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