Essays on supplier responsiveness and buyer firm value - Nyenrode ...

ack loans and the forced sale value of the firm increases in the eyes of the lenders. From another
customer’s perspective, this also holds true. When customers do borrow from financial institutions, the
better their own reputation and the lower the cost of capital is for them. If the debt is secured by
issuing corporate bonds then less risky firms pay a lower rate of interest to their debtors since they are
considered a more secure investment (Rego, Billet, & Morgan 2009). Hence, a financial benefit of
having a lower idiosyncratic relational risk drives down the cost of capital.
Askari Commercial Bank Limited’s (ACBL) lending practices exemplify the benefits of having
a positive market reputation. Prior to giving loans at the corporate level, banking officers are required
to check both hard and soft indicators. Soft indicators include an evaluation of the firm’s strategic
suppliers. If key suppliers have positive relational assets and a good working relationship with the
customer, a customer’s costs of borrowing go down.
In an effort to generate lower buyer idiosyncratic relational risk, strategic suppliers must take
on greater risk. In other words, increases in strategic supplier responsiveness are accompanied by
increases in business risk for the supplier (Kohli & Jaworski, 1990). Why should a strategic supplier
make an effort to reduce buyer’s IdRR? This reduction is justified because lowering a buyer’s risk
gives rise to positive buyer evaluations of the supplier’s brand. This increase in evaluation is important
for the supplier because intangible non-financial and financial benefits keep the buyer loyal to the
supplier (Naryandas, 2005). Brand value is measured by how much the customer values the supplier’s
brand or, in other words, customer-based brand equity. It follows that supplier brands which offer
greater tangible and intangible value will be more highly valued than those who do not. One aspect of
acquiring positive customer brand evaluation is by idiosyncratic relational risk reduction. Such a
reduction can be achieved through providing customers with reliable, unique, rare, and inimitable
skills and networks (Srivastava et al., 1998) or, in other words, through unique resources. In addition,
brands reduce a customer’s risk by the quality security that they provide when purchasing or using a
branded product (McQuiston, 2004). Moreover, the impact of the brand is not limited to the customers
alone, but can also be transmitted to the financial marketplace to generate value for shareholders via
quality information signals (Aaker & Jacobson, 1994). Furthermore, buyers in the general marketplace
search for suppliers according to their reputation (Saxton, 1997). For marketing managers, purchasing
managers and company executives are under pressure to justify their marketing expenditures. A
reduction in IdRR provides them a metric to justify such expenditures or investments. Strategic
suppliers who are responsive will have a positive marketplace reputation and will positively influence
the financial market’s evaluation of the buyer’s marketing expenditure on their strategic relationships.
In turn, this positive financial market evaluation will lead to customers further positively assessing and
valuing their strategic suppliers. The greater the reliance of the buyer, the more important the supplier
becomes and the greater their brand value. Therefore:
H4: The lower the IdRR, the higher the supplier’s brand value.
Strategic Supplier Brand Value and Buyer Firm Value. Different individuals will decipher a
meaning differently depending on the associations that they have in their minds. The two kinds of
brand associations are pertinent to our current study: symbolic and functional associations. Functional
associations are based on the intrinsic benefits of the product (Keller, 1993). Functional benefits are
involved in meeting a customer’s problem avoidance concerns (Keller, 1993). Symbolic benefits refer
to ‘badge’ associations that provide the organization with some extrinsic benefit (Keller, 1993). These
benefits are typically used to signal some information to the outside world, such as financial markets.
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