Opportunistic Behavior in Industrial Marketing Relationships

DOCTORAL T H E SIS

Department of Business Administration, Technology and Social Sciences Division of Business Administration Raeesah Chohan Opportunistic Behavior in Industrial Marketing Behavior Relationships Raeesah Chohan Opportunistic in Industrial

ISSN 1402-1544 Opportunistic Behavior in ISBN 978-91-7790-552-3 (print) ISBN 978-91-7790-553-0 (pdf) Industrial Marketing Relationships

Luleå University of Technology 2020

Raeesah Chohan

Industrial Marketing

OPPORTUNISTIC BEHAVIOR IN INDUSTRIAL MARKETING RELATIONSHIPS

DOCTORAL DISSERTATION

RAEESAH CHOHAN

23rd March 2020

Submitted in Fulfilment of the Requirements for the Degree of

DOCTOR OF PHILOSOPHY

Supervisors Professor Esmail Salehi-Sangari Professor Leyland Pitt

Department of Business Administration, Technology and Social Sciences Luleå University of Technology 971 87 Luleå, Sweden

Printed by Luleå University of Technology, Graphic Production 2020

ISSN 1402-1544 ISBN 978-91-7790-552-3 (print) ISBN 978-91-7790-553-0 (pdf) Luleå 2020

Printed by Luleå University of Technology, Graphic Production 2020

ISSN 1402-1757 ISBN 978-91-7790-508-0 (print) ISBN 978-91-7790-509-7 (pdf) Luleå 2020 www.ltu.se ABSTRACT

As humans beings, we act to our advantage. In some cases, this is done to the detriment of others; also known as opportunistic behavior. As past and current industrial marketing relationships have been impaired by opportunism, it is valuable for scholars and practitioners to gain a deeper understanding of opportunistic behavior and how to prevent it. A key driver of opportunistic behavior is information. This informs the purpose of this publication-based dissertation, which is to address its research problem: How can information facilitate and constrain opportunistic behavior in industrial marketing relationships? Agency Theory is the first theory used to address this research problem. Agency Theory focuses on governing opportunistic behavior in a principal- agent relationship. The theory has been widely applied in the marketing literature. Therefore, this dissertation’s first research question addresses: How has Agency Theory been used to constrain opportunistic behavior in industrial marketing relationships? To answer this question, Paper 1 provides an extensive literature review and suggests future research agendas. However, during the course of this dissertation it was found that Agency Theory is limited when applied to relationships where the agent is a professional. Most industrial marketing relationships comprise professional agents. Furthermore, both principals and professional agents can act opportunistically ex-ante (i.e., pre-contract) and ex-post (i.e., post-contract) at the same time. Therefore, the second research question asks: What role does information play in manifesting ex-ante and ex-post opportunistic behavior in principal and professional-agent industrial marketing relationships? This research question is answered in a purely conceptual manner, through the introduction of a new model in Paper 2. The remaining two papers follow a constructivist, qualitative research design. A context was needed to gain an empirical understanding on opportunism in industrial marketing relationships. The context chosen for this dissertation is the client-advertising agency relationship. The third research question therefore asks: How do clients and advertising agencies act opportunistically ex-ante and ex-post? To answer this research question, representatives from advertising agencies and clients were interviewed. Their descriptions of opportunism in this context are explained in Paper 3. Given the clear need to constrain client-advertising agency opportunism, the fourth research question asks: What role does information play in the choice of constraint mechanism for the client-advertising agency relationship? To do this, the Theory of Relationship Constraints was applied to the client- advertising agency relationship context in Paper 4. The theory focuses on choosing the appropriate constraint mechanism to curb opportunistic behavior.

Broadly, this dissertation primarily contributes to the body of knowledge by offering a better understanding on how opportunism can manifest and be constrained in today’s industrial marketing context. The remainder of the dissertation is laid out as follows. First, the research area is introduced. Second, the key literature and theoretical perspectives are discussed. Third, the methodology employed is explained. Fourth, the findings are disclosed. Last, the theoretical contributions, managerial implications, limitations and future research agendas are presented and followed by a conclusion. The four papers that comprise this publication-based dissertation are then included. Paper 1 answers Research Question 1, Paper 2 answers Research Question 2, Paper 3 answers Research Question 3 and Paper 4 (a working version) answers Research Question 4. Three of these papers are published/accepted; the final paper is a working paper.

Key words: Industrial marketing, relationships, information asymmetry, opportunistic behavior, moral hazard, adverse selection, principal-agent, Agency Theory, professional agent, Theory of Relationship Constraints, client-advertising agency relationship, ex-ante, ex-post, formal constraint mechanisms, social constraint mechanisms.

In the name of Allah, the Most Gracious, the Most Merciful

DEDICATION

To my late maternal grandfather, Mehmood Darsot, who emphasized the importance of empowering women through education.

ACKNOWLEDGMENTS

I would like to begin by thanking the University of Cape Town for the generous support received from the institution and its personnel to pursue this endeavour.

To my PhD classmates, thank you for the friendships and memories made in Stockholm and Luleå.

I would particularly like to thank Mario Cassar and Jirka Konietzny, who have become friends for life. From our walks to and from class, dinners and interesting conversations, to our shared sense of humour. Thank you for making the coursework bearable and for making me laugh throughout it. Grazzi hafna.

To Prof. David Hannah, thank you for your helpful feedback during the mid-term.

Prof. Ana Lisboã, muito obrigado por sua orientação útil no seminário de Pi.

To Professors Albert Caruana, Arthur Money, Julie Tinson, Michael Morris, Russell Abratt, Narongsak Thongpapanl, Jan Kietzmann, Lars Karlsson and Emin Babakus, thank you for providing a world-class education through your valuable classes. I have enjoyed learning from each course and its challenges. It was a privilege to be taught by each of you.

To my co-authors, namely Richard Watson, Kirk Plangger and Emily Treen, I have learned so much from working with you. Thank you for your help and kindness.

A heartfelt thank you to Prof. Åsa Wallstrom, for your efforts on the PhD program and consistent support when facilitating the Pi seminar and Defense. Tack så mycket, särskilt för din vänlighet alltid.

To my supervisor, Prof. Esmail Salehi-Sangari, thank you so much for your valuable support and encouragement particularly during the tail-end of this journey. I am grateful for the opportunity to have learned from you and appreciate your sincere advice throughout the PhD.

To my supervisor, mentor and friend, Prof. Leyland Pitt. Had it not been for you, I would have only gained a doctoral degree during this journey. I am grateful for the additional opportunities you provided and the experiences you encouraged me to pursue. You have taught me so much about life, confidence and the fun side of academia. I value your constant belief in me and the motivation to keep striving. Your support pulled me through on numerous occasions. It has been an absolute honour being your student and a pleasure working with you. Thank you so much.

From ceilidh dancing in Edinburgh, the Storforsen in Luleå, fado and bacalhau in Porto, the beach at Hotel del Coronado, drinks at Stirling Castle, La Bohème in Stockholm, poutine in Vancouver and the aurora borealis in Kiruna, the adventures experienced throughout this PhD have been exceptional. I could not have asked for a more fruitful way to learn about and enjoy life during the latter half of my 20s.

To my siblings and extended family, thank you for your constant love and support.

To my wonderful parents. You have instilled in me roots to remind me where I come from while giving me wings to strive for what I can become. I could not have asked for better parents.

To my ever-supportive mother, Shehnaz Chohan. I cannot begin to describe the many ways you have supported me. Thank you for teaching me about the power of positivity, the funny PhD memes you sent me, making life easier before deadlines, the lunches and walks to de-stress and all those airport drop-offs and pick-ups. You have helped me in every way that you could. Obrigada minha mãe maravilhosa. Eu te amo.

To my dear father, Ahmed Chohan. You have only ever given me the best you could in education and the gift of traveling my entire life; teaching me to maintain an open mind while showing me the world. As it is impossible to repay you for these privileges, what motivated me during the PhD was the hope that it would make you proud. Since I was a little girl you constantly told me that “there is no such word as can’t”; these words stuck with me during the PhD. Thank you for encouraging me to strive, embrace every challenge and reach my potential. You showed genuine interest in my work throughout the PhD journey, from the conference presentations to the deadlines. This meant a lot to me. I love you.

My incredible, ever-positive husband and best friend, Zaheer. Where do I begin? I could not have done this without your support. You believed in me from Day 1 and supported me in every way, every single day. Thank you for celebrating the small wins, lifting me up when I felt I could not do it, always encouraging me to keep going, showing me how to believe in myself and teaching me about confidence, life and navigating my career. You are the most special person, supportive husband and my whole world. Being your wife is the greatest blessing. I love you so much♥

TABLE OF CONTENTS CHAPTER 1: OVERVIEW OF THE RESEARCH 1 1.1 Introduction 1 1.1.1 Research Gap Identification 3 1.1.2 Research Scope 7 1.1.3 Research Problem 11 1.1.4 Focus of this Dissertation 12 1.2 LITERATURE REVIEW 13 1.2.1 Relationships 13 1.2.2 The Dark Side of Relationships 15 1.2.2 What is Opportunistic Behavior? 17 1.2.3 Information Asymmetry as an Antecedent of Opportunistic Behavior 21 1.2.4 Opportunistic Behavior in Industrial Marketing Relationships 23 1.2.5 Client-Advertising Agency Relationship Dynamics and Opportunism 25 1.2.6 Constraining Opportunistic Behavior in Industrial Marketing Relationships 29 1.2.7 Theoretical Perspectives 31 1.2.7.1 Agency Theory 32 1.2.7.2 Why is Transaction Cost Theory not Applied? 33 1.2.7.3 Why is Stewardship Theory not Applied? 34 1.2.7.4 Why is the Principal-Professional Perspective not Applied? 37 1.2.7.5 Theory of Relationship Constraints 39 1.3 DEVELOPMENT OF RESEARCH QUESTIONS 45 1.3.2 Formulation of Research Question 1 45 1.3.3 Formulation of Research Question 2 47 1.3.4 Formulation of Research Question 3 49 1.3.5 Formulation of Research Question 4 50 1.4 METHODOLOGY 54 1.4.2 Introduction 54 1.4.3 Potential Research Approaches 57 1.4.4 Selected Research Approach 61

1.4.5 Research Strategy and Design 62 1.4.6 Addressing Research Question 1 64 1.4.7 Addressing Research Question 2 66 1.4.8 Addressing Research Questions 3 and 4 66 1.4.9 Sampling Design 66 1.4.10 Data Collection 68 1.4.11 Data Analysis 69 1.4.11.1 Phenomenological Analysis for Research Question 3 72 1.4.11.2 Phenomenological Analysis for Research Question 4 72 1.4.12 Quality Criteria 72 1.5 STRUCTURE OF INDIVIDUAL PAPERS 75 1.5.2 Paper 1: Agency Theory in Marketing: 27 Years On 75 1.5.3 Paper 2: Ex-Ante and Ex-Post Opportunism in Principal- Professional Marketing Relationships: A Conceptual Perspective and Research Propositions 77 1.5.4 Paper 3: Perspectives: Client-Agency Opportunism: How does it happen and what can we do about it? 77 1.5.5 Paper 4 (Working Version): Constraining Client-Agency Opportunism: An application of the Theory of Relationship Constraints 78 1.6 SUMMARY OF FINDINGS 79 1.6.2 Findings regarding Research Question 1 79 1.6.3 Findings regarding Research Question 2 80 1.6.4 Findings regarding Research Question 3 82 1.6.5 Findings regarding Research Question 4 88 1.7 THEORETICAL CONTRIBUTIONS 96 1.8 MANAGERIAL IMPLICATIONS 99 1.9 LIMITATIONS AND SUGGESTED FUTURE RESEARCH 101 1.10 CONCLUSION 104 1.11 REFERENCES 105 2. CHAPTER 2: THE INDIVIDUAL PAPERS 123 2.1 Paper 1 123 2.1.1 Manuscript 123 2.1.2 Status Report 164

2.1.3 Copy of Acceptance 164 2.2 Paper 2 165 2.2.1 Manuscript 165 2.2.2 Status Report 190 2.2.3 Copy of Acceptance 190 2.3 Paper 3 191 2.3.1 Published Article 191 2.4 Paper 4 (Working Version) 208 2.4.1 Status Report 208 2.4.2 Manuscript 208

LIST OF TABLES

Table 1. Areas Warranting Future Research ...... 4 Table 2. Definitions of Opportunistic Behavior ...... 18 Table 3. Comparison of Agency Theory and Stewardship Theory ...... 35 Table 4. Theory of Relationship Constraints' Construct Definitions ...... 40 Table 5. Comparison of Agency Theory, the Principal-Professional Perspective and the Theory of Relationship Constraints ...... 43 Table 6. Addressing Research Questions 1, 2, 3 and 4 ...... 52 Table 7. Comparison of Four Worldviews ...... 55 Table 8. Comparison of Quantitative, Mixed and Qualitative Methods ...... 58 Table 9. Methodologies Applied in Papers 1, 2, 3 and 4 ...... 64 Table 10. Measures to Conduct Trustworthy Research ...... 74 Table 11. Ex-Ante and Ex-Post Client Opportunistic Behavior ...... 83 Table 12. Ex-Ante and Ex-Post Advertising Agency Opportunistic Behavior .. 85 Table 13. Theory of Relationship Constraints' Constructs ...... 90 Table 14. How Can Information Facilitate and Constrain Opportunistic Behavior in Industrial Marketing Relationships? ...... 94 Table 15. Recommendations for Improving Client-Advertising Agency Relationship Dynamics ...... 101

LIST OF FIGURES Figure 1. Research Gap in the Literature Warranting Future Research ...... 6 Figure 2. The Relational Exchanges in Relationship Marketing ...... 14 Figure 3. Model of the Theory of Relationship Constraints ...... 41 Figure 4. Schema of the Research Problem and Four Research Questions ...... 51 Figure 5. Framework of this Dissertation ...... 53 Figure 6. Number of relevant articles published in the top 26 marketing journals between 1992 and 2017 ...... 65 Figure 7. Summary of the Data Analysis Process ...... 71 Figure 8. Manifestations of Ex-Ante and Ex-Post Principal Opportunism ...... 81 Figure 9. Model of the Theory of Relationship Constraints ...... 93 Figure 10. How Can Information Facilitate and Constrain Opportunistic Behavior in Industrial Marketing Relationships? ...... 95

LIST OF APPENDICES Appendix A: Interview Protocol for Advertising Agencies………………… 232 Appendix B: Key Account Manager Years of Experience and Gender…….. 233 Appendix C: Marketing Managers Years of Experience, Gender, and Industry 234 Appendix D: Semi-Structured Interview Cover Letter………..…………...... 234

CHAPTER 1: OVERVIEW OF THE RESEARCH

1.1 Introduction In the 1800’s, firms focused on manufacturing. A century later, sellers began recognizing the value of the marketing concept and the importance of maintaining relationships with suppliers (Keith, 1960). Subsequently, scholars recognized that for both social and economic reasons, interacting with other individuals or organizations is a fundamental human need (Bagozzi, 1975). In marketing, the benefits of maintaining relationships include attaining results (Bagozzi, 1975) and adding value (Houston, 1986). However, relationships can be impaired by a ‘dark side’, such as in the case of conflict (Grandinetti, 2017) or opportunistic behavior (Anderson & Jap, 2005; Dawson, Watson & Boudreau, 2010). Opportunistic behavior is a part of human behavior (Vandenbosch & Sapp, 2010). Parties are opportunistic when they act to their benefit yet to the detriment of the other party in the relationship (Williamson, 1975). Since the 1980’s, marketing relationships have been prone to opportunistic behavior, as is evident by seminal studies (e.g. John, 1984; Provan & Skinner, 1989; Kelley, Skinner & Ferrell, 1989). The risk of opportunism in a relationship is growing (Luu, Ngo & Cadeaux, 2018; Verbeke, Ciravegna, Lopez & Kundu, 2019). Today, opportunistic behavior is present in every society and has been reported in a number of countries (Watson et al., 2019). Technology and globalization have offered more occasions to act opportunistically than before (Vandenbosch & Sapp, 2010). Recent cases of opportunism include that of Facebook and Cambridge Analytica (Woollacott, 2018), Volkswagen’s ‘Dieselgate (Eggert, 2019), The Weinstein Company and #MeToo (Coulman, 2018; Helmore, 2018) and The North Face-Wikipedia scandal (Kestenbaum, 2019). The consequences of opportunistic behavior include financial losses and reputation damage (Makortoff, 2019; Tse, Zhag & Wang, 2019). For example, Goldman Sachs recently paid $2 billion in a settlement following a scandal whereby money was stolen from their client’s fund for private spending (Makortoff, 2019). To prevent these consequences a greater effort is needed on putting an end to or, at the very least, constraining opportunistic behavior (Williamson, 1993; Anderson & Jap, 2005; Antia, Bergen, Dutta & Fisher, 2006; Piercy, 2009; Vandenbosch & Sapp, 2010; Hawkins, Pohlen & Prybutok, 2013; Crosno & Brown, 2015; Heirati, O'Cass, Schoefer & Siahtiri, 2016; Gelderman, Mampaey, Semeijn & Verhappen, 2019). When there are no grounds to constraint opportunistic behavior, there is a greater likelihood that opportunistic behavior will occur (Vandenbosch & Sapp, 2010). While opportunistic behavior has been studied by marketing scholars for decades (e.g. Bloom & Dholakia, 1973; John, 1984; Kelley et al., 1989; Provan

& Skinner, 1989; Stump & Heide, 1996; Achrol & Gundlach, 1999; Brown, Dev & Lee, 2000; Wathne & Heide, 2000), more research is needed on exploring opportunism in marketing (Crosno & Brown, 2015; Verbeke et al., 2019). This is particularly the case in industrial marketing relationships (Sharma, Kingshott, Leung & Malik, 2019), where opportunistic behavior continues to prevail (Wang, Li, Ross & Craighead, 2013; Luu, Ngo & Cadeaux, 2018; Oliveira & Lumineau, 2019; Verbeke et al., 2019; Lumineau & Oliveira, 2020) and has led to its demise (Jap, 2001; Vandenbosch & Sapp, 2010). Based on the past marketing literature, scholars have either called for research on the antecedents (Hawkins et al., 2013; Wang & Yang, 2013; Kang & Jindal, 2015; Oliveira & Lumineau, 2019) or constraint of opportunistic behavior (Vandenbosch & Sapp, 2010; Cao & Lumineau, 2015; Crosno & Brown, 2015; Heirati et al., 2016; Gelderman et al., 2019). In reality the antecedents and constraint mechanisms exist in tandem (Wang et al., 2013). A key antecedent of opportunistic behavior is information asymmetry (John, 1984; Williamson, 1985; Sharma, 1997; Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle, Schiele & Ernst, 2014; Grandinetti, 2017). Information asymmetry occurs when different parties in a relationship have access to different information (Eisenhardt, 1989; Stiglitz, 2002). Therefore, when the antecedents of opportunism increase, the constraint thereof becomes more important because there is greater information asymmetry in the relationship. Managing the interplay between the antecedents and constraint mechanisms is needed to maintain a favorable relationship (Wang et al., 2013). Recently, researchers suggested that a holistic approach should be taken to study the antecedents and constraint of opportunistic behavior in industrial marketing relationships (Wang et al., 2013; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020). Therefore, while it is not possible to put an end to opportunism in a single dissertation, the purpose of this dissertation is to better understand the antecedents and constraint of opportunistic behavior. This is particularly necessary in the case of industrial marketing relationships (Wang et al., 2013; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020). Industrial marketing relationships are described as “partnerships” between firms and suppliers (Campbell, Papania, Parent & Cyr, 2010, p.712). This involves one party, called a principal who assigns work to another party called an agent (Bergen, Dutta & Walker Jr., 1992). There are two overarching categories of industrial marketing relationships, namely: (1) the principal-agent relationship, i.e. where the agent is a lay person who does not have specialized knowledge about the task at hand (Bergen et al. 1992); and (2) principal-professional agent relationships, i.e. where the agent is a professional who has gained specialized knowledge about a particular field over time (Sharma, 1997; Dawson et al., 2010). Both relationship types are relevant to this dissertation because the primary difference

2 between the two involves information. Therefore, given this dissertation’s focus on the role of information in opportunistic behavior, both the principal-agent and principal-professional agent relationship types are considered. To do this, there are four papers that comprise this publication-based dissertation, namely: (1) Paper 1 (‘Agency Theory in Marketing: 27 years on’); (2) Paper 2 (‘Ex-Ante and Ex-Post Opportunism in Principal-Professional Marketing Relationships’); (3) Paper 3 (‘Perspectives: Client-Agency Opportunism: How Does It Happen and What Can We Do About It?’); and (4) Paper 4, which is currently a working version (‘Constraining Client-Agency Opportunism’). Three of these papers are published/accepted; the final paper is a working paper. The next section elaborates on the gap in the literature which this dissertation set out to address.

1.1.1 Research Gap Identification Within the literature on opportunistic behavior there are distinct areas warranting further research. A combination of these future research agendas lead to the research gap in the literature which is addressed in this dissertation. First, I will introduce the future research agendas, before describing the primary research gap in the literature which this dissertation is based on.

Table 1. Areas Warranting Future Research Areas Warranting Future Scholars Calling for Future Research Research Opportunistic Behavior Opportunistic behavior in the Jap, Robertson, Rindfleisch & different stages of a relationship Hamilton, 2013; Lumineau & Oliveira, 2020 Opportunistic behavior by Perrow, 1986; Dawson et al., 2010; principals (i.e. the party who Steinle et al., 2014; Grandinetti, 2017; assigns work to an agent) Döhler, 2018 Antecedents of Opportunistic Behavior Antecedents of opportunistic Wathne & Heide, 2000; Chen, Pen & behavior Saparito, 2002; Jap & Anderson, 2003; Hawkins et al., 2013; Wang & Yang, 2013; Kang & Jindal, 2015; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020 Constraining Opportunistic Behavior How opportunistic behavior can be Williamson, 1993; Anderson & Jap, constrained 2005; Antia et al., 2006; Piercy, 2009; Vandenbosch & Sapp, 2010; Hawkins et al., 2013; Cao & Lumineau, 2015; Crosno & Brown, 2015; Heirati et al., 2016; Gelderman et al., 2019; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020 Industrial Marketing Relationships Opportunistic behavior in industrial Vandenbosch & Sapp, 2010; Zhang, marketing relationships Zheng & Li, 2019 Constraining opportunistic Wathne & Heide, 2000; Wuyts & behavior in industrial marketing Geyskens, 2005; Vandenbosch & Sapp, relationships 2010; Cao & Lumineau, 2015 Holistically studying the Wang et al., 2013; Oliveira & antecedents and constraint of Lumineau, 2019; Lumineau & Oliveira, opportunistic behavior in industrial 2020 marketing relationships Improving today’s client- Mortimer & Laurie, 2017; Taylor, 2017; advertising agency relationships Laurie & Mortimer, 2019; Liu- Thompkins 2019

The future research agendas, as included in Table 1 above, are introduced as follows. First, in terms of opportunistic behavior in its broad sense, the

4 following areas need to be addressed: (i) how it is encouraged (Wathne & Heide, 2000; Chen et al., 2002; Jap & Anderson, 2003; Hawkins et al., 2013), (ii) how it can be constrained (Williamson, 1993; Anderson & Jap, 2005; Antia et al., 2006; Piercy, 2009; Vandenbosch & Sapp, 2010; Hawkins et al., 2013; Crosno & Brown, 2015; Heirati et al., 2016; Gelderman et al., 2019; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020), and (iii) opportunism in the different stages of a relationship (Jap et al., 2013; Lumineau & Oliveira, 2020). For example, two stages of a relationship are the ex-ante stage, i.e. before the parties start to transact with each other, and ex-post stage, i.e., once the relationship is established and transaction start to happen (Wathne & Heide, 2000; Jap & Anderson, 2003). Another area warranting attention pertains to the choice of mechanism used to constrain opportunistic behavior. While opportunism can be constrained, the correct constraint for each situation should be chosen (Dawson, Watson & Boudreau, 2011). This is useful for practitioners because constraint mechanisms can be costly to implement. Therefore, knowing which constraint mechanisms are effective can help practitioners to understand how to spend more efficiently (Dawson et al., 2011). Some scholars are in favor of formal constraint mechanisms based on explicit knowledge that is easily learnt (e.g. a legal contract) (e.g. Williamson, 1975) while others prefer social constraint mechanisms based on tacit knowledge that is not easily learnt or recorded (e.g. a handshake) (e.g. Sharma, 1997). More recent views support the use of both formal and social constraint mechanisms together (e.g. Dawson et al., 2010; 2011; Kumar, Heide & Wathne, 2011; Cao & Lumineau, 2015; Crosno & Brown, 2015; Hadida, Heide & Bell, 2019). In this light, there is a need for new research on combinations of constraint mechanisms (Dawson et al., 2011; Kashyap & Murtha, 2017). With regards to the industrial marketing relationships context, scholars call for the following areas to be addressed: (i) improving industrial marketing relationships (Heirati et al., 2016), (ii) opportunism in these relationships (Vandenbosch & Sapp, 2010; Zhang et al., 2019), (iii) the constraint of opportunism therein (Wathne & Heide, 2000; Vandenbosch & Sapp, 2010; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020), and (iv) developing the theoretical perspectives on constraining opportunism in these relationships (Wuyts & Geyskens, 2005). In the light of the above areas, Figure 1 below depicts the research gap in the literature which this dissertation aims to explore.

Figure 1. Research Gap in the Literature Warranting Future Research

ANTECEDENTS OF INDUSTRIAL OPPORTUNISTIC MARKETING BEHAVIOR RELATIONSHIPS

G A P

CONSTRIANT OF OPPORTUNISTIC BEHAVIOR

As shown in Figure 1 above, upon reviewing the literature on opportunistic behavior there are two key areas that constitute the research gap in the literature: (1) the antecedents of opportunistic behavior (Wathne & Heide, 2000; Chen et al., 2002; Jap & Anderson, 2003; Hawkins et al., 2013; Wang & Yang, 2013; Kang & Jindal, 2015; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020) and (2) the constraint of opportunistic behavior (Williamson, 1993; Anderson & Jap, 2005; Antia et al., 2006; Piercy, 2009; Vandenbosch & Sapp, 2010; Hawkins et al., 2013; Cao & Lumineau, 2015; Crosno & Brown, 2015; Heirati et al., 2016; Gelderman et al., 2019; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020). While previous literature identified honesty, integrity (Hawkins et al., 2013), conflict, goal incongruence, attractiveness of alternatives, perception of unfair behavior (Kang & Jindal, 2015), increased control, monitoring (John, 1984), lack of cooperativeness (Tangpong, Hung & Ro, 2010) and self- justification (Gelderman et al., 2019) as potential antecedents of opportunism, information asymmetry is seen as a primary driver (John, 1984; Williamson, 1985; Sharma, 1997; Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017). With regards to constraint mechanisms, monitoring (Heide, Wathne & Rokkan, 2007), incentives (Lal, Outland & Staelin, 1994), guarantees, self-selection (Kleinaltenkamp & Jacob, 2002), signaling, screening, laws and contracts (Dawson, Watson, Boudreau & Pitt, 2016) have been

6 identified. Whether a constraint mechanism is formal (e.g. a legal contract) or social (e.g. a verbal agreement), in both cases information is relevant (Dawson et al., 2010). The antecedents and constraint of opportunistic behavior are generally both present in an industrial marketing relationship. As the antecedents increase, it becomes more appropriate to implement constraint mechanisms. Therefore, by managing the antecedents and constraints of opportunistic behavior in conjunction with each other, a healthier relationship can be encouraged (Wang et al., 2013). Studying the antecedents and constraint of opportunistic behavior holistically is recommended (Wang et al., 2013; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020). This informs the research gap in the literature which this dissertation aims to explore, namely: the role of information in the antecedents and constraint of opportunistic behavior used in today’s industrial marketing relationships. Furthermore, given that information plays a key role in encouraging opportunistic behavior (John, 1984; Williamson, 1985; Sharma, 1997; Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017), this dissertation focuses on the role of information in the antecedents and constraint of opportunistic behavior. The research gap is supported by industrial marketing scholars who hold that the field would benefit from exploring the antecedents and constraint of opportunistic behavior in conjunction with each other (Wang et al., 2013; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020). Moreover, as these future research agendas are supported by recent publications in the Journal of Marketing and Industrial Marketing Management (e.g. Hadida et al., 2019; Gelderman et al., 2019; Zhang et al., 2019), the research gap identified is a relevant issue in today’s industrial marketing relationships. The following section comprises a description of how this dissertation is narrowed by outlining its research scope.

1.1.2 Research Scope Before introducing this dissertation’s research problem it is necessary to explain the scope of this dissertation, in the light of the above research gap. This scope is defined in the following paragraphs, beginning with the type of relationship focused on. Relationships are essential to marketing (Bagozzi, 1975; Houston, 1986). Marketing relationships include those that are business-to-consumer (Houston, 1986) or business-to-business, i.e. industrial marketing relationships (Campbell et al., 2010), in nature. It is not feasible nor beneficial to explore in depth opportunistic behavior in all types of marketing relationships within the scope of a single dissertation.

This dissertation focuses on industrial marketing relationships. This is because opportunistic behavior is particularly inherent in industrial marketing relationships (Luo, 2006; Piercy, 2009). In addition to traditional cases of opportunism in these relationships (e.g. Phillips, 1982; Hadfield, 1990; Dutta, Bergen & John, 1994; Wilkie, Mela & Gundlach, 1998) there are current cases as reported in the popular press (e.g. Burns, 2019; Weinberg & Vareacos, 2019; Makortoff, 2019). The decision to focus on industrial marketing relationships is motivated by the literature, which calls for more research on opportunism in these relationships (e.g. Wuyts & Geyskens, 2005; Vandenbosch & Sapp, 2010; Wang et al., 2013; Zhang et al., 2019) and the need to improve industrial marketing relationships (Heirati et al., 2016). Although past researchers have addressed opportunism in various industrial marketing contexts independently, such as supply chain management (e.g., Hibbard, Kumar & Stern, 2001; Wuyts & Geyskens, 2005; Brown, Grzeskowiak & Dev, 2008; Cheng & Sheu, 2012; Bhattacharya, Singh & Nand, 2015; Zhou, Zhang, Zhuang, & Zhou, 2015; Grandinetti, 2017; Gelderman et al., 2019), consulting (Dawson et al., 2010; 2011), salespeople (Tan & Lee, 2015; Kang, Ryu & Lee, 2019), and franchising (Kashyap, Antia & Frazier, 2012; Kashyap & Murtha, 2017), there is a need to update the literature on opportunism in industrial marketing relationships as a whole (Vandenbosch & Sapp, 2010; Zhang et al., 2019), which this dissertation primarily centers on. Within industrial marketing relationships, I particularly focus on the principal-agent (Paper 1) (e.g. Bergen et al., 1992) and principal-professional agent (Papers 2, 3 and 4) (e.g. Sharma, 1997; Dawson et al., 2010; 2011) industrial marketing relationships. Both principal-agent (e.g. Bergen et al., 1992) and principal-professional agent relationships (e.g. Dawson et al., 2010; 2011; 2016) exist in the industrial marketing context. In both relationships, opportunistic behavior can occur (Eisenhardt, 1989; Bergen et al., 1992; Sharma, 1997; Dawson et al., 2010). The primary difference between the two types of relationships is that in the principal-professional agent context, the professional agent holds specialized knowledge that cannot be easily learnt or constrained. The professional agent can use this specialized knowledge to act opportunistically (Sharma, 1997; Dawson et al., 2010). One type of industrial marketing relationship is the client-advertising agency relationship (Bergen et al., 1992; Haytko, 2004). While the client- advertising agency relationship is established in the literature, it needs attention given the change to its dynamic in recent years (Mortimer & Laurie, 2017; Taylor, 2017; Laurie & Mortimer, 2019; Liu-Thompkins 2019). Moreover, through a review of the client-advertising agency literature and as far as can be ascertained, only three academic publications in reputable journals specifically focus on opportunism in the client-advertising agency relationship (see Davies & Prince, 2005; Davies & Palihawadana, 2006; Davies & Prince, 2010). It is also worth noting that all three publications are by the

8 same co-author, Mark Davies. This is alarming because there are multiple actual cases of client-advertising agency opportunism as reported in the popular press (e.g. O’Reilly, 2016; de Villiers, 2018; Burns, 2019; Weinberg & Vareacos, 2019). Therefore, the following reasons inform the gap in the literature on opportunism in client-advertising agency relationships: (i) opportunism in client-advertising agency relationships exists (e.g. O’Reilly, 2016; de Villiers, 2018; Burns, 2019; Weinberg & Vareacos, 2019), (ii) scholars have recently called for a better understanding on the state of this relationship today (e.g. Mortimer & Laurie, 2017; Taylor, 2017; Laurie & Mortimer, 2019; Liu- Thompkins 2019), yet (iii) scant studies have addressed opportunism in this context (e.g. Davies & Prince, 2005; Davies & Palihawadana, 2006; Davies & Prince, 2010). This dissertation contributes to the literature by exploring opportunism in this relationship (see Papers 3 and 4). Therefore, the client-advertising agency relationship as type of industrial marketing relationship is an appropriate context for this dissertation’s empirical research. This dissertation also focuses on information, which plays a key role in opportunistic behavior (John, 1984; Williamson, 1985; Sharma, 1997; Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017). When studying opportunism it is important to consider the role of information because it can increase the risk of opportunism (Coff, 2003). It is particularly necessary to consider information asymmetry. Information asymmetry occurs when different parties in a relationship have access to different information (Eisenhardt, 1989; Stiglitz, 2002). Although there are other antecedents of opportunism, such as conflict and unfairness (Kang & Jindal, 2015), it is clear from the literature that information asymmetry is a primary driver (Sharma, 1997; Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Coff, 2003; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Wang et al., 2013; Grandinetti, 2017). However, information asymmetry research tends to focus on explicit information, instead of tacit and explicit information holistically. Therefore, in this dissertation information asymmetry is considered with respect to both explicit and tacit information (see Papers 2, 3 and 4). Another focus of this dissertation is on the ex-ante and ex-post relationship stages. Scholars have called for future research on opportunism in the different stages of the relationship (Jap et al., 2013; Lumineau & Oliveira, 2020). Therefore, in this dissertation the antecedents of opportunistic behavior are unpacked in both the ex-ante and ex-post stages of the industrial marketing relationship and client-advertising agency relationships, with respect to information (see Papers 2 and 3).

As introduced earlier, this dissertation also focuses on the constraint of opportunistic behavior, which a number of past researchers have called for (e.g. Williamson, 1993; Anderson & Jap, 2005; Wuyts & Geyskens, 2005; Antia et al., 2006; Piercy, 2009; Vandenbosch & Sapp, 2010; Hawkins, 2013; Crosno & Brown, 2015; Heirati et al., 2016; Gelderman et al., 2019; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020). There are two primary types of constraint mechanisms: formal (e.g. legal contracts) and social (e.g. reputation). Scholars have argued either in favor of formal constraint mechanisms (e.g. Williamson, 1975; Eisenhardt, 1989; Bergen et al., 1992; Tangpong et al., 2010), social constraint mechanisms (e.g. Sharma, 1997) or the combined use of formal and social constraint mechanisms (e.g. John, 1984; Dawson et al., 2010; 2011; Anderson & Jap, 2005; Cao & Lumineau, 2015; Crosno & Brown, 2015; Kumar et al., 2011; Hadida et al., 2019). Therefore, to contribute to the literature both formal and social constraint mechanisms are considered in this dissertation. To do this, the theoretical perspectives applied in this dissertation are on Agency Theory (Paper 1) and the Theory of Relationship Constraints (Papers 2, 3 and 4). These theories are introduced next, beginning with Agency Theory. Agency Theory focuses on formal constraint mechanisms and has predominantly been used in the marketing literature on constraining opportunism between principals, i.e. the party paying for the work, and agents, i.e. the party doing the work (e.g. Dahlstrom & Nygaard, 1994; Joseph & Thevaranjan, 1998; Bartol, 1999; Gould, Lerman, & Grein, 1999; Spake, D’Souza, Crutchfield & Morgan, 1999; Ghosh & John, 2000; Krafft, Albers, & Lal, 2004; Lo, Ghosh & Lafontaine, 2011; Hodge, Oppewal, & Terawatanavong, 2013; Cicala, Bush, Sherrell & Deitz, 2014; Doherty, Chen & Alexander, 2014; Griessmair, Hussain & Windsperger, 2014). Therefore, Agency Theory is an appropriate theory to be applied to the principal-agent context (see Paper 1). However, Agency Theory is not applicable to relationships where the agent is a professional with specialized knowledge. This is because Agency Theory assumes that the agent is a lay person (Sharma, 1997; Dawson et al., 2010). Principal-professional agent relationships are prevalent in industrial marketing. Therefore, to better understand opportunism in principal- professional agent relationships the Theory of Relationship Constraints is adopted (see Papers 2, 3 and 4). The Theory of Relationship Constraints has, as far as can be ascertained, not been applied to marketing. It focuses on the use of both formal and social constraint mechanisms (Dawson et al., 2010; 2011). In addition, the Theory of Relationship Constraints considers opportunistic behavior by the principal, which past researchers stress needs more attention (e.g. Perrow, 1986; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017; Döhler, 2018). In the light of the above, this dissertation’s research problem is introduced next.

1.1.3 Research Problem A research problem is a real issue in the workplace that needs attention. It stems from a gap in the literature or conflicting findings by past researchers (Creswell, 2017). Earlier, this dissertation’s research gap was introduced (see Figure 1). Opportunistic behavior is a current issue in industrial marketing relationships (Wuyts & Geyskens, 2005; Wang et al., 2013; Luu et al., 2018; Verbeke et al., 2019). The challenge with opportunistic behavior, however, is predicting and putting measures in place to constrain it (Chen et al., 2002). The antecedents of opportunism need to be further explored (Wathne & Heide, 2000; Jap & Anderson, 2003; Hawkins et al., 2013; Kang & Jindal, 2015; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020). By knowing what drives opportunism, there will be a better understanding about how to constraint it, rather than simply knowing what the consequences of opportunism are. This can also improve the relationship’s quality and performance (Kang & Jindal, 2015). Furthermore, research is needed on the constraint of opportunistic behavior (Williamson, 1993; Anderson & Jap, 2005; Antia et al., 2006; Piercy, 2009; Hawkins, 2013; Crosno & Brown, 2015; Heirati et al., 2016; Gelderman et al., 2019; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020), particularly in the marketing context (Antia et al., 2006; Crosno & Brown, 2015). There is an interplay between the antecedents and constraint mechanisms of opportunistic behavior; an increase in the antecedents of opportunistic behavior increases the need for constraint mechanisms to maintain the relationship. Despite this, few scholars have studied the antecedents and constraint mechanisms of opportunistic behavior in industrial marketing relationships in conjunction with each other (Wang et al., 2013; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020). Finally, it should be noted that information plays a key role in opportunistic behavior (John, 1984; Williamson, 1985; Sharma, 1997; Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Coff, 2003; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017) and the constraint thereof (Bergen et al., 1992; Dawson et al., 2010). In particular, information asymmetry is the primary driver of opportunism (Sharma, 1997; Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Coff, 2003; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Wang et al., 2013; Grandinetti, 2017). In the light of the above, information plays an important role in the antecedents and constraint of opportunistic behavior.

Based on the above review of the literature, this dissertation addresses the following research problem:

Research Problem How can information facilitate and constrain opportunistic behavior in industrial marketing relationships?

This research problem is refined into two sub-sections: (i) principal-agent industrial marketing relationships (i.e., where the agent is a lay person) and (ii) principal-professional agent industrial marketing relationships (i.e, where the agent is a professional with specialized knowledge).

1.1.4 Focus of this Dissertation This dissertation’s research problem is to better understand how information can facilitate and constrain opportunistic behavior in industrial marketing relationships. The research problem is separated into two contexts, namely: (1) principal-agent industrial marketing relationships and (2) principal-professional agent industrial marketing relationships. This distinction was made following a review of the literature on Agency Theory. It was found that despite its prevalence in principal-agent relationships, Agency Theory is limited because it does not consider agents as professionals nor does it focus on opportunism by the principal (Sharma, 1997; Dawson et al., 2010). In most industrial marketing relationships, the agent is a professional. One such relationship is the client-advertising agency relationship, in which case the advertising agency is a professional agent (Sharma, 1997). Therefore, within the principal-professional agent sub-section (i.e. principal-professional agent industrial marketing relationships), the context is further narrowed to focus on client-advertising agency relationships. Essentially, the research undertaken in this dissertation explores how opportunistic behavior can be encouraged and discouraged in the industrial marketing domain. Specifically, opportunism in principal-professional agent industrial marketing relationships is addressed conceptually based on the Theory of Relationship Constraints. This theory is also adopted in an empirical setting to address opportunism in client-advertising agency dyads. This dissertation’s research problem is: how can information facilitate and constrain opportunistic behavior in industrial marketing relationships? In dissecting this research problem, it is clear that there are particular areas of research that the dissertation is based on, such as opportunistic behavior and industrial marketing relationships. These areas are elaborated on in the following literature review, beginning with the literature on relationships.

1.2 LITERATURE REVIEW The purpose of this dissertation is to add to the body of knowledge on opportunistic behavior in industrial marketing relationships. Therefore, the dissertation’s literature review begins with the literature on relationships and specifically industrial marketing relationships. Next, the dark side of relationships and opportunistic behavior is reviewed. This is followed by a literature review on information asymmetry as a key antecedent of opportunistic behavior. Thereafter, opportunistic behavior in industrial marketing relationships and particularly client-advertising agency relationships are explained. Subsequently, there is a review of the literature on Agency Theory, the Transaction Cost Theory, Stewardship Theory, the Principal-Professional Perspective and the Theory of Relationship Constraints. This literature review section is concluded with a summary of the key theoretical perspectives.

1.2.1 Relationships Relationship marketing is defined as “all marketing activities directed toward establishing, developing and maintaining successful relational exchanges (Morgan & Hunt, 1994, p.22)”. In the marketing field, scholars have largely studied marketing relationship dynamics (Brown et al., 2000; Handfield, 2019; Zhang et al., 2019). Relationship marketing can be used to foster success in terms of industry success factors, competitive advantages, profitability and market share (Ward & Dagger, 2007). Although relationship marketing has been around for over twenty years, a convincing definition of a ‘relationship’ is still needed (Stewart & Zinkhan, 2006). Snehota and Hakansson (1995, p.25) defined a relationship as a “mutually oriented interaction between two reciprocally committed parties”. Christian Grönroos (2000, p.33) explained that a relationship “has developed when a customer perceives that a mutual way of thinking exists between customer and supplier or service provider”. As both definitions comprise ‘mutuality’, a relationship needs both parties to be mutually committed (Zolkiewski, 2004). In other words, both parties expect to benefit from being part of the relationship (Takala & Uusitalo, 1996). In light of these definitions, the view that a relationship involves two parties who expect mutual benefit from being in the relationship is adopted. There are two primary stages in a relationship: the ex-ante stage (pre- contractual) and the ex-post stage (post-contractual). These are defined in turn. The ex-ante stage occurs before the parties in the relationship start to transact with each other. The ex-post stage occurs after the relationship has been established and transactions happen (Wathne & Heide, 2000; Jap & Anderson, 2003). It is important to better understand relationships because relationships influence human behavior (Dominici, Yolles & Caputo, 2017) and assumptions

13 about human behavior can be made by analyzing relationships (Crosno & Dahlstrom, 2008). Furthermore, a relationship’s context can influence how its transactions occur (Macneil, 1980; Hadida et al., 2019).

Figure 2. The Relational Exchanges in Relationship Marketing

Source: Adopted from Morgan and Hunt (1994)

In the marketing context relationships are essential (Bagozzi, 1975; Houston, 1986). There are different types of relationships in marketing, as shown in Figure 2 above, namely between: (1) buyers and suppliers; (2) service providers and their clients; (3) firms and their competitors; (4) firms and non-profit organizations; (5) partnerships for joint research and development; (6) firms and their customers; (7) parties within channel distributions; (8) functional departments (e.g., marketing and R&D); (9) firms and their employees; and (10) business units (Morgan & Hunt, 1994). In particular, the buyer-supplier and service provider-client relationships are categorized as “supplier partnerships” (Morgan & Hunt, 1994, p.21); also known as interorganizational (Oliveira & Lumineau, 2019) or industrial marketing relationships. Industrial marketing relationships are defined as “strategic partnerships between firms and the suppliers of goods and services integral to their offerings” (Campbell et al., 2010, p.712). Other examples of industrial marketing relationships include the franchisor-franchisee relationship (Dahlstrom & Nygaard, 1994; Hodge et al., 2013; Doherty et al., 2014) and

14 client-advertising agency relationship (Ellis & Johnson, 1993; Gould et al., 1999; Spake et al., 1999; West, 1999; Keegan, Rowley & Tonge, 2017). For instance, in the client-advertising agency relationship, clients outsource work to the advertising agency who then does the work (Bergen et al., 1992). As the world becomes more digitized interpersonal industrial marketing relationships are increasingly important (Handfield, 2019). The nature of industrial marketing relationships needs to be improved (Heirati et al., 2016). In recent years, this nature has changed due to the growth of ‘big data’ analytics and the digital evolution, the trend towards outsourcing, and new forms of governance models (Handfield, 2019). Industrial marketing relationships play a key role in the economy (Oliveira & Lumineau, 2019) and need maintenance, attention and investment (Anderson & Jap, 2005). This is particularly the case because industrial marketing relationships are prone to the dark side of relationships (Jap, 2001; Anderson & Jap, 2005), which is discussed next.

1.2.2 The Dark Side of Relationships

Relationships can have a positive (Morgan & Hunt, 1994) or dark side (Anderson & Jap, 2005; Brown, Crosno & Tong, 2019). In terms of the positive side of relationships, attributes of effective relationship marketing include commitment and trust; two primary constructs in the relationship marketing literature (Morgan & Hunt, 1994). Commitment and trust can particularly encourage marketers to (i) preserve the relationship by cooperating, (ii) prioritize the long-term benefits of maintaining the relationship over attractive short-term alternatives, and (iii) be risk loving by believing that their relationship partner will not engage in opportunistic behavior (Morgan & Hunt, 1994). The focus has primarily been on fostering the positive side of relationships (e.g., Morgan & Hunt, 1994, De Ruyter, Moorman & Lemmink, 2001; Zhang, Wu & Henke, 2015). However, the positive impact of relationships has been questioned. For instance, too much commitment can lead to vulnerability and in turn result in a dark side of relationships (Brown et al., 2019). The dark side of relationships has been neglected (Abosag, Yen & Barnes, 2016; Grandinetti, 2017; Sharma et al., 2019), yet is receiving increasing attention from scholars in management (Oliveira & Lumineau, 2019). Relationships have a dark side (Anderson & Jap, 2005). For example, Carlos Ghosn, former CEO of Nissan, allegedly withheld information from Nissan by secretly using company finances for personal spending. This pertains to industrial marketing because Ghosn’s opportunistic behavior affected Nissan’s partners, Renault and Mitsubishi, as well as their suppliers (Lewis, Inagaki, Keohane & Campbell, 2019).

Many close relationships fail (Anderson & Jap, 2005). While some researchers argue that opportunism is discouraged in an established relationship (e.g. Palmatier, Dant, Grewal & Evans, 2006; Liu, Su, Li & Liu, 2010; Luu et al., 2018), others strongly oppose this perspective (e.g. Grayson & Ambler, 1999; Anderson & Jap, 2005; Grandinetti, 2017; Brown et al., 2019). This dissertation follows the more cautionary perspective, that opportunism is inevitable in industrial marketing relationships. This perspective is informed by the previous literature (e.g. Wathne & Heide, 2000; Jap & Anderson, 2003; Vandenbosch & Sapp, 2010; Zhang et al., 2019) and additional reasons explained in the following paragraphs. One example of the dark side of relationships is conflict, which occurs when there is tension between two or more parties due to incompatibility (Raven & Kruglanski, 1970). Conflict is inevitable in any relationship (Grandinetti, 2017). Relationships that appear to be steady may not necessarily be healthy in reality (Anderson & Jap, 2005). As two parties grow closer, each party gains more information about what the other party knows (Shapiro, 2005; Grandinetti, 2017). This makes the relationship vulnerable (Brown et al., 2019) and unsteady (Grandinetti, 2017). In turn the level of trust in the relationship is lowered (Brown et al., 2019) and both parties become more dissatisfied with each other (Grayson & Ambler, 1999). Relationships that appear to be steady are more vulnerable to the hidden drivers of relationship sabotage (John, 1984; Anderson & Jap, 2005). This is because in a these ‘steady’ relationships, there is often denial that underlying issues exist. Both parties are optimistic about and satisfied with the relationship benefits they receive, leaving no clear need to modify it. For example, they may say “the relationship is such a good one; what could be going wrong?” or “our partners are so trustworthy; how could they be exploiting us?” (Anderson & Jap, 2005, p.76). However, while the relationship may continue, there may be instability, tense situations and occasional conflicts (Anderson & Jap, 2005; Grandinetti, 2017). Eventually, the relationship can be overtaken by these destructive behaviors, leading to its sabotage (Anderson & Jap, 2005). For example, two well-known business relationships that have resulted in conflict are that of the Ambani brothers, leading to their split of their company, Reliance (Sharma, 2010), and the Dassler brothers, leading to each brother forming competing brands, namely Adidas and Puma (Akhtar, 2013). Even when one party is suspicious about another party’s behavior, it can be difficult for the suspecting party to prove. For example, without access to the other party’s financial statements, there is little evidence to argue that they are being overcharged. Therefore, in some cases the factors that are perceived to generate relationship success, such as trust, are actually gateways to relationship sabotage. One party, for instance, may take advantage of the personal information shared by the trusting party to consistently ‘cheat’ them.

Alternatively, a party may leave their firm and take the client with them to their new employer (Anderson & Jap, 2005). Some parties can simply keep quiet, resign, and/or remain loyal to the relationship (Hibbard et al., 2001), despite knowing about the other party’s unfavorable behavior. Therefore, an impaired industrial marketing relationship can remain intact for a long time. This is particularly relevant to the less- empowered party in the relationship (Anderson & Jap, 2005). The reason why is that terminating the relationship can be challenging or costly (John 1984) and being part of the relationship is better than not being in the relationship at all (Anderson & Jap, 2005). A relationship’s long-term success can be threatened by the way parties react to the drivers of relationship sabotage (Hibbard et al., 2001). One such driver of relationship sabotage is opportunistic behavior (Anderson & Jap, 2005). Opportunistic behavior can lead to relationship termination (Morgan & Hunt, 1994) and restrict the creation of value in the firm (Wathne & Heide, 2000). This dissertation’s research problem centers around the antecedents and constraint of opportunistic behavior. It is important to first understand what opportunistic behavior is, before delving into how to constrain it (Wathne & Heide, 2000). Therefore, opportunistic behavior is explained next.

1.2.2 What is Opportunistic Behavior? Stemming from economics, the traditional view of opportunistic behavior holds that agents act in their self-interest. It focuses on humans as rational beings who sensibly allocate scarce resources for their use (Simon, 1978, p.2). In reality, humans are irrational (Ariely, 2010); when faced with the opportunity to act opportunistically for personal gain, humans are often seduced to do so (Jensen & Meckling, 1976). Given the nature of opportunistic behavior, distinguishing it from similar concepts is difficult (Elsharnouby & Parsons, 2013). For example, opportunism has been exemplified as a “range of misbehavior”, such as misrepresentation, cheating and deception (Jap, 2003, p.98). Others familiarize opportunistic behavior with acting with ‘bad faith’ (Hudson & McAurthur, 1994; Jap, 2001), such as in in the law field (Muris, 1980). In this dissertation opportunistic behavior is referred to as any act that constitutes self-interest seeking with guile (Williamson, 1975). In other words, the understanding of opportunistic behavior based on the literature is that it is an act that benefits the opportunistic party yet detriments the party being taken advantage of. Furthermore, based on past researchers’ descriptions, it is acknowledged that opportunistic behavior can either be blatant, i.e. cheating and lying, or subtle, i.e. violating norms (Wathne & Heide, 2000; Jap, 2001; Luo, 2006).

Table 2. Definitions of Opportunistic Behavior Definitions Scholar(s) “Self-interest seeking with guile”; an effort to realize Williamson (1975, individual gains at the expense of another party p. 26) “Self-interest seeking contrary to the principles of the Macneil (1981, p. relation in which it occurs” 1023-1024) “Opportunistic behavior is deceit-oriented violation of John (1984, p.279) implicit or explicit promises about one’s appropriate or required role behavior” “Behaviors… that are inconsistent with some prior contract Wathne & Heide or agreement (i.e., explicit or relational)” (2000, p.42) “Distortion of information… [and] reneging on explicit or Jap & Anderson implicit commitments… and obligations” (2003, p.1686) “Violation of a particular relationship specific contracting Ertimur and norm that is used to shape the parties’ expectations Venkatesh (2010, regarding subsequent behavior” p. 259) “Opportunistic behavior is a form of resistance to dominant Gelderman et al. professional norms” (2019, p. 453)

A seminal definition of opportunistic behavior, as included in Table 2 above, is by economist Oliver Williamson (1975). His definition of opportunistic behavior is prevalent in academic publications (Grandinetti, 2017; Gelderman et al., 2019). Williamson (1975, p.26) defined opportunistic behavior as “self- interest seeking with guile”; when one party acts to their benefit but to the detriment of another party. His description of guile is the “lying, stealing, cheating, and calculated efforts to mislead, distort, disguise, obfuscate, or otherwise confuse” (Williamson, 1985, p. 47). It is worth noting that opportunism in this sense does not refer to every self-interest seeking act, such as bargaining (John, 1984; Samaha, Palmatier & Dant, 2011), nor an honest mistake (Oliveira & Lumineau, 2019). Rather, opportunistic behavior is defined as self-interest seeking with guile (Williamson, 1975). For example, a party misrepresenting their true intentions (Williamson, 1975). Guile, a trait that human beings have in general (Zardkoohi, Harrison & Josefy, 2017), is what distinguishes opportunistic behavior from other types of self-interest seeking behavior (Wathne & Heide, 2000) such as negotiation (Samaha et al., 2011).

To elaborate, Williamson’s (1985, p.47-48) full definition of opportunistic behavior is:

“By opportunism I mean self-interest seeking with guile. This includes but is scarcely limited to more blunt forms, such as lying, stealing and cheating. Opportunism more often involves subtle forms of deceit… More generally, opportunism refers to the incomplete or distorted disclosure of information, especially to calculated efforts to mislead, distort obfuscate, or otherwise confuse. It is responsible for real or contrived conditions of information asymmetry, which complicate problems of economic organization”.

Although Williamson’s (1975) definition (see Table 2) is rooted in the transaction cost economics literature, numerous marketing scholars have referred to his definition (e.g., Swanson, Kelley & Dorsch, 1998; Pitt & Foreman, 1999; Jap & Anderson, 2003; Wang et al., 2013; Zhou et al., 2015; Zhang, Li & Huang, 2017; Gelderman et al., 2019). Jap and Anderson (2003, p.1686) built on Williamson’s (1975) definition by describing two primary forms of opportunistic behavior: “(i) distortion of information, including overt behaviors such as lying, cheating and stealing, as well as more subtle behaviors such as misrepresenting information by not fully disclosing [and] (ii) reneging on explicit or implicit commitments such as shirking, or failing to fulfill promises, and obligations”. Ian Macneil (1981), a scholar of contract law, disagreed with Williamson’s (1975) definition. According to Macneil (1981, p. 1023), guile, which he referred to as “taking advantage of opportunities with little regard for principles or consequences”, is not a prerequisite for opportunistic behavior. Instead, Macneil (1981, p.1024) argued that opportunism is “self-interest seeking contrary to the principles of the relation in which it occurs”. Otherwise, it is simply self-interest seeking behavior (Wathne & Heide, 2000). Similar to Macneil’s (1981) definition, opportunism has been referred to as “deceit-oriented violation of implicit or explicit promises about one’s appropriate or required role behavior” (John, 1984, p.279); violating “a particular relationship specific contracting norm that is used to shape the parties’ expectations regarding subsequent behavior” (Ertimur & Venkatesh, 2010, p. 259); and, more recently, “a form of resistance to dominant professional norms” (Gelderman et al., 2019, p.453). These definitions describe opportunistic behavior in terms of contracts and norms. Scholars also exemplify opportunistic behavior with reference to information in the following ways: strategically manipulating information (e.g. lying, cheating, stealing) (Williamson, 1975; Jap & Anderson, 2003), sharing or suppressing information (John, 1984), failure to commit to obligations (e.g. shirking) (Jap & Anderson, 2003), refraining from responsibilities, or violating agreements (Wathne & Heide, 2000).

In this dissertation, the constraint of opportunistic behavior in industrial marketing relationships is explored, with reference to formal constraint mechanisms (e.g. legal contracts) and social constraint mechanisms (e.g. norms). In this light, a combination of both Williamson’s (1975) and Macneil’s (1981) definitions is adopted. Therefore, for the purpose of this dissertation, opportunistic behavior is viewed as: self-interest seeking with guile, contrary to the principles of the relation in which it occurs. For example, supermarket chain Tesco was found to have underpaid and mistreated its suppliers, contrary to their agreements (Simpson, 2016). Once this opportunism was exposed, Tesco’s reputation and relationship with these suppliers deteriorated (Tse, Zhag & Wang, 2019). Traditionally, opportunistic behavior was perceived to be a fixed construct (Wathne & Heide, 2000). However, it should rather be viewed as a construct that needs to be explained (John, 1984; Wathne & Heide, 2000). With a clearer apprehension of opportunistic behavior, its consequences can be better understood (Wathne & Heide, 2000). Wathne and Heide (2000) distinguished between active and passive opportunism. Active opportunism refers to breaching a contractual obligation, while passive opportunism refers to withholding efforts, such as information. In a similar vein, Luo (2006) classified two types of opportunism: strong- and weak-form. Strong-form opportunism refers to violating agreements that were explicitly recorded in contracts. Weak- form opportunism refers to violating relational norms that are not explicitly recorded in a contract. Opportunistic behavior can either occur when the initial agreement is made (Macneil 1981), ex-ante or ex-post (Jap & Anderson 2003; Ertimur & Venkatesh, 2010). Ex-ante and ex-post opportunism will be elaborated on later (see Section 1.2.3). Wathne and Heide (2000) held that there was scant literature on what specifically manifests as opportunism with respect to relational contracts. Three years later, Jap and Anderson (2003) argued that there was no agreement about the emergence and development of opportunism over time. More recently, Hawkins et al. (2013) contended that research is needed on the antecedents of opportunistic behaviour. In the same year, Jap and colleagues (2013) called for research on opportunistic behaviour in different stages of the relationship. In the light of the above, more research is needed on unpacking opportunistic behavior (Wathne & Heide, 2000; Jap & Anderson, 2003; Hawkins et al., 2013; Jap et al., 2013). In particular, the antecedents of opportunistic behavior need more attention (Wathne & Heide, 2000; Chen et al., 2002; Jap & Anderson, 2003; Hawkins et al., 2013; Wang & Yang, 2013; Kang & Jindal, 2015; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020). Firms are driven to act opportunistically by environmental, situational and individual factors, such as a perception of increased control, monitoring (John, 1984), honesty and integrity

(Hawkins et al., 2013), lack of cooperativeness (Tangpong et al., 2010), conflict, goal incongruence, attractiveness of alternatives, perception of unfair behavior (Kang & Jindal, 2015), and self-justification (Gelderman et al., 2019). However, scholars widely agree that a key driver of opportunistic behavior is information asymmetry (John, 1984; Williamson, 1985; Sharma, 1997; Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017). The role of information in opportunistic behavior is discussed next.

1.2.3 Information Asymmetry as an Antecedent of Opportunistic Behavior Prior to discussing the role of information in this dissertation, it should be noted that information and knowledge are distinguishable (Liebeskind, 1996; Drott, 2001). Knowledge is referred to as information that has been proven (Liebeskind, 1996) and stored in the human mind (Drott, 2001). Based on this distinction, the terms ‘information’ and ‘knowledge’ are used where appropriate for the remainder of the dissertation. Information is either freely available or expensive to acquire in organizations (Houston, 1986). It can be conveyed through actions, which may encourage individuals to change their behavior (Stiglitz, 2002) or decision- making process (Connelly, Certo, Ireland & Reutzal, 2011). The way information is used differs depending on the context (Tate, Ellram, Bals, Hartmann & Van der Valk, 2009). Knowledge can be explicit or tacit (Liebeskind, 1996) These two types of knowledge are explained in turn. Explicit knowledge is the academic information that can easily be recorded (Smith, 2001). For example, knowing what job the professional agent has completed (Sharma, 1997). While explicit knowledge can easily be shared with someone else, tacit knowledge cannot (Polanyi, 1967; Rossiter, 2001). Tacit knowledge refers to knowledge that is gained from experience and rarely shared (Smith, 2001; Dawson et al., 2010), i.e. knowing how the agent performed the job (Sharma, 1997). Tacit knowledge allows explicit knowledge to be applied competently (Dawson et al., 2010). Tacit knowledge, such as intuition (Smith, 2001), is based on what Michael Polanyi introduced as tacit power; as individuals discover information through experiences, they hold it to be true (Polanyi, 1966). Given that individuals have different experiences, tacit knowledge differs from person to person (Walsham, 2001). For example, professionals such as doctors, lawyers, consultants and advertising agencies hold specialized, tacit knowledge which they have gained through experience (Sharma, 1997). However, tacit knowledge can be shared through cooperation (Grandinetti, 2016) if the tacit knowledge- holder agrees to share it (Grandinetti, 2017). Information is fundamental in marketing (Houston, 1986; Rossiter, 2001). However, in the marketing context, information will always be difficult to

21 codify (Hadida et al., 2019). For example, clients pay advertising agencies for their expertise in creating advertising campaigns (Ertimur & Venkatesh, 2010), where creativity in this case can be difficult to quantify. Information can be available publicly or restricted to a select few only (Connelly et al., 2011). In relationships, both parties gather information about each other as the relationship grows (Shapiro, 2005; Grandinetti, 2017). For instance, principals learn which incentives to use and agents learn what the principal’s preferences are (Shapiro, 2005). However, when different people have access to different information, there is information asymmetry in the relationship (Eisenhardt, 1989; Stiglitz, 2002). In this case, some individuals may have the information, while others would benefit if they did have the information (Connelly et al., 2011). Information asymmetry is particularly significant in two situations: (1) when the characteristics of one party are not entirely known about by the other party in the relationship and (2) when one party is uneasy about the behavior and intentions of another party (Stiglitz, 2002). Therefore, information asymmetry can create instability and conflict in a relationship (Grandinetti, 2017). Information asymmetry is a key driver of opportunistic behavior (Sharma, 1997;Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Coff, 2003; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017). Either party in a relationship can take advantage of information asymmetry (Wathne & Heide, 2000; Kleinaltenkamp & Jacob, 2002; Shapiro, 2005). For instance, when sharing information could benefit the other party (Connelly et al., 2011), an opportunistic individual will withhold it (John, 1984). For example, agents may withhold their true behavior from the principal when they have done less work than they were contracted to do (Wathne & Heide, 2000). Alternatively, the opportunistic party may share biased or incomplete information to mislead others (Williamson, 1985), suppress information (John, 1984), manipulate information (e.g. lying, cheating, stealing) or misrepresent information (Jap & Anderson, 2003). Information asymmetry can generate two types of opportunism: adverse selection and moral hazard (Eisenhardt 1989; Weitz & Jap, 1995; Ertimur & Venkatesh, 2010). Adverse selection occurs as follows. In the ex-ante relationship stage (Eisenhardt, 1989; Ertimur & Venkatesh, 2010) a principal needs to establish whether a potential agent has the desired characteristics to perform the required work (Bergen et al., 1992). As individuals know more about their abilities than others, the agent has an information asymmetry advantage about their abilities in their relationship with the principal (Shapiro, 2005). The agent can act opportunistically by taking advantage of this information asymmetry (Weitz & Jap, 1995; Sorescu, Shankar & Kushwaha, 2007). As they hide their true characteristics, agents can mislead the principal by over-exaggerating or misrepresenting their skills (Eisenhardt, 1989; Shapiro,

2005). Therefore, the principal may not be able to accurately gauge the agent’s offerings (Kleinaltenkamp & Jacob, 2002), skills (Shapiro, 2005) or ex-post behavior (Steinle et al., 2014). Adverse selection can lead to moral hazard (Ellis & Johnson, 1993), which occurs as follows. In the ex-post stage of the relationship (Ertimur & Venkatesh, 2010), the agent uses their information asymmetry advantage to supply less work than they promised to supply ex-ante (Ellis & Johnson, 1993; Wathne & Heide, 2000). As the principal has incomplete information about the agent’s behavior (Shapiro, 2005), they monitor the agent’s performance to ensure that it aligns with the principal’s goals (Bergen et al., 1992). Therefore, the principal is unable to completely monitor whether the agent is acting honestly or not (Eisenhardt, 1989; Ellis & Johnson 1993; Quinn & Doherty, 2000; Kleinaltenkamp & Jacob, 2002; Shapiro, 2005). For example, the feasibility of paying a consultant is only known once their service has been provided (Kleinaltenkamp & Jacob, 2002). The agent can therefore act opportunistically to the principal’s detriment (Shapiro, 2005). For example, a client may not be able to monitor whether the advertising agency's effort on their campaign corresponds to what they are being paid to do (Ellis & Johnson, 1993). Over time, ex-post opportunism can detriment the relationship at large (Jap & Anderson, 2003). A primary focus of this dissertation is on opportunistic behavior in industrial marketing relationships, which is discussed in the next section.

1.2.4 Opportunistic Behavior in Industrial Marketing Relationships Opportunistic behavior exists in organizations (Eisenhardt, 1989; Davis, Schoorman & Donaldson, 1997; Verbeke et al., 2019) and particularly in the marketing discipline (Wuyts & Geyskens, 2005; Heide et al., 2007; Wathne & Heide, 2000). In her Academy of Management Review publication, Kathleen Eisenhardt (1989, p.64) said that “much of organizational life, whether we like it or not, is based on self-interest”. When opportunistic acts are simply overlooked by firms, it can be perceived simply as normal, everyday business activity (Samaha et al., 2011). Understanding opportunistic behavior is important because its consequences can detriment industrial marketing relationships (Jap, 2001). An organization begins with a single owner. As the organization grows, however, it needs additional employees to continue running smoothly. These additional employees will eventually act in their, rather than the organization's, best interests (Davis et al., 1997). This is because when it is possible to maximize self-benefit by acting opportunistically, individuals will (John, 1984; Davis et al., 1997; Hawkins et al., 2013). However, opportunistic behavior hinders organizational performance (Crosno & Dahlstrom, 2008), revenue, the

23 relationship at large (Wathne & Heide, 2000) and the desire to improve the relationship (Cheng & Sheu, 2012). Opportunistic behavior is particularly inherent in industrial marketing relationships (Luo, 2006). When there is a mutual commitment in an industrial marketing relationship both parties can be motivated to resist acting opportunistically. They aim to collaborate and improve their relationship in the long-run. However, when there is a lack of commitment they prioritize short- term benefit and in turn act opportunistically (Weitz & Bradford, 1999). In industrial marketing relationships one party will eventually act opportunistically, which can sabotage the relationship (see Klein, 1996; Grayson & Ambler, 1999; Selnes & Sallis, 2003; Anderson & Jap, 2005; Wuyts & Geyskens, 2005; Heirati et al., 2016). Opportunistic behavior is inevitable in industrial marketing relationships (Wathne & Heide, 2000; Jap & Anderson, 2003; Luo, 2006; Vandenbosch & Sapp, 2010; Zhang et al., 2019). Examples of opportunistic behavior in industrial marketing include salespeople overrating expenditure reports (Phillips, 1982), a violation of resale agreements by resellers (Dutta et al., 1994), suppliers insincerely offering to sell products or services that they in fact do not plan to sell (Wilkie et al., 1998) and franchisees failing to follow quality procedures (Hadfield, 1990). There are two implications of opportunism in industrial marketing relationships. The first is where a less empowered party has been disadvantaged by the more powerful party’s opportunistic behavior. Due to the power imbalance, the disadvantaged party may not be able to terminate the relationship and, in turn, is trapped (Kang & Jindal, 2015; Grandinetti, 2017). The second is where one party is disadvantaged by the information asymmetry in the relationship, which the opportunistic party will take advantage of (Grandinetti, 2017). Consequences of opportunistic behavior in industrial marketing relationships have been written about both in academic articles and the popular press. First, opportunism creates higher transaction costs, given the extra effort needed to monitor or govern the other party’s behavior. Second, opportunism can lower the confidence that both parties have in each other, which leads to conflicts and weaker collaborative efforts. Third, opportunism discourages repeated exchanges and reciprocity, hindering the relationship’s long-term sustainability (Luo, 2006). Furthermore, recent incidences of opportunism in industrial marketing relationships have been reported. For example, Carlos Ghosn using Nissan’s finances for personal gain acts, which had ripple effects on partners Renault and Mitsubishi (Lewis et al., 2019) and Kobe Steel selling products at a lower quality than promised to clients such as Toyota and Honda (Vaswani, 2018). In the light of the above, opportunism is a current and pressing issue in industrial marketing relationships.

Most literature on opportunism in industrial marketing is based on the supply-chain management context (e.g. Hibbard et al., 2001; Brown et al., 2008; Vandenbosch & Sapp, 2010; Noordhoff, Kyriakopoulos, Moorman, Pauwels & Dellaert, 2011; Cheng & Sheu, 2012; Zhou et al., 2015; Grandinetti, 2017; Gelderman et al., 2019; Oliveira & Lumineau, 2019). For instance, where suppliers aim to reduce costs yet marketers aim to increase revenue (Narver & Slater, 1990). Others have focused on areas such as salesforce management (e.g., Dorsch, Swanson & Kelley, 1998) and market research firms (Kelley et al., 1989). It is suggested that research is conducted in different industrial marketing relationships (Oliveira & Lumineau, 2019). One such industrial marketing relationship is the client-advertising agency relationship, which the next section discusses.

1.2.5 Client-Advertising Agency Relationship Dynamics and Opportunism An industrial marketing relationship that has received scant attention in the literature on opportunistic behavior is the client-advertising agency relationship (e.g. Davies & Prince, 2005; Davies & Palihawadana, 2006; Davies & Prince, 2010). Advertising agencies are service providers that offer their creative expertise (Levin, Quach, & Thaichon, 2019). For example, advertising agencies sell the best way that an advert can be designed (Godes, 2003). Clients (e.g., firms) need this creative expertise to appeal to the target market. In turn, clients pay advertising agencies for their creative ideas to better communicate with the target consumer (Davies & Prince 1999; Vafeas, Hughes & Hilton 2016). This relationship generally follows a process whereby the client sends the advertising agency a brief with its problem. Thereafter, the advertising agency uses its specialized knowledge and skills (e.g., creativity) to translate their client’s brief into a campaign that appeals to the target market. The client then implements the creative idea in the market and evaluates its impact on their return-on-investment (ROI) (Vafeas et al., 2016). To create an advertising campaign, the advertising agency needs resources, such as a budget, skilled employees and time (Levin et al., 2019). Clients play a key role in the advertising agencies’ process (West, Koslow & Kilgour, 2019); clients and advertising agencies need to cooperate by sharing detailed information with each other and having a mutual understanding about how to solve problems (Huang, Hu & Chen, 2008). Therefore, as in-person contact is needed to deliver the service, social interaction between the client and the advertising agency is important (Patterson, 2016; Levin et al., 2019). When clients and advertising agencies work together, the client has the opportunity to assess the advertising agency’s performance and actively engage in the relationship, which ultimately drives superior relationship quality (Briggs, Landry & Daugherty, 2016; Levin et al., 2019). In this light, as the advertising agency’s service has a continuous and interactive nature, relationship

25 management is relevant to this dyad (Patterson, 2016; Keegan et al., 2017; Levin et al., 2019). In reality, a favorable client-advertising agency relationship is not always possible to maintain (Mortimer & Laurie, 2017). In most client-advertising agency relations, there is a misalignment of goals (Taylor, 2017). Clients are increasingly pressured to achieve a favorable ROI (Vafeas et al., 2016; Martín- Herrán & Sigué 2017; Laurie & Mortimer, 2019) while improving their marketing communications (Taylor, 2017). On the other hand, advertising agencies aim to create award-winning, agency-profitable campaigns (Taylor, 2017) yet operate in a challenging and fragmented media environment (Levin et al., 2019). Conflict can arise when the client’s brief and the advertising agency’s campaign diverge. For example, while advertising agencies prioritize creativity, this creativity can be circumscribed by how willing the client is to take risks. When clients are reluctant to take creative risks, advertising agencies may be hesitant to create original adverts (Wang et al., 2013). Twenty years ago, the average length of client-advertising agency relationships was seven years (e.g. West, 1997). Today, global client- advertising relationships’ average length has decreased to under four and a half years (Chu, Cao, Yang & Mundel, 2019). The current client-advertising agency relationship dynamic faces strain because of growing misunderstandings, frustration (Mortimer & Laurie, 2017), lack of communication and mistrust (Laurie & Mortimer, 2019). Clients feel that advertising agencies fail to appreciate the business landscape and customer experience. Advertising agencies, on the other hand, feel that clients do not appreciate their value and exclude them from executive discussions (Mortimer & Laurie, 2017). While their relationship dynamics have evolved, client- advertising agency relationships are at the lowest point they have ever been (Laurie & Mortimer, 2019). The client-advertising agency relationship issues are fueled by the impact that the internet has had on the relationship (Lamberton & Stephen 2016; Taylor, 2017; Laurie & Mortimer 2019; Liu-Thompkins 2019). Traditionally, an advertising agency’s activities included advertising research and strategy, advertisement production, creative development, and media planning and buying (Ellis & Johnson 1993). Today’s advertising campaigns are increasingly integrated and multi-disciplinary (Mortimer & Laurie, 2017). The marketing landscape currently faces an expensive and fragmented media environment (Martín-Herrán & Sigué, 2017; Levin et al., 2019; Liu-Thompkins, 2019). This, coupled with an increased clutter of content, makes it more challenging for advertising content to stand out (Taylor, 2017). Previously, problems with advertising included determining its moral acceptability, assessing the probable outcome and ensuring comparability and consistency. Past researchers predicted that advertising ethics would be

26 important in society as clients will be able to better evaluate the impact of an advertising campaign (Millar & Choi, 2003). These predictions have been proven accurate. Two major global companies, Procter & Gamble and Unilever, asked advertising agencies to “clean up their act” (Johnson, 2018, p.1). Procter & Gamble found that there were “20-30% of waste in the media supply chain because of lack of viewability, non-transparent contracts, non-transparent measurement of inputs, fraud and... ads [sic] showing up in unsafe places [online]” (Johnson, 2017, p.1). The impact that the fragmented media environment has had on client- advertising agency relationships needs immediate attention (Taylor, 2017; Liu- Thompkins, 2019). Moreover, the client-advertising agency relationship is more complex than ever before, which leaves a new dynamic around maintaining these relationships (Taylor, 2017). Given the new client-advertising agency dynamic, advertising agencies are reconsidering their service offering and business models (Levin et al., 2019). The advertising industry has matured to a position where there are low barriers to entry, and the challenges that the industry currently face make research about the drivers of a continued relationship with the marketer timely (Levin, Thaichon & Quach, 2016). In this dynamic advertising climate, it is crucial to understand what the drivers of successful and fruitful client-advertising agency relationships are (Taylor, 2017; Liu-Thompkins, 2019). For instance, in her review of online advertising literature over the past decade, Liu-Thompkins (2019) notes that future research is needed on how client-advertising agency relationships have been affected by the advent of digital and how the new organizational culture can be re-evaluated. Moreover, in a recent editorial for the International Journal of Advertising, Charles Taylor (2017) called for a deeper understanding of client- advertising agency relationship dynamics. He argued that, despite the change in its dynamic and continued prevalence in popular press (e.g. O’Reilly, 2016; de Villiers, 2018; Burns, 2019; Weinberg & Vareacos, 2019) the academic research on client-advertising agency relationships is declining. Taylor (2017) referred to three reasons for this decline. First, it is not easy to collect data from either clients or their advertising agencies given their busy professions. Second, the advent of the internet and in particular social media has increased the complexity of client-advertising agency relationships. Third, the advertising industry is dominated by five major advertising groups (e.g. WPP, Publicis, Dentsu, Havas, Omnicom etc.) who own advertising agencies spanning from digital to strategy. In turn, there is a new dynamic in the industry with respect to managing relationships (Taylor 2017). Most literature on client-advertising agency relationships overlooks certain topics and instead focuses on creativity (LaBahn & Kohli, 1997, Levin

27 et al., 2019). However, as today’s client-advertising agency relationships have a shorter lifespan than before, a better understanding about their retention (Taylor, 2017), needs, goals and resources is required to improve these relationships (Heo & Sutherland, 2015). In addition, while scholars have recently studied the client-advertising agency relationship (see Mortimer & Laurie, 2017; Laurie & Mortimer, 2019; Levin et al., 2019; Liu-Thompkins, 2019; Vafeas et al., 2016), more studies are needed that consider both the client- and advertising agency- side simultaneously (Taylor, 2017). In the light of the above, there is an urgent need to better understand today’s client-advertising agency relationships and address their shortcomings (Keegan et al., 2017; Taylor, 2017; Laurie & Mortimer, 2019; Liu-Thompkins, 2019; West et al., 2019). Moreover, as efforts to exploit digital platforms were bound to happen (Fulgoni & Lipsman, 2017), it is necessary to address the opportunistic behavior in today’s client-advertising agency dynamic. The following paragraphs describe actual cases of client-advertising agency opportunism. Client-advertising agency opportunistic behavior has been thinly covered in recent academic publications (e.g. Davies & Prince, 2005; Davies & Palihawadana, 2006; Davies & Prince, 2010). However, client-advertising agency opportunism still occurs today, as is evident by the recent real-world examples disclosed in the popular press (e.g. O’Reilly, 2016; de Villiers, 2018; Burns, 2019; Weinberg & Vareacos, 2019). These are described in turn. Opportunistic overbilling by major advertising agencies of major clients has been reported, for example: Ogilvy & Mather and The White House, Leo Burnett and the U.S. Army (Edwards, 2009), and Dentsu and Toyota (O’Reilly, 2016). In addition, advertising agencies have been found to accept rebates from media houses (O’Reilly, 2017). Client opportunism has also been reported: Ackerman McQueen is suing the National Rifle Association, after almost 40 years of their relationship, for around $1.7 million of unpaid work (Weinberg & Voreacos, 2019). Another recent example of client opportunism is that of General Mills, which changed its pitch terms to include a 120-day payment term, where all ideas pitched belong to General Mills regardless of which advertising agency wins the contract. Further, advertising agencies need to pitch to General Mills in general, rather than for a particular brand. The winning advertising agencies are added to a roster, to be used when needed (Burns, 2019). In some cases, both clients and advertising agencies can join forces to act opportunistically against a third party. For example, some clients accept secret settlements from advertising agencies, in exchange for agreeing not to audit the advertising agency’s media contracts and in turn expose its media rebates (O’Reilly, 2017). In the following section, the constraint of opportunistic behavior is discussed.

1.2.6 Constraining Opportunistic Behavior in Industrial Marketing Relationships Constraint mechanisms can be used to foster agreements between parties in the relationship. These include mechanisms to monitor or incentivize, reputations, interpersonal trust, norms or contracts (Jap & Anderson, 2003). In the marketing literature, opportunism (e.g., John, 1984; Dahlstrom & Nygaard, 1998; Brown et al., 2000; Wathne & Heide, 2000) and constraint mechanisms (e.g. Dutta et al., 1994; Bergen, Heide & Dutta, 1998; Antia & Frazier, 2001) tend to be two distinct streams (Antia et al., 2006). Instead of taking it for granted, the impact of and conceptualization of constraint mechanisms in the marketing literature needs attention (Antia et al., 2006). A constraint mechanism, also known as a governance mechanism, is used to discourage opportunistic behavior (Anderson & Jap, 1995; Heide et al., 2007; Piercy, 2009; Crosno & Brown, 2015; Gelderman et al., 2019). To encourage collaboration in industrial marketing relationships more information between the parties needs to be shared (Handfield, 2019). Furthermore, the nature of an antecedent of opportunistic behavior has key implications for managing opportunism (Wathne & Heide, 2000). Information asymmetry is a key antecedent of opportunistic behavior (John, 1984; Williamson, 1985; Sharma, 1997; Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017). Three key information asymmetry-related constraint mechanisms are signaling, screening and contracts (Dawson et al., 2016). For example, to avoid the implications of exploiting information asymmetry, signaling and screening can be used to better align goals (Kleinaltenkamp & Jacob 2002). Other examples of constraint mechanisms include monitoring (Heide et al., 2007), offering incentives (Lal et al., 1994), guarantees, self-selection (Kleinaltenkamp & Jacob, 2002), laws and contracts (Dawson et al., 2016). Constraint mechanisms can be used to (i) ensure that both parties’ goals are aligned (Kleinaltenkamp & Jacob, 2002; Shapiro, 2005); (ii) protect each other against the other party’s information asymmetry advantage (Kleinaltenkamp & Jacob, 2002); and (iii) prevent the relationship deteriorating from distrust, conflict and hostility (Hibbard et al., 2001). Regulating behavior is crucial to discouraging opportunism (Vandenbosch & Sapp, 2010). While past studies have made efforts to govern an agent’s performance and behavior, the success of these efforts are questionable (Crosno & Brown, 2015). More attempts to address the effectiveness of constraint mechanisms in industrial marketing relationships is needed (Antia et al., 2006; Piercy, 2009; Crosno & Brown, 2015; Kashyap & Murtha, 2017). The use of constraint mechanisms to curb opportunistic behavior is perceived to be both positive (e.g. Anderson & Jap, 1995; Piercy, 2009; Crosno

& Brown, 2015; Gelderman et al., 2019) and negative (e.g. John, 1984; Antia et al., 2006). The efficacy of a constraint mechanism is influenced by its context (Crosno & Brown, 2015). In the industrial marketing context, the use of constraint mechanisms should be addressed (Kashyap & Murtha, 2017). There are studies on constraining opportunism in industrial marketing relationships, such as the franchisor-franchisee (e.g. Hadfield, 1990; Kashyap et al., 2012; Kashyap & Murtha, 2017) or supply chain management contexts (e.g. Katsikeas, Skarmeas & Bello, 2009; Tangpong et al., 2010; Wang et al., 2013). However, a clear answer on constraint mechanisms in marketing is still needed (Antia et al., 2006; Crosno & Brown, 2015). As far as can be ascertained, little to nothing has been done on constraint mechanisms in client-advertising agency relationships. In addition, while ex-ante adverse selection exists (Eisenhardt, 1989; Bergen et al., 1992; Kleinaltenkamp & Jacob, 2002; Shapiro, 2005; Ertimur & Venkatesh, 2010), constraint mechanisms for ex-post moral hazard have received more attention (e.g. Stump & Heide, 1996; Jap & Anderson, 2003; Kashyap et al., 2012; Wathne et al., 2018). This may be because ex-post constraint mechanisms (e.g. monitoring) are considered more critical to governing and managing industrial marketing relationships (Kashyap & Murtha, 2017). However, early in a relationship, it is important to establish common goals, expectations, roles and intentions (Anderson & Jap, 2005). There is a risk of having a naive and utopian impression of the organization ex-post, if the ex- ante constraint mechanisms are not evaluated ex-ante (Williamson, 1993; Jap & Anderson, 2003). In turn, when issues arise in the relationship later on, both parties can revert to their earlier agreements (Anderson & Jap, 2005). Selecting the most appropriate type and level of constraint mechanism for a particular context can hinder opportunism (Crosno & Brown, 2015). New combinations of constraint mechanisms should be explored (Kashyap & Murtha, 2017). There are two primary types of constraint mechanisms: formal and social. Formal constraint mechanisms comprise contracts, rules, monitoring and an authoritative culture (John, 1984). In industrial marketing relationships, formal constraint mechanisms do not always play an important role because there are often social constraint mechanisms, such as informal agreements, that also exist (Wathne & Heide, 2000). Social constraint mechanisms include social capital (Wang et al., 2013), attitudes, perceptions and norms (John, 1984). For example, management can routinely check that their clients’ employees’ norms align with that of the company (Gelderman et al., 2019). Other examples of social constraint mechanisms are (i) community control, where a professional body in a community decides on norms for its members; (ii) bureaucratic control, where a professional firm has quality controls that need to be followed, thereby constraining opportunistic behavior; (iii) client control, where an external

30 professional can be hired to monitor the professional agent’s performance (Wathne & Heide, 2000); and (iv) the informal community, which is used as validation of reputations to prevent opportunistic behavior (Dawson et al., 2010). Social constraint mechanisms are also referred to as relational contracts (Wathne & Heide, 2000). Depending on the norms of a relationship, an act perceived as a violation in one relationship may be acceptable in another relationship (Dawson et al., 2010). In relationships that are vulnerable to opportunistic behavior, social constraint mechanisms can encourage a long- term, efficient relationship (John, 1984; Wang et al., 2013). It is inadequate to rely solely on formal or social constraint mechanisms to curb opportunistic behavior (John, 1984; Tangpong et al., 2010); relationships that are ‘too rigid’ or ‘too flexible’ will fall short of success. For example, relying on an interpersonal relationship between two managers is not encouraged. The key is for a relationship to flexibly adapt to market changes yet be rigid enough to encourage both parties to act in the relationship’s best interest (Anderson & Jap, 2005). When there is a perception that only formal constraint mechanisms are imposed, opportunistic behavior can actually increase (John, 1984). When used in conjunction with each other, social constraint mechanisms can complement formal constraint mechanisms (John, 1984; Kumar et al., 2011; Cao & Lumineau, 2015; Crosno & Brown, 2015; Hadida et al., 2019). For example, using monitoring (a formal constraint mechanism) in conjunction with guidance (a social constraint mechanism) to encourage the agent to perform better (Crosno & Brown, 2015). As both formal and social constraint mechanisms can mitigate opportunistic behavior in industrial marketing relationships, the interplay of using both types of constraint mechanisms should be studied (Cao & Lumineau, 2015). Within the literature, there are theoretical perspectives on the constraint of opportunism, some of which have been applied to the industrial marketing context in past studies. The following section reviews the literature on the relevant theoretical perspectives.

1.2.7 Theoretical Perspectives A theory is not hypotheses, variables, data, diagrams or references, even though these contribute to theory development (Sutton & Staw, 1995). Theories should be an extension of concept definitions that describe the relationships between concepts (Stewart & Zinkhan, 2006). Good theories should not only describe, yet also explain marketing phenomena, such as by identifying antecedents of phenomena to contribute to predictions about the future. A strong theory offers rich descriptions and foundations for predictions that can be tested in a controlled environment. For example, strong theories answer questions such as

“why customers behave as they do, why different markets evolve in particular ways over time, and why specific institutions and practices emerge” (Steward & Zinkhan, 2006, p.478). This can be challenging in marketing which is based on practice and application. Marketing scholars disagree about what a strong theory is (Stewart & Zinkhan, 2006). To further develop the marketing discipline, it is therefore valuable to study marketing through theoretical perspectives. While there are various theories related to opportunistic behavior, it is not feasible nor beneficial to address all the related marketing theories in one dissertation. In what follows, four relevant theories and one theoretical perspective are introduced, namely: Agency Theory, Transaction Cost Theory, Stewardship Theory, the Principal-Professional Perspective and the Theory of Relationship Constraints. The appropriateness of using each of these in this dissertation is discussed. To begin, Agency Theory is explained.

1.2.7.1 Agency Theory Agency Theory provides an appropriate conceptual framework for understanding and explaining the associations in which a party, called the principal, assigns work to another party, called the agent, who then does the work (Jensen & Meckling, 1976; Eisenhardt, 1989; Bergen et al., 1992; Gould et al., 1999; Spake et al., 1999). As the principal and their agent’s goals differ (Jensen & Meckling, 1976), the agent may be discouraged from acting in the principal’s interests (Bergen et al., 1992) and both parties will be discouraged from disclosing information to each other (Shapiro, 2005). This creates information asymmetry (Bergen et al., 1992). Agency Theory posits that information asymmetry results in opportunism by the agent in the form of adverse selection and moral hazard. The theory holds that an optimal contract can be drawn to encourage the principal and agent’s goals to be aligned and to inhibit opportunistic behavior by the agent (Eisenhardt, 1989; Bergen et al., 1992). Agency Theory is based on the following assumptions: (i) principals and agents both act with their self-interests in mind; (ii) principals have incomplete information, which the agent can provide but may choose not to; (iii) environmental uncertainty can influence the outcome of the relationships; (iv) principals tend to be more risk neutral, while agents tend to be more risk averse; and (v) agents try to maximize the benefit they get from the relationship (Bergen et al., 1992). Principals should monitor and assess the agent’s performance, i.e. by implementing constraint mechanisms. This can be done by enforcing behavior- based or outcomes-based contracts to trade-off the cost of the agent shirking versus giving the agent more power. This depends on the environmental uncertainty, the tasks involved and both the principal and the agent’s characteristics (Bergen et al., 1992). 32

A similar theory to Agency theory is the Transaction Cost Theory, which also assumes that individuals act in their self-interest (Eisenhardt, 1989). The Transaction Cost Theory is explained next.

1.2.7.2 Why is Transaction Cost Theory not Applied? Governing industrial marketing relationships can be done using Transaction Cost Theory or Agency Theory (Cao & Lumineau, 2015). The Transaction Cost Theory has been dominant in the literature on opportunistic behavior in industrial marketing relationships (Oliveira & Lumineau, 2019). Transaction costs are the costs of managing a transaction, such as negotiating and drafting contracts ex-ante and monitoring ex-post (Hill, 1990; Rindfleisch & Heide, 1997). The Transaction Cost Theory, introduced by Ronald Coase, is based on the view that firms and markets are two different governance structures with varying transaction costs (Rindfleisch & Heide, 1997). The theory holds that, depending on the transaction costs, it is better to undertake a transaction within the firm when doing so is more feasible than undertaking the transaction in the market (Jones & Hill, 1988). The Transaction Cost Theory holds opportunistic behavior as a key variable (John, 1984) and that the risk of opportunism is immanent in transactions (Hill, 1990). The theory is based on the assumption that individuals act opportunistically when it is beneficial and feasible to do so (Ghosh & John, 2000; Crosno & Dahlstrom, 2008; Bhattacharya et al., 2015). The Transaction Cost Theory assumes two antecedents of opportunism are bounded rationality (Steinle et al., 2014) and environmental uncertainty (Rindfleisch & Heide, 1997). Bounded rationality assumes that when individuals make decisions, there are cognitive limitations that prevent them from acting rationally. When there is environmental uncertainty, the circumstances of an exchange are not specified ex-ante and in turn ex-post performance is not easily attested (Rindfleisch & Heide, 1997). Agency Theory is an obvious alternative to the Transaction Cost Theory (Eisenhardt, 1989). These two theories are closely related (Bergen et al., 1992). Both theories consider goal differences and assume that individuals act opportunistically (Eisenhardt, 1989). However, Agency Theory differs from the Transaction Cost perspective in the following ways. First, the Transaction Cost Theory focuses on the transaction only, i.e. the exchange, whereas Agency Theory focuses on the agent’s behavior (Bergen et al., 1992). The Transaction Cost Theory’s view of human behavior is primarily economical, as opposed to sociological. In reality, economic transactions are based on social relationships (Granovetter, 1985). Second, the Transaction Cost Theory focuses on ex-post opportunism, whereas Agency Theory considers ex-ante opportunism and the possibility of constraining ex-post opportunism ex-ante (Bergen et al., 1992). Therefore, Agency Theory is more appropriate for the purpose of addressing this dissertation’s research problem in the principal-agent context, 33 i.e. where the is a layman. This corresponds to previous marketing scholars’ concerns expressed about using the Transaction Cost Theory (e.g. Wathne & Heide 2000). Another alternative theory to Agency Theory is Stewardship Theory, which the following section explains.

1.2.7.3 Why is Stewardship Theory not Applied? Stewardship Theory stems from the perspective that people can act in alignment with their partner’s objectives, rather than in favor of their own interest (Davis et al., 1997), i.e. that people can be good and that not every individual is opportunistic. Therefore, while Agency Theory focuses on how agents can be governed to work in the principal’s interest, Stewardship Theory focuses on how agents can be motivated to work in the principal’s interest (Donaldson & Davis, 1991). Stewardship Theory holds that an individual, a ‘steward’, gains more from cooperating and acting in the organization’s best interest, rather than through self-serving behavior. Therefore, according to Stewardship Theory stewards act rationally by choosing to prioritize the principal’s and the organization’s best interests rather than their own. They do this because the benefit to the organization can in turn benefit the steward (Davis et al., 1997). Implementing constraint mechanisms, from the Stewardship Theory perspective, serves as an unnecessary cost, as stewards are already motivated to act in the organization’s best interest. However, the Agency Theory perspective holds that risk-averse principals will implement constraint mechanisms to protect themselves from self-serving agents (Davis et al., 1997).

Table 3. Comparison of Agency Theory and Stewardship Theory

Agency Theory Stewardship Theory Model of Man Economic man Self-actualizing man Behavior Self-serving Collective serving Motivation Extrinsic (e.g. Intrinsic (e.g. self- economic) actualization) Identification Low value commitment High value commitment Management Philosophy Control oriented Involvement oriented Risk orientation Control mechanisms Trust Time frame Short-term Long-term Objective Cost control Performance enhancement Cultural Differences Individualism Collectivism

Source: Adapted from Davis, Schoorman and Donaldson (1997)

The following differences between Agency Theory and Stewardship Theory are summarized in Table 3 above. Agency Theory holds that agents are economic, self-serving, motivated by extrinsic goals (e.g., monetary gains) and less committed to the organization; there is an individualistic culture. Agency Theory’s management philosophy is that in uncertain environments a control- oriented approach should be used, for example through quality control (Davis et al., 1997). Stewardship Theory, on the other hand, largely depends on trust and views agents as stewards who act rationally, are motivated by intrinsic gains (e.g., self-actualization) and are more committed to the organization; there is a collectivist culture. Stewardship Theory’s management philosophy is that in uncertain environments an involvement-oriented approach is used, for example through training or empowerment of agents (Davis et al., 1997). Scholars have focused on the positive side of relationships, to encourage cooperative behavior (e.g. Morgan & Hunt, 1994, De Ruyter et al., 2001; Zhang et al., 2015). However, others disagree with this approach (e.g. Anderson & Jap, 2005; Abosag et al., 2016; Grandinetti, 2017; Brown et al., 2019). It is more likely to foster a successful industrial marketing relationship when focusing on managing its dark, rather than positive, side (Abosag et al., 2016). To foster

35 success in an industrial marketing relationship, it is paramount that its dark side is addressed (John, 1984; Grayson & Ambler, 1999; Hibbard et al., 2001; Anderson & Jap, 2005; Abosag et al., 2016). For example, Morgan and Hunt’s (1994) Commitment-Trust Theory holds that trust encourages commitment and is needed for a relationship to be successful. However, while Brown and colleagues (2019) acknowledge that trust and commitment are key to relationship marketing, they disagree with Morgan and Hunt (1994). Brown et al. (2019) argue the following. When trusting the other party, there is more commitment to the relationship. However, too much commitment can make the party feel vulnerable, trust the other party less and consider alternative relationship partners. Therefore, they recommend that to hinder the dark side of relationships, parties should avoid violating agreements and abide by contractual obligations. Without the fear of being monitored, and in turn caught, an opportunistic party is inclined to freely act opportunistically (Dawson et al., 2011). To mitigate opportunism resources should be spent on monitoring and controlling the other party. In turn, information asymmetry can be reduced and opportunistic behavior discouraged (Wathne & Heide, 2000). In the light of the above, the constraint of opportunistic behavior is encouraged (Wathne & Heide, 2000; Dawson et al., 2011; Brown et al., 2019). In particular, given that information asymmetry is a key antecedent of opportunistic behavior (John, 1984; Williamson, 1985; Sharma, 1997; Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017), it should be considered when constraining opportunism (Wathne & Heide 2000; Dawson et al., 2011). In the light of the above, Stewardship Theory is inappropriate for the purpose of addressing this dissertation’s research problem in the principal-agent context. Instead, Agency Theory is useful in that it helps to explain principal- agent relationships, the consequences of opportunistic behavior and how this can be constrained through governance. Without governing the principal-agent relationship, the agent can take advantage of the principal. Therefore, Agency Theory lowers the risk of opportunistic behavior by the agent (Davis et al., 1997). Beyond the scope of the principal-agent relationship, there are relationships where agents are professionals with specialized knowledge that is difficult to learn, record or share (Sharma, 1997; Dawson et al., 2010). In the case where the agent is a professional, Agency Theory can be limited. The principal-professional perspective, which addresses this limitation, is explained next.

1.2.7.4 Why is the Principal-Professional Perspective not Applied? Agency Theory laid the groundwork to understand, predict, and mitigate opportunism in principal-agent relationships using formal constraint mechanisms such as legal contracts. It has been widely applied in management and marketing research (see Jensen & Meckling, 1976; Eisenhardt, 1989; Bergen et al., 1992; Shapiro, 2005; Hadida et al., 2019). However, despite its prevalence, there has been inconsistent support for Agency Theory in past studies (Bommaraju, Ahearne, Krause & Tirunillai, 2019), with some criticizing Agency Theory (e.g. Perrow, 1986; Sharma, 1997; Hadida et al., 2019). In the following paragraphs I will describe the limitations of Agency Theory. First, a key aspect of the principal-agent relationship is the level of control that the principal has over the agent. Previously, the perceptions of Agency Theory delved into two spectrums, either the principal has more control over the agent, or the independence of both the principal and the agent result in minimal or no control within the agency relationship (Tumbat & Grayson, 2016). However, agents can exercise more control when: (i) principals are new to their roles and have limited prior experience in the field or in monitoring the agent’s performance; or (ii) principals approach agents for their expertise (the agent in this case would be a professional agent) (Shapiro, 2005). Second, while Agency Theory holds that principals can be opportunistic, its application in the literature has heavily focused on opportunism by the agent only. Agency Theory does not focus on opportunistic behavior by principals (Perrow, 1986; Sharma, 1997; Zardkoohi et al., 2017). Research is needed on principal opportunism (Perrow, 1986; Miller, 2005; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017; Döhler, 2018). Perrow (1986) described principal opportunism as violating or manipulating contracts to its advantage, imposing dangerous working conditions, unfair supervision and mandatory overtime working hours. He could not find a model in the literature that spoke about misrepresentation by the principal to the agent. Döhler (2018) only found a handful of attempts to understand what the conditions for moral hazard by the principal are. Furthermore, it can be challenging for agents to predict or protect themselves from principal opportunism (Miller & Sardais, 2011). Despite the scant attention it has received in the past, principals are prone to acting opportunistically (Perrow, 1986; Weitz & Jap, 1995; Prahalad & Ramaswamy, 2004; Miller, 2005; Zardkoohi et al., 2017; Döhler, 2018). In fact, it is natural for principals to act opportunistically (Miller, 2005). Principal opportunism includes unfair working conditions or supervision, exploitation, disregarding contractual obligations and manipulating contracts in their favor (Perrow, 1986). Principals tend to act opportunistically when their agents have conflicting goals, and the principal has the upper hand (Zardkoohi et al., 2017). For example, a client (i.e., the principal) may strategically offer a deadline to an advertising agency (i.e., the agent) two weeks earlier than it is actually needed, 37 because they know from experience that the advertising agency will ask for a deadline extension the night before the work is due. Principal opportunism has been addressed in fields such as information technology (e.g. Dawson et al., 2010), finance (e.g. Zardkoohi et al., 2017), and politics (e.g. Döhler, 2018). Understanding principal opportunism is important in the principal-professional agent context where opportunism can be bilateral (Dawson et al., 2010). Furthermore, although some marketing scholars have referred to principal opportunism (e.g. Connelly, Ketchen & Slater, 2011), as far as can be ascertained scant publications conceptualize or explore principal opportunism in the industrial marketing context. A third, and key, limitation of Agency Theory is its assumption that explicit knowledge is prevalent in the principal-agent relationship (Dawson et al., 2010) and that the agent is a layman with a low level of specialization; Agency Theory does not focus on opportunistic behavior by a professional agent (Sharma, 1997). Industrial marketing relationships generally comprise a professional agent, such as an advertising agency, and a principal, such as a client (Ertimur & Venkatesh, 2010). Compared to principal-agent relationships, there is a co-production of intangible services in principal-professional agent relationships (Sharma, 1997). The presence of co-production means that there is bilateral information asymmetry in the relationship; information is distributed unequally between the principal and the professional agent, where each party has an information asymmetry advantage although over different information (Dawson et al., 2016). This bilateral information asymmetry can be used by either party to act opportunistically (Dawson et al., 2010). When there is bilateral information asymmetry, it is difficult to predict which party will act opportunistically (Dawson et al., 2016). For example, an advertising agency can overestimate their abilities in a pitch to a lucrative marketer simply to win the contract, while the marketer is unaware that the pitch is all an act. Agents that are professionals, such as consultants and investment bankers, have tacit knowledge that their lay principal does not have (Sharma, 1997). For example, a major international management consultancy firm, McKinsey & Co, recently admitted to overcharging Eskom, a South African company (Holman, 2018). In this case, the consultancy firm (i.e. the professional agent) acted opportunistically by overcharging their client (i.e. the principal). As co-production and tacit knowledge exists in the principal-professional agent relationship, the antecedents of opportunism change. The presence of tacit knowledge makes it even more challenging for the principal to monitor the professional agent’s behavior. For instance, the principal may not be able to clearly specify what their expectations of the professional agent are or how much compensation is required. It can also be costly for principals to hire a

38 second professional opinion to better understand how to prevent professional agent opportunism (Sharma, 1997). Therefore, when working with professional agents, formal contracts (which Agency Theory is based on) can be ineffective in including their tacit knowledge and in turn constraining the professional agent’s opportunism. Therefore, contrary to Agency Theory, the principal-professional agent perspective holds that social constraint mechanisms should be employed (Sharma, 1997). For example, reputation management or norms that are accepted by their professional community may discourage the professional from acting opportunistically (Dawson et al., 2010). However, while the Principal-Professional Perspective addresses some limitations of Agency Theory, it too is limited in the following ways. First, the Principal-Professional Perspective focuses on social constraint mechanisms only, disregarding formal constraint mechanisms. Second, the principal- professional agent perspective does not consider principal opportunism. Third, neither Agency Theory nor the Principal-Professional Perspective consider screening and signaling as a means to reduce the information asymmetry in the relationship (Dawson et al., 2010) The Theory of Relationship Constraints, which addresses these limitations, is explained next.

1.2.7.5 Theory of Relationship Constraints To address the limitations of Agency Theory and the Principal-Professional Perspective, Dawson et al. (2010) introduced the Theory of Relationship Constraints. Their theory views opportunistic behavior from a knowledge-based perspective and holds that information asymmetry is the root cause of opportunistic behavior (Dawson et al., 2010). The Theory of Relationship Constraints addresses how principals can constrain opportunistic behavior by the professional agent and vice versa. The terms defined in Table 4 below are used when explaining the Theory of Relationship Constraints.

Table 4. Theory of Relationship Constraints' Construct Definitions

Construct Definition Signaling Information shared by the party with the information asymmetry advantage (Tilles, 1961). Screening Information sought by the party with the information asymmetry disadvantage (Wathne & Heide 2000). Disadvantageous The situation where one party has less relevant knowledge information (tacit or explicit) than the other party. asymmetry Explicit knowledge Knowledge that can easily be captured or codified in a document or a database and is readily accessible to anyone willing to undertake the time and energy to learn it (Liebeskind 1996; Hitt, Bierman, Shimizu & Kochhar, 2001) Tacit knowledge Knowledge that is focused on know-how. Being able to apply explicit knowledge in a competent manner (Bassellier, Reich & Benbasat, 2001). Contract specificity The extent to which either party to a contract can unambiguously measure the success of an engagement. Constraint A method for limiting opportunistic behavior. mechanism Source: Adopted from Dawson, Watson and Boudreau (2010)

The Theory of Relationship Constraints regards what neither Agency Theory nor the Principal-Professional Perspective consider, namely that: (i) the principal and the professional agent can hold information asymmetry and act opportunistically at the same time, (ii) both the principal and the professional can impose different constraint mechanisms, (iii) there are different knowledge types depending on the project type (e.g. tacit and explicit), (iv) the efficacy of the informal community is a source of constraint, (v) there is an interplay between contract specificity and information asymmetry, (vi) signaling and screening exist, and (vii) formal and social constraint mechanisms can be used simultaneously (Dawson et al., 2010). In addition, the Theory of Relationship Constraints recognizes that in principal-professional agent relationships, there is co-production, bilateral information asymmetry, and opportunistic behavior by both parties (Dawson et al. 2011). As there is bilateral information asymmetry, predicting whether the

40 principal or the professional agent will act opportunistically is challenging. Therefore, both parties try to improve their position by signaling and screening. Literature tends to focus on unilateral information asymmetry, rather than bilateral information asymmetry (Dawson et al., 2016). The purpose of this theory is to explain the antecedents of opportunism and how it might be constrained based on the level of information asymmetry and type of knowledge (i.e. tacit or explicit) exchanged in principal-professional agent relationships (Dawson et al., 2010). In addition, it holds that principals and professional agents can constrain each other’s opportunism through formal (e.g., signed contracts) and social (e.g., a handshake) constraint mechanisms. Neither Agency Theory nor the Principal-Professional Perspective consider these factors holistically. Figure 3 below conceptualizes the Theory of Relationship Constraints, as adopted from Dawson et al. (2010).

Figure 3. Model of the Theory of Relationship Constraints

Signaling - Level of Disadvantageous Information

Asymmetry

- Choice of Screening Constraint Mechanism Contract Specificity

Required Required

Explicit Tacit

Knowledge Knowledge

Source: Adopted from Dawson et al. (2010)

As Figure 3 above shows, the following factors influence the choice of constraint mechanism in the principal-professional agent relationship: (1) signaling and screening influence the level of disadvantageous information asymmetry held by both parties, which in turn influences signaling and screening; (2) contract specificity, which contains both explicit and tacit knowledge, has an influence on the choice of constraint mechanism; and (3) the interaction between the level of disadvantageous information asymmetry and

41 contract specificity influences the choice of constraint mechanism (Dawson et al., 2010). The literature on Agency Theory, Transaction Cost Theory, Stewardship Theory, the Principal-Professional Perspective and the Theory of Relationship Constraints are referred to in the above sections. In summary, to address this dissertation’s research problem in the principal-agent context Agency Theory is more appropriate to apply compared to the Transaction Cost Theory and Stewardship Theory. When addressing the research problem in the principal- professional agent context, however, Agency Theory is limited. This is particularly the case when compared to the Principal-Professional Perspective and Theory of Relationship Constraints.

Table 5. Comparison of Agency Theory, the Principal-Professional Perspective and the Theory of Relationship Constraints Theory Agency Theory Principal- Theory of Professional Relationship Perspective Constraints Problem Relationships in which Relationships in Relationships in domain the principal and the which the principal which the principal agent have partly and the and professional differing goals and risk professional agent agent have co- preferences engage for a production knowledge- responsibilities and intensive task, have information differing risk asymmetry can be preferences, and bilateral exhibit partial goal conflict

Type of Mainly explicit Mainly tacit Tacit and explicit knowledge Information Information as a Incomplete market Information can market purchasable for knowledge either have an assumption commodity incomplete market for abstract knowledge or can be purchased Human Agent prone to Professional agent Principal and assumptions opportunism prone to professional agent opportunism prone to opportunism Organizationa Principal delegates task Co-production of Co-production of l assumptions to agent services services Constraint Legal constraints on Social constraints Considers both assumptions agent on professional social and legal agent constraints Gap imposed Does not consider Does not consider Does not consider agents as professionals, principal the manifestations and focuses on opportunism, and of ex-ante and ex- opportunistic behavior focuses on social post opportunistic by the agent only constraints only behavior separately

Note: Adapted from Dawson et al. (2010)

Agency Theory, the Principal-Professional Perspective and the Theory of Relationship Constraints are compared in Table 5 above. This table was adopted from Dawson et al. (2010), whose table was inspired by Sharma’s (1997) table, which was adapted from Eisenhardt (1989). Based on my review of the literature, the gaps imposed by each theory were added in the final row. As Table 5 shows, Agency Theory, the Principal-Professional Perspective and the Theory of Relationship Constraints contribute to our understanding of opportunistic behavior in relationships. Agency Theory provides the theoretical foundation for understanding opportunism in principal-agent relationships (Eisenhardt, 1989). The Principal-Professional Perspective suggests that tacit knowledge presents new challenges that should be considered to truly understand and predict opportunism in principal-professional agent relationships, but eschews formal contractual agreements (Sharma, 1997). Finally, the Theory of Relationship Constraints emphasizes the possibility of concurrent opportunistic behavior by both the principal and the professional agent, and reintroduces formal contracts into the discussion (Dawson et al., 2010). Despite its role in addressing the limitations left by Agency Theory and the Principal-Professional Perspective, the Theory of Relationship Constraints has not been applied to a marketing, and specifically the industrial marketing or client-advertising agency context. Theories can be strengthened by being applied to a new context (Stewart & Zinkhan, 2006). Future researchers are encouraged to extend the Theory of Relationship Constraints to new contexts (Dawson et al., 2010; 2011; Dawson et al., 2016). I extend the Theory of Relationship Constraints to the industrial marketing relationship (see Paper 2), and client-advertising agency relationships (see Papers 3 and 4) contexts. As far as can be ascertained, this dissertation is the first to make this adaption to the marketing discipline, and specifically client-advertising agency relationships. In doing so, this dissertation provides a starting point for industrial marketing scholars to advance our understanding of opportunistic behavior in principal- professional agent industrial marketing relationships. It should be restated here that while Agency Theory is limited in the principal-professional agent context, it is suitable for the principal-agent context where the agent is a layman. Therefore, Agency Theory was used in Paper 1, where the use of explicit information to constraint opportunism in principal- agent relationship is focused on. The remaining papers (Papers 2, 3 and 4), which focus on the principal-professional agent relationship, apply the Theory of Relationship Constraints. Therefore, both Agency Theory and the Theory of Relationship Constraints are applied in this dissertation, where appropriate. From the above review of the literature, four research questions were developed to address this dissertation’s research problem. In the next section, each research question is explained, beginning with Research Question 1.

1.3 DEVELOPMENT OF RESEARCH QUESTIONS This dissertation’s research problem is: How can information facilitate and constrain opportunistic behavior in industrial marketing relationships? In the light of the above literature review, the research problem is divided further into four research questions which will be introduced below, beginning with Research Question 1. Thereafter, an explain how the four research questions are connected is presented.

1.3.2 Formulation of Research Question 1 As included in the above literature review, scholars agree that there is a need for more research on the constraint of opportunistic behavior (Williamson, 1993; Anderson & Jap, 2005; Antia et al., 2006; Piercy, 2009; Hawkins, 2013; Crosno & Brown, 2015; Heirati et al., 2016; Gelderman et al., 2019). Agency Theory is a prevalent theory on constraining opportunistic behavior (see Jensen & Meckling, 1976; Eisenhardt, 1989; Bergen et al., 1992; Shapiro, 2005; Morgan et al., 2019). Originating from the economics literature on principal-agent relationships (Ross, 1973), Agency Theory reminds us that “much of organizational life, whether we like it or not, is based on self-interest” (Eisenhardt, 1989, p. 64). Agency Theory holds that formal constraint mechanisms with explicit information (e.g. legal contracts), such as an outcome-based contract, can be used to constrain opportunistic behavior in the principal-agent relationship (e.g. Eisenhardt, 1989; Bergen et al., 1992; Sharma, 1997). This is because it assumes that explicit knowledge prevails in principal-agent relationships and, in turn, that this explicit knowledge can be codified. Therefore, Agency Theory focuses on formal constraint mechanisms to measure the agent’s deliverable (Dawson et al., 2010). The marketing literature on opportunistic behavior is dominated by the Agency Theory perspective (Jensen & Meckling, 1976; Bergen et al., 1992; Shapiro, 2005; Hadida et al., 2019; Morgan et al., 2019). This still applies today, as Hadida et al. (2019) recently used Agency Theory in their Journal of Marketing publication. In particular, Agency Theory is used predominantly in the marketing literature on constraining opportunistic behavior (e.g. Dahlstrom & Nygaard, 1994; Joseph & Thevaranjan, 1998; Bartol, 1999; Gould et al., 1999; Spake et al., 1999; Ghosh & John, 2000; Krafft et al., 2004; Lo et al., 2011; Hodge et al., 2013; Cicala et al., 2014; Doherty et al., 2014; Griessmair et al., 2014; ). However, Bergen et al.’s (1992) seminal Journal of Marketing publication was the last to provide a thorough review and synthesis of how Agency Theory has been applied in the marketing literature. In their review of the literature 28 years ago, Bergen et al. (1992) showed how Agency Theory had been applied to marketing contexts. There has been no thorough review of

Agency Theory in the industrial marketing literature following their work. Despite this, there have been various developments in marketing such as the advent of the internet. Since their publication twenty-eight years ago, a number of scholars have published work on Agency Theory in marketing contexts such as salesforce management (e.g., Joseph & Thevaranjan, 1998; Bartol, 1999; Ghosh & John, 2000; Kraff et al., 2004; Christen, Iyer & Soberman, 2006; Lo et al., 2011; Cicala et al., 2014), advertising (e.g., Ellis & Johnson, 1993; Gould et al., 1999; Spake et al., 1999; West, 1999; Zhao, 2005; Keegan et al., 2017), franchising (e.g., Dahlstrom & Nygaard, 1994; Combs, Michael, & Castrogiovanni, 2004; Doherty et al., 2013; Hodge et al., 2013; Griessmair et al., 2014) and sponsorships (e.g., O’Reilly & Madill, 2007). Despite these developments, the literature on Agency Theory in the marketing discipline has not been thoroughly synthesized since Bergen et al.’s (1992) work, despite others doing so in similar streams such as supply chain management (e.g. Fayezi, O'Loughlin & Zutshi, 2012). Research Question 1 was developed at the outset of this dissertation to understand how scholars have used Agency Theory to constrain industrial marketing opportunistic behavior. Agency Theory is addressed in the literature on incentives, corporate governance, constraint mechanisms, the process of searching for agents, agency costs and agency problems (Shapiro, 2005). In this dissertation, the constraint of opportunistic behavior in industrial marketing relationships is focused on, following calls for future research regarding this (e.g. Vandenbosch & Sapp, 2010; Hawkins et al., 2013; Crosno & Brown, 2015; Heirati et al., 2016; Gelderman et al., 2019). Therefore, in the light of the above, this dissertation’s first research question is stated as:

Research Question 1: How has Agency Theory been used to constrain opportunistic behavior in industrial marketing relationships?

Research Question 1 serves as an exploratory start to this dissertation. It addresses the research problem by reviewing how explicit information has been used to constrain opportunistic behavior in industrial marketing relationships. As there are myriad industrial marketing relationships, it is intentional that the context of this research question is broad. This also allows for a holistic understanding (Palmatier et al., 2018) of how Agency Theory has been used in the marketing literature and particularly on the constraint of opportunism in industrial marketing relationships. The approach taken to address this research question, namely a comprehensive systematic review of the literature, was chosen to identify theory development (Köhler, Mantrala, Albers, & Kanuri, 2017; Kohtamäki, Rabetino, & Möller, 2018) and conceptual issues that should be explored further (Grewal,

Puccinelli & Monroe, 2018; Sarmento & Simões, 2018) in this dissertation. This led to the formulation of Research Question 2, which is described next.

1.3.3 Formulation of Research Question 2 Upon addressing Research Question 1, it was found that two key limitations of how Agency Theory has been used is the focus on (i) agents as layman (Sharma, 1997) and (ii) agent opportunism only (Dawson et al., 2010). These limitations are particularly relevant to this dissertation, as most industrial marketing relationships involve a principal and a professional agent, i.e. an agent with specialized, tacit knowledge. Following this discovery from the literature, it is appropriate to explore principal-professional agent opportunism (Sharma, 1997; Dawson et al., 2010), which is this dissertation’s second subsection. It is worth noting that qualitative research is an emergent research technique. This means that the research focus may change after the study has begun (Creswell, 2017). Therefore, given the limitations of Agency Theory discovered while addressing Research Question 1, the subsequent theories do not use Agency Theory as the primary theory. Instead, Research Questions 2, 3, and 4 focus on a theory which has not been applied to industrial marketing yet: the Theory of Relationship Constraints. In particular, upon reading the literature on principal-professional agent opportunism and the related Theory of Relationship Constraints, Research Question 2 was developed. However, as qualitative studies are prone to changes during the course of the study (Creswell, 2017), during the course of this dissertation, it was found that the Theory of Relationship Constraints is also limited. This is because it does not consider ex-ante and ex-post opportunistic behavior by both the principal and professional agent separately, as shown in Table 5 (see page 43). However, opportunistic behavior can occur in both the ex-ante and ex-post stages (Wathne & Heide, 2000; Jap & Anderson, 2003). A conceptual approach is adopted to address this limitation in Paper 2. In situations where opportunism is feasible it is important to consider the antecedents of opportunism (John, 1984). A pivotal antecedent is information asymmetry (John, 1984; Williamson, 1985; Sharma, 1997; Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017). Therefore, Research Question 2 asks how information plays a role in manifesting opportunism in principal-professional agent industrial marketing relationships. As the literature tends to neglect ex-ante opportunism (Jap & Anderson, 2003; Kashyap et al., 2012; Stump & Heide, 1996; Jap et al., 2013; Wathne, Heide, Mooi & Kumar, 2018), both the ex-ante and ex-post stages of the principal- professional relationship were chosen as the context for this research question. Research Question 2 is stated as:

Research Question 2: What role does information play in manifesting ex-ante and ex-post opportunistic behavior in principal-professional agent industrial marketing relationships?

Research Question 2 addresses the research problem by conceptualizing how information can facilitate ex-ante and ex-post opportunistic behavior in the principal-professional agent industrial marketing relationship. The Theory of Relationship Constraints assumes that the principal is a lay-person who does not fully understand: (i) what the accepted behavior by the professional agent should be, (ii) what the cost of the exchange is, or (iii) what the exact outcome that they can expect is. By accepting these assumptions of the ex-ante relationship between the lay principal and the professional agent, there are implications that can influence how and when opportunism occurs. To conceptualize this, the following boundary conditions of principal-professional agent relationships are considered: (i) competitive bidding, (ii) co-production, and (iii) fixed incentives. These are defined in turn. Coff (2003) encouraged future researchers to consider opportunism- and knowledge management-related issues together, because knowledge intensity increases the risk of opportunism. He suggested that bidding wars, which he described as ‘public contests’, is an appropriate context to do so. Competitive bidding is an example of a game with incomplete information where each bidder, naturally, hides information about the value of what is being sold (Moorthy, 1985); in the context of this dissertation, it would be the value of the professional marketing-related service offered by each bidder. To answer Research Question 2, competitive bidding is referred to in terms of ex-ante soliciting by the professional for the proposed work. For example, advertising agencies bid for proposed work by pitching to a potential client. The second boundary condition is co-production, where both parties participate in creating the core offering itself (Lusch & Vargo, 2006). Co- production is referred to as an engagement that involves collaboration between the principal and the professional during the process of the work. An appropriate application of theories regarding exchange is to explain why parties cooperate and continue to engage in cooperative relationships (Smith et al., 1995). More recently, Heirati et al. (2016) encouraged future research on how collaboration between suppliers (i.e. professional agents) and customers (i.e. principals) can be disadvantageous. Third, professionals are generally contracted through explicit, formal contracts and compensated through commission or fees (Ertimur & Venkatesh, 2010). I apply fixed incentives, i.e. the price of the professional agent’s work that is finalized ex-ante, as a boundary condition given the assumption that the principal has incomplete information regarding the true cost of the professional agent’s service. Upon reviewing the Theory of Relationship Constraints for Research

Question 2, it was found that the theory is limited in that it does not consider the ex-ante and ex-post stages separately. Therefore, in answering Research Question 2 the Theory of Relationship Constraints is extended by considering both these stages. This informed Research Question 3, which is explained next.

1.3.4 Formulation of Research Question 3 From Research Questions 1 and 2, a better theoretical and conceptual understanding of opportunistic behavior in industrial marketing relationships was obtained. In doing so, the limitations of Agency Theory and the Theory of Relationship Constraints were identified. The purpose of Research Question 3 is to gain an empirical understanding of opportunistic behavior in industrial marketing relationships. Furthermore, Research Question 3 builds on Research Question 2’s discovery that the Theory of Relationship Constraints is limited, by focusing on the ex-ante and ex-post stages. However, opportunistic behavior can occur both ex-ante and ex-post (Wathne & Heide, 2000; Jap & Anderson, 2003). Therefore, Research Question 3 pertains to both the ex-ante and ex-post stages of the client-advertising agency relationship. Despite a clear need to better understand today’s client-advertising agency relationships (Keegan et al., 2017; Taylor, 2017; Laurie & Mortimer, 2019; Liu-Thompkins 2019; West et al., 2019) and evidence that opportunism currently prevails in this relationship (e.g. O’Reilly, 2016; de Villiers, 2018; Burns, 2019; Weinberg & Vareacos, 2019), scholars have not focused on disclosing how opportunism unfolds in these relationships. This gap in the literature motivates the third research question, which is stated as:

Research Question 3: How do clients and advertising agencies use information to act opportunistically ex-ante and ex-post?

Research Question 3 addresses the research problem by describing how information can be used to facilitate opportunistic behavior in the client- advertising agency relationship; a type of principal-professional agent industrial marketing relationship. By focusing on client-advertising agency relationships in Research Question 3, context is added to this dissertation. Client-advertising agency relationships are a type of industrial marketing relationship (Bergen et al., 1992) and principal-professional relationship (Sharma, 1997). The client- advertising agency context was therefore chosen as an appropriate context in which to address the research problem. Moreover, by addressing Research Question 3, actual cases of opportunism in this context are disclosed. These cases are derived from qualitative interviews which were conducted to answer Research Question 3. The findings also serve as justification for the final research question, Research Question 4, which is explained next.

1.3.5 Formulation of Research Question 4 Research Question 3 asks how clients and advertising agencies act opportunistically. In answering Research Question 3, it is evident that opportunism prevails in client-advertising agency relationships today. When discussing how opportunism occurs, it is also appropriate to address the constraint thereof (Wang et al., 2013). Research Question 4 aligns with past scholars’ calls for research on the constraint of opportunism (e.g. Williamson, 1993; Anderson & Jap, 2005; Antia et al., 2006; Piercy, 2009; Hawkins, 2013; Crosno & Brown, 2015; Heirati et al., 2016; Gelderman et al., 2019). In particular, there are mixed views about using formal constraint mechanisms (i.e, based on explicit knowledge) and/or social constraint mechanisms (i.e., based on tacit information) (e.g. Williamson, 1975; Sharma, 1997; Dawson et al., 2010; 2011; Kumar et al., 2011; Crosno & Brown, 2015; Hadida et al., 2019). Research Question 4 explores the choice of constraint mechanism in the client-advertising agency context. Therefore, this dissertation’s final research question is stated as:

Research Question 4: What role does information play in the choice of constraint mechanism for the client-advertising agency relationship?

Research Question 4 addresses the research problem by describing how information can be used to influence the choice of constraint mechanism in the client-advertising agency relationship. To answer Research Question 4, empirical work is undertaken. The Theory of Relationship Constraints is applied and adapted to client-advertising agency relationships. This is supported with data from interviews with clients and advertising agencies. Therefore, by answering Research Question 4, both future researchers and practitioners are given a better understanding about how to constrain client-advertising agency opportunism. In addressing Research Question 4, the dissertation is concluded by applying and extending the Theory of Relationship Constraints to the client- advertising agency relationship. Reverting back to this dissertation’s research problem (How can information facilitate and constrain opportunistic behavior in industrial marketing relationships?), the way in which Research Question 4 is addressed can be replicated in other principal-professional agent industrial marketing relationships for future studies, such as in the case of the digital marketing agency-client relationship. However, it is not feasible nor realistic to explore each industrial marketing relationship in depth within the boundaries of one dissertation. Therefore, Research Questions 3 and 4 focus on the client- advertising agency dynamic.

Figure 4. Schema of the Research Problem and Four Research Questions

Research Problem How can information facilitate and constrain opportunistic behavior in industrial marketing relationships?

Paper 2 Paper 1 Paper 3 Paper 4 Research Question 2: Research Question 1: Research Question 3: Research Question 4: What role does information play in How has Agency Theory been How do clients and advertising What role does information play in manifesting ex-ante and ex-post agencies use information to act the choice of constraint mechanism used to constrain opportunistic opportunistic behavior in principal- behavior in industrial marketing opportunistically ex-ante and ex- for the client-advertising agency professional agent industrial post? relationship? relationships? marketing relationships?

Agency Theory is limited in Opportunistic Opportunistic behavior occurs in the Principal-Professional behavior can occur the client-advertising agency Agent Context ex-ante and ex-post relationship

As Figure 4 above shows, from addressing Research Question 1 it was found that Agency Theory is limited in the principal-professional agent context. Therefore, Research Question 2 builds on the Theory of Relationship Constraints’ limitation in this context. From addressing Research Question 2, it was found that opportunistic behavior can occur ex-ante and ex-post in principal-professional agent relationships. Therefore, Research Question 3 considers ex-ante and ex-post opportunistic behavior in the client-advertising agency context. From addressing Research Question 3, it was found that clients and advertising agencies do act opportunistically. Therefore, Research Question 4 addresses the constraint of opportunistic behavior in client-advertising agency relationships.

Table 6. Addressing Research Questions 1, 2, 3 and 4

Paper Research Question Theory Applied Paper 1 How has Agency Theory been used to Agency Theory constrain opportunistic behavior in industrial marketing relationships?

Paper 2 What role does information play in Theory of manifesting ex-ante and ex-post Relationship opportunistic behavior in principal- Constraints professional agent industrial marketing relationships? Paper 3 How do clients and advertising agencies Theory of use information to act opportunistically ex- Relationship ante and ex-post? Constraints

Paper 4 What role does information play in the Theory of (Working choice of constraint mechanism for the Relationship Version) client-advertising agency relationship? Constraints

In the light of the above, the four research questions that comprise this dissertation are linked in addressing the research problem. Table 6 above summarizes each research question and the related theory that is applied.

Figure 5. Framework of this Dissertation

Subsection 1: Research Question 1: Principal-Agent How has Agency Theory been Industrial used to constrain opportunistic Paper 1 Marketing behavior in industrial marketing Relationships relationships?

Research Problem: How can Research Question 2: information What role does information facilitate and play in manifesting ex-ante and constrain ex -post opportunistic behavior Paper 2

opportunistic in principal-professional agent behavior in industrial marketing industrial relationships? marketing

relationships?

Subsection 2: Research Question 3: Principal- How do clients and advertising Professional agencies use information to act Paper 3 Agent Industrial opportunistically ex-ante and ex- Marketing post? Relationships

Research Question 4: What role does information play in the choice of constraint Paper 4 mechanism for the client- advertising agency relationship?

In the light of the four research questions, Figure 5 above discloses this dissertation’s research outline. The research outline pertains to this dissertation’s research problem: How can information facilitate and constrain opportunistic behavior in industrial marketing relationships? The methodology employed to address this dissertation’s research problem and research questions is explained in the next section.

1.4 METHODOLOGY

1.4.2 Introduction An academic inquiry employs procedures to further the knowledge that other scholars consider to be valid and reliable. The methods used in a doctoral dissertation should address the research problem and depend on the related discipline (Rudestam & Newton, 2014). This dissertation’s research problem is: How can information facilitate and constrain opportunistic behavior in industrial marketing relationships? While the social sciences do not have a universally accepted research method, there are certain traditions that should not be ignored (Rudestam & Newton, 2014). Over the past 20 years, numerous research approaches have been made available to choose from. To decide which research method is appropriate to employ, a framework should be used (Creswell, 2017). I follow the following framework, as recommended by Creswell (2017), which is explained in the subsequent paragraphs. Prior to arranging a study, the researcher needs to consider the following: assumptions about the philosophical worldview, how these will contribute to the study, the research design pertaining to the worldview and the research procedures or methods through which the approach is put into practice (Creswell, 2017). In the light of the above, this methodology is laid out as follows. First, I review the different research approaches that are available, beginning with the worldview. Second, I will describe and justify the research strategy and design which I chose to use in this dissertation. Last, I discuss quality criteria pertaining to the chosen research approach, such as generalizability and validity. A researcher’s worldview is the basic set of beliefs which actions are based on (Creswell, 2014). Four widely used worldviews are (1) positivism, (2) constructivism, (3) transformativism and (4) pragmatism (Creswell, 2017). These are described in turn, beginning with positivism. Positivists conduct cause-and-effect empirical observations, measurements and test or verify theories (Creswell, 2017). For example, positivists employ experiments, surveys and field studies (Weber, 2004). In positivism, the researcher starts with a theory and collects data that either supports or disregards the theory (Creswell, 2017). Constructivists, also known as interpretivists, interpret other individuals’ perceptions about the research topic. They consider individuals’ subjective perceptions about their experiences and understanding of the world. Constructivists aim to understand the research topic in terms of the historical, social and cultural influences on the respondent’s life. These perceptions are generally gathered from discussions that allow individuals (i.e., the respondents), to establish and share their perception. Constructivists generally

54 employ qualitative research and prefer open-ended questions to carefully listen to what respondents say about their perceptions (Creswell, 2017). The third worldview is transformativism, where the purpose is to challenge the status quo. Transformativists argue that the positivist stance is too rigid and the constructivist stance is not inclusive enough (Creswell, 2017). Their research inquiries are applied in conjunction with political agendas (Mertens, 2007), focusing on issues such as oppression and inequality (Creswell, 2017). The fourth worldview is pragmatism. Pragmatists consider multiple solutions, views, assumptions and methods, rather than focusing on one alone. They decide on research approaches based on the intended consequences of their research. Pragmatists tend to apply mixed-methods (Creswell, 2017).

Table 7. Comparison of Four Worldviews

Positivism Constructivism

● Determination ● Understanding ● Reductionism ● Multiple respondent meanings ● Empirical observation and ● Social and historical measurement construction ● Theory verification ● Theory generation Transformative Pragmatism

● Political ● Consequences of actions ● Power and justice oriented ● Problem-centered ● Collaborative ● Pluralistic ● Change-oriented ● Real-world practice oriented

Source: Adopted from Creswell (2017)

The four worldviews are compared in Table 7 above. A researcher’s worldview differs based on four philosophical assumptions. In what follows, each philosophical assumption is defined and the related stance chosen for this dissertation is disclosed. The first philosophical assumption is ontology, which refers to the nature of reality (Creswell, 2013). A researcher who accepts that there are myriad realities adopts the qualitative research approach. The purpose of conducting qualitative research in this dissertation is therefore to report on the different realities. This is done based on themes gathered from different respondents’ words about their different perspectives (Creswell, 2013). The ontology described here is the ontology that I adopt in this dissertation. This is because 55 the purpose of this dissertation is to gain an understanding about how opportunistic behavior can be encouraged and constrained in practice. This understanding is derived from various practitioners’ perspectives on opportunistic behavior. Second, epistemology refers to what is considered to be knowledge and how claims about knowledge are justified. In a qualitative study, the epistemological assumption is that the researcher attempts to get as near as they can to the respondents. The researcher therefore gathers information by collating a subjective understanding based on respondents’ descriptions (Creswell, 2013). This informs the epistemological assumption I have adopted in this study. Third, axiology refers to the study of values (Creswell, 2013; Rudestam & Newton, 2014). A qualitative researcher concedes that there are biases in the research and that it is laden with values. Therefore, in a qualitative study the researcher includes their interpretation together with that of the respondents (Creswell, 2013). This informs the axiological assumption I have adopted in this study. The fourth philosophical assumption is a study’s methodology, i.e. the research procedures. A qualitative research methodology can be emergent (Creswell, 2013). In addition, the qualitative researcher’s experience when collecting and analyzing the data informs the research procedures. Therefore, during the course of the study the research questions, and in turn the data collection methods, may change in order to better address the research problem (Creswell, 2013). This philosophical assumption about the methodology in qualitative research informs the approach I have taken for this dissertation. In line with Creswell’s (2013) explanation, this dissertation’s research questions changed over time. Inductive research involves generating a theory from the findings rather than starting with a theory to inform the findings (Creswell, 2013). However, a critique of induction is that it what has developed as a theory in one study’s context may not be observed in another study’s context. Deductive research, on the other hand, involves testing a theory in practice to determine whether the theory’s claims should be rejected (Willig, 2013). In doing so, the research can move “closer to the truth” (Willig, 2008, p.4). Therefore, the methodology employed in this dissertation is deductive. These philosophical assumptions are considered when selecting an appropriate worldview. The four philosophical assumptions described above (i.e. ontology, epistemology, axiology and methodology) pertain to the constructivist worldview (Creswell, 2013). Therefore, upon reviewing the four worldviews based on the philosophical assumptions described earlier, I consider myself a constructivist. This is because in this dissertation I aim to explore how firms describe the opportunistic behavior that they experience or are exposed to.

Furthermore, I adopt the constructivist worldview to extend a theory (Creswell, 2017). Adopting the constructivist worldview has informed the approach taken in this dissertation. Opportunistic behavior is an important social phenomenon and essential to human behavior in the industrial marketing field. To better understand opportunism in industrial marketing relationships, a researcher should question how individuals act opportunistically and how it can be constrained. When questioning individuals about a socially biased topic such as opportunism, respondents share subjective perceptions that are informed by the historical, social and cultural influences on their lives. Another factor to consider when deciding on a worldview is the researcher’s personal experience (Creswell, 2017). Therefore, my decision to adopt constructivism is further justified by my former previous experience with constructivism. Next, I explain the potential research approaches.

1.4.3 Potential Research Approaches This dissertation’s research problem is: How can information facilitate and constrain opportunistic behavior in marketing exchanges? Specifically, I focus on principal-agent and principal-professional agent relationships in industrial marketing. To address the research problem the following potential research approaches can be employed. There are three broad categories of research designs: quantitative, qualitative and mixed-methods (Creswell, 2017). Qualitative and quantitative research, which should be viewed as two research approaches on different ends of a continuum rather than two distinct approaches (Newman, Benz & Ridenour, 1998), are compared in Table 8 below and discussed after.

Table 8. Comparison of Quantitative, Mixed and Qualitative Methods

Quantitative Methods Mixed Methods Qualitative Methods Pre-determined Both predetermined and Emerging methods emerging methods Instrument based Both open- and closed- Open-ended questions questions ended questions Performance data, Multiple forms of data Interview data, attitude data, drawing on all observation data, observational data, and possibilities document data, and census data audiovisual data Statistical analysis Statistical and text Text and image analysis analysis Statistical interpretation Across databases Themes, patterns interpretation interpretation

Source: Adopted from Creswell (2017).

Quantitative research derives from the positivist worldview (Creswell, 2017). It is descriptive and deductive as it is based on a clearly defined research problem and established theories (Malhotra, 2010). Quantitative research tests theories by testing the relationship between constructs. These constructs are generally measured using instruments to collect measurable data and inform statistical analyses. Quantitative research reports are written with rigid structures (Creswell, 2017). Two examples of quantitative research techniques are experiments and surveys (Malhotra, 2010). Qualitative research, on the other hand, emerged in the social sciences in the 1990s and is still developing (Creswell, 2017). It is an appropriate application of exploratory research (Malhotra, 2010) that is primarily based on words rather than numbers (Flick, 2007). Qualitative research is used to explain complex phenomena (Flick, 2007; Creswell, 2017) and can be applied without quantitative research (Calder, 1977). The purpose of conducting qualitative research is to explore individuals’ perceptions about human or social problems (Creswell, 2017). Therefore, qualitative data are generally collected in the same environment where the respondent is. The researcher interprets the data and categorizes it into themes. Qualitative research is beneficial in that it offers a better understanding of the research problem (Flick, 2007) and an in-depth, subjective (Calder, 1977)

58 understanding of the respondent’s thoughts (Malhotra, 2010). An example of qualitative research is interviews (Belk, 2017). In the mixed-methods approach both quantitative and qualitative research methods are employed. The purpose of choosing a mixed method approach is to alleviate the disadvantages of quantitative and qualitative research approaches when used individually (Creswell, 2017). The quantitative, qualitative and mixed-methods research approaches described above comprise the empirical type of research. Empirical research is often limited to a particular industry (Stewart & Zinkhan, 2006). The empirical research I employ in this dissertation is based in the client-advertising agency context. An alternative to empirical research is conceptual research. Conceptual research does not follow a methodological approach that requires detailed explanation, as with empirical research. However, in the paragraphs that follow I explain why it is important to conduct conceptual work in marketing today. Over the past six decades, the body of knowledge in the marketing discipline has seen tremendous advancement. About 65 years ago, the Journal of Marketing and the Journal of Retailing were the only marketing journals that were well-recognized. These journals published articles that were mostly descriptive. The marketing discipline has evolved to be theory-based and marketing scholars now have access to sophisticated methodological and conceptual tools (Stewart & Zinkhan, 2006). Without presenting data, purely conceptual work focuses on extending theories, discovering new ideas (i.e. constructs), less explored domains and synthesizing and critiquing existing theories (Yadav, 2010). Conceptual research is advantageous because it does not encounter data limitations (Yadav, 2010) and can serve as a foundation for subsequent empirical research (Stewart & Zinkhan, 2006). However, writing and reviewing conceptual papers requires skill and effort (Sutton & Staw, 1995; Stewart & Zinkhan; 2006; Yadav, 2010).

“Good theoretical work is far more difficult to do and requires far greater creativity than most empirical research” (Stewart & Zinkhan, 2006, p.480).

In their Journal of the Academy of Marketing Science editorial on the need for scholars to enhance marketing theory, Stewart and Zinkhan (2006) argued that conceptual and theoretical papers are the most difficult type of work to write, such that it contributes to the discipline substantially. They add that while they welcome strong conceptual work, they will also rigorously review this work to ensure that it is of a high standard. Therefore, although there are calls for conceptual work in marketing, executing and publishing conceptual papers is difficult to do in the leading marketing journals (Stewart & Zinkhan, 2006). Furthermore, as there is a growing amount of available data in marketing, researchers are less interested in writing conceptual papers (Yadav, 2010). Today, there is a decline in conceptual publications in the leading marketing

59 journals. A recent bibliometric analysis in the Journal of the Academy of Marketing Science revealed that over the past two centuries, while just under half of the publications in the leading marketing journals are data-driven, only 18% focus on conceptual development. Unfortunately, this trend is growing. If the marketing discipline already has a strong theoretical foundation, this would not be an issue. However, the marketing discipline needs conceptual research, particularly because of the impact that technology has had on the field (Morgan, Whitler, Feng & Chari, 2019). For instance, established scholar Russell Belk recently said that he is “very worried” about the decline in conceptual publications (Belk, MacInnis & Yadav, 2019, p.1). More conceptual work in marketing can signal the discipline’s maturity and health (Stewart & Zinkhan, 2006). Therefore, both emerging and established scholars, and particularly doctoral students, should pursue conceptual research to foster deeper theoretical development rather than simply the feasibility of data (Yadav, 2010). Doctoral students are in a favorable position to do conceptual work, because they have not yet been discouraged from doing so (MacInnis, 2011). It is clear that more conceptual work is needed in the marketing discipline (Stewart & Zinkhan, 2006; Yadav, 2010; Macinnis, 2011; Belk et al., 2019; Hadida et al., 2019; Morgan et al., 2019). This is specifically the case with regards to research on opportunism in marketing relationships (Crosno & Dahlstrom, 2008) and theory development on the ‘dark side’ of marketing relationships (Grandinetti, 2017). Given the strong need for more conceptual work in marketing today, two papers in this dissertation are purely conceptual. The manner in which I conducted the conceptual work for this dissertation is as follows. In his description of model conceptual articles published in the Journal of Marketing between 1978 and 2007, Manjit Yadav (2010), previous editor of the Academy of Marketing Science Review, described two strategies. First, initiating theory development and second, theory assessment and enhancement. In his explanation of the latter, he included the following techniques, which I have applied in my dissertation: (i) reviewing and critiquing a focal theory (see Paper 1) and (ii) identifying and addressing gaps in existing conceptualizations (see Paper 2). To review and critique a particular focal theory, I conducted a comprehensive, systematic literature review. Two recent literature reviews in the Journal of the Academy of Marketing Science are by Morgan et al. (2019) and Palmatier et al. (2018). In addition, Oliveira and Lumnieau’s (2019) recent literature review in the Journal of Management focuses on the dark side of industrial marketing relationships. A systematic literature review, which has become more popular over the past decade, is a fairly new approach to literature reviews (Pham, Rajić, Greig, Sargeant, Papadopoulos & McEwan, 2014). Marketing scholars tend to shy away from literature review manuscripts because

60 of the perception that these are difficult to publish. However, literature review publications are among the most widely cited (Palmatier et al., 2018). Systematic reviews of the literature can identify future research agendas, theory development areas (Köhler et al., 2017; Kohtamäki et al., 2018; Morgan et al., 2019) and conceptual and methodological issues (Crossan & Apaydin, 2010; Grewal et al., 2018; Sarmento & Simões, 2018). In addition, literature reviews can address ambiguities and offer scope for a particular topic through a synthesized and integrated understanding of the current state of knowledge (Palmatier, 2018). Therefore, systematic literature reviews are beneficial because they consolidate and encourage the development of knowledge (Morgan et al., 2019). The selected research approach for the empirical papers (Papers 3 and 4) is described next.

1.4.4 Selected Research Approach When deciding which research approach to choose, the worldview, research design, methods, research problem, the researcher's experience and the audience should be considered (Creswell, 2017). Therefore, based on the constructivist worldview I have adopted, the research approach I selected to employ is as follows. First, an exploratory research design was chosen. Exploratory research gathers insights about the topic. Conclusive research, on the other hand, includes hypotheses that are clearly outlined, samples that are representative and large and a more formalized research approach to analyzing the data quantitatively. Compared to conclusive research designs, exploratory research allows: (i) more flexibility, (ii) researchers to identify their research problem, (iii) a non-representative and smaller sample, (iv) new insight obtained during the research process to change the focus of the study and (v) the use of qualitative research (Malhotra, 2010). Earlier, I explained that I adopt the constructivist approach for Papers 3 and 4. Constructivists tend to adopt qualitative research approaches. Qualitative research is appropriate when the research problem addresses a phenomenon that needs to be better understood (Creswell, 2017). In this dissertation, that phenomenon being studied is opportunistic behavior. The purpose of this dissertation is to better understand opportunistic behavior in industrial marketing relationships, which qualitative research is needed on to generate deeper insights (Oliveira & Lumineau, 2019). Qualitative research is therefore more appropriate than quantitative research or the mixed methods approach. Additionally, researchers should undertake the approach which they are familiar with (Creswell, 2014). As I have conducted qualitative research for past research projects and completed a doctoral course on Qualitative Research methods, I am familiar with and share a keen interest in qualitative research

(Creswell, 2014). In addition, past researchers studying opportunism in industrial marketing relationships also conducted qualitative interviews (e.g. Wang et al., 2013; Liu, Liu & Li, 2014). A number of qualitative research techniques are available to employ (Flick, 2007), including narrative research, grounded theory, ethnography, case studies, and phenomenological research. These are defined in turn. In narrative research, the researcher asks individuals to share stories about their lives (Riessman, 2008). This is done by asking open-ended questions. The researcher then relays this story into a narrative (Creswell, 2017). In grounded theory, the researcher uses respondents’ views to derive a theory. In ethnography, researchers study a group of respondents’ actions, language and behaviors over a long period of time. Generally, ethnographic research comprises interviews and observations. In case studies, the researcher conducts an in-depth analysis on a case about an activity, event, program, process, individual or group of people (Creswell, 2017). In phenomenological research, researchers collate respondents’ descriptions of their everyday experiences (Calder, 1977; Creswell, 2013; 2017). A phenomenologist aims to describe what all the respondents have in common in terms of their experience with a phenomenon (Creswell, 2013). For example, in this dissertation the phenomenon is opportunistic behavior. These descriptions gathered from respondents are used to better understand a group of individuals’ experiences (Creswell, 2017), compared to more scientific research methods such as surveys. Generally, phenomenological research involves interviews (Calder, 1977). The qualitative research conducted for this dissertation follows a phenomenological approach in alignment with similar studies (e.g. Haytko, 2004), to address Research Questions 3 and 4. In the light of these chosen research methods, the research strategy and design which I employ in this dissertation is described next.

1.4.5 Research Strategy and Design Effective research designs have a strong connection to the theory and take the resource and time constraints into consideration (Flick, 2007). The research design employed was chosen to better understand this dissertation’s research problem: How can information facilitate and constrain opportunistic behavior in industrial marketing relationships? An explanation of the research design follows. To address this research problem, I have chosen to employ conceptual research (Papers 1 and 2) and a constructivist, exploratory, qualitative research design for the empirical papers (Papers 3 and 4). The research designs employed in each paper are described in turn. First, in Paper 1 a conceptual, systematic and thorough literature review is conducted. The top 26 journals were included in the literature review. These

62 journals were chosen as they serve as the primary journals for marketing research (see Brown et al., 2019). Paper 1 identifies how Agency Theory has been applied to principal-agent industrial marketing relationships and related future research agendas. The last extensive review of this literature was done by Bergen et al. (1992) twenty-eight years ago. Since then, the marketing dynamic has changed particularly because of the advent of the internet. Therefore, as a comprehensive systematic literature review on this topic had not been done since 1992, Paper 1 is exploratory in nature. From Paper 1, I identified that Agency Theory is limited in principal- professional agent relationships because it focuses on a lay agent’s opportunism only. Therefore, based on Paper 1’s findings, Paper 2 focuses on the principal- professional agent relationship. Paper 2 conceptualizes the role that information plays in encouraging opportunistic behavior in principal-professional industrial marketing relationships. This is done in a purely conceptual manner. A conceptual model and nine research propositions are offered. Paper 2 also identified that the Theory of Relationship Constraints is limited because it does not consider the ex-ante and ex-post relationship stages separately. This informs the research conducted for Paper 3. Papers 3 is exploratory and purely empirical. It employs qualitative research by semi-structured interviews with clients and advertising agencies. The data collected from these interviews show that opportunistic behavior prevails in client-advertising agency relationships, both ex-ante and ex-post. In a recent Journal of Advertising publication, Russell Belk (2017, p.36) commented that despite the growth of big data and availability of online quantitative research techniques, there is a dire need to conduct qualitative research in the advertising field. In addition, past studies on opportunism in the industrial marketing context also conducted qualitative research, particularly in the form of interviews (e.g. Haytko, 2004; Hawkins et al., 2013; Wang et al., 2013; Gelderman et al., 2019). Based on these findings, Paper 4 (working version) addresses how opportunistic behavior in client-advertising agency relationships can be constrained. This is done by extending the Theory of Relationship Constraints to the client-advertising agency context, and conducting empirical, qualitative research through semi-structured interviews. For theory to be strengthened the empirical data needs to be applied across contexts and industries (Stewart & Zinkhan, 2006). I therefore extend the Theory of Relationship Constraints to the client-advertising agency context. Table 9 below provides a summary of the research methods employed in each paper.

Table 9. Methodologies Applied in Papers 1, 2, 3 and 4

Paper Research Question Method of Methodology Inquiry Paper 1 How has Agency Theory been Conceptual Systematic used to constrain opportunistic literature review behavior in industrial marketing relationships? Paper 2 What role does information play in Conceptual Conceptual model manifesting ex-ante and ex-post and propositions opportunistic behavior in principal- professional agent marketing relationships? Paper 3 How do clients and advertising Qualitative Empirical, agencies use information to act interviews opportunistically ex-ante and ex- post? Paper 4 What role does information play in Qualitative Empirical, (Workin the choice of constraint mechanism interviews g for the client-advertising agency Version) relationship?

The research methods employed in this dissertation, as indicated in Table 9 above, complement each other. Research should connect the study’s theoretical aspect (i.e., using theories and models to explain how something works based on data) and empirical aspect (i.e., gaining knowledge from experience) (Rudestam & Newton, 2014). Further, to maintain favorable knowledge development, every discipline requires a balance between conceptual and empirical contributions to the literature (Yadav, 2010). In the light of the research methods described, the following section describes the steps followed to address each research question.

1.4.6 Addressing Research Question 1

For Paper 1’s review of the literature on Agency Theory in marketing, the following steps were taken. First, Hult, Reimann, and Schilke’s (2009) ranking of the top marketing journals was used to identify the top 26 journals in marketing. These 26 top marketing journals were used to perform the literature search. Second, the EBSCOhost database (see EBSCOhost.com) was used to search for articles in these top 26 marketing journals that contained the phrase

‘agency theory’ and that were published between 1992 and 2017. The literature search was limited to articles published since 1992 as the purpose was to provide an updated literature review of agency theory in marketing following Bergen et al.’s (1992) comprehensive literature review. These search results through EBSCOhost also included articles classified simply with the subject tag ‘agency theory’. The articles were then screened to ensure that each article actually contained the phrase ‘agency theory’ in its text (Oliveira & Lumineau, 2019).

Figure 6. Number of relevant articles published in the top 26 marketing journals between 1992 and 2017

Marketing Science 14 12 Journal of Marketing Research 7 6 Journal of Business Research 6 5 Journal of Marketing Management 4 4 Industrial Marketing Management 3 3 Journal of Retailing 3 3 Journal of Advertising 2 2 Journal of Product Innovation… 2 2 Journal of Consumer Research 1 1 Marketing Theory 1 1 Psychology and Marketing 0 0 Advances in Consumer Research 0 0 California Management Review 0 0

Of the top 26 journals, six were not marketing-focused, namely, Management Science, Journal of Business Research, Journal of International Business Studies, California Management Review, Sloan Management Review, and Harvard Business Review. In these business journals, articles were screened for both ‘agency theory’ and ‘marketing’, to maintain alignment with the paper’s focus on marketing. Within these non-marketing journals, only ten articles with the phrase ‘agency theory’ included a marketing focus. These ten articles were included in the literature review. After this screening process, 82 articles remained and are the focus of this paper. Figure 6 shows the distribution of these 82 articles across the aforementioned top 26 marketing journals. The approach taken to address Research Question 2 follows.

1.4.7 Addressing Research Question 2 Research Question 2 was addressed in a purely conceptual manner. This was done by reviewing the related past literature and theories. Nine propositions were introduced and a conceptual model developed. The next section describes the methodology followed to address Research Questions 3 and 4.

1.4.8 Addressing Research Questions 3 and 4 To address Research Questions 3 and 4, a qualitative research approach was employed. In particular, semi-structured interviews with advertising agencies and clients were conducted. Prior to discussing the data analysis, it is worth noting that the same interview transcripts were used to address Research Questions 3 and 4. Using the same dataset for two papers is encouraged when both of the following criteria are met: (1) writing a coherent, meaningful and comprehensible single paper is not possible using the entire dataset; and (2) both articles’ purposes are distinguishable (Fine & Kurdek,1994). The first criteria was met because an analysis of the entire dataset was found to be overwhelming for a single manuscript. The second criteria was met because Paper 3 focuses on how opportunism occurs in client-advertising agency relationships, whereas Paper 4 (working version) focuses on the choice of constraint mechanism to address this opportunism. However, to further justify meeting the second criteria, an experienced colleague was consulted, who agreed that the dataset should be used for two distinct papers. Furthermore, the data used for each paper are mutually exclusive. The steps followed to collect the data are described in the subsequent sections, beginning with the semi-structured interviews. Semi-structured interviews are advantageous because: (i) respondents are free to offer further insight when answering questions, (ii) there is greater flexibility when conducting the interviews, (iii) primary data can be collected (Malhotra, 2010), and (iv) one interview per respondent is sufficient (Flick, 2007). The disadvantages of semi-structured interviews are that they are time- consuming and dependent on the interviewer’s ability to conduct the interviews (Malhotra, 2010). A qualitative, deductive research approach was employed through 20 semi-structured interviews with 10 key account managers, representing the ‘agency’, and 10 marketing managers, representing the ‘client’. The sampling design used for this methodology is explained next.

1.4.9 Sampling Design There is no perfect sampling design. Instead, the sampling technique and sample size should be selected based on: (i) the study’s purpose, (ii) the available resources, (iii) the research questions, and (iv) the researchers’ constraints (Patton, 2002). A purposive sampling technique was used to identify the advertising agency sample. The purposive sampling technique involves 66 selecting information-rich cases to ensure depth for the study (Patton, 2002). From an information-rich case, the researchers were able to gather knowledge about issues that are key to the study’s purpose (Patton, 2002). In the case of this dissertation, (i) Research Question 3 focuses on how clients and advertising agencies act opportunistically and (ii) Research Question 4 focuses on the constraint of opportunistic behavior. Therefore, this dissertation’s sample was selected to illuminate Research Questions 3 and 4. Given the decision to employ purposive sampling, the following criteria for selecting respondents was followed. For the advertising agency sample, the researcher used their network to approach potential respondents (Gelderman et al., 2019). This selection was narrowed down to key account managers at well-known advertising agencies with a reputable and established clientele. Samples can be selected based on the group of people who can address the research problem (Silverman, 2010). As key account managers have a high level of interaction with the client (Haytko, 2004), they were deemed an appropriate fit to address this dissertation’s research problem. This final selection was confirmed upon consultation with an experienced advertising consultant. To ensure that the purposive sample comprised respondents with broad similarities, the above criteria were followed (Lincoln & Guba, 1985). Next, the snowball sampling technique was used to identify the client sample. As the advertising agencies selected for participation listed their clients on their websites, clients were selected based on their listing on these websites. These clients’ marketing managers were contacted to participate in the research. It should be noted that some key account managers openly shared their exact client’s names, while others preferred to keep it confidential. In the case of the former, the clients named by the key account manager were approached to participate in the study. In the case of the latter, the clients listed on the advertising agency’s website were approach for participation. As advertising agencies tend to work with more than one client, an advertising agency can employ more than one key account manager to manage their clients. Therefore, of the respondents interviewed, there were 3 actual client-advertising agency dyads. With regards to the sample size, qualitative research does not hold rules. Instead, the sample size depends on the research problem (Silverman, 2010), what the researcher is looking for, what will be valuable and bring credibility and what the researchers can do with the resources and time available. When rich information and depth is gathered from a small sample size, the small sample size can be sufficient. Therefore, in qualitative studies, the richness of the insights gathered from data collection is more important than the size of the sample (Patton, 2002). Given that qualitative research is flexible and emergent, the researcher should begin with a minimum sample size that will reasonably address the

67 study’s purpose. Thereafter, as Lincoln and Guba (1985, p.202) recommended for purposive sampling, if the study’s purpose is to maximize information, sampling can be terminated when there is no new information from the new sample units. The sample size for the qualitative research conducted for this dissertation is 20 respondents. This comprised 10 key account managers (representing the advertising agency) and 10 marketing managers (representing the client). Similar studies were based on sample sizes of 4 (Hawkins et al., 2013), 12 (Gelderman et al., 2019), 15 (Dawson et al., 2010) and 20 (Haytko, 2004). Therefore, relative to similar past literature, the sample size of 20 was deemed appropriate. Furthermore, it is recommended that data collection be terminated when one of the following four conditions are met: (1) there is theoretical saturation, (2) there are no more data sources available, (3) regularities and integration have been achieved, and (4) there is “overextension”, as new information answers more than that required by the research question (Lincoln & Guba, 1985). Following the completion of the 20 interviews, data collection was terminated as conditions 1, 3, and 4 were met. The process followed to collect data is explained next.

1.4.10 Data Collection After respondents were selected and contacted, they were informed about (i) the interview, (ii) their anonymity and confidentiality of their responses (Gelderman et al., 2019), (iii) the approximate time to conduct the interview, and (iv) that they were able to opt out at any time. The interviews were conducted at a place and time requested by the respondents following a telephone call (Priporas, Vassiliadis & Stylos, 2012). All interviews were conducted on site at the respondent’s offices (Haytko, 2004). Each respondent was given a cover letter prior to starting the interview (see Appendix D) and asked to sign a consent form. The interviews were approved by the University of Cape Town ethics committee. The extent of the sampling frame is in Cape Town and Johannesburg, South Africa; an emerging market. An emerging market is characterized by volatile markets, weak legal systems and evolving regulations. Opportunistic behavior is of particular interest in emerging markets because it is more challenging to verify information and governance is weakly imposed; there is more room to act opportunistically in an emerging market (Luo, 2006). Interviews were conducted between November 2018 and February 2019. Each interview was recorded and transcribed (Gelderman et al., 2019). Interviewers were between 25 and 66 minutes long. The same procedure was followed for each interview. The differences in length for the interview were dependent on the level of detail that each respondent provided. The interviewer asked open-ended questions to clarify specific responses by the respondent (Gelderman et al., 2019). Using a semi-structured interview

68 style, respondents were asked a series of questions. All interviews began with the general question: ‘Can you talk me through your average day?’. Following their response to this first question, the interviewer probed for more information about their interaction with the other party (i.e., either clients or advertising agencies). It is worth noting that respondents were asked about interaction with the other party in general, i.e. no specific advertising agency or client was asked about. The interviewer used a guide when asking questions to encourage consistency across all the semi-structured interviews (see Appendix A). This allowed the researchers to identify differences across respondents based on their responses, rather than the way in which questions were asked (Flick, 2007). The questionnaire guide (see Appendix A) was developed to address Research Questions 3 and 4. Guidance on how to improve the questions was received from expert academics in the field. The question wording changed depending on whether respondents were from the advertising agency- or client-side. For example, key account managers (representing the advertising agency) were asked about their relationship with their specific client(s), and vice versa. Additional questions were asked to further discuss certain topics with the respondent (Pemer & Skjølsvik, 2019), such as ‘how did that happen’, ‘can you tell me more about this’, and ‘why do you think that happened’. The semi-structured interview questions probed for the dynamic of their relationship with the other party, the information asymmetry present in the relationship, what information is signaled and screened for, and descriptions of opportunistic behavior within the relationship. Given the flexibility of semi- structured interviews, the interviewer asked additional questions to garner further insight into respondents’ perspectives (Malhora, 2010; Gelderman et al., 2019). The sample comprised 35% males and 65% females (see Appendices B and C). The number of years of experience that respondents had ranged between 5 and 29 years. The sample’s average number of years are 13 years among the advertising agencies’ key account managers and 15 years among the clients’ marketing managers. The industries that the clients were based in and the industries that the key account managers worked with were heterogeneous (see Appendix B and C), ranging from healthcare to property. Data were collected to reconstruct respondents’ experiences and perceptions into a coherent and consistent report (Gelderman et al., 2019). To do this, the data were analyzed in the manner which the following section explains.

1.4.11 Data Analysis Qualitative data analysis involves the following steps: (1) preparing the data; (2) organizing the data; (3) arranging the data into themes; (4) coding the data; and (5) discussing the data (Creswell, 2013). While it is recommended that the data

69 are collected, analyzed and reported simultaneously (Miles & Huberman, 1994; Creswell, 2013), the data analysis for this dissertation began after all the interviews were recorded and transcribed (Gelderman et al., 2019). The data analysis for this dissertation began by organizing the data. The interviews were recorded and transcribed. Following their transcription, the recordings were heard by each of Paper 4’s (working version) co-authors and compared against the written transcript. The inconsistencies found were fixed and a final set of transcripts were used for the analysis. Next, all three of Paper 4’s (working version) co-authors closely examined the transcripts. Then, by reading and re-reading transcripts, the important initial insights were noted. The data analysis began by classifying it into codes. Coding is the “heart” of qualitative analysis (Creswell. 2013, p.184). This is done by developing themes and interpreting the data in light of the researchers’ own views or perspectives about the literature (Creswell, 2013). In this step, the data was winnowed as qualitative research does not need to include all data in its analysis (Wolcott, 1994; Creswell, 2013). The researchers maintained an open mind, so as not to assign inappropriate codes (Miles & Huberman, 1994; Creswell, 2013). For example, it was found that in the client-advertising agency context, the term ‘brief specificity’ is better suited than the Theory of Relationship Constraints’ ‘contract specificity’. This is because a client-advertising agency relationship generally begins with a brief, rather than a contract. Therefore, the findings refer to ‘brief specificity’. Codes should also derive from the information that is unexpected, surprising, conceptually unusual or interesting (Creswell, 2013). The researchers followed this advice and identified additional codes, such as those unique to the nature of the client-advertising agency relationship (e.g. ‘budgets’ and ‘project timing’). It is recommended that more than one researcher code the dataset independently (Miles & Huberman, 1994). Therefore, two of Paper 4’s (working version) co-authors independently coded the transcripts. Their list of codes were compared to identify differences and similarities. Each co-author had the opportunity to voice their different interpretations (Pemer & Skjølsvik, 2019). In doing so, disagreements between coders were settled (Oliveira & Lumineau, 2019). The list was subsequently refined (Vafeas et al., 2016). The reason for following this process is to code-check and improve the reliability of the data (Miles & Huberman, 1994). After two rounds of code-checking, the inter-coder reliability was 95%, which is within the desired range (Miles & Huberman, 1994). This process derived a list of 19 codes. Next, Paper 4’s (working version) co-authors collated the codes into four major themes: (1) examples of ex-ante opportunistic behavior; (2) examples of ex-post opportunistic behavior; (3) support for the Theory of Relationship Constraints; and (4) extracts unique to the client-advertising agency relationship. However, at this stage it was found that there was too much data

70 for a single paper (Fine & Kurdek,1994). Therefore, all authors agreed that themes (1), (2) and (4) would be used by Paper 3’s co-authors to address Research Question 3 and themes (3) and (4) would be used by Paper 4’s (working version) co-authors to address Research Question 4. This is depicted in Figure 7 below.

Figure 7. Summary of the Data Analysis Process

Data Analysis

Paper 3 Paper 4 Phenomenological Data Phenomenological Data Analysis Analysis

• Examples of ex-ante • Support for the Theory of opportunistic behavior Relationship Constraints

• Examples of ex-post • Extracts unique to the client- opportunistic behavior advertising agency • Extracts unique to the client- relationship advertising agency relationship

Qualitative data should be reduced to a manageable and small set of themes to inform the researchers’ final narrative (Creswell, 2013). In answering Research Question 3, a phenomenological analysis was conducted to understand what constitutes as opportunistic behavior in client-advertising agency relationships. Subsequently, a phenomenological analysis was cond ucted to answer Research Question 4 and extend the Theory of Relationship Constraints’ propositions in the client-advertising agency context (Creswell, 2013). Phenomenological data analysis is considered one of the most detailed forms of qualitative data analysis (Creswell, 2013). The purpose of phenomenological research is to identify the quality (i.e., the ‘what’) and texture (i.e., the ‘how’) within respondents’ descriptions of their experiences (Willig, 2013). The way that

71 phenomenological analysis was applied to address Research Questions 3 and 4 is further explained in turn.

1.4.11.1 Phenomenological Analysis for Research Question 3 To address Research Question 3, a phenomenological data analysis approach was applied. Based on the themes, Paper 3’s co-authors wrote about ‘what’ individual respondents’ experiences about the phenomenon are and ‘how’ they experienced it (Creswell, 2013; Willig, 2013). The phenomenon being studied is opportunistic behavior in client-advertising agency relationships. Research Question 3 focuses on what constitutes as opportunistic behavior in this dyad. Two of Paper 3’s co-authors, including myself, read the entire transcripts, highlighted key verbatims and examined each sentence (Creswell, 2013). The phenomenological approach to analyzing data for Research Question 4 is explained next.

1.4.11.2 Phenomenological Analysis for Research Question 4 To address Research Question 4, phenomenological data analysis was applied. The Theory of Relationship Constraints was extended to the client-advertising agency relationship context which, as far as can be ascertained, has not been done before. The phenomenon focused on in the Theory of Relationship Constraints is the choice of constraint mechanism. Research Question 4 focuses on the role of information in the choice of constraint mechanism. Based on the Theory of Relationship Constraints, Paper 4’s (working version) co-authors wrote about ‘what’ individual respondents’ experiences about the phenomenon are and ‘how’ they experienced it (Creswell, 2013; Willig, 2013). The criteria followed for quality assurance follows.

1.4.12 Quality Criteria As qualitative research is limited in terms of its accuracy, the qualitative findings obtained in this thesis were assessed for quality (Flick, 2007). In the following paragraphs, I describe the quality criteria relevant to this dissertation’s empirical papers (Papers 3 and 4), beginning with validity. A qualitative study has validity when the researcher employs processes to evaluate how accurate, trustworthy, credible and authentic the findings are (Creswell, 2017). Peer debriefing was applied by asking a peer to review and question the study. This ensured that individuals, other than the researchers, can resonate with the study (Creswell, 2014). When an independent person interprets the study it gains validity (Creswell, 2017). Qualitative studies have reliability when the study is replicable under similar circumstances (Rudestam & Newton, 2014). To enhance the reliability, interview recordings were used to transcribe the interview. In addition, more than one coder analyzed the interview transcripts independently (Pemer &

Skjølsvik, 2019) to ensure inter-coder reliability (Miles & Huberman, 1994; Creswell, 2013; Gelderman et al., 2019). In addition to these validity and reliability techniques, a key concern when conducting interviews is social desirability bias. Social desirability bias occurs when the qualitative findings are influenced by respondents’ attitudes towards the study’s topic or context (Flick, 2007). The respondent may be reluctant to truthfully share information in order to protect their social status. This can lead to biased findings, particularly when respondents are asked about their true feelings (Malhotra, 2010). Studying guile and selfish motives, in particular, is challenging because respondents who are asked to share information about their own self-interests may be influenced by social desirability bias (Jap & Anderson, 2003; Crosno & Dahlstrom, 2008). Individuals tend to shy away from admitting the incorrectness of their past decisions (Brockner, 1992). Therefore, when asking respondents about opportunistic behavior, social desirability can distort the accuracy of the data collected (Jap & Anderson, 2003). To address social desirability bias, respondents can be asked to report on their own opportunistic behavior in a more subtle way (John 1984; Hawkins et al., 2013; Gelderman et al., 2019). However, this may still lead to social desirability bias (Jap & Anderson, 2003) because when asking individuals about their own opportunism their responses may be biased (Provan & Skinner, 1989; Crosno & Dahlstrom, 2008; Wang et al., 2013). An alternative approach is to ask respondents about others’ opportunistic behavior (Jap & Anderson, 2003; Hawkins et al., 2013). I applied the latter by asking respondents to describe opportunistic behavior that they had ‘seen or heard of’ by clients in general. Respondents were not asked about a specific client; respondents either spoke about others’ clients or their own current or previous clients. One-on-one interviews are preferred when the topic is sensitive, to encourage respondents to feel comfortable responding (Malhotra, 2010). Another way of encouraging respondents to disclose their perceptions about inappropriate behavior is to assure them that the interview is confidential and anonymous, and embody a trustworthy and relaxed atmosphere (Gelderman et al., 2019). Therefore, to further mitigate social response bias in this dissertation, I informed respondents that their responses would be anonymous, confidential (Gelderman et al., 2019), voluntary and that they could opt out at any time. In addition, when interviewing respondents , I embodied a relaxed demeanor to encourage respondents to feel comfortable. Furthermore, negative case analysis was applied where each interview was re-examined following completion of the data analysis. This was done to evaluate whether the themes identified were accurate and applicable. No disconfirming evidence was found in this process (Robson, Wilson & Pitt, 2019).

Last, Pemer and Skjølsvik’s (2019) measures to conduct trustworthy research, as described in Table 10 below, were followed. Pemer and Skjølsvik (2019) conducted semi-structured interviews to unpack clients’ ex-ante signaling and screening of professional services quality. Their table has been adapted to maintain alignment with this dissertation.

Table 10. Measures to Conduct Trustworthy Research

Trustworthiness criteria How it was addressed Credibility: Extent to which results 20 interviews conducted across 16 appear in an acceptable representation organizations. of the data All data checked for contradictory evidence to findings. Detailed and non-redundant data analysis conducted using Excel for summaries. Transferability: Extent to which Consistent concepts represented in the findings from one study will appear in data from multiple respondents and other contexts organizations. Respondents provided thick descriptions of the concepts to allow for understanding of relevance across respondents. Dependability: Extent to which Respondents reflected on recent events findings are stable and consistent over in their career and included in-depth time across location descriptions. Confirmability: Extent to which Open-ended questions were used to interpretations and the result of the ensure no priming or leading effects. respondents and the phenomenon as One researcher collected the data. opposed to researcher bias Another transcribed the data. Two researchers reviewed the coding and analyzed the data for Research Question 3. Three researchers reviewed the coding and analyzed the data for Research Question 4. Integrity: Extent to which Anonymity of each respondent interpretations are influenced by ensured. misinformation or respondents illusions

The respondents were ensured that the data would be protected.

Note: Adapted from Wallendorf and Belk (1989), Beeler, Zablah, and Johnston (2017), and Pemer and Skjølsvik (2019)

With regards to quality criteria for this dissertation’s conceptual papers (Papers 1 and 2), Deborah MacInnis (2011) suggests the following. Good conceptual work is based on unambiguous, credible and consistent evidence. It is valid when conclusions are based on multiple convergent sources. Furthermore, the argument should be based on clear assumptions (MacInnis, 2011). The conceptual work undertaken for this dissertation followed these criteria to ensure quality. In the light of the above descriptions of the research problem, literature review, theoretical perspectives and methodology, the following section explains the structure of each paper in this dissertation.

1.5 STRUCTURE OF INDIVIDUAL PAPERS In this section I describe an overview of the four papers comprising this dissertation. Each paper is based on a research question which has derived from this dissertation’s underlying research problem: How can information facilitate and constrain opportunistic behavior in industrial marketing relationships? From this research problem, the following four research questions were formulated: 1. Research Question 1: How has Agency Theory been used to constrain opportunistic behavior in industrial marketing relationships? 2. Research Question 2: What role does information play in manifesting ex-ante and ex-post opportunistic behavior in principal-professional agent industrial marketing relationships? 3. Research Question 3: How do clients and advertising agencies use information to act opportunistically ex-ante and ex-post? 4. Research Question 4: What role does information play in the choice of constraint mechanism for the client-advertising agency relationship?

1.5.2 Paper 1: Agency Theory in Marketing: 27 Years On Chohan, R. (Forthcoming). Agency Theory in Marketing: 27 years on. Journal of Strategic Marketing. Journal: Journal of Strategic Marketing Impact factor: 2.48 (2018) Status: Accepted

The purpose of this paper is to answer Research Question 1: How has Agency Theory been used to constrain opportunistic behavior in industrial marketing relationships?

To begin this dissertation, a conceptual research approach is undertaken in the first paper. This is done through a comprehensive systematic review of the literature on Agency Theory in marketing. Agency Theory is seen as the predominant theory on constraining opportunistic behavior between a principal and an agent. Since Bergen et al.’s (1992) Journal of Marketing literature review, there has been no comprehensive update of the literature on Agency Theory in marketing-related contexts. However, there have been various developments in marketing, such as the advent of the internet, that have occurred in the interim. In this paper, I review the literature on how Agency Theory has been applied to marketing-related topics between 1992 and 2018. In particular, I cover the following industrial marketing contexts: salesforce management and compensation plans, business-to-business marketing, advertising agency-client relationships, marketing management and shareholders, and sponsorships. The contribution of this paper is that it updates the overall knowledge of these applications. In doing so, I suggest plausible future research agendas and offer managerial implications. It is worth noting that from this systematic literature review, I acknowledge the need to explore opportunistic behavior in the client-advertising agency relationship, which informs Papers 3 and 4. Furthermore, the limitations of Agency Theory found from this literature review informed my decision to apply the Theory of Relationship Constraints in Papers 2, 3 and 4.

1.5.3 Paper 2: Ex-Ante and Ex-Post Opportunism in Principal- Professional Marketing Relationships: A Conceptual Perspective and Research Propositions Chohan, R. (Forthcoming). Ex-Ante and Ex-Post Opportunism in Principal- Professional Marketing Relationships: A Conceptual Perspective and Research Propositions Journal of Strategic Marketing. Journal: Journal of Strategic Marketing Impact factor: 2.48 (2018) Status: Accepted

The purpose of this paper is to answer Research Question 2: What role does information play in manifesting ex-ante and ex-post opportunistic behavior in principal-professional agent industrial marketing relationships? This conceptual paper addresses the limitations of Agency Theory found in Paper 1. Opportunism has been widely studied to understand and predict the mechanisms behind it. While the phenomenon has been traditionally studied in principal-agent relationships, scant attention is given to relationships where the agent is a professional. Opportunistic behavior in principal-professional agent relationships manifests differently compared to principal-agent relationships. In this paper, I introduce a conceptual model with nine propositions to enhance the current understanding of what manifests as opportunistic behavior in principal-professional agent relationships in the ex-ante and ex-post relationship stages. My model suggests that both principals and professional agents act opportunistically as a result of the information asymmetry in their favor. In particular, I propose that ex-ante adverse selection derives from the principal’s hidden characteristics, and ex-post moral hazard derives from the professional’s hidden tacit knowledge. The model applies to principal-professional agent relationships that are defined by a competitive bidding environment, knowledge of the co-production environment, and fixed-incentives. I contribute theoretically by building on past theories to propose new conceptual perspectives on what manifests as opportunistic behavior in principal-professional agent industrial marketing relationships. Paper 2 provides a conceptual understanding about information as an antecedent of opportunism. Paper 3 does this using an empirical approach, based on the client-advertising agency context.

1.5.4 Paper 3: Perspectives: Client-Agency Opportunism: How does it happen and what can we do about it? Chohan, R., Watson, R., & Pitt, L. (2019). Perspectives: client–agency opportunism: how does it happen and what can we do about it?. International Journal of Advertising, 38(8), 1303-1312. Journal: International Journal of Advertising

Impact factor: 2.234 (2018). Status: Published

The purpose of this paper is to answer Research Question 3: How do clients and advertising agencies use information to act opportunistically ex-ante and ex- post?

While it is seldom spoken about openly, opportunism always prevails in client– advertising agency relationships and could lead to their demise. This study directs attention to client–advertising agency opportunism by describing how it happens and ends with a discussion on how today’s client–advertising agency dynamics can be improved. Based on empirical qualitative data from semi- structured interviews, the paper offers real examples of both client and advertising agency pre- and post-contract opportunism. Additionally, the paper offers six practical recommendations to improve today’s client-advertising agency relationships. As Paper 3 finds that clients and advertising agencies both act opportunistically, it informs the purpose for conducting Paper 4 (working version).

1.5.5 Paper 4 (Working Version): Constraining Client-Agency Opportunism: An application of the Theory of Relationship Constraints Chohan, R. Plangger, K. & Treen, E. Constraining Client-Agency Opportunism: An application of the Theory of Relationship Constraints

The purpose of this paper is to answer Research Question 4: What role does information play in the choice of constraint mechanism for the client-advertising agency relationship?

This empirical paper focuses on the constraint of opportunistic behavior in the client-advertising agency relationship. As shown in Paper 3, opportunistic behavior will always prevail among clients and their advertising agencies. Information asymmetry is a key driver of opportunism (John, 1984; Williamson, 1985; Sharma, 1997; Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017), which clients and advertising agencies try to use to their advantage. However, as an advertising agency’s work is largely based on tacit knowledge, constraint mechanisms to curb client- advertising agency opportunism are inconsistently applied. The constraint mechanisms used in this dynamic are either formal, social, or a combination of both. This empirical paper is based on interviews with clients and advertising agencies. The contribution of this paper is that it applies the Theory of Relationship Constraints’ nine propositions to conceptualize how 78 the level of information asymmetry and brief specificity influence the choice of constraint in client-advertising agency relationships. Managerial implications and future research agendas are offered. The purpose of this dissertation is to address a prevalent issue in today’s industrial marketing relationships, namely: opportunistic behavior. To address this issue, the underlying research problem is: How can information facilitate and constrain opportunistic behavior in industrial marketing relationships? The reference to information in this research problem stems from the widespread agreement that information asymmetry is a key antecedent of opportunistic behavior. From the research problem, four research questions are derived that fall under two sub-sections: principal-agent relationships and principal-professional agent relationships. To address these research questions there are two conceptual papers and two empirical, qualitative studies. Paper 1 is based on Agency Theory, while Papers 2, 3 and 4 are based on the Theory of Relationship Constraints. Furthermore, the context of the two empirical papers is the client-advertising agency relationship.

1.6 SUMMARY OF FINDINGS This dissertation’s research problem is: How can information facilitate and constrain opportunistic behavior in industrial marketing relationships? To address this, the following findings are explained according to Research Questions 1, 2, 3 and 4.

1.6.2 Findings regarding Research Question 1 This dissertation’s first research question asked: How has Agency Theory been used to constrain opportunistic behavior in industrial marketing relationships? The purpose of Paper 1 was to answer this research question. To do this, I conducted a systematic literature review on Agency Theory in marketing. Agency Theory provides insight into how principal-agent relationships develop (Dominici et al., 2017) and how to prevent parties in these relationships from acting opportunistically (Pepper & Gore, 2015) by means of contracts, incentives, and compensation plans. Bergen et al. (1992) described their 1992 review as offering a better understanding about marketing issues. They found that ‘international marketing’, ‘industrial buyer behavior-reciprocity’, and ‘advertising agency-client relationships’ were unexplored applications of Agency Theory in marketing. Paper 1 shows that since 1992 Agency Theory has been applied to address opportunism in these areas, questioning statements that the literature on Agency Theory in marketing is a limited (Tate et al., 2009) and small stream of research (Tan & Lee, 2015). Paper 1 identifies how marketing scholars have used Agency Theory to address opportunistic behavior in the following areas: (1) Salesforce

79 management and compensation plans, (2) business-to-consumer marketing, (3) business-to-business marketing, (4) advertising agency-client relationships, (5) marketing management and shareholders, and (6) sponsorships. The systematic literature review comprises examples of how Agency Theory has been applied in these areas. From the review of the literature, it was found that Agency Theory remains relevant and applicable today, particularly with regard to online platforms. The general principle across the literature is that Agency Theory is most useful in situations where it is difficult to govern agents. While Agency Theory has been applied more frequently to marketing in recent years, its assumptions have been questioned. Agency Theory has been applied to situations where the principal is the opportunistic party (e.g. Connelly et al., 2011), the agent has more control (e.g. Tumbat & Grayson, 2016) and the agent is a professional with specialized knowledge (Sharma, 1997). Furthermore, Agency Theory’s rigidity contradicts the unpredictability and complexity of marketing relationships. As the theory has been applied to complex and unpredictable marketing contexts, its fundamentals should change given the advent of the internet. For example, it can be applied to new principal- agent contexts such as in the case of the sharing economy and online freelancing. To remain relevant in the evolving marketing landscape, Agency Theory’s validity and generalizability should be rigorously tested. Interestingly, over half of the articles reviewed for Paper 1 used Agency Theory with other theories. Therefore, Agency Theory can be tested in conjunction with other theories. Based on Agency Theory’s limitation in the case of a professional agent (Sharma, 1997), Paper 2 was based on principal-professional agent relationships. Its findings are explained next.

1.6.3 Findings regarding Research Question 2 This dissertation’s second research question is: What role does information play in manifesting ex-ante and ex-post opportunistic behavior in principal- professional agent industrial marketing relationships? The purpose of Paper 2 was to answer this research question. To do this, I took a conceptual approach to better understand the role of information in principal-professional agent industrial marketing relationships with competitive bidding, fixed incentives and co-production (see Section 1.3.3).

Figure 8. Manifestations of Ex-Ante and Ex-Post Principal Opportunism

Ex-Ante Opportunism

Professional- Competitive + Principal-favored - Professional + favored + Professional’s Bidding Information Opportunism Information Tacit Knowledge Environment Asymmetry (Moral Hazard) Asymmetry

+ + +

+ Principal’s Knowledge of Principal Co-Production Hidden Opportunism Disclosure of Environment Characteristics (Adverse Selection) Principal’s Hidden Characteristics

Ex-Post Opportunism

A conceptual model (see Figure 8 above) with nine propositions is introduced to show the following. Ex-ante, professional agents can inhibit principal opportunism by limiting the principal’s information asymmetry advantage. This encourages professional agent opportunism through adverse selection. Ex-post, principals can inhibit professional agent opportunism by limiting the professional agent’s tacit knowledge advantage. This encourages principal opportunism through moral hazard. These findings correspond to the widespread agreement in the literature that information asymmetry is a key antecedent of opportunistic behavior (Sharma, 1997;Wathne & Heide 2000; Kleinaltenkamp & Jacob, 2002; Coff, 2003; Jap & Anderson, 2003; Shapiro, 2005; Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017). The following research propositions are introduced based on ex-ante principal opportunism through adverse selection and ex-post professional agent opportunism through moral hazard. Ex-ante, in a competitive bidding environment principal-favored information asymmetry increases (Proposition 1), discourages professional agent opportunism (Proposition 2) and positively influences principal opportunism in the form of adverse selection (Proposition 3). Furthermore, knowledge of the co-production environment increases the principal’s hidden characteristics ex-ante (Proposition 4). In turn, the competitive bidding environment encourages the principal’s hidden characteristics (Proposition 5). Therefore, the principal’s hidden characteristics encourage principal-favored information asymmetry (Proposition 6). In the ex-post stage, the professional agent has an advantage. The professional’s tacit knowledge encourages professional agent-favored information asymmetry (Proposition 7) and in turn professional agent opportunism in the form of moral hazard (Proposition 8). Professional agent opportunism is also encouraged by the disclosure of the principal’s ex-ante hidden characteristics (Proposition 9). From Paper 2, it was conceptualized that ex-ante and ex-post opportunistic behavior exists in principal-professional agent relationships. This informed Paper 3, whereby empirical research was undertaken. Paper 3’s findings are explained next.

1.6.4 Findings regarding Research Question 3 This dissertation’s third research question asked: How do clients and advertising agencies use information to act opportunistically ex-ante and ex- post? The purpose of Paper 3 was to answer this research question. To do this, semi-structured interviews with both advertising agencies and clients were conducted to inform the following findings. Ex-ante, skeptical negotiating parties signal and screen to reduce information asymmetry (Dawson et al., 2016). Clients might conjecture that agencies pitch ideas simply to win awards and enhance their reputation.

Agencies might suspect that clients are simply looking for free ideas. As with most relationships, both parties’ true colors emerge ex-post. To maintain a favorable reputation in their network, individuals are reluctant to disclose opportunism by both themselves and others. Clients have even accepted secret settlements from agencies in exchange for agreeing not to audit the agency’s media contracts and in turn expose its media rebates (O’Reilly, 2017). Paper 3 reveals how clients and advertising agencies act opportunistically ex-ante and ex-post, as included in Tables 11 and 12 below.

Table 11. Ex-Ante and Ex-Post Client Opportunistic Behavior

Pre-Contract Client Opportunism Post-Contract Client Opportunism

Withholding Information Withholding Information Withholding key information, such as Only sharing key information after the true budget, which would help the the agency has started working on the agency meet the brief. brief.

“If your budget is $1 million, tell the “[My client] is just telling me at this agency that they’ve got $800,000 late stage [in November] that… they because they’re going to go over are less than 50% through their anyway.” budget for the year… [and] they’re going to have to spend the remaining 50% of their budget.”

“You book a [television commercial] that is going to fly from 1st October, you can’t budge on that and they suddenly change what they want and they demand it out of you and speak down on you if you’re not delivering exactly what they want.”

Writing vague briefs or no brief at all.

“We’ll get briefs from our clients that come through as one liners… [or] WhatsApp messages asking for something.”

Exploitation Exploitation

Paying agencies little to nothing for Expecting an agency to deliver working on the pitch. beyond the agreed scope of work or payment terms. Stealing agencies’ pitch ideas. “[Clients say], ‘we’ll pay you Clients either roll them out $500,000 we only need like a little internally… or appoint [another] bit’, and then you actually end up agency to. doing $700,000 worth of work.”

“If [the client] asked you to design 1 billboard … that will take 5 hours… suddenly they say ‘oh no we’ve actually managed to get all this extra space we now need you to do 10 billboards’.”

Deliberately keeping an agency on campaign-by-campaign payment terms. The agency is forced to constantly deliver above-and-beyond work without long-term security.

Giving unrealistic briefs yet maintaining high expectations of an agency’s deliverable. Prioritizing Personal Agendas

Preferring another agency for personal reasons.

The agency can lose the business because [a] new marketer has an affiliation with another agency.

Blaming an agency for poor work, which was a result of a poorly written brief, to encourage the board to hire another agency.

Writing highly prescriptive briefs solely to meet the client’s ROI expectations. The agency’s creativity is limited, lowering its chances of using its creativity to win awards or signal to potential clients its capabilities.

“We came back with a really bold and exciting idea about… Christmas… [the client] hated it because it’s too adventurous… they’ll just say no, we’re not doing that, we want the family sat around for Christmas dinner, again”.

Table 12. Ex-Ante and Ex-Post Advertising Agency Opportunistic Behavior

Pre-Contract Agency Opportunism Post-Contract Agency Opportunism

Over-Promising and Withholding Disregarding Pre-Contract Promises Information Example: Promising to create a An agency pretends to have the website using a specific development necessary capabilities to perform the language required by the client, yet it job, yet it cannot perform once it has lacks the expertise to deliver the won the pitch. promise.

“[Agencies] present to you upfront in a way that gives you confidence, that they have the… necessary capabilities to perform the job… [yet] when you actually get into it they delay the timelines… [and] they can’t do what they promised to do.”

Senior members taking credit for a pitch idea, to avoid naming a junior who could be hired by a competitor (Forbes Agency Council 2019).

“Senior people are in the pitch, they promise you the world but then when you go into the day-to-day work, it’s all the junior people”.

Listing clients on the website for which an agency has done menial, or no, work. Example: An agency creates a logo for a large client, who does not use the logo or brief the agency again. The agency lists it as a key client.

Bidding low yet withholding information (Forbes Agency Council 2019). Example: An agency bids lower than others to win the work, knowing that it will add extra charges post-contract. Prioritizing Industry Awards at the Prioritizing Industry Awards at the Client’s Expense Client’s Expense

“Pitching ideas to win an award, not Example: An agency encourages a because it’s actually feasible for [the client to allocate $45,000 to an brand]”. Instagram campaign while a cheaper, billboard campaign would meet the brand’s objectives. Neglecting Smaller Clients

An agency delaying work for and allocating junior creatives to small clients yet delivering its best work on time to large clients.

“We [the client] just get whoever is not busy [at the advertiser]… the standard of work because of that suffers”.

Unethical Behavior

An agency creating independent entities to ‘legally’ work with brands from the same category. Example: Entity A works with ‘Bob’s Burgers’ and the Entity B works with ‘Betty’s Burgers’, both fierce competitors in the burger business.

An agency accepting rebates from media companies (O’Reilly, 2016a). Example: Allocating the client’s money to particular media channels to receive a rebate rather than doing what is best for the brand.

Pitching the same idea to two clients. Example: Pitching an idea created for a previous client at an old agency to a new client at a new agency. Both clients end up using the same advert (de Villiers 2018). Overcharging

An agency overcharging for its digital marketing expertise, or lack thereof.

“[The agency] just told me… to pay… $500 000 for a Wordpress site that I can make [myself]”.

Withholding Information

An agency exploiting retainer payment terms. Example: Failing to disclose when someone has left the agency to distribute more money among staff.

As Paper 3’s findings show, client-advertising agency opportunism occurs ex- ante and ex-post. Ex-ante, clients act opportunistically by withholding information and exploiting agencies, while advertising agency opportunism includes overpromising, withholding information, and prioritizing industry awards at the client’s expense. Ex-post, while clients continue to withhold information and exploit the advertising agency, they also prioritize their personal agendas to the advertising agency’s detriment. Advertising agencies continue to act opportunistically by withholding information and prioritizing awards post-contract. In addition, they disregard their ex-ante promises, neglect smaller clients, overcharge clients, and engage in unethical behavior. It is worth noting that most opportunistic acts by clients and advertising agencies, as described above, are driven by information asymmetry. This relates to the underlying theme of this dissertation: the role of information in encouraging opportunistic behavior. Paper 4 (working version) addresses the role that information plays to constrain client-advertising agency opportunism. Paper 4’s (working version) findings are explained next.

1.6.5 Findings regarding Research Question 4 In the light of the first three questions, this dissertation’s final research question is: What role does information play in the choice of constraint mechanism for the client-advertising agency relationship? The purpose of Paper 4 (working version) was to answer this research question. To do this, semi-structured interviews with clients and advertising agencies were conducted. Paper 4’s (working version) findings are two-fold: (1) the constraint mechanisms that today’s client-advertising agency relationships use, and (2) the role of information in the choice of constraint mechanism for these relationships. These are explained in turn. With regards to the constraint mechanisms used in today’s client- advertising agency relationships, the following was found. Three types of constraint mechanisms are typically used in client-advertising agency relationships: (i) formal constraint mechanisms, (ii) semi-formal constraint mechanisms, and/or (iii) social constraint mechanisms. Formal constraint mechanisms specify information such as: (i) what each party will sacrifice and receive in return, (ii) the client’s key performance indicators, (iii) the agency’s expected behavior, and (iv) the consequences should either party breach the agreement, such as intellectual property, copyright, legal obligations and missing deadlines. The most common formal constraint is a legal contract which is signed by both parties and usually exists between more established clients and advertising agencies. However, generally in the client- advertising agency dynamic, contracts are seldom enforced and are increasingly unpopular as clients and advertising agencies prefer not to be tied down to a relationship.

Two semi-formal options are non-disclosure agreements (NDAs) (e.g., to specify that any information exchanged is confidential) and terms and conditions agreements (e.g., what is expected from the advertising agency when they are half-way through a campaign). A third, and common, option is where formal constraint mechanisms (e.g., the legal contract) are drawn up but do not get signed. For example, when the legal contract bounces back-and-forth between each parties’ lawyers, it eventually does not get signed before the work starts. Both the client and the advertising agency in this case operate on a social constraint mechanism (e.g. handshakes, reputation management, and self-control), even though the intention to have a formal contract is there. Social constraint mechanisms are limited in that a court of law might not enforce them and/or that they might be misunderstood. However, clients often need to implement social constraint mechanisms to hinder opportunistic behavior because they lack the required tacit knowledge that gives advertising agencies an information asymmetry advantage.

Table 13. Theory of Relationship Constraints' Constructs

Construct Definition Client-Advertising Agency Relationship Examples Signaling Information shared by Clients disclosing sound financial the party with the reports, to signal to the information asymmetry advertising agency that they are advantage (Tilles, financially stable and will be able 1961). to pay the agency on time.

Advertising agencies showcasing their awards on their website and at their reception space, to signal their credibility to the client. Screening Information sought by Clients asking one of their the party with the employees, who used to work for information asymmetry the advertising agency, whether disadvantage (Wathne the advertising agency is reliable & Heide, 2000). in their delivery and hours claimed for the work.

Advertising agencies asking an employee of theirs, who used to work for the client at another advertising agency, about the client’s reliability in terms of payments and demands. Disadvantageous The situation where Clients withholding their actual information one party has less budget, and instead offering to asymmetry relevant knowledge pay much less. The advertising (tacit or explicit) than agency has a higher level of the other party. disadvantageous information asymmetry.

Advertising agencies withholding internal conflicts in their creative teams that may delay the work. The client has a higher level of disadvantageous information asymmetry.

Explicit Knowledge that can The client knowing what the knowledge easily be captured or structure of the advertising codified in a document agency looks like, i.e. who the or a database and is head of creative at the advertising readily accessible to agency is. anyone willing to undertake the time and The advertising agency knowing energy to learn it (Hitt who the client’s target market is et al., 2001; or which media channels the Liebeskind, 1996). campaign needs to go live on. Tacit knowledge Knowledge that is Client knowing how to work focused on ‘know- around the as advertising how’ and used to apply agency’s head of creative’s explicit knowledge in a difficult personality, to ensure competent manner that it is not detrimental to the (Bassellier, Reich & success of a campaign. Benbasat, 2001). Advertising agencies knowing who and when to ask for more money and extended deadlines, at the client’s firm. Brief specificity The extent to which Information about what clients either party to a and advertising agencies expect contract can from each other with respect to unambiguously the campaign, such as the measure the success of timeframe, resources, and brand an engagement. objectives. Constraint A method for limiting Client imposing a legal contract opportunistic behavior. to ensure that the advertising agency’s focus is on working towards a successful campaign, rather than pretending to put in more hours simply to claim more payment.

The advertising agency’s head of creative using self-control, a social constraint, to encourage his team to be honest in the hours they claim for.

With regards to the role of information in the choice of constraint mechanism, the following was found based on the Theory of Relationship Constraints. The Theory of Relationship Constraints’ constructs apply to the client-advertising agency relationship, as illustrated in Table 13 above. The authors found that clients and advertising agencies generally begin their relationship using a brief, rather than a contract. Therefore, to accurately extend the Theory of Relationship Constraints to the client-advertising agency dynamic, Dawson et al.’s (2010) ‘contract specificity’ is referred to as ‘brief specificity’ in these findings. Paper 4 (working version) finds that the Theory of Relationship Constraints’ nine research propositions are supported in today’s client- advertising agency relationships. In these relationships, signaling (Proposition 1) and screening (Proposition 2) can discourage information asymmetry. For example, advertising agencies signal that they will “operate in the best interest of the client” and “contribute to their bottom line” by reducing the client’s information asymmetry about their performance. In turn the level of disadvantageous information asymmetry can influence what is signaled (Proposition 3) and screened for (Proposition 4). For example, as some clients use pitches “just to get ideas” to implement internally, advertising agencies may choose to withhold certain information during a pitch, to maintain their information asymmetry advantage. Furthermore, the choice of constraint mechanism is influenced by the level of disadvantageous information asymmetry (Proposition 5) and brief specificity (Proposition 8). For example, an advertising agency may hire a new key account manager who is more concerned about receiving awards in the short-term rather than doing what is best for the brand. The client would in this case rely more on a legal contract as they may only find out the advertising agency’s true intentions over time. Brief specificity increases with explicit knowledge (Proposition 6) and decreases with tacit knowledge (Proposition 7). For example, highly specific briefs are explicit, stipulate how future situations will be handled, document goals that are set, clarify expectations and reduce the possibility of misunderstandings. Last, the interaction between disadvantageous information asymmetry and brief specificity influences the choice of constraint mechanism in the client-advertising agency relationship (Proposition 9). For example, some clients choose to implement a retainer (i.e. a formal constraint) while knowing that their brief will actually require the advertising agency to use more resources than agreed in the retainer.

Figure 9. Model of the Theory of Relationship Constraints

- Signaling Level of Disadvantageous Information Asymmetry Screening - Choice of Constraint Mechanism Brief Specificity

+ -

Required Explicit Required Tacit Information Information

Source: Adapted from Dawson et al. (2010)

The research propositions are conceptualized in Figure 9. This model is an extension of Dawson et al.’s (2010) model of the Theory of Relationship Constraints. The only change made is the change from ‘contract’ to ‘brief’ specificity. As the model shows, the following influences the choice of constraint in the client-advertising agency relationship: Signaling and screening influence the level of disadvantageous information asymmetry held by both parties, which in turn influences signaling and screening. The brief specificity, which contains explicit and tacit knowledge, has an influence on the choice of constraint. Finally, the interaction between the level of disadvantageous information asymmetry and the brief specificity influences the choice of constraint mechanism. Paper 4 (working version) therefore confirms that the Theory of Relationship Constraints is applicable to the client-advertising agency relationship.

Table 14. How Can Information Facilitate and Constrain Opportunistic Behavior in Industrial Marketing Relationships?

Paper Research Question How Can Information Facilitate and Constrain Opportunistic Behavior in Industrial Marketing Relationships? Paper 1 How can Agency Theory Agency Theory is used to been used to constrain constrain opportunistic behavior opportunistic behavior in in principal-agent industrial industrial marketing marketing relationships, relationships? particularly:

1. Salesforce management and compensation plans 2. Advertising agency-client relationships 3. Marketing management and shareholders, and 4. Sponsor-sponsee relationships.

Agency Theory can be applied to modern, unexplored principal- agent relationships, such as in the case of the sharing economy or online freelancing.

Agency Theory is limited when applied to principal-professional agent relationships. Paper 2 What role does information Information asymmetry play in manifesting ex-ante facilitates principal opportunism and ex-post opportunistic ex-ante, through adverse behavior in principal- selection, and professional agent professional agent industrial opportunism ex-post, through marketing relationships? moral hazard. Paper 3 How do clients and Clients and advertising agencies advertising agencies act use information to act opportunistically ex-ante and opportunistically ex-ante and ex- ex-post? post. For example, by

withholding information, overpromising and overcharging. Paper 4 What role does information The level and type of (Working play in the choice of information asymmetry Version) constraint mechanism for the influences the choice of client-advertising agency constraint mechanism in client- relationship? advertising agency relationships.

In this section, the findings for each research question were disclosed. Table 14 above shows how the findings for each research question address this dissertation’s underlying research problem: How can information facilitate and constrain opportunistic behavior in industrial marketing relationships?

Figure 10. How Can Information Facilitate and Constrain Opportunistic Behavior in Industrial Marketing Relationships?

Paper 1 Agency Theory is used to constrain

opportunistic behavior in principal-agent Agency Theory relationships. It is limited when applied to principal-professional agent relationships.

Information Opportunistic Constraint Information Asymmetry + Behavior - Mechanisms Asymmetry

Paper 2 Paper 3 Paper 4 Information Clients and The level and type of asymmetry facilitates advertising information principal agencies use asymmetry influences opportunism ex-ante information to act the choice of and professional opportunistically constraint mechanism agent opportunism ex-ante and ex-post in client-advertising ex-post agency relationships

Theory of Relationship Constraints

The golden thread throughout this dissertation is the role of information in opportunistic behavior. This golden thread includes the use of Agency Theory

and the transition to the Theory of Relationship Constraints as the more appropriate theory. The link between all four papers is shown in Figure 10 above. The following section discusses this dissertation’s theoretical contributions.

1.7 THEORETICAL CONTRIBUTIONS Research offers a contribution when it closes the gap between what we know and what we need to know; it answers the question ‘what’s new?’ (Webster & Watson, 2002). In this section, the dissertation’s contributions to theory are discussed. Theoretical contributions are important because, as scholars have argued, “without constant pressure for theory building, the field would surely slide to its natural resting place in dust-bowl empiricism” (Sutton & Staw, 1995, p. 360; Webster & Watson, 2002). This dissertation began with the research problem: How can information facilitate and constrain opportunistic behavior in industrial marketing relationships? In the industrial marketing context, theoretical development is needed on the dark side of relationships (Oliveira & Lumineau, 2019) and the constraint of opportunistic behavior (Wuyts & Geyskens, 2005). The following paragraphs elaborate on this dissertation’s theoretical contributions within this context, beginning with the application of Agency Theory in industrial marketing. When critiquing an existing theory it is suggested that improvements to the theory’s conceptualizations or alternatives be proposed (Whetten, 1989). A thorough review on Agency Theory in marketing had not been done since Bergen et al.’s (1992) Journal of Marketing review. Since then there have been various developments in marketing, such as the advent of the internet. Therefore, Paper 1 contributes with an updated understanding about how Agency Theory has been applied to the industrial marketing principal-agent contexts, namely: salesforce management, advertising, franchising, sponsorships, and supply chain management. Moreover, new and unexplored principal-agent relationship issues are identified as agendas for future researchers to address. For example, in the case of the sharing economy (e.g., Pouryousefi & Frooman, 2017). Opportunistic behavior in industrial marketing relationships continues to prevail (Wuyts & Geyskens, 2005; Wang et al., 2013; Luu et al., 2018; Verbeke et al., 2019) and more literature on constraining opportunistic behavior is needed (Antia et al., 2006; Piercy, 2009; Vandenbosch & Sapp, 2010; Hawkins et al., 2013; Cao & Lumineau, 2015; Crosno & Brown, 2015; Heirati et al., 2016; Gelderman et al., 2019; Oliveira & Lumineau, 2019; Lumineau & Oliveira, 2020). Therefore, Paper 1 serves as a necessary platform for expanding and updating the related literature. Furthermore, in Paper 1 Agency Theory’s assumptions, such as the principal having more control over the agent (e.g. Tumbat & Grayson, 2016), 96

were questioned and its limitations identified. For example, a key limitation is that Agency Theory does not consider agents as professional agents (Sharma, 1997). Principal-professional agent relationships prevail in industrial marketing. This limitation was core to the dissertation as it informed the shift in focus to apply the Theory of Relationship Constraints in Papers 2, 3 and 4. This is because the Theory of Relationship Constraints was developed to address the limitations of Agency Theory (Dawson et al., 2010). The Theory of Relationship Constraints was deemed appropriate for use in this dissertation, following recent calls by scholars for more research on the use of both formal and social constraint mechanisms (Dawson et al., 2010; 2011; Kumar, Heide & Wathne, 2011; Cao & Lumineau, 2015; Crosno & Brown, 2015; Kashyap & Murtha, 2017; Hadida, Heide & Bell, 2019). This is because the theory considers the choice of constraint mechanism, i.e. formal and/or social constraint mechanisms (Dawson et al., 2010). Furthermore, the Theory of Relationship Constraints is appropriate to this dissertation’s research problem because the theory focuses on the role of information; specifically, the level of disadvantageous information asymmetry (through signaling and screening) and contract specificity (through explicit and tacit knowledge). The theory’s founders call on researchers to extend their theory to new contexts (Dawson et al., 2010; 2011; Dawson et al., 2016). As far as can be ascertained, the Theory of Relationship Constraints had not been extended to marketing prior to this dissertation. A theoretical contribution is made when extending an existing theory to a new context results in new knowledge about the theory and an improved understanding about using it as a tool (Whetten, 1989). Therefore, the Theory of Relationship Constraints was extended to the client-advertising agency context in Paper 4 (working version). Its propositions were justified with real examples collated from the empirical research. The current research supported the propositions and informed a change to the ‘contract specificity’ construct, to instead be named ‘brief specificity’. Rather than generate a completely new theory, management scholars are more likely to work on improving theories that already exist (Whetten, 1989). Many of the best theories are based on a combination of other theories’ best qualities (DiMaggio, 1995). In Paper 2, the gaps left by Agency Theory, the Principal-Professional Perspective (Sharma, 1997; Dawson et al., 2010) and the Theory of Relationship Constraints were identified. As a key turning point in this dissertation, in Paper 2 it is argued that the Theory of Relationship Constraints is also limited because it does not consider the ex- ante and ex-post stages of a relationship separately. This argument is supported by Paper 3’s findings serve as evidence that both ex-ante and ex- post opportunism in principal-professional agent relationships occur.

By building on Agency Theory, the Principal-Professional Perspective, the Theory of Relationship Constraints and the gaps imposed by each theory, new conceptual perspectives were proposed. This is a theoretical contribution because it shows how competing theories and assumptions help to explain a phenomenon (Webster & Watson, 2002). In this case, the phenomenon is opportunistic behavior and how it manifests; an area that needs academic attention (Wathne & Heide, 2000; Chen et al., 2002; Jap & Anderson, 2003; Hawkins et al., 2013; Wang et al., 2013). Most studies on opportunistic behaviour in industrial marketing relationships focus on ex-post opportunism (e.g. Klein, 1996; Grayson & Ambler, 1999; Selnes & Sallis, 2003; Anderson & Jap, 2005; Wuyts & Geyskens, 2005). Paper 2 offers a new perspective on the manifestation of ex- ante adverse selection by the principal and ex-post moral hazard by the professional agent. In doing so, the related boundary conditions are outlined, new propositions explained and a model (see Figure 8) introduced. When the purpose of the research is to contribute theoretically, researchable propositions are favorable for two reasons. First, propositions encourage the author(s) to consider how new or modified thinking can be applied concretely. Second, future researchers are more likely to test propositions that are offered (Whetten, 1989). Moreover, within these new propositions principal opportunism is referred to. Despite being addressed in fields such as politics (e.g. Döhler, 2018) and finance (e.g Zardkoohi et al., 2017), more literature on principal opportunism is needed (Dawson et al., 2010; Steinle et al., 2014; Grandinetti, 2017; Döhler, 2018). Therefore the current research offers a theoretical contribution by conceptualizing principal opportunism in the industrial marketing context. This conceptualization is a unique contribution to the literature because it includes: (i) opportunism in both the ex-ante and ex-post relationship stages and (ii) both the principal and professional agent’s perspectives. Therefore, a holistic theoretical understanding of how opportunism manifests in principal- professional agent industrial marketing relationships is contributed. In addition, in response to the pressing need for more conceptual work in marketing (Stewart & Zinkhan, 2006; Yadav, 2010; Macinnis, 2011; Belk et al., 2019; Hadida et al., 2019; Morgan et al., 2019), Paper 2’s purely conceptual nature offer future research propositions and a new conceptual model. By extending the current conceptual work, researchers can strengthen the role and application of theory to advance our understanding of opportunistic behavior in industrial marketing. The industrial marketing context that has received particular attention in this dissertation is the client-advertising agency relationship. While others have addressed opportunism in this dyad (e.g. Davies & Prince, 2005; Davies & Palihawadana, 2006; Davies & Prince, 2010), Paper 3 adds to the literature

by disclosing how clients and advertising agencies act opportunistically today. This new information is based on evidence from primary sources. With regards to the constraint of opportunism in this dyad, Paper 4 (working version) adds to the literature in the following ways. First, the types of constraint mechanisms commonly used in client-advertising agency relationships are explained, namely: formal, social and semi-formal constraint mechanisms. This adds to the literature by describing the constraint mechanisms that are currently applied in this context. Second, Paper 4 (working version) uses empirical evidence to argue that Dawson et al.’s (2010) Theory of Relationship Constraints is supported in the case of client- advertising agency relationships. Therefore, Paper 4 (working version) contributes theoretically by showing that the level and type of information asymmetry influences the choice of constraint mechanism in the client- advertising agency relationship. Overall, this dissertation contributes theoretically because the research conducted answers the question: ‘what’s new?’. New theoretical perspectives, insight and literature are contributed across the four papers that comprise this dissertation. Most notably, an entirely new conceptual model (see Figure 8, p.82) with nine new propositions are introduced to the literature, to be tested and built on by future researchers. In the next section, the dissertation’s managerial implications will be explained.

1.8 MANAGERIAL IMPLICATIONS This dissertation offers managerial implications for principal-professional agent industrial marketing relationships as follows. First, industrial marketing practitioners should use Figure 8 (see page 81) to better understand how to strategically share certain information ex-post that they choose to withhold ex-ante. For example, to prevent their client from using an information asymmetry advantage to act opportunistically ex-ante, a digital marketing agency may only reveal to their client ex-post that they have recruited an employee who has worked for and has tacit knowledge about the client. Alternatively, the client may use an information asymmetry advantage, such as hidden expertise in digital marketing, to include clauses in the contract ex- ante that will prevent the digital marketing agency from acting opportunistically ex-post. Similarly, by knowing whether opportunism will occur ex-ante or ex-post, practitioners can raise flags when they are most vulnerable. Second, it is worth noting that data was collected in the client- advertising agency context. Therefore, the following managerial implications are based on this context. Past research on opportunistic behavior tends to study potential, rather than actual, opportunism (Oliveira & Lumineau, 2019). This dissertation offers real cases of how clients and advertising agencies act 99

opportunistically. With an understanding of how opportunism occurs, these cases provide insight to detect and/or shield themselves from opportunism. For example, by knowing that advertising agencies overcharge for online advertising tasks, clients should gather reliable sources on what the industry norms for those tasks are. By knowing the clients delay payment or underpay, advertising agencies should ensure that formal contracts are signed to include reasonable payment terms. Third, in client-advertising agency relationships, the general consensus is that formal contracts are not taken seriously and/or not signed by either party prior to the brief and execution phases. When formal contracts are signed, clients still have the power to simply brush the fine print aside and expect the advertising agency to ‘take it or leave it’. In most cases, advertising agencies need clients, cannot afford to sue the client or prefer to avoid gaining a litigious reputation in the industry. In these cases, social constraint mechanisms can be used in conjunction with formal constraint mechanisms. Fourth, there is a fine line between monitoring advertising agencies too closely, which can discourage advertising agencies from taking risks and initiative, and making the agency more secure by providing clear responsibility areas (Mortimer & Laurie 2017). Advertising agencies appreciate it when clients celebrate their creativity and given them the freedom to be creative. Clients, on the other hand, appreciate when advertising agencies prioritize their bottom line and deliver on time. Most clients and advertising agencies either implement formal or social constraint mechanisms. This leaves room for opportunism because when used independently both formal and social constraint mechanisms are limited. Formal constraint mechanisms do not cover opportunism induced by tacit knowledge, while social constraint mechanisms cannot be enforced in a court of law. As an advertising agency’s deliverable is based on both explicit and tacit knowledge, a consistent combination of formal and social constraint mechanisms is needed to robustly constrain opportunism in client-advertising agency relationships. In newer client-advertising relationships, there should be greater reliance on formal constraint mechanisms given that both parties are familiarizing themselves with each other’s work ethic. That said, it is worth noting that a common misconception is that in long-term relationships clients and advertising agencies can simply rely on social constraint mechanisms to curb opportunism, thereby disregarding formal constraints, which does not always hold true. Advertising agencies should insist on formal constraint mechanisms being imposed to protect themselves from unfair treatment by the client. However, clients are often financially stronger than advertising agencies, and in turn more likely to afford the required legal fees. This gives clients the opportunity to simply disregard abiding by the contract. Therefore, agencies

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should impose more social constraint mechanisms to ensure that they do not fall victim to opportunism by the client.

Table 15. Recommendations for Improving Client-Advertising Agency Relationship Dynamics

Recommendati Brief Description on Two-way Share mutually and openly objectives, expectations and conversations processes. Dedicated online tools (e.g. Percolate) are available to facilitate this. Accountability Take responsibility for the information that is shared and withheld from each other. Culture Seek a culture-fit early on. Then, behave to consistently complement, better understand and respect each other’s organizational culture. Payment Be fair and realistic when billing or paying each other. Reliability Put yourself in the client or advertising agency’s shoes before briefing or delivering work. Adapt Quick, yet strategic, adaptation to the ever-evolving market. Adjust, as feasible, to each other’s structural and procedural changes.

Furthermore, improve their relationship dynamic, clients and advertising agencies are encouraged to consider the recommendations presented in Table 15 above. Next, this dissertation’s limitations and suggested future research areas are outlined.

1.9 LIMITATIONS AND SUGGESTED FUTURE RESEARCH In this section, the limitations and suggested future research areas are identified, beginning with the limitations. First, this dissertation focuses on opportunistic behavior as deceitfulness, rather than an honest mistake. In the literature on the dark side of industrial marketing relationships, the distinction between deceitfulness and honest mistakes remains unclear. Therefore, future research should divulge both and clarify the manifestations of each in industrial marketing relationships (Oliveira & Lumineau, 2019).

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Second, the role of information on opportunistic behavior is focused on. There are other antecedents that could be considered, such as conflict (Kang & Jindal, 2015). Figure 8 and its propositions revolve around a specific type of principal-professional relationship, with boundary conditions that may not always emulate real-life situations. However, this view is necessary to understand the foundation of the model introduced in this paper and can be a sufficient starting point for future research. Figure 8 should be empirically tested in different settings to improve its generalizability. For example, as research is needed on the interplay between different manifestations in terms of duration, intensity and scope (Oliveira & Lumineau, 2019), the model can be extended in this sense. Third, this dissertation focuses on the manifestations and constraint of opportunistic behavior. An area that has not been included is the relation between the manifestations of opportunism and the consequences of opportunistic behavior, such as reputation, lawsuits (Gelderman et al., 2019), brand value and revenge (Oliveira & Lumineau, 2019). It is with the hope that more academics will research these areas, to give practitioners a better understanding as to why constraining opportunistic behavior is important. Fourth, in Papers 2, 3 and 4 it is assumed that both parties will act opportunistically, yet this may not be the case every time. Nevertheless, the authors intended to discuss the propositions in contexts where both the client and the advertising agency can be opportunistic. Further, individuals can be coerced into acting opportunistically by their senior colleagues. For example, in some contexts, opportunism is considered an attribute of professionalism (Gelderman et al., 2019). Future research could explore the interplay between senior colleagues’ opportunistic intentions and how it encourages a culture of opportunism among junior colleagues. Fifth, Papers 3 and 4 focus on the client-advertising agency relationship. Research on opportunism is needed in different industrial marketing relationships (Oliveira & Lumineau, 2019). While Paper 3 and 4’s findings may not be generalizable to all industrial marketing relationships, the findings serve as a necessary foundation to better understand how to constrain client-advertising agency opportunism. It is suggested that the methodology employed in this dissertation be replicated in other principal-professional agent industrial marketing contexts, such as the client-digital marketing agency relationship. Sixth, future studies can study opportunism in different types of relationships in marketing, such as the business-to-consumer, consumer-to- consumer or intra-firm relationships. Employees can act opportunistically against their employers (Grandinetti, 2017), such as in the case of the Goldman Sachs 1MDB scandal (Makortoff, 2019) and the Credit Suisse scandal (Kollewe, 2019).

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Seventh, a growing relationship trend is outsourcing and short-term relationships. To meet objectives, today’s marketers are more likely to depend on temporary organizations (Hadida et al., 2019). Therefore, opportunism in relationships in which one party is outsourced for a short-term can be explored. An eighth future research suggestion pertains to contract design in the case where multiple suppliers are present. Information asymmetry does not only occur in dyadic relationships (Chowdhury, Gruber & Zolkiewski, 2016; Grandinetti, 2017). When manufacturers have multiple potential suppliers to choose from, they should decide which supplier to work with to maximize the expected payoff (Ma, Ho, Ji & Talluri, 2018). For example, clients who have three different divisions that each cater to a different target market may in turn need to hire three digital marketing agencies. In a related future research agenda, studies are needed on the impact that third parties have on opportunism (Tse et al., 2019) and the constraint thereof (Oliveira & Lumineau, 2019). Ninth, the respondents interviewed are based in South Africa, an emerging economy. It is assumed that other countries have different standards (Gelderman et al., 2019) and this dissertation’s findings may not be generalizable globally. Future studies can replicate the methodology employed in both emerging and developed markets, to test for generalizability (Tse et al., 2019). Tenth, culture can influence how cooperative parties are, particularly with the rise of globalization (Smith, Carroll & Ashford, 1995). For instance, across cultures, individuals’ tacit knowledge develops in different ways (Walsham, 2001). In addition, where the regulations and law imposed are weak, individuals may be more encouraged to act opportunistically (Oliveira & Lumineau, 2019). The impact of constraints depends on the purpose of the task at hand and the country where the relationship is formalized (Watson et al., 2019). Clients may choose to collaborate with advertising agencies that are already established in that market. The relations between global clients with local advertising agencies can be explored. In particular, the impact that global consumer culture and the related standardized advertising has on this relationship (Taylor & Okazaki, 2015) should be considered. In replicating Papers 3 and 4 to new contexts, the Theory of Relationship Constraints can be extended in new markets. Last, the future of the client-advertising agency relationship is uncertain. Given that digital media has changed client-advertising agency relationships (Lamberton & Stephen, 2016), exploitation of these new circumstances appears unavoidable (Fulgoni & Lipsman, 2017). For example, consulting firm Cambridge Analytica stole data from Facebook users’ private information (Satara, 2018), using it to tailor ads with the intention of manipulating the 2016 US presidential elections (Johnson, 2018). Facebook

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did little to intervene when this data was leaked (Satara, 2018). In another example, digital marketers (i.e. the principal), found that there was a miscalculation on Facebook’s (i.e. the professional agent) video advertising metrics, that had inflated Facebook’s metrics by as much as 900%. These inflated metrics led digital marketers to pay more for their advertising on Facebook than they should have paid. They claimed that Facebook knew about the issue, yet for over a year did nothing about it (Sutton, 2018). Future researchers are therefore encouraged to apply Figure 8 (see page 81) to the digital context. The purpose of this dissertation was to provide a better understanding on how information facilitates and constrains opportunistic behavior in industrial marketing relationships. Through the theoretical and managerial implications discussed above, the four papers address this purpose and add value to both academics and practitioners. To conclude this dissertation, the final section follows.

1.10 CONCLUSION Information can facilitate opportunistic behavior in that both principals and professional agents can use the information asymmetry in their favor. As earlier scholars described opportunistic behavior as manipulating or withholding information (Williamson, 1975; John, 1984; Jap & Anderson, 2003), the same applies today both ex-ante and ex-post. To constrain opportunistic behavior both parties use information to increase their information asymmetry advantage, such as through signaling and screening. The choice of constraint mechanism depends on the interaction between the specificity of the contract, or brief in the case of client- advertising agency relationships, and the level of disadvantageous information asymmetry. A particular context focused on is the client- advertising agency relationship; an ever-evolving dynamic. However, there are myriad industrial marketing relationships where opportunism continues to prevail. The purpose of this dissertation was to add to the body of knowledge on opportunistic behavior in industrial marketing relationships. It is not feasible to address the issue of opportunism in its entirety through a single dissertation. However, the future research agendas provided pave the way to further our knowledge in the area. In addition, forthcoming studies can extend our theoretical understanding of the related theories, such as Agency Theory and the Theory of Relationship Constraints, in the industrial marketing context.

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2. CHAPTER 2: THE INDIVIDUAL PAPERS

2.1 Paper 1

2.1.1 Manuscript

Agency Theory in Marketing: 27 Years On

Raeesah Chohana* aIndustrial Marketing, Business Administration and Industrial Engineering, Department of Business Administration, Luleå University of Technology, Luleå, Sweden

School of Management Studies, University of Cape Town, Cape Town, South Africa

*Corresponding author. Email: [email protected]

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Agency Theory in Marketing: 27 Years On

Twenty-seven years have elapsed since Bergen, Dutta, and Walker Jr. (1992) published their work on agency theory in marketing. Agency theory is still relevant in marketing today. However, since 1992, there has been no comprehensive update of the literature on agency theory in marketing-related contexts despite the various developments in marketing, such as the advent of the internet, that have occurred in the interim. This paper covers the application of agency theory to marketing-related topics between 1992 and 2018 and seeks to update the overall knowledge of this application, suggesting new areas of research and managerial implications.

Keywords: agency theory; information asymmetry; opportunistic behavior; constraint mechanisms; marketing

Introduction

Marketers often depend on third parties to do work for them, such as advertising or research agencies and distributors of goods and services (Bergen, Dutta, & Walker, 1992). Agency theory provides an appropriate conceptual framework for understanding and explaining these associations in which a party, called the principal, assigns work to another party, called the agent, who then does the work (Bergen et al., 1992; Eisenhardt, 1989; Gould, Grein, & Lerman, 1999; Spake, D'Souza, Crutchfield, & Morgan, 1999). For example, salespeople and their managers share an agency relationship (Bergen et al., 1992), where the manager is the principal and the salesperson is the agent. Another example is the agency relationship between the customer (the principal) and the service provider or marketer (the agent) (Singh & Sirdeshmukh, 2000). When entering into an agency relationship, the principal may not be fully aware of how well the agent can perform the work (Eisenhardt, 1989; Gould et al., 1999) and needs to determine whether the agent has the necessary characteristics (Bergen et al., 1992). For example, a marketer who plans to implement a new marketing campaign may invite pitches from a number of advertising agencies in order to determine which agency will be the most effective and suitable (Spake et al., 1999). Agency theory thus focuses on the most efficient contractual relationship between the principal and the agent (Tate, Ellram, Bals, Hartmann, & van der Valk, 2010). More specifically, agency theory advocates the use of control mechanisms and incentives to ensure that the principal and the agent work towards the same outcome (Krafft, 1999). As agency relationships are a factor in real-world marketing issues (Bergen et al., 1992), a better understanding of the role that

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agency theory plays in marketing is important to marketing scholars as well as practitioners. Bergen et al.’s (1992) seminal work was the last to provide an extensive literature review of agency theory in marketing, which I have endeavored to update in this paper. My literature review covers salesforce management and compensation plans, business-to-consumer marketing, business-to-business marketing, advertising agency-client relationships, marketing management and shareholders, and sponsorships. I also identify new avenues for research on agency theory in marketing, based on the review of the literature, for practitioners to consider and/or future researchers to explore further. This paper is structured as follows: first, I offer explanations of agency theory. Next, the steps followed to perform the literature search are described, which is followed by a review of the literature with future research agendas. Then, the unexplored applications of agency theory in marketing are identified. Thereafter, limitations of agency theory and implications for marketing research are discussed, before the paper is concluded.

AGENCY THEORY EXPLAINED

Agency theory assumes that contracts are effective when the goals of the principal and the agent are compatible (Tate et al., 2010). In reality, of course, these goals often differ (Shapiro, 2005). A major problem in principal-agent relationships is opportunistic behavior, which means ‘self-interest seeking with guile’, and is described as deceit and misrepresentation of information that can lead to information asymmetry (Chen, Peng, & Saparito, 2002; Williamson, 1975, p. 26). Principals often have short-term goals that can result in opportunistic behavior (Connelly, Ketchen, & Slater, 2011), while agents may avoid acting in the principal’s interest in order to maximize their own benefit from the principal-agent relationship (Bergen et al., 1992), and may view the effort put into the work as a cost (Christen, Iyer, & Soberman, 2006). In essence, while principals want efficient performance to improve their business situation, some agents want ‘the glory with none of the work’ and an extended deadline (Shapiro, 2005, p. 264). Both the principal and the agent are concerned that what actually happens will be contrary to what they wanted to happen (Tate et al., 2010). Understanding the social dynamics and the context of the principal-agent relationship is therefore important (Shapiro, 2005). When goals in a principal-agent relationship differ, and information about one party is hidden from the other party, this is known as information asymmetry (Quinn & Doherty, 2000; Shapiro, 2005) and is a key characteristic of most principal-agent relationships (Bergen et al., 1992). Agency theory holds that information asymmetry drives opportunistic

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behaviour. For instance, agents may not actually put in the effort that the principal thinks they are putting in and the principal has incomplete knowledge about the agent’s behavior. The agent therefore pursues their own self-interest to the detriment of the principal (i.e. acting opportunistically) by shirking or misrepresenting information (Bergen et al. 1992). This is known as moral hazard (Eisenhardt, 1989). The consequences of information asymmetry can be avoided through, for example, signaling and screening (Kleinaltenkamp & Jacob, 2002). Another concern involves the assessment and reward of the agent’s performance to encourage consistent performance in line with the principal’s goals (Bergen et al., 1992). As the principal may still not be fully aware of the agent’s expertise or be able to monitor the agent’s every move, he or she may not know whether the agent has performed honestly or not (Shapiro, 2005). This moral hazard can be difficult to predict. For example, the prudence of investing in a consultant is truly known only once the consultant has delivered the promised service. Given the costs involved in gathering information about the other party’s moral hazard, both the principal and the agent may continue to take advantage of their information asymmetry (Kleinaltenkamp & Jacob, 2002). According to Eisenhardt (1989), agency theory assumes that information is a valuable resource that can be exchanged, and that conflicting goals are present in all organizations. Bergen et al. (1992) listed three additional assumptions of agency theory: (1) the principal and the agent both act in their own self-interest, (2) the principal has incomplete information the agent can provide but may choose not to, and (3) environmental uncertainty can influence the outcome of the relationship.

AGENCY THEORY: A NEW LITERATURE REVIEW

To provide an updated review of the literature on agency theory in marketing since Bergen et al.’s (1992) paper, the following steps were taken: first, Hult, Reimann, and Schilke’s (2009) ranking of the top marketing journals was used to identify the top 26 journals in marketing. These 26 top marketing journals were used to perform the literature search. Second, the EBSCOhost database (see EBSCOhost.com) was used to search for articles in these top 26 marketing journals that contained the phrase ‘agency theory’ and that were published between 1992 and 2017. The literature search was limited to articles published since 1992 as the purpose was to provide an updated literature review of agency theory in marketing following Bergen et al.’s (1992) comprehensive literature review. These search results through EBSCOhost also included articles classified simply with the subject tag ‘agency theory’. The articles were then screened to ensure that each article actually contained the phrase ‘agency theory’ in its text.

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Of the top 26 journals, six were not marketing-focused, namely, Management Science, Journal of Business Research, Journal of International Business Studies, California Management Review, Sloan Management Review, and Harvard Business Review. In these business journals, articles were for screened for both ‘agency theory’ and ‘marketing’, to maintain alignment with the paper’s focus on marketing. Within these non-marketing journals, only ten articles with the phrase ‘agency theory’ included a marketing focus. These ten articles were included in the literature review. After this screening process, 82 articles remained and are the focus of this paper. Figure 1 shows the distribution of these 82 articles across the aforementioned top 26 marketing journals.

Figure 1. Number of relevant articles published in the top 26 marketing journals between 1992 and 2017

Marketing Science 14 12 Journal of Marketing Research 7 6 Journal of Business Research 6 5 Journal of Marketing Management 4 4 Industrial Marketing Management 3 3 Journal of Retailing 3 3 Journal of Advertising 2 2 Journal of Product Innovation Management 2 2 Journal of Consumer Research 1 1 Marketing Theory 1 1 Psychology and Marketing 0 0 Advances in Consumer Research 0 0 California Management Review 0 0

These articles are summarized in Table 1.

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Table 1. Summary of relevant articles published in the top 26 marketing journals between 1992 and 2017

Year Title Authors Journal Keywords Salesforce Management and Compensation Plans 1993 The Impact of Umanath, Ray Management Compensation plans, Perceived and Campbell Science agency theory, Environmental management Uncertainty and incentive contracts, Perceived salary-incentive mix Agent Effectiveness on the Composition of Compensation Contracts 1994 Salesforce Lal, Outland Marketing Agency theory, Compensation and Staelin Letters transaction cost Plans: An analysis, Individual- compensation, Level Analysis incentive play 1995 Development of Zhang and International Compensation, Optimal Mahajan Journal of salesforce Salesforce Research in Compensation Marketing Plans for Independent, Complementary and Substitutable Products 1995 The Impact of Joseph and Marketing Salesforce Environmental Kalwani Letters compensation, Uncertainty on agency theory, the Design of environmental Salesforce uncertainty Compensation Plans 1997 Metrics Hauser, Marketing Incentive systems, Themostat Simester and Science salesforce, agency Wernerfelt theory, side payments

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1998 Monitoring and Joseph and Marketing Monitoring, Incentives in Thevaranjan Science salesforce Sales compensation, Organizations: salesforce control, An Agency- agency theory Theoretic Perspective 1999 An Empirical Krafft Journal of None Investigation of Marketing the Antecedents of Sales Force Control Systems 2000 Experimental Ghosh and John Marketing Experimental Evidence for Science economics, agency Agency Models theory, sales of Salesforce compensation, Compensation salesforce 2001 Delegating Bhardwaj Marketing Salesforce, Pricing Science delegation, agency Decisions theory, competition 2001 Designing Kalra and Shi Marketing Agency theory, sales Optimal Sales Science contests, salesforce Contests: A compensation Theoretical Perspective 2003 In the Eye of Godes Marketing Sales management, the Beholder: Science selling, hiring An Analysis of policies, game theory, the Relative agency theory Value of a Top Sales Rep Across Firms and Products 2004 Relative Krafft, Albers International Agency theory, Explanatory and Lal Journal of transaction cost Power of Research in analysis, salesforce Agency Theory Marketing compensation plans, and Transaction direct vs. reps, Cost Analysis Germany in German Salesforces

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2005 Delegating Mishra and Marketing Pricing research, Pricing Prasad Science compensation, Decisions in salesforce, agency Competitive theory Markets with Symmetric and Asymmetric Information 2007 Spiffed-Up Caldieraro and Marketing Agency theory, Channels: The Coughlan Science channels of Role of Spiffs distribution, in Hierarchical compensation, Selling salesforce, Organizations competition 2009 Determinants of Rouziès, Journal of Compensation, Pay Levels and Coughlan, Marketing motivation, agency Structures in Anderson and theory, pay disparity, Sales Iacobucci sales management Organizations 2010 Delegation of Frenzen, International None Pricing Hansen, Krafft, Journal of Authority to the Mantrala and Research in Sales Force: An Schmidt Marketing Agency- Theoretic Perspective of its Determinants and Impact on Performance 2011 The Incentive Lo, Ghosh and Journal of Sales force and Selection Lafontaine Marketing compensation, Roles of Sales Research agency theory, Force incentives, selection, Compensation retention, survey Contracts research 2014 Does Cicala, Bush, Journal of Personal selling, Transparency Sherrell and Business ethics, sales Influence the Deitz Research management, Ethical behavior technology, of Salespeople? transparency

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2014 Why Do Simester and Marketing Lobbying, influence Salespeople Zhang Science activities, sales force Spend So Much management, pricing, Time Lobbying agency theory, for Low Prices? incentives, information elicitation, marketing- sales interface 2015 Dynamic Rubel and Marketing Sales force, Incentives in Prasad Science compensation, sales Sales Force dynamics, agency Compensation theory, differential games, advertising Business-to-Consumer Marketing 1993 Structure, Frenzen and Journal of None Cooperation, Nakamoto Consumer and the Flow of Research Market Information 2000 Agency and Singh and Journal of the None Trust Sirdeshmukh Academy of Mechanisms in Marketing Consumer Science Satisfaction Judgements 2012 Mythic Agency Dobscha and Journal of Retail spectacle, and Retail Foxman Retailing agency quest, heroes Conquest 2012 Consumer Guo and Zhang Marketing Consumer Deliberation Science deliberation, product and Product line design, price Line Design discrimination, information acquisition, agency theory, preference construction 2016 Authority Tumbat and Journal of Agency theory, Relinquishment Grayson Marketing transaction cost in Agency analysis, governance, Relationships authority, Everest

Business-to-Business: Channel Coordination and Control

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1993 Power and Ennew, Ünüsan Journal of None Control in and Wright Marketing Distribution Management Channels: The Case of Automobile Distribution in Turkey 1996 Determinants of Frazier and Journal of None Distribution Lassar Marketing Intensity 1996 Controlling Stump and Journal of None Supplier Heide Marketing Opportunism in Research Industrial Relationships 1996 Outcome-Based Celly and Journal of None and Behavior- Frazier Marketing Based Research Coordination Efforts in Channel Relationships 1997 Initiating and Karunaratna and Journal of None Maintaining Johnson International Export Channel Marketing Intermediary Relationships 1998 Agency Theory, Mott, Journal of Public None Drug Schommer, Policy and Formularies and Doucette and Marketing Drug Product Kreling Selection: Implications for Public Policy 1999 Ownership Dahlstrom and European Distribution channel, Decisions in Nygaard Journal of franchising, Plural Marketing networks, Contractual organizational theory, Systems: service industries, Twelve transaction costs Networks from the Quick

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Service Restaurant Industry

2001 The Exporter- Karunaratna, Journal of None Importer Johnson and Rao Marketing Agency Management Contract and the Influence of Cultural Dimensions 2002 Kleinaltenkamp Journal of None and Jacob Business Research 2003 Plural Heide Journal of None Governance in Marketing Industrial Purchasing 2004 Costs and Desiraju Marketing Channels of Benefits of Science distribution, agency Inducing theory, intrabrand Intrabrand competition, free- Competition: riding, limited The Role of liability, vertical Limited contractual Liability restrictions 2004 The Intersection Ketchen and Industrial Strategic of Strategic Giunipero Marketing management, supply Management Management chain management, and Supply multidisciplinary Chain approach Management 2010 An Agency Tate, Ellram, Industrial None Theory Bals, Hartmann Marketing Perspective on and van der Valk Management the Purchase of Marketing Services 2013 Control of Gilliland and Journal of Electronic channel Electronic Rudd Business affiliates, control, Channel Research host retailers Affiliates: An

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Exploratory Study and Research Propositions 2014 When do Gilliland and Journal of the Channels of Incentives Kim Academy of distribution, Work in Marketing incentives, agency Channels of Science theory, compliance Distribution? 2016 Minimum Israeli, Marketing Pricing policy, legal, Advertised Anderson and Science pricing, channel Pricing: Coughlan relationships Patterns of Violation in Competitive Retail Markets 2016 Deadlines in Zhang Management Deadline, product Product Science development, Development incentive, learning, dynamic moral hazard, agency theory 2017 The Effects of Chang Industrial None Buyer- Marketing Supplier’s Management Collaboration on Knowledge and Product Innovation Business-to-Business: Franchising 1994 A Preliminary Dahlstrom and Journal of None Investigation of Nygaard Retailing Franchised Oil Distribution in Norway 1998 Franchising Contractor and Journal of None Versus Kundu International Company-Run Marketing Operations: Modal Choice in the Global Hotel Sector

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1999 Franchise Hopkinson and European Journal Economic conditions, Relationship Hogarth-Scott of Marketing marketing strategy, Quality: Micro- channel relationships Economic Explanations 2003 Servicing Chow and European Journal Franchising, Customers Frazer of Marketing Outcomes, Contracts, Directly: Customer service, Mobile Consumer behaviour, Franchising Australia Arrangements in Australia 2011 Reducing the Jindal Journal of Franchising, channels Size of Internal Retailing of distribution, chain Hierarchy: The organizations, inter- Case of Multi- organizational Unit relationships, agency Franchising theory, internal hierarchies 2012 Contracts, Kashyap, Antia Journal of Distribution channels, Extracontractual and Frazier Marketing franchising, contracts, Incentives, and Research incentives, Ex Post monitoring, Behavior in enforcement, Franchise opportunism, Channel compliance Relationships 2013 Conflict Antia, Xu Journal of Franchise registration Management (Vivian) and Marketing law, relationship law, and Outcomes Frazier Research ownership in Franchise structure, conflict Relationships 2013 Determinants of Hodge, European Journal Franchising, Franchise Oppewal and of Marketing conversion Conversion: A Terawatanavong franchising, Franchisee commitment, agency Perspective theory 2013 Brand Jayachandran, Journal of Brand licensing, Licensing: Kaufman, Marketing royalty rates, global What Drives Kumar and brand licensing, Royalty Rates? Hewett intellectual property, licensing

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2014 The Franchise Doherty, Chen European Journal China, institutional Relationship in and Alexander of Marketing theory, retail, China: Agency qualitative, agency and Institutional theory, franchise Theory relationship Perspectives 2014 Trust and the Griessmair, Journal of Multi-unit Tendency Hussain and Business franchising, relational Towards Multi- Windsperger Research view of governance, Unit knowledge-based Franchising: A trust, general trust, Relational agency theory Governance View 2015 Franchising, Utgård, Journal of Franchising, Local Market Nygaard and Business competition, Characteristics Dahlstrom Research sanctions, market and Alcohol size, alcohol, minors Sales to Minors Advertising Agency-Client Relationships 1993 Agency Theory Ellis and Journal of None as a Framework Johnson Advertising for Advertising Research Agency Compensation Decisions 1999 Advertising Spake, D'Souza, Journal of None Agency Crutchfield and Advertising Compensation: Morgan An Agency Theory Explanation 1999 360 [Degrees] West Journal of None of Creative Risk Advertising Research 2005 Incentive-Based Zhao International Compensation Compensation Journal of methods, principal– to Advertising Research in agent theory, Agencies: A Marketing advertising agency Principal-Agent Approach

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2010 Exploring Dou, Li, Zhou Journal of Global service firms, Relationship and Su International international Satisfaction Business Studies advertising, Between Global international Professional marketing, global Service Firms marketing strategy, and Local agency theory Clients in Emerging Markets 2013 Advertiser Risk Wang, Dou, Li Journal of None Taking, and Zhou Advertising Campaign Originality, and Campaign Performance 2017 Managing Keegan, Rowley European Journal Relationship Agency-Client and Tonge of Marketing marketing, marketing Relationships: management, co- Towards a creation, advertising Research agencies Agenda Marketing Management and Shareholders 2000 Remuneration Fuentelsaz, Journal of Marketing Policies in the Gómez, Marketing management, agency Marketing Martínez and Management theory, compensation Area: Polo plans, control systems Behavioural vs. Performance Measures 2001 Side Payments Hauser Journal of None in Marketing Product Innovation Management 2004 Assessing Ambler, Journal of Marketing metrics, Marketing Kokkinaki and Marketing performance Performance: Puntoni Management assessment, brand Reasons for equity, UK Metrics firms. Selection 2006 Stuck in the Biyalogorsky, Journal of None Past: Why Boulding and Marketing Managers Staelin

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Persist with New Product Failures 2006 Job Satisfaction, Christen, Iyer Journal of None Job and Soberman Marketing Performance, and Effort: A Reexamination Using Agency Theory 2006 Idea Toubia Marketing Idea generation, new Generation, Science product research, Creativity, and product development, INcentives marketing research, agency theory, experimental economics, game theory 2007 Interfirm Heide, Wathen Journal of None Monitoring, and Rokkan Marketing Social Research Contracts, and Relationship Outcomes 2011 The Trade-Off Chan and Lam Journal of the Agency theory, of Servicing Academy of servicing Empowerment Marketing empowerment, task on Employees’ Science motivation and Service perceived workload, Performance: customer complaint Examining the handling, Underlying organizational Motivation and citizenship behaviors Workload toward customers, Mechanisms performance appraisal, principal- agent service goal congruence 2012 You Get What Currim, Lim Journal of Top executives’ You Pay For: and Kim Marketing compensation, The Effect of advertising and R&D Top Executives spending, stock Compensation market return

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on Advertising R&D Spending Decisions and Stock Market Return 2012 Principles and Schepers, Falk, Journal of Frontline employees, Principals: Do de Ruyter, Ad Marketing stewardship theory, Customer and marketing control, in- Stewardship Hammerschmidt role behavior, extra- and Agency role behavior, Control multilevel analysis Compete or Complement When Shaping Frontline Employee Behavior? 2013 Boards of Robeson and Journal of None Directors, O'Connor Product Innovation, and Innovation Performance, Management An Exploration at Multiple Levels 2015 Market Song, Wei and International Innovation Orientation and Wang Journal of performance, market Innovation Research in orientation, Performance: Marketing ownership structures, The Moderating identity of the Roles of Firm dominant Ownership shareholder, Structures managerial ownership, ownership concentration 2016 Analyse Chakravarty and Journal of Analyst forecasts, Earning Grewal Marketing real activity Forecasts and Research manipulation, Advertising monitoring costs, R&D Budgets: bonding costs, firm Role of Agency risk Theoretical Monitoring and Bonding Costs

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2016 Oops! I Did It Kashmiri and Journal of Product-harm crises, Again: Effect of Brower Business innovation, family Corporate Research firms, managerial Governance and ownership, Chief Top Marketing Officer Management Team Characteristics on the Likelihood of Product-Harm Crises 2017 Do CMO Bansal, Joseph, Management Chief Marketing Incentives Ma and Wintoki Science Officer, CMO Matter? An compensation, Empirical agency theory, firm Investigation of performance CMO Compensation and Its Impact on Firm Performance Sponsorships 2003 What Drives Farrelly and Journal of None Renewal of Quester Advertising Sponsorships Research Principal/Agent Relationships? Marketing Theory 1992 Agency Bergen, Dutta Journal of None Relationships in and Walker Marketing Marketing: A Review of the Implications and Applications of Agency and Related Theories 1993 Theoretical Moorthy Journal of None Modelling in Marketing Marketing

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2004 Relationship Ivens and Blois Marketing Discrete exchange, Exchange Theory governance norms, Norms in Macneil, relational Marketing: A contracting theory, Critical Review relational exchange, of Macneil’s relationship Contribution atmosphere 2011 Toward a Connelly, Journal of the Sustainability, ‘Theoretical Ketchen and Academy of organization theory Toolbox’ for Slater Marketing Sustainability Science Research in Marketing

Note: Articles without keywords are classified as ‘None’.

In what follows, I present a review of the literature on agency theory in marketing and offer future research agendas.

LITERATURE REVIEW AND FUTURE RESEARCH AGENDAS

This review of agency theory in marketing revealed six major areas in which the theory has been applied: salesforce management and compensation plans, business-to-consumer marketing, business-to-business marketing, advertising agency-client relationships, marketing management and shareholders, and sponsorships. In what follows, I review each of these areas separately and include related future research agendas. Salesforce Management and Compensation Plans

Agency theory can be applied effectively to salesforce management and compensation plan design (Ghosh & John, 2000; Krafft, Albers, & Lal, 2004). An agency relationship exists between management (i.e. the principal) and the salesperson (i.e. the agent) (Cicala, Bush, Sherrell & Deitz, 2014). In this case, agency theory can be used to better understand opportunistic behavior by salespeople and how they can be incentivized to work harder, or at least according to requirements (Moorthy, 1993). The theory is also useful for determining when fixed (e.g. salaries) or variable (e.g. commission) compensation plans should be implemented (Bartol, 1999). Joseph and Kalwani (1995) state that even when firms face the same level of environmental uncertainty, the compensation plans implemented can differ across the firms due to variations in the marketing mix applied by each firm. Umanath, Ray and Campbell (1993), who tested agency theory in this context using a laboratory experiment, found the following. First, as the impact of a

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salesperson’s effort increases, their remuneration should be increased. However, the salesperson should also be encouraged to elicit more effort such that the firm can afford to pay the additional remuneration. Second, when the firm has information about a growing level of uncertainty in the market, they can offer the salesperson a greater compensation to signal this uncertainty. Umanath et al. (1993) caution that, for the firm to protect their own interests, the salesperson should only be offered an increase in compensation, rather than an increased base salary. The following recommendations for future research are proposed. First, a greater effort should be made to monitor salesperson performance by, for example, aligning payment with outcomes (Bartol, 1999). Monitoring is essential, particularly when the given tasks are crucial and the incentive pay is low. However, it should be noted that monitoring performance can encourage salespeople to exaggerate their effort in one area and to expend less effort on other tasks (Joseph & Thevaranjan, 1998). Given the growth of the internet and advances in software, future research should explore the best tools and techniques available today to monitor salesperson behavior in different contexts. For example, Cicala et al. (2014) found that monitoring salespeople using technology is only effective when the salesperson perceives that management will actually act on the information obtained about their behavior. Therefore, managers should use the information they access through technology. The advantages and disadvantages of using these tools in different industries should be discussed as well. This would help practitioners and academics better understand how best to handle the use of technology to monitor salespeople. Second, more attention should be focused on the ‘effort’ put into the work. According to Christen, Iyer, and Soberman (2006), compensating an employee is not the only way to improve job satisfaction. Lo, Ghosh, and Lafontaine (2011) found that as an agent’s effort became more important, and grew in importance, the firm employing the agent tended to offer larger incentives. They also found that salespeople with greater ability to sell, and with lower risk aversion were associated with jobs that offered larger incentives. Future research should thus explore additional factors that can improve salespeople's effort from an agency theory perspective. A third recommendation for future research concerns price delegation. Bhardwaj (2001) maintained that price delegation leads to price competition as it encourages salespeople to reduce prices with the aim of increasing sales and, in turn, their salaries. From an agency theory perspective, Frenzen, Hansen, Krafft, Mantrala, and Schmidt (2010) investigated what encouraged the delegation of price authority to salespeople. They found that the greater the information asymmetry between salespeople and their managers, the more difficult it was to monitor the salesperson’s behavior and the stronger was the positive effect of price delegation. Their study suggested that delegating price

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authority allows salespeople to alter prices according to varying customer needs and market dynamics, particularly in uncertain market conditions. In this way, firms can take advantage of their salespeople’s customer knowledge. Future research should investigate the influence of price delegation on overall performance from an agency theory perspective. What should also be explored is the impact of price delegation on the principal-agent relationship, both in the short and long term, in the context of different products and industries. In their use of agency theory, Joseph and Kalwani (1995) argued that it was important to include a measure of risk aversion. They showed that when firms with highly risk-averse salespeople faced increasing environmental uncertainty, it was better to take a chance and implement fixed payments. In their study, they also found that a salesperson’s risk preference could influence the proportion of incentive pay in the compensation plan. Later, Joseph and Thevaranjan (1998) stated that salespeople who enjoyed risks would be better suited to incentive-based compensation plans. Hauser, Simester, and Wernerfelt (1997) stated that incentives for side payments, such as bribery, are common and can improve sales support. They suggested that firms consider side payments when designing compensation plans. On the other hand, Krafft (1999) argued that it is better to handle uncertainty and risk through managerial direction, rather than incentives. Bartol (1999) argued that as people are more likely to be risk averse, salesforce management should implement attractive incentive structures that counter the uncertainty of achieving outcomes. Ghosh and John (2000) argued that the desired synergy of fixed and variable payment methods depends on how risk averse the agent is. They maintained that it is appropriate to pay a higher salary for highly risk-averse agents. In the context of a risk-neutral firm with risk-averse salespeople, Kalra and Shi (2001) used agency theory to explain how firms could create compensation plans to provide optimal rewards for the firm by encouraging salespeople to perform at their best. My fourth recommendation is therefore that future research should further explore the impact of risk preferences on salesforce compensation plans.

Business-to-Consumer Marketing

A principal-agent relationship exists between the customer (the principal) and the service provider or marketer (the agent). Information asymmetry is prevalent in consumer services. Marketers attempt to gain loyalty by forming relationships with customers. This can be achieved by understanding customer behavior and relationship processes (Singh & Sirdeshmukh, 2000). One of the problems in this setting is adverse selection, which refers to agents’ misrepresentation of their skills and abilities (Eisenhardt, 1989) by using the hidden information they have in their favor (Sorescu, Shankar, &

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Kushwaha, 2007). For example, a restaurant chef knows more about the freshness and the quality of the food served than the consumer placing an order. The consumer can deduce whether the food is of a good quality or not by observing how the food is prepared or relying on third party reviews of the restaurant's food. However, the information gathered by the consumer is either (i) an estimated or inaccurate representation of what the chef knows, or (ii) obtained after the food has been ordered. This example shows the difficulty consumers may have in obtaining reliable information about the service they are receiving and screening for quality (Singh & Sirdeshmukh, 2000). Adverse selection can be overcome through signals (Mishra, Heide, & Cort, 1998) in terms of which agents share information about themselves and what they can offer (Tsao, Pitt, Berthon, & Parent, 2011) and provide clear signals that keep the principal interested. For example, if the chef knows that a consumer cannot accurately determine the quality of the food, he or she may serve low quality food to the oblivious consumer. This is an example of moral hazard in the business-to-consumer market (Singh & Sirdeshmukh, 2000). In a consumer market, where information asymmetry exists (Tsao, Pitt, & Berthon, 2006), consumers use the brand to estimate the quality of the brand’s offering and consequently reduce risks (Berthon, Hulbert, & Pitt, 1999). Tsao et al. (2011) investigated how consumers interpreted signals through brand names, following which they proposed a conceptual model for examining signaling through brands in the presence of information asymmetry in the consumer market. They found that branded products were assumed to be of better quality because consumers appreciated the seller’s efforts in using the brand name to signal better quality. It is suggested that future research should explore how engagement on online platforms impacts the presence of adverse selection and moral hazard in business-to-consumer principal-agent relationships. Because the internet provides a vast amount of information to consumers, it will be increasingly difficult for brands to maintain an advantage through information asymmetry. Tumbat and Grayson (2016) found that a more interactive principal-agent relationship could encourage authority relinquishment by agents. They argued that this could be beneficial as agents’ expertise could be used to bring about better adjustment to uncertainty and change. Future researchers could define information asymmetry between brands and consumers through their engagement on online platforms from an agency theory perspective, and explore the effect on principal-agent relationship dynamics.

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Business-to-Business Marketing

In a business-to-business relationship, the principal (e.g. the manufacturer) encourages its agent (e.g. the intermediary) to adhere to policies and carry out assigned tasks, thus ensuring that the principal’s objectives are met (Celly & Frazier, 1996). However, although both parties can be cooperative and independent, their goals may differ (Lassar & Kerr, 1996). For this reason, opportunistic behavior (Ketchen & Giunipero, 2004) and information asymmetry are present in most business-to-business relationships. The supplier usually has more information at its disposal than the buyer, which can increase the buyer’s mistrust in the supplier (Mishra, Heide, & Cort, 1998). Agency theory can be used to understand principal-agent relationships in distribution channels as it can focus attention on the governance of such relationships (Ennew, Ünüsan, & Wright, 1993). Heide (2003) proposed that work should be contracted to agents in the organization. He argued that as the agents are already part of the firm, the principal will be in a better position to assess their attributes and monitor their behavior. However, as Heide, Wathne, and Rokkan (2007) showed later, this could create more problems for the principal. They argued that in business-to- business relationships, outcomes-based contracts reduced opportunistic behavior, and behavior-based contracts tended to encourage such behavior. Future researchers could first analyse inter-firm and business-to-business principal-agent relationships to determine which would be better from an agency theory perspective. In other words, would inter-firm relationships reduce or encourage opportunistic behavior? This could be explored across different types of firms including family-owned firms. In her research on the buyer-supplier principal-agent relationship, Chang (2017) used agency theory and found that the buyers gave the suppliers incentives to benefit from or maintain a relationship with them. However, she also showed that buyers should tread carefully when giving incentives to suppliers in the new product development process in particular as this could influence the suppliers’ involvement and knowledge acquisition in this process. Her study could be taken further by delving deeper into both the buyer and the supplier’s perceptions of supplier incentives. For example, the research could attempt to identify what exactly drives buyers to give incentives to suppliers, and how suppliers’ actions could change accordingly. Third, the situation where an agent has multiple principals in the same industry could be investigated. As Mott, Schommer, Doucette, and Keling’s (1998) study did this in the context of the pharmaceutical industry, future research could explore this situation in other industries. Another business-to-business relationship is that between a new product developer (i.e. the agent) and a firm (i.e. the principal). Zhang (2015) held that new product developers may deliberately avoid effort to falsely

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inform the firm that successfully developing the new product is challenging and in turn requires a greater reward. She found that, to discourage the developer from procrastinating, it is better to impose hard deadlines early in the process, rather than rewarding the developer for their work later. On the basis of agency theory, Karunaratna, Johnson, and Rao (2001) studied the effect of cultural differences on principal-agent relationships between exporters and importers in international marketing channels. Their study revealed that adopting a flexible approach to management decisions helped to close the gaps created by cultural differences. They recommended that future research should look into how setbacks due to cultural differences could be overcome and more successful contracts implemented. Gilliland and Rudd (2013) explained that business-to-business relationships also exist online, such as in the case of an online retailer (i.e. the principal) who pays an online channel affiliate (i.e. the agent), for click- through rates or sales. They found that explicit contracts including incentives and monitoring are often used to govern these relationships. Additionally, their study suggests that the following factors can impact how an online channel affiliate is controlled: (i) the level of competition faced by the online retailer, (ii) how quickly technology changes in the online retailer’s context, and (iii) the level of innovation in the online retailer’s context. These avenues should be explored to lower the related ambiguity found in contracts governing online retailer-online channel affiliate relationships. Information asymmetry also occurs in the international franchising sector (Contractor & Kundu, 1998; Quinn & Doherty, 2000) between the franchisor (principal) and the franchisee (agent). The franchisor may lack knowledge of the market, which would increase dependency on the franchisee (Doherty, Chen, & Alexander, 2013). The franchisee may have more information about a certain country’s unique laws or culture than the franchisor (Doherty, 1999). The franchisee may also be selling goods that do not actually belong to the brand (Quinn & Doherty, 2000), without the franchisor knowing this. The vertical agent problem refers to conflict between the franchisor and the franchisee (Combs, Michael, & Castrogiovanni, 2004), such as disclosing confidential information, not paying fees, and not meeting the standard of quality required (Hodge, Oppewal, & Terawatanavong, 2013). The horizontal agency problem in franchising refers to free-riding by other franchisees (Combs et al., 2004), for example “not providing agreed levels of quality or service, withholding advertising support, or charging higher prices” (Utgård, Nygaard, & Dahlstrom, 2015, p. 2117). Dahlstrom and Nygaard (1994) used agency theory to investigate the franchising system in Norway. They found that agency theory was an appropriate tool for addressing the dynamics of the franchisor-franchisee relationship. Griessmair, Hussain and Windsperger (2014), who used the agency theory perspective, found that to prevent free- riding and shirking franchisors should assign multi-unit franchise rights to

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franchisees. In turn, franchisors will have less contracts to govern and their monitoring costs will decrease. Doherty, Chen, and Alexander (2013), who interviewed franchisors and franchisees in China, found that while they had differing motivations for entering into the principal-agent relationship, both appreciated that having a strong brand was important for attracting additional franchisees. Hodge, Oppewal, and Terawatanavong (2013) used agency theory to explore why franchisees convert to other franchisors. They found that for a franchisor to be attractive to franchisees, the franchisor had to have favorable relational features and a strong brand. More recently, Grace, Frazer, and Dant (2016) found that unity and collaboration were key to limiting agency costs in franchisor-franchisee relationships. The literature reveals that in such relationships, it is better to implement non-coercive methods of control to encourage collaboration (Doherty & Quinn 1999). However, Hodge et al. (2013) found that because of free-riding by other franchisees, some franchisees preferred more coercive methods of control. Kashyap, Antia, and Frazier’s (2012) research revealed that a combination of monitoring and enforcement methods by the franchisor could encourage compliance by the franchisee. Agency theory in the franchisor-franchisee principal-agent relationship can be used by future researchers. As stated earlier, past research revealed different views on how best to monitor franchisees. Future research could explore how to encourage alignment in the franchisor-franchisee relationship across different contexts. The use of behavior- versus outcomes-based contracts could also be re-examined to determine how to encourage a more collaborative principal-agent relationship. This could assist franchisors to reduce opportunistic behavior by franchisees and discourage franchisees from converting to other franchisors. Second, as Doherty et al.’s (2013) study was based on franchisor- franchisee principal-agent relationships in China, future research could adapt their study to different markets to test the generalizability of their findings. Third, Karunaratna et al.’s (2001) study could be adapted to the globalized environment where information about other cultures is more readily available through the internet. Last, free-riding by franchisees who bypass public interests can be explored from an agency theory perspective. For example, Utgård et al. (2015) used agency theory in the context of franchisees free- riding and disregarding social interests, by selling alcohol to underage drinkers simply to increase profits. They found that franchised stores are more likely to sell alcohol to underage drinkers than non-franchised stores.

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Advertising Agency-Client Relationships

Agency theory can also be applied to client-agency relationships in advertising (see Bergen et al., 1992; Gould, Lerman, & Grein, 1999), where the agent is the advertising agency and the principal is their client, that is, the advertiser (Spake et al., 1999). Keegan, Rowley and Tonge (2017) found that major causes of conflict in advertising agency-client relationships were advertising campaign policies, lack of professionalism and creativity, and lack of communication. However, Gould et al. (1999) explained that shared goals between the marketer and the advertising agency can result in more effective advertising strategies and marketing messages. For a truly harmonious advertising agency-client relationship, additional relational factors need to be considered, such as trust and commitment. This can result in better marketing messages and reduce the need to explain or monitor tasks in detail (Gould et al., 1999). For this reason, advertising agency-client relationships can be better understood using agency theory. West (1999) used agency theory to investigate how conflicts in the advertising agency-client relationship could be solved and how advertisers could control the risk that an agency takes. Risk in this instance can influence the creative output of the advertising agency. He found that, contrary to what is suggested by agency theory, clients were more likely to take risks than the advertising agencies. He also found that advertising agencies were hesitant to create an uncertain environment when working with well-established clients. This could disadvantage clients as it could discourage agencies from taking creative risks in their advertising campaigns. The same research also found that advertising agencies could align their goals with those of their clients and that this could be achieved through substantial sharing of information and social contact. However, he stated that advertising agencies with wide portfolios were not obliged to relate their goals to one client only. This could be because having more many principals reduces the agent’s dependency on one particular principal, which gives the agent more control in the principal- agent relationships that they are in. In their study, Ellis and Johnson (1993) argued that advertising agency compensation should be more outcomes-based when measuring the outcome is easier, there is a substantial difference in the goals of the client and the agency, the client is risk averse, and the relationship is new. They add that, according to agency theory, the implementation of a behavior- or outcomes- based contract can depend on the task given to the agent. For example, if it is a straightforward task such as purchasing space for advertising in print media, the behavior-based contract would be appropriate. Spake et al. (1999) found, however, that it was more likely that outcome-based contracts would be used. They applied agency theory to better understand when incentive-based contracts should be used in the advertising agency-client relationship.

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Zhao (2005) used agency theory to study the optimal incentive-based compensation contract between advertising agents and their clients. Traditional agency theory literature reveals that incentives should be used when there is a greater level of risk. However, Zhao (2005) found that in the advertising agency-client relationship, fewer incentives, and more fixed payments were used when there was a higher level of risk. His study also showed that it was better to offer incentives when there was a low or high advertising budget as opposed to a moderate advertising budget. Contrary to other principal-agent relationships, a key aspect of the advertising agency- client relationship is the advertising budget, which is usually presented in detail to the advertising agency, thus possibly restricting the agency. However, Zhao (2005) stated that the advertising budget has received little attention in past literature. Further research could therefore be done on agency theory in the context of the advertising budget. Calls have been made for agency theory research in the advertising domain (Bergen et al., 1992; Keegan et al. 2017; Waller, 2004). In particular, empirical research on this is needed (Spake et al., 1999) to better understand its application in the current business landscape. From their literature review of the advertising agency-client relationship, Keegan et al. (2017) identified themes such as conflict, client account management, contracts, agency theory, cultural and international perspectives, and co-creation. Bearing in mind these themes and the literature review of agency theory in the context of the advertising agency-client relationship, it is evident that numerous related issues warrant future research. The first is how these advertising agency-client relationships can benefit both the advertising agency and the client in cases where opportunistic behavior by both parties is limited. This could be extended to situations where advertising agencies have multiple clients simultaneously. The second is, as Zhao (2005) suggested, how future research can be extended to consider the various tasks that advertising agencies can perform, such as advertising research and creative development, and the impact of both the observable and unobservable efforts thereof. The third is how future research can explore the most optimal incentive contracts in different contexts. For example, Zhao (2005) also suggested that future research should consider situations where the advertising agency is more likely to take risks than the client and purely incentive-based contracts would be appropriate. The fourth is how future research can explore the budget and creativity of a campaign. Researching the factors that encourage trust and creativity in the advertising agency-client relationship (Wang, Dou, Li & Zhou, 2013) and the budgets of advertising agencies can provide insight into how this relationship can be more mutually beneficial. The fifth, as suggested by Wang et al. (2013), is how future research can investigate the perspectives of

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marketers compared to those of different employees (e.g. art directors and account executives) of an advertising agency, and control mechanisms to counter opportunistic behavior. The last future research recommendation arises from Dou, Li, Zhou and Su’s (2010) study on the relationship between global advertising agencies and local clients in China, as an emerging market. In this dynamic, information asymmetry pertaining to global versus local knowledge exists. They suggest that, despite clients increasingly becoming global, the global advertising agencies should show their local client that they are willing to adapt for the sake of the relationship. This will offset the negative impact that the information asymmetry might have, and in turn encourage client satisfaction.

Marketing Management and Shareholders Given the practical aspect of marketing, marketers are under pressure to demonstrate that marketing activity is worthwhile and financially beneficial. However, consistently and reliably measuring marketing activity in firms is a challenge (Vafeas & Vlittis, 2009). Mintz and Currim (2013) described agency theory as among a handful of theories that can explain the use of metrics in a firm. They found that managers used fewer metrics in firms without a chief marketing officer (CMO) and therefore recommended the hiring of a CMO so that he or she could be involved in top management decisions about metrics. According to agency theory, the level of information asymmetry between CMOs and shareholders influences the CMO’s earnings distribution (Kim, Boyd, Kim, & Cheong, 2016) since shareholders are uncertain about management’s intentions (Jensen & Meckling, 1976). As Kim et al. (2016) recently asked: Do CMOs always act in shareholders’ best interest? Kashmiri and Brower (2015) used agency theory to explore the antecedents of product-harm crises, through the lens of self-interest seeking managers underinvesting in product quality and in turn affecting shareholders. They held that CMOs play a critical role in encouraging better alignment between managers’ and shareholders’ incentives, and in turn more emphasis on strategic product-quality. Therefore, by employing a CMO, firms can avoid the costly implications of product-harm crises. In this review of the literature on agency theory in the relationship between firms, and in particular marketing executives, with their shareholders, there are three areas that warrant future research. First, it is suggested that marketing management and their shareholders’ perceptions of opportunistic behavior through marketing activity be compared. Specifically, the motivation for opportunistic behavior on the part of CMOs, such as making unexpected changes to budgets and failing to disclose information to shareholders, should be explored. This could encourage less information

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asymmetry and more trust between marketing management and their shareholders. Second, Bansal, Joseph, Ma and Wintoki (2017) held that scant research exists on CMO compensation, despite the greater interest in CMOs. They found that CMOs receive higher compensation at firms which compete in low-concentrated markets and high investments in R&D and advertising. Bansal et al. (2017) strongly support the use of agency theory in the context of CMO compensation. In the light of the above, to explore CMO compensation in future research, the literature on using metrics to justify marketing expenditure and activity should be expanded to provide more certainty about how and why these metrics should be used to curb opportunistic behavior. This can be done by analysing the effectiveness of current metrics and investigating how these can be improved. In turn, these metrics can inform and justify the compensation that CMOs receive. Third, the role that CMOs have on improving C-suite discussions and turnover in the face of public crises, such as social media outcries about the firm, should be explored to further emphasise the value of CMOs in the boardroom.

Sponsorships Sponsorships are considered by organizations as a good way to earn revenue and meet objectives (O’Reilly & Madill, 2007) and by marketers as a good way to improve brand awareness, brand reputation, sales (Farrell & Frame, 1997) and potentially the marketing mix (Jensen & Cornwell, 2017). A sponsor (the principal) looks for favorable returns on investment from its sponsorship in the form of encouraging its target market to change their behavior. A sponsee (the agent), on the other hand, looks to partner with sponsors who support its objectives. In sponsorship-related principal-agent relationships, the sponsor is challenged with trusting and monitoring the sponsee (O’Reilly & Madill, 2007). Farrelly and Quester (2003) suggested that if sponsors are unable to measure a sponsee’s performance, the sponsee could encourage the sponsor to continue sponsoring them by indicating qualities that pertain to relationships such as trust and commitment. An individual (the agent), such as a sports personality, can be sponsored by a brand (the principal). The media has provided numerous examples where these ‘agents’ fail to act in the interest of the principal, such as golfer Tiger Woods and footballer Michael Vick. In one instance, White (2016) reported that at the 2016 Olympics in Brazil, Olympic swimmer Ryan Lochte lied about being robbed. As the internet makes it easy for consumers to find out and tell others about misrepresentations or mistakes made by brands or their sponsees, Lochte’s lies went viral and his dishonesty led to several brands retracting their sponsorship deals with him (White, 2016). Research is needed to provide better advice to sponsors, as principals, on how

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to structure agreements with and monitor these agents to prevent the damage done to their brands when these agents act in their own interests only. For example, by critically evaluating the successes as well as pitfalls that sponsors have experienced in their contracts with sponsees, guidance on how to better maintain the sponsor-sponsee principal-agent relationship can assist both future researchers and practitioners. This review of the literature shows how agency theory has been applied to marketing since 1992 and describes related future research agendas. Despite these applications of agency theory, research is particularly needed on the use of agency theory in today’s modern world (Pouryousefi & Frooman, 2017). In what follows, I describe two unexplored applications of agency theory that are relevant today: the sharing economy and online freelancing.

UNEXPLORED APPLICATIONS OF AGENCY THEORY IN MARKETING

. A growing online context that agency theory can be applied to is the sharing economy. Airbnb (see www.airbnb.com), for example, enables consumers to share their homes with other consumers, who pay for the service. The guest (the principal) reviews the location and hospitality publicly online, and the host (the agent) does the same with the guest. Members on the Airbnb site with positive reviews are ranked higher and more likely to be considered by other consumers in the future. A new avenue for research could therefore be whether both parties’ intentions when writing the reviews were to serve their own interests or were a true reflection of their opinion regarding the service received or given. Moreover, Airbnb reviews by both parties are not anonymous, whereas those on travel advisory websites such as TripAdvisor are. Anonymity of the principal in the case of websites such as TripAdvisor might cause the nature of reviews by customers to differ considerably from those where both parties are known, and these differences might be fruitfully explored from an agency theory perspective. Earlier Tumbat and Grayson’s (2016) finding that agents can exercise more control than principals in a principal-agent relationship was discussed. Online consumer scams are an example of this. Pouryousefi and Frooman (2017) used agency theory in connection with consumer scams between uninformed victims (the principals) and informed perpetrators (the agents). In their study, they assumed that the victims chose to interact with the perpetrators. In this principal-agent relationship, information asymmetry is present and the perpetrator deceives the victim into believing that they support the victim’s goals. Perpetrators also manipulate their victims by misrepresenting their skills and claiming that what they will be paid to do is worth more than what should be paid for it thereby taking advantage of the victims’ trust (Pouryousefi & Frooman, 2017).

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Recently, a consumer scam occurred online in the sharing economy industry where a perpetrator misled a victim by advertising a property for rent on Craigslist (www.craigslist.org) that he had rented on Airbnb. The perpetrator thus deceived the victim by pretending to own the property. The naive victim paid a deposit to the perpetrator, and by the time he realised that he had been scammed, it was too late, as the money had gone (Johnson, 2016; Pouryousefi & Frooman, 2017). Global freelancing platforms such as Upwork (see www.upwork.com) enable freelancers (the agents) to choose from multiple paymasters (the principals) to work with. While freelancers and paymasters are required to have a profile where they are rated based on their past use of Upwork, the potential anonymity of the internet could result in opportunistic behavior by both parties. Freelancers could act opportunistically by submitting work they have not done themselves and still get paid for doing the work. Paymasters, by the same token, could act opportunistically by delaying payment or declaring the work received from the freelancer as their own. In terms of governance, New York City promulgated a ‘Freelance Isn’t Free’ Act on 15 May 2017. The Act states that freelancers have a right to ‘a written contract, timely and full payment, [and] protection from retaliation’ (NYC, 2017). This example shows that although online platforms can change the dynamics of the principal-agent relationship, agency theory can still be adapted and applied.

AGENCY THEORY’S LIMITATIONS

Bergen et al. (1992) argued that agency theory is limited in improving our understanding of marketing and that these limitations are a result of the way that the theory is structured or because the theory was in its early stage of application to marketing at the time. While agency theory has been applied more frequently to marketing post-1992, this updated literature review shows that the assumptions of the theory have since been questioned. Agency theory has been applied to situations where the principal is the opportunistic party (see Connelly et al., 2011) and/or when the agent has more control (see Tumbat & Grayson, 2016) and specialised knowledge (Sharma, 1997). It has also been suggested that, rather than focusing on governance to prevent opportunistic behavior, the focus of future research and practice should be on encouraging cooperative behavior (Wright & Mukherji, 1999). Marketing phenomena are often impacted by unpredictable variables and different consumer motives. In contrast, agency theory has a narrow focus and rigid structure. Bergen et al. (1992) consequently found that pure agency theory applications in marketing were based on simple scenarios or disregarded the unpredictable variables that marketers faced. While this paper shows that agency theory has been applied to marketing in numerous contexts since 1992, a number of these contexts arose from unpredictable

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circumstances. Another limitation was that, at the time, Bergen et al. (1992) noticed a new trend involving calls for applications of agency theory to more complex scenarios. Given the volatility of the online world and its information overload, the way that agency theory is applied to these contexts can be complex. For example, principals can use short online courses to improve their skills, which may lessen their need to pay agents to do work for them. Therefore, the bases of agency theory may change with these new avenues now available. Bergen et al. (1992) also noted the infrequency with which agency theory had been rigorously tested, thus questioning its validity and generalizability. Twenty-seven years later, I concur with this limitation and suggest that future researchers further investigate agency theory, particularly in respect of the new contexts discussed in this paper.

IMPLICATIONS FOR MARKETING RESEARCH

Bergen et al. (1992) described the relationship between agency theory and marketing as a mutually beneficial union and compared it to a marriage with the potential of ‘wedded bliss’. They maintained that there are many ways that agency theory can be developed further by marketers. The marketing discipline has a history of using constructs from the social sciences to gain a richer understanding of marketing phenomena. Bergen et al. (1992) therefore suggested that agency theory constructs should be used in combination with constructs from other theories. They state that while this may change the rigidness or consistency of agency theory, it could also improve its explanatory power. At the time the paper was published, the marketing discipline comprised stern traditions of careful and ‘safe’ market research. In the literature search conducted here, it was found just over half of the 82 selected articles published since 1992 referred to or used other theories in conjunction with agency theory, which future researchers can use to develop agency theory further in the marketing discipline.

CONCLUSION

Agency theory provides insight into how principal-agent relationships develop (Dominici, Yolles, & Caputo, 2017) and how to prevent parties in these relationships from acting opportunistically (Pepper & Gore, 2015) by means of contracts, incentives, and compensation plans. Bergen et al. (1992) described their 1992 review as a contribution to the better understanding of the broad range of issues in marketing. The purpose of this paper was to update Bergen et al.’s review the literature on agency theory in marketing over the past 27 years. This was done by synthesizing the literature from 82 articles published on agency theory in the top marketing journals since 1992. Bergen et al. (1992) found that ‘international marketing’, ‘industrial buyer behavior-reciprocity’, and ‘advertising agency-client relationships’ were 154

unexplored applications of agency theory in marketing. This paper shows that these areas have since been researched, and questions statements that the literature on agency theory in marketing is a limited (Tate et al., 2009) and small stream of research (Tan & Lee, 2015). In particular, the paper shows how agency theory has been used in research on marketing-related contexts since 1992. In these contexts, the general principle is that agency theory is most useful in situations where it is difficult to govern agents, which corresponds with Bergen et al.’s (1992) conclusion. Since 1992, changes such as the integration of the internet into our daily lives have radically changed the marketing dynamic. This paper has attempted to show that agency theory is still relevant and applicable today, especially with regard to online platforms, as opportunistic behavior is likely in these emerging contexts. Depending on the situation, governing opportunism in the internet era can be either more difficult or much easier than in traditional contexts. Either way, these constitute avenues for new research using agency theory.

Declaration of Conflicting Interests The author declared no potential conflict of interest with respect to the research, authorship, and/or publication of this article. Funding Statement The author received no financial support for the research, authorship, and/or publication of this article.

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2.1.2 Status Report

§ Title: Agency Theory in Marketing: 27 Years On

§ Status: Accepted

§ Data of acceptance: 3rd August 2019

2.1.3 Copy of Acceptance

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2.2 Paper 2

2.2.1 Manuscript Ex-Ante and Ex-Post Opportunism in Principal-Professional Marketing Relationships: A Conceptual Perspective and Research Propositions

Opportunism has been widely studied to understand and predict the mechanisms behind it. While the phenomenon has been traditionally studied in principal-agent relationships, scant attention is given to relationships where the agent is a professional. Opportunistic behavior in principal-professional relationships manifests differently compared to principal-agent relationships. I introduce a model with nine propositions to enhance the current understanding of what constitutes opportunistic behavior in principal-professional relationships. My model suggests that both principals and professionals act opportunistically. I propose that ex-ante adverse selection derives from the principal’s hidden characteristics, and ex-post moral hazard derives from the professional’s hidden tacit knowledge. The model applies to professional exchanges that are defined by a competitive bidding environment, knowledge of the co-production environment, and fixed-incentives. I contribute theoretically by building on past theories to propose new conceptual perspectives, and practically by encouraging a better understanding of what constitutes opportunistic behavior in principal-professional marketing exchanges.

Keywords: opportunistic behavior; principal-professional; ex-ante; ex-post; principal opportunism

Introduction

Opportunistic behavior besets human relationships in marketing, which organizations try to constrain. Agency theory, the principal-professional perspective, and the theory of relationship constraints (TRC) are three theories on constraining opportunistic behaviour. Agency theory focuses on formal contracts as constraint mechanisms for the principal-agent relationship. However, formal contracts do not consider the agent’s tacit, specialised knowledge, which agents can use to their advantage. The principal-professional perspective considers agents as professionals and does recognize the presence of tacit knowledge in the relationship. However, the principal-professional perspective disregards formal contracts and, like

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agency theory, opportunistic behavior by the principal as well. Dawson, Watson, and Boudreau’s (2010) TRC considers tacit knowledge as a driver of opportunistic behavior by both the principal and the professional agent. However, the TRC leaves another gap in the literature; it does not consider what manifests as both ex-ante (i.e. before the relationship is finalised) and ex-post (i.e. after the relationship is finalised) opportunism. Wathne and Heide (2000) posited that there was scant literature on what specifically manifests as opportunism with respect to relational contracts, and the relationship between emerging and original related theoretical perspectives. Jap and Anderson (2003) held that there was ‘no consensus on how [opportunism] emerges and develops over time’ (p. 1685). Despite past literature focusing heavily on managing conflicts, scant literature about governing and addressing opportunism still exists (Heirati, O’Cass, Schoefer & Siahtiri, 2016). In particular, research is needed on the antecedents of opportunistic behaviour within dyads (Hawkins, Pohlen & Prybutok, 2013) and opportunistic behaviour in different stages of the relationship (Jap, Robertson, Rindfleisch & Hamilton, 2013). Therefore, to my knowledge, a gap in the literature still remains. The purpose of this paper is to fill this gap in the literature, by providing a conceptual understanding of what manifests as ex-ante and ex- post opportunistic behaviour in principal-professional marketing dyads. As each party in the exchange can act opportunistically either ex-ante or ex-post (Jap & Anderson, 2003), these stages form the basis of the forthcoming model and nine propositions. We know that information asymmetry occurs when one party in a relationship has information related to the relationship that the other party does not have (Eisenhardt, 1989; Stiglitz, 2002). From this, two forms of opportunistic behavior are derived: adverse selection and moral hazard (Weitz & Jap, 1995). Adverse selection occurs when agents take advantage of the information asymmetry that is in their favor (Sorescu, Shankar & Kushwaha, 2007), such as misleading the principal by over-exaggerating (Shapiro, 2005) or misrepresenting their skills by keeping their characteristics hidden (Eisenhardt, 1989). Therefore, principals may not be able to completely gauge what the agent’s offerings (Kleinaltenkamp & Jacob, 2002) and skills are (Shapiro, 2005). For example, a restaurant owner looking for a new marketing manager may be unaware that an applicant’s departure from their last job was due to immoral behavior such as theft. If the principal recognises that adverse selection exists, however, they may have the ability to counter it, such as through reference checks in the case of the manager. When the principal is unable to completely monitor whether the agent is acting honestly or not (Eisenhardt, 1989; Shapiro, 2005), this is known as moral hazard (Quinn and Doherty, 2000). For example, after the restaurant

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owner hires the unethical applicant, the applicant can secretly steal from the restaurant owner, i.e. the applicant’s new employer, as well. Adverse selection can occur ex-ante and moral hazard can occur ex- post (Ertimur & Venkatesh, 2010). My model specifically conceptualizes ex- ante adverse selection and ex-post moral hazard in the principal-professional relationship. I refer to the lay agent as the agent, and the professional agent as the professional. Ex-ante constraint mechanisms differ from ex-post constraint mechanisms, particularly in marketing contexts (Kashyap & Murtha, 2017), and can be used to inhibit ex-post opportunistic behaviour (Williamson, 1993). Despite this, research in this area has focused more on constraining ex-post opportunistic behaviour (see Jap & Anderson, 2003; Kashyap, Antia & Frazier, 2012; Stump & Heide, 1996; Wathne, Heide, Moor & Kumar, 2018), which are considered crucial to the governance of interfirm relationships (Kashyap & Murtha, 2017). While researchers have studied the relationship between (Kashyap, Antia & Frazier, 2012) and joint effect of ex-ante and ex-post constraint mechanisms (Kashyap & Murtha, 2017), scant research explicitly studies how information asymmetry derives both ex-ante and ex-post opportunism holistically in a marketing context. A reason for this is that guile and selfish motives are challenging to study. When asking respondents to share information about their own self-interests for example, the respondents may be influenced by social desirability bias (Jap & Anderson, 2003). The first contribution of this paper is that I consider what manifests as ex-ante and ex-post opportunism in the principal-professional marketing relationship. I do this by enhancing both researchers’ and practitioners’ understanding of opportunism by building on the three pre-existing theories. In doing so, I ask the research question: What manifests as ex-ante and ex- post opportunistic behavior in professional marketing exchanges? To conceptualize this, I consider the following boundary conditions: (i) principal- professional service provider relationships, (ii) a competitive bidding environment, (iii) fixed incentives, and (iv) co-production. For example, client-digital marketer-, client-advertising agency, and client-marketing consultant relationships meet these boundary conditions. The boundary conditions correspond to assumptions of the principal- professional perspective and the TRC. Both theories assume that principals are lay people with incomplete knowledge on what should be reasonably expected about the professional’s costs, behavior, and performance. For instance, digital marketers specialising in search engine optimisation have more knowledge than their lay client about the true cost of their work, how long they actually take to perform a task, and what constitutes as quality performance in their field. The theoretical contribution of this paper is therefore limited to exchanges that meet the above boundary conditions between professionals and principals, where the principal is a layperson.

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Given the assumptions of principal-professional relationships, these conditions are often met in marketing exchanges. However, the implications thereof have been largely ignored in past literature. The second contribution of the paper is that I extend and address the gaps left by the aforementioned past theories to propose new conceptual perspectives. While conceptual papers in marketing are more difficult to write and publish, Stewart and Zinkhan (2006) held that a strong conceptual paper can serve as a foundation for subsequent empirical research. They emphasised the need for and importance of such conceptual papers in the marketing discipline. This paper will proceed as follows. First, I introduce the origins of opportunistic behavior and agency theory. Next, I explain the impact of agents as professionals on opportunistic behavior. I do this through a review of the literature on the principal-professional perspective and the TRC. I then set out nine propositions and a new model to address the gap in the literature on ex-ante and ex-post opportunism. I conclude the paper with a discussion of the above issues.

Theoretical Foundations

Opportunistic Behavior

Smith, Carroll, and Ashford (1995) explained that individuals, groups, or firms cooperate when they interact and develop relationships with the aim of generating a mutual benefit. As human beings, however, we act in a way that gives us an advantage (Jensen & Meckling, 1976). Williamson (1975, p. 26) defined opportunistic behavior as ‘self-seeking interest with guile’; an effort to realize individual gains at the expense of another party. His definition has been widely applied in the literature. However, Macneil (1981) disagreed with Williamson’s (1975) definition. Macneil (1981, p. 1023) held that guile, which he referred to as ‘taking advantage of opportunities with little regard for principles or consequences’, is not a prerequisite for opportunistic behavior. He described opportunistic behavior as ‘self-seeking interest at the time of the initial agreement’ (p. 1023) and defined opportunism as ‘self- interest seeking contrary to the principles of the relation in which it occurs’ (p. 1024). More recently, Ertimur and Venkatesh (2010, p. 259) described opportunism as violating ‘a particular relationship specific contracting norm that is used to shape the parties’ expectations regarding subsequent behavior’. Both Macneil’s (1981) and Ertimur and Venkatesh’s (2010) definitions are more applicable to the context of this paper than Williamson’s (1975) widely- used definition. John (1984) exemplified opportunistic behavior as sharing or suppressing information. Hardy and Magrath (1989) referred to opportunistic

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behavior as consistently and systematically failing to deliver as promised. Jap and Anderson (2003) described opportunistic behavior as manipulating information (e.g. lying, cheating, stealing), misrepresenting information (e.g. withholding information), and/or failure to commit (e.g. shirking or not meeting promises made or obligations). Constraint mechanisms can be used to curb opportunism and coordinate both parties’ actions. For example, incentives, monitoring mechanisms, reputations, norms, interpersonal trust, and contractual provisions serve as constraint mechanisms. Ex-post, there is a risk of having a naive, utopian type of organization if the benefits of the constraint mechanisms in curbing opportunistic behaviour aren’t evaluated (Jap & Anderson, 2003) ex-ante. Given its focus on curbing opportunism through formal constraint mechanisms, agency theory is discussed next.

Agency Theory

The prevalence and drivers of opportunistic behavior have been addressed in past literature across disciplines. One such mechanism is agency theory. Agency theory reminds us that, ‘much of organizational life, whether we like it or not, is based on self-interest’ (Eisenhardt, 1989, p. 64). Originating from the economic literature on principal-agent relationships (Ross, 1973), agency theory has been applied to organizational theory where principal-agent relationships exist (Mitnick, 1975). In agency theory, one party (the principal) delegates work to another party (the agent), who then performs the work (Eisenhardt, 1989; Jensen & Meckling, 1976). As the principal and their agent’s goals differ (Jensen & Meckling, 1976), they are discouraged from disclosing information to each other (Shapiro, 2005). This creates information asymmetry (Bergen, Dutta & Walker Jr., 1992). Agency theory posits that information asymmetry results in opportunism by the agent in the form of adverse selection and moral hazard (Eisenhardt, 1989). Agency theory has been widely applied in management and marketing research (see Bergen et al., 1992; Eisenhardt, 1989; Jensen & Meckling, 1976; Mitnick, 1975; Shapiro, 2005). It laid the groundwork to understand, predict, and mitigate opportunism in principal-agent relationships using formal constraint mechanisms such as legal contracts. Despite this, agency theory has limitations. The theory focuses on agents as the opportunistic party in the principal-agent relationship (Zardkoohi, Harrison & Josefy, 2017) and assumes that the agent has a low level of specialisation (Sharma, 1997). The knowledge related to these low-specialised tasks could readily be acquired by the principal. This type of knowledge is known as explicit knowledge; it can easily be transferred to someone else. For example, a waiter at a restaurant has explicit knowledge about the menu items that could also be understood by

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anyone who made the effort to study them. Agency theory assumes that explicit knowledge is prevalent in the principal-agent relationship (Dawson et al., 2010), yet does not entirely consider the case where agents are professionals. For example, firms can partner with specialists such as advertising agencies for marketing tasks (Ertimur & Venkatesh, 2010).

Principal-Professional Perspective

Sharma’s (1997) stance was that professionals, such as consultants and investment bankers, have tacit knowledge that the lay principal does not have. Tacit knowledge refers to the ‘know-how’ that is developed through experience (Dawson et al., 2010), and cannot be readily transferred to someone who does not share the same expertise (Eraut, 2010). For example, a marketing consultant (the professional) can have more expertise in regard to the work that needs to be done to promote a new product than the product developer (the principal) who does not have professional marketing expertise. An opportunistic marketing consultant can therefore claim that the cost and time to complete the project will be more than it actually should be. A major international management consultancy firm, McKinsey & Co, for instance, recently admitted to overcharging Eskom, a South African company (Holman, 2018). At the same time, however, the product developer may have information that the marketing consultant would benefit from knowing, such as a default in the product, which the product developer may choose to withhold. Knowing this information, however, would impact how much the marketing consultant could charge the product developer. In the principal-professional relationship, the drivers of opportunistic behavior change. In this case, principals and professionals engage in co- production and tacit knowledge is present. In turn, the principal-professional perspective holds that professionals can be more informed than the principal about the task at hand. Therefore, the principal-professional perspective takes into account social, i.e. less formal, constraint mechanisms (Sharma, 1997). As the principal does not have the same tacit knowledge that the professional has, the presence of tacit knowledge makes it challenging for the principal to monitor the professional’s behavior. When a high level of tacit knowledge is required, the principal may not be able to clearly specify what their expectations of the professional are or how much compensation is required. It can also be costly for principals to hire a second professional opinion to better understand how to prevent professional opportunism (Sharma, 1997). Therefore, when working with professionals with tacit knowledge, formal contracts can be ineffective. Further, contrary to agency theory, the principal-professional perspective holds that professional opportunism cannot be constrained by formal contracts.

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The principal-professional perspective posits that opportunism should be curbed by constraints that the professionals themselves or their firm impose (Sharma, 1997). For example, reputation or rules of engagement that are accepted by their professional community, may discourage the professional from acting opportunistically. The principal-professional perspective however, is not without its limitations. These limitations are identified in the next section, where I consider a third theory; the TRC.

The Theory of Relationship Constraints

The TRC addresses how principals can constrain opportunistic behavior by the professional. It considers what neither agency theory nor the principal- professional perspective consider, namely that: (i) the principal and the professional can hold information asymmetry and act opportunistically at the same time, (ii) both the principal and the professional have different constraint mechanisms, (iii) there are different knowledge types depending on the project type, (iv) the efficacy of the informal community is a source of constraint, (v) there is an interplay between contract specificity and information asymmetry, (vi) signaling and screening exist, and (vii) legal and social constraints can be used simultaneously. Put simply, the TRC considers both tacit knowledge and explicit knowledge, and formal as well as social constraint mechanisms (Dawson et al., 2010). Agency theory, the principal-professional perspective, and the TRC, are summarised in Table 1. I adopted this table from Dawson, Watson, and Boudreau (2011), and added the final row to highlight the gaps imposed by each theory. Dawson et al.’s (2011) table was inspired by Sharma’s (1997) table, which was adopted from Eisenhardt (1989).

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Table 1. The differences between agency theory, the principal-professional perspective and the theory of relationship constraints

Theory Agency Theory Principal- Theory of Professional Relationship Perspective Constraints Problem domain Relationships in which Relationships in Relationships in the principal and the which the principal which the principal agent have partly and the professional and professional differing goals and risk engage for a have co-production preferences knowledge- responsibilities and intensive task, have information differing risk asymmetry can be preferences, and bilateral exhibit partial goal conflict

Type of Mainly explicit Mainly tacit Tacit and explicit knowledge Information Information as a Incomplete market Information can market purchasable commodity for knowledge either have an assumption incomplete market for abstract knowledge or can be purchased

Human Agent prone to Professional prone Principal and assumptions opportunism to opportunism professional prone to opportunism

Organizational Principal delegates task Co-production of Co-production of assumptions to agent services services

Constraint Legal constraints on Social constraints Considers both social assumptions agent on professional and legal constraints

Gap imposed Does not consider agents Does not consider Does not consider as professionals, and principal the manifestations of focuses on opportunistic opportunism, and ex-ante and ex-post behavior by the agent focuses on social opportunistic only constraints behavior separately Note: Adapted from Dawson et al. (2011)

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As Table 1 shows, each of the three preceding theories, agency theory, the principal-professional perspective, and the TRC, contribute to our understanding of opportunistic behavior. Agency theory provides the theoretical foundation to understanding opportunism in principal-agent relationships (Eisenhardt, 1989). The principal-professional perspective suggests that tacit knowledge presents new challenges that should be considered to truly understand and predict opportunism in professional exchanges, but eschews formal contractual agreements (Sharma, 1997). Finally, the TRC emphasizes the possibility of concurrent opportunistic behavior by both the principal and the professional, and reintroduces formal contracts into the discussion (Dawson et al., 2010). However, the TRC still leaves a gap in the marketing literature that has not yet been addressed: what exactly manifests as opportunistic behavior by both the principal and the professional ex-ante and ex-post? This paper extends the TRC by addressing this gap and adopting the assumption that both parties act opportunistically in a relationship. In particular, my view of opportunistic behavior is based on: (1) ex-ante principal opportunism in the form of adverse selection (due to the principal’s hidden characteristics) and (2) ex-post professional opportunism in the form of moral hazard (due to the professional’s hidden tacit knowledge). In what follows, I present the model and nine propositions for future research to fill the gap in the literature.

Ex-Ante and Ex-Post Opportunism in Principal-Professional Exchanges

Both the principal-professional lens and the TRC assume that the principal is a lay-person who does not fully understand: (i) what the accepted behavior by the professional should be, (ii) what the cost of the exchange is, or (iii) what the exact outcome that they can expect is. By accepting these assumptions of the ex-ante relationship between the lay principal and the professional, there are implications that can influence how and when opportunism occurs. In light of these assumptions, the forthcoming model and propositions are based on the following boundary conditions of principal-professional service provider relationships: (i) competitive bidding, (ii) co-production, and (iii) fixed incentives. These boundary conditions are introduced next. Coff (2003) encouraged future researchers to consider opportunism- and knowledge management-related issues together, because knowledge intensity increases the risk of opportunism. He suggested that bidding wars, which he described as ‘public contests’, is an appropriate context to do so. Competitive bidding is an example of a game with incomplete information where each bidder, naturally, hides information about the value of what is being sold (Moorthy, 1985); in the context of this paper, it would be the value

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of the professional marketing-related service offered by each bidder. I refer to competitive bidding in terms of ex-ante soliciting by the professional for the proposed work. For example, advertising agencies bid for proposed work by pitching to a potential client. The second boundary condition is co-production, where both parties participate in creating the core offering itself (Lusch and Vargo, 2006). I refer to co-production as an engagement that involves collaboration between the principal and the professional during the process of the work. Smith et al. (1995) held that an appropriate application of theories regarding exchange is to explain why parties cooperate and continue to engage in cooperative relationships. More recently, Heirati et al. (2016) encouraged future research on how collaboration between suppliers (i.e. professionals) and customers (i.e. principals) can be disadvantageous. Third, Ertimur and Venkatesh (2010) held that professionals are contracted through explicit, formal contracts, and compensated through commission or fees (Ertimur & Venkatesh, 2010). I apply fixed incentives as a boundary condition, given the aforementioned assumption that the principal is a lay person with incomplete knowledge about the true cost of the professional’s service. In the context of this paper fixed incentives refers to the price of the professional’s work that is finalised ex-ante. In what follows, I introduce the first six propositions, which relate to the ex-ante stage of the principal-professional relationship.

Ex-Ante: Principal Opportunism through Adverse Selection

I consider principal- and professional-favored information asymmetry, both ex-ante and ex-post. The first six propositions are based on the ex-ante stage, and the latter on the ex-post stage of the principal-professional relationship. Beginning with the ex-ante propositions, I consider Dawson et al.’s (2010) contention that principals and professionals engage ex-ante, where the principal can assess his/her options before deciding which professional to work with. The type of information asymmetry held differs between the principal and the professional (Dawson et al. 2010). Professional-favored information asymmetry derives from tacit knowledge, while principal-favored information asymmetry occurs when the principal is more familiar with the professional’s work, than the professional is with the principal (Dawson et al., 2010). For example, in an effort to gain more information about a social media manager (the professional), a potential client (the principal) may ask their network about the social media manager’s true work ethic. This could result in principal-favored information asymmetry. In a competitive bidding environment, lay principals can request bids from multiple professionals to gather information about the work to be

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completed by the professional. This serves as a less resource-depleting way of securing work from the professional. The reason why is that the existence of other professionals in the competitive bidding process gives the principal a better understanding of what to expect and how much the professional should be paid. As professionals share this information with the principal, it signals to the professionals participating in the competitive bidding process that the principal has access to accurate information. Therefore, the onus shifts to the professional to accurately outline their expected behavior, outcome and cost of their work. The competitive bidding environment therefore induces principal- favored information asymmetry ex-ante. For example, the marketing manager of a brand entering a new, international market, may identify that the brand needs to partner with a local public relations agency. However, the marketing manager may not know which public relations agency to use to build a favorable brand reputation among the new target market and what the reasonable cost of doing so would be. As a result, they can solicit proposals from local public relations agencies with expertise in the new target market simply to gain information about it. Despite the presence of ex-ante principal-favored information asymmetry, however, the professional can still choose to act opportunistically and try to deceive the principal. For example, by offering less work for the same price as other professionals who are also pitching for the work. By doing this in a competitive bidding environment, however, the professional would put themselves at a disadvantage and reduce the possibility that they will successfully win the contract. Professional opportunism is therefore discouraged ex-ante. The TRC holds that professionals will act opportunistically ex-ante, because of the information asymmetry in their favor (Dawson et al., 2010). My notion is that, in a competitive bidding environment, professionals are discouraged from acting opportunistically ex-ante. While it is not a new assumption in the discussion of opportunistic behavior that the agent will not act opportunistically ex-ante, it is new to the principal-professional context of this paper. This leads to the first two propositions:

Proposition 1: In a competitive bidding environment, principal-favored information asymmetry increases ex-ante. Proposition 2: In a competitive bidding environment, principal-favored information asymmetry discourages professional opportunism ex-ante.

Guile is not exclusive to agents, but rather, a trait of human beings in general (Zardkoohi et al., 2017). Although the literature has focused on professional opportunism (Ertimur & Venkatesh, 2010), it is limited in its focus on principal opportunism. Perrow (1986) said that he could not find a

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model in the literature that spoke about misrepresentation by the principal to the agent. 32 years later, Döhler (2018) said that there have only been a handful of attempts to understand what the conditions for moral hazard by the principal are. Principals can also act opportunistically (Döhler, 2018; Miller, 2005; Prahalad & Ramaswamy, 2004; Perrow, 1986; Weitz & Jap, 1995; Zardkoohi et al., 2017). Some misrepresentations by principals are ‘hazardous working conditions, production pressures, adequacy of equipment, fairness of supervision, advancement possibilities, [and] amount of compulsory overtime’. Principals can also exploit agents by breaking contracts or excluding matters that impose on their self-interest in the contract (Perrow, 1986, p. 14). Zardkoohi et al. (2017) held that principal opportunism occurs when principals and their agents have conflicting goals, and the principal has the upper hand. For instance, given the high turnover within the client-advertising agency industry, a client with experience in advertising will know how advertising agencies act opportunistically and in turn can use this to their advantage. For example, the client may strategically offer a deadline to the advertising agency that is two weeks earlier than it is actually needed, because they know that the advertising agency will ask for a deadline extension the night before the work is due. Ex-ante, the competitive bidding environment discourages professional opportunism and encourages principal opportunism. This is because the principal-favored information asymmetry in the relationship is increased by the existence of competition amongst the professionals. Therefore, the principal possesses information about the co-production environment that the professional does not. Both the bidding process and the assumption of co- production are elements of the exchange where the principal has more information than the professional. For example, the marketing manager of the brand entering an international market may know how many qualified public relations agencies have bid for the work by submitting proposals. If the number of public relations agencies is high, the marketing manager can act in opportunistically without fear of losing out on the transaction. For instance, if the marketing manager’s budget is $1.5 million but they tell the public relations agencies that they are looking to have the project done for $1.3 million, there may be some public relations agencies that pull out of the bid while others will remain. In contrast, if the principal only had one professional who could do the work and they attempted to hide the true amount of money that they were willing to spend, they have no other options if the professional does not agree. Even if the number of professionals is low, however, the principal can still act opportunistically and withhold information from the professionals about the competitive environment or indicate that competition is fierce for the bid in

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order to induce a lower price or more information from the professional. For example, if there exists only one public relations agency in the bid but the marketing manager indicates that there are many more and that another party will do the work for 1.3 million dollars, the public relations agency may accept the offer so as to not miss out completely on the revenue from the project. Principal opportunism has important implications on the understanding of opportunism in principal-professional relationships (Dawson et al., 2010). It has been addressed in fields such as IT (Dawson et al., 2010), finance (Zardkoohi et al., 2017), and politics (Döhler, 2018). I contribute to the literature by conceptualizing principal opportunism in the marketing domain. In particular, I propose:

Proposition 3: Ex-ante, principal-favored information asymmetry positively influences principal opportunism in the form of adverse selection

While two parties can collaborate by creating value through co- production, they are also competitors who extract economic value as well. Ertimur and Venkatesh’s (2010) paper focused on opportunism by the consumer (i.e. the principal). They held that, to their knowledge, no research had been done in marketing on consumer opportunism in co-production. In their conceptualisation of opportunism through co-production, they described it as an act that defies the ‘conventionally accepted behavior in the process of co-production and breach… of mutual expectations between the firm and the consumer’ (pp. 256-257). Ertimur and Venkatesh (2010) also suggested that in the presence of information asymmetry, goal differences can drive opportunism in co- production. They referred to information asymmetry in terms of the consumer’s intentions, skills, actions, and expertise. Therefore, the party without the information asymmetry advantage has a limited ability to foresee opportunism in the co-production environment. This in turn allows the consumer, i.e. the party with the information asymmetry advantage, to act opportunistically without getting caught (Ertimur & Venkatesh, 2010). In the context of this paper, I extend this understanding to the principal-professional relationship. The principal can possess information about the co-production environment that they can withhold ex-ante; for example, when (i) professionals are new to the market, but the principal has experience with the professional’s firm or the work, or (ii) the principal used to work as a professional or for the professional’s firm (Dawson et al., 2010). For example, a marketing manager (i.e. the principal) may have experience working in the advertising industry. Through this experience, the marketing manager may have hidden information about advertising agencies (i.e. the professional)

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pitching ideas simply to win awards, rather than for the best interest of the brand. Therefore, the marketing manager may be more prescriptive in their briefs, to ensure that the advertising agencies ideas correspond to the brand objectives. The elements of co-production with respect to the professional’s work may impact the amount of work, timeline, and cost of a project. Knowledge of these elements could impact the price for which the professional would offer to do the work. For example, a client may possess knowledge about the change management environment at the professional marketing consultancy firm that they have hired, such as the employees’ negative thoughts towards a new system or a difficult boss who will likely be overseeing the project. Due to the nature of the ex-ante environment that is conducive to principal opportunism, the competitive bidding and co-production environments, the ex-ante phase is when the principal will likely act opportunistically in the relationship. As far as I know, scant literature exists on opportunistic behavior related to knowledge about the co-production environment. Therefore, we extend opportunism by considering the context where there is knowledge of the co-production environment. My fourth proposition is:

Proposition 4: Knowledge of the co-production environment increases the principal’s hidden characteristics ex-ante.

In a competitive bidding environment, where the principal solicits bids for the required work, there may be professional-favored information asymmetry, such as knowledge about the principal’s internal politics and potential resistance. The principal does not want the professional to be in a position where the professional can use the information asymmetry in their favor to ask for a higher price (Dawson et al., 2010). Governments, for example, use competitive bidding to acquire the best service at the cheapest price. In this case, when there are less bids, it increases the chances of bid- rigging (The Economist, 2016), i.e. professional opportunism. The principal may encourage meetings between the bidders (the professionals) and the related employees at the principal’s firm. This would serve as a signal to the professional, for example, to signal that it is unlikely that there will be resistance from the principal’s firm (Dawson et al., 2010). In the light of the above, I propose the following two propositions.

Proposition 5: A competitive bidding environment encourages the principal’s hidden characteristics ex-ante.

Proposition 6: The principal’s hidden characteristics encourage principal- favored information asymmetry ex-ante.

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Given the first six propositions that I have explained so far, the ex-ante constituent of the model proposes that a competitive bidding environment, knowledge of the co-production environment, and the principal’s hidden characteristics encourages principal opportunism ex-ante.

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Figure 1. Manifestations of ex-ante and ex-post principal opportunism

Ex-Ante Opportunism

Professional- Competitive + Principal-favored - Professional + favored + Professional’s Bidding Information Opportunism Information Tacit Knowledge Environment Asymmetry (Moral Hazard) Asymmetry +

+ + Knowledge of + Principal’s Principal Co-Production Hidden Opportunism Disclosure of Environment Characteristics (Adverse Selection) Principal’s Hidden Characteristics

Ex-Post Opportunism

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The model also depicts how principal opportunism manifests ex-ante, by representing the six propositions introduced in this paper. In what follows, I provide three more propositions, focusing on what manifests as ex-post professional opportunism.

Ex-Post: Professional Opportunism through Moral Hazard

When parties expect a relationship to continue in the long-term, they are more inclined to act with the long-term benefit of the relationship in mind (Anderson & Weitz, 1989). A lack of confidence in the future of the relationship, however, leads to parties adopting a short-term lens and focusing only on the activities that provide short-term gain (Williamson, 1993). Despite a firm’s best efforts to constrain opportunism ex-ante, it can still persist once the relationship is in place, i.e. from changes to conditions. Ex- post opportunism can also change the constraint mechanisms that were implemented ex-ante (Jap & Anderson, 2003). Both the principal-professional perspective and the TRC hold that the professional’s tacit knowledge makes it difficult for the principal to monitor the professional cost-effectively. This is particularly the case when this tacit knowledge leads to professional-favored information asymmetry. Professional-favored information asymmetry can arise in the following ways. First, when the professional is familiar with the principal but the principal is unfamiliar with the professional or their related service. For example, a new entrepreneur, who seldom hires market research agencies (the professionals), would be less familiar with the market research agencies than an established firm with more experience hiring market research agencies. Second, when the professional shares explicit knowledge to secure a bid ex-ante, yet retains their tacit knowledge ex-post. Third, as a professional does work for their principal, the professional gains more tacit knowledge about the field. In this case, the professional may choose to share less information with the principal, which leads to even more professional-favored information asymmetry (Steinle et al., 2014) ex-post. Therefore, the next proposition is:

Proposition 7: Ex-post, the professional’s tacit knowledge encourages professional-favored information asymmetry.

The professional can hide their tacit knowledge ex-ante and use it to their advantage ex-post. For example, a digital marketer (i.e. the professional) may know what the cheapest and quickest way would be to design a website that meets their client’s (i.e. the principal’s) requirements. Ex-ante, the digital marketer may use this information asymmetry opportunistically by over- exaggerating the costs and time required to complete the website. Ex-post, the

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opportunistic digital marketer would take longer than necessary to deliver the website to the their client, and use the ‘spare’ time to work on websites for other clients; an example of moral hazard. These principles apply to modern-day principal-professional relationships as well. For example, digital marketers (i.e. the principal), found that there was a miscalculation on Facebook’s (i.e. the professional’s) video advertising metrics, that had inflated Facebook’s metrics by as much as 900%. These inflated metrics lead digital marketers to pay more for their advertising on Facebook than they should have paid. They claimed that Facebook knew about the issue, yet for over a year did nothing about it (Sutton, 2018). Consultants, the heart of professionals, are prevalent today. ‘Everywhere one looks, there are more and more consultants – on… marketing’ (Gapper, 2017, p. 1). Gapper (2017) explained that, due to a consultant’s interest in continuing the relationship, he or she will sell more services to the client (the principal), or convince them that complex challenges at the client’s firm are still present. He added that ‘once [consultants] get inside the building, they are hard to eradicate’ (p. 1). Steinle et al. (2014) held that agent-favored information asymmetry drives agent opportunism. Similarly, but with reference to professionals, Dawson et al. (2010) found that professional-favored information asymmetry was necessary for professional opportunism. I therefore propose:

Proposition 8: Ex-post, professional-favored information asymmetry encourages professional opportunism in the form of moral hazard.

When the relationship is smooth-sailing, parties in the relationship have confidence about each other. This positive relationship allows for higher joint profits and better competitive advantages and it is expected that the relationship will last longer. However, as ex-post opportunism grows, these benefits plummet and the relationship is questioned (Jap & Anderson, 2003). Opportunism in the co-production environment can negatively impact the experience that the other members in the relationship have, such as through less co-production opportunities in the future (Ertimur & Venkatesh, 2010). When the principal’s hidden characteristics in the co-production environment that were masked ex-ante are disclosed ex-post, the professional’s expectations of the engagement may differ from what they actually experience in the co-production environment. For instance, I refer to the example mentioned earlier where the product developer hid the product’s defaults from the marketing consultant ex-ante. This ex-ante hidden characteristic of the product developer would have increased the price that the marketing consultant could have charged and imposes a strain on the marketing consultant ex post, who is then constrained by a fixed-price

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contract. Alternatively, the principal’s ex-ante hidden characteristics can prolong the implementation of a project for another two weeks. The professional therefore finds out that he or she has been disadvantaged because of the principal’s opportunism. Seeing the other party in the relationship as opportunistic can discourage support for the relationship. For example, by reluctance to share useful resources and information in the relationship (Jap & Anderson, 2003). I suggest that, after acknowledging the principal’s opportunism, the professional can use their tacit knowledge to identify where in the contract he or she may take advantage of the resources allocated to the project. For example, the contract may stipulate an agreement about the number of employees that a market research agency would provide to work on a project. Yet, if the contract did not specify the market research agency’s employees’ level of experience, they may assign inexperienced, rather than experienced, employees to their client’s project. My last proposition is therefore as follows.

Proposition 9: The disclosure of the principal’s ex-ante hidden characteristics encourages professional opportunism in the form of moral hazard ex-post.

The model introduced in this paper depicts what is proposed by the nine propositions. Ex-post, as it shows, the professional’s tacit knowledge encourages professional-favored information asymmetry. This, coupled with the knowledge of the principal’s ex-ante hidden characteristics, encourages the professional to act opportunistically. Steinle et al. (2014) suggested that future researchers explore the ex- ante information asymmetries that affect ex-post information asymmetry issues. The ex-post constituent of the model above contributes to the literature by considering the impact of the principal’s ex-ante hidden characteristics on ex-post professional opportunism.

Discussion

Agency theory, the principal-professional perspective, and the TRC have contributed to the literature on opportunistic behavior. I identified a gap that these theories have left; what exactly manifests as ex-ante and ex-post opportunistic behavior by both the principal and the professional in a marketing context? The purpose of this paper was to address this gap in the context of: (i) professional service firms, (ii) a competitive bidding environment, (iii) fixed incentives, and (iv) co-production.

To answer the research question, the conceptual model with nine propositions were introduced. The contribution of the model is that it illustrates how, given the boundary conditions, opportunism is manifested in 183

principal-professional marketing relationships through either ex-ante adverse selection by the principal or ex-post moral hazard by the professional. In addition, the model shows that: (i) professionals can inhibit ex-ante principal opportunism by limiting the principal’s information asymmetry advantage, and (ii) principals can inhibit ex-post professional opportunism by limiting the professional’s tacit knowledge advantage. The model gives marketing practitioners a better understanding about how to strategically share certain information ex-post that they choose to withhold ex-ante. For example, to prevent their client from using an information asymmetry advantage to act opportunistically ex-ante, a digital marketing agency may only reveal to their client ex-post that they have recruited an employee who has worked for and has hidden knowledge about the client. Alternatively, the client may use an information asymmetry advantage, such as hidden expertise in digital marketing, to include clauses in the contract ex-ante that will prevent the digital marketing agency from acting opportunistically ex-post. For practitioners in the marketing domain, knowing when opportunism is more likely to occur in a principal-professional relationship relative to the contract timeline is important as it helps either party raise flags when they are most vulnerable. At the same time, this also implies that both parties may be able to curb opportunism in the relationship by recognizing how their adverse selection or moral hazard impact the other party. By studying the overlooked components of these relationships, we can improve our overall understanding of opportunism in a multitude of different contexts with an overarching theory. This work is not without its limitations. First, the model and propositions revolve around a specific type of principal-professional relationships, with boundary conditions that may not always emulate real-life situations. However, this view is necessary to understand the foundation of the model introduced in this paper and can be a sufficient starting point for future research. Second, my expansion of past theories also assumes that both parties are opportunistic, rather than altruistic, which may not always be the case. However, the model was intended to illustrate how opportunism would manifest if it was expected to occur. Therefore, considering constructs that would prevent opportunism is beyond the scope of this paper. The challenge with doing research in this area is getting data on firms’ behavior, motivations, and decision-making. However, competitive strategy and information asymmetry are ‘the stuff of marketing’ and can be used to provide insight into competitive marketing situations (Moorthy, 1985, p. 279). In the light of the conceptual contributions to the literature, I suggest the following future research areas.

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First, more research is needed to assess the theoretical strength of the model. In addition, empirical studies can test the applicability of the new model to professional exchanges. The model should also be tested in tandem with other theories that intend to explain and predict opportunism in similar relationships, in multiple appropriate disciplines, to assess the quality of the theories. Second, Ma, Ho, Ji, and Talluri (2018) encouraged future researchers to address contract design in the context of multiple suppliers being present. They explained that when manufacturers have multiple potential suppliers to choose from, they should decide which supplier to work with ‘to maximize the expected payoff’ (p. 134). This can be applied to the marketing context. For example, a client with three brand divisions, each catering to a different target market, may hire three digital marketing agencies; one for each division. In light of this, I agree with Ma et al.’s (2018) suggestion and add that future researchers do this by building on the model and propositions introduced in this paper. Third, I suggest that a high contract specificity is considered. If the principal and the professional can explain what the performance expectations are ex-ante, then they can impose sanctions for opportunism by each other ex- post. In the case where there is low contract specificity, principals and professionals can use the informal community to gather information about each other’s reputation. Ex-ante, they can use this information to prevent opportunism by each other (Dawson et al., 2010). Fourth, Smith et al. (1995) alluded to the impact that culture can have on cooperative behavior. They suggested that, as organizations increasingly become global, cultural differences can create challenges for cooperation. I suggest that the model and propositions are analysed by comparing opportunism across cultures. A fifth future research suggestion is as follows. Pehlivan, Berthon, Hughes, and Berthon (2015, p. 593) defined duplicity as ‘the purposeful withholding of certain information and the transmission of false or partial information in a communication so as to create a misleading impression in the minds of an audience’. They looked at duplicity within marketing relationships, namely: marketer-to-consumer deception, consumer-to- marketer deception, marketer-to-marketer deception, consumer-to-consumer deception, marketer self-deception, and consumer self-deception. I suggest that future researchers adapt this paper’s model to these relationships. Last, as Fick (2018, p. 1) claimed, ‘every business is now a digital business, and nearly every citizen is increasingly reliant on the connected worlds’ (Fick, 2018, p. 1). Consulting firm Cambridge Analytica stole data from Facebook users’ private information (Satara, 2018), using it to tailor ads with the intention of manipulating the 2016 US presidential elections (Johnson, 2018). Facebook did little to intervene when this data was leaked

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(Satara, 2018). I therefore recommend that future researchers apply this paper’s model and nine propositions to modern-day opportunism on online platforms. Declaration of interest statement The authors declare no potential conflict of interest with respect to the research, authorship, and/or publication of this article. Funding statement The authors received no financial support for the research, authorship, and/or publication of this article.

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2.2.2 Status Report § Title: Ex-Ante and Ex-Post Opportunism in Principal-Professional Marketing Relationships: A Conceptual Perspective and Research Propositions

§ Status: Accepted

§ Data of acceptance: 21st September 2019

2.2.3 Copy of Acceptance

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2.3 Paper 3

2.3.1 Published Article

Perspectives: client–agency opportunism: how does it happen and what can we do about it?

Raeesah Chohan, Richard Watson & Leyland Pitt

To cite this article: Raeesah Chohan, Richard Watson & Leyland Pitt (2019) Perspectives: client–agency opportunism: how does it happen and what can we do about it?, International Journal of Advertising, 38:8, 1303-1312, DOI: 10.1080/02650487.2019.1670531 To link to this article: https://doi.org/10.1080/02650487.2019.1670531

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Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=rina20

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, VOL. 38, NO. – https://doi.org/10.1080/02650487.2019.167053

Perspectives: client–agency opportunism: how does it happen and what can we do about it? Raeesah Chohana,b, Richard Watsonc and Leyland Pittd a Department of Business Administration, Technology and Social Sciences, Luleå University of Technology, Luleå, Sweden; bSchool of Management Studies, University of Cape Town, Cape Town, South Africa; cDepartment of Management Information Systems, University of Georgia, Athens, Georgia, USA; dBeedie School of Business, Simon Fraser University, Vancouver, Canada ABSTRACT While it is seldom spoken about openly, ARTICLE opportunism always prevails in client– HISTORY agency relationships and could lead to their Received 14 demise. This study directs attention to August 2019 client–agency opportunism by describing Accepted 9 how it happens and ends with a discussion September 2019 on how today’s client–agency dynamics can KEYWORDS be improved. client-agency relationships; opportunistic behavior; adverse selection; moral hazard

Introduction ‘Gone are the days of the boss–worker relationship. We’re partners now’. Sound familiar? We all want to be seen as cooperative and altruistic. But we should be realistic. Facebook and Cambridge Analytica, Volkswagen’s Dieselgate, The

Weinstein Company and #MeToo and, more recently, The North Face–Wikipedia scandal, are examples of opportunism: ‘self- seeking interest with guile’ when one party acts to benefit itself to the detriment of the other (Williamson 1975, 26). The client– advertising agency (‘agency’) relationship is not immune from opportunism. Opportunistic overbilling by major agencies of major clients has been reported: Ogilvy & Mather and The White House, Leo Burnett and the U.S. Army (Edwards 2009), and Dentsu and Toyota (O’Reilly 2016b). On the other hand, Ackerman McQueen is suing the National Rifle Association, after almost 40 years of their relationship, for around $1.7 million of unpaid work (Weinberg and Voreacos 2019). General Mills changed its pitch terms to include a 120-day payment term, where all ideas pitched belong to General Mills regardless of which agency wins the contract. Further, agencies need to pitch to General Mills in general, rather than for a particular brand. The winning agencies are added to a roster, to be used when needed (Burns 2019). The preceding examples illustrate how opportunism is bilateral, with clients taking advantage of agencies and vice versa.

Bilateral opportunism can occur in client–agency relationships both pre- and postcontract. While such relationship dynamics have evolved, they are now at an all-timelow (Laurie and Mortimer, 2019); the industry is at breaking-point (Coffee 2019). Understanding today’s client–agency relationships (West, Koslow and Kilgour 2019) and addressing their shortcomings is important (Laurie and Mortimer 2019), particularly because of today’s fragmented media environment (Liu-Thompkins 2019). As the client–agency relationship is more complex than before, there is a new dynamic around maintaining these relationships (Taylor 2017).

Given that digital media has changed client–agency relationships (Lamberton and Stephen 2016), exploitation of these new

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circumstances appears unavoidable (Fulgoni and Lipsman 2017). For example, agencies can exaggerate an Instagram post’s predicted impressions, knowing that clients are unable to identify the exact number of impressions. Clients can pressure agencies to deliver an effective Facebook campaign within two days without giving the agency more time and resources; clients assume that digital campaigns are simply an extension of traditional marketing campaigns.

What is opportunistic behavior? Opportunistic behavior is facilitated by manipulating, misrepresenting or withholding information, and failing to commit to obligations (Jap and Anderson 2003). Relationship information asymmetry, where each party holds different information about a particular situation (Eisenhardt 1989), can generate two types of opportunism:

1. Adverse selection (pre-contract): Misrepresenting skills before being assigned the work. For example, an agency pretending to specialize in search engine optimization (SEO), while actually possessing little or no experience. Alternatively, the client can promise resources that it does not later provide. 2. Moral hazard (post-contract): Using an information asymmetry advantage to the detriment of another party. For example, agencies overbilling clients for 46 h, despite only working for 29 h. An opportunistic client might deliberately delay payment to its agency, knowing that it’s desperate for the client’s work.

Recognizing that opportunism is bilateral, Dawson, Watson, and Boudreau (2010) propose a Theory of Relationship Constraints to explain the causes of opportunism and how it might be constrained based on the level of information asymmetry and type of knowledge (tacit or explicit) exchanged in a relationship. Agents and clients can constrain each other’s opportunism through formal (e.g. signed contracts) and social (e.g. a handshake) mechanisms. The effectiveness of such constraints varies with the goals of the 195

assignment and the country in which the relationship is enacted (Watson et al. 2019). This work provides a starting point for advertising scholars to advance our understanding of how to manage the relationships between clients and agencies. Most agency–client relationships have formal contracts outlining ownership of the creative work and the implications of unethical behavior. However, as clients tend to have more power and money, many can be opportunistic, such as failing to lawfully abide by a formal contract. Some client–agency relations require non-disclosure agreements, which primarily confirm confidentiality or rely on social constraints based on reputation, trust and the creation of social capital. Despite such safeguards, opportunism has remained a persistent problem over the centuries for various types of relationships.

Why do clients and agencies act opportunistically? Marketers send agencies a brief with their brand objectives, which agencies use to pitch ideas in an attempt to win a contract. The winning agency is usually given a more detailed brief, before proceeding to conduct research, formulate strategies, purchase media space and create content. In most client–agency relations, there is a misalignment of goals; clients aim to meet their return- on-investment (ROI) objectives and agencies aim to create award- winning, agency-profitable campaigns. Achieving these goals is not easy as today’s cluttered environment makes it more challenging for advertising content to stand out (Taylor 2017). Each party acts in constrained self-interest. Marketers are under pressure from their management to deliver immediately on ROI expectations (Taylor 2013). They might act opportunistically as they relay this pressure to the agency. Clients generally feel that agencies underappreciate their brand objectives and ROI goals, and are increasingly concerned about how agencies spend their money. Agencies might act opportunistically because of decreasing agency fees, coupled with the challenges of adapting to sudden

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market changes (O’Reilly 2016a) such as new social media channels. Agencies are pressurized to meet their clients’ brand objectives at lower rates and in shorter cycles. They can feel underappreciated by clients and unnecessarily excluded from critical executive conversations.

How do clients and agencies act opportunistically? Pre-contract, skeptical negotiating parties signal and screen to reduce information asymmetry (Dawson, Watson, and Boudreau 2016). Clients might conjecture that agencies pitch ideas simply to win awards and enhance their reputation. Agencies might suspect that clients are simply looking for free ideas. As with most relationships, both parties’ true colors emerge post-contract. To maintain a favorable reputation in their network, people are reluctant to disclose opportunism, by themselves or others. Clients have even accepted secret settlements from agencies in exchange for agreeing not to audit the agency’s media contracts and in turn expose its media rebates (O’Reilly 2017). However, opportunism can still occur today both pre- and post- contract (see Tables 1 and 2). Pre-contract, clients act opportunistically by withholding information and exploiting agencies, while agency opportunism includes overpromising, withholding information and prioritizing industry awards at the client’s expense. Post-contract, while clients continue to withhold information and exploit the agency, they also prioritize their personal agendas to the agency’s detriment. Agencies continue to act opportunistically by withholding information and prioritizing awards post-contract. In

Table 1. Pre- and post-contract client opportunism. Pre-contract client opportunism Withholding information Withholding key as the true budget, which would help the information, such agency meet the brief. 197

Example: A client there is still over 50% of the budget left tells its agency that to spend for the rest of the year. it has $800,000, Example 2: After the agency books a even though its television commercial from 1st October, budget is $1 the client suddenly changes its brief and million, because it demands the agency to change its plans. knows that the Writing vague briefs or no brief at all. agency will go over Example: A client briefs agencies with the budget anyway. one liners or WhatsApp messages. Exploitation Exploitation

Expecting an agency to deliver beyond Paying agencies little the agreed scope of work or payment to nothing for terms. working on the Example 1: A client tells an agency that it pitch. will pay them $500,000 for a small amount of work, yet the agency actually ends up doing $700,000 worth of work. Stealing agencies’ Example 2: A client asks an agency to pitch ideas. design one billboard within a week, yet Example: A client two days before the deadline ask for five either rolls the idea more billboard designs. out internally or Deliberately keeping an agency on appoints another, campaign-by-campaign payment terms. cheaper, agency to The agency is forced to constantly so do. deliver above-and-beyond work without Only sharing key long-term security. information after Giving unrealistic briefs yet maintaining the agency has high expectations of an agency’s started working on deliverable. the brief. Prioritizing personal agendas Example 1: A client tells its agency in Preferring another agency for personal November that reasons. 198

Example 1: Firing an result of a poorly written brief, to agency because the encourage the board to hire another client’s marketing agency. manager has an Writing highly prescriptive briefs solely affiliation with to meet the client’s ROI expectations. another agency. The agency’s creativity is limited, Example 2: Blaming lowering its chances of using its an agency for poor creativity to win awards or signal to work, which was a potential clients its capabilities.

addition, they disregard their pre-contract promises, neglect smaller clients, overcharge clients and engage in unethical behavior.

How can client–agency dynamics be improved? We could speak about why and how client–agency opportunism occurs at length, yet the relationship will still be affected by it. Client and agencies can be encouraged to work towards a long- standing and cooperative relationship. As summarized in Table 3 and described in the following section, we offer recommendations to improve today’s client–agency relationship dynamics. The first is two-way conversations to meet half-way and explain their objectives, expectations and processes. Lego’s Vice President of Marketing, Michael Moynihan, described the brand’s ‘partner promise’ which identifies the brand framework and what can be expected of the Lego company (Coffee 2019). Clients can show agencies, particularly juniors, how their creative work impacts ROI, sales and brand equity. Similarly, agencies should explain their creative process, resources needed to build a campaign, message behind the creativity and how it meets the client’s goals. Table 2. Pre- and post-contract agency opportunism.

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Pre-contract agency work, knowing that it will add opportunism extra charges post-contract. Over-promising and Prioritizing industry awards at withholding information the client’s expense An agency pretends to have the necessary capabilities to Example: An agency pitching perform the job, yet it ideas to win an award, when cannot perform once it has the ideas are not feasible for won the pitch. the brand. Example 1: Senior people in Post-contract agency the pitch promise to work opportunism on the client’s campaign, Disregarding pre-contract yet the junior creatives end promises up working on the Example: Promising to create a campaign. website using a specific Example 2: Senior members development language taking credit for a pitch required by the client, yet it idea, to avoid naming a lacks the expertise to deliver junior who could be hired the promise. by a competitor (Forbes Agency Council 2019). Listing clients on the website for which an agency has done menial, or no, work. Example: An agency creates a logo for a large client, who does not use the logo or brief the agency again. The agency lists it as a key client. Bidding low yet withholding Prioritizing industry awards at information (Forbes Agency the client’s expense Council 2019). Example: An agency bids Example: An agency encourages lower than others to win the a client to allocate $45,000 to 200

an Instagram campaign Example: Pitching an idea while a cheaper, billboard created for a previous client at campaign would meet the an old agency to a new client brand’s objectives. at a new agency. Both clients Neglecting smaller clients end up using the same advert (de Example: An agency Villiers 2018). delaying work for and Overcharging allocating junior creatives to small clients yet An agency overcharging for its delivering its best work on digital marketing expertise, or time to large clients. lack thereof. Unethical behavior Example: Charging $2,500 to conduct SEO, yet positioning An agency creating the brand on Google independent entities to inappropriately, i.e. reaching ‘legally’ work with brands the wrong target market. from the same category. Withholding information Example: Entity A works with ‘Bob’s Burgers’ and An agency exploiting retainer the Entity B works with payment terms. ‘Betty’s Burgers’, both Example: Failing to disclose fierce competitors in the when someone has left the burger business. agency to distribute more An agency accepting rebates money among staff. from media companies (O’Reilly, 2016a). Example: Allocating the client’s money to particular media channels to receive a rebate rather than doing what is best for the brand. Pitching the same idea to two clients. 201

Most client–agency relationships use software to align their goals (e.g. Percolate), which should be used in conjunction with personal communication to lower ambiguity and encourage collaboration. Understanding the processes that need to be Table 3. Recommendations for improving client-agency dynamics. Recommendation Brief description Two-way Mutually and openly share objectives, conversations expectations and processes. Dedicated online tools (e.g. Percolate) are available to facilitate this. Accountability Take responsibility for the information that is shared and withheld from each other. Culture Seek a culture-fit early on. Then, behave to consistently complement, better understand and respect each other’s organizational culture. Payment Be fair and realistic when billing or paying each other. Reliability Put yourself in the client or agency’s shoes before briefing or delivering work. Adapt Quick, yet strategic, adaptation to the ever- evolving market. Adjust, as feasible, to each other’s structural and procedural changes. followed on both sides when changes are made or deadlines extended is important. Knowing the other party on a personal basis can also build trust and social capital. This is needed when the relationship encounters hurdles or public outrage, such as when Pepsi faced a backlash for their 2017 ‘Live For Now’ campaign with Kendall Jenner (Monllos 2017). Maintaining transparency and understanding each other’s perspectives and goals will encourage collaboration and restrict opportunism. Second, accountability. The client’s brief should clearly articulate the brand’s objectives without hindering the agency’s creativity and consider whether the expectations are realistic. Clients need to take responsibility for the impact of poorly written briefs, rather than shifting the blame to the agency when approached by management. According to the Association of National Advertisers, marketers should meticulously read contracts and audit agencies when appropriate (O’Reilly 2016b). When P&G reevaluated its marketing spend, it cut $200 million and gained 10% in reach (Johnson 2018). To understand how a budget is spent, marketers need to understand media (Eatson

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2017). Additionally, as data brokers can buy and sell data to other companies (Mendelez and Pasternack 2019), clients should monitor what is done with their collected data (Eatson 2017). Evaluating and auditing the relationship will provide more explicit information that both parties will need to either account for or use to monitor the other party’s behavior. Third, culture. Pre-contract, both parties should ensure there is a culture fit as chemistry can set one agency or client apart from competitors. Agencies that prioritize creativity prefer brave clients who do not dampen their creativity or give highly prescriptive briefs. Although the ROI is certainly a priority, clients should show appreciation for their agency’s creativity. Instead of pointing fingers, for instance, a drop in sales can be viewed as an opportunity to learn and improve. Most clients prefer proactive agencies who share current affairs, new insights, industry trends, what competitors are doing, campaign performance updates, the meaning behind the campaign’s creativity and recommendations for future campaigns based on previous campaigns’ success. Agencies should ask clients more questions, such as: ‘are there in-store insights about why the campaign failed?’, and ‘how are sales following the campaign?’. By appreciating each other’s expertise, clients and agencies will feel valued and encouraged to pursue a collaborative long-term relationship instead of acting opportunistically for short-term gains. Fourth, is payment. Agencies should be paid fairly. Clients should be billed fairly. Instead of focusing on cutting costs, clients should prioritize achieving ROI together with the agency. For example, asking the agency how money is spent and costs can be cut while maintaining efficiency. Coca-Cola, who reduced its payment terms from 180 to 120 days, pays for and retains ownership of ideas regardless of whether the agency wins the account or not. Agencies also need to take charge by laying their ground rules out upfront. The Variable, AdAge’s small agency of the year, insists on a 30-day payment period and an agreement to retain ownership of its original concepts (Coffee 2019). If both parties have financial incentives to work towards each other’s interests, they will be discouraged from acting solely on their interests. Fifth, reliability. To maintain good relations with the other party, building the relationship is key. For example, agencies showing clients that they will work towards the brand’s best interest in the long-term. While pitching the best version is important, clients also look for agencies that they can trust to deliver. Similarly, agencies look for clients that will treat them well and respect them as people, rather than suppliers. Building a reputation for being reliable, particularly in this close-knit industry where word spreads fast, is important; social capital strongly influences the decision to hire an agency or pitch to a client. It then becomes preferable to resist opportunism for short-term gains and be seen instead as a cooperative and reliable partner.

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Last, adapt or die. Agencies need to have first-mover advantage with new technologies to gain the client’s trust in the area and avoid losing work to smaller, more specialized agencies. Clients need to have first-mover advantage to gain trust and traction among their target market. Both parties should dedicate resources to learning about new media channels and how to use them as a competitive advantage. Using new channels haphazardly can easily harm both the agency and the client. Without mutual goals, sudden negative exposure can backfire on either party as they quickly try to protect their interests. Currently, agencies adopt a rigid process where changes to briefs go through a process involving a series of people before being approved and eventually implemented. This also applies to simple changes such an Instagram ad’s font. Today’s marketers face increasing pressure to cut costs and deliver quicker. This, coupled with the fastpaced nature of marketing today, leaves a pressing need for a more flexible and responsive agency model to effectively adapt to new media, technology and current affairs. A smoother process will reduce frustration as clients’ changes will be implemented quicker and agencies will be able to deliver more efficiently. Boutique, specialized, agencies are on the rise. Clients are increasingly taking their advertising in-house. Established agencies that do not evolve will lose work to smaller, more responsive agencies. While clients still have the most power in the relationship, more and more agencies are standing up for themselves. Clients that continue to disrespect and take advantage of agencies stand the risk of being forced to work with mediocre agencies.

Conclusion The availability in the digital world of more information does not eliminate information asymmetry, because clients and agencies have deep tacit knowledge that is not easily discerned by others. Moreover, as the complexity of business increases and domain knowledge becomes more organizationally embedded, opportunism might thrive. Most clients still see agencies as suppliers while agencies sell themselves as partners. That said, there are agencies desperate enough to deal with client opportunism (Coffee 2019), which can discourage clients from changing their stance. This, coupled with the need to maintain favorable reputations, may be why instances of client and agency opportunism are rarely covered in the media. Reporting opportunism in the political or financial domains, for example, seems more prevalent. We should openly speak about client–agency opportunism. Clients and agents can act opportunistically, simultaneously, as in the North Face–Wikipedia scandal, or face opportunism by media channels, as in the Facebook–Cambridge Analytica scandal. Client–agency opportunism will never disappear completely; it is part of human nature. Despite it being trendy to pretend to be ‘partners’ today, constraining opportunism by building enduring,

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trustworthy relationships will be beneficial in the long haul. It is hard to achieve success when no-one trusts you because of short-term opportunism.

Acknowledgements The authors gratefully acknowledge the insights of Greg Dawson, and the sound advice of Ray Taylor.

Disclosure statement No potential conflict of interest was reported by the authors.

Notes on contributors Raeesah Chohan is a Senior Lecturer at the University of Cape Town and doctoral candidate at Sweden’s Luleå University of Technology. Her research specialization is in marketing theory and opportunistic behavior in industrial marketing relationships. Her work is accepted/published in the Journal of Business and Industrial Marketing, Journal of Strategic Marketing and the British Food Journal. Richard Watson is a Regents Professor and the J. Rex Fuqua Distinguished Chair for Internet Strategy in the Terry College of Business at the University of Georgia. Dr. Watson is also a senior visiting professor at the Southern University of Science and Technology (SUSTech) in Shenzhen, China. As a visiting researcher at the Research Institute of Sweden (RISE) Viktoria in Gothenburg, he is engaged in establishing and applying Maritime Informatics to the European shipping industry. The University of Liechtenstein has established with government support a Center for Digital Capital Creation based on the ideas in his recent book, Capital, Systems, and Objects. He is on the editorial board of Energy Informatics and the Information Systems department editor for Management & Business Review, both new journals. Leyland F. Pitt is the Dennis F. Culver EMBA Alumni Chair of Business, in the Beedie School of Business, Simon Fraser University, Vancouver, Canada, and also Distinguished Fellow in Marketing at the Hanken School of Economics in Helsinki, Finland. His work has been accepted for publication in Technological Forecasting and Social Change, Journal of Public Policy and Marketing, Computers in Human Behavior, Journal of Advertising Research, Journal of Advertising, Information Systems Research, Journal of the Academy of Marketing Science, Sloan Management Review, California Management Review, and MIS Quarterly (which he also served as Associate Editor). He currently serves as Associate Editor for both Business Horizons and the Journal of Advertising Research, and is Editor of the Journal of Wine Research.

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2.4 Paper 4 (Working Version)

2.4.1 Status Report

Title: Constraining Client-Agency Opportunism Status: Working Version

2.4.2 Manuscript

Constraining Client-Agency Opportunism

Raeesah Chohan (Luleå University of Technology, Sweden) Kirk Plangger (King’s College London, United Kingdom) Emily Treen (Simon Fraser University, Canada)

ABSTRACT Opportunistic behavior will always prevail among clients and their advertising agencies. Information asymmetry is a key driver of opportunism, which clients and agencies try to use to their advantage. However, as an agency’s work is largely based on tacit knowledge, constraints to curb client-agency opportunism are inconsistently applied. The constraints used in this dynamic are either formal, social, or a combination of both. Based on 20 in-depth interviews with clients and agencies in South Africa, this paper applies the Theory of Relationship Constraints’ nine propositions to conceptualize how the level of information asymmetry and brief specificity influence the choice of constraint in client- agency relationships. Managerial implications and future research agendas are offered.

Keywords: Opportunistic behavior; Information asymmetry; Theory of Relationship Constraints; Client-agency relationships, Formal constraints, Social constraints

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Relations between in-house clients and advertising agencies (‘agencies’) are at an all-time-low due to mutual misunderstanding, frustration, mistrust, and a lack of communication (Laurie and Mortimer 2019). Clients are under pressure from senior executives to ensure a high return-on-investment (ROI) for advertising expenses (Taylor 2017), which includes maintaining or increasing the effectiveness of advertising campaigns in a highly fragmented and costly media climate (Martín-Herrán and Sigué 2017; Levin, Quach and Thaichon 2018). As such, clients are increasingly skeptical and concerned about the value of agencies, and thus face much uncertainty selecting agencies (Levin et al. 2018; West 1999). Individuals are generally more careful with their decision making when it involves their own lives and well-being than when it involves those of others (Williamson 1975; Jensen and Meckling 1976; West, 1999). This is partly due to two factors: information asymmetry and self-seeking behavior. Information asymmetry describes situations where two or more individuals have different sets of information (e.g., preferences, value, constraints, cost, effort-required, etc.) concerning the situation (Eisenhardt 1989; Stiglitz 2002). Self-seeking behavior occurs when individuals persistently act with their own interests in mind but may openly share information if asked for it and opportunistic behavior refers to self-seeking behavior with guile or cunning intelligence (Williamson, 1993). In a society based on knowledge, information asymmetry is inevitable, and some actors will always be ready to exploit this to their advantage (Dawson et al., 2010). An agency’s creative process is intangible; agencies can generate an idea within one hour or two weeks after being briefed. In addition, the power dynamic has evolved as agencies have more negotiation power than before. Constraints can therefore be used to align client-agency goals and encourage cooperative behavior. This article offers insight into constraining client-agency opportunism through the lens of the Theory of Relationship Constraints. The client-agency relationship currently faces a dilemma whereby there are calls for both clear procedures and rules (i.e. formal constraints), as well as adaptability and flexibility (i.e. social constraints) (Laurie and Mortimer 2019). Dawson and colleagues (2010) questioned whether formal or social constraints are more effective to curb opportunism by professional agents. Their Theory of Relationship Constraints considers the influence of information asymmetry and contract specificity on the choice of constraint mechanism (Dawson et al. 2010). By using the Theory of Relationship Constraints in the client-agency dynamic, this paper addresses the research question: how does information influence the choice of constraint in the client-agency relationship? The paper offers three main theoretical and practical contributions. First, responding to senior advertising scholars’ calls for theory (Okazaki 2017; Faber 2015; Royne 2016; West Koslow and Kilgour 2019), this paper advances the literature’s understanding of client-agency opportunism by applying the Theory

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of Relationship Constraints. Nine propositions and a model are conceptualized to constrain client-agency opportunism while supporting a mutually beneficial working relationship. Second, from this conceptualization, the paper offers an agenda for researchers to investigate important and significant issues in the current client-agency relationship. Third, it offers practical advice for clients and agencies on developing both enhanced legal contracts and social constraint mechanisms. The paper proceeds as follows. Before discussing the Theory of Relationship Constraints, the next section examines the current dynamics of client-agency relationships. Next, the paper conceptualizes the nine research propositions and model which explore relationship constraint design. It concludes by offering several implications for academic researchers and managers in enhancing client-agency relationships through constraint design.

CLIENT-AGENCY RELATIONSHIPS DYNAMICS As agencies play an important role in helping clients gain a return on their investment of marketing communications (Laurie and Mortimer 2019), and need continuous interaction with clients to do so, better understanding this relationship is essential (Keegan et al. 2017; Laurie and Mortimer 2019; West et al. 2019). In particular, more research is needed on the management on these relationships (Taylor 2017). Clients need agencies’ specialized expertise to communicate effectively with their customers (Davies & Prince, 1999). Advertising is key to conveying a brand’s message to its target market, and it is the agency that ‘translates’ a company’s intent into messages that the target consumer will understand and act on. Without the expertise of the agency, the client’s message may be weak and add little value to the brand. Agencies therefore serve as intermediaries between the brand and the consumer; the agency’s knowledge and skills are used to present to the consumer a clear idea of the value and attractiveness of a particular brand (Millar and Choi 1996). For agencies and clients to cooperate, it is preferable to have detailed transfer of information, trust, mutual reliance, and common means to solve problems (Huang, Hu and Chen, 2008). In reality, however, this isn’t always possible to obtain. The client-agency relationship currently faces frustration and misunderstanding from both agencies and their clients. For instance, clients feel that agencies lack an appreciation for changes to the business landscape and the importance of the customer’s experience. Agencies, on the other hand, feel undervalued and excluded from executive suite discussions (Mortimer and Laurie 2017). Clients have seen major transformations in the marketing discipline due to the growth in prevalence of the digital world (Lamberton and Stephen 2016). This rapid evolution of the digital world meant that efforts to exploit it were bound to happen (Fulgoni and Lipsman 2017). For example, digital fraud such as ad

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blocking and fake traffic (Fulgoni 2016). Campaigns are now increasingly multidisciplinary and integrated (Mortimer and Laurie 2017) and clients are required to work with a variety of parties (Laurie and Mortimer 2019), such as key opinion leaders, digital marketing agencies, and PR agencies. While these myriad relationships are present, there is still an urgent need to act on the shortcomings of the client- advertising agency relationship due to the impact that the complex media environment has had (Laurie and Mortimer 2019; Liu-Thompkins 2019). To mitigate this, transparency between both parties involved is needed (Fulgoni 2016). Therefore, client-agency constraints remain increasingly important, which we discuss using a theoretical lens.

THEORY OF RELATIONSHIP CONSTRAINTS Clients’ and agencies’ goals often diverge. For example, when agencies prioritise creativity yet their clients are reluctant to take creative risks, agencies may be hesitant to create original adverts (Wang, Dou Li and Zhou, 2013). In turn, they withhold information from each other. This information asymmetry enables both parties to act opportunistically at each other’s expense (Shapiro 2005). For example, when a client cannot monitor what an agency is doing when working on an advertising campaign, and the effort made by the agency may not correspond to the effort that the client thinks they are paying for (Ellis and Johnson 1993). The Agency Theory perspective has predominantly been used to better understand these client-agency relationship dynamics. In Agency Theory, a principal (i.e. a client) assigns work to an agent (i.e. an agency), who then does the work (Eisenhardt 1989; Bergen, Dutta, Walker Jr. 1992; Ellis and Johnson 1993). It conceptualizes methods of devising the more effective formal contracts that use explicit knowledge to constraint opportunism between principals and agents (Bergen, Dutta, Walker Jr. 1992; Bosse and Phillips 2016; Chari et al. 2019; Ellis and Johnson 1993; Pepper and Gore 2015; Reim, Sjödin and Parida 2018; Spake et al. 1999; Tate et al. 2010). Agency Theory is limited in that it does not consider agents as professionals (Sharma 1997), as in the case of advertising agencies. Professional agents offer intangible services that require tacit, specialized, knowledge (Sharma 1997). Tacit knowledge is “based on practice, acquired by personal experience, seldom expressed openly [and] often resembles intuition” (Smith 2001, p. 314). For example, the professional marketing ‘know-how’ held by agencies (Huang, Hu and Chen 2008), such as an art director knowing from years of experience the font that the target market finds most appealing. An agency’s tacit knowledge may give them additional information than their clients about the nature of the task, and as a result more power in the relationships. As tacit knowledge in an organization is not easy to share (Arnett and Wittman 2014) or measure, this can create problems when drawing up contracts and monitoring the agency’s performance (Sharma 1997). It is therefore

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questionable whether formal constraints are simply requirements of the law that are incapable of actually constraining opportunistic behavior, or whether these offer a level of control that social constraints do not (Dawson et al. 2010). The advertising and business literature has neglected contexts where the agency’s specialized knowledge can limit the impact of formal constraints. In these cases, social constraints, such as self-control, are appropriate (Sharma 1997). Contrary to Agency Theory, the Theory of Relationship Constraints recognizes professional agents. This new theory holds that because there is bilateral, simultaneous information asymmetry among principals (i.e. clients) and professional agents (i.e. agencies), and information asymmetry drives opportunism, the level of information asymmetry should be considered. The Theory of Relationship Constraints explains how the drivers of opportunism can be constrained based on the type of information interchanged (i.e., explicit of tacit) and the level of information asymmetry in the relationship. Depending on the prevailing level and type of information asymmetry present, formal and/or social constraints can be adopted (Dawson et al. 2010). In the client-agency context, clients and agencies can use formal constraints (e.g., legal contracts) and/or social constraints (e.g. clinking glasses with a ‘cheers’ at a networking event). As client-agency relationships are not immune to opportunism, a theoretical model is needed to balance information asymmetry and the constraints used in this context. A review of the advertising field encourages more diversity in the research methods applied by adopting theories from other disciplines to the advertising context (Faber, 2015). While the Theory of Relationship Constraints was developed based on the information systems consulting industry, researchers are encouraged to generalize this theory to other domains (Dawson et al. 2010). This paper applies the Theory of Relationship Constraints to the client-agency dynamic to answer the research question: how does information influence the choice of constraint in the client-agency relationship? To do this, the authors endeavored to suggest nine propositions for future research by applying Dawson et al.’s Theory of Relationship Constraints to the client-agency dyad. In addition, findings from in-depth interviews were used to justify how their propositions apply to the agencies and their clients. This methodology is explained next.

METHODOLOGY A qualitative, deductive research approach was employed through 20 in-depth, semi-structured interviews with 10 key account managers, representing the ‘agency’, and 10 marketing managers, representing the ‘client’. Respondents were selected using a non-probability, purposive and convenience sampling design. All respondents were based in South Africa. Both male (35%) and female (65%) respondents were interviewed. Their years of experience ranged between 5 and 29 years. Interviews ranged between 25 and 66 minutes. The interviews began with the question: ‘can you talk me through your average

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day’. Thereafter, respondents were probed about their motives for using constraints in their client-agency relationship. Respondents were asked the same core questions to maintain triangulation. Data collection should be terminated when one of the following four conditions are met: (1) there is theoretical saturation, (2) there are no more data sources available, (3) regularities and integration have been achieved, and (4) there is “overextension”, as new information answers more than that required by the research question (Lincoln and Guba, 1985). Following the completion of the 20 interviews, data collection was terminated as conditions 1, 3, and 4 were met. The findings inform the subsequent sections, beginning with the constraints used in client-agency relationships. Phenomenological analysis was conducted in the following steps. First, all three authors closely examined the transcripts. Then, by reading and re- reading transcripts, the authors noted the important initial insights. Second, the data was coded by the first and second author independently. Both co-authors’ codes were compared and disagreements were settled. After two rounds of code-checking, the inter-coder reliability was 95%, which is within the desired range (Miles & Huberman, 1994). This process derived a list of 19 codes. All three authors collated the codes into two major themes: (1) support for the Theory of Relationship Constraints, and (2) extracts unique to the client- advertising agency relationship. The phenomenon being studied was the choice of constraint mechanism based on the Theory of Relationship Constraints. Therefore, the co-authors wrote about ‘what’ individual respondents’ experiences about the phenomenon are and ‘how’ they experienced it (Creswell, 2013; Willig, 2013). In doing so the Theory of Relationship Constraints was slightly modified to the client-advertising agency context in that ‘contract specificty’ was changed to ‘brief specificity’. Negative case analysis was applied, where each interview was re- examined following completion of the data analysis. This was done to evaluate whether the themes identified were accurate and applicable. We found no disconfirming evidence in this process. This paper’s findings are discussed in the following two sections, beginning with the constraints used in today’s client-agency relationships.

CONSTRAINTS USED IN CLIENT-AGENCY RELATIONSHIPS

In the client-agency relationship, one of three situations generally occur: (i) formal constraints, (ii) semi-formal constraints, or (iii) social constraints are used. Each of these are explained in turn. Formal constraint specify information such as: (i) what each party will sacrifice and receive in return, (ii) the client’s key performance indicators (e.g., “we want to increase sales by 2%”), (iii) the agency’s expected behavior, and (iv) the consequences should either party breach the agreement such as intellectual property, copyright, legal obligations

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and missing deadlines. For example, external audits or timesheets are used as formal constraints, where “clients have an opportunity to address… whether [the agency has] delivered to objectives” and in turn what percentage of the retainer the agency receives.

The most common formal constraint is a legal contract which is signed by both parties and usually exists between more established firms and agencies; “our contract stipulates… what are we going to do for the year… [and] what resources we have available to support that plan”. However, generally in the client-agency dynamic, “contracts don’t really mean anything” and are seldom enforced. Today, the client-agency industry is “not strict enough in terms of formalizing rules”. In addition, legal contracts are increasingly unpopular as clients and agencies prefer not to be tied down to a relationship. Two formal payment structures are retainer- and campaign-based payments. In the former, clients pay agencies a consistent amount monthly as the scope of work is agreed in advance. In the latter, agencies are paid for the campaign only as the relationship is only guaranteed for the duration of the campaign.

Two semi-formal options are non-disclosure agreements (NDAs) (e.g., to specify that any information exchanged is confidential) and terms and conditions agreements (e.g., what is expected from the agency when they are half-way through a campaign). For example, before sharing information with each other, an NDA might be signed; “after they’ve signed the confidentiality agreements you can give them a lot more detail… [such as] innovation that’s coming”. In many cases, NDAs are used in combination with a formal constraint or payment method; “We’ve got an NDA… and then we work on a campaign basis… so we’re kind of committed financially…”.

A third option, which is common in the client-agency relationship, is where formal constraints (e.g., the legal contract) are drawn up but do not get signed. For example, when the legal contract bounces back-and-forth between each parties’ lawyers, it eventually does not get signed before the work starts. Both the client and the agency in this case operate on a social constraint (e.g. handshakes, reputation management, and self-control), even though the intention to have a formal contract is there; “we don’t have a notice period... we just have a relationship based on trust for both of us”. Social constraints tend to work better for some client-agency relationships; “we won partnership of the year… [and] we’ve never had a contract… we have a meeting of minds, so… there’s a work scope and a fee structure. The marketing director there signs it and we sign it… but there’s no, ‘we will sue you if this happens’ kind of thing”. Some social constraints are simply industry-related assumptions; “if [the agency] took another [brand in the same product category] they’d have to work on that in [a different city]... it’s kind of a word-of-mouth agreement… in the

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industry”. Social constraints are limited in that a court of law might not enforce them and/or that they might be misunderstood. However, clients often need to implement social constraints to hinder opportunistic behavior because they lack the required tacit knowledge that gives agencies an information asymmetry advantage. Next, the authors use this paper’s findings to show how Dawson et al.’s nine propositions apply to the client-agency relationship.

RESEARCH PROPOSITIONS The forthcoming Theory of Relationship Constraints’ propositions are based on the constructs: signaling, screening, disadvantageous information asymmetry, explicit knowledge, tacit knowledge, brief specificity, and the choice of constraint. These constructs apply to the client-agency relationship, as illustrated in Table 1. The authors found that clients and agencies generally begin their relationship using a brief, rather than a contract. Therefore, to accurately extend the Theory of Relationship Constraints to the client-agency dynamic, Dawson et al.’s (2010) ‘contract specificity’ is referred to as ‘brief specificity’ in this paper.

TABLE 1 THEORY OF RELATIONSHIP CONSTRAINTS’ CONSTRUCT DEFINITIONS AND APPLICATION TO THE CLIENT-AGENCY RELATIONSHIP

Construct Definition Client-Agency Relationship Examples Signaling Information shared by Clients disclosing sound financial the party with the reports, to signal to the agency that information asymmetry they are financially stable and will advantage (Tiles 1961). be able to pay the agency on time.

Agencies showcasing their awards on their website and at their reception space, to signal their credibility to the client. Screening Information sought by Clients asking one of their the party with the employees, who used to work for the information asymmetry agency, whether the agency is disadvantage (Wathne reliable in their delivery and hours & Heide 2000). claimed for the work.

Agencies asking an employee of

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theirs, who used to work for the client at another agency, about the client’s reliability in terms of payments and demands. Disadvantageou The situation where one Clients withholding their actual s information party has less relevant budget, and instead offering to pay asymmetry knowledge (tacit or much less. The agency has a higher explicit) than the other level of disadvantageous party. information asymmetry.

Agencies withholding internal conflicts in their creative teams that may delay the work. The client has a higher level of disadvantageous information asymmetry. Explicit Knowledge that can The client knowing what the knowledge easily be captured or structure of the agency looks like, codified in a document i.e. who the head of creative at the or a database and is agency is. readily accessible to anyone willing to The agency knowing who the undertake the time and client’s target market is or which energy to learn it (Hitt et media channels the campaign needs al. 2001; Liebeskind to go live on. 1996). Tacit Knowledge that is Client knowing how to work around knowledge focused on ‘know-how’ the as agency’s head of creative’s and used to apply difficult personality, to ensure that it explicit knowledge in a is not detrimental to the success of a competent manner campaign. (Bassellier, Reich and Benbasat 2001). Agency knowing who and when to ask for more money and extended deadlines, at the client’s firm. Brief specificity The extent to which Information about what clients and either party to a contract agencies expect from each other can unambiguously with respect to the campaign, such measure the success of as the timeframe, resources, and an engagement. brand objectives.

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Constraint A method for limiting Client imposing a legal contract to opportunistic behavior. ensure that the agency’s focus is on working towards a successful campaign, rather than pretending to put in more hours simply to claim more payment.

The agency’s head of creative using self-control, a social constraint, to encourage his team to be honest in the hours they claim for. Note: Adapted from Dawson et al. (2010)

Signals are information that is sent by one party to share with another party (Tilles 1961; Dawson et al. 2011; Pemer and Skjølsvik 2019). For example, clients may offer to pay agencies a fee for pitching their ideas before actually selecting an agency with which to work, to signal appreciation for the agency’s time and resources spent on creating the pitch. In turn, the agency may consider the client as an empathetic, rather than simply demanding, client with whom to work. Agencies signal that they will “operate in the best interest of the client” and “contribute to their bottom line” by reducing the client’s information asymmetry about them. These signals are sent through their awards, proactiveness and reputation. We propose the following in the client-agency relationship:

Proposition 1: Signaling is used to reduce disadvantageous information asymmetry in the client-agency relationship.

Information that is additional to what has been signaled by the other party can be gathered through screening activities such as pitches and speaking to references. Lack of screening can result in agencies being hired based only on the signals they send. While both clients and agencies screen each other for culture-fit during the pitch process, they also screen for information to give themselves an information asymmetry advantage.

Clients screen agencies for their creativity (Griffin et al. 1998) experience and expertise, using it as a reassurance for the money paid to the agency (Beverland et al. 2007). In particular, they screen for the agency’s “strategic ability, price and adaptability to market changes” through their awards and past work; “I will always look at [an agency’s] clients and estimate their budgets because I think it’s easy to do amazing work for a client that has a $5 million budget. It’s much harder to take a brand that spends $1 million and make that campaign sing”. Another client said, “I just ask for a line-itemed cost-

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estimate… [because agencies] charge a media percentage, so they buy the media and I can see exactly what media that is… So I know they’re not bulk buying something and getting a deal”. Clients also screen agencies for their financial stability, “we even look at their financials to make sure they’re a credible company”. Another consideration that clients make when screening for agencies is their for the client’s brand, “I don’t work with anybody that doesn’t approach me first… and is like… ‘I already own a pillow [from your brand], my kid sleeps on your duvet’”.

Agencies screen clients to gain information about the brief, such as “what the product is about, the brand positioning, the product intrinsic [and] the target market”. They also try to determine the client’s true work ethic by screening clients for “respect”, “fairness” and “opportunity to do great work”. In the light of the above, the next proposition is:

Proposition 2: Screening is used to reduce disadvantageous information asymmetry in the client-agency relationship.

While an exchange relationship will always contain some information asymmetry (Dawson et al. 2010), signaling or screening can change the level of disadvantageous information asymmetry. As information asymmetry allows agents to misrepresent their skills (Eisenhardt 1989), agencies may be inclined to over-exaggerate the skills that they signal and what they can offer (Davies and Prince 2010). This leaves clients unable to verify the truth of the pitch, i.e. adverse selection. In turn, the client may not know how proficient the agency really is (Ellis and Johnson 1993) or whether the agent actually has the required skills (Bergen et al. 1992). As a result, the client may be misled to choose to work with the ‘wrong’ agency (Davies and Prince 2010). For example, agencies signal the quality of their service by making statements such as ‘we have worked with some of the biggest brands’, ‘we have won numerous awards’, or ‘our most senior creative team will definitely work on your account’. In addition, as agencies showcase their client portfolio on their websites to signal their expertise, they withhold information about internal conflicts at the agency which would make them difficult to work with. In this light, the level of disadvantageous information asymmetry held by the agency can influence what they signal to the client. The same could apply to screening. A client’s firm may have recently revamped their offices, which can signal to the agency that the client is actually in a sound financial position. The agency therefore has disadvantageous information asymmetry which influences how they in turn screen during negotiations with the client about whether the client can allocate more funds to the campaign.

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As some clients use pitches “just to get ideas” to implement internally, agencies may choose to withhold certain information during a pitch, to maintain their information asymmetry advantage; “we will talk concept… but we certainly won’t go to a granular level”. Alternatively, clients who are forced to work with a particular agency may deliberately signal the incorrect information. The agency’s deliverable would therefore not deliver to the board’s expectations, which gives the client an opportunity to encourage their board to hire a new agency. We therefore propose:

Proposition 3: The level of disadvantageous information asymmetry influences what is signaled in the client-agency relationship Proposition 4: The level of disadvantageous information asymmetry influences what is screened in the client-agency relationship As information asymmetry is inevitable, constraints will still be implemented when the level of information asymmetry is low (Dawson et al. 2010). In a 15-year client-agency relationship, for example, the client has tacit knowledge about how the agency is run and the agency understands the client’s brand objectives and preferences. While a legal contract might be signed, both parties may rely on social constraints such as mutual trust or a personal friendship. A breach of this social contract can be dealt with through simple communication (i.e., ‘off the record’). For example, clients can use social constraints to prevent the agency from promising senior employees on the pitch yet in reality allocating junior employees to the campaign; “if you’ve gone through a couple of [pitching] processes, you know to go, remember when you come I want to see the people that are going to be on my account”. If the client allocates a new marketing manager, the agency may be uncertain about their true intentions as the level of information asymmetry will now be high. The agency will choose to implement more formal constraints to constrain the new marketing manager’s possible opportunism. For example, as creative ideas are “easy to repackage” and claim as your own, agencies might protect their ideas by adding “‘copyright’ or ‘property of’... [on] presentation document pages”, which they did not include prior to the new marketing manager joining the client. In a similar vein, an agency may hire a new key account manager who is more concerned about receiving awards in the short-term rather than doing what is best for the brand. The client would in this case rely more on a legal contract as they may only find out the agency’s true intentions over time. In the light of the above, the paper’s next proposition is: Proposition 5: The level of disadvantageous information asymmetry influences the choice of constraint in the client-agency relationship. Organizations often use knowledge to achieve a competitive advantage (Arnett and Wittman 2014). For example, when working on a campaign agencies gather information from various sources to better appeal to the target market.

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Explicit knowledge is the “academic knowledge or ‘know-what’… [and is] often based on established work processes” (Smith 2001, p. 314). Explicit knowledge is easily recorded in a contract (Dawson et al. 2010), transferred (Grant 1996), reproduced, stored, accessed, identified, and searched for (Cowan and Foray 1997). Examples of explicit knowledge include the KPIs, target market’s media touchpoints, required size and color of the logo, cost of booking a billboard or the client’s segmentation and targeting. Clients give agencies direction through an initial brief and/or resources such as access to the executive suite and market research. Briefs include clear and explicit information such as “we’re doing this many print ads, this many campaigns in-store, [and] we want to work with this many people”. As this explicit knowledge is easy to grasp, it can help the client and the agency to be on the same page (Koslow, Sasser and Riordan, 2006). For example, agencies can readily learn about the client’s target market demographics and clients can readily learn about a creative idea that has been put into concept by the agency. When briefing the agency, some clients share additional explicit knowledge with their agency such as "a 5 minute video on why use [the brand]” or “a guideline which has got our fonts and who we are and how we use it and our colors and our tone”. One client said that “it’s always a good reminder, especially with new people, just to give them a full briefing of what the brand is all about”. Highly specific briefs are explicit, stipulate how future situations will be handled, document goals that are set, clarify expectations and reduce the possibility of misunderstandings; “if we’ve got a tight brief… it’s very easy to say ‘this is working and what’s not working’”. However, trying to determine what the future holds in a specific contract is problematical (Mooi and Ghosh 2010). This is particularly the case in the client-agency relationship, as some clients send ambiguous briefs and the service provided by the agency is intangible. Explicit knowledge therefore makes the brief more specific, and in turn easier for both parties to clearly understand what the requirements and expectations are. We propose:

Proposition 6: Required explicit knowledge increases brief specificity in the client-agency relationship

Tacit knowledge is focused on the ‘know-how’ (Bassellier, Reich and Benbasat 2001) and developed through experience (Dawson et al., 2010). As most of an agency’s deliverable is ‘intangible’, it is based on tacit knowledge (Davies and Prince 2010). However, tacit knowledge can be difficult to share within an organization (Arnett and Wittman 2014) or record (Dawson et al. 2010) because of its social and ambiguous nature (Lane, Salk and Lyles 2001). Even if tacit knowledge is codified, there is no guarantee that it has been transferred in full to someone else (Millar and Choi 2003).

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While tacit knowledge, such as insight, is important to advertising (Parker Ang and Koslow 2018), it is not always specified in the brief. For example, agencies need to understand their client’s brand tone, culture and personality before they proceed with the work. Some clients and agencies interact with each other to better understand their nuances; “if you think you know everything [about the client-agency relationship], well, you are very misinformed”. However, in long-term relationships, clients tend to take this for granted. For example, one client said “there’s no reason that [the agency] should wait for a full brief if they’ve been doing it for 5 years”. Another explained, “we’ve worked with the same team I think for the past 2 years, and so they know us quite well and they know what’s going to fly and what’s not going to fly”. Similarly, a key account holder stated, “when you have worked with a client for a long time… you know all the strategy objectives, the brand objectives, you’re so familiar with it”. However, this expectation may not always hold true. For example, another key account holder interviewed sai that they reverted with an idea to which the client responded, “well that can’t happen that’s illegal”. They explained that the client did not record this tacit knowledge in the brief beforehand. We therefore propose that: Proposition 7: Required tacit knowledge decreases brief specificity in the client- agency relationship Briefs can be used to reduce the uncertainty and risk in client-agency relationships. A higher specificity helps make each party’s responsibilities, roles, and benefits explicit and clear (Griffith and Zhao 2015), which can discourage opportunistic behavior. However, measuring the outcome of an advertising campaign objectively can be challenging (Sharma 1997). It can be difficult to measure (Davies and Prince 2010) and specify the required level of and appropriate compensation for the agency’s creativity. Briefs that are highly specific about the scope of advertising work and related fees are more suitably paired with legal contracts. A client can appoint a new agency at $100 000 a month through a verbal agreement and a handshake, i.e. social constraints, without accurately specifying the scope of work. The agency would still allocate resources to the client in order to be billed. In this case, there is ambiguity around exactly what the client expects the agency to deliver compared what the agency actually plans to deliver. For example, after the agency’s deliverable has met the brief, clients can say “‘actually this isn’t what I want’... [and] ask for something completely different”. To protect their own interests, agencies may apply a social constraint by saying “we’ve done way more than you’ve asked… [the] next deliverable is the final deliverable, or else we have to charge you a bit extra out of scope”. In this case, a formal constraint (i.e., a legal contract) would be more appropriate to curb opportunism in the relationship. We therefore propose:

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Proposition 8: Brief specificity influences the choice of constraint in the client- agency relationship When the level of disadvantageous information asymmetry increases, the client and the agency will feel more exposed. Both parties will need to use more constraints to curb opportunism by the other party. The client aims to ensure that the agency works with the client’s goals in mind, while the agency aims to ensure that the client is clear about their objectives, pays fairly and does not impose high demands in short timeframes. Clients who are knowledgeable about advertising have more power in the client-agency relationship. They can intervene in the agency’s creative process and their opinions are more valued by the agency (Koslow et al. 2006). In this case, the client’s level of information asymmetry can influence the brief specificity and in turn the choice of constraint because they would already know more than what the agency expects the average client to know. A legal contract does not necessarily protect or secure the relationship, yet it can guarantee that the agency will be paid if the client ends the contact (i.e., through the terms of exit). For example, if the client intends to use the agency’s work going forward, they would need to pay the agency to buy the rights to it. However, in some cases, clients may end a relationship with an agency without providing a reason for it. Clients can disagree to pay the agency and breach the terms of exit specified in the contract. In these cases, clients have a high level of disadvantageous information asymmetry because they know why they are ending the relationship, while the agency does not. For example, the client may know from a trusted source that the agency is in debt and would not be able to afford the legal fees to sue the client. In another example, a client plans to initiate a campaign on television. The client can search online as to how to do this but would lack the experience of how to actually do it and which directors are specifically suited to the script. An agency’s key account holder may advise the client as to which director is most suitable for the campaign. The agency could then provide the client with a contract (i.e.,, formal constraint) stipulating how much the service will cost, how long it will take to complete, and that the relationship with the director would last for a minimum of five years. However, the key account manager may have a personal relationship with the recommended director and therefore secretly receive compensation from the director, without informing the client. In this case, the agency’s key account manager uses their level of disadvantageous information asymmetry to influence the brief specificity and in turn the choice of a legal contact, binding the agency to it. In another example, a client may choose to implement a retainer (i.e. formal constraint) while knowing that their brief will actually require the agency to use more resources than agreed in the retainer, i.e. giving the agency a higher level of disadvantageous information asymmetry. Alternatively, agencies may agree to a retainer, knowing that their art director, who is included as a resource

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in the brief, has handed in a resignation letter. One key account holder admitted to this, by saying: “I know this is confidential… [but] I’ve seen it before… [a] person will leave, but the retainer remains the same... but we don’t say, ‘oh hey we’ve lost our person, we haven’t replaced them so we’re just using you’”. In this case, the agency gives the client a higher level of disadvantageous information asymmetry. Agencies use briefs to get the information they need from the client. Some clients take for granted that the agency knows their business well by writing briefs with a low specificity; “clients give us terrible briefs but we’ve been working on their business for a long time so they kind of expect us to know it”. For example, the client might say: “remember that brand campaign that we spoke about, I think that you guys need to develop a radio campaign out of it”. Alternatively, clients “might just send [the agency] an email saying ‘we need to do a 1-pager on X’”, which can lead to misunderstandings. Thereafter, the client may forget that they have briefed the agency, and later say “I didn’t say that”. This gives the agency a high level of disadvantageous information asymmetry. Agencies use formal constraints to protect themselves from their client’s ambiguous briefs (i.e., low brief specificity) and the level of disadvantageous information asymmetry in the relationship. For example, some agencies give clients a template and say “this is the template that we used to brief our team, the more information we have the more accurate [the final deliverable] is going to be”. Alternatively, the agency can say: “on your brief you actually said we’re talking to these people, so would you not agree that this insight is relevant to them?” or, “you’re over your agreed reverts, we’re going to start charging you”. In addition, if the scope of work and resources are formally agreed on, “it stops [clients] from going ‘yeah we’ll pay you $50,000 we only need a little bit’, and then [the agency] actually end up doing $700,000 worth of work”. Therefore, in these cases, agencies tend to prefer formal constraints. Agencies can also protect themselves from high levels of disadvantageous information asymmetry by implementing social constraints. For example, a 24- hour window for the client to query their artwork; “if we don’t hear from you within 24 hours we take this as correct”, or withholding the work; “if we don’t get a PO [i.e., purchase order] from a client, then I just wouldn’t press launch on their website”. Alternatively, face-to-face meetings are initiated as a social constraint to gather more tacit knowledge; “we catch up physically once a month… there’s quite a bit of knowledge shared in that sort of environment. it’s very difficult to communicate that kind of thing via email”. When there is a low level of information asymmetry yet a highly specific brief, some clients protect their information through NDAs; “there is never a need for a contract if you have campaigns that are running smoothly, but an NDA is important because you don’t want people knowing your business objectives. We are very clear in our briefs on what we want to achieve and that in anyone else’s hands is really detrimental to our business”. One client explained that she uses

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NDAs to ensure “that [the agency] can’t be part of other brands that compete with us and… the work that they do during their time with us belongs to us or… the brand”. In the light of the above examples, the final proposition is: Proposition 9: There is an interaction between the level of disadvantageous information asymmetry and brief specificity with respect to the constraint selected in the client-agency relationship

FIGURE 1 MODEL OF THE THEORY OF RELATIONSHIP CONSTRAINTS IN THE CLIENT-AGENCY CONTEXT

- Signaling Level of Disadvantageous Information Asymmetry Screening - Choice of Constraint Mechanism Brief Specificity

+ -

Required Explicit Required Tacit Information Information

Note: Adapted from Dawson et al. (2010)

The research propositions are conceptualized in Figure 1. As the figure shows, the following influences the choice of constraint in the client-agency relationship: Signaling and screening influence the level of disadvantageous information asymmetry held by both parties, which in turn influences signaling and screening. The brief specificity, which contains explicit and tacit knowledge, has an influence on the choice of constraint. Finally, the interaction between the level of disadvantageous information asymmetry and the brief specificity influences the choice of constraint. In the light of the above, a discussion of this paper follows, beginning with the theoretical implications.

THEORETICAL IMPLICATIONS Opportunism will continue to prevail in client-agency relationships. Agency Theory has predominantly been applied in the literature on constraining client-

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agency opportunism, yet is limited in this context. Agency theory does not consider agents as professionals, or that principals and agents can act opportunistically at the same time. The Theory of Relationship Constraints was developed to address these imitations (Dawson et al. 2010), yet has not been applied to the client-agency relationship before. The authors extend the Theory of Relationship Constraints to answer the question: how does information influence the choice of constraint in the client-agency relationship? In addressing this research question, this paper conceptualizes the Theory of Relationship Constraints’ model with nine propositions in the client-agency dynamic. The authors respond to Dawson et al.’s (2010) call for future researchers to apply their theory to a new context. This paper does so empirically by using data collected from in-depth interviews with clients and agencies.

MANAGERIAL IMPLICATIONS For practitioners, knowing how information influences the choice of constraint in the client-agency dyad is valuable. This is because in client-agency relationships, the general consensus is that formal contracts are not taken seriously and/or not signed by either party prior to the work being briefed and carried out. When formal contracts are signed, clients still have the power to simply brush the fine print aside and expect the agency to ‘take it or leave it’. This may be because agencies need the client, cannot afford to sue the client, or prefer to avoid gaining a litigious reputation in the industry. Agencies might also not exactly be sure of what their roles are; there is a fine line between monitoring agencies too closely, which can discourage agencies from taking risks and initiative, and making the agency more secure by providing clear responsibility areas (Mortimer and Laurie 2017). Therefore, by understanding how information influences which constraints are chosen, practitioners can implement the most appropriate constraint as suited to the dynamic of this relationship to discourage opportunistic behavior by both parties and encourage a more lucrative working relationship. Client-agency opportunism still occurs today, yet most clients and agencies either implement formal or social constraints. This leaves room for opportunism. When used independently, both formal and social constraints are limited. Formal constraints do not cover opportunism induced by tacit knowledge, while social constraints cannot be enforced in a court of law. As an agency’s deliverable is based on both explicit and tacit knowledge, a consistent combination of formal and social constraints is needed to robustly constrain opportunism in client- agency relationships. In newer relationships, there is greater reliance on formal constraints given that both parties are still getting to know each other’s work ethic. That said, a common misconception is that in long-term relationships clients and agencies can simply rely on social constraints to curb opportunism, thereby disregarding formal constraints, which does not always hold true. Limitatios and future research agendas are discussed next.

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LIMITATIONS AND FUTURE RESEARCH This work is not without its limitations. First, the propositions explained are tailored to the client-agency dyad specifically and may not be generalizable to other domains. The authors suggest that research expands the advertising context of this paper to the more recently established sectors within the advertising industry, such as key opinion leaders and digital marketing agencies. Further, the future state of this relationship is uncertain, given the evolving nature of the relationship and the influence of external sources such artificial intelligence and the emergence of search engine companies (e.g., Google) as the dominant players in advertising. However, this paper’s propositions are relevant to the relationship today and serve as a necessary foundation to better understand how to constrain client-agency opportunism. Second, the authors assume that both parties will act opportunistically, yet this may not be the case every time. Nevertheless, the authors intended to discuss the propositions in the context where both the client and the agency are opportunistic. Future research is needed to validate the strength of this paper’s propositions. First, the length of the client-agency relationship should be considered, as a longer relationship tends to have more tacit knowledge and trust. Second, empirical studies can test these propositions on client-agency relationships in new contexts. For instance, across cultures, individuals’ tacit knowledge develops in different ways (Walsham 2001). Watson et al. (2019) suggested that the impact of constraints depends on the purpose of the task at hand and the country where the relationship is formalized. Clients may choose to collaborate with agencies that are already established in that market. The relations between global clients with local agencies can be explored. In particular, the impact that global consumer culture and the related standardized advertising has on this relationship (Taylor and Okazaki 2015) should be considered. Fourth, according to Walsham (2001), when an agency’s employees are rewarded based on their individual performance, creative staff can be hesitant to share their ideas with their colleagues. The authors therefore encourage future researchers to build on this paper to identify the impact that various constraint mechanisms have on agency creativity.

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LIST OF APPENDICES

APPENDICES Appendix A: Interview Protocol for Advertising Agencies

Theme 1: Current Client-Advertising Agency Relationship Dynamics

Do you speak to your clients everyday? What would you change about your relationship with your clients? How would you explain the dynamics in the current client-advertising agency relationships? Do you and your clients agree on everything? Without mentioning specific names, are there any clients in particular that you feel you could have a better working relationship with? Based on your experience, why do relationships with clients end?

Theme 2: Ex-Ante Opportunistic Behavior

Was there a situation where the client knew more about something that you did? What is it like when pitching to a new client? How do you find working with the client’s brief? Do you feel that you have free reign with the client’s budget? Does the client understand how you work on their brief? There are things that you can only learn from experience about the client, how easy is it to learn this? What type of contract do you have in place with your client? What do you look for when searching for a new client to pitch to? What do you want the client to know about your advertising agency during the pitch?

Theme 3: Ex-Post Opportunistic Behavior

Without mentioning specific names, have you seen or heard of clients acting in a way that was to their best interest but to the detriment of the advertising agency? What do you think allows this kind of behavior to happen? Do you ever need to work with junior members of the client’s company?

Theme 4: Theory of Relationship Constraints

Tell me about the contract you have with your client? Do you have other measures of agreements? Why is it important to you to have a contract as well as another type of agreement? Are the contracts you sign with clients when entering into the relationship with them adequate? Do clients ever act against what the contract stipulates? What would you change about these contracts? Do your clients judge your performances based on the way you worked (i.e. number of hours) or your output only? Do you feel that the way your performance is evaluated is fair? How would you prefer your performance to be evaluated? How do you and your client deal with disagreements? Is there a case where the client knows more about something than you do? How do you learn this

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information? There are some things you can only learn through experience, how do you share this with the client? How does the client share this with you?

Appendix B: Key Account Manager Years of Experience and Gender

Respondent Year Gende No. s r Respondent 1 22 Male Respondent 2 11 Female Respondent 3 16 Female Respondent 4 5 Male Respondent 5 12 Female Respondent 6 14 Female Respondent 7 14 Male Respondent 8 10 Male Respondent 9 12 Female Respondent 10 11 Female

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Appendix C: Marketing Managers Years of Experience, Gender, and Industry

Respondent No. Years Gender Industry Respondent 11 15 Female Property Respondent 12 15 Female FMCG Financial Respondent 13 13 Female Services

Respondent 14 29 Male Devices Respondent 15 6 Female Homeware Respondent 16 14 Male Healthcare Respondent 17 13 Female Pet Food

Respondent 18 17 Male Sports Apparel Respondent 19 20 Female FMCG Respondent 20 6 Female Toiletries

Appendix D: Semi-Structured Interview Cover Letter

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