MARKETING
William L. Ford Professor of Marketing and Wholesale Distribution
Professor Anderson teaches the graduate-level course in business marketing. He is a faculty member of the Executive Master’s Program and teaches in a number of executive development programs at the Kellogg School. He is the program director of the Business Marketing Strategy executive program. He has consulted and provided seminars for a number of companies in North America, South America, Europe, Asia, and Australia, such as American Express, ARCADIS, bioMérieux, Orkla, ExxonMobil, FEMSA Empaque, GE, International Paper, Johnson & Johnson, 3M, Microsoft, and PPG Industries. He is Principal of James C. Anderson LLC, an international management consulting firm focusing on implementing customer value management at client firms.
Professor Anderson’s research interests are in constructing persuasive value propositions in business markets, and measurement approaches for demonstrating and documenting the value of market offerings. He has written more than 40 journal articles, including five published in Harvard Business Review. He has been named a Highly Cited Researcher by the Institute for Scientific Information (ISI), a recognition given to the upper one-half of one percent of the more than 5 million researchers indexed in the ISI database. His management practice book, Value Merchants: Demonstrating and Documenting Superior Value in Business Markets, was published in November, 2007 by Harvard Business School Press. He also has co-authored the book, Business Market Management: Understanding, Creating and Delivering Value, which was published in its third edition in June, 2008 by Pearson Prentice Hall. He is a member of the editorial boards of the Journal of Business-to-Business Marketing and Journal of Strategic Marketing, and has served on the editorial boards of the Journal of Applied Psychology and Journal of Marketing Research. He is a Fellow of the American Psychological Association.
Professor Anderson is the Irwin Gross Distinguished ISBM Research Fellow at the Institute for the Study of Business Markets and is a member of its advisory board. He also is a visiting research professor at the School of Business, Public Administration, and Technology, University of Twente, The Netherlands. He has been a visiting research professor at Eindhoven University of Technology, the Netherlands, and at Uppsala University and Stockholm School of Economics, Sweden. He also has been vice president of the business marketing division of the American Marketing Association (AMA) and a member of the board of directors of the AMA.
Professor Anderson came to Kellogg after three years as a member of the marketing faculty of the University of Texas at Austin. Prior to that, from 1978 to 1981, he worked as a senior research psychologist in the corporate marketing research division of E.I. duPont de Nemours and Company, Inc. He earned his Ph.D. in Psychology from Michigan State University in 1978.
Distribution Channels
Marketing Strategy/Planning/Policy
Measurement Techniques
- Recent Media Coverage
The Mint (Dow Jones publication in India): ‘Value merchants’ and cost-cutting - 11/5/2007
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To get a fair return on the superior value that their offerings deliver to customers, progressive B-to-B companies transform their sales forces from value spendthrifts into value merchants. These companies foster value merchants in more ways than simply compensating salespeople on profitability. As a result, their salespeople become value merchants, making business with customers more profitable by finding value drains and value leaks--rather than by seeking price cuts to retain or gain business.
This study investigates the adoption of total cost of ownership (TCO) analysis to improve sourcing decisions. TCO can be seen as an application of activity based costing (ABC) that quantifies the costs that are involved in acquiring and using purchased goods or services. TCO supports purchasing decision-makers in focusing on total value received and not simply price, and it extends ABC concepts and tools to an inter-organizational context. Based on ABC-adoption literature and focus-group discussions with senior purchasing executives, a model is developed to explain relationships among eight constructs hypothesized to explain TCO adoption: competitive pressure in customer markets, strategic purchasing orientation, top management support, functional management commitment, value analysis experience, adequacy of TCO information, success of TCO initiatives, and use of TCO-based review and reward systems. We test this model using multi-sample structural equation modeling on survey data collected from purchasing managers and plant maintenance managers. We find support for most of our hypotheses and, further, that the posited relationships are largely invariant across purchasing manager and plant maintenance manager perspectives.
How do you define the value of your market offering? Can you measure it? Few suppliers in business markets are able to answer those questions, and yet the ability to pinpoint the value of a product or service for one's customers has never been more important. By creating and using what the authors call customer value models, suppliers are able to figure out exactly what their offerings are worth to customers. Field value assessments--the most commonly used method for building customer value models--call for suppliers to gather data about their customers firsthand whenever possible. Through these assessments, a supplier can build a value model for an individual customer or for a market segment, drawing on data gathered form several customers in that segment. Suppliers can use customer value models to create competitive advantage in several ways. First, they can capitalize on the inevitable variation in customers' requirements by providing flexible market offerings. Second, they can use value models to demonstrate how a new product or service they are offering will provide greater value. Third, they can use their knowledge of how their market offerings specifically deliver value to craft persuasive value propositions. And fourth, they can use value models to provide evidence to customers of their accomplishments. Doing business based on value delivered gives companies the means to get an equitable return for their efforts. Once suppliers truly understand value, they will be able to realize the benefits of measuring and monitoring it for their customers.
No matter how much inventory a wholesaler carries, when a customer places a rush order, the essential item is often out of stock. No matter how many services a dealer provides, what a customer needs is often one that the dealer has never supplied. And no matter how hard a distributor tries to beef up its capabilities, when a customer has an emergency, the distributor often lacks the skills to respond. A number of companies are experimenting with ways to make their distribution channels more flexible and responsive. They have realized that by sharing resources in novel ways, they can take advantage of opportunities that they could not exploit alone. Business dynamics and emerging technologies make this new approach both essential and feasible. Tough competition is forcing managers to view their distribution channels as an untapped opportunity. The prevalence of strategic alliances has made managers more willing to explore new ways of working together. And developments in shared information systems and integrated logistics systems make such cooperative efforts more practicable. The potential benefits of such partnerships are enormous. As redundant pools of inventory and duplicate service operations are pared back, costs fall. Less business is lost because of stockouts and the inability to respond to emergencies. Moreover, participants capitalize on new business opportunities because they can offer a broader selection of products and services than they could on their own. They can also heighten customer satisfaction by augmenting their own capabilities with those of more proficient partners.
Virtually all managers are aware that the key to winning in market after market today is tailoring one's offerings to the needs of each customer while maintaining low costs and prices. But most manufacturers have focused only on the products themselves, largely ignoring another element that differentiates a company's offerings and has a huge impact on costs and profits: services. Instead of tailoring their packages of services to customers' individual needs, many suppliers simply add layers of services to their offerings. The authors have found that suppliers usually give customers more services than they want at prices that reflect neither their value to customers nor the cost of providing them. Many companies don't know which services customers with similar needs really want, nor do they understand which services should be part of a standard package and which can be offered as options. Most companies don't even know the cost of providing many of their services. And all too many let salespeople give away services to land a deal, even it those freebies reduce profitability. But some companies are realizing that they can lower the cost of providing services and use them more effectively to meet customers' needs, gain more business, and enhance profits. From the authors' study of the best practices of those companies, they have developed a model for providing flexible service offerings, which they believe will help a wide range of manufacturing and service companies figure out how to reduce the number and cost of services they use to augment their core products, how to charge more for those services on average, and how to provide greater value to customers.
In business-to-business settings, dyadic relationships between firms are of paramount interest. Recent developments in business practice strongly suggest that to understand these business relationships, greater attention must be directed to the embedded context within which dyadic business relationships lake place. The authors provide a means for understanding the connectedness of these relationships. They then conduct a substantive validity assessment to furnish some empirical support that the constructs they propose are sufficiently well delineated and to generate some suggested measures for them. They conclude with a prospectus for research on business relationships within business networks.
In this article, we examine the use of the key informant methodology by researchers investigating interorganizational relationships. Authors have advocated the use of multiple informants to increase the reliability and validity of informant reports. However, interorganizational research still tends to rely on single informants. We investigated informant selection and obtaining perceptual agreement among multiple informants, two problems that may have inhibited widespread use of multiple informants. We suggest procedures for dealing with those problems and provide an illustrative application of our proposals.
Fornell and Yi (1992 [this issue]) have discussed four assumptions that they contend underlie two-step approaches to structural equation modeling. Each of these assumptions is demonstrated to not be an assumption of the two-step approach recommended by Anderson and Gerbing (1988). In doing so, an attempt is made to provide some clarification and guidance to researchers interested in employing structural equation modeling to test and develop theory. Given the comparative strengths of the two-step approach over a one-step approach in practice, it is concluded that the preferred approach to the modeling task is the two-step approach of Anderson and Gerbing (1988).
This article reviews proposed goodness-of-fit indices for structural equation models and the Monte Carlo studies that have empirically assessed their distributional properties. The cumulative contributions of the studies are summarized, and the variables under which the indices are studied are noted. A primary finding is that many of the indices used until the late 1980s, including Jöreskog and Sörbom's (1981) GFI and Bentler and Bonett's (1980) NFI, indicated better fit when sample size increased. More recently developed indices based on the chi-square noncentrality parameter are discussed and the relevant Monte Carlo studies reviewed. Although a more complete understanding of their properties and suitability requires further research, the recommended fit indices are the McDonald (1989) noncentrality index, the Bentler (1990)-McDonald and Marsh (1990) RNI (or the bounded counterpart CFI), and Bollen's (1989) DELTA2.
The article discusses the use of partnerships as a focused marketing strategy. The difficulties that managers can encounter in attempting to cultivate strong working partnerships with their customers are examined. A comprehensive, strategic approach is given to offer managers guidance on decisions about which market segments and individual customer firms to target for close, collaborative relationships. The initial task for a supplier firm in formulating a relationship strategy is to segment the marketplace into relatively homogenous groups of firms based on product application and customer capabilities. Business firms segment markets in a number of ways, with demographics such as account size and industry being the most common basis.
A pretest methodology for predicting the performance of measures in a confirmatory factor analysis is presented. A pretest item-sort task draws on the concept of substantive validity, and two indices of substantive validity in a theory-testing context are proposed: the proportion of substantive agreement. psa, and the substantive-validity coefficient, csv. The utility of this method is empirically illustrated with a postdictive study of impulsivity measures. Results from two pretest samples of 20 respondents provided significant support for the use of substantive-validity coefficient values to discriminate measures that would be retained in a subsequent confirmatory factor analysis from those that would not. In addition, significant evidence was found for the reproducibility of each substantive-validity index across the two samples. Issues to be considered when using the pretest methodology and some benefits of assessing the substantive validity of measures for construct definitions and delineation of content domains are discussed.
A model of distributor firm and manufacturer firm working partnerships is presented and is assessed empirically on a sample of distributor firms and a sample of manufacturer firms. A multiple-informant research method is employed. Support is found for a number of the hypothesized construct relations and, in both manufacturer firm and distributor firm models, for the respecification of cooperation as an antecedent rather than a consequence of trust. Some implications for marketing practice are discussed briefly.
The authors outline an updated paradigm for scale development that incorporates confirmatory factor analysis for the assessment of unidimensionality. Under this paradigm, item-total correlations and exploratory factor analysis are used to provide preliminary scales. The unidimensionality of each scale then is assessed simultaneously with confirmatory factor analysis. After unidimensional measurement has been acceptably achieved, the reliability of each scale is assessed. Additional evidence for construct validity beyond the establishment of unidimensionality then can be provided by embedding the unidimensional sets of indicators within a nomological network defined by the complete structural model.
This paper draws upon a social exchange theory perspective and the marketing channels literature to provide a conceptualization of partnership advantage. Partnership advantage directs consideration to the interdependent nature of manufacturer and distributor working relationships, and to the resultant need of each firm to be cognizant of the advantage that it provides to its partner firm, relative to alternate potential partners. The contribution of partnership advantage to competitive advantage in the final customer marketplace is also discussed. A key informant methodology and a structural equation modeling approach were employed to investigate the determinants of partnership advantage. Both the manufacturer firm perspective and the distributor firm perspective were studied, with sample sizes of 162 manufacturer firms and 199 distributor firms. Nine distributor firm characteristics were found to account for 66% of the total variation in partnership advantage from the manufacturer firm perspective. Market penetration ability, with a path coefficient of 0.57, made the greatest unique contribution. Thirteen manufacturer capabilities explained 58% of the total variation in partnership advantage from the distributor firm perspective. Product offering, with a path coefficient of 0.69, made the most unique contribution.
In this article, we provide guidance for substantive researchers on the use of structural equation modeling in practice for theory testing and development. We present a comprehensive, two-step modeling approach that employs a series of nested models and sequential chi-square difference tests. We discuss the comparative advantages of this approach over a one-step approach. Considerations in specification, assessment of fit, and respecification of measurement models using confirmatory factor analysis are reviewed. As background to the two-step approach, the distinction between exploratory and confirmatory analysis, the distinction between complementary approaches for theory testing versus predictive application, and some developments in estimation methods also are discussed.
A crucial undertaking in research on organizations is to obtain valid estimates of the organization-level constructs and their relationships to one another. One organizational research methodology has multiple individuals within each firm act as informants and report their perceptions of these constructs. Drawing upon past work, a comprehensive, confirmatory measurement approach is presented that enables delineation of the organizational constructs of interest from potential sources of measurement error in multiple informant reports. A confirmatory composition model first specifies the relationship between measurements taken from multiple/informants and organization-level indicators of organizational constructs. This model provides an explicit representation of the informants' perceptual agreement with respect to each measure, the bias in their responses due to their particular perspectives on the firm, and random measurement error. Measures which demonstrate significant perceptual agreement across informants are retained as organization-level indicators. A confirmatory measurement model is then presented that relates the defined indicators, to their posited underlying organizational constructs, with the constructs allowed to freely intercorrelate. Finally, a structural model relates the constructs to one another as specified by some theory. The structure model in conjunction with the measurement model permits a comprehensive assessment of the construct validity of the organizational properties. An extension of the approach is also discussed where the assessment of commonalities and differences between different kinds of organizations with respect to some theoretical model is of interest. An illustration of the confirmatory approach is given, drawing upon data from a study of distributor firm and manufacturer firm working relationships.
As distributors move more and more toward a professional management style, their role in working partnerships with manufacturers must become proactive rather than reactive. Only in this way, the authors argue, will the partnership survive and prosper.
A Monte Carlo approach was employed to investigate the interpretability of improper solutions caused by sampling error in maximum likelihood confirmatory factor analysis. Four models were studied with two sample sizes. Of the overall goodness-of-fit indices provided by the LISREL VI program significant differences between improper and proper solutions were found only for the root mean square residual. As expected, indicators of the factor on which the negative uniqueness estimate occurred had biased loadings, and the correlations of its factor with other factors were also biased. In contrast, the loadings of indicators on other factors and those factor intercorrelations did not have any bias of practical significance. For initial solutions with one negative uniqueness estimate, three respecifications were studied: Fix the uniqueness at .00, fix it at .20, or constrain the domain of the solution to be proper. For alternate, respecified solutions that were converged and proper, the constrained solutions and uniqueness fixed at .00 solutions were equivalent. The mean goodness-of-fit and pattern coefficient values for the original improper solutions were not meaningfully different from those obtained under the constrained and uniqueness fixed at .00 respecifications.
Kumar and Dillon recently presented a conceptual, overall consistency criterion that represents a sufficient condition for consistency. In commenting on their article, the authors (1) clarify the interrelated nature of internal consistency and external consistency, (2) show that the ‘bogus perfect fit’ example is itself ‘bogus’ in that it cannot occur in either theory or practice, (3) underscore that the specific overall consistency criterion formula defined by Kumar and Dillon cannot be applied in practice, whereas the internal consistency and external consistency criteria can, and (4) caution against using within-block factor analyses as recommended by Kumar and Dillon, and instead advocate the use of confirmatory factor analysis with multiple-indicator measurement models far assessing unidimensionality. In an addendum, the authors discuss their position on unidimensionality and its assessment, contrasting it with the Kumar and Dillon position on unidimensionality and consistency.
This paper examines the current practice of industrial distributor selling, focusing on the roles played by the outside and inside sales forces. Based on benchmark survey results, the present composition, responsibilities, and compensation programs of outside and inside sales forces are compared and contrasted. Some predictions are given on likely changes in selling practices, drawing upon interviews with managers, and managerial implications of them, are offered.
The article discusses how manufacturers can build better working partnerships with industrial distributors. The industrial distributor's role has expanded in the United States economy, particularly wholesaler-distributors whose sales are expected to grow faster than the economy over the next ten years. Effective industrial-distributor programs are based on an understanding of distributor needs and partnerships that are actively managed. Topics include four information gathering practices, three approaches to developing distributor programs, communication that signals commitment, and strategic planning for the partnership's long-term survival.
In research employing multiple informants to assess the construct validity of properties of marketing organizations, both convergent and discriminant validity of the constructs may be overstated if measure-specific factors are not taken into account. The author presents a second-order confirmatory measurement model which explicitly models the organizational constructs of interest and measure-specific factors, as well as informant bias factors and random measurement errors. A comparative illustration is given and some implications for research on marketing organizations are discussed.
Monte Carlo methods were used to systematically study the effects of sampling error and model characteristics upon parameter estimates and their associated standard errors in maximum likelihood confirmatory factor analysis. Sample sizes were varied from 50 to 300 for models defined by different numbers of indicators per factor, numbers of factors, correlations between factors, and indicator reliabilities. The measurement and structural parameter estimates were generally unbiased except for the structural parameters relating factors defined by only two indicators. Sampling variability can be quite large, though, particularly as sample size becomes smaller, there are fewer indicators per factor and the reliabilities are lower. However, the estimated standard errors were adjusted accordingly.
Building upon work from social exchange theory and channels of distribution, a model of distributor-manufacturer working relationships from the distributor's perspective is presented. An initial empirical test, using a structural equation methodology, provided acceptable support of the model, given some measurement limitations. Further work on modeling both perspectives of the exchange relationship is discussed.
Research designed to demonstrate the attributional principles of augmentation, discounting, and minimum causation (a known cause and possible cause schema) has provided inconsistent findings. Because these inconsistencies may have been due to methodological differences, research was designed to examine the use of all three principles (along with single causation) within a single framework, employing a measure of attributional certainty. Attributional certainty was found to be significantly greater under augmentation than under single causation which, directionally, was significantly greater than attributional certainty under discounting. The finding of attributional certainty under minimum causation as being not significantly different from that under single causation was, perhaps, due to subjects' psychological restructuring of the task.
The meaning of correlated measurement errors is discussed within a hierarchical framework of error terms provided by true score, first-order factor, and second-order factor models: random error, indicator specific error, and group specific error, respectively. Group specific error can be represented either as extraneous first-order factors or as unwanted components of first-order factors that define a second-order factor. The uncritical use of correlated measurement errors without theoretical justification is shown to lead merely to more acceptable fit while obfuscating a more meaningful theoretical structure.
A Monte Carlo study assessed the effect of sampling error and model characteristics on the occurrence of nonconvergent solutions, improper solutions and the distribution of goodness-of-fit indices in maximum likelihood confirmatory factor analysis. Nonconvergent and improper solutions occurred more frequently for smaller sample sizes and for models with fewer indicators of each factor. Effects of practical significance due to sample size, the number of indicators per factor and the number of factors were found for GFI, AGFI, and RMR, whereas no practical effects were found for the probability values associated with the chi-square likelihood ratio test.
Lack of unidimensionality in structural equation models most often represents misspecification. The authors review the necessary conditions for unidimensional measurement of constructs. Two methods which assist the researcher in measurement model respecification, multiple-groups analysis and similarity coefficients, are presented and an example illustrating the use of these methods is given.
By use of path analysis on data from 600 shoppers, the authors explore the sequential relationships among several variables pertinent to retail crowding. Results furnish evidence that perceived crowding systematically affects shopping behavior and consumers' feelings about retail outlets and shopping trips.
The effect of list valence on evaluative descriptions of a stimulus woman elicited from Haire's shopping list projective technique was investigated. The rated impressions of a stimulus woman using a given test product were dependent on the list within which the product appeared. Because of this test product by list interaction, Haire's projective technique may not be a valid procedure for determining perceived user attributes associated with a particular product.
Reprint from 1998 publication Journal of Business-to-Business Marketing, 5(1/2), 109-112.
Reprinted from 1998 article in Journal of Business-to-Business Marketing, 5(1/2), 75-93
Business-to-business markets are increasingly operating as commodity markets. That is, customers perceive few differences among suppliers' offerings and hence make purchase decisions solely on the basis of price. This puts severe pressure on suppliers to cut prices, which harms profits. According to James Anderson and Gregory Carpenter, a supplier's smartest response is to differentiate its offerings in a way that customers will value. Possible strategies are to build knowledge or expertise that can be used to provide solutions for customers (perhaps via partnering arrangements), to persuade customers to focus less on the core product's price than on overall value, and to ensure that products and services are flexible. The authors also explain how suppliers can obtain an equitable return for providing such superior value. In many business markets, customers are perceiving fewer and fewer differences among competitors' offerings. The main reasons for this are the quality management movement in production and the greater availability of comparable alternatives from international sources. As a result, customers are making an increasing number of purchase decisions on the basis of price alone - the definition of a commodity market. They are pressuring suppliers to reduce their prices and provide additional price discounts. In industry after industry, suppliers are finding that although their sales revenues are growing, it is often at the expense of profitability. The present article will explain how suppliers can forestall or reverse this trend. Suppliers often conclude that they are in a commodity business simply because they think narrowly about the core product or service. The personal computer, hospital supplies or letter of credit that the customer purchases may be nearly or exactly the same across suppliers. But the market offerings that companies purchase are typically more than just the core product or service. They contain supplementary services, programmes and systems that enhance the value of the core product or service and that provide additional value to customers.
2nd Edition
This course counts toward the following majors: Marketing, Marketing Management
This course provides a progressive approach to business marketing and business market management, which is the process of understanding, creating and delivering value to targeted business markets and customers. Business markets are composed of firms, institutions or governments. The course provides an understanding of nine business market processes: market sensing and value assessment; understanding firms as customers; crafting market strategy in business markets; managing market offerings and value-based pricing; business channel management; gaining customers; sustaining reseller partnerships; and sustaining customer relationships. Four guiding principles of business market management underlie these business market processes and recur throughout the course: regard value as the cornerstone of business market management; focus on business market management processes; stress doing business across borders; and accentuate working relationships and business networks. This course has strong applicability to students pursuing careers in management consulting and financial services as well as in marketing and general management with technology and industrial firms.
Prerequisite: MKTG-430.
Business Marketing focuses on the marketing of products and services to firms, institutions and governments, with special emphasis on assessing customer value in business markets and how to build and sustain working relationships with reseller firms and customer firms.
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