How fairness garners loyalty in the pharmaceutical supply chain: Role of trust in the wholesaler-pharmacy relationship

Purpose – The purpose of this paper is to understand how fairness garners loyalty by breeding trust in the pharmaceutical wholesalerpharmacy relationship. Specifically, the paper seeks to understand if the two dimensions of fairness – procedural and distributive – contribute differently in fostering the two types of trust – credibility and benevolence. The paper further aims to examine how the two dimensions of trust mediate the fairnessloyalty relationship. Design/methodology/approach – Data from 156 retail pharmacies on their relationship with the pharmaceutical wholesalers are used to test the hypotheses. The mediation models are tested using the Barron and Kenny procedure. Findings – The findings of this paper show the importance of both procedural and distributive aspects of fairness on the part of pharmaceutical wholesalers as perceived by the pharmacies. Each aspect of fairness plays a more prominent role for fostering a particular type of trust, which, in turn, leads to loyalty. Research limitations/implications – Future research may investigate the antecedents to fairness to unearth additional insights as to how organizations can manage their customers' perceptions of fairness and thereby enhance their trust and loyalty. Practical implications – Pharmaceutical wholesale is a competitive business to retain pharmacies by building loyalty thus balancing pharmacies' dependence on the more powerful pharmaceutical manufacturers in the pharmaceutical supply chain. Given the intense competition, the wholesaler that does a superior job in creating a competitive advantage leveraging fairness to engender trust will get to benefit in recruiting and retaining more pharmacies. Originality/value – This paper contributes to the fairnesstrustloyalty stream of literature by examining the mediation effects at the subdimension level of the fairness and trust constructs. The paper also has practical implications, especially given the low gross margins for pharmaceutical wholesalers and the growing threat of direct distribution of pharmaceuticals or disintermediation by the manufacturers using third party logistics companies, such as united parcel service. The paper shows how wholesalers may be able to build loyalty with the pharmacies by signaling fairness and fostering trust. © 2009, Emerald Group Publishing Limited