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TRANSCRIPT
Christian Homburg, Halina Wilczek, & Alexander Hahn
Looking Beyond the Horizon: How to Approach the Customers’ Customers
in Business-to-Business MarketsSuppliers in business-to-business (B2B) markets often approach their customers’ customers with marketing activities. However, marketing research lacks an integrative conceptualization of this phenomenon. The authors address this void by conceptualizing a B2B supplier’s marketing approaches to indirect customers. Drawing on a literature review and a qualitative empirical study, the authors identify three indirect customer marketing approaches: direct customer downstream support, cooperative indirect customer marketing, and independent indirect customer marketing. They also propose external (value chain-related) and internal (B2B supplier-related) moderators that influence the relationship between a B2B supplier’s marketing approaches to indirect customers and its financial performance. The authors argue that although power constellations and product value contribution in the value chain determine the specific indirect customer marketing approach that will lead to financial success, internal professionalization of a B2B supplier’s organizational structure and processes further strengthens the positive financial impact of each approach.
Keywords: customers’ customers, indirect customer marketing, derived demand, business-to-business marketing, qualitative research
Many business-to-business (B2B) suppliers actively manage relationships with not only their direct customers but also those customers’ customers
(Dahlquist and Griffith 2014). Such a strategy provides B2B suppliers with valuable information on downstream market characteristics, creates product preferences among indirect customers, and ultimately aims at stimulating derived demand (Webster 2000). Network equipment supplier Cisco, for example, delivers its systems to service providers but also approaches the service providers’ customers to learn about their requirements. Similarly, B2B companies across a broad range of industries and market stages approach their customers’ customers with various marketing activities. Figure 1 shows illustrative examples.
Despite the high relevance of indirect customers for B2B suppliers, research insights into this domain remain scarce and mainly business-to-consumer (B2C) oriented. Although isolated studies on market orientation, ingredient branding, and push-pull marketing have acknowledged the importance of considering subsequent market stages beyond the direct customers, no conceptualization has combined the different perspectives and enriched that combina-
Christian Homburg is Professor of Marketing, Chair of the Marketing Department, and Director of the Institute for Market-Oriented Management, University of Mannheim, as well as Professorial Fellow, Department of Management and Marketing, University of Melbourne (e-mail: homburg@ bwl.uni-mannheim.de). Halina Wilczek is a doctoral student, Marketing Department, University of Mannheim (e-mail: halina.wilczek@bwl. uni-mannheim.de). Alexander Hahn is Project Manager, HYVE AG (e- mail: [email protected]). Inge Geyskens served as area editor for this article.
tion with evidence from B2B markets (see Table 1). Most recently, research has called attention to the need for an integrated conceptual framework for this underresearched topic (Grewal and Lilien 2012). We address this research gap and provide three contributions to previous research.
First, this study provides a synthesis of the various indirect customer marketing activities proposed in the literature and complements them with findings from a qualitative field study with 30 B2B suppliers to develop a parsimonious but comprehensive conceptualization of indirect customer marketing in B2B markets. Specifically, we assign single activities to three overarching approaches: direct customer downstream support, cooperative indirect customer marketing, and independent indirect customer marketing. Moreover, we demonstrate that these approaches represent different levels of how intensively B2B suppliers rely on their indirect customers versus their direct customers. From a managerial standpoint, the framework is broadly applicable to a range of B2B situations and provides guidance to B2B suppliers on options for incorporating the derivative nature of their demand into their marketing strategies.
Second, this research adds to the understanding of the external value chain conditions under which the three approaches enhance a B2B supplier’s success. From a B2B supplier’s standpoint, it is important to know these conditions because misallocation of resources to the respective approaches may hurt performance through nonrealized downstream value capture as well as through conflicts with direct and indirect customers. Existing research has emphasized that successful marketing to indirect customers requires some observable product value for indirect cus-
© 2014, American Marketing Association ISSN: 0022-2429 (print), 1547-7185 (electronic) 58
Journal of Marketing Vol. 78 (September 2014), 58-77
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tomers as well as the absence of powerful direct customers’ resistance to the strategy (Hillebrand and Biemans 2011). We build on these findings and enrich them with insights from a qualitative field study to conceptualize product value for direct and indirect customers as well as power constellations among the B2B supplier, direct customers, and indirect customers as major conditions for successful indirect customer marketing approaches. In contrast with prior research, this fine-grained conceptualization of product value and power allows for more nuanced propositions about when to apply each specific approach: direct customer downstream support, cooperative indirect customer marketing, or independent indirect customer marketing.
Third, we extend previous knowledge by identifying managerially relevant measures that a B2B supplier can apply to strengthen the success of its indirect customer marketing. An important focus of prior literature is on measures that pertain to the B2B supplier-direct customer relationship, such as collaborative communication and specific investments to enhance supplier performance (Ghosh and John 2009; Joshi 2009). We focus on another important but underresearched domain in which a B2B supplier may take action to leverage its downstream success. Specifically, we propose that a B2B supplier’s structure- and process-related internal measures—such as allocation and cross-linking of vertical responsibility, network relationship management, and network performance measurement—provide the B2B supplier with a more profound understanding of downstream markets. This understanding greatly fosters the financial success of marketing approaches to indirect customers (Hillebrand and Biemans 2011).
MethodologyWe draw on a combination of literature analysis and a qualitative field study to develop a grounded model of B2B suppliers’ marketing approaches to indirect customers (Eisenhardt 1989; Pratt 2008; Strauss and Corbin 1998). Figure 2 provides an overview of the research process. In the next section, we focus on the description of the qualitative field study.
Data CollectionIn-depth interviews. In selecting interviewees, we relied
on a theoretical sampling procedure to identify managers across various functions and hierarchy levels from different industries (see Table 2). Overall, the sample consisted of key decision makers from 30 German B2B suppliers, a configuration consistent with the sample sizes recommended for exploratory research (McCracken 1988). The interviewees were directly involved in the planning, design, and execution of the suppliers’ marketing programs and therefore had significant knowledge of indirect customer marketing.
In developing the sample, we attempted to maximize diversity among the participants so that we could uncover marketing approaches critical to indirect customer marketing and determine outcomes and moderators applicable to multiple B2B situations. For example, B2B suppliers’ backgrounds varied in terms of experience with marketing to indirect customers. Whereas some suppliers had just begun
to involve indirect customers in their marketing strategy, others had employed such approaches for several decades. Furthermore, we included B2B suppliers from different industries, market stages, and value chain structures in the sample. Specifically, we incorporated important B2B goods industries, such as the chemical, metal-processing, construction material, electronic devices, automotive supply, machines and equipment, and medical supply industries. However, to ensure a minimum degree of firm comparability, we decided to focus exclusively on physical goods during the research process.
We structured the interviews around the following questions: (1) “How would you describe your core business, market environment, and value chain characteristics?” (2) “What activities do you employ to address indirect customers?” and (3) “How do these activities affect your business?” Overall, we carefully phrased the questions to avoid “active listening” (McCracken 1988, p. 21). In addition, we gave managers the opportunity to address other aspects they considered important. This step provided additional insights into the importance of indirect customer marketing for B2B suppliers, which activities or effects they considered particularly relevant, and what challenges arose from marketing to indirect customers.
On average, interviews lasted 60 minutes. We audio- taped and transcribed the interviews except in six cases, in which the interviewees denied permission for recording. For those cases, we drew up written protocols during the interviewing process. In addition, all six interviewees provided us with supplementary material, such as drafts of the value chain structure and the marketing approach to indirect customers. This information also helped us reproduce the relevant aspects of the interview.
Archival data. We included various kinds of archival data in the investigation, which were either provided by study participants or found independently in the firms’ current website or company reports (see Table 2). Material provided by the interviewees consisted of detailed (internal) presentations, brochures, and other depictions that helped us understand their marketing approaches to indirect customers. These handouts supplied highly valuable information such as (1) value chain structure and characteristics of direct and indirect customers, including their power and influence relationships; (2) checklists on product and brand value for different market levels; (3) allocation of marketing and sales resources to direct versus indirect customers; (4) specific activities at the indirect customer level; and (5) change processes from direct to indirect customer marketing, and vice versa.
Data Analysis and Interpretation
Data from the different sources were coded according to grounded theory (i.e., open, axial, and selective coding) by means of the qualitative data analysis software Atlas .ti, which we used throughout the coding process. As a first step, two researchers independently undertook open coding, which is defined as the identification of concepts and their properties and dimensions in the data (Strauss and Corbin 1998). Through line-by-line analysis of the documents, the
Looking Beyond the Horizon / 61
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TABLE 2Sample Characteristics: Interviews and
Workshops
Number of Participants
Characteristic Interviews Workshops
IndustryChemical industry 9 1Construction industry 6 3Machines and equipment 6 2Automotive 2 1Medical supply 2 1IT/electronics 3 1Other 2 3
Value Chain Position(Raw) material supplier 14 5Component supplier 9 4End-product supplier 7 1Other — 2
FunctionMarketing and communication 12 3Sales 8 5Strategy 2 —Other 8 4
Job TitleCXOa 2 3Director, vice president 11 1Head of department 3 4Manager 14 4
Professionalization of Indirect Customer Marketing ApproachAdvanced state 23 9Implementation state 5 2Exploration state 2 1
Archival Material ProvidedValue chain (influence) depictions 30 12Firm-internal strategy presentations 13 1Product brochures/description 8 —Firm web publications 5 2
aCXO includes titles such as chief executive officer and chief marketing officer.
researchers identified relevant forms and activities, outcomes, and moderators of indirect customer marketing. On completion of the coding, the researchers compared the results, discussed differences in coding outcomes (e.g., wording, different interpretations of the same fragments), and integrated the results of the coding and subsequent discussion into one coding plan that displayed all relevant codes with definitions and illustrative quotes (Ulaga and Reinartz 2011). An independent researcher cross-checked the translation of quotes from German to English.
In the second step, we moved to axial coding, which refers to the process of relating categories to subcategories along their properties and dimensions (Strauss and Corbin 1998). Axial coding involves reassembling the fragmented data from open coding to contextualize the focal phenomenon and derive relational statements at a conceptual rather than descriptive level (Strauss and Corbin 1998). Specifically, we related the three marketing approaches to indirect customers to conditions under which they are successful. Finally, we conducted selective coding, defined as the inte
gration and refinement of the theory (Strauss and Corbin 1998). This step involved the integration of the marketing approaches to indirect customers, the major outcomes, and the moderators into an overall framework. The final framework encompasses constructs and propositions that hold across the different firms, industries, and value chain positions of B2B suppliers (see Appendices A, B, and C).
As outlined, we applied the principles of data and researcher triangulation to ensure the trustworthiness of the results. In addition, we (1) recontacted participants with reports of the research results and asked for feedback and (2) presented the research results in two independent manager workshops with five and seven participants from different industries. Participants were asked to provide written feedback regarding the ideas, and verbal protocols of the subsequent group discussions were prepared by an additional researcher during the session. Overall, participants exhibited strong agreement with the framework. Their main criticism involved unclear definitions and missing illustrations, which we subsequently redeveloped and refined. The workshops provided us with additional illustrative material for the framework.
Conceptualization of Three Approaches of B2B Supplier
Marketing to Indirect Customers and Their Financial Outcomes
We propose three approaches that a B2B supplier may follow to involve indirect customers in its marketing agenda: direct customer downstream support, cooperative indirect customer marketing, and independent indirect customer marketing (for illustrative quotes, see Appendix A). These approaches subsume different B2B supplier activities and reflect a varying intensity of B2B suppliers’ reliance on direct and indirect customers. We discuss how each approach is related to a B2B supplier’s financial performance in terms of the supplier’s profitability (Palmatier, Dant, and Grewal 2007). We chose this major outcome variable because it involves the concurrent consideration of how the marketing approaches to indirect customers affect a B2B supplier’s incomes and costs. Specifically, from a B2B supplier’s standpoint, it is important to know how potential additional costs of conducting the approaches can be justified through the additional value they create.
Direct Customer Downstream Support
Direct customer downstream support refers to a B2B supplier’s marketing activities aimed to its direct customers to support their performance further downstream in the value chain. This approach follows the push marketing principle proposed in the channel literature (e.g., Desai 2000). A B2B supplier engaging in this approach remains in the background rather than directly approaching its customers’ customers to promote its product. This approach often implies a thorough knowledge of indirect customer needs and requirements. For example, a supplier of industrial printers explained,
Looking Beyond the Horizon / 63
The buyers of our machines print packaging for the cosmetics, food, and pharmaceutical industry. The regulations for packaging are rather restrictive in those industries. We need to consider these regulations when developing our printers.
A B2B supplier may also actively train direct customers in the understanding and usage of its product. A manager from a B2B supplier in the construction industry stated,
We train the brick producers in understanding the qualities of the specific coating technology. That is, they should be able to outline vis-a-vis governmental infrastructure planners how the coating absorbs carbon dioxide from the air and thus reduces pollution.
With direct customer downstream support, a B2B supplier may be able to improve its financial performance by gaining greater clarity on the direct customers’ market environment and developing a better understanding of how it can support direct customers’ businesses with appropriate solutions and training (Joshi 2009; Narver and Slater 1990; Ulaga and Eggert 2006). Moreover, on the cost side, timely knowledge of downstream needs and regulations accelerates operational readiness and prevents major ex post adjustments of the B2B supplier’s product. However, the downside is that if indirect customers cannot identify this specific indirect supplier in the direct customers’ offerings, the supplier still remains replaceable with other (possibly cheaper) suppliers. A supplier from the electronic component industry explained,
Our competitors’ products cost about [x] euros per piece. They have high energy consumption at end-user stage [the indirect customers]. Our technology reduces energy consumption significantly but is many times more expensive.We had a hard time convincing our [direct] customers that they should apply our technology as this would lead to significantly lower operation costs for their customers.Our [direct] customers were skeptical that their customers would be willing to pay a price premium for this component. Often, we lost the deals to the cheaper competition.
Thus, even if B2B suppliers develop technologies that are highly valuable for their customers’ customers, direct customers often hesitate to pay price premiums for such products. To overcome these barriers, some B2B suppliers cast off their anonymity in the value chain and actively approach indirect customers to promote their products.
Cooperative Indirect Customer MarketingCooperative indirect customer marketing refers to joint marketing activities of a B2B supplier and its direct customers aimed at indirect customers, thus combining elements of push and pull marketing. A supplier engaging in this strategy steps out of the background and, together with the direct customers, introduces itself and its product or brand to indirect customers.
A prominent instrument in this context is ingredient branding, which refers to the promotion of a component brand to end users (Simonin and Ruth 1998). In addition, B2B suppliers and direct customers may engage in more interactive activities with indirect customers (for further
illustration, see Appendix A). For example, a supplier of electronic components said,
We participate in customers’ roadshows to promote our technology within our customers’ product. This provides us with the opportunity to personally meet end customers and explain our technology.
Cooperative indirect customer marketing enables a B2B supplier to leverage its financial performance by emerging from anonymity and creating indirect customer preferences. Together with the direct customers, the B2B supplier may realize brand spillover effects, a differentiated and customized downstream offering, and a price premium for both itself and its direct customers (Ghosh and John 2009). On the cost side, this approach allows for sharing of marketing costs with the direct customers. It also ensures technological compatibility between the B2B supplier’s and the direct customers’ downstream offerings, reducing the need for ex post adaptations. A B2B supplier from the chemical industry explained,
If you are not endowed with a large marketing budget, cooperation with direct customers is often a viable way to promote your product to indirect customers. For example, we jointly produce end-product prototypes to demonstrate how the combination of the technologies creates specific outcomes.
On the downside, such a cooperative approach requires coordination among the partners. In the words of a supplier of chemical materials,
We have employed both approaches [cooperative vs. independent indirect customer marketing] at the same time and observed that owing to coordination issues, it took 6 to 12 months longer to push an innovation into the market when we cooperated with direct customers. The innovation rate in our business is so high that we have to achieve market penetration as fast as possible. Thus, we had to give up engaging with direct customers when working with potential downstream adopters of our product.
Furthermore, the direct customers’ willingness to cooperate often ends when they anticipate significant switching costs related to a B2B supplier’s technology. As the supplier of chemical materials further detailed,
For the car manufacturers [the indirect customers], our material had important functions. Nevertheless, direct customers are reluctant to adopt the material as they have to adapt machines and gain knowledge of the material.
Therefore, convincing the direct customers of the advantages of cooperation is difficult in such a case. Some B2B suppliers reaching similar limits give up cooperative indirect customer marketing and independently approach indirect customers to promote their products.
Independent Indirect Customer MarketingIndependent indirect customer marketing refers to the B2B supplier’s independent marketing activities aimed to indirect customers without cooperation and coordination with direct customers. This approach follows the pull marketing principle proposed in the channel literature stream (e.g., Desai 2000). A B2B supplier engaging in this approach
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steps out of the shadow of the direct customers and introduces its products independently and directly to indirect customers.
For example, to educate indirect customers about their product, many B2B suppliers in our study promote their brand in trade journal advertisements, in product brochures, or through product samples. We also observed sophisticated activities aimed at indirect customers. A supplier of metals provides the following example:
We have introduced a key account management for large manufacturers of cars and electronic devices. Those manufacturers use machines that are produced of steel.We promote the durability of our steel in sales force visits, workshops, and roundtable meetings with those manufacturers. Our aim is that the manufacturers recommend that their machine suppliers use our material.
Independent indirect customer marketing has the potential to enhance the B2B supplier’s financial performance. Specifically, indirect customers may begin to explicitly demand the supplier’s product, manifesting a pull effect. Furthermore, innovative products for which direct customers sense a market pull from downstream will be accepted more easily, particularly if those direct customers have switching costs to the new products or the new products are associated with a price premium. A supplier of car systems explained,
If we were not able to provide the car manufacturers with results from lead user codevelopment that show that our systems exhibit end user acceptance, the car manufacturers would stop demanding the systems.
On the cost side, the independent approach avoids the cost of coordination with direct customers and allows for the acquisition of large indirect customers that influence the sourcing decisions of multiple B2B suppliers’ direct customers.
The downside of such an independent approach is the risk of direct customer conflict. Specifically, direct customers that are powerful market leaders may delist the B2B supplier if they perceive its independent activities aimed at indirect customers to be collusive. A producer of construction materials in the exploration phase for independent indirect customer marketing stated,
We plan to promote our product directly to building owners. At the moment, we do not know if we should do this together with the installers [the direct customers] or alone.On the one hand, we think that installers will be pleased about this support. On the other hand, we do not know how they will react if we ignore them.
Independent activities with indirect customers may also be ineffective if the indirect customers doubt that the product contributes sufficiently to their business. For example, Hillebrand and Biemans (2011) show that indirect customers need to be able to assess product value for their business. Otherwise, an upstream supplier will be less likely to engage with these market stages. In the words of a supplier of vehicle components,
The decision on our component remains with the vehicle manufacturers. The end customers are not interested in this component.
In summary, although each marketing approach to indirect customers has the potential to stimulate financial performance, each also comes with possible downsides that may dampen the positive financial outcomes. Therefore, we examine the value chain-related conditions under which the approaches lead to positive financial performance.
Moderating Role of External Value Chain Characteristics:
Conceptualization and Research Propositions
We focus on two major moderators of the relationship between the B2B supplier’s indirect customer marketing approaches and its financial performance: the B2B supplier’s product value contribution for direct and indirect customers and the power constellations in the value chain (see Figure 3). The B2B suppliers across different industries and value chain stages repeatedly emphasized both constructs in the interviews. Similarly, archival documents that provided information on the firm environment before approach implementation often contained “orientation maps” and charts displaying specific product value contributions and influence relationships along different value chain stages. Prior research has supported the finding that product value and power constellations represent major conditions for successfully approaching indirect customers (e.g., Dahlquist and Griffith 2014; Ghosh and John 2009; Venkatesh, Mahajan, and Muller 2000). With a fine-grained conceptualization of the constructs, we are able to derive propositions on when to apply each specific indirect customer marketing approach to enhance financial performance. Appendix B provides illustrative quotes for the constructs.
Product Value Contribution for Direct and Indirect Customers
Conceptualization. Product value refers to the benefit- cost ratio of a product in the eyes of the customer. This value-based perspective translates the differentiating product characteristics into the contribution that those characteristics provide for customer value. Value has multiple dimensions and may come either from benefits such as product quality, delivery performance, service support, or time to market or from improvements in direct, acquisition, or operation costs (Ulaga and Eggert 2006).
In this study, we distinguish high and low product value contribution for direct versus indirect customers and argue that the benefit-cost perception of the same product may vary significantly in the different steps of the value chain. For example, a supplier of technical components for machines explained,
We combine two approaches to market our product: We highlight the durability and low exposure to errors to users of final products [indirect customers]. For those users, downtimes in the final products are highly problematic and our product significantly contributes to the reduction of such downtimes. The producers of the final products [the direct customers], on the other hand, are interested in easy handling of our component and specific logistics advantages.
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Research propositions. We argue that a B2B supplier’s product may provide value differently at the direct and indirect customer levels, which influences the success of its marketing approaches. First, a product may develop its value potential mainly at the level of the direct customers. This is the case if the product displays specific benefits or cost advantages for direct customers but lacks such characteristics for indirect customers. In the field study, a producer of ingredients for coatings noted,
For the end customer, it doesn’t matter what ingredients a coating contains. End customers do not buy coatings because of specific ingredients. The characteristics of our ingredient together with the price are at the moment solely relevant for the coating producers.
In such a case, the product value contribution is highest for the direct customers, whereas the product is only minor for subsequent market stages. We observe that in such a case, a B2B supplier tends to adhere to direct customer downstream support to improve its financial performance and to perceive marketing to indirect customers as ineffective and inefficient. Specifically, direct customers for which a B2B supplier’s product provides major value (e.g., owing to reduced usage cost or enhanced features) may significantly benefit from additional supportive activities, such as product customization to downstream requirements, training, or prototype tests conducted by the B2B supplier. This assistance benefits a B2B supplier’s financial performance through the enhancement of its overall offerings and the establishment of long-term relationships with direct customers with a potential key supplier status (Ulaga and Eggert 2006). Thus,
Pia: Under conditions of high product value contribution for direct customers and low product value contribution for indirect customers, direct customer downstream support increases a B2B supplier’s financial performance.
Second, if a B2B supplier’s product provides value not only for direct customers but also for indirect customers, the B2B supplier may strive for cooperative indirect customer marketing to enhance its financial performance. In this case, extending the target groups of marketing activities to indirect customers expands the B2B supplier’s basis for preference creation and demand stimulation to all relevant value chain stages while sharing the cost of the activities with direct customers (Ghosh and John 2009). Thus,
P]b: Under conditions of high product value contribution for both direct and indirect customers, cooperative indirect customer marketing increases a B2B supplier’s financial performance.
Although in the latter case, the B2B supplier’s product constitutes an important value driver for direct and indirect customers, we observe that in some instances, B2B supplier products make their main value contribution to indirect customers while being rather interchangeable for direct customers. These constellations are often problematic if the direct customers act as gatekeepers for the product. In such a case, a strong pull from downstream is necessary to overcome these market barriers. This situation is similar to conditions in the B2C context, in which retailers (which often
face high failure rates for new consumer products) expect their suppliers to advertise new products heavily to ensure a pull (Desai 2000; Van Everdingen et al. 2011). For example, a supplier of engineering plastics explained,
Our product is highly relevant for car manufacturers as the use of plastics helps to reduce the weight of cars and, thus, fuel consumption. For the intermediate market stage, however, the adoption of the new materials implies conversion of machines from metal to plastics processing and the learning of new handling skills. While direct customers have those disadvantages on the cost side, the material does not provide them with specific advantages.
Thus, overall, we observe that for products that manifest their value potential mainly to indirect customers, B2B suppliers may employ independent indirect customer marketing to enhance their financial performance. Specifically, in this case activities aimed at direct customers require major efforts and resources to convince the direct customers of the benefits of product use. Therefore, indirect customers represent the more receptive target group. Thus, direct interaction with them tends to accelerate product acceptance in the value chain, increasing the supplier’s sales income while reducing the cost of marketing. Thus,
Plc: Under conditions of low product value contribution for direct customers and high product value contribution for indirect customers, independent indirect customer marketing increases a B2B supplier’s financial performance.
P o w er C o n ste lla tio n s in the Value C hain
Conceptualization. Power refers to the ability of one value chain member to control or influence the decision variables of an associated value chain member—that is, one firm’s potential to influence another firm’s beliefs, attitudes, and behavior (El-Ansary and Stem 1972; Frazier 1983). In this case, we compare the relative power in the value chain by examining which partner is able to exert a major influence on the choice of the B2B supplier’s product on another (adjacent) actor in the dyadic relationship. Specifically, we investigate the relative power of the B2B supplier and the direct customers and the relative power of direct and indirect customers. We focus on four specific constellations that the field study results showed to be particularly important: (1) the B2B supplier and the indirect customers are inferior to the direct customers (midstream locus of power); (2) the B2B supplier and the direct customers are partners of equal rank compared with more powerful indirect customers (downstream locus of power); (3) the direct customers are inferior to the B2B supplier and the indirect customers (up- and downstream locus of power); and (4) the B2B supplier faces powerful direct customers, which in turn face powerful indirect customers (mid- and downstream locus of power).
Research propositions. Depending on the power constellation in the value chain, a B2B supplier may enhance financial performance by choosing from among the three marketing approaches to indirect customers. First, we argue that when direct customers are more powerful than the B2B supplier and indirect customers (midstream locus of power), direct customer downstream support enhances the
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supplier’s financial performance. Under this condition, the supplier can effectively address direct customers to promote its product because they exert significant influence on the choice of the product in the value chain.
In addition, for a B2B supplier, power inferiority to direct customers creates a problematic market environment for establishing relationships with indirect customers. Powerful direct customers often represent market leaders or large-scale product buyers in concentrated markets, on which the B2B supplier’s business performance strongly depends (e.g., owing to image transfer or purchase quantities). Thus, B2B suppliers tend to refrain from irritating those customers with activities aimed to indirect customers. For example, a component supplier from the automotive industry noted,
Some of our [direct] customers are large and powerful carmanufacturers. They do not allow us to brand our productwithin the car. The main decider on this componentremains the car manufacturer.
This B2B supplier instead engages in a sophisticated product training program for the car manufacturers and thus focuses on direct customer downstream support to strengthen its relationship with those important direct customers and improve its own financial performance. Thus,
P2a: Under conditions of high power of direct customers relative to the B2B supplier and the indirect customers (midstream locus of power), direct customer downstream support increases a B2B supplier’s financial performance.
Second, we argue that for constellations in which the B2B supplier and the direct customers are partners with equal power facing powerful indirect customers (downstream locus of power), a cooperative form of indirect customer marketing is reasonable. Research on interfirm cooperation has shown that the balance of power between firms is an important success factor of cooperation (Bucklin and Sen- gupta 1993; Venkatesh, Mahajan, and Muller 2000). In such a balanced arrangement, gains are more likely to be mutual, and firms do not need to fear exploitation by a more powerful party (Palmatier, Dant, and Grewal 2007).
Moreover, in the case in which the B2B supplier and the direct customers are both inferior to the indirect customer, they may bundle their forces to improve their joint offering and thus enhance their position with respect to large and powerful indirect customers, such as end users or original equipment manufacturers (OEMs). Thus,
P2b: Under conditions of high power of indirect customers relative to equally powerful B2B supplier and direct customers (downstream locus of power), cooperative indirect customer marketing increases a B2B supplier’s financial performance.
Third, we argue that if the indirect customers are more powerful than the direct customers, independent marketing to the indirect customers is desirable. On the one hand, in a constellation with direct customers in an overall inferior market position (up- and downstream locus of power), B2B suppliers may directly interact with eye-level indirect customers to enforce their product use in the value chain. For
example, a large B2B supplier of chemical materials for cars stated,
We conduct innovation workshops with large car manufacturers [indirect customers] and bypass the intermediate market stage of small component suppliers until production starts.
On the other hand, an example from the machines and equipment industry illustrates how a small supplier of electronic components is forced to use independent indirect customer marketing in a constellation with powerful direct and indirect customers (mid- and downstream locus of power):
We address the machine users as they specify what characteristics the electronic components have to display in the end. They provide their direct suppliers with specification sheets where they demand components like ours....In the next step, the machine producers decide on which approved supplier they select from the specification sheets.
Thus, for markets with mid- and downstream power constellations, indirect customers tend to prescribe to their immediate suppliers (i.e., the B2B supplier’s direct customers) the use of specific materials, components, and final products from upstream. In those arrangements, it is effective and efficient (and often essential) for the B2B supplier to address those indirect customers to ensure that its direct customers will source its product. Thus,
P2c: Under conditions of high power of indirect customers relative to direct customers (up- and downstream or mid- and downstream locus of power), independent indirect customer marketing increases a B2B supplier’s financial performance.
In summary, we propose that the financial success of the three marketing approaches to indirect customers depends on whom a B2B supplier’s product provides value to and on which value chain members possess major power. In the next section, we illustrate how a B2B supplier can further leverage a positive financial contribution of its indirect customer marketing approaches by adapting its internal structure and processes.
Moderating Role of Internal B2B Supplier Characteristics:
Conceptualization and Research Propositions
In this section, we discuss internal factors of B2B suppliers that moderate the effect of all three marketing approaches to indirect customers on financial performance. We propose that all moderators strengthen the financial impact of the B2B supplier’s marketing approaches to indirect customers, regardless of whether the supplier employs direct customer downstream support, cooperative indirect customer marketing, or independent indirect customer marketing. Specifically, all three marketing approaches require some understanding of indirect customer markets. Accordingly, the moderators reflect a B2B supplier’s internal adaptations to include the indirect customers in the marketing strategy,
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which benefits all three approaches by generating the required knowledge. As Hillebrand and Biemans (2011) show, a thorough understanding of downstream markets is a major driver of successful marketing to indirect customers.
In particular, we focus on a coherent set of moderators that account for the degree to which the B2B supplier professionalizes its marketing approaches to indirect customers. In detail, we introduce B2B suppliers’ structure- related characteristics (allocation of vertical responsibility and cross-linking of vertical responsibility) and process- related characteristics (network relationship management and network performance measurement) that support the allocation of marketing resources in line with derived demand. Appendix C provides an overview of definitions and illustrations from the field study.
Allocation and Cross-Linking of Vertical Responsibility
Conceptualization. The allocation of vertical responsibility reflects the extent to which a B2B supplier implements resources such as departments, teams, or employees that are responsible for direct and indirect customers’ marketing activities. Although those entities need not focus exclusively on direct or indirect customers, both target groups must be sufficiently covered within the organizational responsibility. Because indirect customer marketing often does not generate immediate sales, employees may be reluctant to devote effort to indirect customers, especially if they are unfamiliar with those target groups. Furthermore, although employees may have creative ideas for stimulating demand through indirect customer marketing, their area of responsibility may restrict their ability to follow up such ideas. For both cases, an explicit definition of indirect customers as a target group and an allocation of responsible entities ensure the incorporation of the derivative nature of demand for B2B suppliers into the organizational setup.
A B2B supplier can cope with this challenge in various ways (see Appendix C). Some suppliers assign marketing and sales employees responsibility for both direct and indirect customers at the same time, with some organizing their marketing around different target industries. For example, in the chemical industry, products may flow into different downstream industries, such as automotive, construction, or food. A B2B supplier from the chemical industry employs a useful approach in this context:
We hire branch specialists with job experience from downstream that have profound knowledge about the requirements of the distant value chain stages and the application areas of our products.
In addition to ensuring the allocation of resources, the B2B supplier must ensure that different entities coordinate their activities aimed to direct and indirect customers. Thus, we introduce the cross-linking of vertical responsibility as a moderator, defined as the extent of coordination and communication between different entities (functional departments, teams, or employees) that are responsible for direct and indirect customers.
For example, a respondent from a B2B supplier of printing additives showed us its organization chart, which dis
played links between the marketing and technical department. Although the marketing department communicated with brand owners (i.e., indirect customers) and explained how the additive contributed to the attractiveness of the final product packaging, the technical department ensured the technical feasibility with the printers (i.e., the direct customers). As previously noted, the value proposition for different stages of the value chain may vary, and as the example shows, this variation may involve different entities being responsible for different value chain stages. Cross- linking of those entities ensures a holistic approach to the value chain.
In contrast with the cross-functional integration construct common in the literature, which involves facilitating communication among different functions in the firm (e.g., Gatignon and Xuereb 1997), the construct as proposed in this study refers to a broader context. Specifically, it may also involve cross-linking of employees and teams that reside within one function but have different responsibilities (direct vs. indirect customers). For example, a supplier from the crop protection industry explained,
The coordination of activities carried out by sales reps andfarmer advisers [at direct and indirect customers] is necessary. They all have one supervisor for one region.
Research proposition. We propose that explicit allocation and cross-linking of vertical responsibility strengthen the positive relationship between the B2B supplier’s indirect customer marketing approach and its financial performance. Specifically, for direct customer support, cross-linking ensures that responsible employees continuously scan the downstream markets for relevant developments and exchange their knowledge internally, enabling them to improve their support for the direct customers’ business. For cooperative indirect customer marketing, such an approach promotes identification of indirect target groups, evaluation of the current value strength at the indirect customer level, and identification of appropriate direct customers with which to cooperate. For an independent indirect customer marketing approach, the assignment of downstream market responsibility to employees provides a thorough understanding of how direct and indirect customers are related to one another, which power and influence relationships exist, and when a B2B supplier may approach indirect customers independently. Thus,
P3: (a) Allocation of vertical responsibility and (b) cross-linking of vertical responsibility strengthen a positive relationship between the B2B supplier’s indirect customer marketing approach (direct customer downstream support, cooperative indirect customer marketing, or independent indirect customer marketing) and its financial performance.
Network Relationship Management and Network Performance Measurement
Conceptualization. We propose that to manage the complexity of interrelationships between direct and indirect customers, B2B suppliers must shift from a customer relationship management system to a network relationship management system. As we have discussed, understanding this complexity is highly important to appropriate allocation
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of resources to the three approaches. We define network relationship management as the extent to which B2B suppliers use an advanced customer relationship management system that accounts for networks; depicts influence, decision, and power relationships among market players (e.g., direct and indirect customers); and enables segmentation along the value chain, if necessary, to the end customers. As we have noted, existing power relationships among the players of a value chain as well as the value proposition of the product for direct and indirect customers are important moderators of a B2B supplier’s marketing approach to indirect customers. Thus, a network relationship management system should include these aspects in the classic single (direct) customer information. For example, a supplier from the machines and equipment industry explained,
The inclusion of all relevant customer, end-user, and planner information enables a targeted marketing toward the market players.
In addition, shifting from conventional direct customer marketing to a more sophisticated marketing strategy that incorporates indirect customers imposes certain challenges on a B2B supplier’s performance measurement system. Specifically, marketing research and practice have called for the justification of investments through corresponding returns (Chenhall 2005; Hall 2008). Ideally, a supplier investing in direct and indirect customer marketing should be able to evaluate which outcomes were achieved by each marketing approach. A network performance measurement system refers to the extent of a marketing control of returns from marketing activities aimed at direct and indirect customers and interrelated effects of the activities (Homburg, Artz, and Wieseke 2012).
As the field study results imply (see Appendix C), some B2B suppliers may evaluate indirect customer key accounts for the sales increases they directly induced. Other suppliers are supported by their direct customers’ provision of feedback when indirect customers have placed orders after specific marketing actions. For market situations in which disentangling the effects of different marketing approaches is difficult, firms may regularly conduct surveys of indirect customers to evaluate their status and reveal potential problems at the indirect customer level. A supplier from the construction industry gave this example:
Together with a major market research institute, we monitor our brand status on a regular basis. This monitoring includes responses from our immediate customers as well as end customers.
Research proposition. Network customer relationship management and network performance measurement represent important advances in decision support systems in that they leverage the relationship between the B2B supplier’s indirect customer marketing approach and its financial performance. First, for direct customer downstream support, those systems display relevant information on the direct customer’s business, such as the product requirements of indirect customers and potential performance effects of previous marketing initiatives aimed to direct customers. The higher the knowledge quality of such systems, the
more favorably direct customers may view the B2B supplier’s explicit know-how, which subsequently reduces B2B supplier interchangeability (Ulaga and Eggert 2006). For cooperative indirect customer marketing, a B2B supplier may use a network performance measurement system to monitor the specific benefits and costs of cooperation to reveal the potential for improvements and detect disadvantageous cooperation relationships. For independent indirect customer marketing, such systems can, for example, provide the supplier with information on the risk and feasibility of independent actions aimed to indirect customers. Such information systems may also inform the supplier about new and unexpected areas of application for its product further downstream. Thus,
P4: (a) Network relationship management and (b) network performance measurement strengthen a positive relationship between the B2B supplier’s indirect customer marketing approach (direct customer downstream support, cooperative indirect customer marketing, or independent indirect customer marketing) and its financial performance.
DiscussionTheoretical ImplicationsThis research results in three major advancements of theory. First, it provides a comprehensive conceptualization of three B2B supplier marketing approaches to indirect customers: direct customer downstream support, cooperative indirect customer marketing, and independent indirect customer marketing. This conceptualization enriches previous research findings by moving from an isolated, activity- focused investigation of indirect customer marketing (e.g., advertising, ingredient branding) to a more comprehensive, strategic consideration of B2B suppliers’ approaches to indirect customers. It also encompasses relevant activities well beyond those from extant research and reflects suppliers’ motives behind the activities. The results provide marketing researchers with a comprehensive framework and vocabulary for referring to B2B suppliers’ activities aimed to indirect customers, as recently requested (Grewal and Lilien 2012).
Second, this investigation builds on and extends existing literature on value chain-related conditions of marketing approaches to indirect customers by proposing two major factors that affect the financial contribution of these approaches: (1) the product value contribution for direct customers and indirect customers and (2) existing power relationships among the B2B supplier, the direct customers, and the indirect customers. Specifically, we illustrate that a B2B supplier facing powerful indirect customers that extract major value from its product must allocate considerable marketing resources to these market players to become a (sub)supplier in the value chain. Nevertheless, even if the supplier’s product provides only minor value to indirect customers, direct customer downstream support (e.g., through downstream market research) is a viable way to improve both the relationship with direct customers and the B2B supplier’s performance. This finding qualifies prior research insights that the consideration of indirect customers
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is desirable only if a major product advantage for indirect customers is apparent (Hillebrand and Biemans 2011).
Third, this research provides an array of structure- and process-related mechanisms for internal professionalization of B2B suppliers’ indirect customer marketing approaches. Specifically, we argue that a B2B supplier needs to allocate and cross-link resources that are responsible for distant market players as well as immediate buyers of the product. Thus, this research adds to the understanding of how a B2B supplier needs to adapt its structural organization in the face of derived demand. Whereas previous B2C research has acknowledged the need to allocate resources to different value chain players—such as marketing resources to indirect customers and sales resources to direct customers (Webster 2000)—this study is the first to conceptualize this phenomenon more broadly and supplement it with the need to cross-link the single entities that are responsible for the different value chain stages. Furthermore, we show that the conventional setup of decision support systems, such as customer relationship management and performance measurement, fails to account for the complexity of downstream customer requirements and interrelationships. The conceptualization of network relationship management and network performance measurement, as provided in this research, represents a major refinement of these concepts that reflects how the B2B supplier must consider the downstream market within these systems.
Limitations and Future Research OpportunitiesAs with all empirical studies, this research has limitations that provide directions for further research. Specifically, we focus on the derivation of research propositions from a literature analysis and field data. We do not test the propositions but instead offer a research opportunity for quantitative studies in the field (e.g., survey research). In particular, the results provide future investigations with a foundation for developing measurement scales to test the (moderated) effects of the various indirect customer marketing approaches on the B2B supplier’s financial performance. We believe that quantitative empirical investigation of the approaches is important to evaluate their financial impact objectively and, thus, to assess their relevance relative to marketing approaches to direct customers. Such empirical evidence for return on investment of direct and indirect customer marketing may guide B2B suppliers in allocating marketing resources along the value chain. In addition, further longitudinal qualitative approaches could shed light on the professionalization of indirect customer marketing over time and reveal organizational and external barriers to implementation (e.g., Gebhardt, Carpenter, and Sherry 2006). Furthermore, we conducted the field study in the physical goods area. However, services display certain characteristics—such as perishability, intangibility, and variability of quality—that alter the creation of preferences at indirect customer levels. Thus, further research could investigate whether and how B2B suppliers can apply indirect customer marketing approaches to services. Finally, we conducted the study with German B2B suppliers. To account for differences across countries, further research could
investigate the phenomenon of indirect customer marketing in countries that display strong cultural differences.
Beyond the research directions derived from the limitations, this study creates several other research opportunities. We propose five areas of potential investigation with corresponding research questions, as Table 3 illustrates.
First, further research could investigate additional aspects that enhance or hinder the application and performance outcomes of indirect customer marketing. For example, B2B supplier characteristics, such as culture and leadership, may promote openness to indirect customer marketing approaches. Other questions pertain to relevant characteristics of direct and indirect customers. For example, knowhow and innovativeness of direct and indirect customers may affect allocation of marketing activities in the value chain.
Second, whereas this study takes the perspective of the B2B supplier, further research could investigate the topic from the perspective of direct or indirect customers. We particularly encourage research that explores (1) how B2B suppliers’ marketing approaches to indirect customers affect direct customers and (2) how cooperation with indirect suppliers affects outcomes at this market stage. Such results would provide valuable, unbiased insights into how a B2B supplier’s downstream marketing efforts have relational and financial effects on other market players. Empirical studies could apply dyadic or triadic approaches to match survey results from the relevant value chain stages and validate B2B suppliers’ perceptions of their strategy contribution further downstream.
Third, we suggest expanding this research to more complex value chain structures. Specifically, we recommend the addition of multiple indirect customer levels and assume that the B2B supplier’s product value tends to diminish further downstream. In addition, as we observed that market players outside the value chain, such as industry associations, affect buying decisions of direct and indirect customers, the question arises as to how the existence of such entities influences marketing resource allocation. Finally, research should investigate how direct selling to customers’ customers affects the B2B supplier’s conception of marketing strategy to those target groups.
Fourth, further research could build on this study to challenge classic theories relevant for marketing (Yadav 2010). For example, transaction cost economics proposes market governance, vertical integration, and hybrid forms (e.g., cooperation) as governance structures for transactions. We encourage conceptual research that examines how the indirect customer marketing phenomenon relates to those governance forms. We also propose applying network theory to the focal topic. Specifically, a B2B supplier’s establishment of relationships with indirect customers is comparable to the closure of structural holes within triads. In turn, this establishment affects previously “bridging” actors who are the direct customers in this context (Burt 1992). Finally, we believe that applying structural balance theory to the research phenomenon would offer insights into the contribution of indirect customer marketing to balanced and unbalanced states in the triadic relationship
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TABLE 3Examples of Research Questions
Domain_____Explore addi
tional factors affecting indirect customer marketing
Employ the joint perspective of direct and indirect customers
Allow for further complexity of the value chain structure
Compare with classic theories applied in marketing
Connect to disciplines outside marketing
______________________________Potential Research Questions_____________________•How do other B2B supplier characteristics affect the choice of an indirect customer marketing approach
(e.g., proactiveness, long- vs. short-term orientation, risk tolerance, creativity)?•What direct and indirect customer characteristics affect a B2B supplier’s indirect customer marketing
(e.g., marketing strength, product and market know-how, price sensitivity, innovativeness)?•How do market conditions influence indirect customer marketing (e.g., technological turbulence, demand uncertainty, competitive intensity, threat of vertical integration)? How do preestablished relational ties in downstream markets affect the B2B supplier’s marketing approach to indirect customers?
•How does a B2B supplier’s indirect customer marketing affect direct customers’ business (e.g., sales volume, profits)? How does it affect the relationship with direct customers (e.g., trust, commitment, satisfaction)? How does it affect the direct customers’ relationships with their customers?
•How does a B2B supplier’s indirect customer marketing contribute to indirect customers’ business (e.g., sales volume, profits)? How does it affect the relationship with indirect customers (e.g., trust, commitment, satisfaction)? How does it affect the indirect B2B customers’ relationships with downstream customers?
•How do the findings behave in value chains with several steps to the end customer?•Who are the relevant decision influencers in the value chain (e.g., industry associations, service
providers)?•How do hybrid relationships with indirect customers (i.e., direct and indirect supply relationships) affect the B2B supplier’s marketing approaches?
•How are the research results related to governance forms as proposed by transaction cost theory (market, hybrids, and vertical integration)?
• How does network theory relate to this research (e.g., structural holes)?•With regard to structural balance theory, how does indirect customer marketing add to balanced and
unbalanced states in the B2B supplier-ndirect customer-indirect customer triad?
•What types of systems applied in supply chain management account for customers’ customers (e.g., demand forecasting)? How can such information be applied to marketing? How can indirect customer marketing contribute to the solution of supply chain problems (e.g., bullwhip effect)?
•To which concepts in management research is this research related (e.g., business model innovation, blue versus red ocean strategies)?
between the B2B supplier and the direct customers, and indirect customers (Heider 1958).
Fifth, future studies could connect the findings with insights from other disciplines. For example, research on supply chain management indicates that suppliers further upstream often face difficulty in forecasting demand, as uncertainty of primary end customers’ demand increases further upstream (Lee, Padmanabhan, and Whang 1997). A B2B supplier may use information from indirect customer marketing approaches to reduce such uncertainty. Finally, the results of this research correspond with concepts in management research. Specifically, further research could investigate how indirect customer approaches contribute to the design and innovation of business models (Zott, Amit, and Massa 2011) and the development of blue ocean strategies that open new market opportunities for B2B suppliers (Kim and Mauborgne 2004).
Managerial ImplicationsDespite its conceptual nature, this study has implications for a B2B supplier’s marketing to indirect customers. Specifically, we provide a short step-by-step road map for a B2B supplier’s entry into indirect customer marketing.
First, a B2B supplier unfamiliar with indirect customers could apply specific measures to reduce uncertainty. As an example, to learn about indirect customers, the supplier could invest in internal resources, such as small teams of experts responsible for the observation of downstream markets. Such teams might assist top management, marketing, and sales in decisions on whether an expansion of the market strategy to indirect customers is desirable. In addition, a B2B supplier may learn from direct customers about downstream markets in the course of regular information exchange. More importantly, direct customers could also be considered potential door openers to personal interaction with downstream customers. For example, they could involve the B2B supplier in internal trade fairs or roundtable meetings with indirect customers. Finally, regular networking with players from relevant industries could provide the B2B supplier with additional insights into downstream conditions. For example, the B2B supplier might become a member of different industry associations covering players from multiple value chain stages.
Second, we illustrate that the continuous and systematic collection of customer data along the value chain is a complex (and, thus, costly) task for a B2B supplier. Some B2B suppliers dedicate entire departments to direct and indirect
72 / Journal of Marketing, September 2014
customer data collection and management. To deal with the complexity of downstream information with a limited set of resources, a careful stepwise completion of a network relationship management system for submarkets would be viable. Such a system should comprise information on the identity and the segment of relevant direct and indirect customers, their power and influence relationships, and specific product requirements with regard to the B2B supplier’s offering. Ideally, the technical system presenting these pieces of information should be able to produce graphs and maps reflecting how direct and indirect customers are related to one another. A B2B supplier from the qualitative study provided us with such a map depicting the role of players (e.g., decision maker, key user, expert), the direction of influence (uni- vs. bidirectional), and the valence of relationships (e.g., supporting, neutral, opposing).
Third, a B2B supplier should choose an appropriate design for its indirect customer marketing approaches. To be successful with direct customer downstream support, a supplier should be one step ahead of its direct customers when it comes to specific downstream knowledge. To identify areas of expertise that it may exclusively occupy, the supplier might create a market and product know-how profile of direct customers as well as competitors. Drawing on these insights, the supplier could then generate relevant
expertise and subsequently offer training, consulting, or product adjustments to direct customers.
Cooperative indirect customer marketing is a viable way to share the costs of sophisticated downstream marketing activities with direct customers. For example, the B2B supplier, the direct customers, and the indirect customers might engage in joint innovation workshops in which the B2B supplier can take advantage of the immediate contact to indirect customers to visualize the role of its product in the direct customer offering. Similarly, joint development of prototypes or test versions of new offerings could directly demonstrate the benefits and cost reduction potential of the B2B supplier’s and direct customers’ joint offering to indirect customers.
A major problem for a B2B supplier opting for the independent indirect customer marketing approach is the possibility of irritating and ultimately losing direct customers. Nevertheless, in some cases the benefit from opening new markets through independent indirect customer marketing may financially outweigh the loss of some direct customers, as we learned from the field study. We recommend that B2B suppliers carefully calculate according scenarios, supported by a network performance measurement system that displays the actual and potential financial contribution of direct and indirect customers.
Looking Beyond the Horizon / 73
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76 / Journal of Marketing, September 2014
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Looking Beyond the Horizon / 77
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