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The profit impact of the transaction-

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specific assets: a process model of
adaptive marketing resources
a b
Shenyu Li , Siva K. Balasubramanian & Peter T.L. Popkowski
c
Leszczyc
a
Department of Marketing, Shanghai University of Finance and
Economics, Shanghai, China
b
Department of Marketing, Illinois Institute of Technology,
Chicago, IL, USA
c
Department of Marketing, University of Alberta, Edmonton, AB,
Canada
Published online: 05 Feb 2014.

To cite this article: Shenyu Li, Siva K. Balasubramanian & Peter T.L. Popkowski Leszczyc (2014) The
profit impact of the transaction-specific assets: a process model of adaptive marketing resources,
Journal of Strategic Marketing, 22:4, 316-327, DOI: 10.1080/0965254X.2013.876078

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 Journal of Strategic Marketing, 2014
Vol. 22, No. 4, 316–327, http://dx.doi.org/10.1080/0965254X.2013.876078

The profit impact of the transaction-specific assets: a process model

of adaptive marketing resources
Shenyu Lia*, Siva K. Balasubramanianb and Peter T.L. Popkowski Leszczycc
Downloaded by [Computing & Library Services, University of Huddersfield] at 15:05 27 December 2014

a
Department of Marketing, Shanghai University of Finance and Economics, Shanghai, China;
b
Department of Marketing, Illinois Institute of Technology, Chicago, IL, USA; cDepartment of
Marketing, University of Alberta, Edmonton, AB, Canada
(Received 9 September 2013; accepted 17 October 2013)

This study proposes and tests a process model of the impact of the retailer’s transaction-
specific assets (TSA) on the retailer’s profit. We found that product and promotional
resources transacted across the firm boundary fully mediate the relationship between
the retailer’s TSA and the retailer’s profit. Results support predictions that TSA
embody the resource-based elements in a channel setting. Besides, the result shows that
product resource is a more important resource that mediates the relationship between
TSA and the retailer’s profit than the promotion. Managerially, this study identifies the
objectives of building up TSA and justifies the profit impact of TSA.
Keywords: asset specificity; resource-based view; marketing channel; mediation
analysis

Introduction
With the emergence of the network economy and new trends in market competition, firms
engaged in transactions have become more interdependent on each other. Firm boundaries
and activities are increasingly blurred. Economic exchanges are inevitably embedded in,
and affected by, relationships among firms (Granovetter, 1985). Given this, a sound
interorganizational relationship allows a firm to access another firm’s resources
(Dickinson & Ramaseshan, 2004). Potentially, such a relationship could evolve into a
crucial asset for that firm’s survival and growth. If a firm cooperates with another firm
because of such resource access, it has to consider both interfirm exchange and
coordination issues simultaneously (Verwaal, Commandeur, & Verbeke, 2009). The
former is the domain of resource-based view (RBV) and the latter primarily relates to the
literature on transaction cost economics (TCE).
Literature regarding the TCE in marketing and management has well documented the
impact of transaction-specific assets (TSA) in terms of reducing costs associated with
governance through integration (e.g. Dnes, 1998). Williamson (1985) predicts that the
higher the TSA, the more the pressures toward integration because of the motivation to
safeguard TSA. However, within a marketing channel, the retailer’s investment in TSA
might be fully or partially forfeited if the manufacturer terminates the relationship or even
decreases transaction activity (Klein, Frazier, & Roth, 1990). Therefore, the retailer,
usually smaller in size, may find it impossible to integrate with the manufacturer in order
to safeguard its investment in TSA (Heide & John, 1988). Overall, this line of reasoning
suggests that the retailer might not be willing to invest in this non-salvageable TSA. Yet,

*Corresponding author. Email: li.shenyu@shufe.edu.cn

q 2014 Taylor & Francis

 Journal of Strategic Marketing 317

in reality, retailers indeed actively pursue transaction-specific investments by nurturing

their relationships with a specific manufacturer (Morgan & Hunt, 1994). Such investments
in time and effort, although potentially risky, may potentially generate value for the
retailer (Palmatier, Dant, & Grewal, 2007; Swaminathan & Moorman, 2009). At this point,
the mechanisms underlying the productivity of TSA and the related boundary conditions
within the marketing channel are not clearly established. Our study addresses this gap and
shows that asset specificity (assets created by a retailer that are uniquely specific to its
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relationship with a manufacturer – see Appendix 1) influences the retailer’s profit through
manufacturer’s marketing resources (i.e. product and promotional resource adaptation).
Our study uses the term ‘asset specificity’ as a derivative of TSA.
Our study makes several important contributions. First, we propose and empirically
test the process model of how business process asset specificity can be transformed into
profit. Second, we compare the mediation effect of the product and promotion resources as
well as the mediation effects of these two resources under the condition where the
manufacturer has a high versus low market share. Our empirical results support the
resource-based nature of TSA. They extend the contribution of TSA from improved
productivity in the production management field to product marketability in the marketing
channel.
This manuscript is organized as follows. We first present and discuss our research
framework. We then develop the hypotheses based on the framework, describe the data
and measures used, and discuss our empirical results. We conclude with limitations and
directions for future research.

Research framework
Figure 1 demonstrates the research framework of this study. In this framework, we propose
that business transaction asset specificity may positively influence the retailer’s profit with
a specific manufacturer. Marketing resources (i.e. product and promotional resources)
mediate the relationship between TSA and profit.

Transaction-specific asset and business process asset specificity

TSA is defined as the retailer’s deliberate investment of human and physical assets that
support transactions with a specific manufacturer (Zhao & Wang, 2011). Williamson
(1981) differentiates between four types of asset specificity: site specificity, physical asset

Product
resource
adaptation
H1 H3

Asset
Reseller’s
specificity
profitability

H2 H4
Promotion
resource
adaptation

Figure 1. Research framework.

 318 S. Li et al.

specificity, human asset specificity and dedicated asset. For example, physical asset
specificity, from a retailer’s perspective, may refer to the specificity level of those tangible
assets such as an interorganizational information system (Ehring, 2006) that is invested to
integrate the retailer’s data (e.g. Walmart) with a specific manufacturer’s data (e.g. P&G).
Human asset specificity may include all the human resource investment dedicated to a
specific manufacturer. In this study, we focus more closely on the business process asset
specificity as this asset might be the most salient investment in human asset by a small
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retailer for a specific manufacturer.

Business process asset specificity, in this study, refers to the extent of specificity of the
investment in personnel training, procedural knowledge and routines with regard to a
specific manufacturer (Zaheer & Vankatraman, 1994) (the definitions of other factors in
the conceptual model also appear in Appendix 1). Such knowledge is accumulated over a
long-term relationship (Ireland, Hitt, & Vaidyanath, 2002; Williamson, 1983). The retailer
may train staff members to increase familiarity with a specific manufacturer’s routine and
work flow (Palmatier et al., 2007; Zaheer & Venkatraman, 1994). Such transaction-
specific investment in human resources by the retailer may improve the effectiveness and
efficiency of transactions with a specific manufacturer.
For example, Adler, Goldoftas, and Levine (1999) and Madhok (2002) document the
interaction process between an automobile design company (supplier) and NUMMI
(manufacturer). NUMMI production engineers visit the supplier to review the product’s
design for its manufacturability. Similarly, newly recruited designers in the supplier firm
often begin their employment at the NUMMI plant to gain familiarity with the
manufacturer. This employee exchange program exposes staff to experiences in partner
companies. It allows adequate interaction opportunities between two organizations and
improves mutual understanding of other party’s advantages and disadvantages. More
importantly, this program nurtures interorganizational meta-routines and shared beliefs
that in turn influence cooperation and coordination efforts between firms (Ireland et al.,
2002).
Similarly, in a distribution channel setting, the manufacturer (retailer) may
periodically dispatch key employees to work in the retailer’s (manufacturer’s) firm (e.g.
Stern, Sternthal, & Craig, 1973). Retailers may also hire managers who were former
employees in the manufacturer’s firm. Such personnel exchanges provide unique learning
opportunities for firms. They familiarize the manufacturer and the distributor with
operational routines and the markets of other firms. They also stimulate information flow
and enhance understanding of reciprocal needs and limitations (Brown, Dev, & Lee, 2000;
Heide & John, 1992). Such personnel exchange programs may contribute to the assets that
help future business exchanges between the manufacturer and the retailer.

Productivity of transaction-specific assets

TSA may generate abnormal returns for investors (Amit & Schoemaker, 1993; Palmatier
et al., 2007). The positive contribution of TSA to a firm’s profitability has been empirically
affirmed in the automobile (Dyer, 1996), high technology (Saxenian & Hsu, 2001), logistics
(Bourlakis & Bourlakis, 2005) and marketing channel (Palmatier et al., 2007) contexts.
TSA improves the alignment of organizational resources to identify and captures
market opportunities (Ghosh & John, 1999). Stated differently, the objective of building
up TSA that is oriented around a manufacturer is to better access the resources at that
manufacturer (Wilson, Littler, Leverick, & Bruce, 1995), thereby harnessing available
 Journal of Strategic Marketing 319

capabilities in innovation, product design, production, and marketing (Dwyer, Gilmore, &
Carson, 2011).
Channel management requires effective decision-making about products and
promotions. Retailers expect superior product and promotional resources from the
manufacturer in order to effectively target downstream consumers. Note that a retailer
cannot physically change the product attributes sold in their stores. However, the retailer
may influence or adapt offerings from the manufacturer through accumulated and/or
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invested TSA. In the long run, this process indirectly shapes the manufacturer’s product
strategy, resulting in a product mix that is adaptive to customers’ needs. In addition, the
retailer may participate in a manufacturer’s promotional activities (Murry & Heide, 1998).
Such participation allows the retailer to provide feedback that refines the promotion
activities of the manufacturer such that downstream customers are better served (Samiee,
Jeong, Pae, & Tai, 2003).
As a whole, our model addresses the question of how a retailer may exploit TSA to
improve profitability. This process model proposes that adaptive promotion and product
resources mediate the relationship between asset specificity and the retailer’s profitability.
We offer more detailed hypotheses in the next section.

Hypothesis development
A dynamic view of firm’s capability is appropriate because firms seek to satisfy
consumer’s ever-changing needs and wants (Hunt & Morgan, 1996). Firms should respond
promptly to changes in social, technological and marketing environments. The retailer’s
knowledge of the manufacturer’s transaction procedure may inform its category
management and product replenishment activities to better respond to changing market
conditions (Vázquez, Iglesias, & Alvarez-González, 2005). For example, the continuous
replenishment system built for both Walmart and P&G facilitates the replenishment of
P&G products at Walmart stores (Grean & Shaw, 2002). From Walmart’s perspective, this
specific investment for P&G optimizes shelf space usage and improves cash flow
(Walmart may get the cash from the consumer well before the time of payment to P&G.).
It allows Walmart to replace slow moving products with more profitable products.
Additionally, an investment that is specific to a manufacturer allows the retailer to
fully exploit related product advantages. For example, CISCO’s certified Internet engineer
program trains retailers to become effective network solution providers. Although the
training entails substantial human resource investment from the retailer, it develops
CISCO specific knowledge that provides unique insights about its products and their
downstream users (Mitchell, 2001). Consequently, retailers who employ CISCO-certified
Internet engineers could sell the network products better than retailers who do not. On the
basis of the above argument, we propose the following hypothesis:
Hypothesis 1: From a retailer’s point of view, the asset specificity is positively related
to product resource adaptation.
The value of assets that are specific to a particular manufacturer extends beyond
product management to promotion effectiveness (Tzokas & Saren, 1997). The retailer can
actively participate in the manufacturer’s promotional program (Murry & Heide, 1998).
The success of promotional activities jointly designed and implemented by a retailer/
manufacturer team is dependent on the institutionalized interfirm knowledge management
routines that encourage the transfer and integration of knowledge (Grant, 1996). For
example, when NUMMI identified a manufacturability problem while evaluating a new
 320 S. Li et al.

product’s design, it challenged its supplier to create new solutions (Madhok, 2002).
In other words, NUMMI expanded its production capability by integrating the supplier’s
design expertise into its own knowledge base (Lorenzoni & Lipparini, 1999; Swaminathan
& Moorman, 2009). Such knowledge transfer is highly dependent on the TSA
accumulated from past transactions (Ireland et al., 2002). Similarly, in a marketing
channel setting, the retailer’s knowledge about a manufacturer’s marketing expertise
needs specific investment of time and learning effort. Note that this process may also help
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the manufacturer to design and implement a more customized promotional program. The
effectiveness of such customized promotional activity depends largely on a coordination
system that integrates the retailer’s knowledge on local consumers and the manufacturer’s
general expertise in promotion (cf. Grant, 1996). Therefore, we propose the following
hypothesis:
Hypothesis 2: From a retailer’s point of view, the asset specificity is positively related
to promotional resource adaptation.
RBV suggests that the heterogeneity of resources available to firms accounts for the
differences in profit performance across firms (Barney, 1991). Knowledge-based theory
further suggests that a firm’s capability to manage its internal knowledge is a key
sustainable competitive advantage (Grant, 1996). In interorganizational settings, TSA
formation is a learning-by-doing process. It reflects the tacit knowledge accumulated
through interactions with the transaction partner (Ireland et al., 2002). For this reason, it is
difficult for competing firms to measure and duplicate such transaction-based knowledge,
and is likely to generate sustainable competitive advantage. As the transacted resources
entail TSA elements, they remain idiosyncratic to a given partner pair. Marketing
resources that are ‘refined’ by TSA tend to generate abnormal profits because TSA
improves the adaptation level of such resources. For example, Cavusgil and Zou (1994)
found that, in an international marketing context, products that are better adapted to tastes
of local consumers are more likely to satisfy consumer needs. Zhang and Wedel (2009)
found that the payoff of customized promotion is higher than for mass promotion.
Therefore, we propose the following hypotheses:
Hypothesis 3: From a retailer’s perspective, manufacturer’s product resource
adaptation is positively related to the retailer’s profits.
Hypothesis 4: From a retailer’s perspective, manufacturer’s promotional resource
adaptation is positively related to the retailer’s profits.

Research methods
Data were obtained from a commercial market research firm that conducted a retailer
satisfaction study for a beer manufacturer operating in China that owned two brewing
plants and four brands. Three brands were targeted at low-end markets, and the fourth was
aimed at the high-end market. The manufacturer worked with thousands of retailers to
market their products, and ranked in the second tier of beer manufacturers in terms of
market share. A focus group was initially conducted with 12 retailers who were asked to
list items that influenced the development of their relationship with the manufacturer. The
items most frequently mentioned highlighted asset specificity, product resources and
promotional resources.
We next describe the measures used in this study. The asset specificity is measured by
importance ratings of training offered by the manufacturer, and contract signing/order
 Journal of Strategic Marketing 321

processing procedures. If the retailer believes that the transaction procedure and training
are very important to its business, it would invest considerable time and effort in them.
In other words, the retailer’s business process asset specificity will be high under these
circumstances. Hence, this measure captures the idea of transaction procedural knowledge
with a specific manufacturer (Zaheer & Venkatraman 1994).1 The product adaptation and
promotion adaptation measures are quite similar to the promotion adaptation scale used by
Cavusgil and Zou’s (1994) study in an international marketing setting.2 We maintain that
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the retailer is usually responsible for a local sales area, and therefore expects more
adaptive product and promotional resources from the manufacturer for that area.
All scales measuring retailer’s perceptions of manufacturer’s product and promotional
adaptation and retailer’s profit are satisfaction ratings, which are the most commonly used
ratings in market research. In addition, satisfaction with channel relationships is the
foundation for cooperation within distribution networks (Dwyer, Schurr, & Oh, 1987).
Satisfaction ratings are especially suitable to measure retailers’ perceptions of relationship
variables (Iglesias & Vázquez, 2001; Speckman, 1996, p. 12), resource variables and
profits. Finally, two items that assess the retailer’s satisfaction with its profits and
investment return are used as a proxy measure for the retailer’s profitability. This is
because most retailers were private companies that did not disclose profits publicly.
A survey questionnaire was prepared to measure retailer satisfaction with these three
constructs and the outcome construct (retailer profit). A five-point Likert scale was used
with response options ranging from ‘very dissatisfied,’ to ‘very satisfied,’ or ‘very
unimportant,’ to ‘very important.’ All questions were rotated to avoid possible order
effects.
To administer the questionnaire, the research firm conducted personal interviews of
retailers drawn from 23 Chinese cities using a proportional sampling scheme whereby the
proportion of sampled retailers in a given city was based on the actual number of retailers
for the manufacturer. A total of 376 usable questionnaires were available for data analysis
(we were not able to obtain the response rate from the company that administered the
survey). Among them, 195 retailers were located in the two cities where the manufacturer
dominates the market. The remaining 181 retailers were located elsewhere.

Results
We assessed the reliability of four measurement scales of interest in this study.
The Cronbach a (or inter-item reliability) of each scale exceeds 0.70 (please refer to
Appendix 1), thereby supporting internal consistency.
Following Zhao, Lynch, and Chen (2010), we conducted a mediation analysis,
adopting Preacher and Hayes’ (2008) bootstrap approach. We set the number of bootstrap
resamples at 5000 and the confidence level at 95%. The coefficients of the mediation effect
of the product resource adaptation on the relationship between asset specificity and the
profitability range between 0.045 and 0.124. Similarly, the coefficients of the promotion
resource adaptation range between 0.003 and 0.062. As the coefficient ranges of both
product resource adaptation and promotion resource adaptation exceed zero, the mediation
effect of these two factors on the profitability is supported. A comparison of the magnitude
of the mediation effects of product resource adaptation and promotion resource adaptation
indicated coefficient ranges between 0.011 and 0.098, suggesting that the mediation effect
of product resource adaptation is higher than for promotion resource adaptation. This
finding is reasonable since the retailer’s main revenue source stems from the management
of the product rather than the promotion.
 322 S. Li et al.

We also assessed the total effect of asset specificity on the retailer’s profitability. The
result demonstrates that the total effect of asset specificity on the profitability is positive
and significant (b ¼ 0.114, p , 0.05). In addition, asset specificity is positively related to
the product resource adaptation (b ¼ 0.237, p , 0.001) and the promotion resource
adaptation (b ¼ 0.132, p , 0.05). Thus, H1 and H2 are supported. Sequentially, the
product resource adaptation (b ¼ 0.334, p , 0.001) and the promotion resource
adaptation (b ¼ 0.198, p , 0.001) are positively related to the retailer’s profitability.
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Thus, H3 and H4 are supported. Finally, the result shows that there is no direct effect of
asset specificity on retailer profitability (b ¼ 0.008, p . 0.10), in addition to the indirect
effects through product and promotion resources adaptation. Thus, the product and
promotion resources adaptation fully mediate the relationship between the asset specificity
and the profitability. The above results support the overall framework of the conceptual
model in Figure 1.
Furthermore, we conducted separate mediation analyses using data for retailers located
in two cities (n ¼ 195) where the manufacturer’s market share is high and the other cities
where the manufacturer’s market share is low (n ¼ 181). For the former group, the
mediation effects of both the product resource adaptation variable (the coefficient range is
between 0.020 and 0.121) and the promotional resource variable (the coefficient range is
between 0.000 and 0.121) are supported. For the latter group, the mediation effect of the
product resource adaptation variable is supported (the coefficient range is between 0.030
and 0.145), while the mediation effect of the promotional resource adaptation variable is
not supported (the coefficient range is between 2 0.046 and 0.037) because the business
process asset specificity is not significantly related to the promotional resources
(b ¼ 0.035, p . 0.10).
The mediation analyses for the two retailer groups support the notion that building
business process assets requires interaction opportunities over the long term. It is important
for all retailers to manage product resources well, regardless of the manufacturer’s position in
the market. All retailers have similar opportunities to communicate/coordinate product issues
with the manufacturer. Hence, the manufacturer’s market position does not influence the
effect of business process asset specificity on product adaptation and in turn on the retailer’s
profit. In contrast, promotional activity is not a day-to-day business like product adaptation.
There could be even less promotion opportunities in cities where the manufacturer’s market
share is low. Hence, retailers in these cities may have fewer opportunities to discuss
promotion issues with the manufacturer. Therefore, promotion resources are less likely to be
influenced by the business process asset specificity for these retailers.

General discussion
We discuss the profitability of asset specificity in the marketing channel by highlighting
the marketing mix elements (i.e. product and promotion resources). Our study empirically
confirms that business process asset specificity in a marketing channel may generate
superior profit for the retailer. This result implies that learning transaction procedures and
developing customized transaction routines for a specific manufacturer (e.g. through
training sessions organized by the manufacturer) is appropriately considered an
investment rather than a cost. Moreover, our study suggests that TSA embodies the
resource-based elements that are likely to enhance the retailer’s profitability through
marketing resources in a channel setting (Rocks, Gilmore, & Carson, 2005).
Our research extends the positive contribution of TSA from productivity to product
marketability. Previous research discusses the contribution of TSA to improve the
 Journal of Strategic Marketing 323

productivity of partner firms by establishing collaborative coordination mechanisms

across the firm boundary (e.g. Dyer & Singh, 1998; Madhok, 2002; Zollo, Reuer, & Singh,
2002). Within a marketing channel context, we show that even if a firm does not
participate in the production process of another firm, it may still benefit from TSA to the
extent that its access to product resources is enhanced.
Our research unpacks the process whereby TSA influences the retailer’s profit. First,
through TSA, the retailer may develop a mechanism to access the manufacturer’s
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specialized marketing resources. Second, TSA can facilitate the deployment of the
manufacturer’s marketing resources (Ghosh & John, 1999). Although the retailer, by
definition, cannot directly change the physical nature of the product sold in its store, it
could use TSA to identify the best or worst selling products via product category
management in the short term and indirectly influence manufacturer’s production in the
long term. Third, TSA can refine the manufacturer’s resources (e.g. promotion adaptation)
by integrating the manufacturer’s marketing expertise and the retailer’s local knowledge.
Our research extends the domain of TSA’s influence on production into marketing
channel. In other words, our research implies TSA’s marketability in the marketing
channel.
Our research implies that the higher the firm’s capability to manage its transaction
partner’s resources, the better its financial performance. RBV and its extension hold that
the capability of deploying the firm’s internal resources is a type of sustainable
competitive advantage (Barney, 1991). The TSA formation is a subtle and tacit process,
which echoes a firm’s capability for interfirm knowledge management (Madhok &
Tallman, 1998). Our research implies that the retailer’s capability to integrate the
knowledge of local consumers with the manufacturer’s production and marketing
expertise is critical. This helps the retailer to better deploy the manufacturer’s resources to
satisfy their common downstream consumers (Amrouche & Yan, 2012). Actually,
knowledge of the productivity of resources is more important than the ownership of the
resources to improve production efficiency. Therefore, our research extends the capability
of knowledge management to an interfirm domain.
The research tradition in economic sociology highlights the importance of social
capital in a firm’s survival and growth. Basically, social capital refers to a firm’s relations
with other firms that have important resources (Dyer & Singh, 1998; Uzzi, 1996). It is built
through a firm’s long-term interaction with other firms (Ireland et al., 2002). Our research
supports this notion in that more interaction opportunities (e.g. product vs. promotion
resources) lead to more impact of business process asset specificity on the marketing
resources.

Strengths, limitations and future research

Gruber, Henneberg, Ashnai, Naudé, and Reppel (2010) note that extant research has not
clarified as to (1) how different types of resources available to a firm may contribute to its
performance, and (2) how firms may uniquely combine different resources and capabilities
to achieve superior performance. A key strength of this study is that it responds to the spirit
of this criticism. Specifically, it focuses on the manufacturer’s product resources and
promotional resources that the retailer may draw upon to improve the retailer’s
performance. Several insights, implications and nuances stem from our findings, and these
are described next.
This research utilized a unique database concerning retailer– manufacturer channel
relationship in a Chinese setting. Despite the increasing importance of the Chinese market,
 324 S. Li et al.

few studies have considered a Chinese setting. In addition, we studied the relationship
between small retailers and a manufacturer. These small retailers account for a major part
of overall business volume in our study. Furthermore, note that the measurement items for
our model constructs are satisfaction ratings that offer a sound basis to evaluate the quality
of any relationship. However, such ratings from a retailer may differ qualitatively from
end consumers’ perceptions of resource quality. Future research should address the
measurement of product and promotional resources by also collecting data from end
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consumers.
Our research results are based on the beer distribution channel. There is some evidence
that the influence on performance of the relationship constructs examined may depend on
the industry context or on the supplier (i.e. manufacturer) context (Lassar & Kerr, 1996).
Future research could investigate multiple industry/market settings to explore general-
izability of our findings.
Lassar (1998) draw on agency theory to hypothesize that a manufacturer’s competitive
strategy shapes the type of control mechanisms expected within that manufacturer’s
distribution channel. Moreover, different types of TSA may differentially influence the
interorganizational profit. Future research could investigate multiple manufacturers
pursuing different competitive strategies to provide additional insights.
The resources that the manufacturer possesses may not be limited to those identified in
our study. Most notable is retailer price discrimination, a practice outlawed in the USA by
the Robinson– Patman Act of 1936 (ignoring exemptions such as volume discounts) that
constrain a particular retailer’s ability to profit from transactions with a manufacturer to
the extent that other retailers engaged with the same manufacturer are unable to (Corstjens
& Steele, 2008). For this reason, profits may only be partially determined by the
relationship between the manufacturer and the retailer. Future research should consider the
influence of this relationship on retailer price discrimination. Finally, future research may
consider the interaction between superior resources and a firm’s competitive actions.

Notes
1. In our dataset, as all the retailers are small in size, the majority of their transaction-specific
investment would be in the knowledge of the product and the transaction procedures of the
manufacturer. Moreover, the market power of the retailers is similar and may not change the
structure of the manufacturer’s market.
2. Cavusgil and Zou’s (1994) promotion adaptation scale includes both product positioning and
promotion adaptation level. Our scales differentiate these two distinct concepts and offer a richer
content in the marketing channel setting.

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Appendix 1: Concept definition and scale items

Retailer’s asset specificity
Definition: The extent of specificity of personnel training, procedural knowledge and
routines with regard to a specific manufacturer
Scale items (1 to 5 importance scale):
importance of ordering process with the manufacturer;
importance of training provided by the manufacturer;
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importance of signing various contracts with the manufacturer;

Cronbach’s a ¼ 0.80.

Product adaptation
Definition: The extent of adaptation level of manufacturer’s product in the retailer’s sales
territory
Scale items (1 to 5 satisfaction scale):
satisfaction of product adaptation;
satisfaction of product positioning;
satisfaction of product configuration;
Cronbach’s a ¼ 0.70.

Promotion adaptation
Definition: The extent of adaptation level of manufacturer’s promotional activities in the
retailer’s sales territory
Scale items (1 to 5 satisfaction scale):
satisfaction of pertinence of the manufacturer’s promotion;
satisfaction of promptness of the manufacturer’s promotion;
satisfaction of manufacturer’s feedback and suggestion on the promotion;
Cronbach’s a ¼ 0.78.

Retailer’s profit
Definition: Retailer’s profit from the business with the manufacturer
Scale items (1 to 5 satisfaction scale):
satisfaction with the profit from the business with the manufacturer;
satisfaction with the investment return from the business with the manfacturer;
Inter-item reliability ¼ 0.76.