satisfaction with international marketing channels

Satisfaction with International Marketing Channels

Saul Klein Northeastern University

Victor J. Roth University of Guelph

This article examines factors leading to a firm's satisfaction with its marketing channels. The authors build on existing studies of consumer satisfaction and the channels literature. They add a transaction cost factor and use the discrepancy model to examine the determinants of satisfaction. Findings from a survey of Canadian exporters show that a firm's domestic performance, its previous experience, the uncertainty it faces, and its ability to change channels and monitor channel operations all provide significant explanations for management satisfaction.

When a firm considers entering a new market it has to make two important decisions. First, will the new market for the product provide greater returns than would other options? Second, what is the most suitable market entry mode or type of channel structure to use? Different channel structures reflect different institutional arrangements and entail differing degrees of commitment and risk, Structures are difficult to change and the wrong decision may lead to poor results and low satisfaction. If the original choice was inappropriate, or conditions have changed, the existing channel structure may be inappropriate.

Managers' satisfaction with their firm's marketing channels is believed to be related to performance (Robicheaux and El-Ansary 1975), but the determinants of satisfaction are not well understood, particularly in an international context. While satisfaction is a result of past decisions, expected satisfaction is an antecedent of such decisions. Firms

Journal of the Academy of Marketing Science Volume 21, Number 1, pages 39-44. Copyright �9 1993 by Academy of Marketing Science. All rights of reproduction in any form reserved. ISSN 0092-0703. This article was accepted by the previous editor.

may be using channels that are not the most preferred, but they may not be able to change. Because of a lack of external intermediaries, firms may be performing functions internally that they would otherwise contract for in market- mediated transactions. Alternatively, they may be locked into external contracts that they would prefer to internalize but are unable to alter. Firms are not always able to obtain the best channel structure for their purposes, particularly in an international context. Foreign government restrictions, the dictates of corporate parents, resource scarcity, and contractual commitments all play a part in constraining decisions. It is likely that satisfaction is related to the ability to achieve a desired channel structure.

SATISFACTION

Satisfaction is seen by marketers as a general psychologi- cal phenomenon describing the emotional state resulting from an evaluation of one's experiences in connection with an object, action, or condition (Westbrook and Reilly 1983). Satisfaction has been regarded as a kind of stepping away from an experience and evaluating it. Satisfaction is not simply the pleasurableness of an experience; it is the evaluation rendered that the experience was at least as good as it was supposed to be (Hunt 1977).

The Discrepancy Model

Satisfaction is generally thought to depend on the degree of difference between pursued and perceived outcomes (Thierry and Koopman-Iwema 1984). In the evaluation process, an individual estimates, either on a conscious or sub- conscious level, the relationship between some object, action, or condition and one or more of one's values. Perceptions are considered to be selective and evaluations may be distorted due to particular frames of reference.

The major theories of satisfaction in marketing depend on

JAMS 39 WINTER, 1993

SATISFACTION WITH INTERNATIONAL MARKETING CHANNELS KLEIN AND ROTH

confirmation/disconfirmation of expectations (Anderson 1973; Bearden and Teel 1983). The standard of comparison on which expectations are based is as critical for the evaluation of satisfaction as is the actual performance of the product or service (Tse and Wilton 1988). The subjective evaluation of the size of the discrepancy determines the extent of satisfaction (Oliver and Swan 1989).

The Channel Satisfaction Literature

Much of the marketing channels research has been done from a behavioral perspective. Attention has focused on satisfaction as it relates to performance and issues of power and control (Stern and Reve 1980). Satisfaction is thought to facilitate improved morale and cooperation among channel members (Hunt and Nevin 1974) and lower dysfunction- al conflict (Lusch 1976).

In international markets, the importance of and diffi- culties involved in exercising control over marketing decisions are thought to be particularly acute (Ahmed 1977). It has been argued that most companies would prefer to run their own international marketing operations, but are forced to use distributors due to low sales volume and high start-up costs (Rosson and Ford 1980).

TRANSACTION COST ANALYSIS

Over the past decade, the behavioral approach to channels research has been supplemented by a return to structural analysis. Emerging as the dominant paradigm of such research is transaction cost analysis (Klein, Frazier, and Roth 1990). Insights into channel satisfaction may be gleaned from this body of literature.

The transaction cost framework argues that cost minimi- zation explains structural decisions. Firms internalize transactions, that is, integrate vertically, to reduce costs. One type of cost reflects the firm's ability to perform necessary distribution functions efficiently. Such a cost is determined mainly by the firm's ability to specialize and so reap the benefits arising from economies of scale.

Transaction costs emerge when markets fail to operate under the requirements of perfect competition. Transaction costs are a reflection of the market's limited ability to en- force contractual compliance and include the costs of monitoring and enforcing performance. If markets were perfect- ly competitive, the issue of management satisfaction with channels would be irrelevant. Since the costs of operating in such markets would be zero, there would be little or no incentive to impose any impediments to free market ex- change (McManus 1975).

Transaction costs emerge as an important factor in the measure of satisfaction. They exist because a less-than- perfect market requires monitoring and enforcement of contractual compliance. The notion that lower transaction costs should lead to greater satisfaction is based on the theory that lower transaction costs enhance performance. Satisfaction should follow from improved performance. Noordewier, John, and Nevin (1990) have provided empirical support that firms that adhere to the prescriptions of the transaction cost model have enhanced performance.

HYPOTHESES

The discrepancy model provides a framework for looking at satisfaction as a function of the gap between desired channels and those achieved. Satisfaction decreases as the gap widens. Firms do not always achieve their most desired channels due to a lack of alternatives and high switching costs. Normative models, such as those found in the channels literature and stemming from behavioral or structural research paradigms, influence what is desired. The size of the gap is also influenced by perceptions of achieved channels and expectations for desired ones.

Discrepancy Model

Prior expectations compared to actual performance result in an evaluation of satisfaction (Day 1984). Performance will be based on the total financial picture as well as transaction cost considerations. Managers who experience disconfirmation of a high prior experience standard may still be satisfied with the international channel arrangement if it is superior to domestic channel performance. As such, domestic channel performance provides a benchmark for as- sessing international channel performance and influences perceptions of and attributions about those channels.

HI: The higher the financial performance of domestic channels relative to international channels, the lower will be the firm's satisfaction with its international channels.

The discrepancy model argues that satisfaction is a func- tiori of expectations; the more realistic such expectations, the lower the likelihood of disconfirmation, and the greater the satisfaction. Realistic expectations are a function of pri- or experience, and we should expect experience to be pos- itively associated with satisfaction.

H2: The more experience a firm has in foreign markets, the higher will be its satisfaction with its international channels.

Channel Control

Satisfaction is influenced by the control which a firm can exert over its channel operations. More control is believed to allow the firm to carry out its marketing program more fully and achieve better feedback from the market.

H3: The greater the control exerted by a firm, the higher will be its satisfaction with its existing channels.

Transaction Cost Analysis

The initial decision on the degree of commitment that the firm is willing to make to developing its channels is crucial since later changes may be difficult to make and initial commitments often cannot easily be terminated (Brasch 1981). Hirschman (1970) argues that if the exit option is not



available, managers will have low satisfaction with channel arrangements. Even under near perfect market conditions, the ability to change channels may be limited.

H4: The greater the perceived ability to change channels, the higher will be the firm's satisfaction with its existing channels.

Environmental uncertainty is an important dimension leading to market failure (Williamson 1985). Uncertainty, given bounded rationality, precludes the writing and enforcement of contingent claims contracts that specify every eventuality and consequent responses (Anderson and Weitz 1986). Uncertainty raises the need to monitor channel members' behavior, the cost of such monitoring, and the cost of enforcement. Consequently, uncertainty should also be re- flected in reduced satisfaction with existing marketing channels.

H5: The greater the uncertainty, the lower will be the firm's satisfaction with its existing channels.

Environmental uncertainty, which makes it difficult to monitor the behavior of agents, is exacerbated in international markets by geographical and cultural separation (Rosson 1984). Uncertainty in the foreign market allows negative information asymmetries to develop, and provides the potential for outside intermediaries to behave oppor- tunistically. The transaction cost model suggests that the greater the ability to monitor the channel, the lower the degree of opportunism allowed.

H6: The more difficult it is to monitor the behavior of channel members, the lower will be the firm's satisfaction with its existing channels.

Channel Structure

When a firm decides to export a product, its options entail different entry modes and different intermediaries. At one extreme, the firm can provide all of the marketing functions itself through vertical integration; this is a hierarchical mode. At the other extreme, the firm may provide none of the export functions itself and use merchant distributors instead; this is a market mode. An intermediate mode, where the firm performs some functions internally and contracts for others in the market, is also common. An example of this type of intermediate mode is the use of commission agents.

If the entry mode was chosen correctly and is still appropriate for the existing market conditions, high satisfaction should exist. If the market conditions have changed and the entry mode is no longer appropriate, satisfaction should be lower. That entry mode may reflect either greater or lesser integration than is currently appropriate. There is no reason to believe, however, that either greater or lesser integration, or any particular channel structure, will be universally appropriate or engender higher satisfaction than any other channel structure.

HT: The type of channel used is not related to the firm's satisfaction with its existing channels.

METHODOLOGY

This study was carried out over the period 1985-1990 using a mail survey to gather cross-sectional data on satisfaction with international marketing channels. We focused on recurrent export transactions since the occasional, un- solicited order from an intermediary does not yield meaningful satisfaction evaluations.

Sample

Key informants who received the survey were identified from a directory of Canadian exporters. We surveyed 927 firms listed in the directory after excluding those dealing solely with unprocessed primary products. We selected individual informants on the basis of their position in the orga- nization and their expected knowledge.

Of firms in the research population, 55 percent responded to the survey, representing 510 firms, although in many cases data were omitted on one or more items. The firms varied in size from less than $1 million in annual sales (10 percent of the sample) to over $100 million (12 percent), and in their export experience from under 5 years (21 percent) to over 15 years (43 percent). In only 329 cases were fully completed surveys obtained.

Survey Instrument

We asked each respondent to provide some general back- ground information on his/her company and to respond to the survey about the firm's major export product in its major export market. Most questions used 7-point, Likert-type scales. Pre-test analysis revealed no problems with these questions.

Variables

Satisfaction was measured on a 7-point agree-disagree scale (Bearden and Teel 1983). The higher the rating the greater the agreement with the statement, "We are very satisfied with our present export arrangements." Single item measures of satisfaction have been used frequently (see Tse and Wilton 1988).

Relative performance was the net profit of the export arrangement relative to domestic market performance. A high number on this item corresponds to low relative performance of the international channel.

To assess experience, respondents indicated the number of years their firms had been involved in exporting the particular product to any foreign market.

The degree of vertical control was measured in terms of centralization and formalization (Reve 1980). Centraliza- tion of decision-making is the extent to which power to make and implement channel decisions is under the control of the firm. Formalization of channel transaction is the degree to which rules, fixed policies, and procedures govern the transaction. Three items measuring centralization assessed control over logistics, promotion, and product name.



Three formalization items assessed feedback, complaint procedures, and formal contracts. Individual items were combined into two sum scores.

The ability to change channels was obtained from the respondent's agreement with the statement, "It would be very difficult to change the type of marketing channel which we use." A high score on changeability corresponds to easy to change.

Uncertainty refers to whether the environment surround- ing the transaction is predictable by the firm. Two items assessed the extent to which the firm could accurately antic- ipate events in the market and forecast sales of the product in the market. Three other items measured whether the firm was often surprised by retailers and wholesalers, by com- petitors, and by customer reaction. Difficulty in monitoring the channel referred to either the company's own personnel or outside agents and distributors.

We elicited the channel structure measure by asking respondents to identify which of three descriptions best matched the institutional arrangements that existed for the sale of the particular product to the particular market. The descriptions were of a market mode, an intermediate mode, and a hierarchy mode. We then constructed two dummy variables to capture these options.

Assessment of Measures

Factor analysis of the six vertical control items revealed two separate dimensions as expected. We found, however, that the formalization measure was too weak to use (Cron- bach alpha of 0.35). The reliability of the centralization measure was also not very strong (Cronbach alpha of 0.47). Peter (1979) suggests that reliability coefficients of between 0.5 and 0.6 are appropriate for basic research. Neverthe- less, since the size of coefficient alpha diminishes with fewer items in a scale, and the centralization measure has only three items, we decided to retain this measure of control.

For the uncertainty construct, the set of five items was factor analyzed to determine unidimensionality. Two distinct factors emerged, however, one capturing the two predictability items, and the other the three surprise items. Thus we developed two separate measures of uncertainty through summing item scores. Both of these measures ex-

ceed minimum reliability standards and capture temporal aspects of uncertainty.

RESULTS AND DISCUSSION

The correlations among the independent variables are, tor the most part, quite small (Table 1). The channel structure measures are highly correlated, as would be expected given their dummy variable construction. There is thus no major problem of collinearity.

To determine the weight that the independent variables have in explaining satisfaction levels, we used multiple regression. The results of the regression analysis show that a statistically significant relationship exists between several of the hypothesized variables and satisfaction with existing channels (Table 2).

Except for the control measure (centralization) and channel structure variables, all coefficients are statistically significant, as hypothesized. For channel structure, non- significant coefficients support the hypothesis.

Beginning with the discrepancy model hypotheses, we see that the lower the financial performance in the foreign market relative to Canadian operations, the lower the satisfaction with the international marketing channel. This is consistent with the hypothesis that domestic performance would influence management perceptions and hence satisfaction (HI). More experience in foreign markets also enhances satisfaction with international marketing channels, as expected (H2).

As for the channel control issue, and contrary to H3, we find that the degree of centralization attained does not sig- nificantly increase satisfaction. One possible reason for this finding is that the centralization measure does not ade- quately capture the domain of the control construct, given its borderline reliability. Alternatively, it is possible that the absence of a control effect may be due to firms lessening the need for process control through structural means. If such were the case, satisfaction would be unaffected by control. This is an area for future research.

The results show that the easier it is perceived to be to change channels, the more satisfied is the firm (H4). This is consistent with Hirschman's (1970) expectation that higher satisfaction is expected where other options exist. Compan-

TABLE 1 Correlation Matrix: Independent Variables a

Variable 1 2 3 4 5 6 7 8 9

1. Relative Performance 2. Experience .04 3. Centralization (control) - . 14 .04 4. Changeability .03 .02 - .01 5. Predictability (uncertainty) .13 .04 ,17 .13 6. Surprisability (uncertainty) .03 - .06 - .06 - .07 7. Momtoring .07 - .06 - .14 .01 8. Intermediate mode (chan- .02 .01 .16 .01

nel structure) 9. Hierarchy mode (channel - . 04 .09 .05 - .05

structure)

- . 06 - .17 .10

.00 - . 04 .08

.06 .01 - . 09 .50

an = 329



TABLE 2 Regression Results: Channel Satisfaction

Independent Variable Beta t-statistic

Constant 4.86 8.08 Relative Performance -0 .07 1.39 c Experience 0.08 1.53 ~ Centralization (control) -0 .01 -0 .25 n.s. Changeability 0.10 2.01 ~ Predictability (uncertainty) 0.24 4.47 a Surprisability (uncertainty) - 0 . 1 0 - 1.86 b Monitoring - 0 . 1 8 -3 .36" Intermediate mode - 0 . 0 9 - 1 . 4 9 n.s. (2 tail)

(channel structure) Hierarchy mode - 0 . 0 4 - 0 . 6 0 n.s. (2 tail)

(channel structure) R 2 = .16 F = 6.88 b n = 329

ap < .01 (1 tailed t-test) bp < .05 cp < .10 (l tailed t-test)

ies are more likely to remain in unsatisfactory relationships when other options do not exist.

Both dimensions of uncertainty have expected effects on satisfaction (H5). The more predictable the market, the more satisfied the firm is with its existing channel relationships. The less often the firm was surprised, the greater was its satisfaction with the channel. Consistent with H6, the more difficult it is to monitor the channel, the lower is the firm's satisfaction with its existing channels.

The purpose of including channel structure was to determine whether differences in satisfaction were absent across channel modes. This proof requires the calculation of type II error. Based on the procedures described by Cohen (1977), we cannot reject the null hypothesis of no difference from the market mode for either the intermediate or hierarchy channel of distribution. At a type II error level of 0.05, channel structure has no effect on management satisfaction, thus supporting H7.

CONCLUSIONS

This study has examined the question of the determinants of channel satisfaction; it found support for hypotheses drawn from three different research streams. The international context for the study enhances our understanding of cross-border channel arrangements.

On a theoretical level, we support the predictions of both the discrepancy model and transaction cost analysis. One implication is that researchers need to reexamine some existing studies. Specifically, researchers should review those studies that test hypotheses of channel structure based on cross-sectional data, assuming that inefficient practices have been selected out, and that some type of equilibrium has been obtained. As seen in this study, such a situation may not be universally meaningful.

Our results suggest that no particular mode is a priori best, and thus encouragement of export activity should not

stress particular structural arrangements. All three channel structures resulted in similar levels of satisfaction.

On a methodological level, this study both demonstrates advances and reveals limitations. Better measures of channel control need to be developed that can be applied in diverse environments. The uncertainty construct, which is frequently key to marketing studies, has been again revealed to be multi-dimensional. Somewhat surprisingly, predictability and surprise emerged as distinct factors. Fu- ture research is needed to determine whether this was an artifact of the current study or a real difference.

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ABOUT THE AUTHORS

Saul Klein is Assistant Professor of Marketing at North- eastern University. He received his Ph.D. degree from the University of Toronto. His research interests are in the areas of international marketing, channels of distribution, and marketing strategy. P ro fesso r Kle in has pub l i shed art icles in the Journal of the Academy of Marketing Science, the Journal of Marketing Research, and International Marketing Review.

Vic to r J. R o t h is Assoc i a t e P ro fesso r in the D e p a r t m e n t of C o n s u m e r Studies at the Un ive r s i ty o f Gue lph . He rece ived his Ph .D. degree f rom the Unive r s i ty of Toronto . His research interests are in the areas o f new produc t deve lop- ment , sa t i s fac t ion resea rch , and re ta i l ing. P rofessor Ro th has pub l i shed art icles in the Journal of Marketing Research, the Services Industry Journal, and International Marketing Review.


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