Customer-Centric Contract Changes

Abstract

Customers would frequently benefit from changes to an existing purchase contract with a supplier (e.g., due to a wrong order). Salespeople can voluntarily make such a change, which the authors label a “customer-centric contract change.” Formally, the authors define a customer-centric contract change as a salesperson's act of amending the purchase contract in the customer's favor without a legal obligation to do so. Since the literature has neglected this prevalent and important phenomenon, they draw on social exchange theory to study the impact of such contract changes on relationship performance. Toward this end, the authors leverage panel data on over 57,000 customers, four experiments, and a survey study. Results suggest that customer-centric contract changes increase relationship performance because customers are grateful for a salesperson's relinquishing of power. Interestingly, this effect is less pronounced in close exchange relationships where a norm of solidarity between customers and salespeople exists. These findings add to emergent work that shows that business partners in close exchange relationships expect to alleviate each other's hardships and are willing to forgo power advantages to do so; the authors integrate these findings into what they term “power-solidarity theory.” For practitioners, the findings offer guidance on whether and how to approve contract change requests.