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Retailers: How to Manage Suppliers' Perceptions of "Fairness"

Hannah S. Lee and David A. Griffith

Retailers maintain relationships with multiple suppliers, each of which with its own terms. As a consequence, differential treatment of partners can be inevitable, leading to charges of unfairness and harming business relationships. A new study in the Journal of Marketing analyzes social comparison in retailer-supplier relationships, empowering retailers with the insights and tools they need to manage these relationships successfully. 

In the summer of 2011, Italian fashion brand Gucci learned that Shilla, operator of the duty-free retail facility located in the Incheon International Airport, offered Louis Vuitton concession terms that were more generous than its own. Gucci perceived that it was being treated unfairly and requested the same terms as Louis Vuitton. Shilla denied the request. In protest, Gucci transferred two of its locations from Shilla’s facilities to Shilla’s main competitor, Lotte Duty Free. Gucci viewed Louis Vuitton as a comparative referent, even though the firms had achieved different performance levels, creating a referent discrepancy (i.e., when a focal firm selects a referent firm that is not comparable based on specified criteria, such as sales performance).

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Past research has analyzed the importance of social comparison and fairness in retailer–supplier relationships. However, market understanding of how referent discrepancy influences attitudinal outcomes, such as perceptions of distributive fairness (i.e., the supplier’s perception of the fairness of earnings and other outcomes it receives from its relationship with the retailer), is limited. Furthermore, there is little guidance on how a retailer can manage perceptions of distributive fairness in a context in which differential treatment of suppliers is inevitable. This work addresses these gaps through a two-study examination of retailer–supplier relationships in a store within in a store (SWS) format in Japan. SWS formats have increased in popularity and are seen everywhere from department stores to duty-free stores.

The first study employs a survey of suppliers within a SWS context, providing objective performance data. The results indicate that upward referent discrepancy decreases a focal supplier’s perceptions of distributive fairness while downward referent discrepancy increases perceptions of distributive fairness. The second study employs an experiment using brand/store managers.

Our findings present a foundation on which a greater understanding of upward and downward social comparison in a retailer–supplier context can be advanced. Importantly, the majority of referent discrepancy is upward, negatively influencing perceptions of distributive fairness. Downward referent discrepancy, though less common, results in increased perceptions of distributive fairness. These findings contribute to the literature by extending related work pertaining to the attitudinal and behavioral effects resulting from an advantageous or a disadvantageous perceived distribution situation. Specifically, while being in a disadvantageous position results in an expected negative attitude (i.e., lower perception of distributive fairness), a divergence from a balanced state (i.e., referent discrepancy) that benefits the focal supplier does not always produce relationally harmful effects.

Retailers need to recognize that social comparison occurs among partnering suppliers. While upward referent discrepancy can result in deleterious supplier attitudes, downward referent discrepancy can have positive relationship effects. Given the differential effects, we recommend that a retailer identify whom a supplier is using as a comparative referent. This information can be gleaned during a retailer’s regularly scheduled meetings with its suppliers. The retailer can then determine, from its criteria of evaluation, whether the supplier is engaging in upward or downward referent discrepancy. This assessment is important because it can:

  1. Help the retailer understand whether its criteria of evaluation is clear and observable by its suppliers (possibly suggesting the need for greater transparency to suppliers);
  2. Identify which suppliers are potentially in situations of upward or downward referent discrepancy (and by what magnitude); and
  3. Aid in developing effective relationship management strategies based on a supplier’s specific situation.

Finally, there is a tendency for managers to avoid or delay discussing aspects that could be viewed negatively (e.g., delaying the delivery of bad news, failing to explain rationale behind a change). Yet failure to proactively provide an explanation (i.e., foreseeing possible differential treatments that can cause decreased levels of perceived distributive fairness and providing justification in advance) with substantive content and specificity (i.e., providing directive information on similarly performing comparative referents) will most likely result in negative attitudes, potentially damaging the relationship. Our results indicate that providing proactive explanations of differential treatment across partners can enhance perceptions of distributive fairness when upward referent discrepancy exists. This finding makes our research team wonder whether Shilla could have saved its relationship with Gucci had it proactively provided an explanation.

Read the full article.

From: Hannah Lee and David Griffith, “Social Comparison in Retailer-Supplier Relationships: Referent Discrepancy Effects,” Journal of Marketing, 83 (March).

Go to the Journal of Marketing

Hannah S. Lee is Assistant Professor of Marketing, Farmer School of Business, Miami University.

David A. Griffith is Professor of Marketing, Department Head of the Department of Marketing, Hallie Vanderhider Chair in Business, Mays Business School, Texas A&M University.