Relationships in Business Markets:
Exchange Episodes, Value Creation,
and Their Empirical Assessment
James C. Anderson
Northwestern University
Most firms in business markets have come to realize
that to prosper they must have close, collaborative relation-
ships with selected suppliers, customers, and value-added
resellers. Thus management thinking has advanced to
gaining a better understanding of which firms they ought
to engage in these collaborative relationships and how to
make these relationships work in practice (Anderson and
Narus 1991). Still on the horizon for most firms is the
specification of a collection of pertinent relationship-
evaluation measures that is reasonably encompassing and
their application to systematically assess the value created
by the firms' existing relationships.
So, too, academic researchers in business marketing
need to advance their thinking and research on customer-
supplier relationships. David Wilson (1995 [this issue])
has written a thoughtful and intriguing article that pulls
together, and significantly advances, our knowledge and
understanding of relationships in business markets. Pro-
posing a five-stage framework, he adroitly integrates the
constructs most often studied in empirical relationship
research with the largely conceptual work on relationship
development. A conceptual mechanism that he employs to
accomplish this is construct status: active or latent. An
active construct is "one that receives a great deal of man-
ager time and energy," whereas a latent construct is "one
in which the main issues have been settled to the manager's
satisfaction and does not receive time or attention"
(p. 340).
To argue with the specified status of particular con-
structs at particular stages would be a quibble, missing the
fundamental contribution of Wilson's work: accentuating
that the character and content of customer-supplier rela-
tionships changes as they develop and that our models
ought to reflect this. That is, the set of germane constructs,
as well as how they are related to one another, changes
depending on the stage of the relationship. My intent here
is to briefly develop some thoughts that were sparked by
reading his article. I first consider the nature of the rela-
tionship development process. I then examine how value
Journal of the Academy of Marketing Science.
Volume 23, No. 4, pages 346-350.
Copyright 9 1995 by Academy of Marketing Science.
is created in relationships. I conclude by outlining some
ways that we might research relationship development and
value assessment. Some might regard the following as
little more than filigree to Wilson's article, and it may be,
but my hope is to add some value in a consonant way to
what he has done.
THE NATUREOF
RELATIONSHIP DEVELOPMEN~
EXCHANGE EPISODES
AND BUSINESS STRANDS
That customer-supplier relationships change as they
progress seems hardly arguable. What is more thorny and
where substantial differences lie is in the conceptualization
of this change. Is the development process continuous or
a series of discrete stages? If it is a series of discrete stages,
are they strictly sequential or partially overlapping? Is the
progression in relationship development a linear one or
would it better be described as an outwardly expanding
spiral?
Borys and Jemison (1989) regard four issues as
uniquely characterizing hybrid organizational arrange-
ments: "breadth of purpose, boundary determination,
value creation and stability mechanisms" (p. 234). Wilson
creatively sequences these issues and adds an initial part-
ner selection stage that melds the awareness and explora-
tion phases of Dwyer, Schurr, and Oh (1987). Although he
clearly recognizes the interplay between the issues/stages,
particularly between purpose and boundary determination,
the resulting process model has a linear, sequential look to
it. My own sense is that, although there are stages, rela-
tionship development is not so linear or sequential.
Because of my dependence as a researcher on informant
reports, my interest is in how managers experience the
relationship development process. More specifically, my
interest is in managers' perceptions and imputed meanings
of relationship development as they act as key informants
on its effects on their firms' decisions and activities. Irre-
spective of whether relationship development actually is a
continuous process, I posit that it is remembered as, and

thus in retrospect, is experienced as a series of exchange
episodes. Thus, for this content domain, I am embracing
an episodic view of memory, which "claims that memory
is organized around personal experiences or episodes
rather than around abstract semantic categories" (Schank
and Abelson 1977, p. 17).
I concur with Wilson that relationship development
begins with a partner selection stage where, depending on
the extent of the customer firm's experience and knowl-
edge of potential supplier partners, some prospecting ac-
tivities may occur to identify suitable suppliers. Even when
the customer has been doing business wi~h the supplier on
a transactional basis, there will be an initial exchange
episode where the defined purpose becomes more collabo-
rative. Often, this may take the form of a pilot program
where each firm can gain a better understanding what
collaborative exchange between the firms might mean; for
example, moving to single-sourcing at one plant in the
customer's manufacturing network. Zajac and Olsen
(1993) refer to this as "an 'initializing' stage, in which each
firm formulates its own strategic plans, subjectively evalu-
ates its exchange alternatives, and begins its involvement
in interorganizational exchange" (p. 139).
Each exchange episode is composed of four sequen-
tially related events, which can be defined as "critical
incidents when parties engage in actions related to the
development of their relationship" (Ring and Van de Ven
1994, p. 112). The events are defining purpose, setting
relationship boundaries, creating relationship value (and
claiming value), and evaluating exchange outcomes. As
another contrasting perspective, Ring and Van de Ven
(1994) regard cooperative relationship development and
evolution as "consisting of a repetitive sequence of nego-
tiation, commitment, and execution stages, each of which
is assessed in terms of efficiency and equity" (p. 97). I view
negotiation and commitment, taken together, as having
their counterpart in defining purpose and setting relation-
ship boundaries taken together, although there is no con-
ceptual one-to-one mapping. I want to have the inclusive
meaning of the four captured in the two events--defining
purpose and setting relationship boundaries--that I have
specified! I have added claiming value parenthetically to
the event of creating relationship value, although some
would argue (Zajac and Olsen 1993) that creating relation-
ship value and claiming the value are separate events. I am
somewhat more persuaded by Wilson's treatment of value
sharing as part of value creation. Finally, the evaluating
exchange outcomes event is adapted from social exchange
theory (Thibaut and Kelley 1959), employing the evalu-
ation standards of comparison level (CL) and comparison
level for alternatives (Cl~a~.We have recently discussed the
meaning of these within dyadic business relationships and
business networks (Anderson, H&kansson, and Johanson
1994). With respect to Ring and Van de Ven (1994), I prefer
a social exchange perspective to an equity perspective as
an underlying basis for assessing relationships and their
outcomes (Anderson and Narus 1984).
At the conclusion of each exchange episode, each firm
in the customer-supplier working relationship decides
whether to continue the relationship at the same level of
Anderson/ RELATIONSHIPSIN BUSINESSMARKETS 347
collaboration, to broaden it, or to curtail it. The collabora-
tive nature may be broadened through expanded scale or
scope in the relationship. Considering my earlier example,
if each partner has favorably evaluated the outcomes of
single-sourcing at the one plant, they would broaden the
scale of collaboration by extending single-sourcing to
another plant (or plants) in the customer's manufacturing
network. In contrast, they might broaden the scope by
actively working together to design the next generation of
the customer's product (a co-design program). As the
relationship progresses, the two firms may be engaging in
a number of concurrent exchange episodes, with begin-
nings and endings likely overlapping, and some of which
even having no apparent common coordination.
I regard each of these exchange episodes as a business
strand of the collaborative relationship between the sup-
plier and customer firms. The same actors within each firm
may be engaged in a number of overlapping exchange
episodes, and distinctly different groups of other actors
may be engaged in different exchange episodes. More
likely, there will be a mixture of common and distinct
actors engaged across the set of exchange episodes occur-
ring at a given point in time. Similarly spuming a perspec-
tive of exchange as a serial process, Zajac and Olsen (1993)
state:
A richer view of exchange, however, is as a parallel
process, in which the exchange occurs simulta-
neously over several channels of interdependent ex-
change over the course of the forecast period. This
results in value being sent and received simulta-
neously by both parties over multiple pathways.
(p. 140)
In my view, the numerous business strands become
"interwoven" through conscious coordination (mutual
strategy) by the partner firms and repeated social interac-
tion between the actors to respectively produce the struc-
tural and social bonds that Wilson discusses.
Relationship maintenance can be viewed as the cus-
tomer and supplier firms continuing to engage in collabo-
rative exchange episodes together. As a given exchange
episode comes to a conclusion, each partner decides
whether to engage in the next episode. Closely related,
sequential exchange episodes take on the character of
collaborative scripts, which can be thought of as standard-
ized, generalized exchange episodes (Schank and Abelson
1977). "As an economy measure in the storage of episodes,
when enough of them are alike they are remembered in
terms of a standardized generalized episode which we will
call a script" (Schank and Abelson 1977, p. 19). Impor-
tantly, what then is stored in memory about a particular
exchange episode are just those aspects that differ signifi-
cantly from the collaborative script. This has critical con-
sequence for what managers will recall when, acting as key
informants, they are asked to report on their recent rela-
tionship experience. It also provides another line of sup-
port for Dave's conception of active and latent constructs.
In addition to renewing sequentially related exchange
episodes, the partner fhrns may initiate other exchange
348 JOURNALOF THE ACADEMYOF MARKETINGSCIENCE
episodes in a broadening of the collaborative relationship.
Conversely, when an exchange episode comes to an end,
the partner firms may mutually decide not to renew this
strand of collaborative exchange in the next time period.
It may be that this strand has reached its natural conclusion
between the partners, such as in a customer's material
substitution where the supplier does not have capability in
the new material. Alternatively, because of changing self-
interest, one or the other partner firm may unilaterally
decide to terminate this strand of collaborative exchange
(in extreme circumstances, even part way through an ex-
change episode).
Ongoing relationships may be broadening in some re-
spects, curtailing in others. That is, the overall collabora-
tive relationship can be viewed as business strands that are
continuing in an "evergreen" manner (i.e., by default, are
continually renewed for a number of periods into the future
unless one partner notifies the other, and after such notifi-
cation, run for a set number of periods), business strands
that are new collaborative initiatives, and business strands
that are curtailed either through natural conclusion or
termination. In this way, relationship maintenance is a
more overarching, organic stage that is meant to capture
the ebb and flow in the collaboration between the customer
and supplier firms over time. Because of this, I concur with
Wilson's decision not to include dissolution as a separate
stage in his relationship development model, as do Dwyer,
Schurr, and Oh (1987). As I have conceptualized it here,
dissolution is simply the ultimate conclusion (or termina-
tion) of the relationship maintenance stage.
VALUE CREATION
The essential purpose for a customer firm and supplier
firm engaging in a collaborative relationship is to work
together in ways that add value or reduce cost in the
exchange between the firms. In doing so, it is the intent of
each firm to profit from the change in its actions implied
by working together. Thus value creation and value sharing
can be regarded as the raison d'&re of collaborative cus-
tomer-supplier relationships. Yet, how well do practi-
tioners or academics understand this event, or the
mechanisms through which it occurs?
As we move away from exchange episodes focusing on
lower aggregate transaction costs, such as single-source
programs, just-in-time programs, and logistics manage-
ment systems, our understanding appears to diminish
rather sharply. Early supplier involvement (ESI) programs,
for example, are often touted as providing superior lever-
aging of the knowledge and capabilities of each partner
finn and greater speed-to-market. Yet specifying exactly
how value was added or cost reduced and assessing the
magnitude of these in monetary terms appears to be both
exceedingly difficult and seldom done.
Even more poorly understood is how working together
in a focal customer-supplier relationship affects value
creation in other connected relationships of each of the
partner firms and how that which takes place in these
FALL1995
connected relationships affects value creation in the focal
relationship. That is, the embedded context within which
a focal relationship occurs has been mostly ignored. Re-
cently, we have provided some fundamental conceptuali-
zations of these effects in the constructs anticipated
constructive effects on network identity and anticipated
deleterious effects on network identity (Anderson et al.
1994).
To better understand how value creation affects and is
affected by connected relationships, consider the constitu-
ent facets of each. Anticipated resource transferability,
anticipated activity complementarity, and anticipated ac-
tor-relation generalizability are the three posited facets of
anticipated constructive effects. Anticipated resource par-
ticularity, anticipated activity irreconcilability, and antici-
pated actor-relation incompatibility are the three posited
facets of anticipated deleterious effects (cf. Anderson et al.
1994). Given limited resources and capabilities, each part-
ner finn seeks to leverage them through transferring them
to and from its connected relationships and striving toward
the complementarity of its activities across the various
connected relationships (Hamel and Prahalad 1993). In
doing so, each partner finn can accelerate and synergisti-
cally enhance value creation in the focal relationship and
their connected relationships.
As academics, our understanding of connected relation-
ships and their effects on value creation is at a rudimentary
level. Other than some instances of business networks
("Why Networks May Fail" 1992), such as General Magic
("Dreamware" 1993), practitioners also apparently have
little understanding of exactly how value is added or cost
reduced in a focal relationship due to its connected rela-
tionships and how the magnitude of these in monetary
terms would be assessed. My impression is that practi-
tioners rely either on qualitative judgments of whether
their firm is "better off" by engaging in the exchange
episode or on a piecemeal assessment based on what can
be readily pulled together or measured.
Because value sharing is inextricably linked to each
firm's understanding of value creation in their exchange
episode, much of the preceding discussion is germane here
as well. Bargaining and negotiation appear to play a larger
role in value sharing than does accurate assessment of the
value created, the contributions of each firm, and the costs
incurred by each firm. I recognize the difficulties in this
undertaking, with the inevitable reliance on assumptions
and perceptions, which can be conflicting. As a confluent
result, the price of the market offering remains the focal
point.
Wilson also recognizes the difficulties in understanding
value creation within customer-supplier relationships and
makes some astute observations about value sharing that
result from this:
Pushing too hard may damage the relationship and
risk the value being created. The basic assumption
stated earlier in the article that relationships are
"business" partnerships where enlightened self-
interest operates means that both partners will press

hard to obtain advantage but will stay within the
bounds of the trust compact they have developed.
(p. 342)
The trust compact provides a countervailing presence to
the predatory nature of price negotiations between custom-
ers and suppliers. I argue that a worthwhile complement
would be a reasonably accurate assessment of value crea-
tion by the partner firms. Specification, development,
and refinement of a collection of pertinent relationship-
evaluation measures might well be the relationship invest-
ment with the greatest return. This is especially the case
for supplier firms, which have the obligation to persua-
sively demonstrate the superior value and/or lower cost
that they are providing.
EMPIRICAL ASSESSMENT OF
RELATIONSHIP DEVELOPMENT
AND VALUE CREATION
As Wilson had the Herculean task of pulling together
and integrating numerous constructs, research findings,
and relationship concepts in a limited amount of space, it
is understandable that he mentions little about the empiri-
cal assessment of relationship development. As someone
with an interest in measurement, I would like to build on
Wilson's contribution with some thoughts on this as well
as on the assessment of value creation.
Rather than make platitudinous statements about the
need for field-survey research that is longitudinal in nature,
I will instead argue why such research will n o t be done, at
least not in the foreseeable future. First, consider the
mechanics of such an undertaking. An enormous amount
of sustained cooperation is required by managers acting as
key informants over time. The "right-sizing" movement,
which appears to be continuing despite warnings about its
potential shortcomings (Hamel and Prahalad 1994), pro-
duces tremendous upheaval in firms and increasing de-
mands on the remaining managers. The first consequence
leads to sample attrition over time as whole units disap-
pear, whereas the second leads to greater unwillingness to
participate in academic research, particularly repeatedly.
Next, consider the rewards. The marketing discipline
appears to still be largely possessed with a counting men-
tality. That is, performance reviews and promotion and
tenure reviews at many, if not most, institutions, despite
some rhetoric to the contrary, focus on the number of
publications produced by a faculty member. So, if
an academic can get several publications using cross-
sectional field research conducted at several points in time,
will a single publication reporting longitudinal research
count the same? Apart from this, when publications can be
obtained with "pseudo-longitudinal" research that solely
relies on secondary data, such as Kalwani and Narayandas
(1995), will the substantially greater effort required to do
actual longitudinal research be worth it?
Finally, when customer-supplier relationship develop-
ment is conceptualized as a set of sequential stages, there
is the difficulty of specifying the right time lag for the
Anderson/ RELATIONSHIPSIN BUSINESSMARKETS 349
longitudinal questionnaire administrations. For example,
if there is alternating causality over time between two
constructs, A and B, inappropriately specified time lags can
lead to the spurious conclusion that A and B have "simul-
taneous" reciprocal causation, or that A and B are unre-
lated. So, a critical aspect in process development models
is specifying the timing/process dynamics to capture the
proposed stages.
One of the exciting aspects of Wilson's approach with
active and latent constructs is that if we could develop
critical indicators of each stage, we would have the possi-
bility to do cross-sectional research that has a longitudinal
character. A set of studied customer-supplier relationships,
gathered at a single point in time, could be classified by
stage and modeled in a multiple-sample analysis, where
the suggested, differential construct relationships could be
empirically assessed. Further, given these critical indica-
tors, more circumscribed, but still longitudinal research
could be conducted over at least two time periods to
empirically capture the transitions between stages.
To develop our knowledge sufficiently to meaningfully
conduct field-survey, longitudinal research, detailed case
studies of customer-supplier relationship development are
needed. These case studies ought to cover substantial time
periods, drawing on material from a number of the ex-
change episodes or business strands that constitute the
collaborative relationship. Leonard-Barton (1990) re-
cently has described a dual methodology for field case
study of these sorts of complex phenomena. A single
real-time longitudinal case study is linked synergistically
with multiple, retrospective case studies to strengthen the
internal and external validity of the research findings. As
Leonard-Barton (1990) concludes: 'q'here are, of course,
opportunities for hypothesis-testing embedded within
these studies, but the overall design is most compatible to
theory-building" (p. 263).
I am much more sanguine about the prospects for
research advances by practitioners and academics on value
creation. There is growing interest by firms in business
markets in better understanding what the optimal uses of
their limited resources are. A number of best-practice
suppliers are engaging in research efforts to determine the
value of their services, programs, and systems to targeted
customers and market segments, and their own true costs
in providing them (Anderson and Narus 1995). So, too, are
best-practice customers engaging in research to determine
whether they can create the greatest value by making
components themselves or by collaborating with suppliers
that provide them (Venkatesan 1992).
Academic researchers can make a tremendous contri-
bution by developing and refining methodologies and tools
for value assessment. Given the varied settings and appli-
cations in business markets, no doubt a set of tools and
methodologies will be needed to provide accurate assess-
ments of "what is it worth?" A recent state-of- practice
study (Anderson, Jain, and Chintagunta 1993) suggests
that research on the validity of the results obtained from
various value assessment methods can make a significant
contribution. Comparative studies on the efficacy of dif-
ferent methods are needed, especially as they are applied
350 JOURNAL OF THE ACADEMYOF MARKETING SCIENCE
to exchange episodes beyond those focusing on lower
aggregate transaction costs (e.g., early supplier involve-
ment programs, connected relationships). Given that value
creation can be regarded as the cornerstone o f business
markets, I hope to see value assessment become a primary
area of inquiry in business marketing academic research in
the coming years.
CONCLUSION
David Wilson (1995) has provided us vyith much grist
for thought with his integrated framework for customer-
supplier relationship development. In focusing on which
constructs are "active" and therefore most meaningful at
each stage, he has opened a new vista for research in this
area. Our models and empirical research ought to reflect
this, but to date they largely have not. I have suggested
qualitative, longitudinal research as a preferred next step
in gaining the knowledge that we will need to make field-
survey, longitudinal research worthwhile.
Wilson also is to be lauded for drawing greater attention
to value creation as a central undertaking in customer-
supplier relationships. Understanding and actualizing
value creation (and value sharing) are critical aspects o f
the market-sensing and customer-linking capabilities in
market-driven organizations (Day 1994), yet the mecha-
nisms underlying them and the methodologies for accu-
rately assessing them remain largely unknown. Here,
particularly for tool development research, it would seem
to be an opportune time for business marketing academics
and practitioners to form their own collaborative relation-
ships for mutual gain.
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ABOUT THE AUTHOR
James C. Anderson is the William L. Ford Distinguished Pro-
fessor of Marketing and Wholesale Distribution and a professor
of behavioral science in management at the J. L. Kellogg Gradu-
ate School of Management, Northwestern University. His re-
search interests are in working relationships between finns in
business markets and measurement techniques. His articles have
appeared in Harvard Business Review, Journal of Marketing,
Journal of Marketing Research, Management Science, Psycho-
logical Bulletin, and Psychometrika, among others. He has been
vice president of the Business Marketing Division of the Ameri-
can Marketing Association and is a fellow of the American
Psychological Association.