Buying groups or purchasing cooperatives, a.k.a. group purchasing organizations (GPOs), work together to leverage their collective purchasing power to get discounts from suppliers. They are common across industries such as health care (e.g., Vizient), manufacturing (e.g., IBC), hospitality (e.g., Pandion), and retailing (e.g., Nationwide), representing a considerable number of members and sizeable spending. Buying groups play an important governance role in business-to-business (B2B) exchanges by managing suppliers on behalf of their member buyers. By doing so, buying groups can negotiate on behalf of their members, resulting in suppliers offering better pricing and services to businesses because they place larger orders or spend more money with them annually. But despite the prevalence of such groups across industries, questions persist about their effectiveness.
A recent Journal of Marketing Research article by Alok Kumar, Huanhuan Shi, Jenifer Skiba, Amit Saini, and Zhi Lu elucidates how buying groups impact buyer–supplier relationships and supplier performance for buyers. The authors propose a framework for analyzing the triadic nature of the relationships between buyers, suppliers, and buying groups. This framework enables practitioners and scholars to grasp the inherent intricacies and nuances within these relationships.
The findings show that buying groups can govern suppliers by monitoring their performance and community-building efforts to create harmonious ties between buyers and suppliers. Buying group monitoring enhances supplier performance, especially when coupled with buyer monitoring. However, community building is less effective when buyer–supplier ties are already strong.
Buying groups can govern suppliers by monitoring their performance and community-building efforts to create harmonious ties between buyers and suppliers. Buying group monitoring enhances supplier performance, especially when coupled with buyer monitoring.
The efficacy of buying group governance also depends on dependence: Buying group monitoring is more impactful when the supplier depends on the group and when the buyer depends on the supplier. However, buying group community building weakens as the buyer’s dependence on the supplier increases. The findings highlight the complex interplays between buying groups and buyer–supplier dyads, suggesting the need to incorporate groups into studies of B2B exchanges. This study provides novel insights into governance mechanisms and the boundary conditions of group–dyad interactions between buyers, suppliers, and buying groups.
Implications for Industry
Although monitoring efforts made by buying groups are beneficial, buyers should put their relational efforts into their interactions with suppliers. In addition, buyers and buying groups should strategically adapt their governance strategies in response to each other:
- Buyers should emphasize supplier monitoring when buying groups monitor suppliers, and vice versa.
- Buying groups should emphasize community building when buyer–supplier ties are weak and deemphasize it when the ties are strong.
However, the authors call for further scrutiny on the effects of buyer groups’ attributes, the impacts of community efforts aimed only at buyers (vs. buyers and suppliers jointly), and the distinctive role of contracts and incentives as monitoring practices. We interviewed the authors to gain deeper insight into this study:
Q: Could you please summarize the article for practitioners or undergraduates in a sentence or two? Please include (a) the main insights offered, (b) their impact on managerial decision making, and (c) the advantages for institutional policymakers resulting from your research when explaining it to them.
A: Many buyer–seller dyads engage with independent groups (e.g., buying groups/GPOs, research consortiums, industry associations), but the B2B literature has focused mainly on dyadic relationships, ignoring these groups. We aimed to address this gap by anchoring ourselves in the health care sector. Specifically, we examine how GPOs, GPO-affiliated suppliers, and buyer firms (hospitals) work together to enhance the value delivered to hospitals. We find that GPOs govern their affiliated suppliers through both formal (e.g., benchmarking) and informal (e.g., community building) mechanisms, which support the supplier’s performance as delivered to the hospital, contingent on the hospital’s governance of the supplier as well as the parties’ dependence on each other in complex ways.
Managerially, we suggest that hospitals and buying groups establish clear benchmarks for suppliers, particularly when the supplier is less replaceable, and groups undertake community-building efforts in fragmented markets.
Our work can be relevant to policymakers in the health care sector, where escalating patient care costs are a major concern.
Q: You touched on the primary motivations behind the current study. Could you provide further insight into how this research idea was envisioned? Also, what is the relevance of this topic to managers in the B2B sector that warrants close attention?
A: This paper was a result of a collaboration between a doctoral student (Jen Skiba) and a faculty team at the University of Nebraska. Jen’s industry experience indicated mixed thoughts on the utility of GPOs for hospitals. While Jen was developing her dissertation on the purchasing styles of GPOs, the team came up with a new perspective that focused on the intricate interactions among the multiple actors (GPOs, hospitals, suppliers) involved in the contemporary procurement system of hospitals. We envisioned that governance mechanisms in the procurement system are crucial for improving hospital performance outcomes and patient service quality. Our interfirm perspective offers insights for managers in B2B sectors, suggesting how they can leverage distinct governance mechanisms to coordinate transactions that involve heterogeneous actors (individual firms, groups) and span multiple exchange relationships.
Q: Given the paper’s reference to previous studies not efficiently comprehending triadic relationships between buyers, suppliers, and buying groups, could it be the case that managers and marketers similarly encounter challenges in effectively approaching and assessing these relationships? If so, what factors might contribute to this ineffectiveness in their approach and evaluation?
A: Managers often face the problem of assessing outcomes in their interfirm relationships. In fact, prior research has shown that a variety of organizational forms, including distribution networks, franchising systems, new product alliances, co-branding, co-marketing initiatives, joint ventures, and so on, face the problem of externalities, in which a third-party actor can impact outcomes in a focal buyer–seller relationship. Yet most of the B2B research that we see is dyadic in nature, ignoring the impact of these third parties (e.g., buying groups). The severity and frequency of this issue could depend on a host of factors, but some prominent ones include the resource endowments of the firms involved, their mutual dependence, and market uncertainty. The directional impact of these factors will need to be articulated considering the larger relationship context.
Q: Do you consider any potential influence of contextual factors, such as industry or market characteristics, to affect the relationships explored in this paper? In other words, are there specific contexts in which the proposed model of triadic relationships becomes particularly relevant?
A: While we did not explicitly test these other industry/market factors, we conjecture that there could be some contexts in which the triadic model proposed in our paper might be more salient. In particular, in industries where buyer firms are small or fragmented (and therefore lack the ability to command good terms from suppliers), we expect the emergence of focused third-party actors (such as the GPOs in the current study) to facilitate buyer–supplier exchange. Another condition could be the nature of the product, namely whether it is a commodity or is custom-made according to the needs of a particular buyer firm. GPOs must satisfy the preferences of many group members (buyers), which is hard to do when the products are custom-made for a specific need. Thus, we expect the third-party model will likely be less salient for highly specialized or customized products.
Q: Can you share more insights into the specific challenges and barriers you faced during your research? For instance, what challenges did you encounter in establishing partnerships with hospital managers, and what advice or pitfalls can you share with future researchers and practitioners seeking similar partnerships?
A: The biggest difficulty was getting hospital purchasing managers to respond to our questionnaire. To alleviate this issue, we had pre-contacted the hospitals and talked directly to the purchasing manager to get buy-in. Even when we had the buy-in, though, it was still difficult to obtain compliance. We offered some incentives to motivate the informants. As a part of this research, we also conducted approximately 25 in-depth interviews with industry participants. Locating these informants and getting them to respond to somewhat long interview sessions was also challenging. However, most agreed to help because the topic resonated with their industry experience.
Q: Could you share your thoughts on possible extensions of the current paper? For instance, how can the findings and methodology presented in your paper potentially serve as a foundation for future research or be applied to related areas within the field?
A: The interorganizational governance angle can be applied to other situations that require coordinated efforts across multiple organizations. For example, an increasing number of hospitals have adopted new programs to provide medical services at patients’ homes. Such programs require coordinated efforts from hospitals, pharmacies, community health services, and technology providers. Hospitals at the center of this network can leverage different governance mechanisms and their interplay to ensure the delivery of high-quality patient services. In addition, as a health care system may contract with multiple peripheral service providers for the hospitals under the system, they play similar roles as GPOs that aggregate hospital demand, monitor activities, and promote collaboration among them.
Read the Full Study for Complete Details
Read the full article:
Alok Kumar, Huanhuan Shi, Jenifer Skiba, Amit Saini, and Zhi Lu (2023), “Impact of Buying Groups on Buyer–Supplier Relationships: Group–Dyad Interactions in Business-to-Business Markets,” Journal of Marketing Research, 60 (6), 1197–220. doi:10.1177/00222437231152207
Go to the Journal of Marketing Research