they view relationships as liabilities and fear that participating in them will result in a loss of power in their own decision making. However, Oliver’s empirical test failed to support this fundamental tenet of resource-dependence theory. Clearly, firms often enter relationships not reluctantly but optimistically. They realize that, strategically, to be more competitive, they must have access to valuable resources and that relationships often offer the best route to obtaining these resources. This strategic orientation toward resources, we argue, differentiates the resource-based theory approach to understanding relationships from TCA in economics and resourcedependence theory. Treating resources strategically implies four managerial requirements. Resources must be: (1) efficiently acquired or developed; (2) combined skillfully to create complex resources; (3) deliberately applied to competitive situations; and (4) dutifully maintained and protected to ensure on-going availability (Bharadwaj, Varadarajan, and Fahy, 1993; Day and Wensley, 1988; Hunt and Morgan, 1995). Understanding each of these requirements is critical to furthering theory on the strategic nature of marketing relationships.

Efficiently Acquiring or Developing Resources That Enhance Efficiency Hunt and Morgan (1995) hold that a comparative advantage in efficiency-enhancing resources is a major route to achieving a marketplace position of competitive advantage (see their Figure 1). As Barney (1986) notes, the financial performance of the firm depends upon the cost of implementing strategies as well as the returns enjoyed from those strategies. Similarly, for resources to result in a truly comparative advantage, the cost of acquiring them must be lower than the gains they impart. As Peteraf (1993) argues, this typically implies that competition for the resource is limited at the outset; limited because outcomes of employing the resource are uncertain, bringing about ex ante limits to competition. Efficiency of resource acquisition is often a motive for relationship formation. For example, Ford realized that by using a small network of suppliers in on-going relationships, resources could be acquired more efficiently than by purchasing components through multiple, short-term transactions or producing inhouse components (Taylor, 1994).

Combining Basic Resources to Create Complex Resources Outside of the relationship literature, several authors propose that critical to the process of deploying resources is how the

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firm combines its assortment of crucial resources to achieve superior capabilities. For example, Hofer and Schendel (1978, p. 25) contend that, in addition to the scope of its operations, a firm’s competitive advantages depend upon the levels and patterns of deployment of its resources and skills. They label these patterns of deployment “distinctive competencies.” Similarly, Prahalad and Hamel (1990) point to core competencies, the combination of resources, as the immediate precursor of competitive advantages. Fiol (1991, p. 191) notes that “competency thus encompasses more than a firm’s stock of tangible assets. It encompasses the cognitive processes by which the stock is understood and translated into action.” Reed and DeFillippi (1990, p. 89) review the conceptualization of “competency” by several authors and conclude that two consistencies could be noted throughout: “(1) the source of a competency is always internal to the firm; (2) competency is produced by the way a firm utilizes its internal skills and resources relative to the competition.” Reed and DeFillippi’s “internal thesis” is too narrow, we argue. It is certainly the case that simply accumulating valuable asset stocks is insufficient to ensure a competitive advantage. Indeed, competitive advantages are realized only when the firm combines assortments of basic resources in such a way that they achieve a unique competency or capability that is valued in the marketplace. Furthermore, the value that this capability provides puts the firm in a competitive positional advantage. However, mountains of anecdotal evidence point to the fact that these resources are not necessarily “internal to the firm” as “internal” is traditionally conceived. Rather, when firms have access to external resources through partnerships, such resources can be combined with the firm’s internal resources to produce a competency that results in a competitive advantage (Gummesson, 1994).

Positioning Resource Advantages in Competitive Situations Hunt and Morgan (1995, p. 8) note, “Sustained, superior financial performance occurs only when a firm’s comparative advantage in resources continues to yield a position of competitive advantage despite the actions of competitors.” If the firm enjoys a comparative advantage in resources over its competitors, but its managers lack the ability to apply that advantage toward a position of competitive advantage, resources are wasted. The situation is further confounded by the fact that the value of a particular resource is often specific to a market segment (Hunt and Morgan, 1995). As Collis and Montgomery (1995) note, unique capabilities that yield an advantage in one product market may be of little use in another, despite having the “rareness” characteristic identified by Barney (1991). As with most resource issues, this task of competitive positioning becomes even more complex when the efforts of multiple firms must be coordinated. For example, members of supply chains in the food industry have repeatedly experienced the frustrations that this level of coordination requires

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when attempting to establish competitive advantage through implementation and practice of Efficient Consumer Response programs (Fiorito, May, and Straughn, 1995).

Maintaining and Protecting Resources Dierickx and Cool (1989) liken resources and resource maintenance to a draining bath tub with flowing faucets. As a resource is used, it must constantly be replaced with new flows to maintain the firm’s stock of the resource. If the resource stock is allowed to be exhausted before new flows of the resource are introduced into the system, the organization may find that insufficient levels of the resource exist to enjoy the previously held advantage. Because the creation of resource stocks is often time dependent, resource stocks must be maintained over time—not allowed to become exhausted before efforts to refresh the stocks are initiated. Therefore, organizations must continuously reinvest in the resources that it anticipates will best serve its strategy (Peteraf, 1993). The implication for resources gained through relationships is clear. Because resource-sharing relationships—relationships characterized by commitment, trust, and cooperation—take time to build (Morgan and Hunt, 1994), they must maintain timely access to the resources they offer.

Types of Resources Gained in Marketing Relationships What types of resources can be shared and exchanged in relationships? Based on the works of Alderson (1957), Barney (1991), Day (1990), and Hofer and Schendel (1978), Hunt and Morgan (1995) suggest that the resources of the firm can be categorized as financial, legal, physical, human, organizational, relational, and informational. Building on that scheme, we specify further how such resources might be shared and exchanged in marketing’s various interorganizational relationships. Our aim is to demonstrate the role of relationship marketing in furthering the strategic efforts of the firm; that is, in providing the firm with superior, efficient access to a broad variety of needed resources.

Financial Resources Financial resources are the capitalization that the firm has at its disposal. It may exist as cash reserves or as cash available through stock issues, loans, bonds, and other financial instruments (Hofer and Schendel, 1978). The need for financial resources of other firms is a common driver of many marketing relationships, but it is clearly one of the main drivers of franchising decisions. McDonald’s enjoys a clear advantage through the financial strength of its over 9,000 outlets—whose prosperity is owed, in large part, to the brand equity of the McDonald’s brand, an organizational resource.

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Legal Resources Legal resources are those assets the firm uniquely possesses because of governmental statute or a legally binding agreement between the firm and another party (Alderson, 1965). Included among the firm’s legal resources would be contracts, exclusionary licenses, and entitlements. In marketing, licenses to rare and unique assets, such as innovative products, are resources derived from relationships. In such a partnership, licensing allows one firm to gain initial access to a foreign market that would otherwise be difficult to penetrate (Cateora, 1993). In return, the foreign partner receives a valuable addition to its product line which improves its performance.

Physical Resources Physical resources are the tangible assets, other than labor and cash, that are used by the firm to produce and market goods and services. Physical resources include raw materials reserves, machinery, land, and production, storage, distribution, service, and retailing facilities (Alderson, 1957; Barney, 1991; Day, 1994; Hofer and Schendel, 1978). In marketing, physical resources help drive manufacturers’ distribution decisions, where retailers’ geographical coverage and infrastructure are key.

Human Resources Human resources encompass the skills, knowledge, and vision of the firm’s employees (Barney, 1991; Day, 1994; Hofer and Schendel, 1978). The selling skills, responsiveness, and breadth of coverage of the sales force, and the ability of marketers to manage their markets can be extremely important among manufacturers, wholesalers, and retailers in their relationships with one another. These characteristics drive which manufacturers’ products are stocked, what trade allowances are offered, and which retailers will be given the opportunity to carry products in heavy demand.

Organizational Resources Organizational resources are the assets the firm possesses that arise from the organization itself, chief among these are the corporate culture and climate, the organization’s structure, valued brand names, and the administrative history of the firm. Culture is important, because it affects decision making, learning (Fiol and Lyles, 1985), and social behavior within the organization. Other organizational resources include the organizational “routines” (Nelson and Winter, 1982) and systematic processes that the firm acquires or develops that are applied to the various functions of the firm, such as extraction or acquisition of raw materials, production of goods and services, strategic planning, or acquiring, storing, and communicating information (Collis and Montgomery, 1995). Teece and Pisano (1994) call attention to organizational competencies that enable organizational metamorphosis—the ability to re-

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spond rapidly to changes in the environment. In a relationship marketing context, comarketing relationships might arise because one partner wants the other’s expertise at new product development or production processes superior to their’s (Bucklin and Sengupta, 1993; Matthyssens and Van den Bulte, 1994). In retailing, a manufacturer’s unique resources, such as high demand, innovative products, brand loyalty, or quality in product design, lead to retailers’ advances at establishing exclusive relationships to obtain those resources (Ganesan, 1994).

Relational Resources Relational resources consist of the relationships: (1) between various constituencies within the organization; and (2) between the organization and its various external partners. For example, in the U.S. automobile industry, manufacturers realize the value of the relationships their dealers have with consumers. Dealers’ relational resources translate into information resources that manufacturers hope to acquire (Brandweek, 1995). In return, some automobile dealers benefit from the relationships their manufacturers have with their employees; for example, Saturn (Aaker, 1994). More commonly, marketers contemplating entry into unfamiliar markets seek relationships with others who are more experienced in those markets. Drawing on these partners’ existing relationships with consumers enhances success in new market entry (Varadarajan and Cunningham, 1995). These relationships—including retailers with consumers, wholesalers with retailers, and manufacturers with employees—offer unique, value-adding resources to the fortunate firms whose partners secure them (Quinn, 1992; Powell, 1990; Sethuraman, Anderson, and Narus, 1988).

Informational Resources Although the knowledge held by individuals is a part of human resources, the collective knowledge of the organization and the processes developed for inducing organizational learning comprise much of a firm’s informational resources (Child, 1987; Doz and Prahalad, 1991; Drucker, 1993; Sheth and Parvatiyar, 1995). The importance of this last category to the success of the organization is felt no more powerfully than it is in marketing, where the on-going collection of information and knowledge of markets (customers and competitors) is crucial (Slater and Narver, 1995). Efficient consumer response, electronic data interchange, just-in-time distribution, and category management depend upon a devotion by marketers to building this resource and building partnerships with others so to do. By combining their resources with those gained and shared in marketing relationships, organizations can build comparative advantages that, when used properly, result in marketplace positions of competitive advantages for the firm. To the extent that these advantages are sustainable, the organization can enjoy tremendous gains by means of relationships.

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Table 1. Requirements of Resources to Provide Sustainable Advantage Critical Requirement

Explanation

Authors

Efficiency/effectiveness

The resources must continue to contribute to the firm’s ability to efficiently/effectively produce valued market offerings for some market segment(s) Central to the resource-based view, heterogeneity acknowledges that firms differ significantly in the resources that are at their disposal; this heterogeneity arises from limited availability of these assets: although some are abundant, others are relatively rare Resources should be difficult for competitors to imitate; this characteristic typically arises from the nature of the process required to create the assets

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Heterogeneity

Imperfectly imitable

Imperfect substitutability

It should be difficult to find replacements for resources

Imperfect mobility

Critical strategic assets must have limited tradeability among competitors in the marketplace

Sustainability of Relationship-Based Competitive Advantages: Critical Requirements of Resources Because firms have a multitude of resources, obtaining a complete inventory is likely to be difficult for those responsible for developing strategy. Nevertheless, as the resource-based approach to analyzing sustainable competitive advantage has progressed, theory has focused on developing a framework for determining those that are crucial to achieving a sustainable competitive advantage (Barney, 1991; Dierickx and Cool, 1989; Hunt and Morgan, 1995; Peteraf, 1993). Although no consensus has been reached as to which of these frameworks is most appropriate, a synthesis of their various components shows several common features. Such a synthesis is shown in Table 1.

Efficiency/Effectiveness Resources should not only be acquired at an efficiency-enabling price (Peteraf, 1993), resources must continue to contribute to the firm’s ability to efficiently/effectively produce valued market offerings for some market segment(s). As Hunt and Morgan (1995) note in the case of IBM and their reputation for lifelong employment, resources that once afforded the firm efficient and/or effective performance often may become a strategic hindrance or, even a “contraresource.” IBM found that their policy of job security—which fostered employee loyalty and resulted in strong, productive relationships—over time was transformed an expected entitlement (Hays, 1994).

Heterogeneity Identified by Peteraf (1993, p. 186) as “the sine-qua-non of competitive advantage,” heterogeneity is the heart of the

Barney (1991), Hunt and Morgan (1995), Peteraf (1993) Alderson (1965, p. 205), Barney (1991), Dierickx and Cool (1989), Peteraf (1993) Barney (1991), Dierickx and Cool (1989), Peteraf (1993) Collis (1991), Dierickx and Cool (1989), Peteraf (1993)

resource-based view. Unlike traditional industrial organization economics, which assumes that all firms have access to the same resources (Collis, 1991; Hunt and Morgan, 1995), the resource-based view recognizes that this is not the case. Because resources are only available in limited supply, advantages accrue to firms able to acquire them (Peteraf). Studying relationship marketing, Morgan and Hunt (1994) found that the benefits and termination costs that firms attribute to specific relationships led to cooperation, commitment, and other positive outcomes. We maintain that an appreciation of these benefits and termination costs arise from the firm’s assessment that the resources it gains from particular relationships are either unique, or, at the minimum, would be difficult to find elsewhere. Therefore, RBCAs should be highly sustainable and valuable when built on resources that: (1) are unique; (2) gained through relationships with partners who are unique in owning them; or (3) are unique in combination with partners’ resources.

Imperfectly Imitable To have continued value, competitive advantages must be sustainable. Sustainability becomes problematic when the resources that are used to create them are easily subject to imitation or substitution by competitors. Factors that limit imitation and substitution include: (1) causal ambiguity; (2) producer learning; (3) buyer costs switching; (4) reputation; (5) buyer search costs; (6) channel crowding; (7) economies of scale; (8) unique historic conditions; (9) social complexity; (10) time compression diseconomies; (11) asset mass efficiencies; (12) interconnectedness of asset stocks; and (13) asset erosion. Certainly, we can easily see how many of these conditions—especially economies of scale, social complexity, and time compression diseconomies—might apply to resources

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gained in marketing relationships. However, causal ambiguity is especially pertinent. Causal ambiguity results when it is unclear how a firm’s competitive advantage was achieved. Typically, causal ambiguity is used to refer to this lack of clarity on the part of competitors, but as Reed and DeFillippi (1990) note, causal ambiguity may be so extreme in some cases that even the firm that possesses the competitive advantage may be unaware of its source. Arguably, competitive advantages arising from competencies that are causally ambiguous are the most secure, inimitable advantages that a firm can possess. Organizational learning is an example of a causally ambiguous, highly valuable competitive advantage. Strategists often argue that economies of scope and the organizational learning that accompanies participation in a broad scope of businesses stimulates organizational learning. Similarly, we argue, such learning benefits accrue to firms that are involved in true relationships with others. Causal ambiguity derives in large part from complexity. Observing the complexities of relationships Gummesson (1994) notes, “a network business requires continuous creation, transformation, and maintenance of networks.” Continuing with the notion of network, rather than simple, dyadic relationships, Anderson, Ha˚kakansson, and Johanson (1994) demonstrate that often it is not the firm’s own resources, but those of its network partners, that make it an attractive partner. As our conceptualization of relationships moves from dyads to networks, tracing the transfer of resources between partners becomes extremely difficult, if not impossible. In relationships, business experiences are shared, friendly suggestions are made, and it is unlikely that outside observers or participants will be able to trace or replicate this process outside of the specific relationship; that is, the process is laden with causal ambiguity.

those that are the least mobile, such as dealer loyalty, trust, reputation, and R&D capability. Collis (1991) and Peteraf (1993) see immobility as the most valuable characteristic, because of the time and cost required to accumulate such resources. Competitive advantages gained through relationships with other organizations are especially immobile, because the resources involved are often either: (1) idiosyncratic, offering little or no value outside of the relationship in question; or (2) co-specialized resources—combinations of resources that are co-dependent (Peteraf).

Imperfect Substitutability

Financial Resources

To remain sources of sustainable competitive advantage, resources also must not be subject to substitution by other resources. As Barney (1991) notes, such substitutes may be similar or dissimilar. For example, in the early 1980s, the distribution channels for personal computers were effectively locked up by such large, established manufacturers as IBM, Tandy, and Compaq. Michael Dell, founder of PC’s Limited (later known as Dell Computer), who had been unsuccessful at gaining access to traditional retail outlets, developed a mail order channel for selling his merchandise; thereby, substituting one resource for another. When the source of these resources is (are) relationship(s), substitution becomes unlikely as the size and complexity of the resource combinations increases.

Financial resources are difficult to duplicate only to the degree that it is rare for competitors to have significant access to funds. Financial resources can be imitated by competitors healthy enough to acquire debt or equity. For many uses of capital, competitors can substitute other means to the ends that financial resources would provide, thorough out-sourcing or leasing. Financial resources are mobile, because they can be obtained in the marketplace by trading other resources. This reasoning holds in relationships also. Hagedoorn (1993) found that among strategic alliances in high technology industries, financial resources were the least common motivation for alliance formation. In the case of franchising, it is unlikely that a competitor, with a similarly valuable business concept, would be unable to secure the financial support of franchisees as well. Therefore, we posit that relationships formed to acquire financial resources are unlikely to result in a sustainable competitive advantage, because of financial resources’ lack of heterogeneity.

Imperfect Mobility As Dierickx and Cool (1989) note, strategic resources must be nontradeable. Perhaps the most valuable resources are

Propositions for Evaluating Shared Resources Once we have established a valid, rigorous classificational scheme of firm resources and a framework for analyzing those resources, we can postulate which resources in general offer firms the best opportunity for achieving sustainable competitive advantage. Therefore, our discussion now turns to an analysis of the scheme using the framework developed above. Table 2 offers examples of relationship marketing situations in which RBCAs might arise from particular categories of resources, alone or in combination with other basic resources. In addition, the table provides a summary of our evaluation, forming the basis for the propositions listed below. It is important to realize that it is uncommon for RBCAs, as with competitive advantages in general, to arise from a single resource. Rather, RBCAs most often are created by bundling many different types of resources across relationships—as the combinations become more complicated, the ability of competitors to purchase, imitate, invent around, or substitute for those RBCAs diminishes.

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Table 2. Evaluation of Resources Potentially Gained in Cooperative Relationships Resource

Examples of Relationship Marketing Applications

Financial

Franchising

Legal

Licensing complementary products

Physical

Distribution decisions; use of manufacturer’s excess capacity for private label goods

Human

Merchandise selection; distribution decisions

Organizational

High-quality customer service driving choices of partners for foreign market entry Retailers’ relationships with ultimate customers driving manufacturers’ choice of retailers for their products Foreign market entry partnering decisions; manufacturers’ relationships with Electronic Data Interchange (EDI) and Efficient Consumer Response (ECR) partnering retailers and wholesalers

Relational Informational

Legal Resources The sustainability of advantages derived from contracts and licenses is limited to: (1) the amount of time the contract or licence allows for; or (2) the amount of time required before the contract or the licensed assets can be “invented around.” The most common legal resource gained in marketing relationships is a license to a valuable product. However, such relationships are commonly initiated with a finite relationship duration in mind, by definition lending limited sustainability to the competitive advantage gained. Moreover, licensing is only one of many ways that firms can enter new markets, lending to the potential for substitutes. Finally, it is uncommon that others could not imitate such a resource. Therefore, we posit that relationships formed to gain legal resources will not enjoy sustainable RBCAs.

Physical Resources Land, factories, and other physical resources acquired through relationships are also rarely the basis for sustainable competitive advantages. Although geographic location can be a distinct advantage in specific markets, given the lack of geographic barriers to other markets, alternative locations of equal value are quite common. Moreover, through such means as electronic commerce and direct marketing, spatial advantages that derive from locations of outlets are rapidly becoming diminished; a complex combination of organizational and informational resources (e.g., a direct distribution system) is substituted for a simpler physical resource (e.g., an established retail network). Therefore, we maintain that relationships initiated to gain physical resources will not commonly result in sustainable RBCAs. P1: In interfirm relationships, comparative advantages— created singly or from combinations of resources of

Resource Evaluation Under Critical Requirements Limited potential as source of RBCA because of wide availability Limited potential as source of RBCA because of imitability, substitutability, and limited longevity Limited potential as source of RBCA because of superiority of substitute competencies based on combinations of more complex resources Moderate potential as source of RBCA—sustainability is limited by mobility High potential as source of RBCA because of the ambiguity and time dependence of their creation High potential as source of RBCA resulting from time dependence of their creation, coupled with perceived ambiguity High potential as a source of RBCA because of the complexity of the resource mix required to build unique stocks and flows of information

both partners—that are limited only to financial, legal, and physical resources, will generally be unsustainable and will offer little potential for RBCAs. P2: In interfirm relationships, comparative advantages created from combinations of resources of both partners that include financial, legal, and physical resources, will be more sustainable and offer greater potential for RBCAs when they include human, organizational, relational, and informational resources.

Human Resources The focus of much research concerning the resource-based view within the management area is the value of managerial skills in creating a sustainable competitive advantage (Castanias and Helfat, 1991). Managerial skills are valuable, because they can be substituted for so many other resources. However, as with scientists, engineers, and technicians, managers and sales personnel can be bought away from the firm. The breadth of coverage of a sales force, whose services are enjoyed by relationship partners, is unsustainable to the extent that a competitor may have the financial resources to develop their own sales force and hire away sales manager. We propose that RBCAs gained through a partner’s human resources are moderately sustainable. P3: In interfirm relationships, comparative advantages— created singly or from combinations of resources of both partners—that are limited to human resources only, will generally be moderately sustainable and offer moderate potential for RBCAs. P4: In interfirm relationships, comparative advantages created from combinations of resources of both partners that include human resources, will be more sustainable

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and offer greater potential for RBCAs when they include organizational, relational, and informational resources.

Organizational Resources Proprietary technologies, often gained through organizational learning, are typically more sustainable than financial, legal, and physical resources because of the ambiguity and time dependence associated with their development. For example, new product development or strategic planning superiority may arise from a host of factors, all of which are not apparent to the holder of the superior resource, not to mention outside observers. We hold that RBCAs gained through the organizational resources of partners—including organizational culture and routines, valuable brands, and quality control systems— are highly sustainable, because they are often imperfectly imitable, imperfectly substitutable, and highly immobile.

Relational Resources Hagedoorn (1993) found that potential partners’ access to markets was the single most common motivation for strategic alliances in high technology sectors of business. Firms having long-standing relationships with customers—especially relationships characterized by trust, commitment, and loyalty—in attractive markets become very desirable relationship partners because of this resource they hold. Access to customers gained through marketing relationships can be largely sustainable when the firm holding the relationships with those customers has built the relationships on trust and commitment, or loyalty. As Dierickx and Cool (1989) note, intangible relationship assets, such as trust, are valuable, advantage-sustaining resources, because they are cultivated only over long periods of time and cannot be stolen away. Day and Wensley (1988), in fact, proposed that loyalty may be the best measure of competitive advantage in marketing contexts. We maintain that RBCAs gained through partners’ relationship resources will be highly sustainable.

Informational Resources A firm’s inventory of informational resources is based largely on its ability to learn. As the foundation of informational resources, organizational learning, then, imparts strong sustainability to these assets. In fact, many observers suggest that organizational learning may be the only competitive advantage open to a firm in the future (McKee, 1992). Information is highly perishable, but the systems that organizations develop to gather, disseminate, and apply information—all complex, difficult to imitate informational resources—perpetuate the possession of valuable information and knowledge. We posit that RBCAs built on partners’ informational resources will be highly sustainable. P5: In interfirm relationships, comparative advantages— created singly or from combinations of resources of

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both partners—that arise from organizational, relational, or informational resources, will be highly sustainable and will offer the highest potential for RBCAs.

Conclusions Unfortunately, research into the strategic implications of relationship marketing has been largely neglected; therefore, little direction can be offered to managers concerned with the longterm, strategic impact of their firms’ adoption of relationship marketing. Although strategy research in relationship marketing is greatly needed, initial efforts in relationship marketing strategy, as with any scientific endeavor, must include identifying and classifying the subject matter, establishing frameworks, and developing basic research propositions (Hunt, 1991). Attempting to initiate those efforts, we adopt Hunt and Morgan’s (1995) classification scheme of firm resources, we draw upon literature from resource-based theory to establish a framework for analyzing combinations of those resources, and we develop an initial set of research propositions for relationship marketing strategy. We began our discussion by warning that relationship marketing should be adopted only when it offers, or contributes to, a firm’s competitive advantage. As a word of caution, therefore, it is important to mention two potential paths to relationship marketing misadventures. First, managers are cautioned to avoid allowing relationship-based resources from becoming a “strategic hindrance” (Barney, 1991). This includes situations where resources acquired through relationships become a strategic hindrance by leading the firm to make poor decisions regarding investments or courses of action. For example, enjoying access to markets gained through a relationship partner may lull an organization into complacency and prevent the firm from searching out new markets for its products on its own. When the long-term costs of existing relationships, and the resources shared in those relationships, outweigh the long-term benefits, we argue that relationship marketing theory urges managers to assess how the relationship can be salvaged. When salvaging the relationship is not in the long-term best interest of all parties, efforts must be taken to dissolve the relationship in such a way that minimizes harm to all partners. Second, despite the resource benefits that can be derived from relationship marketing, managers should avoid allowing exchanges to become nonreciprocal, resulting in an assymetrical dependence upon the relationship for resources (Anderson and Weitz, 1989). Ganesan (1994) argues that assymetrical dependence allows the more powerful party to take advantage of the dependent partner. Alternatively, D’Souza, Morgan, and Zhao, (1997), in a study of joint ventures, found that the unreciprocal contribution of resources—the source of assymetrical dependence—leads to relationship failure through erosion of relationship commitment among the more resource-endowed partners. When relationships fail, both partners will lose.

Relationship-Based Competitive Advantage

Relationship marketing is becoming increasingly important to the overall marketing strategy of many firms. Crucial to understanding this role is to recognize: (1) the resources needed from the gained through marketing relationships; (2) the suitability of various partners from economic, strategic, and social perspectives; and (3) the sustainability of advantages that arise when relationship marketing strategies, based on specific resources, are pursued. The bulk of current research in relationship marketing focuses on portions of this second component. It is hoped that this paper will call attention to those issues that remain, so that a better understanding of the role of relationship marketing in the firm’s marketing strategy might be gained.

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