Elsevier

Industrial Marketing Management

Volume 68, January 2018, Pages 56-73
Industrial Marketing Management

Addressing a product management's orphan: How to externally implement product eliminations in a B2B setting

https://doi.org/10.1016/j.indmarman.2017.09.015Get rights and content

Highlights

  • Identification of key activities and approaches of customer-oriented PE implementation and performance outcomes

  • Use of a multiple-informant supplier sample and a customer validation sample

  • Depending on the availability of alternatives, customer-oriented PE implementation can pay off or become expensive for a supplier

  • PE compensation reduces overall PE performance while PE communication and PE support are mostly beneficial

  • PE participation is ambiguous to overall PE performance: besides retaining customer goodwill it reduces supplier cost-savings

Abstract

While product eliminations (PEs) may help suppliers reduce unprofitable products and the cost of increasingly complex portfolios, they often have deleterious consequences for customer–supplier relationships. This dilemma even increases as a supplier's attempt to mitigate deleterious consequences for customers through customer-oriented PE implementation may at the same time hinder optimal internal adjustments and related cost-saving potential, thus running counter to the actual purpose of PEs. This study investigates whether and how a supplier should act in the customer's interest to maximize gains from implementing PEs. We identify key approaches of customer-oriented PE implementation and performance outcomes. Using a multiple-informant supplier sample and a customer validation sample, we show that, depending on the availability of alternatives to customers and the type of PE implementation activity, customer-oriented PE implementation can either pay off considerably or be disadvantageous to a supplier. While PE compensation is always detrimental to overall PE performance, both PE communication and PE support are mostly beneficial. By contrast, PE participation is ambiguous to overall PE performance, as it generally helps retain customer goodwill but also decreases supplier cost-savings from PEs.

Introduction

For suppliers, product eliminations (PEs) represent a powerful tool not only to remove unprofitable products but also to reduce the complexity of their product portfolios. In doing so, suppliers can improve internal procedures and structures, thereby saving costs in various functional areas, such as production (e.g., for set-up and downtime) or marketing (e.g., for sales and communication activities) (Berry & Cooper, 1999; Ramdas, 2003). However, PEs may also have adverse consequences for affected customers, who may then experience disruptions in production procedures or costs for finding alternative products. Therefore, customers perceive PEs as being primarily in the supplier's interest, which may lead to lasting damage to business relationships (Harness & Marr, 2001; Van Hoek & Pegels, 2006). To preserve the business relationships with affected customers and ensure PE success, suppliers should focus on customer-oriented (i.e., external) PE implementation activities.

However, customer-oriented PE implementation activities to mitigate adverse consequences of customers can be quite costly for the supplier and impede necessary supplier-internal adjustments, thus countering the actual PE purpose to reduce costs. That is, supplier activities, such as involving customers in PE decisions or stocking replacement parts (Avlonitis, 1983b), require high financial investments. They can also delay adaptations to internal procedures in areas such as production or marketing, which diminishes cost savings from PEs and thus reduces a supplier's internal PE performance.

Thus, suppliers implementing PEs face a trade-off between mitigating adverse consequences for customers to maintain their goodwill (i.e., in terms of customer-oriented PE performance) and maximizing their own cost savings from PEs (i.e., in terms of internal PE performance). This supplier trade-off creates a “paradox of customer-oriented PE implementation,” such that customer-oriented PE implementation may be useful but also harmful for eliminating suppliers at the same time and thus either enhances or reduces a supplier's overall gains from PEs (i.e., its overall PE performance).

Despite the importance of PEs and their potential drawbacks, only little research has explored this topic. While scholars have devoted significant attention to the “other side of the coin”, i.e., the development of new products (Hauser, Tellis, & Griffin, 2006; Henard & Szymanski, 2001), they have almost completely ignored the removal of existing products. Exceptions have mostly focused on PE decision making, such as methods and criteria for detecting, evaluating, and selecting products for removal (e.g., Argouslidis & Baltas, 2007; Avlonitis, 1985a, Avlonitis, 1987, Avlonitis, 1993; Hamelman & Mazze, 1972).

Only a few studies address PE implementation (see Table 1). Most of them focus on internal PE implementation (Alexander, 1964; Argouslidis, 2004; Avlonitis, 1983a, Avlonitis, 1983b; Harness & Marr, 2001; Vyas, 1993) and examine which activities an eliminating supplier should carry out to adapt its internal procedures to maximize savings from PE. These activities could involve the provision of implementation plans or clear assignment of responsibilities to employees (Alexander, 1964; Argouslidis, 2004), adjustment of internal production procedures or catalogues (Avlonitis, 1983a, Avlonitis, 1983b; Vyas, 1993), or adaptation of internal IT systems (Harness & Marr, 2001). However, none of these studies explores how these internal implementation activities effectively influence suppliers' cost-savings from PEs as well as their overall economic performance resulting from PEs.

Moreover, prior research largely neglects customer-oriented (i.e., external) implementation issues of PEs and how they affect the overall success of PEs. The only exception in this regard is the study by Homburg, Fürst, and Prigge (2010), which focuses on the additional costs that PEs incur for PE-affected customers and finds that these customer costs can severely damage the supplier–customer relationship. The study also shows that customers' perceptions of supplier behavior during PEs can help mitigate how severely customers perceive their own PE-induced costs. However, the study does not consider how PE implementation activities affect an eliminating supplier's costs and thus overall gains from PEs, thus neglecting the supplier perspective of customer-oriented PE implementation.

Overall, the literature is silent on how suppliers can effectively carry out customer-oriented PE implementation and thus on how eliminating suppliers should deal with the trade-off between leveraging cost-saving potential from PEs and maintaining good business relationships with PE-affected customers. Thus, eliminating suppliers puzzle over the paradox of customer-oriented PE implementation and over which customer-oriented PE implementation eventually enhances or reduces their overall PE performance. Moreover, it is unclear how suppliers should design their customer-oriented PE implementation to solve or, at least, minimize this paradox and leverage overall PE performance.

Our study addresses this important gap in research. It especially explores how a supplier's customer-oriented PE implementation affects not only an eliminating supplier's external PE performance in terms of maintaining good relationships with customers but also its internal PE performance in terms of leveraging cost-saving potential from PEs. Focusing on a B2B context, in which potential relationship damages can be especially severe because suppliers typically rely on close relationships with only a few customers and eliminated products may be critical to the affected customers' manufacturing processes, our study makes three key contributions. First, our study systemizes supplier activities of customer-oriented PE implementation and their potential supplier performance consequences and integrates them into a coherent framework. Second, using a multi-informant sample of eliminating suppliers and a customer validation sample, it shows how customer-oriented PE implementation activities can help suppliers retain customer goodwill after PEs, while leveraging PEs' cost-saving potential for ultimately benefiting suppliers' overall gains from PEs. In particular, PE compensation always reduces a supplier's overall PE performance, while PE communication and PE support are generally favorable. In turn, the usefulness of PE participation is ambiguous and depends on the specific situation. Third, the study demonstrates how the importance of these activities varies with customers' specific PE situation (i.e., the availability of alternatives). Overall, the study informs the discipline that in the case of PEs, customer orientation is a double-edged sword and thus must be employed with caution and care.

Section snippets

Unit of analysis

Our study's unit of analysis is a supplier's PE behavior toward customers affected by PEs. A PE is a supplier's permanent removal of a product from its portfolio without replacing it with a new product.

Summary of the underlying theory

As PEs are associated with disruptive change, we base our framework on Change Management Theory (CMT) (Lewin, 1947; Zand & Sorensen, 1975). CMT posits that implementation barriers such as opposition or inability to change may cause external change stakeholders (i.e., customers purchasing and

Gaining acceptance of PEs

CMT suggests that allowing change stakeholders to influence change implementation makes them more open to change, thus advancing their acceptance and respective goodwill (Lines, 2004; Pasmore & Fagans, 1992). In the context of our study, all customers affected by PEs are potential resisters as they are all in danger of suffering from the change (i.e., from PEs). Therefore, allowing customers (i.e., potential resisters to PEs) to provide input into decision making may foster their impression

Data collection and sample

To test our hypotheses, we conducted a multiple informant study in a B2B context, acquiring an initial set of 1702 supplier firms in Germany from a commercial provider. We contacted these suppliers and asked whether they remove products on a regular basis. If this was the case, we tried to identify a high-level manager of each supplier who had been responsible for PE implementation. Subsequently, we sent a questionnaire to these managers (n = 1514) and began follow-up calls three weeks later. To

Model estimation procedure

To account for the latent variables in our model and the use of more than one dependent variable resulting in multi-stage relationships, we applied structural equation modeling (SEM) to test our hypotheses. As almost all variables are of a reflective nature and our sample size is sufficiently large, we employed a co-variance-based SEM approach by using Mplus (Muthén & Muthén, 2007). This approach also allows for estimating overall fit measures. We tested our hypotheses in three steps. In a

Research issues of customer-oriented PE implementation

This study advances theoretical understanding of the management of PEs, which has so far been largely neglected in the literature. It also allows for contrasting its findings with the other side of the “product management coin”, i.e., new product development (NPD), and thus develops some novel themes and ideas about product management and its role in the context of buyer–seller relationships.

Christian Homburg is Professor of Business Administration and Marketing and Chairman of the Department of Marketing at the University of Mannheim, Germany.

References (117)

  • M. Perry et al.

    Incumbents in a dynamic internet related services market: Does customer and competitive orientation hinder or help performance?

    Industrial Marketing Management

    (2005)
  • M.J. Sanzo et al.

    The effect of market orientation on buyer–seller relationship satisfaction

    Industrial Marketing Management

    (2003)
  • J. Saunders et al.

    Product replacement: strategies for simultaneous product deletion and launch

    Journal of Product Innovation Management

    (1994)
  • L.S. Aiken et al.

    Multiple regression: Testing and interpreting interactions

    (1991)
  • R.S. Alexander

    The death and burial of “sick” products

    Journal of Marketing

    (1964)
  • M. Al-Shahi

    How contextual factors shape organisational change implementation

    (2008)
  • P.C. Argouslidis et al.

    Structure in product line management: The role of formalization in service elimination decisions

    Journal of the Academy of Marketing Science

    (2007)
  • J.S. Armstrong et al.

    Estimating nonresponse bias in mail surveys

    Journal of Marketing Research

    (1977)
  • T.J. Arnold et al.

    The effects of customer acquisition and retention orientations on a firm's radical and incremental innovation performance

    Journal of the Academy of Marketing Science

    (2011)
  • G.J. Avlonitis

    Ethics and product elimination

    Management Decision

    (1983)
  • G.J. Avlonitis

    Product elimination decision making: Does formality matter?

    Journal of Marketing

    (1985)
  • G.J. Avlonitis

    Project dropstrat: What factors do managers consider in deciding whether to drop a product?

    European Journal of Marketing

    (1993)
  • R.P. Bagozzi et al.

    On the evaluation of structural equation models

    Journal of the Academy of Marketing Science

    (1988)
  • D.L. Bandalos

    The effects of item parceling on goodness-of-fit and parameter estimate bias in structural equation modeling

    Structural Equation Modeling

    (2002)
  • J. Battilana et al.

    Overcoming resistance to organizational change: Strong ties and affective cooptation

    Management Science

    (2013)
  • P.M. Bentler et al.

    Significance tests and goodness of fit in the analysis of covariance structures

    Psychological Bulletin

    (1980)
  • V. Blazevic et al.

    Managing innovation through customer coproduced knowledge in electronic services

    Journal of the Academy of Marketing Science

    (2008)
  • R.D. Brown et al.

    Interrater agreement reconsidered: An alternative to the rWG indices

    Organizational Research Methods

    (2005)
  • J.M. Bryson et al.

    Critical factors affecting the planning and implementation of major projects

    Strategic Management Journal

    (1993)
  • M.J. Burke et al.

    Estimating interrater agreement with the average deviation index: A user's guide

    Organizational Research Methods

    (2002)
  • J.P. Cannon et al.

    Buyer-seller relationships in business markets

    Journal of Marketing Research

    (1999)
  • J.P. Cannon et al.

    Buyer-supplier relationships and customer firm costs

    Journal of Marketing

    (2001)
  • N. Capon et al.

    Determinants of financial performance: A meta-analysis

    Management Science

    (1990)
  • P. Carbonell et al.

    Customer involvement in new service development

    Journal of Product Innovation Management

    (2009)
  • K.S. Celly et al.

    Outcome-based and behavior-based coordination efforts in channel relationships

    Journal of Marketing Research

    (1996)
  • C.M. Christensen et al.

    Customer power, strategic investment, and the failure of leading firms

    Strategic Management Journal

    (1996)
  • J. Cohen et al.

    Applied multiple regression/correlation analysis for the behavioral sciences

    (2003)
  • J.A. Colletti et al.

    Change management initiatives: Moving sales organizations from obsolescence to high performance

    Journal of Personal Selling and Sales Management

    (1997)
  • R. Colombo

    A model for diagnosing and reducing nonresponse bias

    Journal of Advertising Research

    (2000)
  • D.E. Conlon et al.

    Customer perceptions of corporate response to product complaints: The role of explanations

    Academy of Management Journal

    (1996)
  • J.M. Cortina et al.

    Testing interaction effects in LISREL

    Organizational Research Methods

    (2001)
  • C.B. Dobni et al.

    Determining the scope and impact of market orientation profiles on strategy implementation and performance

    Strategic Management Journal

    (2003)
  • P.M. Doney et al.

    An examination of the nature of trust in buyer-seller relationships

    Journal of Marketing

    (1997)
  • J.R. Edwards

    Multidimensional constructs in organizational behavior research: An integrative analytical framework

    Organizational Research Methods

    (2001)
  • E. Fang et al.

    Influence of customer participation on creating and sharing of new product value

    Journal of the Academy of Marketing Science

    (2008)
  • L. Festinger

    A theory of cognitive dissonance

    (1957)
  • J.D. Ford et al.

    The role of conversations in producing intentional change in organizations

    Academy of Management Review

    (1995)
  • C. Fornell

    A national customer satisfaction barometer: The Swedish experience

    Journal of Marketing

    (1992)
  • C. Fornell et al.

    Evaluating structural equation models with unobservable variables and measurement error

    Journal of Marketing Research

    (1981)
  • C. Fornell et al.

    Defensive marketing strategy by customer complaint management: A theoretical analysis

    Journal of Marketing Research

    (1987)
  • Cited by (7)

    • Multimarket competition effects on product line decisions – A multi-objective decision model in fast moving consumer goods industry

      2021, Journal of Business Research
      Citation Excerpt :

      Moreover, during different periods within a sales cycle, the marketers also face a diverse range of objectives related to price, advertising spends, channel profitability, revenue targets, and sales overheads, among others. However, given the lack of appropriate decision-making support systems for the marketers, pruning product line decisions (sometimes called eliminations, see Prigge, Homburg, & Fürst, 2018) or continuation is often ad hoc and suboptimal. Nevertheless, in the context of multimarket competition, product line decisions do need to factor in multiple decision objectives simultaneously while focusing on inter-firm and intra-firm, as well as multimarket dynamics (Sarangi, 2017).

    • Sharing is the name of the game: Exploring the role of social media communication practices on B2B customer relationships in the life sciences industry

      2021, Industrial Marketing Management
      Citation Excerpt :

      Building on Jarvis, MacKenzie, and Podsakoff (2003), the proposed conceptual model incorporates five reflectively measured constructs, which represent perceptions and attitudes of individuals towards SM practices. Reflective measures are typically interchangeable and induce perceptual manifestations or ‘reflection’ of each underlying construct (see Diamantopoulos & Siguaw, 2006; Prigge, Homburg, & Fürst, 2018) in contrast to formative measures that ‘form’ or ‘build’ the construct (see Diamantopoulos & Winklhofer, 2001; Menguc & Auh, 2008). Consistent with our conceptualisation, the measure of vendor-to-customer SM communication was adapted from Theron et al. (2008) and Harris and Goode (2004).

    • Service Lifecycle Management in Complex Product-Service Systems

      2023, IFIP Advances in Information and Communication Technology
    View all citing articles on Scopus

    Christian Homburg is Professor of Business Administration and Marketing and Chairman of the Department of Marketing at the University of Mannheim, Germany.

    Jana-Kristin Prigge is Assistant Professor of Marketing at the University of Mannheim, Germany.

    Andreas Fürst is Professor of Business Administration and Marketing at the Friedrich-Alexander University Erlangen-Nuremberg (FAU), Germany, and Professorial Fellow of the Business School at the University of Eastern Finland (UEF), Finland.

    View full text