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Understanding New Product Co-Development Relationships In Technology- Based, Industrial Markets

Posted on: Tuesday, 2 March 2004, 06:00 CST

This study focuses on new product co-development relationships, where a seller and buyer enter into a relationship to mutually undertake the development of an innovative product. We draw upon the relationship marketing literature as well as the theoretical frameworks of agency theory and transaction cost analysis to investigate the antecedent conditions that foster such co- development relationships, and the manner by which these factors subsequently influence sellers' satisfaction with the relationship. The results of our empirical study reveal that the extent to which sellers undertake new product co-development relationships is a function of perceived buyer knowledge and the extent of prior interactions with the buyer as well as the degree of product customization involved. Further, perceived buyer knowledge moderates the sellers' satisfaction with such co-development efforts.

INTRODUCTION

New product development (NPD) in technology-based, industrial markets is increasingly characterized by close interactions between sellers and buyers during the product development process (Gertler 1995; Sioukas 1995). In many instances, these interactions incorporate new product codevelopment relationships, i.e., the two firms jointly develop the new product (Gruner and Homburg 2000). Such collaboration manifests itself through product codesign, product codevelopment, and joint problem solving (Meyers and Athaide 1991). Joint NPD offers several potential benefits to both sellers (e.g., identifying new applications, lowering development costs, improving development cycle times) as well as buyers of the innovation (e.g., influencing performance attributes, gaining access to new technologies ahead of competitors) (Meyers and Athaide 1991 ; Udwadia and Kumar 1991).

However, such relationships can also pose several risks, particularly for sellers. For example, potential buyers could reveal technology and product-related information to the seller's competitors, thus shortening the time until alternative offerings enter the marketplace. In some instances, collaborating buyers have required exclusivity clauses or joint patent ownership, which may delay or even preclude the seller from offering the innovative product to the broader marketplace (Foxall 1988; Nesse and Skjelnes 1994). Therefore, sellers must be judicious in deciding with whom and under what circumstances collaborative NPD is warranted. As More (1986) and Nesse and Skjelnes (1994) note, ineffective relationship management during product co-development is an important contributor to the high failure rates of technology-based industrial innovations. Therefore, this study investigates the following research questions:

What are the antecedents of seller-buyer new product co- development relationships in technology-based, industrial settings?

Under what conditions are sellers satisfied with such co- development relationships?

By focusing on these issues (as part of a larger research project that explores seller-buyer interactions during new product commercialization; see for example, Stump, Athaide, and Joshi 2002), our study provides managers with a decision making framework regarding with whom and when they should collaborate during NPD. Our study also offers some useful theoretical contributions. Existing research on seller-buyer interactions tends to be largely anecdotal and based on case histories (see for example, More 1986 and Parkinson 1985). As Gruner and Homburg (2000) and Ruyter, Moorman, and Lemmink (2001) note, empirical knowledge of seller-buyer relationships in technology-based environments has remained scarce. While appropriate during the early stages of theory development, large-scale empirical studies such as ours are necessary to validate and test these theories (Alam 2002).

Our research also complements the relatively few empirical studies that do exist. Consider, for example, Sivadas and Dwyer's (2000) empirically investigation of NPD alliances in the semiconductor and health care industries. They found support for their premise that new product success is positively associated with the cooperative competency of the NPD partners. In addition, they found that cooperative competency (which is composed of trust, communication, and coordination) is a function of the administrative mechanisms utilized, the mutual dependence of the alliance partners, and the type of innovation developed. However, since they did not find support for their hypothesis that cooperative competency depends on "partner type," i.e., competitor versus noncompetitor, they called for greater research on partner selection mechanisms. We answer that call by using agency theory and Transaction Cost Analysis (TCA) to suggest the relevance of prior relationship history and perceived buyer knowledge in selecting relationship partners.

Our study also builds on the work of Stump, Athaide and Joshi (2002) whose empirical study focuses on a firm's strategic decision to develop customized innovations in technology-based industrial markets. Because customization entails considerable idiosyncratic investments, Stump, Athaide, and Joshi (2002) use the logic of agency theory and TCA to demonstrate how particular seller-buyer interactions during NPD can reduce the threat of opportunistic behavior by potential buyers. Specifically, product knowledge generation and joint NPD are shown to reduce the negative impact of product customization on relationship satisfaction. In contrast, this study focuses on another strategic choice that confronts sellers, i.e., the decision to co-develop products with potential buyers. Since the NPD literature does not clarify how Product Customization and Joint NPD are temporally related, this study focuses on Joint NPD rather than Product Customization as the strategic starting point of seller-buyer interactions. In doing so, it offers a complementary perspective to Stump, Athaide, and Joshi (2002) as follows: First, it regards Joint NPD as a mediator rather than a moderator of the relationship between Product Customization and Relationship Satisfaction. Second, it focuses on gaining a deeper understanding of the antecedents of Joint NPD. This contrasts with Stump, Athaide, and Joshi's (2002) broader focus on the entire range of relationship activities undertaken during NPD (education, product knowledge generation, joint NPD).

To achieve these contributions, the rest of this paper is organized as follows. We begin with an overview of our conceptual framework. This is followed by a description of the research methodology used to empirically test our model and our findings. We conclude with a discussion of implications for academics and practitioners and an acknowledgement of the study's limitations which provide directions for future research.

CONCEPTUAL BACKGROUND

Our conceptual model integrates perspectives from a pilot field study with relevant literature from relationship marketing, agency theory, and transaction cost analysis. The pilot study consisted of personal interviews with ten marketing executives from technology- based firms. These firms were selected from the computer software and scientific instruments industries, which have been noted as contexts where intense seller-buyer relationships during NPD are widespread (Voss 1985; Urban and von Hippel 1988). Using the "theoretical sampling" procedure recommended by Glaser and Strauss (1967), "information rich" sites were selected from these industries. Each interview lasted for approximately one hour and incorporated semi-structured questions that focused on understanding the antecedents and consequences of sellers' product co-development relationships with potential buyers. Additional insights were provided by extant literature in relationship marketing, agency theory, and transaction cost analysis. Because the application of agency theory and TCA to the NPD domain is relatively new, we briefly discuss their relevance for our research context.

Agency Theory

Agency theory is concerned with situations where one party, the principal, delegates the performance of relevant tasks to another, the agent (Jensen and Meckling 1976). An important assumption of agency theory is that most agency relationships are characterized by "information asymmetries," i.e., both principal and agent possess information that the other would like to obtain, but self-interest makes them reluctant to share this information (Bergen, Dutta, and Walker 1992). These two assumptions result in problems of "hidden information" and "hidden action" (Bergen, Dutta, and Walker 1992, p.3). The former problem, also known as adverse selection, refers to the principal's problem of identifying suitable agents and is addressed when appropriate "screening" procedures by the principal and "signaling" actions by the agent occur. The latter problem, also known as moral hazard, refers to the dilemma associated with ensuring that an agent acts in a manner consistent with the principal's goals and is dealt with by monitoring the agent's actions and rewarding compliance.

From an agency perspective, new product co-development relationships represent a bilateral agency situation where the performance of the seller's agency role actually involves the delegation of some of its product development dutie\s and responsibilities back to the buyer. Thus, co-development relationships mitigate information asymmetry because they provide an environment where sellers can cooperatively develop and share the capabilities of newer technologies while buyers impart important and often tacit information about their operating environment.

Transaction Cost Analysis

TCA posits that transactions are organized in a discriminating fashion, based primarily on two facets of transactions: transaction specific assets and environmental uncertainty (Williamson 1985). Asset specificity refers to investments that are idiosyncratic to a focal relationship and impose switching costs (Porter 1980), i.e., they cannot be easily or costlessly deployed elsewhere. These investments pose the threat of opportunistic expropriation by the exchange partner (Klein, Crawford, and Alchian 1978), or a "safeguarding problem," which can be addressed by crafting safeguarding mechanisms into the relationship (Williamson 1985). Environmental uncertainty, which may result from information asymmetries within an exchange relationship or the inability to predict future aspects of the external environment, gives rise to an "adaptation problem" (Rubin 1990). Consequently, mechanisms must be put in place to permit decision-making flexibility so that adjustments can be made as future events unfold. In sum, TCA posits that closer interfirm relationships are an appropriate governance mechanism to address such safeguarding and adaptation problems.

From a TCA perspective, co-developing products often involves the reciprocal investment of transaction specific assets, such that each side provides "hostages" to assure fidelity and performance (Williamson 1983). Instead of being a situation where asymmetric dependence and vulnerability exists, co-development represents a high level of interdependence between the seller and buyer, which resolves the safeguarding problem. Likewise, the adaptation problem is also likely to be tempered in a collaborative NPD relationship since drawing closer to one another makes each party's involvement more transparent to the other, thereby reducing internal information asymmetries, while also extending the scanning ability of the external environment by both sides (Pfeffer and Salancik 1978).

Antecedents of Collaborative NPD Relationships

Perceived Buyer Knowledge

A common difficulty in technology-based markets is that potential buyers often lack familiarity with the capabilities of newer technologies and are therefore unable to provide useful guidance to product developers (Lynn, Morone, and Paulson 1996). However, in many instances a few sophisticated buyers exist who recognize the potential of these new technologies ahead of the rest of the industry and are willing to adopt product offerings that incorporate them (von Hippel 1978). Voss (1985) found that sellers engage in more intense product codevelopment relationships with such knowledgeable buyers. Such cooperation is beneficial because it leverages the seller's development efforts by gaining access to the technological and market expertise of the buyer. Illustrative of this is an observation by the vice president of marketing at a company that markets instruments used to detect the presence of hydro fluorocarbons (used in the semiconductor industry), who noted:1

We sell very complex products but we sell to people like IBM who have a broad spectrum of experience and so in some cases we are working with them (i.e., customers) to solve a specific problem that is vexing.

The relationship marketing literature notes that organizations enter into relationships to obtain resources that they do not possess internally (Harrigan 1985). Given the information-intensive nature of high-technology markets, taking advantage of a potential buyer's knowledge structure provides an important impetus to enter into a relationship (Sivadas and Dwyer 2000). Further, buyer knowledge serves as a useful screening variable to verify ex ante that the buyer has the capability to co-develop the product (Heide and John 1990; LaBahn and Krapfel 2000).

From an agency theory viewpoint, perceived buyer knowledge addresses the "hidden information" problem because it provides sellers with a basis for "screening" potential buyers with respect to their appropriateness as joint NPD partners. Recall that agency relationships are characterized by information asymmetry and that sellers require access to proprietary information about the buyers' operating environment in order to reduce this asymmetry. Therefore, buyers who are knowledgeable about the innovation's capabilities and their own idiosyncratic needs are best suited to reduce this information asymmetry and thereby contribute to mutually beneficial relationship outcomes.

From a TCA perspective, perceived buyer knowledge is an important screening variable to assess a potential buyer's ability to reduce information asymmetries and thereby alleviate the adaptation problem. In the context of collaborative NPD relationships, knowledgeable buyers are better able to articulate the idiosyncratic characteristics of their need requirements and operating environments. In addition, they are better able to foresee future industry trends (von Hippel 1978). Therefore, collaborating with knowledgeable buyers helps reduce environmental uncertainty and its accompanying adaptation problem. This leads us to propose:

Hypothesis 1:The degree of new product codevelopment will be higher for more knowledgeable buyers.

Prior Relationship History

The relationship marketing literature suggests that having an extensive prior relationship history should increase the degree of new product co-development. Prior interactions provide sellers with an opportunity to evaluate the buyer's trustworthiness and commitment (Vyas and Woodside 1984). Such ongoing relationships also indicate that the partners have survived the critical "shakeout period" in the relationship and have aligned their interests over time (Heide and John 1990).

From an agency perspective, prior relationship history addresses both the "hidden information" and "hidden action" problems. Prior interactions are a useful "screening" mechanism because sellers have historical evidence of a potential buyer's willingness to reduce information asymmetry. In addition, sellers can rely on previous relational exchanges to assess the extent to which a buyer is likely to act in a manner consistent with the seller's goals (the hidden action problem).

From the view of TCA, prior relationships help assure sellers of the buyer's lack of opportunistic intent, such as revealing information about technological capabilities and innovative product attributes to potential competitors (Foxall 1988) or attempting to appropriate the supplier's investments in idiosyncratic assets (Heide and Miner 1992). More recent extensions to TCA theory suggest prior relationships also serve as generalized safeguarding mechanisms (Joshi and Stump 1999). Furthermore, the adaptation problem is likely to be mitigated since past experience may make future actions by the focal exchange partner more predictable. Hence:

Hypothesis 2:The degree of new product codevelopment will be higher when sellers have had a more extensive prior relationship history with potential buyers.

Product Customization

Customization is a strategic product decision for sellers, who determine the extent to which a product will be configured to meet the needs of specific buyers. On the positive side, such product adaptations can help isolate the seller from future competition by imposing switching costs on the buyer (Porter 1980). In addition, recent advances in information technology, telecommunications, and manufacturing automation have made it easier for sellers to interact with customers and to develop and manufacture customized products (Sioukas 1995). However, customized innovations often require considerable product adaptation from one user site to the next (Hallen, Johanson, and Seyed-Mohamed 1991). This necessitates the dedication of significant idiosyncratic resources to a particular buyer thereby increasing the seller's dependence on the buyer. This dependence motivates sellers to engage in a relationship with the buyer (Ganesan 1994; Kumar, Sheer, and Steenkamp 1995).

From an agency perspective, product customization not only ensures that the buyer's need will more closely be matched, it also serves to attenuate the "hidden information" problem since it allows the seller, as the prospective agent, to "signal" its capabilities and intentions (Bergen, Dutta, and Walker 1992). When customized products are involved, buyers have an added incentive to reveal tacit information that is unique to their operations, which further reduces information asymmetries. From a TCA perspective, since customization necessitates investments in relationship-specific assets and increased information (Heide and Miner 1992), it can be expected to foster collaborative NPD because of the safeguarding and adaptation qualities such relationships offer. Accordingly, we propose:

Hypothesis 3:The degree of NPD collaboration will be higher for customized products.

Consequence of Collaborative NPD Relationships

The final component of our model focuses on one of the outcomes associated with engaging in a collaborative NPD relationship, i.e., satisfaction. Literature on relationship marketing notes that sellers' co-development objectives include qualitative outcomes like satisfaction and relationship continuity (Dwyer, Schurr, and Oh 1987; Mohr and Nevin 1990) and quantitative outcomes such as new product success and reduced NPD cycle times (LaBahn, Ali, and Krapfel 1996; Gruner and Homburg 2000). We use satisfaction as our outcome measure for several reasons. First, qualitative outcomes precede quantitative outcomes, i.e., they are a more immediate relationship outcome (Mohr and Nevin 1990). second, \for a particular seller-buyer dyad, satisfaction is a more accurate barometer of the dyad's relationship quality than NPD success which depends not only on the quality of a particular buyer's involvement during NPD but also on the appropriateness of the seller's marketing strategies to the broader marketplace. Third, given the possibility of asymmetric contribution to the relationship by sellers and buyers (Sollner 1999), satisfaction is a better indicator of the seller's perception of the "degree of justice" in the relationship (Kaufmann and Stern 1988) than NPD success. In other words, even though the learning from a particular co-development effort may facilitate an innovation's success in the marketplace, the seller may be unsatisfied with the relationship because of perceptions that the buyer did not make a proportionate contribution to it.

Following Mohr, Fisher, and Nevin (1996), we define satisfaction as the seller's evaluation of the product co-development relationship. Based on TCA, we hypothesize that perceived buyer knowledge moderates the effect of product co-development relationships on satisfaction. TCA argues that lower transaction costs leads to greater satisfaction (Klein and Roth 1993). In our context, since knowledgeable buyers have a greater ability to contribute symmetrically to the co-development effort, the transaction cost of monitoring performance is reduced. Therefore:

Hypothesis 4:The greater the perceived buyer knowledge, the greater the likelihood that a new product co-development relationship is associated with greater satisfaction.

Our conceptual model is depicted in Figure 1.

FIGURE 1

CONCEPTUAL MODEL

RESEARCH METHODOLOGY

Research Setting

This study is limited to situations where sellers interact directly with buyers instead of via marketing intermediaries or OEMs. Also, we focus on small and mid-sized firms (SMFs) because of the considerable evidence that they play an important yet under- researched role in the development of technology-based innovations through relationship-oriented strategies (Dodgson and Rothwell 1993). In order to ensure greater generalizability of our findings, the research setting comprised SMFs in several technology-based industries like computer software, environmental equipment, high- technology manufacturing equipment, factory automation systems, and testing/measurement equipment. Sellers were asked to describe their relationship with one particular buyer during the development of a product that had been introduced to the market within the past two years. Thus, the unit of analysis is the seller-buyer dyad.

Measure Development and Data Collection

To develop and assess our measures, we followed the procedures recommended by Churchill (1979) and Gerbing and Anderson (1988). First, a draft questionnaire containing measures for the relevant constructs was personally administered to two marketing managers. Their feedback was helpful in revising a few questions for better comprehension. The revised questionnaire was mailed to 150 technology-based firms located in one Mid-Atlantic state. The fifty responses revealed no major problems with any of the measures or the response format.

For the final mailing, the U.S. Corporate Technology Directory was used to identify target firms in the research setting. To assure a base level of expertise and "staying power," only SMFs that had been in existence for at least five years were targeted. The resulting sampling frame consisted of 2124 firms. The final questionnaire was mailed to a simple random sample of 1500 firms in the sampling frame using marketing managers as key informants (Seidler 1974).2

To ensure a satisfactory response rate, a personalized cover letter accompanied each questionnaire that was mailed to each informant highlighting the importance of the study and promising him or her an executive summary of the results. A reminder postcard and a replacement questionnaire were mailed to non-respondents in the following weeks. As a result of these efforts, 334 completed responses were obtained (fifteen questionnaires were returned because of incorrect mailing addresses) for an effective response rate of 23%. Thirty-eight responses were discarded because of incomplete data. Thus the final sample consisted of 296 firms. Their mean number of employees was 663 ; their mean annual revenue was $253 million; and their mean annual profit was $2.13 million. Further, they reflected the diversity of the sampling frame, with the percentage of testing/measurement equipment firms being 25.7%, software firms 17.7%, manufacturing equipment firms 17.4%, factory automation systems firms 8.3%, and environmental equipment firms 5.3%. Non-response bias was assessed by comparing early with late respondents as recommended by Armstrong and Overton (1977). A comparison of the two groups using z-tests on the means revealed no significant differences for demographic variables such as number of employees and revenues, nor the substantive variables included in our model. Therefore, nonresponse bias does not appear to be a significant concern.

Measure Development

Multi-item scales were used to operationalize each of our measures. Our first step in assessing the construct validity of our measures was to determine the dimensionality and assess the internal consistency of the reflexive scales (Gerbing and Anderson 1988) in a confirmatory factor model using SAS (i.e., the CALIS procedure) and maximum likelihood estimation. For this model, each item was restricted to load only on its own construct and the constructs were allowed to intercorrelate. While the chi-square statistic for the overall model is significant ([chi]^sup 2^ [271]= 434.89, p < .001), as is tobe expected given the large sample size, the other fit indices provided evidence of good model fit (for example, Bentler's (1989) Comparative Fit Index [CFI] = .96 and Bentler and Bonett's (1980) Non-normed Index [NNFI]= .95, and Root Mean Square Error of Approximation [RMSEA] = .045).

Convergent validity was assessed by reviewing the t tests for the standardized factor loadings. Each of the factor loadings was significant at the .01 level providing support for the convergent validity of the constructs. In order to establish discriminant validity, we estimated a series of alternative measurement models in which each pairwise correlation between the constructs of interest was constrained to unity. In each case, the chi-square difference test was significant suggesting that the constructs were distinct. Finally, to measure the internal consistency of the items measuring a given construct, we computed the composite reliability index (Fornell and Larcker 1981) for each construct in the model.

Measures

All the measures used in the study are reported in the Appendix. Because all item sets showed satisfactory evidence of internal consistency (Nunnally 1978), indexes of the scales were then used in the substantive analysis. Table 1 shows the correlation matrix for each of the measures in our model as well as their means and standard deviations. Operational definitions of our scales are described below.

New Product Co-Development Relationship. This scale (NPCD) measures the extent to which sellers and buyers jointly developed the new product. The specific items were developed on the basis of the pilot study field interviews.

Perceived Buyer Knowledge. The PBK scale reflects the extent to which the buyer is perceived to be knowledgeable about the innovation. The scale items are based on the pilot study field interviews.

Prior Relationship History. The PRH scale evaluates the extent to which the seller and the buyer have had a long and stable history of prior business relations. The items used are adapted from the scale developed by Bucklin and Sengupta (1993).

Product Customization. This scale (PCUST) measures the extent to which the product is developed according to specifications unique to the buying firm. It is adapted from the scale items used by Perdue and Summers (1991).

Satisfaction. The SATIS scale assesses the extent to which the seller is satisfied with their co-development relationship with the buyer. The pilot study interviews were used to generate the specific items for this measure.

Control Variable: We included sales importance as acovariate because although it falls outside our conceptual framework, previous research has posited that it could have an effect on new product co- development. Specifically, Kotler (1991) has noted that since organizations have limited resources to expend on managing relationships, they tend to have more intense relationships with their most important customers. Specific measure items were obtained from the pilot study.

RESULTS

Table 1 reports correlations among the variables. The hypotheses were tested by estimating two ordinary least squares (OLS) regression models, the results of which are shown in Table 2. The substantive independent and control variables collectively explain 29 percent of the variance in new product co-development relationships. For the second equation, the independent substantive and control variables collectively explain six percent of the variance in seller's perceived satisfaction with the relationship.

TABLE 1

CORRELATION MATRIX

TABLE 2

OLS REGRESSION RESULTS STANDARDIZED COEFFICIENTS (T-VALUES) SHOWN

Overall, the results largely support our hypotheses. As predicted by Hypothesis 1, there was a positive impact of perceived buyer knowledge on new product co-development (t = 2.25, p < .05), which reflects the notion that the buyer's ability to contribute to the new product development effort is a critical factor that determines the extent to which joint NPD occurs within a given dyad. Consistent with Hypothesis 2, prior relationship history had a positive impact on co-development (t = 2.32, p < .05). This result is consistent with past conceptualizations that prior interactions provide sell\ers and buyers with an opportunity to gauge each other's capabilities, their trustworthiness and lack of opportunistic intent, as well as willingness to partner during product development (Heide and Miner 1992), while also playing a safeguarding role by serving as generalized hostages (Stump and Joshi 1998). Relative to Hypothesis 3, the expected positive influence of product customization on product co-development was also strongly supported (t = 9.51, p < .01). For customized products, access to complementary resources is a major motivator of product codevelopment. While sellers can alert potential users to the capabilities and applications of newer technologies, users can provide sellers with rich information on the idiosyncratic characteristics of their operating environment. Further, while buyers obtain unique products that can become a source of competitive advantage, sellers learn which product features are most desirable, which may subsequently be promoted to the rest of the market as part of standardized offerings. Close relationships also provide safeguarding protection for specific asset investments (Heide 1994), which customized products embody. The control variable (sales importance) did not have a significant impact on collaborative NPD relationships.

Consistent with Hypothesis 4, the interaction term was positive and significant (t = 2.08, p < .05), which supports our contention that buyer knowledge moderates the effect of product co-development on relationship satisfaction. The control variable sales importance also had a significant impact on satisfaction. In addition, an examination of the partial derivative of satisfaction over the range of buyer knowledge (Schoonhoven 1981) confirmed that this contingency relationship is monotonie, i.e., satisfaction with NPD collaboration increases over the entire range of perceived buyer knowledge.

IMPLICATIONS

Theoretical Implications

Researchers in marketing have traditionally employed agency theory to examine salesforce management, channel coordination and consumer promotion. Following Bergen, Dutta, and Walker's (1992) call to incorporate agency theory in additional contexts, we extend the theory's application to the product development setting. Additionally, most agency-based analyses restrict themselves to situations where the agent has little or no power relative to the principal. This has led to calls for extending the theory to situations where the agent and the principal are symmetric partners and have balanced power distributions (Perrow 1986). Such a situation characterizes seller-buyer interactions during NPD collaboration. In such cases, it is reasonable to assume that either the principal or the agent may initiate actions to resolve the problems of hidden information and hidden action. To sum, we extend agency theory to collaborative NPD relationships where symmetrical power sharing leads to proactive problem resolution by either the principal or the agent in the relationship.

Like agency theory, TCA has been employed to examine a variety of marketing phenomena including industrial purchasing strategy, channel management, and foreign market entry. However, Rindfleisch and Heide (1997) noted that TCA has been underutilized by marketers and recommended that a wider range of marketing phenomena should be studied via the lens of TCA. Therefore, this study integrates TCA with agency theory to investigate joint NPD relationships in technologybased, industrial settings. This synthesis of TCA and agency theory is consistent with Bergen, Dutta, and Walker's (1992, p. 8) recommendation that since "...TCA and agency theory are concerned with similar issues and appear to be moving toward even more common conceptual ground, blending constructs and propositions from the two theories may further improve our understanding of marketing phenomena."

Managerial Implications

Our findings also have useful implications for new product managers in technology-based, industrial markets. The basic finding of our study is that sellers co-develop new products with potential buyers under certain antecedent conditions. Specifically, the extent to which sellers engage in such relationships is a function of perceived buyer knowledge and extent of prior interactions with the buyer. In addition, the development of customized products enhances the extent of product co-development. These results suggest that sellers consider both the buyer's ability, signified by perceived buyer knowledge, and motivation, discerned from an extensive prior relationship history, before engaging in product codevelopment. With respect to product customization, the idiosyncratic investments required to acquire a thorough understanding of a buyer's operating environment presents sellers with safeguarding problems. Co- development relationships are an appropriate solution under these circumstances. Finally, our study suggests that codevelopment relationships lead to seller satisfaction only when such interactions involve knowledgeable buyers. Therefore, sellers should screen for buyer's capability to contribute to the relationship to obtain satisfactory outcomes.

Limitations and Directions for Future Research

The results and implications of this research must be tempered by several methodological and conceptual limitations that should be addressed by future research. The first methodological limitation is that we only considered sellers' perceptions of the relationship. However, perceptions can vary across the dyad (John and Reve 1982). Future research should focus on simultaneously measuring sellers' as well as buyers' perceptions of the relationship to determine whether and why perceptual differences exist. A second limitation with respect to methodology concerns our measure of the new product co- development relationship. Specifically, our measure does not incorporate the extent of buyer involvement in the co-development effort; hence it may not distinguish between two sellers who engaged in a similar degree of codevelopment yet had different levels of buyer involvement in the relationship. In addition, it does not capture variations in intensity in the degree of new product co- development between various types of buyer/seller co-development relationships. Future research could consider a higher order construct that addresses these limitations. Finally, our respondent selection methodology did not incorporate appropriate screening procedures to ensure that respondent firms were involved in major product development projects. Such screening would help restrict our study to NPD ventures that warrant product co-development relationships.

From a conceptual standpoint, our emphasis on new product co- development is limiting. Rather, a focus on new product collaboration appears justified by the greater richness of this construct. For example, Aram and Morgan (1976) define collaboration as the presence of mutual influence between parties, open and direct communication between them, and mutual support for innovation and experimentation. Similarly, Pinto, Pinto, and Prescott (1993) regard collaboration as the degree, extent, and nature of relationships between two parties. Both conceptualizations promise a more detailed snapshot of seller-buyer interactions during NPD than our present conceptualization of co-development relationships.

Further, the variables in our model are by no means exhaustive. For example, we do not consider how TCA variables like transaction specific assets or relationship marketing variables like trust and credibility influence the nature of seller-buyer co-development relationships. In particular, given the low amount of variance in satisfaction explained by our current conceptual model, explicitly including these variables in future models would be a useful extension of our conceptual framework.

Finally, this study only focused on seller-buyer relationships during product development. There is evidence that in technology- based, industrial markets sellers and buyer engage in relationships during the entire commercialization process i.e., during NPD, installation, and post-installation (Meyers, Sivakumar and Nakata 1999). Investigating the nature and consequences of such interactions would be a useful extension of our study.

1 This quote is drawn from one of the pilot study interviews.

2 These informants were selected because both our pilot study and pretest revealed that middle-level marketing managers were knowledgeable about and often responsible for managing their firm's product development relationships with buyers. As a precaution, however, the questionnaire instructed respondents who lacked knowledge about the focal relationship to pass the questionnaire along to someone who was knowledgeable. Posthoc evaluation of informant quality was performed (John and Reve 1982). Using seven- point semantic differential scales, respondents self-reported their knowledge of (1=Not very knowledgeable, 7=Very knowledgeable) and involvement (1=Slightly involved, 7=Highly involved) in the focal relationship. The final sample showed that the mean knowledge and involvement scores were 5.37 (s.d. = 1.76) and 5.99 (s.d. = 1.17) respectively which provides confidence about the informants' quality.

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Gerard A. Athaide

Loyola College in Maryland

Rodney L. Stump

Morgan State University

Ashwin W. Joshi

York University

AUTHOR BIOGRAPHY

Gerard A. Athaide (Ph.D., Syracuse University) is as\sociate professor of marketing in the Joseph A. Sellinger, S. J., School of Business and Management at Loyola College in Maryland. His research interests focus on new product development, innovation management (with an emphasis on the commercialization of technology-based innovations), and international marketing. he has published several articles on these topics in The Journal of Product Innovation Management, the Journal of Global Marketing and Proceedings of the American Marketing Association, the Academy of Marketing Science, and the Product Development and Management Association.

AUTHOR BIOGRAPHY

Rodney L. Stump (Ph.D., case Western Reserve University) teaches and conducts research in inter-organizational relationships, channels of distribution, business-to-business marketing, organizational purchasing, and marketing strategy. he presently is an Associate Professor of Marketing at Morgan State University in Baltimore, MD. His work has been published in numerous journals, including Journal of Marketing Research, Journal of Business Research, Journal of the Academy of Marketing Science, Industrial Marketing Management, Journal of Business-to-Business Marketing and The Journal of Product Innovation and Management, and in a variety of national and international conference proceedings. Prior to joining academia, Dr. Stump was an officer of a commercial bank with responsibilities in retail marketing, research and development, accounting, and branch management.

AUTHOR BIOGRAPHY

Ashwin W. Joshi (Ph.D., Queens University) is associate professor of marketing at the Schulich School of Business, York University, Toronto, Canada. His research interests are in the areas of relationship marketing and new product development. he has published in the Journal of the Academy of Marketing Science, Journal of Business Research, Psychology and Marketing, among other journals. His work has also appeared in the Proceedings of the American Marketing Association.

APPENDIX CONSTRUCT MEASURES AND RELIABILITIES

APPENDIX

Copyright Association of Marketing Theory and Practice Summer 2003

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