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John P. Murry, Jr. & Jan B.

Heide

Managing Promotion Program


Participation Within
iVianufacturer-Retailer Reiationships
The authors report the results of a study that examines retailer participation in manufacturer-sponsored promotion
programs. Two particular aspects of participation are studied, namely, (1) retailer agreement \o participate in point-
of-purchase programs and (2) retailer cotvpliatice with established agreements. Previous research in marketing,
economics, sociology, and organization theory suggests that participation is influenced by two types of variables.
The first is the nature of the interpersonal relationship that exists between the boundary personnel in the retailer's
and manufacturer's firms. The second are various organization-level variables, including incentive premiums (pro-
motional allowances) and monitoring efforts. The authors extend previous research by examining both the inde-
pendent and joint effects of these factors on retailer participation. On the basis of an empirical study involving a
conjoint task, the authors show that the presence of a strong interpersonal relationship does not diminish the impor-
tance of other variables, such as incentives. Within the limits of the conjoint task, the results also suggest that inter-
personal relationships are less important determinants of participation than economic incentives. The authors dis-
cuss the implications of the study for marketing theory and practice.

T
he importance of developing more productive rela- consider gaining retailer participation their single most
tionships between manufacturers and retailers is rec- important problem regarding displays {P-O-P & Sign
ognized widely. A particularly important aspect of Design 1996).
these relationships is retailer participation in manufacturer- Several hypotheses exist regarding why gaining partici-
sponsored in-store display programs. A recent industry sur- pation in display programs is problematic. In some
vey found that 74% of retailers agree that promotion instances, participation is impeded because of goal incom-
allowances enhance their profitability, yet 65% believe they patibility (Ouchi 1980) between the parties in question. As
do not receive their fair share of manufacturers' promotion noted by Ganesan (1993), retailers and manufacturers often
dollars {Progressive Grocer 1995). Retailers believe they possess systematically different orientations toward their
should receive better rewards, because two-thirds of all con- relationships. For example, manufacturers typically want to
sumer purchase decisions are made in the retail store, rather place a given display at minimal expense, whereas retailers
than prior to store visits (Point-of-Purchase Advertising try to maximize profit per square foot.
Institute/DuPont 1986). From a manufacturer's perspective, There are other instances, however, in which retailers
more than $70 billion currently is invested in trade promo- have been found to act in an opportunistic fashion
tions {Progressive Grocer 1995), with more than $12 billion (Williamson 1996) by using a priori allowances from man-
spent on point-of-purchase (POP) materials {Marketing ufacturers, which enhance their own margins, with no inten-
News 1996). However, 85% of manufacturers believe the tion of setting up the display {Chain Store Age 1996; Wal-
money given to retailers is ineffectively spent, and only 19% ters 1989). In some cases, opportunism is benign in nature
consider these expenditures good value {Progressive Grocer (Miner 1987), in that retailers simply overcommit them-
1995). For example, a recent survey of retailers found that selves, given the available floor and shelf space. Schultz and
40% of all manufacturer-supplied POP displays are never Robinson (1992) note that supermarkets typically carry
used (Shutt 1995). It is not surprising that manufacturers more than 10,000 different items yet usually can accommo-
date only 20 display programs. This creates intense compe-
tition among manufacturers that need to access this scarce
John P. Murry, Jr. is an assistant professor, Weatherhead School of Man- space, as well as a substantial task for retailers that must
agement, Case Western Reserve University. Jan B. Heide is an associate coordinate the turnover of displays in the store. In summary,
professor, School of Business, University of Wisconsin-Madison. Both
authors contributed equally to the article. The financial support of the Mar-
it is clear that participation is not the default behavior
keting Science Institute and Promo Edge is gratefully acknowledged. The between manufacturers and retailers.
authors also gratefully acknowledge the assistance of Kerry Meline with Aside from the managerial significance of studying
pretesting and data collection and of Lisa Menendez with data collection, retailer participation in display programs, the present
preparation, and analysis. They also appreciate the help and comments research also will make theoretical contributions. CuiTently,
from Jon Austin, Gilbert Churchill, Deb Dahab, Anne Miner, Christine
several different research streams focus on the antecedent
Moorman, Sarah Schulfz, Jagdip Singh, and Dan Smith at different stages
of this project. conditions that promote certain relationship behaviors or
limit opportunism. For example, economic theory (Klein

Journal of Marketing
58 / Journal of Marketing, January 1998 Vol. 62 (January 1998), 58-68
and Leffler l981;Telser 1980) has explored the capability of Interpersonal Attachments
incentive structures to produce certain patterns of behavior. The recent literature on relationship marketing (e,g,, Mor-
Researchers in organization theory (Eisenhardt 1985; Ouchi gan and Hunt 1994; Wilson 1995) would suggest that
1980) have focused on monitoring, and sociological retailer participation is influenced by the nature of the inter-
re.search (Granovetter 1985; Seabright, Levinthal, and Fich- personal attachments that exist between the boundary per-
man 1992) has explored the effects of social networks and sonnel in the respective firms. Scholars currently disagree,
interpersonal attachments. however, about the actual direction of the effect. Specifi-
In spite of the important insights that have been gener- cally, two independent streams of research suggest that
ated in previous research, key questions remain unanswered. strong interpersonal attachments can impede rather than
The literature mentioned previously rarely distinguishes promote participation. First, using transaction cost logic
between different behaviors within a given relationship. In (e,g,, Williamson 1996), establishing a close relationship is
the manufacturer-retailer context, manufacturers frequently synonymous with removing a relationship from market
succeed in obtaining agreements from retailers to participate governance. Although a shift away from market-based
in promotional programs. At the same time, retailers often exchange is advantageous in some respects, it is problem-
fail to follow up on their original promotion agreements atic in others, primarily because parties' incentives to per-
(Crimmins 1990; Mathews 1995), However, it is not clear form may diminish (D'Aveni and Ravenscraft 1994;
based on past research what the mechanisms are that influ- Phillips 1982), For example, both Moorman, Zaltman, and
ence compliance or whether they differ from those that Deshpande (1992) and Seabright, Levinthal, and Fichman
affect initial agreement, (1992) note that though close relationships often persist
Furthemiore, the various theoretical factors identified in over time, quality or performance in such relationships may
previous research rarely have been examined jointly. This is suffer as the parties begin to take the relationship for
problematic for three reasons. First, and perhaps most granted. Second, early sociological work on the concept of
important, mechanisms such as interpersonal attachments, tie strength (e,g,, Granovetter 1973) suggests that weak ties
incentives, and monitoring manifest themselves in real-life are often useful because they foster sources of new infor-
situations in different combinations (Bradach and Eccles mation. As such, programs that are presented by new sales-
1989), As such, appropriate theory tests should examine the people actually may have success in securing participation.
effect of any one of the relevant mechanisms while explic- Many manufacturers indirectly promote the use of weak
itly controlling for the others. Second, a joint test of the dif- ties by systematically rotating salespeople across retail
ferent mechanisms will allow a test of their relative impor- accounts. In summary, contrary to the positive outcomes
tance in a relationship. Third, an unresolved question is that are attributed intuitively to close relationships, it is
whether the different mechanisms interact in some fash- conceivable that they will fail to influence or will even
ion—by undermining each other, serving as substitutes, or impede retailer participation.
creating synergistic effects. For example, given strong pre- Other research, however, gives a different account of the
existing personal relationships between the boundary per- role that interpersonal attachments play in relationships.
sonnel in the two firms, incentives may have limited effects Early work on boundary-spanning behavior (e,g,, Adams
on retailer participation. Unfortunately, given the focus in 1976; Salancik 1977) suggests that strong interpersonal rela-
previous research on individual factors, little is known about tionships should increase the likelihood of participation.
either their relative importance or combined influence. More recent work on "clans" (Ouchi 1980), "socially
The rest of the article is organized in the following fash- embedded relationships" (Frenzen and Davis 1990; Gra-
ion: In the next section, we develop our conceptual frame- novetter 1985), and "social context" (Gulati 1995; Hakans-
work and present the research hypotheses. This is followed son and Snehota 1995) makes similar points. The core argu-
by a discussion of the research method and results. We dis- ment underlying tbis literature is that the existence of a
cuss the implications of the study in the final section. strong interpersonal relationship reflects prior selection
and/or socialization processes between the parties (Chatman
Determinants of Retailer 1991), The effect of such processes is to align the goals of
the parties in question (Eisenhardt 1985) and reduce the
Participation and Compiiance likelihood of subsequent opportunistic behavior. In the con-
Previous research in sociology (Granovetter 1985), political text at hand, this should manifest itself in both a higher like-
science (Axelrod 1984), economics (Klein and Leffler lihood of manufacturers obtaining agreement from retailers
1981), and organization theory (Ouchi 1980) have identified and more conscientious follow-through on the initial agree-
three general mechanisms for structuring relationships ment (i,e., compliance). In hypothesis form,
between parties that are motivated by self-interest. These
are (I) interpersonal attachments, designed to reduce or H|: Interpersonal attachments between retail managers and
eliminate goal incompatibility between the parties in the manufacturer salespeople increase the likelihood that
retailers (a) agree to participate in display programs and
first place, (2) the use of incentives, which make it econom-
(b) comply with established agreements,
ically attractive for a party to engage in particular behaviors,
and (3) monitoring efforts, intended to reduce information
asymmetries that otherwise might permit noncompliance. incentive Design
These mechanisms and their specific effects are discussed Research in game theory (e,g,, Axelrod 1984; Fudenberg
subsequently. and Maskin 1986) suggests that participation can be pro-

Participation in Promotion Programs / 59


moted by crafting appropriate incentive structures. For reward retailers for participating in promotional programs
example, Heide and Miner (1992) show empirical evidence by providing financial incentives before the actual place-
of how incentives can induce relationship-oriented behavior ment of the display materials. The most comtnon tiiethods
in a "prisoner's dilemma" situation, in which self-interest are invoice deductions, credit memos, accounts payable
otherwise would be the norm. In the context at hand, incen- checks, and on-site drafts (P-O-P Times 1993). It is note-
tives for retailer participation can be crafted through both worthy, however, that though such methods may motivate
(1) the magnitude of the financial incentives offered by the retailers to agree to display program materials, they tnay
manufacturer and (2) the manner in which the incentives are have a limited effect on ultimate compliance, because they
administered. offer the retailer the same rewards regardless of whether the
Consider first the magnitude of the incentives. In moti- agreement is honored.
vating retailers to participate in POP programs, manufactur- An altemative to the traditional payment method is to
ers typically offer promotional allowances for the product administer payments to retailers ex post by means of
being promoted or for other products. The more the allowances that improve margins for products sold.
allowance offered by a manufacturer exceeds the market Although pay-for-performance schemes (Beatty and Zajak
standard or somehow represents a premium (Klein and Lef- 1994) currently are not common, the etnergence of inte-
fler 1981), the higher the likelihood that a retailer will agree grated inventory management systems (i.e., efficient
to participate in a program. In Casson's (1991) terminology, consumer response) will greatly facilitate the use of such
participation is promoted by means of economic incentives methods (Simmons 1993). This payment method serves two
or because of "enlightened self-interest." specific purposes. First, it represents another way of crafting
Although somewhat less intuitive, the logic of Klein and a self-enforcing agreement. Specifically, a strong incentive
Leftler (1981) also suggests that incentive premiums can be exists for the retailer to sell the focal product, which in tum
used to influence compliance. By offering above-market increases the likelihood that the relevant promotional mate-
allowances, a manufacturer provides a retailer with a rev- rials will be displayed. Thus, we expect that performance-
enue stream that can be terminated in the event of noncom- based incentives will increase the likelihood of compliance
pliance. If the premium given to the retailer is sufficiently with previously established agreements.
large, it promotes participation, because the retailer's short- Second, administering incentives on the basis of perfor-
term payoff from not participating (followed by termination mance can serve as a screening device. In the terminology
of the premium) is less than the future stream of premium of agency theory (Akerlof 1970; Bergen, Dutta, and Walker
payments from good-faith behavior. 1992), manufacturers are faced with an adverse selection
The general objective underlying the use of premiums is problem, because they cannot easily identify a priori retail-
to structure the relationship in such a fashion that participa- ers that are inclined opportunistically. A firm can address
tion becomes the preferred option. Stated formally, the over- this problem by crafting agreements that are inherently
all goal is to establish a self-enforcing agreement, which desirable only for parties with "appropriate orientations"
makes the retailer's gains trom working with the manufac- (Milgrom and Roberts 1992). In the context at hand,
turer exceed any short-term gains from nonparticipation or administering incentives in a perfortnance-based fashion
"defection" (Rubin 1990; TeLser 1980). On the basis of the enables retailers that intend to participate fully in a program
previous reasoning, we propose the following: to self-select by agreeing to participate. In contrast, retail-
ers with different inclinations will find such programs less
HT: Incentive premiums will increa.se the likelihood that retail-
ers (a) agree to participate in display programs and (b) attractive than those that are paid in a traditional fashion
comply with established agreements. and provide rewards regardless of subsequent behavior. In
fact, to the extent that retailers are risk averse, agency the-
Notice that attempting to promote participation through ory predicts that performance-based programs are rela-
incentive premiums differs systematically from the interper- tively unattractive. Thus, we expect traditional payments to
sonal attachtnents discussed previously. First, unlike the be superior with respect to infiuencing the agreement deci-
development of close relationships, whose effect is to estab- sion. However, as discussed previously, performance-based
lish goal compatibility between individual boundary person- programs should be more effective in securing actual com-
nel in the two firms, incentives are structural properties and pliance. Stated formally.
are crafted at the level of the participating firms (Dwyer,
Schurr, and Oh 1987; Van de Ven 1976). As such, they exist Hy Pertormance-based incentives (a) decrease the likelihood
independently of the individual boundary personnel. that retailers agree to participate in display programs and
(b) increase the likelihood that they comply with estab-
According to Weitz and Jap (1995), this distinction often has lished agreements.
not been made in prior relationship research. Second, if
appropriately crafted, incentives can promote participation
regardless of the parties' cognitive or affective orientation Monitoring
toward the relationship. Under such circumstances, partici- The third general mechanism for promoting participation is
pation will emerge strictly on the basis of economic self- monitoring (Eisenhardt 1985; Ouchi 1980). In the context at
interest, rather than prior attachments. hand, monitoring takes the form of store audits by the man-
In addition to the magnitude of the incentives per se, we ufacturer's salespeople or by independent merchandising
believe participation also is determined by how the incen- firms to verify whether the promotional materials in ques-
tives are administered. Manufacturers currently tend to tion have been displayed. Approximately 38% of all con-

60 / Journal of Marketing, January 1998


sumer product manufacturers systematically monitor retail- H5: Interpersonal attachments will decrease the positive effect
ers (or compliance with their display programs (Shutt 1995). (a) that incentive premiums have on agreement and com-
However, the published literature does not provide guidance pliance and (b) that performance-based payment method.s
and monitoring have on compliance.
as to whether these investments are worthwhile in the sense
that monitoring influences agreement or compliance. Consider next the possible interactions between the two
Conceptually, monitoring is designed to promote partic- incentive factors. Our previous discussion suggests that
ipation in a different fashion than are some of the other incentive premiums would increase retailer agreement to
strategies discussed. For example, both interpersonal attach- participate in display programs (H2a). We posit, however,
ments and incentive premiums are designed to enhance a that administering incentives in a performance-based fash-
retailer's motivation to participate directly by creating con- ion will undermine this effect. Recall from our initial dis-
vergent interests in the relationship (Kumar, Scheer, and cussion of the adverse selection phenomenon that the effect
Steenkamp 1995). In contrast, monitoring influences moti- of administering payments in a contingent fashion is to
vation only indirectly by reducing information asymmetry screen retailers that are inclined opportunistically and have
that otherwise would permit noncompliance. The more no intention of complying with established agreements.
stringent a manufacturer's monitoring efforts, the greater the Thus, though we expect incentive premiums to increase
chances of detecting and punishing noncompliance (Eisen- agreement, we hypothesize that this effect will decrease as
hardt 1985). In tum, detecting noncompliance not only payments become more restrictive and that some retailers
enables a manufacturer to hold back future rewards but also will have a disincentive to participate in the program.
creates uncomfortable social pressures on the retailer. In Stated formally,
effect, the measurement process itself serves as an enforce-
ment device (Blau 1955; Blau and Scott 1962). H,;: The positive effect of incentive premiums on agreement
will decrea.se when the incentives are administered in a
Although much of the previous literature tends to dis- performance-based fashion.
cuss the effects of monitoring in general, it is important to
consider the specific effects on agreement and compliance. We propose a parallel negative interaction between the
Perrow (1986) notes that monitoring by its nature is an incentive factors on compliance, though for a different rea-
obtrusive management approach. As such, though monitor- son. Recall that both premiums and payment method are
ing can be capable of producing compliance with already hypothesized to increase compliance. This expectation is
established agreements, manufacturers that are known to based on each mechanism's capability to create a self-enforc-
engage in systematic monitoring actually may create disin- ing agreement (Telser 1980). As such, however, it could be
centives for program participation in the first place. Stated argued that they are functional substitutes for each other and
in hypothesis form, that the effect of one should diminish when the other is pre-
sent. From a practical point of view, this suggests the possi-
H^: Moniloring efforts will (a) decrease the likelihood that bility that firms can reduce their investments in paying pre-
retailers agree to participate in display programs and (b)
increase the likelihood that they comply with established
miums and still achieve compliance, as long as incentives are
agreements. paid on the basis of actual performance. In hypothesis form,
H7: The positive effect of incentive premiums on compliance
Contingent Effects will decrease when incentives are paid in a performance-
ba.sed fashion.
The main premise of the preceding discussion is that inter-
personal attachments, incentive design, and monitoring have
the capability to influence the different dimensions of Relative Importance of Factors
retailer participation. Consistent with existing theory, the The tendency in previous research to examine attachments,
discussion has been limited so far to the independent effect incentives, and monitoring separately has made it impossi-
of each mechanism. In actual settings, however, these mech- ble to determine their relative importance. However,
anisms will manifest themselves in various combinations. researchers from different areas frequently offer conjectures
Therefore, their contingent effects should be considered. about relative effectiveness. For example, Frenzen and
As discussed previously, incentive premiums, monitor- Davis (1990) note that economic research typically de-'
ing, and payment method operate at the organization level in emphasizes the role of personal relationships. In contrast,
the sense that they are independent of the persons constitut- Larson (1992) attaches greater importance to social context
ing a particular relationship. However, to the extent that than formal mechanisms.
strong interpersonal attachments exist in a given situation, Industry observation suggests that retailers are fre-
the goals of the parties will tend to converge (Eisenhardt quently skeptical about manufacturers' motivation for initia-
1985), and investments in structural mechanisms may be tives such as promotional programs, category management,
less important. That is, a strong interpersonal attachment and efficient consumer response systems. As an executive
may represent utility in its own right and serve as a func- from Safeway grocery chain recently noted, "Retailers don't
tional substitute for incentive premiums with respect to both want more partners—we want more profits" (Progressive
agreement and compliance. Similarly, a strong attachment Grocer 1993, p. 9). This suggests skepticism at the retail
may reduce the need for performance-based incentives and level regarding the economic payback from developing rela-
monitoring to induce compliance. The preceding discussion tionships and that structural factors such as incentive premi-
is summarized in the following hypothesis: ums should have a stronger influence on participation.

Participation in Promotion Programs / 61


In light of the lack of clear conceptual foundations, we (i.e., salesperson-store manager attachments, financial
do not offer formal predictions regarding relative effective- incentives, and monitoring) all manifest themselves in these
ness. However, as is discussed subsequently, the conjoint settings to varying degrees. Second, industry observation
design used in our empirical study enables us to undertake a (e.g,, P-O-P Times 1993) suggests that considerable varia-
preliminary assessment of relative importance post hoc tion exists in these settings in terms of retailer agreement
within the constraints of the factor levels studied. and compliance with manufacturer-initiated programs.
Third, we limited our focus to itidependent stores to ensure
that the store manager in question would be both (1) respon-
Research Method sible for the store's decisions regarding POP programs (as
The nature of our research questions presented important opposed to chain stores, where merchandising decisions
challenges in the selection of a research design. It was nec- often are made by a corporate merchandising manager) and
essary first to obtain the relevant data from the retailer side (2) knowledgeable about the relevant study variables.
of the relationship, because it is retailers' perceptions of the Fourth, by explicitly examining two industries, we were
relevant conditions (e.g., attachments, incentives) that influ- able to increase the generalizability of our theory.
ence their decisions to participate in a manufacturer's pro-
gram. However, the retrospective survey approach that often Pretestitig and Development of Conjoint
is used to study channel relationships appeared ill-suited to Scenarios
the task at hand, given the need to study compliance. Recall A total of 30 liquor and grocery store managers were inter-
that compliance pertains to honoring or failing to honor a viewed to develop the conjoint scenarios and accompanying
previously established agreement. Although noncompliance survey materials. These managers were the key decision
can happen for a variety of reasons, we were concemed that makers in their stores regarding participation and ultimate
asking questions ex post about a retailer's actual compliance compliance with manufacturer-sponsored display programs.
behavior might introduce social desirability biases into the The first set of interviews verified the importance of the
retailers' responses (Mick 1996) and limit severely our abil- basic research issues, provided the necessary industry termi-
ity to capture this phenomenon. nology, and provided feedback on the appropriateness of the
To overcome this problem, we decided to examine conjoint factor levels (i.e., amount of financial incentive).
retailers' responses to a series of display program scenarios Upon completion of these interviews, the managers were
using conjoint analysis. Specifically, on the basis of exten- debriefed, and the materials were modified on the basis of
sive pretests, we constructed a series of display program their feedback. The next set of interviews were conducted
scenarios, which varied systematically in terms of our four with new managers to confirm that the revised conjoint sce-
theoretical variables: individual-level attachments, incentive narios were both understandable and realistic. In total,
premiums, payment method, and monitoring. The conjoint approximately 40 hours of personal interviews were devoted
scenarios were administered through a mail survey to retail to pretesting.
managers in two different industries. The managers in each The four factors that constitute the conjoint task and the
industry were assigned randomly to either an agreement or levels of each are shown in Table 1. The interpersonal
a compliance situation and asked to evaluate each program attachments factor varied in terms of whether the manufac-
scenario using a ranking and a rating task. As is described
subsequently, the compliance task was constructed carefully
to be as unobtrusive as possible. In this particular situation, TABLE 1
we believed a conjoint approach, though sacrificing some Conjoint Factors and Levels
degree of realism, enhanced our chances of capturing the for Liquor Store Sample
focal phenomena. As is discussed subsequently, however,
we included an alternate set of measures in the survey I. Interpersonal Attachments
instrument to allow for a multimethod assessment of our A, The salesperson is completely new,
B. The salesperson has become a personal friend,
results (Campbell and Fiske 1959),
Three additional considerations motivated the use of the II. Incentive Premium^
conjoint approach. First, it enables us to examine the effects A, A 15% case discount is provided.
of variables that currently are not widely used. Recall from B, A 30% case discount is provided,
our previous discussion that performance-based incentives
III. Payment Method
are rare. Second, from a theory testing standpoint, it permits A, The discount is paid on all orders placed during the
us to isolate our focal theoretical variables in an experimen- promotion period,
tal design with orthogonal factors. Third, it provides an B, The discount is paid on all cases sold during the pro-
opportunity to examine the relative importance of the vari- motion period,
ous factors.
IV. Monitoring
A, The manufacturer rarely monitors whether the display
Research! Context
is set up during the promotion period,
The research was conducted with retail managers from inde- B, The manufacturer closely monitors whether the dis-
pendent grocery and retail liquor stores. These particular play is set up during the promotion period,
contexts were chosen for several reasons. First, preliminary aThe magnitude of the case discounts in the grocery store sample
field interviews showed that our focal theoretical variables was 5% and 20%, respectively.

62 / Journal of Marketing, January 1998


turer's .salesperson was completely new or a personal friend period yet mistakenly had agreed to feature 16. The respon-
of the retail manager. The term friend was adopted from the dents then were asked to indicate which programs were
extant literature, which uses the term to describe the pres- most likely to be displayed. Again, the ranking task pre-
ence of a strong interpersonal tie (Eisenhardt and ceded the administration of the rating measure.
Schoonhoven 1996; Larson 1992). In contrast, a "com-
pletely new" salesperson describes a relationship with no Sampling and Data Collection
prior social capital (Frenzen and Davis 1990). Our field The sampling frames for the study were two national mailing
interviews confirmed that this terminology distinguished lists purchased from the American List Council, which con-
clearly between strong and weak personal relationships. The tained names of managers of independent liquor and grocery
size of the incentives offered was either the industry stan- stores. Initially, two systematic random samples of 2732 and
dard or a premium case discount. Our pretests revealed that 3373 names, respectively, were drawn from the lists. Subse-
the industry standard case discounts were 15% and 5% in quently, each person on the list was contacted personally by
the liquor and grocery industries, respectively. Premium dis- telephone to (1) establish whether he or she was responsible
counts were 30% and 20% in the two industries. The pay- for making decisions regarding display programs, (2) secure
ment method factor was discounts paid either on all orders participation in the study, and (3) verify the mailing address.
placed during the promotion period (traditional approach) or As an incentive to participate in the study, we promised to
only on cases actually sold (performance-based approach). make a $5 donation to the American Red Cross for each
Finally, the monitoring factor varied in terms of whether the completed survey. In total, 1268 liquor store and 1020 gro-
manufacturer rarely or closely monitored the retailer's cery store managers were identified and agreed to partici-
behavior. Notice that the monitoring factor is designed to pate. In the remainder of the cases, the appropriate person
capture only the retailer's perception of monitoring per se, could not be reached or refused to participate in the study.
rather than how monitoring actually is conducted. In princi- The managers who agreed to participate were mailed a
ple, manufacturers can monitor in a variety of ways, includ- packet consisting of a cover letter, a brief survey instrument
ing specific store audits by manufacturer representatives or that included background information and instructions, and
inspections by salespeople during regular visits. Our objec- 16 cards, each describing a display program scenario. The
tive here is to capture the retailer's perception of monitoring managers were assigned randomly to receive either the
regardless of the strategy used by the manufacturer. agreement or the compliance task.
To enhance the realism of the task, a full-profile Reminder calls were made two to three weeks after the
approach (Green and Srinivasan 1990) was used in adminis- surveys were mailed. Of the surveys mailed out, 215
tering the scenarios. In other words, each scenario shown to liquor store and 208 grocery store surveys were returned
the managers simultaneously described some combination for response rates of 17% and 20%, respectively. In spite
of all four factors. For example, one program scenario was of the inherent difficulty of administering conjoint tasks
(I) presented by a salesperson with whom the store manager by mail (Louviere 1988), these response rates are consis-
was a personal friend, (2) provided a superior financial tent with those obtained in more traditional distribution
incentive, (3) paid the incentive in a contingent fashion, and channel surveys.
(4) involved no monitoring. Possible nonresponse bias was evaluated using the
A full factorial design was implemented by describing extrapolation method of Armstrong and Overton (1977).
each scenario on I of 16 separate cards (i.e., four factors by Our respondents fell into two different categories, namely,
two levels). The cards were accompanied by a brief ques- (1) those who returned the survey materials without subse-
tionnaire, which, in addition to a general introduction to the quent contact and (2) those who only completed the task
study and background questions, included a description of after a telephone call. The latter category was deemed rep-
the participation task—either an agreement or a compliance resentative of actual nonrespondents. A comparison between
task. The questionnaire also included a set of Likert items, the two groups with respect to annual sales volume and
which asked respondents to indicate the importance of vari- number of employees showed that no significant differences
ous program features. The respondents who were assigned exist. Moreover, no significant differences were found in the
to the agreement task were asked to evaluate each program different measures of program features. Thus, nonresponse
scenario and indicate the likelihood that they would agree to bias does not appear to be a concem.
participate in the program. As is discussed subsequently, a
rating measure was used in the final analysis. However, to Tests of Hypottieses
facilitate and ensure variation on the rating measure, the Prior to hypotheses testing, the surveys were examined to
respondents first were requested to complete a ranking task identify cases with missing data. In the liquor store sample,
(Alwin and Krosnick 1985). Specifically, the respondents 40 surveys contained excessive amounts of missing data and
were asked to sort the cards into piles and rank each scenario were excluded from further analysis. In some of these cases
subsequently from I to 16. Following the ranking task, they the respondent only had completed the background ques-
were requested to complete a ten-point rating scale, indicat- tions and ignored the conjoint task. In others, the rating
ing the likelihood that the program in question would be dis- measures were incomplete. Twenty-four similar cases were
played in the store. eliminated from the grocery store sample. Thus, the analysis
The respondents who were assigned to the compliance was based on a sample of 175 liquor store (101 agreement
task were asked to envision a situation in which they only and 74 compliance scenarios) and 184 grocery store (91
had floor space available for 15 displays during a given time agreement and 93 compliance scenarios) cases.

Participation in Promotion Programs / 63


The hypotheses were tested by a series of ordinary least 19,50), which provides support for H2. Administering incen-
squares regression models. An effects coding scheme tives in a performance-based fashion has a significant and
(Cohen and Cohen 1983) was used to represent the different negative effect on agreement in both samples (tn^ior =
levels of the theoretical factors. Using this scheme, the first -18,03, and tgr^cery - -11-87) in accordance with H3.1, How-
level of each factor (e.g,, standard incentives) was coded as ever, in contrast with H^^,, which predicted a positive effect
- 1 , and the other (e.g., incentive premiums) as +1, Interac- of perfomiance-based incentives on compliance, our results
tions were defined by multiplicative cross-product terms show that this payment method actually has a negative effect
between the relevant factors (Green and deSarbo 1979; Lou- (^liquor = -18,47, and tgrocery - -9,16), A similar pattern was
viere 1988), As noted by Aiken and West (1991), effects observed for monitoring. Greater monitoring decreases the
coding is advantageous in that it produces main and interac- likelihood of agreement in both samples (t|iquor=-2,14, and
tion effects that are readily interpretable and orthogonal, tgrocery = -1-42), as H4a predicts. In contrast with H41,, mon-
similar to standard ANOVA procedures. itoring decreases compliance in both samples (t|iq,ior -
We used the following model testing procedure: Prior to -1,64, and tgmcery " -1-15), However, the effect in the gro-
the model estimation, the respondent raw ratings were stan- cery sample is not significant.
dardized to zero mean and unit standard deviation (Green Consider next the contingent effects. None of the inter-
and deSarbo 1978). Next, four different models were esti- actions involving attachments is significant, in contrast wilh
mated, one for each task (agreement and compliance) and H5, However, consistent with Hg, the interaction between
sample (liquor and grocery). Each model included terms incentive premiums and payment method is negative and
corresponding to the main effect for each factor (H1-H4), as significant for agreement in both samples (t||(n,,,r = -3,05,
well as the relevant interaction terms (H5-H7), The estima- and tgrocery = -1-66), With respect to compliance (H7), there
tion results for the final models are shown in Table 2. is a significant and negative effect in the grocery sample (t
As can be seen from Table 2, the adjusted R2 (.24 to .41) - -2,33) and no statistically significant effect in the liquor
for the models indicates that they provide a reasonable basis sample (t = -,36),
on which to evaluate the individual coefficients. The t- Finally, the conjoint design provides an opportunity to
statistics associated with the interpersonal attachment betas examine the relative importance of the different mecha-
indicate that this factor has a significant and positive effect nisms. The importance weights in Table 3 were calculated
in both samples on agreement (tuqupr = 5.01, and tgrocery = by dividing the part-worth range for the factor by the total
6.14) and compliance (^[\c^^,or - 6.67, and tgro^ery = 1-83), range (Green and deSarbo 1978). Although the conjoint
Thus, H] is supported, A similar set of results was found for method does not provide a statistical test to examine differ-
incentive premiums on agreement {iw^^uor - 17,04, and tg^o- ences across the weights, two results are reasonably appar-
cery = 28,21) and compliance (tii^^or = '8.17, and ent. First, the calculated importance weights for the conjoint

TABLE 2
Regression Models
Agreement Confipliance
Liquor Sample Grocery Sample Liquor Sample Grocery Sample
Standardized Standardized Standardized Standardized
Independent Variable Coefficient t-value Coefficient t-value Coefficient t-value Coefficient t-value
Attachments .10 5,01a ,12 6,14a ,15 6,67a .04 1,83b
Incentive Premium ,36 17.04a .58 28,2ia .42 18,17a .44 19.50a

Payment Method -,38 -18.03a -.24 -11,87a -.43 -18,47a -.20 -9,16a
Monitoring -.05 -2.13b -,03 -1,42= -.04 -1,64b -.03 -1,15
Attachments x
Incentive Premium -.01 -.17 ,03 1,26 ,07 ,03 -.01 -,03
Incentive Premium x
Payment Method -,07 -3,05a -,03 -1,66b ,01 ,36 -,05 -2,33a
Attachments x
Payment Method d d ,01 ,42 ,01 .37
Attachments x
Monitoring d d ,01 ,58 ,01 ,57
R2 adjustedI = .3O R2 adjusted1 = ,41 R2 adjustecl = ,38 R2 adjusted = ,24
ap< ,01,
bp < ,05,
<:p< ,10,
^Effect not hypothesized.

One-tailed tests are used, given our directional hypotheses.

64 / Journal of Marketing, January 1998


TABLE 3 Ttie Determinants of Participation
Conjoint Factor Importance Weights:
The main goal of this research project was to enhance our
Agreement and Compliance
current understanding of the factors that influence program
Importance Weights participation in manufacturer-retailer relationships. Con-
sider now the specific results that were obtained and the
Agreement Compliance overall pattem that emerges from them. Frenzen and Davis
Conjoint Factor Liquor Grocery Liquor Grocery (1990) demonstrate the importance of the market embed-
Attachments .12 .13 .15 .05
dedness concept in a consumer setting. The present research
Incentive Premium .40 .59 .40 .62 extends this finding by demonstrating that close personal
Payment Method .42 .25 .41 .29 relationships contribute significantly to retailer participation
Monitoring .06 .03 .04 .04 in promotional programs. This result questions the validity
of the concem that such relationships induce complacency.
It is noteworthy, however, that though the effect of personal
relationships on participation was significant, it was less
factors are stable across the independent samples. In partic- important than the effect of incentives. Furthermore, the
ular, the relative importance ranking ofthe four factors was presence of strong interpersonal attachments did not dimin-
identical across both samples, and the magnitude of the ish the effect of incentives, as originally anticipated. This
actual weights was similar. result questions the skepticism often expres.sed by sociolog-
Second, the overall pattern that emerges is that the ical researchers (e.g., Perrow 1982, 1986) about the roles
incentive premium and payment method factors dominate played by formal govemance mechanisms. It also questions
interpersonal attachments and monitoring. Regarding the whether personal attachments represent sufficient utility to
agreement decision, the weights for attachments across the serve as substitutes for financial incentives.
liquor and grocery samples were .12 and .13, and for moni-
toring .06 and .03, respectively. In contrast, the derived Consider next the effects of payment method and moni-
weights for incentive premiums were .40 and .59, and for toring. Unlike attachments and premiums, these factors
payment method .42 and .25 across the liquor and grocery were found to have consistent negative effects on both
samples, respectively. A similar pattern emerged in the com- agreement and compliance. Notice further that the observed
pliance task. The weights for attachments were .15 and .05, negative influences of monitoring and payment method on
compliance contradicts our initial predictions. It is conceiv-
and for monitoring .04 and .04 across the liquor and grocery
able that this result may be due to a negative response from
samples, respectively. By comparison, the weights for
the study participants to payments being administered in a
incentive premiums were .40 and .62 across the liquor and
new fashion (i.e., performance-based). Recall that the pre-
grocery samples, whereas for payment method the weights
sent industry practice is to make payments available to
were .41 and .29 across these samples. As in all conjoint
retailers ex ante, that is, irrespective of subsequent behavior.
studies, the importance weights should he interpreted cau-
However, the fact that monitoring also was found to
tiously because they depend on the specific factor levels
decrease compliance suggests a second explanation. These
included in the study. two mechanisms differ from both incentives and interper-
The calculated importance weights offer an opportunity sonal relations in that they are attempts by the manufacturer
for evaluating the validity of our results. In addition to the to limit the retailer's freedom to make decisions. Perfor-
conjoint materials, we included in the survey instrument a mance-based pay and monitoring may be viewed as signals
set of Likert items designed to describe directly the impor- of manufacturer distrust. Ultimately, such signals may cau.se
tance of the various theoretical factors as currently viewed retailers to devalue the relationship and respond by non-
by retailers. We limited ourselves to measuring interper- compliance. Alternatively, trying to control retailers through
sonal attachments, incentive premiums, and monitoring, such obtrusive methods (Perrow 1986) may initiate psycho-
because performance-based payment methods are not used logical reactance that causes rebellion even to the point of
commonly yet. These Likert items constitute a systemati- violating established agreements.
cally different research method from the conjoint task and
permit a test of convergent validity using Campbell and These conclusions are consistent with findings from
Fiske's (1959) criteria. An inspection of the mean ratings on John (1984), who finds that bureaucracy (which includes
these items reveals the same pattern as the conjoint results; overt control mechanisms such as monitoring) actually
that is. incentive premiums were the most important inllu- increases channel member opportunism. From a practical
ence on participation, interpersonal attachments were the viewpoint, this implies that firms are better off trying to
second most important factor, and monitoring was the least achieve compliance in other ways—for example, through
important factor. The convergence across methods provides incentive premiums. Although offering premiums repre-
confidence in our findings. sents a cost to the manufacturer, it is conceivable that the
costs may be lower than the ones associated with ongoing
monitoring.
Discussion The method of payment also reduces participation in a
In the remainder of this article, we discuss the implications different fashion. First, the negative interaction between
these findings have for advancing theory and provide pre- incentive premiums and payment method on the agreement
scriptions for managing retailer relationships. decision suggests that more restrictive payment methods

Participation in Promotion Programs / 65


undermine the positive effect of incentive premiums. Sec- rather than a single one as suggested in our design (i.e., per-
ond, there was also a negative interaction between these fac- sonal friend versus completely new). Further research could
tors on compliance in the grocery sample. Although this be directed toward exploring these issues.
result is consistent with our original prediction, recall that Finally, managers must be particularly careful when
our initial theoretical argument was based on the expecta- designing incentive and monitoring programs. As expected,
tion that each of these factors would have positive effects on both performance-based incentives and monitoring
compliance in its own right and thus might serve as a func- decreased retailers' initial agreement to participate. Agency
tional substitute. However, the negative main effect of per- theory suggests that this finding is at least partially due to
formance-based incentives makes this argument question- the ability of these mechanisms to serve as screens that
able. Rather, the negative interaction is more likely due to eliminate certain retailers a priori. This is important because
the payment method undermining the effect of the incentive manufacturers currently have little recourse against retailers
premiums. that accept trade payments without performing agreed func-
tions. However, manufacturers also must be cautious when
Manageriat tmptications using performance-based incentives and monitoring because
A recent industry survey found that manufacturers consider of the risk of lowering compliance by creating retailer reac-
poor retailer participation their most pressing concem when tance. It should be possible to minimize this risk by devel-
using POP advertising and displays (Shutt 1995). The pre- oping appropriate personal relationships. In particular,
sent research provides guidance for addressing this problem. nonopportunistic retailers must be educated about the detri-
In particular, interpersonal attachments, incentive premi- mental effects that channel opportunism ultimately has on
ums, payment method, and monitoring all demonstrated sig- their own profitability. If successfully implemented, perfor-
nificant influences on both retailer agreement and compli- mance-based incentives and monitoring have the potential
ance with display programs. These mechanisms also had to drive down the costs of retailer opportunism without
independent rather than contingent effects on retailers' adversely affecting brand sales.
decisions. The key implication for manufacturers is that A particular word of caution is appropriate regarding
performance on one mechanism will not substitute for per- monitoring. The industry evidence presented initially
formance on others. For example, increasing incentive pre- showed that monitoring is a frequently used strategy by
miums will not compensate for losses in participation due to manufacturers (Shutt 1995). Our results, however, suggest
weak interpersonal attachments. Maximizing retailer partic- that monitoring has a considerably lower impact than the
ipation requires concurrent and effective management of other mechanisms. Considered in combination with the
each of the mechanisms. costs typically associated with monitoring (Beatty and Zajak
The findings also suggest that the personnel practices in 1994), screening strategies based on payment method may
many consumer product companies may foster ineffective be preferable.
retailer relations. In particular, manufacturers often use the
position of account sales representatives to educate new Limitations and Further Researct)
employees about the category before promoting them into Some potential limitations of this project should be noted.
either marketing or sales management positions. The present Perhaps most important, this study's focus is limited to two
findings indicate that this practice may have substantial but particular forms of relationship behavior, namely, a party's
hidden costs to the extent that the resulting increase in sales- choice whether to agree and comply with promotion pro-
person turnover undermines program participation. By defi- grams. Although these are common industry, they are also
nition, new salespeople will have weak interpersonal attach- conceptually distinct from situations in which the parties
ments with retailers, which in turn decreases retailer partic- work together and have integrated their respective roles
ipation with programs. The lack of a significant interaction (Anderson and Narus 1990). Furthermore, the unit of analy-
between Interpersonal attachments and incentive premiums sis in this study is a particular exchange episode in a rela-
also suggests that a loss in retailer participation due to tionship (Hakansson and Snehota 1995), as oppo.sed to the
weaker attachments cannot be recovered by increasing the relationship in general. Given this particular focus, some of
incentive premiums offered. the independent variables in our study (e.g,, incentive pre-
At first glance, our results suggesting that personal rela- miums) are short-term tools designed to intluence agree-
tionships are less important in promoting participation than ment and compliance at the level of a particular program.
incentives may appear somewhat discouraging. However, Furthermore, though the conjoint methodology used
there are two important issues that must be addressed. First, offers several benefits in terms of unobtrusiveness and con-
it is possible that crafting personal relationships has impor- trol over extraneous influences, it possesses some inherent
tant competitive implications that are unaccounted for in our limitations. First, this procedure limited the number of fac-
study. Specifically, incentive programs may be relatively tors we could study. Second, though every attempt was
easy to match and result in parity or limited differentiation made to create realistic conjoint scenarios, the evaluations
across manufacturers. In contrast, personal relationships, provided by the survey respondents may not capture com-
once crafted, may be more difficult to duplicate. Second, the pletely their behaviors in a real-life situation. Thus, a goal
interpersonal relationship conjoint factor may have over- for further research is to conduct a field experiment to vali-
simplified the nature and power of personal relationships. In date the results from the current study. Such a study would
particular, the relationship between a sales representative require the assistance of a consumer product manufacturer
and a retail manager is likely to have multiple dimensions that would administer actual promotional programs that

66 / Journal of Marketing, January 1998


vary in certain respects (i.e., incentive structures). Percep- toring, and interpersonal relations to inlluence participation
tions of interpersonal attachments may be ascertained a pri- and compliance. For example, manufacturers that provide
ori through a retailer survey. To overcome possible prob- retailers with merchandising expertise are typically more
lems with self-report measures on agreement and/or compli- successful in getting support for their programs. Similarly,
ance, these measures would be obtained from the manufac- manufacturers selling high-demand product lines have
turer's sales force. Thus, though the present study generates power that influences retailers' decisions. It will be impor-
new insights, further research can extend our efforts. tant for further research to examine more fully how the rel-
Finally, factors not examined in this re.search may work ative sources of manufacturer and retailer power interact to
either in isolation or in combination with incentives, moni- influence agreement and compliance.

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