IDEAS home Printed from https://ideas.repec.org/p/cwl/cwldpp/2315.html
   My bibliography  Save this paper

A Structural Model of Organizational Buying for B2B Markets: Innovation Adoption with Share of Wallet Contracts

Author

Listed:

Abstract

The paper develops the first structural model of organizational buying to study innovation diffusion in a B2B market. Our model is particularly applicable for routinized exchange relationships, whereby centralized buyers periodically evaluate and choose contracts, then downstream users or- der items on contracted terms. The model captures different utility tradeoffs for users and buyers while accounting for how buyer and user choices interact to impact user adoption/usage and buyer contracting. Further, the paper considers the dynamics induced by share of wallet (SOW) pricing contracts, commonly used in B2B markets to reward customer loyalty with discounts for buying more than a threshold share from a supplier. We assemble novel panel data on surgeon usage, SOW contracts, contract switching, and hospital characteristics. We find two segments of hospitals in terms of the relative power of surgeons and buyers: a buyer-centric and a surgeon-centric segment. Further, innovations diffuse faster in teaching hospitals and when surgeries are concentrated among a few surgeons. Finally, we answer such questions as: Should the marketer focus on push (buyer-focused) or pull (user-focused) strategies? Do SOW contracts hurt the innovations of smaller firms? Surprisingly, we find that the contracts can help speed the diffusion of major innovations from smaller players.

Suggested Citation

  • Navid Mojir & K. Sudhir, 2021. "A Structural Model of Organizational Buying for B2B Markets: Innovation Adoption with Share of Wallet Contracts," Cowles Foundation Discussion Papers 2315, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2315
    as

    Download full text from publisher

    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d23/d2315.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
    2. Jean‐Pierre Dubé & Jeremy T. Fox & Che‐Lin Su, 2012. "Improving the Numerical Performance of Static and Dynamic Aggregate Discrete Choice Random Coefficients Demand Estimation," Econometrica, Econometric Society, vol. 80(5), pages 2231-2267, September.
    3. Peter Arcidiacono & John Bailey Jones, 2003. "Finite Mixture Distributions, Sequential Likelihood and the EM Algorithm," Econometrica, Econometric Society, vol. 71(3), pages 933-946, May.
    4. Roman Inderst & Greg Shaffer, 2010. "Market‐share contracts as facilitating practices," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 709-729, December.
    5. Giacomo Calzolari & Vincenzo Denicol?, 2013. "Competition with Exclusive Contracts and Market-Share Discounts," American Economic Review, American Economic Association, vol. 103(6), pages 2384-2411, October.
    6. Che‐Lin Su & Kenneth L. Judd, 2012. "Constrained Optimization Approaches to Estimation of Structural Models," Econometrica, Econometric Society, vol. 80(5), pages 2213-2230, September.
    7. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    8. Frank M. Bass, 1969. "A New Product Growth for Model Consumer Durables," Management Science, INFORMS, vol. 15(5), pages 215-227, January.
    9. Lilien, Gary L., 2016. "The B2B Knowledge Gap," International Journal of Research in Marketing, Elsevier, vol. 33(3), pages 543-556.
    10. Bonnie O’Connor & Fran Pollner & Adriane Fugh-Berman, 2016. "Salespeople in the Surgical Suite: Relationships between Surgeons and Medical Device Representatives," PLOS ONE, Public Library of Science, vol. 11(8), pages 1-18, August.
    11. David Mills, 2010. "Inducing Downstream Selling Effort with Market Share Discounts," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 17(2), pages 129-146.
    12. Harikesh Nair, 2007. "Intertemporal price discrimination with forward-looking consumers: Application to the US market for console video-games," Quantitative Marketing and Economics (QME), Springer, vol. 5(3), pages 239-292, September.
    13. Gary L. Lilien & Ambar G. Rao & Shlomo Kalish, 1981. "Bayesian Estimation and Control of Detailing Effort in a Repeat Purchase Diffusion Environment," Management Science, INFORMS, vol. 27(5), pages 493-506, May.
    14. Inseong Song & Pradeep Chintagunta, 2003. "A Micromodel of New Product Adoption with Heterogeneous and Forward-Looking Consumers: Application to the Digital Camera Category," Quantitative Marketing and Economics (QME), Springer, vol. 1(4), pages 371-407, December.
    15. Matthew Grennan, 2013. "Price Discrimination and Bargaining: Empirical Evidence from Medical Devices," American Economic Review, American Economic Association, vol. 103(1), pages 145-177, February.
    16. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    17. Minhi Hahn & Sehoon Park & Lakshman Krishnamurthi & Andris A. Zoltners, 1994. "Analysis of New Product Diffusion Using a Four-Segment Trial-Repeat Model," Marketing Science, INFORMS, vol. 13(3), pages 224-247.
    18. Moon, Junyean & Tikoo, Surinder, 2002. "Buying decision approaches of organizational buyers and users," Journal of Business Research, Elsevier, vol. 55(4), pages 293-299, April.
    19. Rajdeep Grewal & Gary Lilien & Sundar Bharadwaj & Pranav Jindal & Ujwal Kayande & Robert Lusch & Murali Mantrala & Robert Palmatier & Aric Rindfleisch & Lisa Scheer & Robert Spekman & Shrihari Sridhar, 2015. "Business-to-Business Buying: Challenges and Opportunities," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 2(3), pages 193-208, September.
    20. Adrian Majumdar & Greg Shaffer, 2009. "Market‐Share Contracts with Asymmetric Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 393-421, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gautam Gowrisankaran & Marc Rysman, 2012. "Dynamics of Consumer Demand for New Durable Goods," Journal of Political Economy, University of Chicago Press, vol. 120(6), pages 1173-1219.
    2. Gonca P. Soysal & Lakshman Krishnamurthi, 2012. "Demand Dynamics in the Seasonal Goods Industry: An Empirical Analysis," Marketing Science, INFORMS, vol. 31(2), pages 293-316, March.
    3. Brian Adams & Kevin R. Williams, 2019. "Zone Pricing in Retail Oligopoly," American Economic Journal: Microeconomics, American Economic Association, vol. 11(1), pages 124-156, February.
    4. Masakazu Ishihara & Andrew T. Ching, 2019. "Dynamic Demand for New and Used Durable Goods Without Physical Depreciation: The Case of Japanese Video Games," Marketing Science, INFORMS, vol. 38(3), pages 392-416, May.
    5. Brett R. Gordon, 2009. "A Dynamic Model of Consumer Replacement Cycles in the PC Processor Industry," Marketing Science, INFORMS, vol. 28(5), pages 846-867, 09-10.
    6. Cheng Chou & Tim Derdenger & Vineet Kumar, 2019. "Linear Estimation of Aggregate Dynamic Discrete Demand for Durable Goods: Overcoming the Curse of Dimensionality," Marketing Science, INFORMS, vol. 38(5), pages 888-909, September.
    7. Junpei Komiyama & Hajime Shimao, 2018. "Cross Validation Based Model Selection via Generalized Method of Moments," Papers 1807.06993, arXiv.org.
    8. Harikesh Nair, 2007. "Intertemporal price discrimination with forward-looking consumers: Application to the US market for console video-games," Quantitative Marketing and Economics (QME), Springer, vol. 5(3), pages 239-292, September.
    9. Yang Li & Brett R. Gordon & Oded Netzer, 2018. "An Empirical Study of National vs. Local Pricing by Chain Stores Under Competition," Marketing Science, INFORMS, vol. 37(5), pages 812-837, September.
    10. Freyberger, Joachim, 2015. "Asymptotic theory for differentiated products demand models with many markets," Journal of Econometrics, Elsevier, vol. 185(1), pages 162-181.
    11. Xavier D’Haultfœuille & Isis Durrmeyer & Philippe Février, 2019. "Automobile Prices in Market Equilibrium with Unobserved Price Discrimination," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(5), pages 1973-1998.
    12. Kaiser, Ulrich & Mendez, Susan J. & Rønde, Thomas & Ullrich, Hannes, 2014. "Regulation of pharmaceutical prices: Evidence from a reference price reform in Denmark," Journal of Health Economics, Elsevier, vol. 36(C), pages 174-187.
    13. Chaab, Jafar & Salhab, Rabih & Zaccour, Georges, 2022. "Dynamic pricing and advertising in the presence of strategic consumers and social contagion: A mean-field game approach," Omega, Elsevier, vol. 109(C).
    14. Hui Li, 2019. "Intertemporal Price Discrimination with Complementary Products: E-Books and E-Readers," Management Science, INFORMS, vol. 67(6), pages 2665-2694, June.
    15. Zeynep Akşin & Barış Ata & Seyed Morteza Emadi & Che-Lin Su, 2013. "Structural Estimation of Callers' Delay Sensitivity in Call Centers," Management Science, INFORMS, vol. 59(12), pages 2727-2746, December.
    16. Adam Copeland, 2008. "The Dynamics of Automobile Expenditures," 2008 Meeting Papers 852, Society for Economic Dynamics.
    17. Reynaert, Mathias & Verboven, Frank, 2014. "Improving the performance of random coefficients demand models: The role of optimal instruments," Journal of Econometrics, Elsevier, vol. 179(1), pages 83-98.
    18. Mogens Fosgerau & Julien Monardo & André de Palma, 2024. "The Inverse Product Differentiation Logit Model," American Economic Journal: Microeconomics, American Economic Association, vol. 16(4), pages 329-370, November.
    19. Jean-Pierre H. Dube & Günter J. Hitsch & Pranav Jindal, 2012. "The Joint Identification of Utility and Discount Functions From Stated Choice Data: An Application to Durable Goods Adoption," NBER Working Papers 18393, National Bureau of Economic Research, Inc.
    20. Joao Macieira & Pedro Pereira & Joao Vareda, 2013. "Bundling Incentives in Markets with Product Complementarities: The Case of Triple-Play," Working Papers 13-15, NET Institute.

    More about this item

    Keywords

    Organizational Buying Behavior; healthcare marketing; B2B Markets; B2B Innovation; New Product Diffusion; New Product Adoption;
    All these keywords.

    JEL classification:

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cwl:cwldpp:2315. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Brittany Ladd (email available below). General contact details of provider: https://edirc.repec.org/data/cowleus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.