Understanding manufacturers' representatives: an analysis of satisfaction and dependence balancing.

ABSTRACT

This paper presents an exploratory study that examines the relationships between characteristics of manufacturers and the satisfaction of manufacturers' representatives. Relationships between the manufacturers' representative's satisfaction, dependence on the manufacturer and dependence balancing activity are also examined. The construct of dependence balancing activity is further developed based on previous studies (Heide and John, 1988) and initial scale items are presented. Findings from this exploratory study suggest the importance of satisfying the manufacturers' representative and indicate areas where manufacturers can focus attention to increase satisfaction.

Keywords: Manufacturers' Representatives; Outsourcing; Sales Management; Dependence Balancing

1. INTRODUCTION

Understanding how to work effectively with different types of organizations is an important issue as firms increasingly outsource functional areas of marketing and operations. Our research addresses this need by examining a type of interfirm relationship that has not received a great deal of empirical attention. Research pertaining to working relationships between manufacturers and manufacturers' representatives is limited, even though the growth of sales revenues from this type of relationship is significant. Manufacturers' representatives sell noncompeting product lines on a commission basis within specific territories on behalf of several manufacturers. They perform the selling function on an extended contract basis without taking possession, or ownership, of products. The most recent census reported manufacturers' representatives operate 32,276 firms generating 10.3% of revenue reported for wholesale trade in the United States (2002 Economic Census). Sales generated by manufacturer's representatives have grown dramatically. The previous census reported they accounted for 4.8% of wholesale trade revenues (1997 Economic Census for Wholesale Trade). In this paper, manufacturers' representatives are referred to as MRs and manufacturers are called principals, as they are commonly identified in the literature.

We report findings of an exploratory study examining influence of the principal's responsiveness to requests, willingness to share information and the degree to which the principal could be trusted on the MR's satisfaction with the principal. We also examine the relationship between MR satisfaction and activity on the part of the MR to reduce dependence on the principal. The degree with which this dependence reduction (or dependence balancing) influences dependence on the principal is also examined. Analysis of characteristics of a principal's role performance (i.e. responsiveness, information exchange and trust) contributes to the sales management discipline by suggesting areas where principals can invest more time and effort to ensure the MR's satisfaction. The findings also show relationships between MR satisfaction, dependence and dependence balancing that highlight the importance of achieving MR satisfaction. Another contribution is an alternative conceptualization of dependence balancing and initial scale item development to measure this construct. The interpretation and measurement of dependence balancing in this study expands upon the one described by Heide and John (1988) which is based on bonding activity with customers. The measure in this study was derived from the responses of the original exploratory research.

2. BACKGROUND

The opinions of MRs collected through previous research (Pass, 2001) led to the exploratory study described in this paper. Executives at 1,809 MR firms were contacted to obtain responses to questions about principals working with them effectively and ineffectively. Completed questionnaires were received from 328 of these individuals, thus providing a response rate of 18.1% An open-ended question on the questionnaire obtained statements describing differentiating characteristics of effective principals. A total of 185 written statements were reviewed and grouped individually by the three authors and confirmed by each to fit into categories based on the similarities of the responses. The three raters also had to agree on the heading for the categories, which were then used to identify the constructs. The importance of three specific constructs is suggested by numerous statements, so they are included in the current study. Specifically, these constructs include the principal's responsiveness to requests, willingness to share information and the degree to which the principal can be trusted. The influence of these characteristics on the MR's satisfaction with the principal is examined. We also analyze the impact of MR satisfaction on the MR's dependence and dependence balancing activity.

The importance of knowing what influences MR satisfaction with a principal is suggested by researchers explaining how interfirm relationships develop through processes or stages (Robicheaux and Coleman, 1994; Ring and Van De Ven, 1994; Dwyer, Schurr and Oh, 1987; Frazier, 1983). Satisfaction is associated with long-term interfirm relationships, or with characteristics (e.g., commitment) suggesting a long-term orientation exists between firms. In the consumer marketing literature, satisfaction results from the difference between the consumer's expectations and the degree with which these expectations are met (Oliver, 1980; Zeithaml, Berry and Parasuraman 1993; Parasuraman, Zeithaml and Berry 1994). In terms of the MR-Principal relationship, the MR develops expectations related to the principal's responsiveness, willingness to share information and the extent with which the principal can be trusted. While working together, the MR completes ongoing reviews to assess the principal's role performance (Merritt and Newell, 2001). These evaluations may indicate satisfaction with the principal's role performance when they align with the MR's expectations. Alternatively, the MR may not be satisfied with principal's behavior. The principal's responsiveness and willingness to share information may not be acceptable to the MR. Trust in the principal may have also diminished. Figure 1 presents constructs and hypothesized relationships examined in this study.

[FIGURE 1 OMITTED]

3. HYPOTHESES

Constructs examined in relation to MR satisfaction are described below with hypotheses advanced to support testing. This is followed by an overview of Dependence and Dependence Balancing with hypotheses presented to support testing relationships depicted in Figure 1.

3.1 Responsiveness

When asked to identify characteristics of effective principals, MRs responded with comments such as "timely follow-up actions" and "sense of urgency" indicating expectations held for the responsiveness of a principal. Numerous comments like these suggest that it impacts the MR's evaluation of a principal's role performance. Responsiveness is described as the willingness to provide service promptly and help customers (Parasuraman, Zeithaml and Berry, 1988). We anticipate a positive relationship between Responsiveness and the MR's Satisfaction with the principal. This relationship is stated formally with the following hypothesis:

H1: There is a positive relationship between the principal's responsiveness and the MR's satisfaction with the principal.

3.2 Information Exchange

In response to the open-ended question in the previous study (Pass, 2001), statements such as "allows dialogue" and "much better interactive communication" indicate expectations for the principal to share information. We represent this communication with the construct Information Exchange which is the expectation that information will be provided frequently and proactively (Heide and John, 1992). The MR will be satisfied with a principal that shares critical information because it can reduce uncertainty within the business environment. The following hypothesis formally states the expected relationship:

H2: There is a positive relationship between the principal's sharing of information and the MR's satisfaction with the principal.

3.3 Trust

It has been suggested by MRs that it is important to be able to trust the principal. Besides numerous responses with the word "trust", statements such as "character and integrity" and "trusting relationship" were provided in response to the open-ended question. Trust leads to cooperative behaviors and exists when there is confidence in the reliability and integrity of another firm (Morgan and Hunt, 1994). We expect that MR satisfaction improves as the degree of trust in the principal increases. This relationship is stated formally with the following hypothesis:

H3: There is a positive relationship between the extent with which the MR perceives the principal can be trusted and the MR's satisfaction with the principal.

3.4 Relationship between Satisfaction and Dependence Dependence on another firm exists when the firm needs to maintain a relationship to achieve its goals (Frazier, 1983; Heide and John, 1988). It is derived from (1) the perceived importance of resources being provided, and (2) the extent with which these resources are available from other organizations (Pfeffer and Salancik, 2003). A high level of mutual dependence exists between the MR and principal because the relationship is reciprocal with the principal providing viable products to sell and the MR generating adequate sales volume for the principal. The firms continually interact while depending on each other to accomplish the sales function. Mutual dependence has been noted as one of six core values present in successful MR-Principal relationships (McQuiston, 2001).

We expect to find a positive relationship between the MR's satisfaction with the principal and dependence on the principal. We propose that a principal will be viewed as difficult to replace when the MR is satisfied with the principal's role performance. Actually, there would be little reason to consider forming a relationship with an alternative principal when the MR is satisfied with the existing interfirm relationship. This relationship is stated formally with the following hypothesis:

H4: There is a positive relationship between the MR's satisfaction with the principal and the MR's dependence on the principal.

3.5 Dependence Balancing Activity

The MR may perceive risk with the MR-Principal relationship because the business arrangement could be terminated quickly by the principal or it may deteriorate because of changes, such as reduced support from the principal (Heide and John, 1988). Integrating concepts from dependence theory and transaction cost analysis, Heide and John (1988) showed empirically that dependence is reduced when the MR increases bonding behavior with customers of the principal's products. We agree that customer bonding activity is a dependence balancing activity because it improves the likelihood that alternative principals would be interested in working with the MR. Dependence perceptions are lowered because the likelihood of obtaining similar resources (e.g., replacement principals) is improved. This view corresponds to the explanation that dependence is based, in part, on the extent with which similar resources are perceived to be available (Pfeffer and Salancik, 2003).

We propose an interpretation of dependence balancing activity that is different from the customer bonding activity examined by Heide and John (1988). We define dependence balancing as the extent with which an MR attempts to reduce dependence by developing relationships with replacement principals. This definition of dependence balancing represents a different set of activities, as compared to those accomplished to bond with customers. Our interpretation states that another way to reduce dependence is to preemptively cultivate relationships with potential replacement principals. Dependence is lowered as the result of increasing the actual availability of alternative resources (i.e. replacement principals). We propose that as the MR becomes dissatisfied with the principal's role performance, dependence balancing activities on the part of the MR increase in order to reduce dependence on the principal. We anticipate a negative relationship between the MR's satisfaction with the principal and dependence balancing activity to reduce dependence. It is also anticipated that an MR's dependence is reduced as the MR's dependence balancing activity increases. These relationships are stated formally with the following hypothesis:

H5: There is a negative relationship between the satisfaction of an MR with the principal and the degree of dependence balancing activity undertaken by the MR to reduce dependence on the principal.

H6: There is a negative relationship between MR dependence balancing and the MR's dependence on the principal.

4. METHODOLOGY

Leaders of MR firms were randomly selected from a membership list provided by the Manufacturers' Representatives Educational Research Foundation (MRERF). A total of 2,895 of these executives were contacted through an e-mail message requesting participation in the study and presenting them with the questionnaire as an attachment. They were asked to complete the questionnaire and return it by facsimile to MRERF. Reminder messages were sent including a link to a website where the questionnaire was available. We consider the study to be exploratory because of the 2,895 questionnaires distributed, 1606 of the e-mail messages were opened by potential respondents and 61 were returned to yield a 3.8% response rate. Due to this response rate, the findings are not generalizable to other firms although they suggest relationships that can be explored further.

Variance in the constructs was generated indirectly by asking respondents to provide their opinions about principals working with them in both effective and ineffective relationships. A response for each type of principal was obtained for each scale item on the questionnaire. This method is similar to the approach taken in previous studies of channel relationships (e.g., Sibley and Teas, 1979; Barclay and Smith, 1997). An effective relationship was described as one that members thought the time and effort invested to develop and maintain the relationship is worthwhile, productive and satisfying (Bucklin and Sengupta, 1993). The possibility of common method variance was reduced by configuring the data so each respondent's assessment of only one type of principal (i.e. effective or ineffective) would be used in the main data set for analysis. This configuration also yielded a hold-out data set including each respondent's assessment of a principal (i.e. effective or ineffective) that was not included in the main data set. This second data set was used to validate the statistical findings obtained from the first set of data.

The majority of respondents work with one to ten principals (47%) with the remaining study participants representing eleven to twenty principals (38%), or greater than twenty principals (15%). Annual sales volumes were reported at less than $5 million (46%), $5 million to $11 million (23%) and above $11 million (31%). Regarding the length of time that respondents worked with the principals, they reported having a relationship with them less than two years (13%), 3-10 years (66%), or greater than 10 years (21%).

4.1 Measures

All constructs, except Dependence Balancing, were measured using previously published scales with Cronbach's alpha scores exceeding the recommended level of .70 (Nunnally, 1978). Modifications were made to the published measures but changes were kept to a minimum. A seven-point Likert type scale with Strongly Disagree (1) to Strongly Agree (7) anchors was presented with each scale item statement to obtain responses. However, an exception to this format was made with Information Exchange. Scales items for this construct were presented using a seven-point Likert type scale with Completely Inaccurate (1) and Completely Accurate (7).

Appendix A presents sources of the construct measures with scale items. Reliability scores determined from this study are also provided. Scale items for Dependence Balancing were written by the authors to measure the MR's focus on reducing dependence by considering and developing relationships with other principals. A principal components analysis with varimax rotation revealed two components of this construct with eigenvalues greater than 1.00. Scale item loadings exceeded .80, thus supporting a .05 significance level for the small sample size. The construct, as measured by the four scale items, appears to adequately represent the extent with which dependence is reduced by considering and developing relationships with other principals. The first two scale items listed in Appendix A for this construct represent a moderate approach to cultivating relationships, as compared to the other two scale items. The other two scale items express a stronger desire to form relationships as a means to reduce dependence. An acceptable level of reliability (.73) was found for this construct.

5. DATA ANALYSIS AND FINDINGS

Mean scores, standard deviations and construct intercorrelations are presented in Table 1. Hypothesized relationships were tested using simple and multiple regression analyses because these statistical methods are appropriate for the small sample size. The multiple regression included three constructs as independent variables. This ratio (20 to 1) of independent variables to observations (i.e. respondents) is generally accepted in the literature (Stevens, 1996; Hair, Anderson, Tatham and Black, 1998).

Table 2 presents results of the multiple regression completed to test H1, H2 and H3. Significant and positive relationships are found between Responsiveness (RESP), Information Exchange (INFX), Trust (TRST) and MR Satisfaction (SATI). Based on standardized regression coefficients, Responsiveness has a relatively greater impact on MR Satisfaction, as compared to the other two constructs. The constructs explain a relatively high level of variation in MR Satisfaction with an Adjusted R-Square of .832.

Table 3 presents results of simple regression models generated to test H4, H5 and H6. A significant positive relationship was found between MR Satisfaction and MR Dependence, thus supporting H4. The hypothesis that MR Satisfaction is negatively related to Dependence Balancing (H5) is also supported. Finally, the significant negative relationship between Dependence Balancing and Dependence supports H6, thus indicating that an MR's Dependence on a principal is reduced by this activity.

In summary, all three of these hypotheses are supported. However, while the relationships are statistically significant and directionally as hypothesized, the Adjusted R-Square for each is small (.105 to .344).

Variation in these constructs may be explained further by relationships with constructs not included in the current study. For example, the variation in Dependence Balancing explained by MR Satisfaction is low at .344. This finding suggests that attention should be given to other factors that may influence the MR to exhibit Dependence Balancing activity.

6. CONCLUSIONS

The analysis of satisfaction and dependence balancing will hopefully stimulate discussion and ideas that will advance research activity in this area. This study continues research examining the influence of a principal's role performance on the MR's satisfaction (Pass, 2001; Pass, Schlacter and Bridges 2002). It also investigated another conceptualization of dependence balancing which has not been reported previously in the literature.

Previous research indicated that MR satisfaction increases with greater levels of instrumental and participative leadership behaviors (Pass, 2001). It also increases with improvements in the quality of (1) case histories of accounts, (2) the timely delivery of products, (3) technical support, and (4) the timely payment of commissions. Findings from this study suggest that a principal's responsiveness and the willingness to exchange information influence the MR's satisfaction. The degree with which the principal can be trusted may also contribute to the level of satisfaction. The findings also indicate that increased satisfaction is associated with reduced levels of dependence balancing activity. Reduced levels of satisfaction on the other hand may lead to dependence balancing to decrease MR dependence on the principal and may result in termination of the MR-Principal relationship. Therefore, it is important for the principal to achieve an acceptable level of satisfaction with the MR as well as monitor the MR's perceptions of satisfaction.

The authors wish to thank the Manufacturers' Representatives Educational Research Foundation (MRERF) for funding the survey described in this paper. This support and the hard work of Marilyn Friesen, Ed.D. and Susannah Hart throughout the project is greatly appreciated.

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Pass, Michael W., John L. Schlacter and Claudia Bridges (2002), "Principals and Manufacturers' Representatives: Leadership Behaviors and Support Related to Effective Relationships," Research Report to Manufacturers' Representatives Educational Research Foundation, http://www.mrerf.org/pubs

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Michael W. Pass, California State University-San Marcos, San Marcos, California, USA

Claudia M. Bridges, California State University-Sacramento, Sacramento, California, USA

John L. Schlacter, Arizona State University, Tempe, Arizona, USA

Dr. Michael W. Pass earned his Ph.D. at the W.P. Carey School of Business, Arizona State University in 2001. Currently he is an assistant professor of marketing at California State University, San Marcos. He teaches sales management and services marketing. Research interests include sales and sales management and services marketing.

Dr. Claudia M. Bridges earned her Ph.D. at the W.P. Carey School of Business, Arizona State University in 2003. Currently she is an assistant professor of marketing at California State University, Sacramento. She teaches advertising and a graduate course on marketing's environments. Research interests include environmental sustainability, sales force cultures and advertising.

Dr. John L. Schlacter earned his Ph.D. at Ohio State University in 1969. Currently he is a professor of marketing at the W.P. Carey School of Business, Arizona State University. He teaches consumer behavior and marketing strategy. Research interests include sales and sales management, strategy, consumer behavior and services marketing.

APPENDIX A
CONSTRUCTS, SCALE ITEMS AND RELIABILITIES

Construct
Source of Measure         Scale Items
(Reliability)
                          In general, we are pretty satisfied with the
MR Satisfaction             relationship that our firm has with this
Dwyer and Oh (1987)         Principal.
(Cronbach's alpha = .95)  The Principal is a good company to do
                            business with.
                          All in all, the Principal has been very fair
                            with us.
                          Overall, the Principal's policies and
                            programs benefit my firm.

Responsiveness            The Principal will tell us exactly when
Parasuraman, Zeithaml       services will be performed.
and Berry (1988)          The Principal will give us prompt responses
(Cronbach's alpha =.85)     to problems.
                          The Principal is always willing to help our
                            firm.
                          The Principal is never too busy to respond to
                            us.

Information Exchange      In this relationship, it is expected that any
Heide and John (1992)       information that might help the other party
(Cronbach's alpha =.93)     will be provided to them.
                          Exchange of information in this relationship
                            takes place frequently and informally, and
                            not only according to a prespecified
                            agreement.
                          It is expected that we keep each other
                            informed about events or changes that may
                            affect the other party.

Trust                     The Principal is perfectly honest and
Morgan and Hunt (1994)      truthful.
(Cronbach's alpha =.81)   The Principal can be trusted completely.
                          The Principal can be counted on to do what is
                            right.
                          The Principal cannot be trusted at times.
                            (reverse coded)
                          The Principal is always faithful.
                          We have great confidence in this Principal.
                          The Principal has high integrity.

Dependence Balancing      We think about Principals that could be
Source: (Paper Authors)     contacted to replace this Principal.
(Cronbach's alpha =.73)   We stay in touch with Principals that could
                            replace this Principal.
                          We have considered forming relationships with
                            new principals to avoid being dependent on
                            this principal.
                          We develop strong relationships with other
                            Principals as a way of reducing our
                            dependence on this Principal.

MR Dependence             If we no longer represented the Principal, we
Heide and John (1988)       could easily compensate for it by switching
(Cronbach's alpha =.78)     our effort to other product lines--which we
                            currently carry. (reverse coded)
                          If we no longer represented the Principal, the
                            loss of the product line(s) would hurt
                            sales of other related product lines.
                          If we no longer represented the Principal, we
                            could easily replace the product line(s)
                            similar line(s) from other Principals.
                            with (reverse coded)
                          If our relationship with the Principal was
                            eliminated, we could suffer a significant
                            loss in income, despite our best efforts to
                            replace the lost income.

TABLE 1
MEANS, STANDARD DEVIATIONS AND INTERCORRELATIONS

                                                  Pearson
                                                  Correlations

   Construct                     Mean n     SD    1      2

1. MR Satisfaction (SATI)        4.24 (61)  2.08  1
2. Responsiveness (RESP)         3.91 (61)  1.67   .858   1
3. Information Exchange (INFX)   4.76 (61)  1.89   .853   .769
4. Trust (TRST)                  4.20 (61)  1.47   .833   .733
5. Dependence Balancing (DEPB)   3.86 (61)  1.68  -.569  -.576
6. MR Dependence (DEPN)          4.69 (61)  1.48   .503   .431

                                   Pearson Correlations

   Construct                     3      4      5      6

1. MR Satisfaction (SATI)
2. Responsiveness (RESP)
3. Information Exchange (INFX)   1
4. Trust (TRST)                   .885   1
5. Dependence Balancing (DEPB)   -.557  -.672  1
6. MR Dependence (DEPN)           .530   .524  -.346  1

All correlations are significant at the p-value of .01 (i.e. p<.01)

TABLE 2
MR SATISFACTION WITH PRINCIPAL:
RELATIONSHIPS WITH RESPONSIVENESS, INFORMATION EXCHANGE AND TRUST

                                                 CONSTRUCTS

REGRESSION MODEL
(n) ADJUSTED R-SQUARE
Hypothesis: Test Results                         Responsiveness
                                      [B.sub.0]  RESP

MR Satisfaction (SATI)     beta (a)   -.939 *    .575 *
(61) .832                  Std.error  .336       .105
H1: Supported               t-value   -2.79      5.48
H2: Supported               p-value   .007       .000
H3: Supported              beta (b)   --         .462 *

                                CONSTRUCTS

REGRESSION MODEL
(n) ADJUSTED R-SQUARE      Information
Hypothesis: Test Results   Exchange     Trust
                           INFX         TRST

MR Satisfaction (SATI)     .306 *       .350 *
(61) .832                  .135         .164
H1: Supported              2.26         2.14
H2: Supported              .027         .037
H3: Supported              .279 *       .247 *

(a) Unstandardized coefficients (b) Standardized coefficients
* Significant beta coefficient

TABLE 3
MR SATISFACTION, DEPENDENCE BALANCING AND DEPENDENCE

REGRESSION MODEL                                       MR
(n) ADJUSTED R-SQUARE                              Satisfaction
Hypothesis: Test Results              [b.sub.0] *      SATI

I. Dependence (DEPN)       beta (a)      3.169          .360 *
(61) .240                  Std.error      .380          .081
H4: Supported              t-value        8.35          4.46
                           p-value        .000         0.000
                           beta (b)        --           .503 *

II. Dependence             beta (a)      5.903         -.481 *
Balancing (DEPB)           Std.error      .398          .084
(61) .344                  t-value       14.84         -5.70
H5: Supported              p-value        .000          .000
                           beta (b)       --           -.596

                                                   Dependence
                                                   Balancing,
                                      [b.sub.0] *      DEPB

III. Dependence (DEPN)     beta (a)      5.877 *       -.307 *
(61) .105                  Std.error      .456          .108
H6: Supported              t-value       12.88         -2.83
                           p-value        .000          .006
                           beta (b)       --          -0.346 *

(a) Unstandardized coefficients (b) Standardized coefficients
* Significant beta coefficient