Channel performance

Channel performance refers to the contribution of channel members to channel objectives (Gaski, 1984); or the contribution to goals such as productivity and effectiveness of other channel members (Geyskens and Steenkamp, 2000) which are the ultimate purpose of channel member relationship.

Channel performance includes financial performance and relationship performance. Financial performance indicators include sales growth and overall financial performance (Frazier, 1983). Relationship performance includes cooperation and conflict, which are closely related(Palmatier et al., 2007).

This thesis focuses on the influence of trust, relationship commitment and seller relationship-specific investment on channel performance, including financial performance and relationship performance. The former includes sales growth and overall financial performance, while the latter includes cooperation and conflict. Conflicts sometimes emerge in cooperation. Therefore, they are two components of company relationship. For example, if the cost of relationship termination is too high, the parties may have conflicts in cooperation, but the relationship is sustained. Cooperation is also different from tacit understanding. Cooperation is active while tacit understanding is the response to action. Tacit understanding is about passive consent while cooperation is about active proposal. Therefore, such research is necessary.

(1) Trust and performance

59

can enable company to adapt to unforeseen changes, especially under uncertain circumstances, to reduce transaction costs (Jarillo, 1988), so that enterprises can get more profit, which is consistent with the conclusion of research by Morgan and Hunt(1994) and Palmatier et al.(2007) which suggests that trust can improve the channel financial performance.

Cooperation is influenced by commitment and trust. Trust is very much needed in the early stages of cooperation (Deutsch, 1960), which allows companies to collaborate and take greater risks (Pruitt, 1981). "Once the trust is established, the companies have learned about how to cooperate. Joint efforts by both parties will exceed what could be achieved by the individual alone" (Anderson and Narus, 1990). Therefore, the trust of channel members has a significant positive influence on channel cooperation. Conflicts often emerge in a relationship transaction (Dwyer et al., 1987), which cause hostility or pain. Inappropriate solutions will have undesirable consequences or even terminate relationship. If all parties trust each other, argument may be resolved in a friendly way or ignored, which is known as a functional conflict which prevents stagnation, spurs interest and curiosity, and provides a medium for solving the problem (Deutsch, 1969). This functional conflict may grow as trust grows, thereby reducing overall conflicts.

From a relational norm perspective, when a firm trusts another firm, encouraging marketers to make relationship investments through cooperation with counterparties can resist short-term temptations by preserving the long-term interests of existing partners and therefore trust can improve efficiency, productivity and effectiveness. In short, trust will directly lead to cooperative behavior, which is conducive to the success of relationship marketing, affecting channel performance. (Tang, Fu, and Xie, 2017; Cui and Mallucci, 2016; Lins et al., 2017)

Therefore, this thesis suggests that trust can enhance channel performance from multiple aspects, and proposes the following hypothesis:

H5: The trust of channel members has a significant positive influence on channel performance, including (A) sales growth, (B) financial performance, (C) channel cooperation and (D) channel conflict.

60

(2) Commitment and performance

Channel commitments promise to increase mutual understanding, reduce the tendency to end relationship, resulting in more revenue. Relationship commitment affects financial performance (Morgan and Hunt, 1994), and affects the channel members’ income and profit as the intermediary variables of trust and financial performance (Morgan and Hunt, 1994, Palmatier et al., 2007).

Relationship commitments affect cooperation. In order to maintain and develop existing relationships, one party of relationship commitments will cooperate with other parties. If one party's interests or goals are hampered or opposed by other companies, there would be a conflict. If the retailor believes that the supplier will comply with the relationship commitment, the retailer will not suspect the supplier's behavior (Morgan and Hunt, 1994, Boon and Holmes, 1991, Holmes, 1991). Conflict is resolved when all participants comply with the relationship commitments (Anderson and Narus, 1990, Robicheaux and El-Ansary, 1976). All parties will focus on positive behavior and neglect negative behavior. Therefore, commitment of channel members is conducive to channel cooperation and to reduce channel conflicts (Jap and Ganesan, 2000, Gundlach et al., 1995, Siguaw et al., 1998).

On the one hand, Kumar et al. (1995) show that the mutual commitment of the two parties in the relational structure can reduce their conflict and opportunistic behavior, increase their satisfaction and improve their performance. On the other hand, from the perspective of the relational model, a clear and highly binding relationship criterion (Choi and Hara, 2017) is provided when both firms and firms establish commitments so that both parties to the transaction can make changes to the environment More effective responses, the benefits of the relationships between them, need to be assessed over a longer period of time and fundamentally prevented from undermining the relationship (Kaufmann and Stern, 1988). In other words, under the uncertainty of the environment, relationalism plays an important role in raising the bargaining power and improves business performance (Heide and John, 1992).Therefore, this thesis proposes: H6: Commitment of channel members has a significant positive influence on channel performance, including (A) sales growth, (B) financial performance, (C)

61

channel cooperation and (D) channel conflict.

(3) Seller relationship-specific investment and performance

Existing researches show that specific investment will improve performance (Dyer and Ouchi, 1998), and companies which make irreversible investment are more likely to be stable and efficient channel members (Smith and Aldrich, 1991, Parkhe, 1993). Financial performance would improve when there is large specific investment (Heide and John, 1988). Seller relationship-specific investments provide buyers with reliable commitment (Williamson, 1985), which in turn reduces speculation and conflicts, enhances willingness to cooperate, reduces transaction costs, and improves relationship efficiency.

In general, RSI includes investing time in distribution areas, developing targeted training programs, assisting sales facilities and other non-convertible money or time investments. As the number and magnitude of investments increase, this becomes a classic unilateral investment that binds oneself to each other (Becker, 1960). Binding investments by manufacturers constrain their behavior - valuing long-standing relationships. Once the relationship is no longer there, investments have been flooded (Anderson and Weitz, 1992). The seller realizes that when it exits, it loses sales and customers lose its reputation. Therefore, the manufacturer's rational attachment to distributors encourages them to support existing investments in calculating the loss of relationship losses (Wu, Wang, and Chen, 2017). In short, the seller-specific relationship investment establishes and clarifies that the essence of the seller's binding is a tool to obtain economic benefits from the investment, thus affecting the channel performance.

Therefore, this thesis makes the following hypothesis:

H7: Vendor relationship-specific investments have a significant positive influence on channel performance, including (A) sales growth, (B) financial performance, (C) channel cooperation and (D) channel conflict.