Gain-sharing in performance-based contracting: How risk and fairness drive business customers' willingness-to-switch to a gain-sharing arrangement

• DOI: 10.1016/j.indmarman.2023.09.013
• Publication Date: 2023-10-05T21:51:31Z
• Authors: Joona Keränen; Mario Kienzler; Anna Salonen; Harri Terho; Dirk Totzek
• Keywords: Equity; Equity theory; Risk Perception

Gain-sharing arrangements, which involve the seller promising to realize a measurable economic performance gain that is shared between and customer, are used in context of performance-based contracting. Prior academic research explicating implementation this managerially relevant practice has mainly utilized anecdotal evidence primarily focused on seller's perspective. Thus, we lack rigorous explanations as what drives customers' willingness-to-switch gain-sharing arrangement. To overcome limitation, build agency theory equity develop two competing theoretically grounded (risk-based vs. fairness-based) explain willingness-to-switch. We conducted qualitative pre-study collaborated closely with an industry partner realistic experimental scenario tested proposed data from 437 professional purchasers. The results show decision-makers customer firms respond differently economically equivalent arrangements feature different pricing schemes. More specifically, fairness perception, but not risk customer's findings study advance B2B by showing buying decisions necessarily guided rationality-based arguments. Instead, choice perceived fair.