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

Cowles Foundation Discussion Paper No. 2315

59 Pages Posted: 28 Nov 2021

See all articles by Navid Mojir

Navid Mojir

Harvard Business School

K. Sudhir

Yale School of Management; Yale University-Department of Economics; Yale University - Cowles Foundation

Date Written: November 24, 2021

Abstract

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

Keywords: Organizational Buying Behavior, healthcare marketing, B2B Markets, B2B Innovation, New Product Diffusion, New Product Adoption

Suggested Citation

Mojir, Navid and Sudhir, K., A Structural Model of Organizational Buying for B2B Markets: Innovation Adoption with Share of Wallet Contracts (November 24, 2021). Cowles Foundation Discussion Paper No. 2315, Available at SSRN: https://ssrn.com/abstract=3971032 or http://dx.doi.org/10.2139/ssrn.3971032

Navid Mojir

Harvard Business School ( email )

Boston, MA 02163
United States

K. Sudhir (Contact Author)

Yale School of Management ( email )

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Yale University-Department of Economics ( email )

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Yale University - Cowles Foundation ( email )

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