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8/14/2019 Universiti Teknologi MARA Kelantan

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Universiti Teknologi MARA Kelantan CSSR 2009

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The Impact of Companys Corporate Reputation on its Competitive

Advantage in the Market

Zainudin Bin Hj Awang*1

, Khairunisa Binti Hassan2

1. Faculty of Info. Tech. and Quantitative Sciences, MARA University of Technology, Kelantan2. Commerce International Merchant Bankers, Kota Bharu, Kelantan

* [email protected]

ABSTRACT

The competition for customers is stiff when the rate of increase in the number of competitors offeringsimilar products to the market is faster than the demand from customers. Perhaps the positive impactof its corporate reputation could help the firm to survive and grow in this highly competitivemarketing environment. This study attempts to assess the influence of corporate reputation of the

firms on the customers perceived quality towards their products and their competitive edge in the

market. The study obtained 400 usable questionnaires from household respondents who wereshopping furniture for their newly completed bungalows. The data were collected using self-administered questionnaires and analyzed using Structural Equation Modeling (SEM) in AMOS 16.0.The study found the influence of firms corporate reputation on the perceived quality of its products is

highly significant. The study also found the influence of products perceived quality on thecompetitive advantage of the firms is highly significant. However, the direct influence of firmscorporate reputation on the competitive advantage of its products is not significant at = 0.05. Inother words, the favorable corporate image of a firm has an indirect effect on its competitiveadvantage in the open market competition through the perceived quality towards its products. The

results indicate that the firms corporate reputation is only helpful in marketing only if it could triggerthe perceived quality for their products in the eyes of their potential customers. The findings of thestudy provide important implications to the manufacturers of competitive products in their effort to

push their output into the market and, more importantly, to ensure the survival of their business intothe future.

Keywords: Corporate Reputation, Perceived Quality, Competitive Advantage


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1. ITRODUCTIO

The market for household furniture in Kelantan has becoming competitive lately in the sense that the

rate of increase in the number of firms offering the products is higher than the rate of increase in

demand for the products itself. As usual, in the highly competitive environment among the

competitors, the customers are being exposed to almost similar range of products choices, aggressive

sales promotion, and price war. The corporate reputation literatures revealed that the competing firms

could differentiate themselves from their competitors and achieve the competitive advantage by

deploying valuable resources and capabilities that are superior, scarce, and inimitable (Roberts and

Dowling, 2002). This study was interested to determine the influence of corporate reputation of the

competing firms on the competitive advantage of that particular firm in term of customers

purchasing behavior for household furniture.

2. LITERATURE REVIEW

2.1 Definition of Corporate Reputation

Business literatures define corporate reputation as the stakeholders overall impression of an

organization overtime (Bailey, 2005), and it reflects the organizations relative standing, internally

with its employees, and externally with its other stakeholders (Fombrum et al., 2000). The literatures

also suggested the corporate reputation as the outcome of managers efforts to prove their success and

excellence in managing the organization. The firms could achieve favorable levels of corporate

reputation through acting reliable, credible, trustworthy and responsible in the market in the eyes of

their stakeholders. The prominent researcher in the area such as Fombrum (1996) defines corporate

reputation as a perceptual representation of a companys past action and future prospects that describe

the firms appeal to all its key constituents when compared to other leading competitors. Other

researchers in the area, Shenkar and Yuchtman-Yaar (1997) associated the concept of corporate

reputation of a firm to the perceived image, perceived prestige, and perceived goodwill.

However, still there are differences among the corporate reputation researchers themselves

concerning the definition, and the issues are still on-going especially with regard to the reputation

construct, the way in which the construct is operationalised and its contribution to the organization

success.


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2.2 Corporate Reputation and Competitive Advantage

The role of corporate reputation in marketplace is similar to brand equity, particularly when the

companys name is a part of brand identification (Yoon et al., 1993). Some sectors in the service

industry, especially banks, hotels, hospitals, consulting firms, and educational institutions rely heavily

on their corporate reputation to attract and retain their customers (Nguyen and Leblanc, 2001). In fact,

this study believes that almost all retailers in the market today regardless of what products they are

selling are interested to develop and preserve their respective corporate reputation. The study done by

Nguyen and Leblanc (2001) found that the customers are more inclined to purchase the products or

services from companies whom they perceived as having favorable reputation among their

competitors.

Fombrum (1996) stressed that a good corporate reputation would enhance profitability because good

reputation would attract customers to products, attract investors to securities, and attract employees to

do their jobs properly. Thus, corporate reputation of a firm should be considered as an asset and

wealth that gives that firm a competitive advantage because the firm will be regarded as reliable,

credible, trustworthy and responsible for employees, customers, shareholders and financial markets.

Gupta (2002) found the empirical evidence between corporate reputation and competitive advantage

for the firms by successfully differentiating it from competitors. Among the components of

competitive advantage are willingness to purchase, willingness to pay premium price, customer

satisfaction and customer loyalty. Meanwhile, the components of companys reputation found by

Gupta (2002) are corporate ability and corporate social responsibility. This finding supports the

popular view in business literature that when customers are faced with parity in price and quality of a

product, they would prefer to choose products from the company that contributes to corporate social

responsibility when making the consumption related decision.

The corporate reputation researchers such as Robert & Dowling (2002) and Eberl & Schwaiger

(2005) have highlighted the growing body of literature describing the corporate reputation as a

valuable resource which could influence the favorable financial performance of a company. In other

words, the companies scoring higher on the perceived corporate reputation are more likely to have

healthier financial accounts. Likewise, Shapiro (1983) revealed the significant influence of corporate

reputation on the customers market retention and increased sales volume. Further, the researcher

(Shapiro, 1983) stressed the benefits to the company that flow from having a good corporate

reputation, which has been associated with increased financial performance, include providing


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indicator of product quality when customers are faced with a choice among competing products in the

market. The excellent financial performance of any company could only be achieved through

increased sales, premium price and customer retention.

The findings of a study done by Robert and Dowling (2002) supports the results of Shapiro (1983)

that good corporate reputation provides healthier financial performance through the reduced

organizational costs. The reduced organizational cost is achieved through the attraction of high

caliber staff and high staff retention rate. In the same note is the finding by Kotha et al. (2001) which

relates good corporate reputation to reduction of supplier-buyer exchange uncertainty through

increased sales and reduced transaction costs. Again, the final result would enhance the financial

performance of a company.

The same idea is supported by Podony (1993). In his study, he identified the inverse relationship

between good corporate reputation and costs whereby firms with good corporate reputation have

lower costs (e.g. transaction, financial, advertising, and employee costs). And the lower operational

costs would provide opportunity for such firms to further enhance their reputation. This indicates that

once a company achieved favorable corporate reputation in the eyes of its customers, it would stand-

out among its competitors to reap benefits, which would in turn further improve the reputation.

In summary, the literatures on corporate reputation support the idea that the company with favorable

corporate reputation would stand a better chance to survive in the competitive environment. In

relation to that, this study is specifically interested to evaluate the effect of favorable corporate

reputation of a firm on the perceived quality of its products as a source of competitive advantage for

the firm itself in the market. To be specific, the study has selected the household furniture market

among the urban population.

2.3 Perceived Quality

Quality is the most important factor underlying the long-term success not only for products and

services, but also the survival of the organization itself. Everybody in the management is talking

about improving quality as the main weapon to help the company to survive in difficult times.

However, it is now well established that it is not quality per se but customers perception of quality

that drive preferences and consequently satisfaction, loyalty, sales, and profitability. (Zeithaml, 1998).

Perceived quality is the overall subjective judgment of quality relative to the expectation of quality.

These expectations are based on ones own and others experiences, plus various other sources


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including brand reputation, price, and advertising (Boulding et al. 1993; Johnson et al., 1995). Thus, it

is not necessary to use or examine a product to form the perception of its quality.

3. THE OBJECTIVES OF THE STUDY

This study is designed to achieve the following objectives:

1) To assess the influence of corporate reputation of a firm on customers perceived quality towards

its products in the market.

2) To assess the influence of customers perceived quality towards the products on the competitive

advantage of that particular firm among competitors in the market.

3) To assess the direct influence of corporate reputation of a firm on the competitive advantage of that

particular firm among competitors in the market

4. THE RESEARCH QUESTIOS

This study is designed to address the following two research questions namely:

1) How significant is the role of perceived quality in linking the relationship between corporate

reputations to competitive advantage?

In other words, is there exists an indirect relationship between corporate reputation and

competitive advantage through perceived quality? Or does perceived quality mediates corporate

reputation with competitive advantage?

2) How significant is the direct relationship between corporate reputation of a firm and its competitive

advantage?

5. THE RESEARCH HYPOTHESES

This study has put forward three research hypotheses to be examined empirically.

H1: The favorable corporate reputation of the firms has a positive and direct effect on the customers

perceived quality towards their products.

H2: The customers perceived quality towards the products has a positive and direct effect on the

competitive advantage of the firms among competitors in the market.

H3: The favorable corporate reputation of the firms has a positive and direct effect on the firms

competitive advantage among competitors in the market.


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6. THE RESEARCH METHODOLOGY

6.1 Population and Sample

The Population for this study consists of the owners of newly completed bungalows in urban areas in

Kelantan from 2006 to 2008. Prior to buying their dream house, these people are either staying at

their rented houses or at the house provided by their employers. The study interviewed 500 families

who were planning to purchase the furniture before moving into their newly completed bungalows.

The respondents selected falls in the bracket of higher socio-economic status in term of qualification,

occupation and income. They are university graduates, working as senior staff either in government

departments, private organizations, or the self-employed professionals. Their monthly household

income ranges from RM10,000.00 to RM 100,000.00. The data collected through self-administered

questionnaires handed personally to the respondents after completing initial interviews to explain

personally the purpose of study and to obtain their consent to participate. The respondents were given

the opportunity to respond the questionnaires at their own convenient time. They returned their

response through the self-addressed envelope in a few days. A total of 400 completed responses

received, which represent a satisfactory rate of 80%.

6.2 The Validity and Reliability of the Instruments

The instrument used for this study was Reputation Quotient, which was developed, tested and

validated by Fombrum et al. (2000). The 20 measurement items were grouped into six categories

namely emotional appeal, products and services, vision and leadership, workplace environment,

social and environmental responsibility, and financial performance.

The usefulness of the instruments is determined by its validity and reliability. Previous studies found

that the dimension contained in the Reputation Quotient instrument are supported by qualitative

studies (Greoland, 2002), and the instruments meet the requirement of validity (Fombrum et al.,

2000).

Reliability refers to the degree a questionnaire is free from error and therefore can provide consistent

result (Caruana, 1997). The Cronbachs Alpha enables the evaluation of the reliability of an

instrument. According to Fombrum et al. (2000), Cronbachs Alpha for the reputation instrument

exceeds 0.84, which indicate that the items in the instrument perform well on reliability.


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6.3 The Model for the Study

Figure 1: The schematic diagram of the model

The Variables in the Model:

1. Dependent variable

The dependent variable is competitive advantage of a firm, which is the variable of primary

interest in the study. From the search in the literatures, the competitive advantage items consist

of willingness to purchase, willingness to pay premium price, customer satisfaction and

customer loyalty.

2. Independent variable

The independent variable is the corporate reputation of the firms. From the literatures, the

corporate reputation components consist of emotional appeal, products and services, vision and

leadership, workplace environment, social and environmental responsibility, and financial

performance.

3. The mediating variable in the study is the customers perceived quality towards the products

produced by the firms. From the review of literatures, the study adopted three perceived quality

items namely the perceived quality of products sold, the perceived quality of service provided,

and the perceived quality of environment in the store and its surrounding area.

Corporate

ReputationCompetitive

Advantage

Perceived

Quality


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The Model Converted into AMOS Syntax for Analysis

Figure 2: The Model in AMOS 7.0 Software

Indicators of Items in the Model:

CR1 = emotional appeal, CR2 = products and services, CR3 = vision and leadership,CR4 = workplace environment, CR5 = social and environmental responsibility,CR6 = financial performance

PQ1 = perceived quality of products, PQ2 = the perceived quality of service

Corporate

Reputation

CR1

e1

1

CR2

e2

1

CR3

e3

1

CR4

e4

1

CR5

e5

1

CR6

e6

1

CompetitiveAdvantage

CA3

e7

1

CA2

e8

1

CA1

e9

1

CA4

e10

1

Perceived

Quality

PQ1 e111

1

PQ2 e121

PQ3 e131

e14

1

e151

1

1


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PQ3 = the perceived quality of environmentCA1 = willingness to purchase, CA2 = willingness to pay premium price

CA3 = customer satisfaction, CA4 = customer loyalty

7. THE RESULTS AD AALYSIS

Figure 3: The Structural Equation Modeling Results Using AMOS 7.0

Corporate

Reputation

7.80

CR1

e1

18.36

CR2

e2

18.52

CR3

e3

17.90

CR4

e4

17.24

CR5

e5

18.05

CR6

e6

1

Competitive

Advantage

7.85

CA3

e7

1

7.33

CA2

e8

1

8.00

CA1

e9

1.23

1

7.85

CA4

e10

1.09

1

Perceived

Quality

8.11

PQ1

e111.00

1

8.05

PQ2

e12

1.1 1

7.89

PQ3

e13

1.29

1

2.66

1.59

e14

1

e151

2.75

0.76

1.00 1.18

2.87

1.00

2.982.38 3.68


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Table 1: The Fitness Index: Baseline Comparisons Indexes

Model NFI RFI IFI TLI CFI

Default model 0.901 0.913 0.904 0.902 0.930

All indices obtained are above 0.9 which indicate that the proposed model is suitable.

Table 2: The Regression Weights and the Corresponding Probability Values

Variable Path Variable SE( ) C.R. P-value

Perceived_Quality


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H3: The favorable corporate reputation of a firm has a positive and direct effect on the firms

competitive advantage in the market.

From the above table, the p-value is 0.068. Thus, this hypothesis is empirically not supported.

The Result of Hypothesis Testing is Shown Graphically in the Diagram

7.2 Discussion of the Results

The present study contributes to better understanding concerning the impact of corporate reputation

on competitive advantage for the firms dealing in household furniture business.

This empirical research showed that the direct impact of corporate reputation on competitive

advantage is not significant since hypothesis 3 is not supported. The study found that the corporate

reputation has an indirect impact on competitive advantage through the perceived quality since both

hypothesis 1 and hypothesis 2 are supported.

These findings indicate that the strength of corporate reputation of the firms per se does not help them

to survive through the competitive environment of household furniture market.

In this case the management should communicate the corporate reputation of their firm effectively to

their stakeholders internally and externally in order to trigger their perception towards the products

Corporate

ReputationCompetitive

Advantage

Perceived

Quality

H1 H2

H3


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positively as having good quality, reliable, good value for money, etc. In other words, achieving

favorable corporate reputation for the firm is one thing but communicating the favorable corporate

reputation to stakeholders so that they would perceive the products as having favorable quality is a

separate issue. In this case, the management of a firm should not just work hard to achieve the favorable

level of corporate reputation for their firm but they should also communicate their favorable corporate

reputation accordingly to all their stakeholders so that the firm could enjoy the benefits in the form of

competitive advantage.

8. LIMITATIO OF THE STUDY

In any behavioral research study, like the current survey, common method bias is a potential problem

that needs to be considered because such biases could pose a rival explanation for the strength of

relationships between constructs (Podsakof et al., 2003). A possible obstacle is that the sample for

this study was taken among respondents of higher socio-economic status in term of education,

occupation, and household income. Samples from different socio-economic status should be obtained

to verify the consistency of the results. Another obstacle is this study only focused on the household

furniture products, which is a long-lasting investment in a home. The result might be different if the

study is done for consumable items. In fact, the study done by Ou and Abratt (2006) found the impact

of corporate reputation is not significant on competitive advantage for grocery stores since the firms

are dealing with perishable products.

9. COCLUSIO

Corporate reputation is a long-term judgment and evaluation of a firm by its stakeholders. It implies

the long-lasting, collective assessment rendered over a long period of time (Gioia et al., 2000). The

judgment, evaluation, and assessment by stakeholders include the emotional appeal of a firm, the

range of products and services offered the vision of its leadership, the workplace environment in the

firm, the social and environmental responsibility of the firm, and its financial performance. This study

found all six components of corporate reputation quotients (Fombrum et al., 2000) provides

significant contribution to the corporate reputation of the firm itself. Above all, superior corporate

reputation would result in the outstanding competitive advantage of the firm, and more importantly, it

would lead to excellent financial performance. The main challenge for any management is to lead

their company to survive and grow into the future amid the growing number competitors competing

for a stagnant market, and the performance of management will be assessed by its shareholders

through the annual financial results.


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RERECES

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Caruana, A. (1997). Corporate reputation: Concept and measurement. Journal of product and brandmanagement. 6(2), 109-118.

Eberl, M. and Schwaiger, M. (2005). Corporate reputation: disentangling the effects on financial

performance.European journal of Marketing. 39(8) 838-854

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Gupta, Shruti. (2002). Strategic dimensions of corporate social responsibility as sources ofcompetitive advantage via differentiation. Unpublished Doctoral Dissertation, Temple

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Roberts, P.W. and Dowling, G.R. (2002). Corporate reputation and sustained superior financialperformance. Strategic Management Journal, 23(12), 1077-1093

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