The Relationship Between Supplier Development, Marketing Processes and Firm Performance

The relationship between supplier
development and firm performance:
the mediating role of marketing process
improvement
Anthony K. Asare
Department of Marketing, School of Business, Quinnipiac University, Hamden, Connecticut, USA
Thomas G. Brashear and Jing Yang
Department of Marketing, Eugene M. Isenberg School of Management, University of Massachusetts Amherst,
Amherst, Massachusetts, USA, and
Jun Kang
Department of Marketing, School of Business Administration, Hunan University, Changsha, China
Abstract
Purpose – The purpose of this paper is to test the market-based asset framework by examining the role of marketing process improvements in the
relationship between a buyer firm’s supplier-related activities and its performance.
Design/methodology/approach – Interviews with executives who were involved in supplier development were conducted to learn more about
supplier development and to help in the development of the survey constructs. A self-report survey was then developed online to collect data for the
study. In total, 338 executives responded and partial least squares (PLS) structural equation modeling was used to test the hypotheses developed in the
study.
Findings – Marketing process improvements were found to mediate the relationship between a firm’s supplier development efforts and firm
performance, thus providing empirical support for the market-based asset framework. The study also found that a firm’s supplier development activities
can lead to improvements in its marketing processes.
Originality/value – For too long, a firm’s supply chain has been seen as the primary domain of the supply chain and operations department, even
though supply chain decisions and errors have a considerable impact on the ability of marketing professionals to perform. The findings in this study
demonstrate the value of the relationship between a firm’s supply chain and its marketing activities and as such makes the case for marketing
executives to be more involved in supply chain activities.
Keywords Marketing, Suppliers, Supplier relations, Supplier development, Market-based asset framework, Organizational performance,
Intangible assets
Paper type Research paper
1. Introduction
The last few decades have seen a fundamental shift in the
source of a firm’s competitive advantage from physical assets
such as plant and machinery to market-based assets
(intangible assets) such as brands, knowledge, innovation
and supplier relationships (Day, 1994; Eisenhardt and Jeffrey,
2000; Wernerfelt, 1984). As a result, there has been a
substantial increase in the contribution of market-based assets
(MBA) toward the market capitalization of firms (Ramaswami
et al., 2009). Recognizing the increasing importance of a
firm’s MBA, researchers and practitioners alike have begun to
focus more attention towards developing links between MBA
and firm performance. However, the value of MBA is hard to
measure since they are intangible and typically not recorded
on a firm’s balance sheet (Sharp, 1995).
To help determine the contribution of MBA to a firm’s
performance, Srivastava et al. (1999) developed a conceptual
framework (MBA framework) that links MBA to
performance. The framework argues that MBA must be
transformed and leveraged as part of an organization’s
processes if they are to generate economic value to the
organization. Thus, to assess the contribution of MBA, the
framework links MBA, to firm performance through the
processes and routines utilized to develop those assets
(Srivastava et al., 2001). In a nutshell, a firm’s business
processes should mediate the relationship between its MBA
and performance. While there has been recognition in the
literature that MBA contribute to a firm’s performance
through improvements to its business processes, the
exposition has largely been conceptual and very few studies
have actually empirically tested the framework (Ramaswami
et al., 2009). Also, those studies focus more on a firm’s
downstream relationships with its customers and channel
members while focusing inadequately on a firm’s upstream
The current issue and full text archive of this journal is available at
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Journal of Business & Industrial Marketing
28/6 (2013) 523–532
q Emerald Group Publishing Limited [ISSN 0885-8624]
[DOI 10.1108/JBIM-04-2013-0100]
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relationships with its suppliers. This paper empirically tests
the MBA framework and also extends it to a firm’s supply
chain. The paper focuses on an important MBA, a firm’s
supplier relationships, and examines how a buyer firm’s
supplier development efforts contribute to the buyer firm’s
performance. Supplier development refers to a program
developed by a buyer firm to upgrade its supplier’s capabilities
and foster ongoing improvements (Krause and Handfield,
2007). Such programs are created by buyer firms to help their
suppliers, particularly their deficient ones, improve their
capabilities and business processes (Wagner, 2006).
Numerous firms including Otis elevator, John Deere and
Toyota have developed supplier development programs aimed
at helping their suppliers improve their capabilities and
business processes (Modi and Mabert, 2007). Drawing from
the MBA framework this paper asserts that a firm’s supplier
development programs contribute to the buyer firm’s
performance through its marketing processes. Thus a buyer
firm’s investments in its supplier development programs will
lead to improvements in its (the buyer firm’s) marketing
processes which will in turn lead to better performance for the
buyer.
The key research objectives of the study include:
.
Testing the MBA framework by examining the role of
marketing process improvements in the relationship
between a buyer firm’s supplier related activities and its
performance.
.
Examining the impact that supplier development has on a
buyer firm’s marketing processes and eventually to its
(buyer firm’s) performance.
In addition to the MBA framework, this study relies on the
resource based view (Wernerfelt, 1984) and the relational
view (Dyer and Singh, 1998) to provide theoretical
explanations for the relationships examined in this paper.
The paper contributes to the literature in a number of ways.
First, it empirically tests and finds support for the MBA
framework thus providing additional support and validation
for this important but underutilized framework. Second, it
extends the market-based asset framework to cover a firm’s
upstream relationship with its suppliers, an area that has been
inadequately studied in the marketing literature. Finally, the
paper examines the impact that supplier development has on a
firm’s marketing processes and performance. This
contribution is important because the academic literature
has not adequately examined the relationship between a firm’s
supply chain and its marketing activities and processes even
though marketing is one of the major beneficiaries of the
increasing collaboration between a firm and its supply base
(Svensson, 2002).
The remainder of this paper is structured as follows. First,
we discuss the theoretical frameworks utilized in the study.
Next we discuss the concepts of supplier development and
marketing processes. The third section develops the
hypotheses on the relationships between supplier
development, marketing processes and firm performance.
The fourth part discusses the methodology used to collect and
analyze the data. This is followed by a discussion of the
results. The paper concludes with a discussion of theoretical
and managerial implications and future research
recommendations.
2. Theoretical frameworks
2.1 Resource based view (RBV)
In recent years RBV has become one of the most influential
theoretical frameworks in business (Lavie, 2006) and has been
used to address different research topics including: knowledge
management (Hult et al., 2006), innovation (Adams and
Lamont, 2003), networks (Lavie, 2006); managerial theory
(Stoelhorst and van Raaij, 2004); organizational capabilities
(Skaggs and Snow, 2004) and diversification (Chatterjee and
Wernerfelt, 1991). RBV conceptualizes a firm as a
heterogeneous entity consisting of bundles of idiosyncratic
resources that are highly immobile and difficult to imitate
(Barney, 1991; Wernerfelt, 1984). Proponents of the theory
argue that a firm’s competitiveness is the result of
heterogeneous resources internal to the firm and that firms
with intangible assets that are valuable, rare, inimitable and
non-substitutable, will outperform its competitors (Barney,
1991). RBV is a useful theoretical framework for this study
since its arguments that a firm’s intangible assets can help
improve its performance can be used as a theoretical
framework to explain why a buyer firm’s supplier
development activities can improve its performance.
2.2 Relational view (RV)
A theoretical framework that extends the resource based view
is the relational view of competitive advantage proposed by
Dyer and Singh (1998). Dyer and Singh argue that RBV
focuses primarily on sources of rent within a firm while paying
inadequate attention to sources of rents that exist beyond the
firm’s boundaries. They argue that a firm’s competitive
advantage is not created only from within a firm, but also
from activities outside the firm. They therefore proposed a
relational view of competitive advantage which is based on the
observation that a firm’s critical resources span the
boundaries of a firm and may be embedded in inter-firm
resources and processes (Klein and Rai, 2009). RV can be
utilized as the theoretical basis for this study since the study
examines the impact of a firm’s inter-firm activities.
2.3 Market based assets framework
MBA refer to assets that are created as a result of a firm’s
interactions with entities in its external environment
(Srivastava et al., 1998). They are typically intangible assets
and are not recorded on a firm’s balance sheet. Examples of
these assets include a firm’s customers, channel members,
and suppliers. MBA framework was developed to help explain
the process through which a firm’s intangible assets can lead
to improved performance. The framework argues that the
conversion of resources into value occurs through the medium
of processes. Thus MBA must be absorbed and transformed
as part of some organizational process through which they can
generate economic value for the customer and organization
(Srivastava et al., 1999, 2001). In a nutshell, a firm’s business
processes should mediate the relationship between its MBA
and performance. Researchers have recognized the value of
the MBA framework and as such the framework has been
utilized in a number of studies (e.g. Barua et al., 2004;
Srivastava et al., 2001; Ramaswami et al., 2009).
2.4 Supplier development
Supplier development can be defined as a program developed
by a buyer firm to upgrade its supplier’s capabilities and foster
ongoing improvements (Krause and Handfield, 2007). The
program is typically initiated by a buying firm to improve its
The relationship between supplier development and firm performance
Anthony K. Asare, Thomas G. Brashear, Jing Yang and Jun Kang
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supplier’s performance or capabilities in a way that enables
the supplier to meet the long and short term needs of the
buyer. During supplier development, the buyer quite often
sends out a cross-functional development team to train the
supplier and provide it with knowledge about ways in which it
can improve. The buyer often introduces the supplier to a
number of process innovations including lean manufacturing
processes; total quality management (TQM), value stream
mapping (VSM), Kanban and Six Sigma. Supplier
development is increasing in popularity and a number of
studies have been conducted to examine the concept
(e.g. Krause and Handfield, 2007; Modi and Mabert, 2007;
Roy et al., 2004; Wagner, 2006).
2.5 Marketing processes
The domain of marketing has increased over the years and
marketers are involved in a number of business processes that
go beyond the functions that have been traditionally
attributed to marketing. As a result, Srivastava et al. (1999)
identified a broader range of processes that marketers are
involved in and redefined marketing as a phenomenon that is
embedded in three core processes: supply chain management
(SCM), product development management (PDM), and
customer relationship management (CRM). These three
marketing processes encompass the fundamental tasks that
are necessary to attract and retain customers and create
sustainable competitive advantages that can drive firm
performance and shareholder value (Hanvanich et al., 2003;
Srivastava et al., 1999). The three processes have been
recognized by a number of researchers as the core marketing
processes that a firm is involved in (e.g. Bowman and
Ambrosini, 2000; Ramaswami et al., 2009). This study
utilizes Srivastava et al.’s (1999) conceptualization of
marketing processes and define it as a phenomenon that is
embedded in three core processes: supply chain, product
development and customer relationship processes. We focus
primarily on one of the marketing processes identified –
customer relationship processes. This is because we are
interested in examining the effect that suppliers have on the
buyer firm (the customer).
3. Conceptual framework
The study seeks to provide support for MBA framework and
as such examines the relationship between a buyer firm’s
supplier development activities, its marketing processes and
performance. The study examines two supplier development
related constructs: knowledge transfer and buyer involvement
intensity. Knowledge transfer in this study refers to the
knowledge that the buyer imparts to the supplier during the
supplier development process and buyer involvement intensity
examines the extent to which the buyer is involved in helping
its supplier develop its capabilities. In line with the market-
based asset framework, the study proposes that the supplier
development related concepts (knowledge transfer and buyer
involvement intensity) will be positively related to the buyer
firm’s performance through improvements to its marketing
processes. As such, marketing process improvement should
mediate the relationship between the buyer firm’s supplier
development activities and firm performance. Figure 1
illustrates the relationships examined in the study.
4. Hypotheses development
4.1 Knowledge transfer and marketing process
improvements
Knowledge transfer refers to the dissemination of knowledge,
and in an inter-firm context the transfer of knowledge occurs
between a firm and its external partners. The transfer of
knowledge between buyers and their suppliers is extremely
important (Browne et al., 1995; Hughes and Perrons, 2011)
and a growing body of research argues that organizations that
are able to effectively manage their knowledge related assets
perform better than organizations which are unable to do so
(Inkpen and Tsang, 2005; Jayachandran et al., 2005; Luo
et al., 2006; Selnes and Sallis, 2003). During the supplier
development process, buyer firms transfer knowledge to their
suppliers regarding the use of techniques like just-in-time
manufacturing, six sigma, value stream mapping, total quality
manufacturing and efficient consumer response.
Knowledge transfer has been found to have an impact on a
firm’s ability to innovate and improve its business processes
and a number of researchers (e.g. Luo et al., 2006; Inkpen
and Tsang, 2005) assert that the transfer of knowledge across
boundaries is critical for the success of new products and
processes. Schiele (2006) argues that suppliers are
increasingly becoming a major source of new ideas for firms
and a buyer firm’s ability to improve its processes is
increasingly reliant on the quality of its supplier base.
Knowledge based view (RBV) (Grant, 1996) and RV, all
suggest that firms that are able to effectively manage and
transfer their knowledge based resources will be able to
transform their organization’s capabilities and processes. The
market-based asset framework also suggests that a firm’s
ability to manage its intellectual assets such as its knowledge
assets, can lead to improvements to its marketing processes
(Srivastava et al., 1999). Based on these discussions, this
study hypothesizes that knowledge transfer during supplier
development activities should lead to improvements to the
buyer’s marketing processes.
This study examines two components of knowledge transfer
and their effect on marketing process improvements. The
study examines the frequency at which knowledge is
transferred (Massey and Dawes, 2007; Mohr et al., 1996)
by the buyer and also the content of the knowledge (Krause,
1999) that is transferred. The study examines the frequency
of knowledge transferred to determine if the volume of
knowledge transferred alone can lead to improvements to the
buyer firm’s marketing processes. It also examines the content
of knowledge transferred to determine if the content of the
knowledge transferred has an impact on marketing process
improvements. We therefore hypothesize that:
H1. There is a positive relationship between knowledge
transfer content and marketing process improvement.
H2. There is a positive relationship between knowledge
transfer frequency and marketing process
improvement.
4.2 Buyer involvement intensity and marketing process
improvement
The level of involvement by a buyer firm is defined as the
extent to which the buyer invests time, effort and other
resources into the development of their suppliers (Krause,
1999). Buyers exhibit a high level of involvement if they
develop formal evaluation programs such as supplier
certification programs. This is because the development and
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administration of such formalized programs can be costly and
time consuming. They also exhibit a high level of involvement
if they utilize activities that involve direct interaction between
them and their suppliers like: on-site assistance; site visits; and
training of supplier’s personnel (Modi and Mabert, 2007).
This is because activities that involve a high level of face to
face and direct interaction can also be very involving, costly
and time consuming. This paper argues that firms that
actively invest their time and resources into developing their
suppliers will likely reap the rewards through improvements to
their own marketing processes. Wagner (2006) found that
some supplier development activities can lead to process
improvements and Chapman and Corso (2005) assert that
collaboration between a customer and its suppliers is the most
common source of continuous innovation and improvement.
RV suggests that inter-firm collaboration provides value to
firms and MBA framework asserts that a firm’s efforts to
strengthen its relational assets such as its relationships with its
suppliers will reap the rewards of those investments through
improvements to its own marketing processes (Srivastava et al.,
1999). We therefore hypothesize that:
H3. There is a positive relationship between buyer
involvement intensity and marketing process
improvement.
4.3 Marketing process improvement and firm
performance
The link between business process improvements and firm
performance has been widely established and according to
Chapman and Corso (2005), continuous improvements to a
firm’s business processes can lead to improved performance.
Arguments have been made in the marketing literature in
support of the link between marketing process improvements
and firm performance (e.g. Ramaswami et al., 2009;
Srivastava et al., 1999; Tyagi and Sawhney, 2010).
Srivastava et al. (1999) argues that improvements to a firm’s
marketing processes should lead to increased performance
and Tyagi and Sawhney (2010) assert that marketing
processes can improve organizational efficiency and
productivity. They also assert that process improvements are
very important to a firm since firms that are able to improve
their business process are more likely to perform better than
firms that do not. Also, RBV and RV all suggest that
improvements to a firm’s intangible assets (in this case their
marketing processes) should lead to improved performance.
We therefore hypothesize a positive relationship between
marketing process improvements and firm performance. We
categorize our firm performance construct into two types of
performance: customer and financial performance. This is a
common categorization of performance in the marketing
literature (e.g. Luo et al., 2006). Thus:
H4. There is a positive relationship between marketing
process improvement and the buyer firm’s (a)
customer performance, (b) financial performance.
4.4 Control variables: industry competitiveness and
industry dynamism
Institutional theory suggests that environmental variables
such as industry competitiveness and dynamism can influence
the actions of an organization (Jayachandran et al., 2005).
Competitive industries could compel firms in those industries
to focus more on short term rather than long term results.
Likewise, firms in dynamic industries are likely to focus more
on activities that will provide more visible results that can be
recorded on a balance sheet instead of MBA that are usually
not recorded on balance sheets. Since the two constructs
Figure 1 Conceptual model
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could possibly influence the relationships examined in this
paper and are commonly used as control variables in
marketing research (e.g. Jayachandran et al., 2005), this
study treats industry competitiveness and industry dynamism
as control variables.
5. Methodology
5.1 Sample and data collection
The key respondents for this study were executives in
manufacturing firms (buyer’s firm) responsible for managing
their firm’s relationship with their suppliers. Interviews with
executives in firms that were involved in supplier development
were conducted to learn more about supplier development
and to help in the development of the survey constructs. The
interviews also helped us identify the types of job titles in an
organization that were involved in supplier development and
other supplier relationship building activities. A self-report
survey was then developed online to collect data for the study.
Once the survey was created the authors invited academic
researchers and industry experts to test the survey. This was
to ensure the face validity, readability, and understandability
of the scales. It was also to ensure that key informants could
answer all the questions in the survey. Changes were made to
the scales to reflect feedback from the participants. Once the
changes were made, a pretest was sent to 180 potential
respondents out of which 64 fully completed the survey. The
response rate for the pre-test was therefore 36 percent.
Modifications were made to the survey based on the pre-test
after which the final survey was administered. In the final
survey, 971 executives were contacted and 338 responded
providing a 35 percent response rate. To pre-qualify the
respondents, they were asked if their job involved working
with their firm’s suppliers. This is because our interviews and
discussions with industry experts indicted that managers who
worked with suppliers would be able to answer the questions
in our survey. Only those who indicated that they worked with
their firm’s suppliers were asked to respond to the survey.
Respondents to the final survey came from 18 different
industries including: miscellaneous industries (19.8 percent),
transportation equipment (18.3 percent), electronic
equipment (12.7), chemical and allied products (12.4
percent), food and kindred (8.3 percent) and computer
equipment (6.2 percent). Engineers were the largest group of
respondents (22.8 percent), followed by marketing (13
percent), quality assurance (9.8 percent), purchasing (8
percent) and supply chain (6.5 percent). The remaining 40
percent made up a variety of other occupations.
5.2 Response bias
The potential for response bias was assessed using the
methods recommended by Armstrong and Overton (1977). A
comparison of early and late respondents was conducted
using one-way ANOVA tests. These groups consisted of the
first and last 25 respondents. None of the constructs were
found to have a significant difference between the two groups.
5.3 Measures
Existing multi-item scales were used whenever possible and
whenever existing scales were not available, new scales were
developed. The development of the scales followed the
procedures recommended by Gerbing and Anderson (1988)
and also Bearden and Netemeyer (1999). A summary of the
scale items used in the study can be found in Table I. Buyer
involvement intensity is defined as the extent to which a buyer
firm invests time, effort and other resources into the
development of its suppliers (Krause, 1999). It is measured
using a six item scale borrowed from Krause (1999) and
Cronbach’s alpha is 0.88. Knowledge transfer is categorized
into knowledge transfer content and knowledge transfer
frequency. Knowledge transfer content refers to the content of
knowledge that is transferred from the buyer to the seller. The
construct was measured using a seven item scale borrowed
from Krause (1999) and Cronbach’s alpha is 0.91.
Knowledge transfer frequency refers to the frequency at
which the buyer firm communicates with its supplier (Mohr
et al., 1996). To determine knowledge transfer frequency, the
respondents were provided with a list of different media that
were used to communicate with their suppliers. They are: face
to face, telephone, technical support, website, e-mail, B2B
communications (e.g. EDI), tradeshows, seminars, and
newsletters. They were asked to list the number of times in
the previous month that they communicated with their
suppliers using any of these media types. The average of the
frequencies was used to determine the knowledge transfer
frequency for each respondent. This approach is similar to the
approach used by Mohr et al. (1996) and Massey and Dawes
(2007). To develop the marketing process improvement
concept, the study utilizes Srivastava et al.’s (1999)
classification of marketing processes. Srivastava et al. (1999)
classify marketing processes into product, supply chain and
customer processes. This study focuses primarily on one of
the marketing processes identified – customer related
processes. In this study, marketing process improvement
therefore refers to the continuous improvement of processes
associated with the identification, acquisition and retention of
customers. Srivastava et al.’s (1999) further argue that
marketing processes can influence and drive value creation
through the acceleration, enhancement and the reduction of
risk associated with cash flows. Building on the acceleration,
enhancement and reduction to risk theme, this study
categorizes customer relationship process improvements
into: improvements that accelerate customer relationship
processes (CRA); improvements that enhance customer
relationship processes (CRE) and improvements that reduce
risks to customer relationship processes (CRR).
CRA was measured using a six item scale developed for the
survey, CRE was measured using a five item scale developed
for the study and CRR was measured using a five item scale
developed for the study. To accommodate the
multidimensional nature of the marketing process
improvement (MPI) construct, the items for each of the
constructs was averaged to form three MPI scales that in turn
served as three indicators of the MPI construct. The MPI
construct was therefore made up of three items (CRA, CRE
and CRR). This approach is similar to the approach used by
Bello and Gilliland (1997).
To measure financial and customer performance, the study
adapted measures used by Luo et al. (2006). Customer
performance has the following components: customer loyalty,
customer satisfaction, customer lifetime value, and customer
retention. Financial performance has the following
components: market share growth, sales growth, reducing
selling costs, and profit growth.
Two industry variables, industry competitiveness (IC) and
industry dynamism (ID) were utilized as control variables.
Industry competitiveness measures the intensity of
competition in the respondent’s industry. The construct was
measured using a four item scale borrowed from
Jayachandran et al. (2005). Industry dynamism measures
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Table I Measurement validation
Items Standardized loadings
Buyer involvement intensity (BI) (AVE 5 0.62; CR 5 0.91; Alpha 5 0.88)
Our firm assesses the performance of our supplier using a formal evaluation process 0.81
Our firm uses a certification program as part of our supplier development initiative 0.78
Our firm regularly evaluates and provides our supplier with feedback for improvement 0.87
Our firm recognizes our supplier’s achievements/performance in the form of awards 0.76
Our firm trains/educates our supplier’s personnel 0.75
Our firm visits our supplier’s premises to assist them with the implementation of recommended procedures 0.74
Knowledge transfer content (KTC) (AVE 5 0.64; CR 5 0.93; Alpha 5 0.91)
Our companies regularly exchange information related to . . .
the quality of products we purchase from our supplier 0.77
forecasting of products we purchase from our supplier 0.80
design of the products we purchase from our supplier 0.80
cost of producing the products that we purchase from the supplier 0.78
price of the products that we purchase from the supplier 0.84
selection of components incorporated in the products that we purchase from the supplier 0.80
delivery time of the products we purchase from the supplier 0.81
Customer performance (CP) (AVE 5 0.81; CR 5 0.95; Alpha 5 0.92)
Relative to your firm’s stated objectives, how is your firm performing on:
customer loyalty 0.90
customer satisfaction 0.91
customer lifetime value 0.91
customer retention 0.89
Financial performance (FP) (AVE 5 0.75; CR 5 0.92; Alpha 5 0.89)
Relative to your firm’s stated objectives, how is your firm performing on:
market share growth 0.88
sales growth 0.89
reducing selling costs 0.82
profit growth 0.87
Marketing process innovation (MPI) (AVE 5 0.71; CR 5 0.88; Alpha 5 0.80)
Customer relationship process innovation – Acceleration 0.81
Our firm is continuously . . .
reducing the time for market acceptance of our products
providing our customers with incentives for new product trials
increasing the speed at which we respond to customer requests
implementing new technologies that speed up the customer ordering process
reducing the length of our customer order fulfillment process
minimizing customer solution development cycle time
Customer relationship process innovation – enhancement 0.83
increasing our installed customer base
introducing new products
cross-selling parts, consumables and complementary services
up-selling our products
targeting new customer segments that we have previously not done business with
Customer relationship process innovation – reduction of risk 0.88
tracking customer trends
working to increase customer loyalty
utilizing customer insights
providing our customers with concessions for long term delivery contracts
improving our relationships with our customers
Industry competitiveness (IC) (AVE 5 0.80; CR 5 0.94; Alpha 5 0.92)
Competition in our business is cut throat 0.87
We are in a business with very aggressive competitors 0.92
Price competition in this business is severe 0.89
Companies are very aggressively making efforts to capture market share 0.90
Industry dynamism (ID) (AVE 5 0.72; CR 5 0.89; Alpha 5 0.81)
In our business, customers’ product preferences change substantially over time 0.77
Technologies used in our industry are changing rapidly 0.89
A large number of new product ideas have been made possible through technological breakthroughs in our industry 0.89
Notes: CR ¼ Composite reliability; AVE ¼ Average variance extracted; Alpha ¼ Cronbach’s alpha
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the extent to which a firm’s business environment changes.
This construct was also measured using a three item scale
borrowed from Jayachandran et al. (2005).
5.4 Scale reliability and validity
Cronbach’s alpha was used to assess the internal consistency
of the items. According to Nunnally (1978), scale items
should have an alpha value of over 0.70 to demonstrate
internal consistency. The alphas for all the scales in this study
are listed in Table I and they exceeded 0.70. In addition to
Cronbach’s alpha, average variance extracted (AVEs) and
composite reliabilities were calculated to help assess the
psychometric properties of the constructs. Both composite
reliabilities and AVEs are measures of internal consistency
and high loadings are indicators of high internal consistency.
All the composite reliabilities exceeded the 0.70 threshold and
ranged from 0.88 to 0.94. AVEs for the constructs used in this
study also exceeded the 0.50 threshold (Fornell and Larcker,
1981). Discriminant validity was assessed using the variance
extracted test suggested by Fornell and Larcker (1981). In the
variance extracted test, AVEs for two constructs are compared
with the square of the correlation between the two constructs.
To demonstrate discriminant validity, the AVEs of the
constructs should be higher than the square of the
correlation between the two constructs. The test results
indicate that all the AVEs exceeded the square of the
correlations thus demonstrating discriminant validity Table II.
5.5 Hypotheses testing
Partial least squares (PLS) structural equation modeling was
used to test the hypotheses developed in the study (Fornell
and Bookstein, 1982). Specifically, we used the software
application SmartPLS 2.0. PLS utilizes a rigorous
mathematical algorithm to compute the optimal linear
relationships between latent constructs (Dellande et al.,
2004) and the primary goal of PLS is to minimize errors in all
endogenous constructs or maximize the variances explained
(Hulland, 1999). Bootstrapping re-sampling was used to
assess the significance of paths. The bootstrapping routine
was conducted with the number of cases equal to our sample
size (i.e. 338) and the number of subsamples equal to 1,000,
as suggested by Efron and Tibshirani (1993). We chose PLS
because our study utilized a medium sized sample. PLS allows
for a robust estimation even when the sample size is small
(Chin, 1998). We also consider our paper to be at the early
theory development stage since the market-based asset
framework does not have sufficient empirical support
(Ramaswami et al., 2009). PLS is appropriate in situations
where a theory or concept is in early development stages and
does not yet have sufficient empirical support (Real et al.,
2006; Wold, 1979). We tested our hypotheses (1-4) using a
full mediation model.
We also examined the mediating role of MPI by comparing
nested models including direct effect paths (Palmatier et al.,
2006; Zhao et al., 2010). Specifically, two path analysis
models were estimated and Table III summarizes the results.
We first estimated the fully mediated model (model 1), to
examine whether marketing process improvement mediates
the relationships between the antecedent variables (i.e. KTC,
KTF and BI) and the two performance outcomes (CP and
FP). Second, we estimated model 2 which includes both the
direct effects and the indirect effects of the antecedent
variables. Finding non-significant direct effects in model 2
would indicate the full mediation effects of MPI.
Table II Descriptive statistics and correlations
Mean SD KTC IC CP FP ID KTF BI MPI
KTC 5.28 1.15 1.00
IC 5.72 1.23 0.37 * 1.00
CP 5.39 1.08 0.46 * 0.24 * 1.00
FP 4.84 1.17 0.30 * 0.13 * 0.59 * 1.00
ID 4.79 1.36 0.37 * 0.37 * 0.29 * 0.27 * 1.00
KTF 16.11 33.35 0.04 0.10 0.08 0.05 0.09 1.00
BI 5.05 1.27 0.61 * 0.27 * 0.38 * 0.27 * 0.35 * 0.20 * 1.00
MPI 5.30 0.92 0.63 * 0.36 * 0.64 * 0.51 * 0.47 * 0.08 0.59 * 1.00
Note: *p , 0.01 (two-tailed test)
Table III Hypothesis testing results
Model 1 Model 2
BI - > MPI 0.28 (5.06) * 0.29 (5.17) *
KTC - > MPI 0.36 (6.24) * 0.36 (6.30) *
KTF - > MPI 20.02 (1.04) 20.02 (1.00)
IC - > MPI 0.10 (2.28) * * 0.10 (2.32) * *
ID - > MPI 0.20 (4.85) * 0.20 (4.73) *
MPI - > CP 0.67 (15.75) * 0.64 (11.83) *
IC - > CP 20.02 (0.33) 20.03 (0.60)
ID - > CP 20.01 (0.15) 20.01 (0.15)
MPI - > FP 0.45 (8.05) * 0.49 (6.54) *
IC - > FP 20.09 (1.57) 20.08 (1.40)
ID - > FP 0.08 (1.35) 0.08 (1.46)
BI - > CP 20.06 (0.82)
KTC - > CP 0.09 (1.28)
KTF - > CP 0.04 (1.22)
BI - > FP 20.05 (0.61)
KTC - > FP 20.02 (0.28)
KTF - > FP 0.01 (0.29)
R-square
MPI 0.55 0.55
CP 0.43 0.44
FP 0.22 0.22
Notes: *p , 0.01 (two-tailed test); * *p , 0.05 (two-tailed test); We
calculated t-values through a bootstrapping routine with 338 cases and
1,000 subsamples; 338 cases and 1,000 subsamples; The path coefficients
are standardized coefficients with t-values in parentheses
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529

6. Results
The first column of Table III (fully mediated model 1)
summarizes the results for hypotheses 1 to 4. As predicted,
both knowledge transfer content (b ¼ 0.36, p , 0.01) and
buyer involvement intensity (b ¼ 0.28, p , 0.01) were found
to be significant and positively related to marketing process
improvements. This provides support for H1 and H3.
Knowledge transfer frequency was not significantly related
to marketing process innovation and the direction of the
relationship was negative instead of positive as hypothesized.
Therefore H2 was not supported. Marketing process
improvement was found to be significant and positively
related to customer performance (b ¼ 0.67, p , 0.01) and
financial performance (b ¼ 0.45, p , 0.01) providing support
for H4. The control variable – industry competitiveness was
found to have a significant and positive effect on marketing
process innovations (b ¼ 0.10, p , 0.05). The other control
variable – industry dynamism was also found to be positively
related to marketing process improvement (b ¼ 0.20,
p , 0.01). With the exception of these two relationships,
none of the control variables were found to have a significant
relationship with any of the variables examined in this study.
The R2
values in the study were also examined. They are
marketing process innovation (R2
¼ 0.55), customer
performance (R2
¼ 0.43) and financial performance
(R2
¼ 0.22).
To test for mediation, we compared model’s 1 and 2. As we
have already indicated, two of the key antecedents (KTC and
BI) were found to be significantly related to MPI in model 1.
In model 2 the paths involving the direct effects of those two
antecedent variables (i.e. KTC and BI) on performance (CP
and FP) were not significant, suggesting MPI fully mediates
the effects of KTC and BI on buyer firm performance. In
addition, the R-square values for CP and FP in model 2 were
not significantly higher than those in model 1, indicating these
direct paths from antecedent variables to outcome variables
has limited contribution to the prediction of buy firm
performance. Also, all of the original significant path
coefficient results in support of the hypotheses in model 1
remained significant in model 2. Although MPI did not
mediate the relationship between KTC and performance,
overall, these results provide evidence that MPI mediates the
relationship between MBA and firm performance.
7. Discussion
The primary objective of the present study was to test the
MBA framework by examining the mediating role of
marketing process improvements in the relationship between
a buyer firm’s supplier related activities and its performance.
The study provided support for most of our hypotheses and
with the exception of the hypotheses involving knowledge
transfer frequency, all of the hypothesized relationships were
found to be significant. Of particular importance were the
findings that marketing process improvements mediate the
relationship between a firm’s supplier development efforts and
firm performance which provide further empirical support for
the market-based asset framework. Since there have been calls
for studies to empirically test the framework (Ramaswami
et al., 2009), these results provide further validation for this
useful but inadequately utilized theoretical framework. This
paper also extends the MBA framework to a firm’s supply
chain and shows that a firm’s suppliers relationships are an
asset that needs to be nurtured and invested in just like a their
physical assets. Our results are also consistent with RBV,
Dynamic capabilities and RV theories which all assert that a
firm’s intangible assets should lead to improved performance.
Another area of interest is the mixed results regarding the
two components of knowledge transfer (content and
frequency). As was expected, knowledge transfer content
showed a positive and significant relationship with the buyer
firm’s performance and marketing process improvement.
Since knowledge transfer content represents the type of
information that is exchanged, the positive relationship
between knowledge transfer content and marketing process
improvement demonstrates that if the right type of knowledge
is shared during supplier development, the buyer benefits
through improvements to its marketing processes and
performance. Knowledge transfer frequency, on the other
hand, was unexpectedly found to have a negative and non-
significant relationship with firm performance and marketing
process improvement. We have identified two possible
explanations for knowledge transfer frequency’s negative
results. One possible explanation is that communicating
with a supplier numerous times does not necessarily help the
supplier improve its capabilities. In fact communicating with a
supplier too many times could be detrimental to the
relationship since the supplier could see too much
communication as interference in their business. An
alternative explanation for the negative relationship between
knowledge transfer frequency and its outcomes could be that
more communication takes place when things are not going
well so suppliers who are not responding well to their buyer’s
supplier development efforts will likely receive more calls than
those who are responding better.
Our findings also demonstrate that a firm’s performance is
affected by improvements to its marketing processes. We
found a positive and significant relationship between
marketing process improvements and both financial and
customer performance. While, the relationship between
marketing process improvements and customer performance
seems obvious, the relationship between marketing process
improvements and financial performance is interesting. This
is because, there have been questions regarding the impact
that marketing has on a firm’s financial performance. Since
we found a positive relationship between marketing process
improvements and financial performance, we are adding to
the increasing amount of evidence that points to the fact that
marketing activities do lead to financial performance
improvements.
7.1 Managerial implications
The relationship between a buying firm and its suppliers have
been traditionally characterized as adversarial and emphasis
has been placed on competitive bidding, short term-contracts
and multiple sourcing (Watts and Hahn, 1993). Such an
approach tends to focus on the short-term view of the
relationship without considering the long-term capabilities
and outcomes of such an approach. Our findings demonstrate
to practitioners that their supplier base is an important asset
that needs to be supported and nurtured and that programs
aimed at improving a supplier’s capabilities (such as supplier
development programs) in the long run lead to improvements
in the buyer’s performance.
This study also provides value specifically to marketing
practitioners. The findings in this study that the buyer firm’s
supplier development activities can impact the buyer’s ability
to improve its marketing processes are very important since it
demonstrates the value of the relationship between a firm’s
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530

supply chain and its marketing activities. For too long, a
firm’s supply chain has been seen as the primary domain of
the supply chain and operations department even though
supply chain decisions and errors have a considerable impact
on the ability of marketing professionals to perform. Since
firms are increasingly relying on their suppliers for products,
and the performance of their suppliers now has an increasing
effect on the products they sell to their customers
(Hakansson, 1987; Ritter and Gemunden, 2003) our study
shows that it is important for marketing practictioners to be
more involved in important supply chain decisions such as
supplier development, recruitment, training and retention.
8. Limitations and future research
A limitation of our study is that we use cross-sectional data to
examine the relationships in the study. Since some of the
activities and relationships in the study are developed over
time, longitudinal data might be able to better capture some
of the relationships examined in the study. Future studies can
examine the relationships in this study using longitudinal
data. Another limitation associated with our use of cross-
sectional data is that our results should not be interpreted as
proof of causal relationships. To test for causal relationships
between the constructs examined in the study, further
research should consider testing the framework developed in
the study using experimental and quasi-experimental
methods.
Since the MBA framework has been underutilized in the
literature (Ramaswami et al., 2009) future studies should
continue to test the efficacy of the framework under multiple
conditions. Future research should also be conducted to
examine the relationship between a firm’s supplier
development activities and its marketing activities. Those
studies should not only focus on the positive impact of
supplier development activities but should also consider the
negative impacts of such activities. For example, this study
found a negative relationship between knowledge transfer
frequency and marketing process improvements. Future
studies should delve deeper into this issue and examine
both the positive and negative effects of heavy interaction
between suppliers and buyers. Some questions to consider
include: do suppliers welcome the knowledge that their buyers
provide them or do the suppliers look at supplier development
programs as interference from their buyers? Are there
conditions under which suppliers welcome supplier
development programs and other conditions under which
they resent them?
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