The undervaluation of corporate reputation as a supplier selection factor: An analysis of ingredient branding of complex products in the manufacturing industry Bernhard Lienland a,n , Alexander Baumgartner a , Evelyn Knubben b a University of Regensburg, Chair of Management Accounting and Logistics, Universitätsstr. 31, 93053 Regensburg, Germany b Friedrich-Alexander-University Erlangen-Nuremberg, Bismarckstr.1, 91054 Erlangen, Germany article info Article history: Received 1 June 2012 Received in revised form 6 January 2013 Accepted 19 April 2013 Available online 7 May 2013 Keywords: Supplier selection Selection factors Reputation Ingredient branding Complex products Automotive abstract Prior research studies on supplier selection factors assess vendor reputation as a low ranked criterion. Reputation in these articles, however, only refers to the position in the industry, without considering the role of the final customer. Our results from a survey with 565 individuals suggest that the end user as a stakeholder should be also considered when analyzing a vendor’s prestige. We demonstrate that a supplier’s standing has negative as well as positive reputational effects on the buyer. Depending on the relevance of the purchased good as well as the reputation of the supplier and the buyer, low/high-ranked ingredients significantly decrease/increase the final customer’s perception of the buyer. & 2013 Elsevier Ltd. All rights reserved. 1. Introduction A trend in manufacturing firms, especially in the automotive industry (Collins et al., 1997), is to downsize and focus on core competencies. Results are a greater dependence on suppliers and their administration (Prahalad and Hamel, 1990; Choi and Hartley, 1996). Supplier selection, as part of this administration process (Lasch and Janker, 2005), is differentiated in the literature into descriptive and prescriptive research. Descriptive research describes how decisions are actually made; prescriptive research specifies how decisions should be made (Ellram, 1990). Various articles associated with the former category identify quality, price and delivery as the most relevant supplier selection factors (e.g., Verma and Pullman, 1998; Kannan and Tan, 2002), which nearly all prescriptive approaches consequently incorporate (Weber et al., 1991; Ho et al., 2010). However, other factors, such as the supplier’s corporate reputation, receive the least attention by the surveys (Cheraghi et al., 2011) and are often neglected by selection models (Weber et al., 1991; de Boer et al., 1998, 2001; Degraeve et al., 2000; Ho et al., 2010). This disregard of reputation contra- dicts with articles relating brand value to stock prices (Kerin and Sethuraman, 1998), in which strong-brand suppliers would be better off than no-name suppliers. Therefore, this article answers the following research question: Is a supplier’s corporate reputation undervalued in the vendor selection of firms that manufacture complex products? This research question impacts several areas. First, this ques- tion is especially relevant for prescriptive supplier-selection mod- els because these models aim to provide the best supplier recommendation. Second, as we will show in this study, a careful vendor selection might directly influence a manufacturer’s own reputation, resulting in varying sales and profitability (Wernerfelt, 1988; Rao et al., 1999). Third, the assessment of the award probability of potential future projects is decisive for a subcon- tractor’s planning quality. Accurate estimations influence forecasts and, eventually, firms’ stock prices. The relevance of supplier-selection factors was first addressed by Dickson (1966) and was further investigated, e.g., by Choi and Hartley (1996). All of the studies have yielded similar results with supplier reputation ranking low, if listed at all. However, these articles focus only on a very limited interpretation of reputation because they only refer to reputation as the position in the industry (Dickson, 1966; Ellram, 1990; Weber et al., 1991). This narrow perspective contrasts highly with reputation definitions in fields such as marketing or strategic management, where reputa- tion is defined as stakeholders’ overall perception of a certain company (Fombrun and Riel, 1997; Gotsi and Wilson, 2001; Contents lists available at SciVerse ScienceDirect journal homepage: www.elsevier.com/locate/pursup Journal of Purchasing & Supply Management 1478-4092/$ - see front matter & 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.pursup.2013.04.001 n Corresponding author. Tel.: +49 941 943 2689; fax: +49 941 943 3187. E-mail address: [email protected] (B. Lienland). Journal of Purchasing & Supply Management 19 (2013) 84–97
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Journal of Purchasing & Supply Management 19 (2013) 84–97
Contents lists available at SciVerse ScienceDirect
Journal of Purchasing & Supply Management
1478-40http://d
n CorrE-m
journal homepage: www.elsevier.com/locate/pursup
The undervaluation of corporate reputation as a supplier selectionfactor: An analysis of ingredient branding of complex productsin the manufacturing industry
Bernhard Lienland a,n, Alexander Baumgartner a, Evelyn Knubben b
a University of Regensburg, Chair of Management Accounting and Logistics, Universitätsstr. 31, 93053 Regensburg, Germanyb Friedrich-Alexander-University Erlangen-Nuremberg, Bismarckstr. 1, 91054 Erlangen, Germany
a r t i c l e i n f o
Article history:Received 1 June 2012Received in revised form6 January 2013Accepted 19 April 2013Available online 7 May 2013
Prior research studies on supplier selection factors assess vendor reputation as a low ranked criterion.Reputation in these articles, however, only refers to the position in the industry, without considering therole of the final customer. Our results from a survey with 565 individuals suggest that the end user as astakeholder should be also considered when analyzing a vendor’s prestige. We demonstrate that asupplier’s standing has negative as well as positive reputational effects on the buyer. Depending on therelevance of the purchased good as well as the reputation of the supplier and the buyer, low/high-rankedingredients significantly decrease/increase the final customer’s perception of the buyer.
& 2013 Elsevier Ltd. All rights reserved.
1. Introduction
A trend in manufacturing firms, especially in the automotiveindustry (Collins et al., 1997), is to downsize and focus on corecompetencies. Results are a greater dependence on suppliers andtheir administration (Prahalad and Hamel, 1990; Choi and Hartley,1996). Supplier selection, as part of this administration process(Lasch and Janker, 2005), is differentiated in the literature intodescriptive and prescriptive research. Descriptive researchdescribes how decisions are actually made; prescriptive researchspecifies how decisions should be made (Ellram, 1990). Variousarticles associated with the former category identify quality, priceand delivery as the most relevant supplier selection factors (e.g.,Verma and Pullman, 1998; Kannan and Tan, 2002), which nearlyall prescriptive approaches consequently incorporate (Weber et al.,1991; Ho et al., 2010). However, other factors, such as thesupplier’s corporate reputation, receive the least attention by thesurveys (Cheraghi et al., 2011) and are often neglected by selectionmodels (Weber et al., 1991; de Boer et al., 1998, 2001; Degraeveet al., 2000; Ho et al., 2010). This disregard of reputation contra-dicts with articles relating brand value to stock prices (Kerin and
ll rights reserved.
: +49 941 943 3187.and).
Sethuraman, 1998), in which strong-brand suppliers would bebetter off than no-name suppliers.
Therefore, this article answers the following research question:Is a supplier’s corporate reputation undervalued in the vendorselection of firms that manufacture complex products?
This research question impacts several areas. First, this ques-tion is especially relevant for prescriptive supplier-selection mod-els because these models aim to provide the best supplierrecommendation. Second, as we will show in this study, a carefulvendor selection might directly influence a manufacturer’s ownreputation, resulting in varying sales and profitability (Wernerfelt,1988; Rao et al., 1999). Third, the assessment of the awardprobability of potential future projects is decisive for a subcon-tractor’s planning quality. Accurate estimations influence forecastsand, eventually, firms’ stock prices.
The relevance of supplier-selection factors was first addressedby Dickson (1966) and was further investigated, e.g., by Choi andHartley (1996). All of the studies have yielded similar results withsupplier reputation ranking low, if listed at all. However, thesearticles focus only on a very limited interpretation of reputationbecause they only refer to reputation as the position in theindustry (Dickson, 1966; Ellram, 1990; Weber et al., 1991). Thisnarrow perspective contrasts highly with reputation definitions infields such as marketing or strategic management, where reputa-tion is defined as stakeholders’ overall perception of a certaincompany (Fombrun and Riel, 1997; Gotsi and Wilson, 2001;
B. Lienland et al. / Journal of Purchasing & Supply Management 19 (2013) 84–97 85
Walker, 2010). Hence, reputation is regarded as a decisive intan-gible resource that can provide a company with a sustainablecompetitive advantage (Hall, 1992). In particular, the end users andtheir requirements should therefore be given greater attention(Vonderembse and Tracey, 1999). Norris (1992) first described thebearing of a supplier’s reputation on the final customer’s decision.A general conclusion concerning the vendor’s influence, however,is not possible yet because ingredient-branding studies are mostlyperformed for products of moderate manufacturing intensity witha small number of physical components and participants. Severalempirical studies focus on other low-complexity goods such ascosmetics or food. These studies illustrate that supplier brandsinfluence the perception of the host brand (McCarthy and Norris,1999; Janiszewski and Osselaer, 2000; Washburn et al., 2000,2004) or of entirely new products (Levin and Davis, 1996; Parket al., 1996; Desai and Keller, 2002), especially in case of unobser-vable quality (Rao et al., 1999). Consumers are also willing to payincreased prices for items including components from respectedsubcontractors (Venkatesh and Mahajan, 1997; Kotler et al., 2010).
As a complex good, automobiles are studied by Simonin and Ruth(1998). The authors identified a brand’s alliance as a factor thatinfluences the attitudes toward the respective individual labels.Similar results are reported by Dickinson and Heath (2006). However,both studies do not show whether the manufacturer’s brand issignificantly affected by ingredient branding. To the authors’ bestknowledge, no research exists that focuses on the significance of amanufacturer’s reputational change through ingredient branding ofcomplex goods with high manufacturing intensity and a multitude ofsuppliers. Our study will focus on these types of products. Complexgoods are, e.g., buildings, machinery, or automobiles. Similar toSimonin and Ruth (1998), we used the automobile industry as areference. This industry represents one of the most complex sectors(Olin et al., 1999) with thousands of individual suppliers of differentcomponent complexity and relevance (Hyun, 1994).
It appears reasonable that differing reputations of an automotiveoriginal equipment manufacturer (OEM) and a supplier, such as inthe case of a good OEM cooperating with a bad supplier, lead tobrand reevaluations. We further assume that information about thecomponent’s relevance alters the perception about the host brand.For example, it might make a difference whether irrelevant car matsor important motor parts are sourced from a negative vendor.
Based on named literature on goods with low production complex-ity and our assumptions, the following hypotheses were formulated:
H1. An automotive supplier with
a important components
b unimportant componentsand with a good corporate reputation will have a positive impacton the overall reputation of ai good OEMj bad OEM
H2. An automotive supplier with
a important components
b unimportant componentsand with a bad corporate reputation will have a negative impact onthe overall reputation of ai good OEMj bad OEM
2. Literature review
Literature on supplier selection factors is divided into descrip-tive and prescriptive research (Ellram, 1990). Descriptive studies
can be further classified into three subgroups (Talluri andNarasimhan, 2004): (i) articles concentrating on the empiricalevaluation of vendor selection criteria; (ii) work addressing thestrategic importance of supplier selection as well as the tradeoffsbetween cost, quality and delivery; and (iii) research focusing onthe importance of single criteria. For the latter studies, weadditionally distinguish between (a) general factors and(b) reputation in detail.
Part (i) will be described in detail in Section 2.1 on generalsupplier selection factors. Regarding categories (ii) and (iiia), werefer to Talluri and Narasimhan (2004) for an overview. Concern-ing the relevance of the supplier’s reputation in (iiib), we differ-entiate between the reputation’s effect on the supplier’s directbuyer and its implication on the final customer. Both the buyer andthe final customer are relevant stakeholders (Vonderembse andTracey, 1999; Gotsi and Wilson, 2001). The former already hasbeen extensively studied by the industrial marketing literature (e.g., Mudambi, 2002; Kotler and Pfoertsch, 2007). The latter isreferred to ingredient branding, which also relates to co-branding and branding alliances (Keller and Lehmann, 2006).Because this study is directly linked to this relatively new sector(McCarthy and Norris, 1999), we review existing ingredient brand-ing articles for low and high complexity goods in detail inSection 2.2.
Regarding prescriptive literature in general, we again refer tovarious available studies (Weber et al., 1991; Holt, 1998; Vermaand Pullman, 1998; Degraeve et al., 2000; de Boer et al., 2001;Svensson, 2004; Talluri and Narasimhan, 2004; Ho et al., 2010;Cheraghi et al., 2011).
2.1. Supplier selection factors
To demonstrate the low relevance of reputation in supplierselection surveys to date, a broad overview of empirical studiesspecifying the preference factors is provided. The focus is set onexternal vendors with tangible goods. Table A1 illustrates therankings of the supplier selection factors identified in the respec-tive studies. Criteria related to “general buying motives” wereexcluded from the survey because these criteria focus on theproduct to buy and not the vendor (Duncan, 1940). Because moststudies provided the interviewees with different sets of selectionfactors, we matched these factors in our study with the referenceattributes by Dickson (1966). In cases where multiple factorsrelated to only one position, the factor with the highest rankingwas used.
The chronologically listed surveys in Table A1 either statedselection factors in general (Dickson, 1966; Shipley et al., 1991;Kannan and Tan, 2002) or focused on defined areas. The latterwere clustered into (i) products such as automobiles (Choi andHartley, 1996), machine tooling (Cunningham and White, 1973),electronics (Dempsey, 1978; Pearson and Ellram, 1995), valves, orpumps (Cunnigham and Roberts, 1974; Luffman, 1974; Banting,1976), computers (Kassicieh and Rogers, 1986) and consumergoods (Wagner et al., 1989), (ii) buying situations (Duncan, 1940;Lehmann and O’Shaughnessy, 1974; Kiser et al., 1975; Dempsey,1978; Hirakubo and Kublin, 1998), (iii) nationalities (Abratt, 1986;Cusumano and Takeishi, 1991; Deng and Wortzel, 1995; Hirakuboand Kublin, 1998), and (iv) sourcing strategies (Swift, 1995).
With the exception of a very few surveys, which, e.g., reportedthe relevance of an increased reputation for purchasing goods withexpected political problems (e.g., Lehmann and O’Shaughnessy,1974), reputation in most cases was either not listed or receivedonly little attention in the articles. However, one has to notice thatall studies focused on a limited definition of reputation, onlyreferring to the position within the industry (e.g., Dickson, 1966).
B. Lienland et al. / Journal of Purchasing & Supply Management 19 (2013) 84–9786
Other stakeholders such as the end consumer were excluded,despite their increased brand reliance (Rao and Ruekert, 1994).
2.2. Ingredient branding
Several ingredient-branding studies, mostly for goods of lowmanufacturing complexity, have demonstrated the relevance of asupplier’s reputation for the final customer. Ingredient branding canbe defined as the incorporation of key attributes of one brand intoanother brand (Rao et al., 1999; Desai and Keller, 2002). We classifiedthe existing ingredient-branding studies into two categories ofdifferent production complexity (low/high). Only research based onempirical surveys and focused on the influence or the effects ofingredient branding on the final customer behavior was considered.Details on these articles are presented in Table A2.
The first survey addressing low complexity goods was conductedby Saunders and Watt (1979) and analyzed ingredient branding inthe chemical fiber industry. To identify the awareness about compo-nents, interviewees were asked to rate pairs of ingredient brandnames. Most of the respondents were not familiar with the labels.The authors consequently did not identify any additional value to themarket due to ingredient branding. In a later study, Levin and Davis(1996) concentrated on the evaluation of co-branded products. Theauthors found that a co-branded product received the average of thesingle brands’ appraisals. Additionally, the authors showed that afirm’s brand equity increased/decreased if a higher/lower valuedproduct entered the alliance. Park et al. (1996) focused on acooperation with an entirely new product and demonstrated thatthe latter was more successful than a brand expansion, given thecircumstance that both trademarks had similar attributes (for furtherdetails on brand expansion, see Aaker and Keller, 1990). The hostbrand had a stronger influence than the component brand.Venkatesh and Mahajan (1997) derived that Compaq, as a computermanufacturer, should equip their products with an Intel-brandedprocessor. They further estimated sales prices and profits of differentproduct-component combinations. On the component manufac-turer’s side, the authors recommended Intel to not be selective abouttheir clients. McCarthy and Norris (1999) proved that product qualityperceptions as well as product evaluations significantly differedthrough their components. Moreover, quality perceptions wereestablished as a moderating variable. In case of unobservable productquality, Rao et al. (1999) recommended market alliances with astrong partner to enhance customers’ value perceptions. Similar toLevin and Davis (1996), Vaidyanathan and Aggarwal (2000) demon-strated that an unknown label benefited from a named ingredientconcerning attitude and quality perceptions. Washburn et al. (2000)concentrated on the effects of ingredient branding on brand equitybefore and after a product trial. The results indicated that co-branding was always beneficial for both partners, regardless of thebrand’s equity. Moreover, positive product trials enhanced theevaluation of the combined product. Very similar results were foundin Washburn et al. (2004). Desai and Keller (2002) differentiatedbetween “slot-filler” and “new-attribute” expansions. The formerdescribed new products filling an existing slot of the host category,and the latter referred to products introducing a new attribute. Theauthors provided results on whether it was beneficial to apply a self-or a co-branded ingredient. In case of a slot-filler expansion, amanufacturer should adopt a co-branding strategy in the shortrun. In the long run, a self-branded ingredient was preferable. Fornew-attribute extensions, a co-branded component was generallybeneficial.
To date, to our best knowledge, there are only two surveysutilizing high complexity goods. The first survey by Simonin andRuth (1998) demonstrated that the attitude toward a brandalliance was influenced by the opinion toward the main and theingredient brand as well as by the fit of both brands and products.
Furthermore, the firm’s reputation itself, prior to the alliance, andthe evaluation of the brand alliance both influenced the firm’sreputation itself after the alliance. The second study by Dickinsonand Heath (2006) also focused on influences and dependencies.The authors showed that a co-branded product evaluation wasdependent on the quality and fit of both labels.
A study not directly related to the influence or the effects ofingredient branding (and therefore not included in Table A2) butexposing other relevant aspects was performed by Janiszewski andOsselaer (2000). Their research revealed positive and also negativeeffects of ingredient branding. The latter occurred if the sameingredient brand was subsequently used for other products. Theevaluation decreased through the label of the “worn-out” compo-nent. In a related subsequent article, Janiszewski et al. (2002)demonstrated that new ingredient brands should be combinedwith weak host brands because customers assessed a component’sbenefit by the improvement in a joint-labeled product comparedto a host-labeled product.
3. Method
3.1. Participants
The sampling frame of the study consisted of Germans who hadaccess to the Internet and who were willing to participate in theonline study. The survey was conducted in Germany because ofthe predominant role of the automotive industry in Germansociety (VDA, 2012). To ensure that only persons who weresomewhat interested in automobiles participated in the study,the industry was stated on the introduction page of the study.
With the exception of a pretest, which had been physicallydistributed to 50 students of different disciplines, the experimentwas conducted via an online survey. A publicly accessible link withthe request to participate in the online survey was uploaded tosocial networks and discussion forums. Additionally, authors’contacts were approached via personal invitations to participatein the study. Interviewees of the pretest were not addressed.
The survey was opened by 1252 people. Thereof, 598 partici-pants completed the questionnaire, resulting in a satisfying returnrate of 48% (Wimmer and Dominick, 2010). Twenty-three outliers(3.8% of the completed questionnaires) due to the 1.5 interquartilerange test (Tukey, 1977) as well as 10 datasets (1.7%) with, e.g.,general anti-consumerist comments were removed (Barnett, 1994;Huck, 2000), leaving 565 utilizable answer sets for further analy-sis. Overall, 45.7% of the respondents were female, and 54.3% male.The average age was 27.5 years with a standard deviation of 8.6.The youngest person was 16, and the oldest was 65 years old.Respondents were located throughout the country.
3.2. Materials
We used six fictive newspaper articles related to (1) an OEM’sreputation, (2) a supplier’s reputation as well as to (3) informationof both companies’ cooperation and the importance of the com-ponents provided by the supplier. Additionally, (4) five questionsconcerning the reputation’s measurement were asked followed by(5) general questions related to socio-demographic aspects or tothe questionnaire. Instead of communicating explicit brand names,we used black bars, labeled with the pseudonyms “A” for the OEMand “Z” for the supplier. Thus, prior brand knowledge could notdilute the study’s results, and realism was upheld.
The (1) OEM’s and the (2) supplier’s reputation was eitherpositive or negative. To implement such reputations, we tookadvantage of the indicators proposed by the expectations-basedapproach building on existing anticipations of stakeholder groups.
B. Lienland et al. / Journal of Purchasing & Supply Management 19 (2013) 84–97 87
This, in literature often-applied, framework was employed becauseit represented the optimal basis for the reputation’s implementa-tion in practice (Berens and Van Riel, 2004; Money andHillenbrand, 2006). Alternative models, such as the corporatepersonality approach, focusing on personality traits, or the trust-based approach, concentrating on credibility, honesty, or reliabilitydimensions (Berens and Van Riel, 2004; Helm, 2005;Chetthamrongchai, 2010), showed disadvantages when measuringthe reputation perceived by the final customer (Newell andGoldsmith, 2001; Helm, 2005).
A literature review on the respective manifest variables of theexpectations-based approach resulted in five major, recurrentlystated indicators (Caruana, 1997; Fombrun and Riel, 1997; Saxton,1998; Fombrun et al., 2000; Berens and Van Riel, 2004; KeithMacMillan et al., 2004; Schwaiger, 2004; Walsh and Wiedmann,2004, 2004; Helm, 2005; Money and Hillenbrand, 2006; Vidaver-Cohen, 2007; Boshoff, 2009), which mostly were integrated inreputation measurement indices, such as Fombrun’s Reputation-Quotient™ (Fombrun et al., 2000; Helm, 2005). The scopes were asfollows: corporate social responsibility, financial success,employee friendliness, vision and product quality. Table A3 pro-vides an overview of the various proposed reputation constructsrelated to the expectations-based approach and the manufacturingindustry of the last 15 years. We would also like to refer to theextensive literature review of Berens and Van Riel (2004). The fivedimensions’ validities and reliabilities had been tested in variousprior studies (Fombrun et al., 2000; Schwaiger, 2004; Helm, 2005).
Other discussed dimensions such as cultural (Walsh andWiedmann, 2004; Ponzi et al., 2011) or emotional aspects(Schwaiger, 2004; Walsh and Beatty, 2007; Boshoff, 2009) werenot included in the treatments and the subsequent measurements.These dimensions had yet to be confirmed as essential. Problemsfurther occurred with surveys including anonymous companies(Schwaiger, 2004; Walsh and Wiedmann, 2004).
In (3) the newspaper article concerning firms’ collaboration, wefurther provided information on the components’ importance.Based on Voigt et al. (2006), elements could either be importantor unimportant. Importance was established through safetybecause safety is a basic characteristic of a car. Brake systemsand major motor components were described as relevant
Table 1Analyzed groups representing OEM’s and supplier’s reputations as well as compo-nents’ importance.
Supplier
+ o −
Ingredient + OEM + 1 9 2− 3 10 4
− OEM + 5 9 6− 7 10 8
Fig. 1. Sequence of m
ingredients, and car mats and door handles were described asirrelevant ingredients.
The above-mentioned indicators naturally served for (4) thequestions on reputation measurement. Formulations were basedon already published articles (Schwaiger, 2004; Walsh and Beatty,2011). Interviewees had to state their respective approval on aseven-point Likert scale (Dawes, 2008; Bradley, 2010). Moreover,the respondents had the option to mark an additional “notspecified” field. Additionally, the respondents could provide(5) general information such as comments at the end of thequestionnaire.
3.3. Design
In the experiment, we used a 2 (important, unimportantingredients)�2 (OEM with positive, negative reputation)�3(supplier with positive, neutral, negative reputation) between-subjects design. In total, 10 groups were considered as presentedin Table 1:
Independent variables were the OEM’s and the supplier’sreputation as well as the components’ relevance. The dependentvariable was the OEM’s reputation after the collaboration.
3.4. Procedure
In a pre-test, we validated the articles’ effectiveness. Theinterviewees received a document with a (1) random OEM or(2) supplier reputation. Then, the interviewees had to evaluate therespective firm through (4) the five questions. In the subsequentanalysis, we computed Cronbach’s alpha, averaged each respon-dent’s answers to a single figure and performed independent t-tests to verify whether good and bad firm reputations significantlydiffered from one another.
After the articles’ validation, we proceeded with the experi-ment. The respondents were randomly allocated to one of thedefined groups and received corresponding articles. With theexception of groups 9 and 10 with a neutral supplier, the inter-viewees received (1) an article describing the OEM’s reputation,(2) a text about the supplier’s standing and (3) information on thecooperation of the two firms and the ingredients’ importance. Therespondents then were asked to (4) answer the five questions toevaluate the OEM’s reputation. Subsequently, the respondentscould provide (5) general information on their gender and age orcomments. Fig. 1 illustrates this procedure. If interviewees wereassigned to group 9 or 10, they only received (1) the OEM’s articleand (4) and (5) subsequent questions. To ensure supplier neutral-ity, neither information on the vendor nor the ingredient wasprovided.
In the analysis, we first computed Cronbach’s alpha, averagedthe respondents’ answers to a single “corporate reputation” factor(Money and Hillenbrand, 2006; Fuchs and Diamantopoulos, 2009)and computed the groups’ means. We then tested homoscedasti-city with Levene statistics. Depending on the test result, we either
aterial disclosure.
Table 4Groups with overall reputation means, valid responses and standard deviations.
Group Ingredients’relevance
OEM’sreputation
Supplier’sreputation
Sample Mean Std.deviation
B. Lienland et al. / Journal of Purchasing & Supply Management 19 (2013) 84–9788
used an analysis of variance (ANOVA) or a Kruskal–Wallis-H-Test toidentify any group differences. Next, we focused on the respectivehypotheses/groups and employed single independent t-tests. Thesignificance level was at 0.05.
As shown in Table 2, in the pretest, the respondents’ answersshowed a high Cronbach’s alpha and the means of good and badreputations of the OEM and the supplier differed significantly.
In the experiment, the single reputation indicators had a highinternal consistency, yielding a reliable reputation factor. TheLevene test identified lacking homoscedasticity. The applied non-parametric Kruskal–Wallis-H-test strongly indicated differences.Table 3 provides more detailed results.
Groups were assumed to be normally distributed because everyunit was populated by more than 30 subjects and the central limittheorem held true (Hays, 1988; Lewis-Beck, 2004; Sirkin, 2006;Siegel, 2012). Table 4 depicts the respective group sizes and themeans of the OEM’s overall reputation after the cooperationannouncement. Means were higher in case of good OEM and/orsupplier standings. The manufacturer’s reputation had a greatereffect on the mean than the supplier’s reputation.
Results of the statistical analysis are presented in Table 5. At thetop of each data cell, the considered groups and correspondinghypotheses are stated; the bottom contains information on theapplied procedure, the degrees of freedom as well as the t- and p-values. Cells with significant group differences are indicated withbold letters.
The first column (7) of Table 5 only serves informationalpurposes and does not directly correspond to the suppositions.This column illustrates differences between sets with a good andsets with a bad supplier for varying ingredient importance andOEM reputation. Columns two and three exclusively focus on thehypotheses (H1 and H2) and exhibit divergences to groups with aneutral vendor. Concerning H1, for a good supplier, the resultsindicated that groups with unimportant ingredients or with apositive automobile manufacturer reputation showed no signifi-cant differences toward a neutral vendor. Consequently, H1ai, H1biand H1bj had to be rejected. However, because the low-rankedOEM improved its reputation through the good supplier providingimportant components, H1aj was supported (groups 3–10). Thesupplier had a positive effect on the OEM. The H2 hypothesesconcentrated on differences between a neutral and a negativesubcontractor. No disparity was identified for irrelevant compo-nents, and a bad OEM. H2bj was rejected. Significant deviations,however, occurred in groups with important integral parts or a
Table 2Results of the pretest.
Applied statistical test Result
Internal consistency Cronbach’s alpha¼0.932Differences between means—OEM t(23)¼10.475, po0.000Differences between means—supplier t(23)¼11.915, po0.000)
Table 3Results of the statistical tests based on the entire sample.
Applied statistical test Result
Internal consistency Cronbach’s alpha¼0.901Homoscedasticity Levene(555)¼2.266, po0.017Analysis of variance Kruskal(564)¼po0.000
positive OEM. Hence, the low-ranked supplier decreased theOEM’s good reputation. H2ai, H2aj, H2bi were supported.
5. Discussion
The research question of this article can be affirmed. Thesupplier’s corporate reputation is undervalued in vendor selec-tions because previous articles exclude the final customer as arelevant stakeholder (Dickson, 1966; Weber et al., 1991; Hyun,1994; Cheraghi et al., 2011). We showed that a supplier’s prestigesignificantly influences the end user’s perception of the hostbrand’s overall reputation. In particular, vendors with importantcomponents might alter the end user’s view on the manufacturerin one or another direction. Low-ranked ingredient brands mostoften decrease the main producer’s reputation.
The findings of this experiment are in accordance with those ofmost prior ingredient branding literature. The predominant role ofthe host brand is verified by other studies (Park et al., 1996;McCarthy and Norris, 1999; Washburn et al., 2000). The relevanceof the supplier brand, as found in this research, is approved byliterature (Levin and Davis, 1996; Park et al., 1996; Simonin andRuth, 1998; McCarthy and Norris, 1999; Vaidyanathan andAggarwal, 2000; Dickinson and Heath, 2006). A sub-contractor’snegative influence is also observed by Rao et al. (1999),Janiszewski and Osselaer (2000) and Washburn et al. (2000),except for Washburn et al. (2004). Positive consequences ofcooperation between a weak main brand and a good ingredientbrand are also affirmed (Venkatesh and Mahajan, 1997; McCarthyand Norris, 1999).
Table A1Literature overview of empirical studies estimating rankings of supplier selection factors.
Author Year Samplesize
Respondents Furthercategorizationin survey
Rankings
Quality Delivery Performancehistory
Warrantiesand claimsPolicies
Productionfacilitiesandcapacity
Price Technicalcapability
Financialposition
Proceduralcompliance
Communicationsystem
Reputationandposition inindustry
Desireforbusiness
Duncan 1939 87 National Association ofPurchasing Agents
Heavymachinery
1 5 3
Materials 1 2 4 3Supplies 1 2 4 3
Dickson 1966 170 National Association ofPurchasing Agents
1 2 3 4 5 6 7 8 9 10 11 12
Cunninghamand White
1973 139 International Machine ToolExhibition participants
3 1 2
Luffman 1974 14 Responsible from the valve(7 participants) and theearthmoving industries (7participants)
4 2 10 6 1 4 9
Lehmann andO’Shaughnessy
1974 45 Purchase agents of 19 U.S.and 26 British major firms ofdifferent industries
No problems 8 1 6 9 2 5 7 4
Proceduralproblems
8 3 9 1 7 1 12 6
Performanceproblems
3 1 7 2 6 5 12 4
Politicalproblems
2 2 8 7 1 6 10 2
Cunnighamand Roberts
1974 25 U.K. firms of the pump andvalve industry
1 3 3 9 2 7
Kiser et al. 1975 42 Purchasing ManagementAssociation of Cleveland
Standard 1 2 17 8 15 6 7 14 5 9 13
Special 1 3 17 7 13 9 6 15 5 10 12Banting 1976 76 Canadian pump and valve
manufacturers1 7 9 4 3 2
Dempsy 1978 379 Purchasing managers ofelectric and electronicsindustry
New - electric 3 1 8 18 11 6 4 12 10 15 13
New -electronic
3 1 10 18 7 5 1 9 16 13 10
Rebuy -electric
2 1 5 16 11 3 7 15 10 13 12
Rebuy -electronics
2 1 5 17 4 3 7 11 13 14 12
Kassicieh 1986 129 SMSA 1 5 4 6 2 3Abratt 1986 54 South African Chemical
Institute2 5 1 4
Wagner et al. 1989 62 Retail buyers of 4 divisionsof a retail store
Womenready-to-wear
4 3 1 2 4 6
Men ready-to-wear
5 3 1 2 3 5
Accessories 3 3 1 2 3 6Home division 4 2 3 1 5 5
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Table A1 (continued )
Author Year Samplesize
Respondents Furthercategorizationin survey
Rankings
Quality Delivery Performancehistory
Warrantiesand claimsPolicies
Productionfacilitiesandcapacity
Price Technicalcapability
Financialposition
Proceduralcompliance
Communicationsystem
Reputationandposition inindustry
Desireforbusiness
Cusumano andTakeishi
1991 72 Managers at automotivefirms (27 Japanese, 23Japanese in the U.S., 21 U.S.)
US 1 2 4 4 6 2
Japanese/US 1 2 7 2 6 2Japan 2 2 7 6 1 5
Shipley 1991 112 Directory of engineeringcompanies
4 6 5 11 1 7 10 9
Deng andWortzel
1995 227 Journal of commerceDirectory of United Statesimporters
11 1 13 10 8 5 3 14 6 4 7
Swift 1995 783 National association ofpurchasing management
1995 227 Journal of commerce Directory ofUnited States importers
12 9 15 2
Swift 1995 783 National association of purchasingmanagement
Single-sourcing
6 11
Dual-sourcing 6 11Mummalaneniet al.
1996 47 Purchasing managers of Chinesecompanies
6
Choi andHartley
1996 148 Purchasing managers of automotivefirms
Autoassemblers
14 5 14 14 9 9
Directsuppliers
11 7 11 11 9 9
Indirectsuppliers
9 6 9 9 13 13
Hirakubo andKublin
1998 143 Purchasing managers of Japanesemanufacturing firms
Standard 9 7Special
9 7Kannan 2002 411 Institute of supply management -
The educational society for resourcemanagement
8 12 13
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Table A2Literature overview of empirical ingredient branding studies.
Author Year Product Ingredient Method Subjects Tested hypotheses/research question Results
Saunders andWatt
1979 Chemical fibers Fiber Descriptive 100 females Ingredient branding is of value to the market not supported
Levin and Davis 1996 Brownies Chocolate chips MANOVA 70 students H1 Evaluation of a co-branded product will be an average of the evaluation of the individualbrands.
supported
H2 A brand’s equity will be enhanced by the addition of a brand that raises the evaluation of thestrategy; a brand’s equity will be diminished by the addition of a brand that lowers theevaluation of the strategy.
supported
Park et al. 1996 Chocolate Slim-Fast Comparison ofmeans
235 students H1 When an attribute is highly salient to at least one of the constituent brands, it is also highlysalient to the composite brand expansion (CBE).
supported
Cereal Waffles H2 When either one of the constituent brands is perceived to perform well on a highly salientattribute, the CBE also is perceived to perform well on that attribute.
supported
H3 An attribute regarded as highly salient and/or high performing in a constituent brand has agreater effect on the corresponding characteristic of the composite brand when thatconstituent brand is the header than when it is the modifier.
supported
H4 When the modifier brand is highly complementary to the header brand in attribute salienceand performance levels, a CBE strategy leads to more favorable reactions to the extensionproduct than does a direct brand extension.
partlysupported
H5 When a modifier brand is highly complementary to a header brand in terms of attributesalience and performance levels, the header brand in the CBE receives more positive feedbackthan (a) that brand in a direct extension and (b) the modifier brand in the CBE.
supported
Venkatesh andMahajan
1997 Notebook Processor Constant sumscale
192 students RQ1 Which combination should the seller offer – a Compaq personal computer with the Intel 486chip, or one of them with a complementary, unbranded component?
Intel processor
RQ2 What are the optimal selling prices, revenues, and profits when the seller chooses one of thesebranded components along with a complementary, unbranded component? What are the pricepremium and incremental profits from choosing both of the branded components?
Values providedin article
RQ3 From the perspective of each of the branded component manufacturers, with whom shouldthey align? What are their asymmetric gains or losses (in terms of revenues and consumervaluations) by combining with the other branded component rather than with an unbrandedcomponent?
Intel should notbe selective,+17% revenue.
McCarthy andNorris
1999 Peanut butter Peanuts ANOVA 258 students H1 Branded ingredients effects on (a) product quality perceptions, (b) confidence in productquality perceptions, (c) product evaluations, (d) taste perceptions, (e) purchase likelihoods,(f) reservation prices should be greater for moderate-quality host brands than for higher-quality host brands
only aand c supported
Salsa sauce Tomatoes ANCOVA H2 Any significant effects of branded ingredients on (a) confidence in product quality perceptions,(b) product evaluations, (c) taste perceptions, (d) purchase likelihoods, (e) reservation priceswill be mediated by product quality perceptions
only a,b, d, esupported
Rao et al. 1999 Television Reducedvolume
ANOVA 120 mallshoppers
H1 When the observability of product quality is low, overall perceptions of quality will be higherwhen the nondissipative signal provided by the brand ally is vulnerable to consumer sanction,relative to when this signal is not vulnerable to consumer sanction.
supported
H2 When the observability of product quality is high, overall perceptions of quality will not besignificantly different, regardless of the vulnerability of the nondissipative signal provided bythe brand ally.
supported
H3 When the observability of product quality is low, overall perceptions of quality will be higherwhen the dissipative signal provided by the brand ally is vulnerable to consumer sanction,relative to when this signal is not vulnerable to consumer sanction.
supported
H4 When the observability of product quality is high, overall perceptions of quality will not besignificantly different, regardless of the vulnerability of the dissipative signal provided by thebrand ally.
supported
Vaidyana-thanand Aggarwal
2000 Cereal Raisins MANOVA 175 students H1 Attitude towards an unfamiliar private brand product with a familiar national brand ingredientwill be more favorable than that towards an unfamiliar private brand product with anunbranded ingredient.
supported
H2 Quality perceptions of an unfamiliar private brand product with a familiar national brandingredient will be more favorable than that of an unfamiliar private brand product with anunbranded ingredient.
supported
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H3 Attitude towards a familiar national brand name (ingredient) will not be unfavorably affectedby an association with an unfamiliar private brand product
supported
H4 Quality perceptions of a familiar national brand name (ingredient) will not be unfavorablyaffected by an association with an unfamiliar private brand product.
supported
Washburn et al. 2000 Potato chip Barbecue sauce ANOVA 139 students H1 The pretrial brand equity of the composite brand will depend on the brand equity of the twoconstituent brands. The brand equity scores of the composite brand combinations will fall inorder from highest to lowest as follows: (1) high equity/high equity (HE/HE); (2) high equity/low equity (HE/LE) and low equity/high equity (LE/HE); (3) Low equity/low equity (LE/LE).
partlysupported
H2 The brand equity of a HE/HE composite brand will remain stable or increase slightly with apositive product trial.
supported
H3 The brand equity of a HE/LE or LE/HE composite brand will increase with a positive producttrial.
supported
H4 The brand equity of an LE/LE composite brand will increase with a positive product trial. supportedH5 The brand equity of a high equity constituent brand paired with another high equity brand will
remain stable following a positive product trial.supported
H6 The brand equity of a high equity constituent brand paired with a low equity constituent brandwill remain stable following product trial.
supported
H7 The brand equity of a low equity constituent brand paired with a high equity brand willincrease following a positive product trial.
supported
H8 The brand equity of a low equity constituent brand paired with another low equity constituentbrand will remain stable following product trial.
not supported
Desai and Keller 2002 Bath soapShaver
OdorMoisturizer
ANOVA,ANCOVA
262 students H1 The evaluations of expansions with a cobranded ingredient will be more favorable than theevaluations of expansions with a self-branded ingredient
supported
Cereals Fruits, Coughsreliever
H2 The beneficial effect on evaluations of expansions with a cobranded versus a self-brandedingredient will be greater with new attribute expansions than with slot-filler expansions
not supportedSweets
H3 Extension evaluations will be comparatively more favorable for a cobranded than a self-branded ingredient for new attribute extensions. In contrast, extension evaluations will becomparatively more favorable for a self-branded than a cobranded ingredient for slot-fillerextensions.
supportedCandy bar ChocolateChocolate Slim-Fast
Washburn et al. 2004 Paper towel Disinfectant ANOVA 134 students H1 Two high-equity brands paired together will each have higher brand-equity ratings than priorto the pairing.
supported
H2 Both high-equity brands and low-equity brands, when paired with each other, will have higherbrand-equity ratings than prior to the pairing.
supported
H3 Two low-equity brands paired together will each have higher brand equity ratings than prior tothe pairing.
supported
H4 Consumers’ evaluations of search attribute performance will be the same for high-equitybrands paired with high-equity brands, high-equity brands paired with low-equity brands, andlow-equity brands paired with low-equity brands.
supported
H5 Consumers’ evaluations of experience attribute performance will be highest for high-equitybrand combinations, followed by mixed high- and low-equity brand combinations and lowestfor the low equity brand combinations prior to product trial.
partlysupported
H6 Consumers’ evaluations of credence attribute performance will be highest for high-equitybrand combinations, followed by mixed high- and low-equity brand combinations and lowestfor the low equity brand combinations prior to product trial.
supported
H7 Search attribute ratings after trial will not change versus search attribute ratings before trial forany brand combination.
supported
H8 Product trial will moderate consumers’ performance evaluations of the low-equity/low-equitybrand alliance on experience attribute performance ratings. The low-equity/low-equity brandexperience attribute performance ratings will increase after trial, whereas all high-equity brandcombinations will remain stable.
supported
H9 Credence attribute ratings after trial will not change versus credence attribute ratings beforetrial for any brand combination.
supported
H10 Brand-equity ratings of the brand alliances will fall in order from highest to lowest as follows:high equity/high equity, high equity/low equity, low equity/high equity, and low equity/lowequity.
350 students H1 Attitudes toward the brand alliance are related positively to post exposure attitudes toward thebrands
supported
H2 Prior attitudes toward a partner brand are related positively to post exposure attitudes towardthe same brand
supported
H3 Prior attitudes toward the brands are related positively to attitudes toward the brand alliance supported
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Table
A2(con
tinu
ed)
Author
Year
Prod
uct
Ingred
ient
Method
Subjects
Tested
hypotheses/resea
rchqu
estion
Results
H4
Prod
uct
fitis
relatedpositivelyto
attitudes
towardthebran
dallia
nce
supported
H5
Brandfitis
relatedpositivelyto
attitudes
towardthebran
dallia
nce
supported
H6
Forlower
(higher)leve
lsof
bran
dfamiliarity,
theeffect
ofthebran
dallia
nce
onpost-attitudes
will
belarger
(smaller)
not
supported
H7
Forlower
(higher)leve
lsof
bran
dfamiliarity,
theeffect
ofthepre-on
post-attitudes
will
besm
aller(large
r)not
supported
H8
Forlower
(higher)leve
lsof
bran
dfamiliarity,
theeffect
ofprior
attitudes
onthebran
dallia
nce
will
besm
aller(large
r)not
supported
H9
Brandsless
(more)
familiar
than
theirpartnerswill
contribute
less
(more)
than
theirpartner
tothebran
dallia
nce
not
supported
H10
Brandsless
(more)
familiar
than
theirpartnerswill
experience
stronge
r(w
eake
r)sp
illov
ereffectsthan
theirpartners
not
supported
H11
Highly
familiar
bran
dswill
contribute
equally
tothebran
dallia
nce
not
supported
H12
Highly
familiar
bran
dswill
experience
equal
spillov
ereffects
not
supported
Dickinsonan
dHea
th20
06Diverse
(con
sumer/
automotive)
Diverse
(con
sumer/
automotive)
Pearson
produ
ct-
mom
ent
correlation
194studen
tsH1
Higher
qualityperceptionstowardtheoriginal
bran
dsareassociated
withmorefavo
rable
consu
mer
evaluationsof
theco
-brand.
supported
H2
Higher
perceived
fitbe
twee
ntheoriginal
bran
dsis
associated
withmorefavo
rableco
nsu
mer
evaluationsof
theco
-brand.
supported
H3
Greater
perceived
difficu
ltyof
man
ufacturingtheco
-branded
offeringis
associated
withmore
favo
rableco
nsu
mer
evaluationsof
theco
-brand.
supported
B. Lienland et al. / Journal of Purchasing & Supply Management 19 (2013) 84–9794
Results of this work should be interpreted within its context.First, we utilized one specific industry sector. Thus, the findingsmight not be transferable to other industries. For example, finalcustomers of different sectors might not value the ingredients butonly the service related to the product. Second, the survey wasperformed online, excluding a considerable part of the populationwithout access to the Internet. Third, similar to the statedempirical ingredient branding studies (compare Table A2), weapplied a non-probability convenience sampling. Because random-ness could not fully be assured, biases might have occurred. Thestudy’s participants, e.g., might have had different conventional-ities or brand attitudes than the sample frame. Consequently,further research applying different sampling techniques isrequired to support this survey’s results.
Findings would additionally be strengthened by studies incor-porating real firms and real products. One advantage of using realfirms would be the potential inclusion of long-term effects. A finalcustomer’s experience with a product’s characteristic could beincorporated in a study’s design. Components that did not have aninfluence on the OEM brand in the short run might be highlyvalued in the long run. For example, if specific ingredients providethe car with high durability, the final customer’s interest in thesupplier might only be given in the long term. However, a majorchallenge to using real firms is considering participants’ priorattitudes toward the firms.
Moreover, prospective research needs to verify whether cars’special characteristics such as luxury or adventure have aninfluence on ingredient branding. A potential working hypothesiscould be that the desire for additional features catalyzes the effectsof ingredient branding. Even irrelevant components, such as doorhandles or car mats, might then also significantly influence theOEM’s reputation.
Further research could also analyze organizational aspects,such as behavioral aspects resulting from the collaboration ofthe OEM’s marketing and purchasing departments. To date,purchasing departments typically only focus on the requirementsof the industrial engineering and respective cost departments.Additional interfaces increase complexity and coordination efforts.
6. Implications
The findings of this study have an impact on supplier selectionfactors in theory and in practice. To date, corporate reputation isundervalued in surveys and approaches in the literature (compareSection 2.1) because the end customer, as a significantly influen-cing stakeholder, is excluded. Consequently, theory should reas-sess the reputation factor and include the final client.
Regarding managerial implications, it can be stated that withcurrent approaches, a suboptimal vendor selection is performed inpractice. Neglecting corporate reputation during the supplier-selection process means that purchasers as well as vendors aremissing out on opportunities for improving their business situa-tion. The incorporation of the supplier’s reputation as perceived bythe final customer results in a more effective supplier-selectionprocess. Integrating parts of positively regarded suppliers willstrengthen the perceived reputation of the purchasing firm andits product. As such, an OEM profits by rising volumes or theability to charge premium prices for its products. An exclusiveagreement between an OEM and a supplier could be an advantageover competitors that are not able to access parts that are highlydesired by end customers.
Suppliers, in contrast, are able to gain a stronger position fornegotiating terms and conditions with OEMs, provided that theend customer is aware of the supplier and its positive image.Therefore, high-quality suppliers should establish and maintain
Table A3Literature overview of reputation constructs related to the expectations based approach and the manufacturing industry of the last 15 years.
Author Year Dimensions
Corporate socialresponsibility
Financial success Employeefriendliness
Vision/leadership Product quality Other
Caruana 1997 Sponsors manyactivities
Profit Organization atworkplace/offers agood job
Quality ofmanagement
Producer of qualityproducts
Quality advertising; level ofadvertising; diversifiedcompany/group; exports;publishes annual accounts;size of company; conductfactory tours; wide productrange; long experience;trained employees
Fombrun and VanRiel
1997 Socialresponsibilities
Economicperformance
Saxton 1998 Social performance Financialperformance
Managementperformance
Product quality;service quality
Market leadership; brandimage
Fombrun 2000 Social andenvironmentalresponsibility
Walsh and Beatty 2007 Social andenvironmentalresponsibility
Reliable andfinancially strongcompany
Good employer Product and servicequality
Customer orientation
Boshoff 2009 Socialresponsibility
Reliable and strongcompany
Employee relations Quality productsand services
Customer orientation
B. Lienland et al. / Journal of Purchasing & Supply Management 19 (2013) 84–97 95
their own final customer reputation. As such, these suppliersmight be able to benefit from a pull effect created by endcustomers specifically asking OEMs for a certain supplier part.
Thus, OEMs as well as suppliers should reconsider theiralignment concerning the final customer awareness. As part ofthese considerations, OEMs and suppliers should also start toassess the possibilities related to cooperative marketing; i.e.,highly regarded suppliers could be part of the OEMs’ marketingcampaign, similar to the “Intel inside” campaign (for furtherinformation on implementation concepts, see, e.g., Norris, 1992;Kotler et al., 2010).
7. Conclusion
Reputation is an undervalued factor in supplier selection.Current descriptive and prescriptive literature only refers toreputation as the position within the industry (Dickson, 1966;Weber et al., 1991). This view contradicts most reputation defini-tions, which include the final customer as a stakeholder (Fombrunand Riel, 1997; Gotsi and Wilson, 2001; Walker, 2010). We haveshown that an industrial manufacturer’s prestige perceived by thefinal customer is dependent on the ingredient brand. In particular,the overall reputations of well-positioned host firms significantlysuffer from suboptimal vendor selection. Contrary, low-rankedcompanies benefit from a strong supplier with important compo-nents. Our study impacts theory and practice. Future surveys andselection approaches should increase their focus on reputation.
Manufacturers as well as suppliers need to realign their selectionfactors—the former to assure their reputation, and the latter toimprove planning quality and to guarantee future sales andfirm value.
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