The Impact of Corporate Reputation on Organisational Performance

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Literature Review: Can Organisations Leverage Their Reputation as a Source of Competitive Advantage within Ireland’s Telecommunications Industry?

Introduction

This literature review section is organised thematically to examine the state of current studies regarding corporate reputation. While several studies have focused on corporate reputation management within consumer markets, this literature review examines corporate reputation management within the realm of business markets. The review seeks to critically examine the findings of the previous research to offer direction for the current study based on the identified research gap.

Brand Image and Corporate Reputation in Business Markets

Brand image and corporate reputation are two different concepts that are often used interchangeably. According to Ettenson and Knowles (2008), brand is customer-centric while reputation is company-centric. Branding focuses on what an organisation does mainly through marketing communication to influence how customers perceive its products and services. Corporate reputation, on the other hand, depends on the activities and practices that a firm engages in and how these activities and practices are perceived by various stakeholders such as customers, employees, and suppliers.

Business organisations often seek to enhance their brand image to increase consumer loyalty and gain a competitive advantage in the market. Brand image plays an integral role in determining how consumers make purchasing decisions. While branding differences in business and consumer markets are diminishing according to Cretu and Brodie (2007), some differences still persist. The authors argue that these differences are caused by disparities in buying processes for consumer and business markets. They suggest that the purchasing processes for business markets entail significantly direct interactions with the organisation making sales compared to purchasing processes in consumer markets. Since products may be more technical in business markets, personal selling is likely to be common. Business organisations can, therefore, engage in direct selling to build relationships between themselves and buyers.

The importance of personal selling in business markets is also emphasised by Arslanagić, Babić-Hodović and Mehić (2013). The authors argue that word of mouth messages and personal sources play a pivotal role in influencing organisational customers’ perception regarding the perceived value of a service or product. Similar findings were made by Abdolvand and Norouzi (2012) who established that corporate reputation influences customer perceived value and, therefore, word of mouth marketing in B2B business markets. Hartmann (2011), however, suggests that personal selling is not only limited to the selling organisation but can also be practiced but existing customers whose needs and expectations have been satisfied by a business organisation in the business market. The formation, quality, and influence of personal sources and word of mouth communication depends on how the practices of the organisation have affected consumer perception regarding service and product quality. Wilson (2000) supports this argument by suggesting that in word of mouth selling, satisfied consumers tend to focus on the technical or rational aspects of a product or service instead of the emotional benefits that can be derived by using those products and services.

According to Cretu and Brodie (2007), it is important to have a wider based conceptual framework when investigating corporate reputation and branding issues in business markets than the conceptual framework that has traditionally been used when exploring branding and reputation issues in consumer markets. As a result of this need, Mudambi (2002) and Bendixen, Bukasa and Abratt (2004) developed models to explore the issue of branding in business markets. According to Bendixen, Bukasa and Abratt (2004), brand image plays an important role in determining customer choice in business markets. The authors also investigated the importance of technology, price, and delivery versus brand image in customer purchasing decisions in business markets. The findings of the study show that while customers may focus on the technical aspects of a product or service, brand name still plays an important role in influencing customer purchasing decisions in these markets. The authors, however, paid little attention to the distinction between company reputation and brand image.

The model developed by Mudambi (2002), however, examined the influence of both product and service attributes versus branding attributes on customer buying decisions in business markets. The author defines product attributes as its physical properties and the price. Service attributes, on the other hand, include technical support services, working relationship quality, and ordering and delivery services. Branding attributes include how well the supplier is known and the general reputation of the supplier. The research involved a sample of 116 firms in the UK. The findings showed that a third of the companies studied were “branding receptive”. Such companies tend to be loyal to a specific supplier. The rest were more concerned about the ability of an organisation to meet their needs and expectations. While the research conducted by Mudambi (2002) provides important insights into the distinction between influences of brand image and corporate reputation on customer purchasing decisions in business markets, more research should still be conducted on the subject to refine it and present more useful and practical marketing solutions in business-to-business marketing.

Corporate Reputation and Organisational Performance

While brand image and corporate reputation have often been used interchangeably, Mudambi (2002) made a distinction between the two concepts using a model that he developed for his study. Since then, more studies have examined the effects of corporation reputation on customer organisational performance. Keh and Xie (2009) carried out a study that specifically examined the concept of corporate reputation in the business environment. The authors argue that while corporate reputation usually takes a long time to build, it can be destroyed within a short time. They further suggest that corporate reputation can provide a sustainable competitive advantage for an organisation. Capozzi (2005) also finds that corporate reputation can be leveraged as a source of competitive advantage in the marketplace. The author argues that a good corporate reputation is built over time and is an intangible asset that cannot easily be imitated by competitors.

The advantages and risks posed by corporate reputation to a business organisation are also captured by Fombrum, Nielsen and Trad (2007). The authors find that while corporate reputation can be exploited to gain a competitive edge in the business environment, reputational damage can erode competitive advantage and result in poor financial performance. They suggest that organisations should develop strategies aimed at minimising reputational risks even as they leverage corporate reputation as a source of competitive advantage in the market. Ultimately, corporate reputation can result in the creation or destruction of financial value. Other than financial challenges, a crisis can also cause non-financial challenges such as the loss of investor confidence and pressure from shareholders, customers and suppliers. Employees can also be demoralised by reputational crisis because they are often seen as the face of an organisation. Chun and Davies (2006) also suggest that corporate reputation plays an important role in determining organisational performance. The authors, however, argue that various aspects of reputation affect different stakeholders differently. Organisational competence improves employee morale and their job performance. Highly performing employees improve organisational performance and profitability. Employee satisfaction often results in improved quantity and quality of job output. A corporate reputation of competence, therefore, plays a critical role in motivating the workforce and driving the organisation towards the realisation of its profit objectives. A firm with a reputation for innovation, on the other hand, enhances customer satisfaction which in turn improves its performance in the marketplace.

Corporate reputation also impacts the performance of an organisation by influencing investor decisions. Helm (2007) finds that corporate reputation determines initial investment decisions, potentially resulting in stock choices that have a positive effect on the financial performance of the firm. Corporate reputation is a key determinant of the development of investment risk and return expectations. However, the choices made by investors are not universal as shown by the detrimental choice theory. Investors may make initial investment decisions that favour corporations with bad reputations because of the high-risk high-return theory. Alternatively, some investors can choose to invest in corporations with good corporate reputation because they consider such investments as safe and would, therefore, guarantee return on investment. Investors that view good stocks to invest in as those of good companies often associate such stocks with high future earnings. Good corporate reputation is likely to result in improved performance in the market and, therefore, higher returns. The importance of corporate reputation in the financial performance of an organisation is further emphasised by Larsen (2002) who claims that organisations do not manage their reputations for any other reason other than financial performance. Hammond and Slocum (1996) also argue that a good corporate reputation allows companies listed on financial markets to record better performances. Such firms can also charge premium prices for their products and services to improve their bottom lines. The authors further suggested that firms with good corporate reputation can attract the best talent in order to enhance their competitive advantage in the business environment. Intense competition in the market has made creativity and innovation an important source of competitive advantage. Attracting the best employees in the labour market enables an organisation to leverage its workforce as a source of competitive advantage through creativity and innovation.

Sustainability and Business-to-Business Marketing

The impact of corporate reputation on business performance cannot be examined without exploring the effect of sustainability practices on corporate reputation and the performance of an organisation. Sustainability has become an increasingly important issue in the current business environment. Organisations are facing more pressure to ensure that their activities do not result in negative impacts on the environment and society (Finkbeiner et al., 2010). Sustainability is made up of three pillars: people, profits, and the environment. The “people” aspect of sustainability emphasises that corporations should consider the needs of stakeholders when developing their business strategies (Kuhlman and Farrington, 2010). A key concept that has been influenced by the “people” aspect of sustainability is corporate social responsibility.

While CSR is a common success factor in consumer markets, it has not been a key issue in business markets. However, Homburg, Stierl and Bornemann (2013) argue that CSR is just as important in business-to-business marketing. The authors claim that using instrumental stakeholder theory, the CSR engagement of a supplier has been determined to have an impact on organisational customer outcomes. The authors argue that CSR practices have a positive impact on organisational customers’ loyalty. Customer loyalty is fostered through business practice CSR. The revelation means that an organisation must actually engage in CSR activities and not merely use marketing efforts to enhance brand image. The reputation of an organisation regarding sustainability in business markets is, therefore, built through CSR activities that the firm engages in. Such practices foster the trust of customers and improve loyalty. The authors suggest that to build a good corporate reputation through CSR, suppliers in business-to-business contexts must systematically analyse the expectations of their customers regarding CSR practices and compare these expectations with their CSR corporate reputation. Lai et al. (2010) also argue that CSR can be used to build corporate reputation and improve the performance of an organisation. They claim that CSR and corporate reputation have a positive effect on brand equity and performance in business-to-business markets. Their findings show that CSR activities positively improve the corporate reputation of a supplier in business markets, in turn enhancing the supplier’s brand equity and performance in the marketplace. By engaging in CSR activities, organisations demonstrate that they are not only driven by profit ambitions. Although Friedman (2007) argues that the social responsibility of corporations is to maximise profits, studies have shown that business strategies that are only motivated by the desire to maximise profits can damage the reputation of an organisation. Profit objectives should be balanced with CSR efforts to achieve a sustainable competitive advantage in the market (Nidumolu, Prahalad and Rangaswami, 2009).

CSR expectations between suppliers and organisational customers are heightened in a global supply chain. Business organisations are facing increasing pressure to ensure that they achieve supply chain sustainability especially in relation to the treatment of workers along the global supply chain (Seuring and Müller, 2008). Organisational customers may opt out of making purchases from suppliers with a reputation for treating workers poorly because of the potential reputational damage and legal implications (Goworek et al., 2012). The clothing industry is one of the most affected industries concerning the mistreatment of workers by suppliers. Some UK clothes retailing firms have their clothes supplied from factories located in India and Bangladesh. Due to poor labour laws in these countries and the lack of political will to ensure that workers are treated better, employees are forced to work under poor conditions (MacCarthy and Jayarathne, 2012). They are often made to work for long hours with minimum pay. Organisational customers can be subjected to investigations from regulatory authorities and backlash from activists and consumers. As a result, they can suffer reputational damage and this may have a negative impact on their financial performance. CSR in the global marketplace is, therefore, a critical success factor (Du, Bhattacharya and Sen, 2010). Some firms have developed strategies to ensure that their suppliers engage in CSR practices that will enhance the welfare of workers and safeguard their reputations.

A common strategy that some organisations use to ensure that workers are not mistreated by suppliers is supply chain auditing (Carter and Liane Easton, 2011). Through auditing, organisational customers can ensure that suppliers engage in CSR practices that improve the well-being of employees and the community. Many firms have also invested in supply chain technology to enhance collaboration with suppliers and reduce cases of employee mistreatment. Organisational customers can also develop procurement policies aimed at ensuring that products and services are only procured from organisations with a reputation for engaging in CSR practices. Suppliers with good corporate reputations will, therefore, gain a competitive edge in the business market.

The “environment” aspect of sustainability is also an important determinant of corporate reputation regarding sustainability in       B2B markets. Climate change and environmental degradation have amplified the need for organisations to consider the effects of their activities on the environment. According to Sharma et al. (2008), environmentally sustainable strategies can improve competitive advantage and result in superior financial performance. Organisations that embrace green practices are, therefore, likely to perform better than those whose activities result in significant environmental degradation (Orlitzky, Siegel and Waldman, 2011). Environmental sustainability is also a major issue for organisational customers with a global supply chain. Such firms in B2B markets tend to engage with suppliers with a reputation for environmentally sustainable practices. Corporate reputation regarding environmental sustainability, therefore, influences how customers engage with suppliers in business markets.

Corporate Reputation Building and Customer Purchasing Intentions

Customers are some of the most important stakeholders for any organisation and, therefore, most companies seek to enhance their corporate reputation to positively influence consumer purchasing intentions. Corporate reputation has a positive effect on the trust of organisational customers in B2B markets. Suppliers with favourable corporate reputation benefit from customer trust and identification. According to Keh and Xie (2009), customers are likely to believe that highly-reputable firms are honest, competent, and consider the interests of other stakeholders when making decisions. Customers are also willing to associate themselves with such companies for self-enhancement purposes. The authors argue that highly-reputable firms can gain a competitive advantage in the market through their good reputation. Corporate reputation also influences consumer trust and, therefore, purchasing intentions. Consumer purchasing decisions are more influenced by the trust that they have towards an organisation than the prices charged for products or services. The finding shows that customers are likely to be more willing to pay premium prices to obtain the products and services of reputable organisations. However, customer commitment has a much more significant impact on customer purchasing intentions than trust. Customers that are strongly committed towards their suppliers can pay higher prices to obtain products and services (Walsh et al., 2009).

Unlike brand image, corporate reputation does not rely on marketing efforts alone. Organisations cannot, therefore, enhance their reputations among customers simply through marketing campaigns. Suppliers must consistently provide high quality products and services to be considered as reputable firms. Reputation building thus involves wide ranging initiatives designed to enhance and sustain corporate reputation. According to Fombrum, Nielsen and Trad (2007), organisations can only build their reputation among customers when their actions and marketing communications make them relevant to their needs and expectations. Organisations should, therefore, actively seek to understand the needs and expectations of customers to effectively cater to those needs and expectations in the business environment. The reputation of suppliers among organisational customers is enhanced when their products and services meet the needs and interests of these customers. An outside-in approach is required by suppliers to understand how their activities and practices can increase their relevance to organisational customers.

To enhance their reputation among customers and influence their purchasing decisions, suppliers must identify key stakeholders that can damage or build the reputation of the company among organisational customers. Word of mouth has been identified as an effective method of building the reputation of an organisation in the B2B market. Influential stakeholders can have a positive effect on the corporate reputation of a supplier among organisational customers. Identifying them is, therefore, an important step towards reputational building. Suppliers should also conduct research to establish how these stakeholders perceive the company in order to develop strategies on how to shape their perceptions in a way that builds the reputation of the firm. Supplier firms must also identify corporate attributes that are most relevant to the key stakeholders identified. In a manner that is consistent with marketing efforts, supplier firms should define how their present practices are meeting the needs and expectations of these stakeholders and afterwards develop effective initiatives to enhance corporate reputation among the stakeholders. The necessity of these actions is informed by the important role that word of mouth and personal selling play in influencing organisational customer purchasing decisions in B2B markets. Supplier organisations must also engage key stakeholders through personalised initiatives and communications. Suppliers must also track the impacts of these initiatives in building corporate reputation.

Corporate Reputation in the Era of Information Technology

The need to track reputation building initiatives shows that technology also plays a central role in how corporations build and sustain their reputations. For instance, Telefonica, Spain’s telecom giant, has invested in a system that enables it to track its reputation. The reputing platform is an indication of the firm’s commitment towards improving its reputation in the marketplace and ensuring that its activities meet the needs and expectations of customers. Jones, Temperley, and Lima (2009) also argue that the Internet has expanded the ability of organisations to manage their reputations and influence customer purchasing intentions. The authors argue that online reputation monitoring is increasingly becoming a critical management practice for marketing and public relations professionals. Shirky (2008) supports this assertion by arguing that the Web allows for the free flow of unfiltered information. While previous studies have indicated that corporate reputation is mainly determined by the initiatives of an organisation, Shirky (2008) argues that the communication efforts of a company also play a pivotal role in shaping how a company is perceived in the marketplace. Conversations taking place online can, therefore, influence how an organisation is perceived regarding its reputation in the business environment (Mangold and Faulds, 2009).

Online conversations especially have a significant impact on reputation perception among individual consumers and small businesses. Social media platforms such as Facebook and Twitter have millions of followers who visit the sites frequently and engage with audiences from different parts of the globe (Gillin, 2008). A topic can trend on these platforms within a short time because of the large number of audiences. The reputation of an organisation can, therefore, be damaged within the least possible time (Kaplan and Haenlein, 2010). Audiences may not necessarily seek to know the truth and can often strive to support the popular opinion even if it is untrue. Such possibilities expose organisations to substantial reputational risk, more so because competitors can sponsor popular users to malign the reputation of an organisation. The term “influencer” has become common in the social media marketing realm because of the influence that these individuals wield. They shape opinion and can be contracted by companies to market their products and services (Booth and Matic, 2011). Unfortunately, influencers can also use the reputation that they have built on social media platforms to bring down corporations in favour of their rivals. They can be paid by rival businesses to tarnish the reputation of competitors and negatively shape public opinion towards these enterprises (Dijkmans, Kerkhof and Beukeboom, 2015). An organisation that does not monitor its reputation online can suffer significant reputational damage and find it difficult to successfully compete in the marketplace (Culnan, McHugh and Zubillaga, 2010). Firms can lose their competitive advantages and wind up their businesses because of this type of reputational damage. However, organisations that have established a robust presence on social media platforms can speak their truths and conduct damage control. They can engage users on these platforms and correct the falsehoods peddled by rivals or influencers that have been paid by rivals.

While organisations can suffer reputational damage as a result of falsehoods being spread online, they can also have their reputations damaged by unsatisfied customers (Walker, 2010). Most customers have access to the Internet and are users on social media platforms (Hanna, Rohm and Crittenden, 2011). They can use these sites to share negative feedback regarding the quality of services or products supplied. Other social media users can engage in these conversations, further increasing their visibility and doing more harm to the reputation of the concerned organisation. Organisations must, therefore, establish a presence on these platforms to solve consumer issues and mitigate significant reputational damage that might occur as a result of negative customer feedback. Customer Relationship Management (CRM) software can help organisations to manage consumer complaints and issues and ensure that they are effectively addressed. Prompt feedback limits the damage that can occur as a result of poor quality of services and products (Einwiller, Carroll and Korn, 2010). Organisations that do not invest in informational technology to manage customer issues can suffer reputational damage and record poor financial performances.

Firms do not have to wait for issues to arise in order to provide solutions. Organisations can also use the web to determine customer needs and expectations in order to develop initiatives to meet these needs and expectations in time (Ngai, Xiu and Chau, 2009). Changing consumer preferences dictate that organisations must always stay ahead of customers and provide products and services that meet these changing needs. The Internet is an ideal source for collecting information and determining consumer needs and expectations (Lin, Chen and Kuan-Shun Chiu, 2010). Web 2.0 enables business organisations to collect and analyse consumer data in order to develop business strategies that improve their reputation among customers (Reimann, Schilke and Thomas 2010). Information is an important source of competitive advantage in the current marketplace. Firms can, therefore, use knowledge to outperform rivals in the market and achieve their profit objectives. Organisations that do not leverage information as a source of competitive advantage are unlikely to meet consumer needs effectively. Information management does not only entail the use of the technology to understand consumer needs and preferences but it also involves, as argued by Hanna, Rohm and Crittenden (2011), the careful calibration of information aimed at building the reputation of an organisation.

The literature review shows that reputation management is a critical marketing issue in the business environment. The reputation of an organisation can be used to gain a competitive advantage in the market in business-to-business marketing. Unlike brand management that is mainly shaped through marketing communication, reputation management focuses on the activities of an organisation in the market and how they shape customer perception regarding the value of products and services offered by a firm in the market. The reputation of an organisation is built over time. However, it can be damaged within a short time when the activities of the organisation do not meet consumer expectations.

Research Gap

Many studies have examined reputation management and its use as a source of competitive advantage in business markets. No study has, however, explored whether corporate reputation can be leveraged as a source of competitive advantage in Ireland’s telecommunication industry with a focus on business-to-business marketing. The current study aims to fill this research gap by examining whether organisations can leverage their reputation as a source of competitive advantage within Ireland’s telecommunications industry.

References

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