Strategic channel activity preannouncements

Journal of Business Research 56 (2003) 923 – 933

Strategic channel activity preannouncements An exploratory investigation of antecedent effects Kim Schatzel, Cornelia Droge, Roger Calantone* Department of Marketing and Supply Chain Management, Michigan State University, N370 North Business Complex, East Lansing, MI 48824-1122, USA Received 3 December 1998; accepted 5 May 1999

Abstract Preannouncements about strategic channel activities (SCAPs) are a highly appealing means of achieving communication with key stakeholders. However, no major study has investigated possible antecedent effects related to SCAPs. We propose and test a model of three environmental indirect effects operating through two mediating variables that affect the firm’s likelihood to issue SCAPs. The results show that the three environment factors—industry antitrust activity, industry dynamism, and competitor retaliation—affect either customer’s tendency to engage in select channel arrangements or the selling firm’s reputation-building activities (or both), which in turn affect the firm’s likelihood to issue SCAPs. D 2003 Elsevier Science Inc. All rights reserved. Keywords: Preannouncement; Strategic channel communication; Firm reputation; Supplier – buyer channel arrangements; Environmental hostility

1. Introduction In preannouncing its intentions, motives, or goals, the firm is engaging in a highly appealing form of strategic communication. Preannouncements are relatively believable, fast, and cheap to issue. They can be ‘‘posted’’ via news wire services as press releases, on the firm’s web site or intranet, or through speeches, interviews, or conferences. Preannouncements create a presence in the information forum where perceptions of the firm, the industry, and the future are formed. Research on preannouncements has focused primarily: (1) on preannouncements as signaling behavior in competitive gaming (e.g., Eliashberg and Robertson, 1988; Heil and Langvardt, 1994; Heil and Robertson, 1991); (2) dividend and related preannouncements and their economic effect on stock prices (e.g., Chaney et al., 1991; Lane and Jacobsen, 1995); or (3) preannouncements about new products (Eliashberg and Robertson, 1988; Lilly and Walters, 1997; Rabino and Moore, 1989). No major study has focused on strategic channel activity preannouncements (SCAPs) in general, or on SCAPs concerning integrative * Corresponding author. Tel.: +1-517-353-6381; fax: +1-517-4321112. E-mail address: [email protected] (R. Calantone).

vertical supply chain relationships in particular. Vertical supply chain integration (through, for example, JIT selling or other forms of relationship marketing) has received a lot of research attention in recent years (e.g., Barclay and Smith, 1997; Sheth and Parvatiyar, 1995; Stone and Mason, 1997; Weitz and Jap, 1995; Wilson, 1995) because it, like new product development, can provide the firm with relatively sustainable competitive advantage. The goal of our study is to address the research gap described above by developing and testing an exploratory model of factors that affect a firm’s likelihood to issue SCAPs. The model is intended to provide a framework for understanding and explaining firm preannouncement behavior, specifically related to future channel activities. We consider two direct antecedents that emphasize a relational focus: (1) select channel arrangements as demanded by customers and (2) the firm’s reputation-building propensity. Through these two as mediators, we model three indirect environmental antecedents: (1) industry antitrust activity, (2) industry dynamism, and (3) competitor retaliation. After a brief introduction discussing the content and advantages of preannouncements, the eight hypotheses of our model are developed. Next, the model is tested using structural equations, and the results are presented. We also explore whether the three environmental antecedents have direct effects, as well as indirect effects on the likelihood to

0148-2963/03/$ – see front matter D 2003 Elsevier Science Inc. All rights reserved. doi:10.1016/S0148-2963(01)00319-8

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issue SCAPs. We conclude the paper with a discussion of the study’s results, implications, and limitations.

2. Strategic preannouncements 2.1. The content of preannouncements Preannouncements are a type of signal that Porter (1980, p.75) defines as ‘‘any action by a firm that provides a direct or indirect indication of its intentions, motives, goals, or internal situation.’’ A well-known example is the use of preannouncement in the marketing of new products; about 51% of US firms engage in the practice (Robertson, 1993). However, our discussions with business managers and an exploratory content analysis of 75 news wire items indicate that the content of preannouncements extends far beyond the new product arena. Content can focus on, for example: (1) the status of licensing agreements (Apple will change clone licensing deals); (2) joint ventures, acquisitions, or strategic alliances (US Airways moves could raise alliance chances with Northwest and Continental); or (3) distribution and pricing (NBC to seek help from affiliates to pay for ‘‘ER’’). The above examples of preannouncement are from Reuters and Business News Wire Services; i.e., they are press releases from the firms involved. Press releases are usually brief and about specific events. Preannouncements during interviews, press conferences, within articles appearing in the trade or business media (e.g., Wall Street Journal, CNBC) or in the firm’s own web site or intranet are often focused on overall corporate strategy and executive vision in the context of a future consumer and competitive environment. For example, a relatively short PRNewswire (1998) wire release (accessed via American Online) announcing the Mattel –Intel collaboration on PC-enhanced toys contains brief quotes and limited vision statements. But Takahashi’s (1998) article in the Wall Street Journal about Intel’s unveiling of a series of computer-networking devices contains numerous quotes from Intel officials (including President Craig Barrett) and clarifies Intel’s vision of the nature of the home computing industry in the future. In summary, preannouncements can focus on virtually any topic and exhibit a wide range of format, length, and specificity. In this research, our interest lies in the subset of preannouncements that are about strategic channel activities. Paraphrasing Porter’s (1980) definition, we define SCAP as any formal communication by a firm that provides a direct or indirect indication of its motives, future intentions, goals, or internal situation concerning strategic channel activities. For example, SCAPs can provide: information about future intended actions regarding channel relationships with distributors or qualification programs for suppliers; executives’ visions on channel-related developments; or statements about firm channel strategy or mission. We focus, in particular, on SCAPs concerning vertical integration within channels. Supply chain integration may

be approached through, e.g., joint ventures, strategic alliances, or partnerships with suppliers and/or distributors. Supply chain integration and relationship marketing have received a lot of attention from both practitioners and researchers in recent years (Barclay and Smith, 1997; Sheth and Parvatiyar, 1995; Stone and Mason, 1997; Weitz and Jap, 1995; Wilson, 1995). JIT buying or selling, QR (Quick Response in nonfood retailing), and ECR (Efficient Consumer Response in food retailing) are all examples of supply chain integration. Yet, no major research effort concerning SCAPs in general, or specifically concerning vertical channel integration, has been conducted. In contrast, research on preannouncements about new products has appeared in the literature (Eliashberg and Robertson, 1988; Lilly and Walters, 1997; Rabino and Moore, 1989). Our goal is to address this gap by modeling antecedents that motivate a firm to issue SCAPs. 2.2. The advantages of preannouncement For the firm, preannouncements are a highly appealing means of achieving strategic marketing communication with stakeholders. Preannouncements are relatively fast and cheap to issue since they have few, if any, production requirements. Speed of communications (whether the content is proactive or reactive in a crisis) is becoming more important in today’s dynamic environment. Preannouncements can be issued virtually instantaneously if necessary. Another advantage of preannouncements is their believability as compared to advertising. They are often issued or approved by senior management and several senior executives may be quoted. Preannouncements may also be subject to public disclosure requirements and thus require legal scrutiny, further enhancing their perceived accuracy. Finally, when picked up by media and received by the audience as ‘‘news,’’ the information has enhanced credibility. The ultimate purpose of any strategic communication is to inform or to influence the target audience in some way, and timeliness and believability are major factors in achieving this goal. Preannouncements can have a major influence on perceptions of uncertainty surrounding the firm or industry; they can be targeted at government officials; they can inform, motivate, or support a firm’s salesforce and distributors; they can react to or preempt competitors; they can cement closer relationships with suppliers; and so on. Indeed, the content and timing of preannouncements can have such a major impact on stock prices that highly selective disclosure (to key securities analysts) was identified as having a high priority for prosecution by SEC Chairman Arthur Levitt in a widely reported February speech (see, for example, Smith, 1998, in USA Today). Finally, the most important advantage of preannouncement may lie in their ability to create ‘‘presence’’ in new media. Firms that do not preannounce may find themselves increasingly at a competitive disadvantage because they will be on the fringes of a major information forum where

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corporate reputations are made and where perceptions of the future are formed. Previously, target audiences had to rely on personal media searches or clipping services to tap into this information forum. Increasingly, due to the growth of the Internet and the web and to the enhanced sophistication of search engines, information is readily and cheaply available to suppliers, distributors, competitors, employees, consumers, stock analysts, reporters, and any other firm or industry stakeholder. The information can be readily accessed on a PC and then browsed, or it can be sorted by key word (such as company name) and then downloaded and redistributed. In short, the channels for the distribution of information are rapidly changing. Firms who have little or no presence in these new channels, or who allow others to determine the content, can find themselves at a disadvantage. In terms of reputational power alone, lack of presence may be interpreted negatively. Preannouncements are a fast and cheap way to have both presence and to achieve at least a modicum of control over influential content targeted at key audiences. 2.3. The focus of the research The goal of our research is to model factors that motivate firms to issue SCAPs. We focus on five factors that can create a compelling need for a firm to communicate its future plans regarding channel-related activities (e.g., developing new supply or distribution partners). The three environmental factors, which capture different sources of hostility and changeability, are: (1) government scrutiny in

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the form of industry antitrust activity; (2) dynamism in the industry, as in frequent changes in marketing, products, or production; and (3) the aggressiveness of competitor retaliation. The three environmental factors are modeled as indirect antecedents whose effects are transmitted via the following two mediating constructs: (1) select channel arrangement as demanded by the customer; and (2) the firm’s propensity to build a leadership reputation. Details of the model are presented in Section 3.

3. The conceptual model Fig. 1 presents the conceptual model, and the accompanying hypotheses. To better organize the presentation of hypotheses, the discussion of the overall model is divided into two sections. Section 3.1 examines the direct effects of two factors: (1) select channel arrangements as demanded by the customer, which we call customer channel selectivity (Hypothesis 1), and (2) reputation building (Hypothesis 2) on a firm’s likelihood to issue (SCAPs). Section 3.2 examines the hypothesized relationships (Hypotheses 3 –8) between the environmental antecedents and both customer channel selectivity and reputation building. Thus, we model the effects of antitrust activity, industry dynamism, and competitor retaliation on a firm’s likelihood to issue SCAPs to be indirect through the two mediating variables (i.e., through customer channel selectivity and reputation building).

Fig. 1. Hypothesized relationships.

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3.1. Direct antecedent effects on the likelihood to issue SCAPs 3.1.1. Customer channel selectivity We define select channel arrangement propensity as the customer’s tendency to de-emphasize discrete buying behavior in favor of long-term, cooperative sourcing practices with a ‘‘select’’ base of vendors. Often supplier qualification by the customer limits the supply base for current and prospective sourcing decisions to a select few firms that have satisfied requirements concerning, e.g., quality, design capability, process development, production efficiency, and pricing practices. The firm as a supplier to such customers may be asked to share product design and development costs, deliver on a JIT basis, assign their personnel to the customer’s locations, guarantee annual price reductions, or agree to long term contracts that commit capacity to the customer. In short, the firm’s customers may be demanding that it and other suppliers be sources of competitive advantage. Customers seek select channel arrangements because performance is enhanced through the long-term orientation of the firms involved (Ganesan, 1994; Noordewier et al., 1990). This long-term orientation, characteristic of select channel arrangements, is positively influenced by trust between customer and supplier, as well as their interdependence (Moorman et al., 1992; Ganesan, 1994). SCAPs, under these circumstances, are one way for the firm to keep valued customers informed of future planned actions related to channel activities and thus engender trust. For example, any potential relational problems could be exacerbated if the customer indirectly learned of the firm’s supply agreements with competitors or future joint ventures with other firms. SCAPs are one way to ensure the customer is informed in a timely fashion. Alternatively, the customer could be alerted to the strategic channel intention via highly undesirable means such as leaks, second party hearsay, or, perhaps most seriously, receive no advanced communication at all. Lack of communication or poor communication is often identified as a major cause of channel conflict and distrust — highly undesirable outcomes within the context of a relational exchange (Mohr and Nevin, 1990). SCAPs are also a way for the firm to ensure top-of-mind or at least share-of-mind awareness on the part of customers through the ability of SCAPs to create ‘‘presence.’’ Thus: Hypothesis 1: Customer channel selectivity is related positively to a firm’s likelihood to issue SCAPs. 3.1.2. Reputation building Firms often try to build a favorable firm reputation among industry constituents such as customers, distributors, investors, industry experts, or observers, and business and trade media (Kreps and Wilson, 1982; Rumelt, 1987; Spence, 1974; Weigelt and Camerer, 1988). Reputation

can serve as a proxy for quality (Nelson, 1970, 1974), deter new entrants, provide for improved status as an industry influencing agent (Weigelt and Camerer, 1988), and even reduce a firm’s marketing costs as compared to competitors (Milgrom and Roberts, 1982). A firm’s reputation is particularly important in an incomplete information environment such as one where industry standards are not yet established or where future industry states are not easily predicted (Kreps and Wilson, 1982). In this case, a firm using information-based, reputation-building strategies may be able to influence both the perceptual structure of the market and the resolution of market uncertainty (Carpenter and Nakamoto, 1989, 1990). The firm may be able to set industry standards in its favor (Lieberman and Montgomery, 1988) and become the prototypical market standard (Carpenter and Nakamoto, 1989, 1990). Thus, reputation building can be a value-creating strategy that leads to competitive advantage rooted in a superior market position (Bharadwaj et al., 1993). Reputation building should increase the issuing of preannouncements in general (Rabino and Moore, 1989) and SCAPs in particular. Strategic channel actions require significant investments of firm resources, both financial and managerial. Firms make these investments because channel relationships and structures provide both competitive advantage and future opportunities. By issuing SCAPs, the firm accrues reputational payoffs from these investments and may also be able to influence future channel structures. Thus, the firm engaging in an information-based, reputationbuilding strategy would probably not restrict itself to new product preannouncements, but rather would extensively preannounce crucial channel activities as well. Creating ‘‘presence’’ in strategic channel activities, as well as informing and influencing channel participants through SCAPs, can be an important component of the firm’s overall reputation-building efforts. Hypothesis 2: Reputation building is related positively to a firm’s likelihood to issue SCAPs. 3.2. The effects of three environmental antecedents: antitrust activity, industry dynamism, and competitor retaliation 3.2.1. Antitrust activity Antitrust statutes reflect government regulatory concerns regarding restraint of trade (Sherman Act, Section 1), monopolization attempts (Sherman Act, Section 2), and unfair competition practices (Federal Trade Commission Act, Section 5). A recent highly publicized example of antitrust activity focuses on Microsoft’s bundling of its Internet browser, Explorer, with Windows: a Senate panel investigated, as well as the FTC and Justice’s Antitrust Division. Overall, federal antitrust activities focusing on restrictive vertical channel dealing have been widely reported in the business press to be on the increase. Several private lawsuits are also pending.

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Historically, antitrust activities have largely focused on the effects of a supplier’s practices on buying firms (Li and Dent, 1997). Government antitrust activities (including investigations, statements of policy, and suits) and private activities (including speeches and complaints, threats of or actual litigation) are currently targeting marketing practices that are common in many industries. Examples include: (1) product tie-ins, as in the Microsoft case; (2) slotting fees, which are widespread in the food industry and are currently being challenged in cases against Frito-Lay and McCormick; (3) exclusivity discounts that are realized upon avoiding competing suppliers (e.g., Frontier Airline’s suit against United); (4) market share discounts that increase with percent volume (e.g., this is the basis of suit against Brunswick in the marine engine industry); and (5) bundled rebates that are received on popular products when less popular items are purchased (e.g., LePage’s suit about 3M’s efforts to tie Post-It notes to tape purchases). Risk associated with antitrust activity has not been empirically scrutinized as a significant managerial motivator. Previous research regarding firm risks inherent in close relationships has largely focused on concerns such as customer dependence, decreased supplier competition, costs associated with customer inertia, and supplier opportunism (Lyons et al., 1990; Stump and Heide, 1996). We propose that the more industry antitrust activity there is, the more competitive advantage and control will be sought within channel structures less subject to judicial scrutiny — namely select channel arrangements initiated by the customer. Thus: Hypothesis 3: Industry antitrust activity is related positively to customer channel selectivity. We also hypothesize that the more antitrust activity there is, the more reputation building there will be. Firm attempts to build a favorable or even dominant reputation have historically been free from antitrust scrutiny despite the competitive advantage implications. Indeed, the emergence of an industry reputation leader is often viewed as a positive event that spurs the growth and profitability of the overall market. For example, ‘‘leaderless’’ markets may have no points of reference (e.g., standards, architecture, or vision) for understanding the long run implications of management decisions and therefore may be slow to adopt new products and technologies (Moore, 1995). Thus, significant antitrust activity should motivate firms to seek competitive advantage through reputation building, as it is less likely to be targeted as a threat to fair competition. Thus: Hypothesis 4: Industry antitrust activity is related positively to reputation building. 3.2.2. Industry dynamism Dynamic industries experience frequent changes in marketing practices, products or services, production technologies, and other characteristics (Miller and Friesen, 1982;

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Lyons et al., 1990). Industry dynamism, which many perceive as increasing over time, reduces the certainty of decision making by a firm. That is, the firm cannot accurately predict nor anticipate future industry states. Frequent change makes it difficult to formulate effective strategies that possess enduring competitive advantage. Overall business risks increase. The use of nonhierarchical supply chain structures that emphasize cooperative close relationships (e.g., partnerships, alliances, and joint ventures) has been proposed as a method by which firms can reduce business risk (Thorelli, 1986; Ring and Van de Ven, 1992). Specifically select channel arrangements encourage reduced perceptions of risks associated with opportunistic behavior by suppliers, increased confidence that short-term inequities will be resolved over the long term, and reduced transaction costs related to the exchange (Ganesan, 1994, John and Weitz, 1988; Stump and Heide, 1996). Thus: Hypothesis 5: Industry dynamism is related positively to customer channel selectivity. Dynamic industries tend to present a less tangible basis from which stakeholders can make decisions. For example, dynamic conditions often make prepurchase evaluation difficult for customers due to a lack of product referents, low salience, or confusion regarding product attributes, high ambiguity, and the unpredictability of purchase implications. Previous research has proposed intangibility results in a greater emphasis being placed on a firm’s reputation by customers (Aakers, 1996). Previous services marketing research has indicated that intangibility motivates the use of firm reputation as a proxy for quality (for example) and that reputation reduces information search costs (Aakers, 1996; Bharadwaj et al., 1993). Reputation can also provide firms with negotiating advantages relative to other channel members, as well as deter market entry by competitors (Weigelt and Camerer, 1988). In summary, a favorable reputation is a competitive advantage in dynamic industries, and the more dynamic the industry, the more benefits will accrue from reputation-building activities. Thus: Hypothesis 6: Industry dynamism is related positively to reputation building. 3.2.3. Competitor retaliation Previous research focusing on competitor retaliation is largely from a game theoretic perspective (Kreps and Wilson, 1982; Milgrom and Roberts, 1982, Weigelt and Camerer, 1988). Within this context, knowing a player’s ‘‘type’’ through past signals and behavior provides insights into preferences, motives, and possible actions. Historically, if competitors quickly and effectively responded to firm actions, then competitors earn reputations as formidable foes. Attacks or other direct contact is avoided, and perceptions of industry hostility may increase. ‘‘Tough’’ or for-

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midable reputations by industry competitors also deter entry (Weigelt and Camerer, 1988). Under conditions where competitors are likely to respond to competitive moves, firms are motivated to avoid actions that encourage ‘‘same-weapon’’ response and initiate actions that preclude a direct response (Chen, 1996). For example, price cuts may be avoided because they are subject to a ‘‘tit-for-tat’’ response. However, select channel arrangements are usually less imitable by competitors. Select channel arrangements often require dedicated investments in physical assets, information technology, personnel resources, and/or organizational training, all of which are difficult to duplicate. Additionally, select channel arrangements are characterized by outcome interdependency and interfirm cooperation that go beyond the achievement of immediate market exchange efficiencies (Ganesan, 1994) and focus instead on longer term and less obvious advantages. Thus: Hypothesis 7: Competitor retaliation is related positively to customer channel selectivity. Higher levels of competitor retaliation are often associated with a high likelihood that firms share consumer markets and that there is substantial supply chain interaction. Additionally, firms would have a high likelihood of sharing similar strategies and resource bases (Chen, 1996; Chen and MacMillan, 1992). Under such conditions, the ability to preempt or reduce the probability of a competitive response would be a strategic advantage, as it would reduce the likelihood of an ever-escalating action/reaction cycle between the competitors. One way to preempt response is to create a formidable industry reputation that disinclines competitors from initiating confrontation and from responding in kind when attacked. Thus: Hypothesis 8: Competitive retaliation is related positively to reputation building. 3.3. Are there direct environmental effects? Hypotheses 1 and 2 proposed that select channel arrangements and reputation building positively affect the firm’s likelihood to issue SCAPs. Hypotheses 3 –8 proposed that antitrust activity, industry dynamism, and competitor retaliation are positively related to customer channel selectivity and reputation building. Taken as a set, Hypotheses 1 –8 propose that the effects of the three environmental factors on the likelihood to issue SCAPs are indirect through customer channel selectivity propensity and reputation building. We test the model as hypothesized using structural equation modeling. No direct effects of the environmental factors on the likelihood to issue SCAPs are hypothesized. However, we also test whether the effects of the environmental factors on SCAPs are completely mediated by customer channel selectivity and reputation building by exploring a model, which includes these direct effects.

4. Method 4.1. Sampling frame and sampling method The sampling frame consisted of US-based firms in the computer software (SIC codes 7372), computer peripheral (SIC codes 3572, 3575, and 3577), OEM automotive component (SIC codes 3714), and machine tool (SIC codes 3542, 3545, and 3541) industries. These industries are characterized by high levels of new product development, technology innovation, or both. Due to the nature of our research topic, our focus was on mid-sized to larger companies and so firms with less than 200 employees were excluded. A total of 2481 firms was randomly selected from a national mailing list: 928 were OEM automotive suppliers, 252 were computer software producers, 355 were computer peripheral manufacturers, and 946 were machine tool suppliers. Of those mailed, 622 surveys were returned because they were not deliverable. The informants selected were president, CEO, or chairman. These informants are heavily involved in strategy formation and are thoroughly cognizant of industry contextual issues, and thus have the necessary expertise (McKendall and Wagner, 1997). The use of senior level management as key informants is particularly important when examining boundary spanning activities (Penning, 1976) such as those central to our research hypotheses. Finally, we chose to contact single key informants because this provides the advantage of anonymity: the respondent may perceive reduced risk, increasing the likelihood of their candid response (Kohli, 1989). We attempted to enhance response rate in several ways. The survey packet contained a personalized cover letter that introduced the study, its potential value, and the importance of the executive’s participation. We offered respondents a copy of the survey results and conclusions. A follow-up reminder card was mailed out within 10 days; it highlighted the survey’s value, offered the results, and included the researcher’s name and telephone number. Throughout the process, we assured executives of confidentiality. Of 1859 executives, 265 responded, giving a response rate of 14.3%. Such a response rate is adequate considering that the targeted respondent is a high-level executive who is often under significant time constraints. Some of the questions could be considered as dealing with sensitive and confidential matters. Both of these factors would lower response rates. To assess nonresponse bias, responses related to several variables were compared between the surveys from the 100 earliest responding firms and the 100 latest responding firms. This analysis is based on the premise that late-wave respondents are more similar to nonrespondents; therefore, the respondent characteristics of the late respondents are expected to be reasonably representative of nonrespondents (Armstrong and Overton, 1977). There was no significant difference between early and late respondents on the variables examined; thus, nonresponse bias would not seem to be a factor substantively affecting the study’s results.

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4.2. Measurement

4.5. Reputation building

All the constructs were measured using multi-item scales. The scales, their means, and Cronbach’s a reliabilities are provided in Table 1. The a reliabilities ranged from .61 to .87. For constructs using scales with less than three items, customer channel selectivity and antitrust activity, ordinary correlations, and composite reliabilities are reported as recommended (Miller, 1995, Hair et al., 1995). The reliability results for all constructs are within acceptable ranges (Hair et al., 1995).

The reputation-building construct captures the degree to which a firm values and seeks a ‘‘high-profile’’ favorable public reputation. The three 7-point Likert scales measure the degree to which: (1) the firm values being known as an industry leader; (2) the firm actively seeks to create presence through participation in industry activities/forums; and (3) the firm’s management welcomes coverage by the trade and general business press. The three items were developed after extensive review of the first mover and reputation literature (e.g., Lieberman and Montgomery, 1988; Weigelt and Camerer, 1988).

4.3. Likelihood to issue SCAPs The three items of the likelihood to issue SCAPs construct focus on preannouncements: (1) the development and (2) the cessation of supplier or distributor relationships; and (3) or the establishment of joint ventures or strategic alliances. Seven-point Likert scales were used. On the questionnaire, the concept of preannouncement was clearly defined, with illustrative examples given.

4.6. Industry antitrust activity

4.4. Customer channel selectivity

4.7. Industry dynamism

Two 7-point Likert scales measured the construct. The first describes the degree to which customers limit the number of suppliers in their supply base. The second is about the length of the purchasing commitment. The scales were adapted from Ganesan (1994).

The industry dynamism construct taps the degree and frequency of industry change as related to marketing practices, products or services offered, and industry production methods. The three 7-point bipolar scales were adapted from Miller and Friesen (1982).

The industry antitrust activity construct describes the degree to which either antitrust or unfair competition charges are significant industry phenomena. The two 7-point bipolar scales were adapted from Eliashberg and Robertson (1988).

Table 1 Constructs, measures, reliabilities, and standardized CFA parameters Constructs and measures

Standardized CFA parameters

Likelihood to issue SCAPs (a = .76) SCAP1: Your firm will generally preannounce its intent to develop new supply or distribution partners. SCAP2: Your firm will generally preannounce its intent to establish a joint venture, acquisition, or strategic alliance. SCAP3: Your firm will generally preannounce its intent to discontinue a supply or distribution partnership.

.967 .916 .857

Customer channel selectivity (correlation = .45) CCS1: Your customers tend to make sourcing decisions that limit the number of suppliers to a very small number. CCS2: Your customers generally make purchasing commitments that cover order volumes for significant time periods.

.386 .752

Reputation building (a = .77) RB1: Your firm seeks a significant public profile through industry activities and forums. RB2: Your firm seeks to have a leadership reputation within your industry. RB3: Your firm welcomes coverage by the trade and business press.

.679 .804 .693

Antitrust activity (correlation = .87) ANT1: Antitrust concerns are a significant factor in strategic decision making. ANT2: Unfair competition charges by competitors are not rare.

.738 .709

Industry dynamism (a = .76) DYN1: Frequently changing marketing practices. DYN2: High product obsolescence rates. DYN3: Production methods change often and in a major way.

.699 .744 .693

Competitor retaliation (a = .61) CR1: Your competitors react promptly to new product introductions. CR2: Your competitors usually react with the same weapon (e.g., price cuts). CR3: Your competitors respond aggressively to your firm’s actions.

.552 .690 .517

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4.8. Competitor retaliation The competitor retaliation construct is composed of the timeliness of competitors’ response, the aggressiveness of that response, and the likelihood of ‘‘same-weapon’’ retaliation. The three 7-point bipolar scales were adapted from Eliashberg and Robertson (1988).

5. Results 5.1. Confirmatory factor analysis (CFA) of the measurement model EQS 3.0 (Byrne, 1994) was used to perform a CFA. Measures of overall fit included: CFI = .990, NFI = .933, NNFI = .986, c2 = 103.329, 89 df, with a P value of .142. No standardized residuals were over 2 in the absolute value. The overall fit of the 16-item, six-construct CFA model was reasonably good as compared to accepted guidelines (Hair et al., 1995). As evidence of convergent validity, all items loaded on their prespecified constructs and all standardized coefficients were significant (t values were between 1.918 and 19.099; see the last column of Table 1 for standardized estimates) (Anderson and Gerbing, 1982; Fornell and Yi, 1992; Fornell and Larcker, 1981). Lastly, for establishing discriminant validity, results from LaGrange Multiplier (LM) tests indicated no significant cross loadings for measurement items with non-prespecified constructs. Thus, the measurement model is supported. 5.2. Structural model: tests of Hypotheses 1– 8 We next tested the structural model presented in Fig. 1 using EQS 3.0 (Byrne, 1994). The model was tested using

the covariance matrix as input (Anderson and Gerbing, 1982). Examination of overall fit measures indicates a good fit of the model to the data. Measures of overall fit included: CFI = .984, NFI = .927, NNFI = .980, c2 = 116.546, 93 df, with a P value of .050. No standardized residuals were over 2 in absolute value. Table 2 shows the standardized parameters estimates and t values for the model’s structural parameters. Both customer channel selectivity (Hypothesis 1) and reputation building (Hypothesis 2) had positive effects on a firm’s likelihood to issue SCAPs thus supporting these hypothesized relationships. Our results also indicate that antitrust activity is positively related to both customer channel selectivity and reputation building (Hypothesis 3 and 4 are supported). The proposed positive relationship between industry dynamism and customer channel selectivity was not supported (Hypothesis 5 is rejected), but the results support our hypothesis (Hypothesis 6) that industry dynamism positively affects reputation building. Hypothesis 7 regarding the positive effects of competitor retaliation on customer channel selectivity was supported. However, no support for a positive relationship between competitor retaliation and reputation building resulted (Hypothesis 8 was not supported). 5.3. Are there direct environmental effects? To test whether there are direct effects of the three environmental variables, the model in Fig. 1 was reestimated with direct paths to the likelihood to issue SCAPs from (1) industry antitrust activity, (2) industry dynamism, and (3) competitor retaliation. All other paths were the same. The change in overall goodness of fit between the two models was evaluated using the c2 difference test (Bollen, 1989). The c2 difference of the two models was

Table 2 Test of the hypothesized relationships Hypothesis description

Standardized parameter estimate

t values

Hypothesis 1: Customer channel selectivity is positively related to SCAPs.

.160

1.394**

Hypothesis 2: Reputation building is positively related to SCAPs.

.282

4.134*

Hypothesis 3: Antitrust activity is positively related to customer channel selectivity.

.154

1.350**

Hypothesis 4: Antitrust activity is positively related to reputation building.

.173

1.904*

Hypothesis 5: Industry dynamism is positively related to customer channel selectivity.

.085

0.901

Hypothesis 6: Industry dynamism is positively related to reputation building.

.383

4.121*

Hypothesis 7: Competitor retaliation is positively related to customer channel selectivity.

.262

2.700*

Hypothesis 8: Competitor retaliation is positively related to reputation building.

.045

0.573

* Significant at P < .05. ** Significant at P < .10.

Conclusion Hypothesis 1 was supported. Hypothesis 2 was supported. Hypothesis 3 was supported. Hypothesis 4 was supported. Hypothesis 5 was not supported. Hypothesis 6 was supported. Hypothesis 7 was supported. Hypothesis 8 was not supported.

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7.037, 3 df, P > .05, indicating there is no significant difference in overall fit between the two models. However, further scrutiny of the hypothesized paths results in two substantive differences between the models. In the reestimated model, the newly hypothesized direct path between industry antitrust activity and the likelihood to issue SCAPs is significant at P < .10 (standardized parameter estimate is equal to .153) and, in contrast to the original model, the path between customer channel selectivity and the likelihood to issue SCAPs (Hypothesis 1) is no longer significant (t value of 1.237).

6. Limitations Since this study is the first to examine SCAPs, its results are exploratory and more research is required to provide conclusive, generalizable evidence regarding a firm’s likelihood to issue SCAPs. The response rate of 14.3%, though acceptable, should be recognized as a limitation and suggests future replication studies are needed. Also, two of the constructs (i.e., select channel arrangement propensity and antitrust activity) use two-item measures. Though acceptable for CFA and structural equation modeling, use of twoitem scales is less than ideal and future research should attempt to make use of multi-item scales having more than two indicators.

7. Implications for research and practice Our study proposes a model to serve as a foundation for examining preannouncements as nonconsumer marketing communications. SCAPs concern future firm activities or postures related to channel activities. Prior to this study, investigation of preannouncement phenomena has been largely limited to the domain of consumers and new products. We focus on SCAPs as a means to establish a favorable informational presence within various media theaters (including Internet-based forums), a presence whose desirability is motivated by channel concerns. Preannouncements, as inexpensive, timely, and often senior management sponsored communications, can inform channel members about both planned actions and perceptions of future industry trends or practices. Thus, preannouncements may provide valuable information to channel participants that goes beyond the routinized information sharing that is more commonly the focus of channel communication research (Li and Dent, 1997; Mohr and Nevin, 1990).

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mechanisms that constitute the heart of the dominant channels’ paradigm. Our results indicate that customer channel selectivity and reputation building influence positively the firm’s likelihood to issue SCAPs. In short, firms are motivated to issue SCAPs not simply to provide discrete prepurchase information, but also due to relational and reputational emphases that incorporate less tangible and longer term considerations. These findings suggest that a firm involved in a select channel arrangement is cognizant that the strength and viability of its channel position is affected by its future planned actions and future industry states. Intuitively, this concept is appealing. Customers value and select firms as their suppliers based not only on short-term performance criteria, but also by assessing the relationship’s future implications. Does the firm as a supplier have the capability to maintain its current proficiency and continue as a valuable resource or will changing market conditions or possible strategic asymmetries place limits on that supplier’s future worth? Such concerns are particularly manifest in industries where suppliers are expected to significantly augment a firm’s long term competitive positioning (e.g., automotive industry). SCAPs can allay customer concerns regarding the firm’s future relational worthiness. Similarly, a firm’s emphasis on reputation building positively affects its likelihood to issue SCAPs. Increasingly, customers are requiring their suppliers to provide additional services such as training, technical support, codesigning activities, and prototype development. Judging a firm’s capability to effectively supply such intangible services is often based on its reputation. SCAPs can assist in building ‘‘reputational capital’’ and thus influence sourcing decisions by providing information that favorably positions the firm within the industry and garners goodwill from its customers. Thus, SCAPs may enhance a firm’s competitive position by reducing uncertainty regarding its future merit as a relational channel partner and by improving its general industry reputation. The present research, however, examines the influence of the customer’s desire select channel arrangements on SCAPs rather than the firm’s. Within this context, are SCAPs truly a proactive means of strategic communications, or simply a limited defensive measure to ensure the customer is not surprised or ‘‘blindsided’’ by future actions? Additionally, is the effect of select channel arrangement propensity as an antecedent limited to SCAPs, or do they also influence a firm’s likelihood to preannounce new products? Further examination of these research questions could contribute to a deeper understanding of the firm’s public persona.

7.1. Customer channel selectivity and reputation building Previous preannouncement research has focused on buyer-related antecedents that are economic oriented (e.g., buyer switching and information search costs) and has largely ignored possible motivators rooted in relational

7.2. Indirect antecedents through customer channel selectivity Our study’s other contributions derive from the examination of three indirect antecedent effects consisting of

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industry antitrust activity, industry dynamism, and competitor retaliation. The findings suggest that a hostile industry environment, resulting either from governmental antitrust or competitor actions, motivate the development of select channel arrangements. Under such conditions, arrangements with a limited number of suppliers, largely immune from government scrutiny, that lock up resources or line up allies are pursued by customers. However, we find that industry dynamism had no effect on customer channel selectivity. Our hypothesis was, in part, based on previous research, which suggests that the risk reduction strategies, favored in dynamic environments, motivate the development of nonhierarchical organizational structures (Thorelli, 1986; Ring and Van de Ven, 1992). Our study specifically examines select channel arrangements, defined as the customer’s tendency to limit the number of suppliers and engage in multiyear sourcing contracts. Using this definition, we find no empirical support for dynamism’s positive effect on the development of select channel arrangements as a nonhierarchical organizational form. However, previous definitions and measures of nonhierarchical organizational structures vary within the literature (e.g., joint venture, strategic alliance, and joint development agreement). The goals of the various nonhierarchical forms may vary as well; thus conditions that motivate their selection by a customer may differ. Li and Dent (1997) warn that many significant issues related to exclusionary channel dealings remain underexamined, particularly concerning motivations for engaging in the relationships. For example, select channel arrangements are often established as part of a cost reduction strategy, while joint ventures may be founded to support an expansion or exploratory marketing strategy (e.g., joint ventures with local firms as mode of entry into new geographic segments). The absence of semantic and measurement coherence in the literature, as well as a lack of understanding regarding select channel arrangement motivators may be confounding results. These are areas warranting further research, especially since the future competitive arena combatants may be supply chains rather than firms. 7.3. Indirect antecedents through reputation building The findings indicate that reputation building is influenced positively by industry antitrust activity and industry dynamism. Government scrutiny disinclines firms from pursuing strategies that could result in unfair competition charges. Instead, it seems that more subtle influencing strategies based on a firm’s formidable and favorable industry reputation are preferred. A favorable reputation may also allow the firm to reduce and possibly resolve the uncertainty associated with dynamic industry states in its own favor. However, we found no empirical support for our hypothesis regarding the positive relationship between competitor retaliation and reputation building. Our definition of repu-

tation building focuses on the creation of a ‘‘good name’’ for the company thus engendering feelings of trust and value by customers. Within this context, the construct may be biased towards a customer, rather than a competitor, orientation. 7.4. Direct effects of the environmental constructs The final study consideration concerns the empirical examination of an alternative model that includes the direct effects on a firm’s likelihood to issue SCAPs of three environmental constructs, industry antitrust activity, industry dynamism, and competitor retaliation. There was no significant fit improvement as compared to the original model; however, two interesting findings did result. First, previous research regarding consumer-related preannouncements has proposed that competitive concerns disincline firms to preannounce (Eliashberg and Robertson, 1988). This is because consumer-related preannouncements usually focus on new products or price. Competitors can react by, e.g., accelerating new product development or cutting prices. Thus, the more likely it is that the competitors can react in the consumer domain, the less likely a firm is to preannounce. In contrast, we found no such competitive effect regarding a firm’s likelihood to preannounce SCAPs, perhaps due to immutable nature of strategic channel actions. This difference in antecedents based on content (e.g., joint venture versus new products) and/or target audience (channel versus consumer) deserves further investigation because it suggests that the fear of retaliation may be situation-specific rather than industry-specific. The reestimated model did however show a positive relationship between industry antitrust activity and a firm’s likelihood to issue SCAPs. This finding contradicts previous preannouncement research regarding new products, which found that antitrust concerns (e.g., charges of market overhang) negatively affected a firm’s likelihood to issue new product preannouncements (Eliashberg and Robertson, 1988; Heil and Langvardt, 1994; Heil and Robertson, 1991). The need for the public disclosure of equity-based mergers, acquisitions, and joint ventures in advance of congressional antitrust review filings (e.g., Microsoft and Intuit) may be the underlying explanation for this positive result specific to SCAPs. Also, in contrast to the original model, the path from customer channel selectivity to the likelihood to issue SCAPs is no longer significant. This poses the question whether the limitation of the supplier base in number or time truly completely mediates the relationship between industry antitrust activity and SCAPs. The question is but one example of a larger research issue that has been addressed in numerous fields: are the effects of the environment on strategy, structure, or firm actions in general direct or are they partially or completely mediated by other key model constructs? In our model, the effects on SCAPs of the three environmental constructs appear to be indirect through customer channel selectivity and/or reputation building.

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