Friends of the Behavioral Economics Club, this week we present the paper “Mediating the impact of power on supplier satisfaction: Do buyer status and relational conflict matter” by Vos, F. G. S.; Van der Lelij, R.; Schiele, H. and Praas, N. H. J. (2021) in which authors explore the concepts of power, status and relational conflict from the behavioral economics’ point of view.
Over the past few decades, companies have increasingly focused on dedicating efforts in order to obtain and maintain access to capable and effective providers. This trend has been promoted by three main factors.
First, many companies assign more responsibilities to providers to increase their focus on developing the core skills of the company.
Second, the supply markets have been consolidated and the number of suppliers has decreased, consequently reducing the availability of alternatives.
And finally, companies are increasingly redirecting their efforts to internal renovations, changing their traditional strategies to more innovative ones, including suppliers in their renewal plan in order to adapt themselves to the new industry.
As a result, the oligopolistic structures of the supply market have evolved more than ever in recent years.
Within them, suppliers help companies to obtain competitive advantages, so they need to compete with each other to get access to the best suppliers and, therefore, the best resources.
Supplier satisfaction has been identified as the main determinant of this selection process: the supplier decides who becomes his favorite customer.
If an organization becomes the favorite costumer of one provider, it would get the best benefits, such as priority access to new technologies, greater delivery reliability, economic benefits, and so on.
Therefore, achieving supplier satisfaction should be considered a strategic asset for companies.
One of the essential factors influencing supplier satisfaction is power.
The most studied forms of power are coercive power and reward power, also known as mediated powers. Coercive power refers to the ability of one to penalize the other, and rewarding power refers to the ability of one to provide benefits to the other, benefits that go beyond their usual exchange.
And what influences power? Authors propose organizational status and conflict. For example, an increase in the status of a high-powered party would cause a reduction in relational conflict. Lowering the status would increase this conflict.
Authors of the article decided to carry out this research to review the different studies on power, status, and relational conflict, and to evaluate their effects on the satisfaction of providers considering behavioral economics.
They hypothesize that the buyer’s coercive power has a negative impact on satisfaction and the buyer’s reward power should have a positive impact.
The quantitative data for this study was collected in collaboration with the purchasing department of a public university and private organizations in the Netherlands.
These subjects were chosen since universities, banks, and private organizations have a diverse set of providers and are generally considered high-status entities, which makes possible the objective of the study, that is to identify possible effects on this element.
The research questionnaire was sent twice by email to the account managers of the supplier companies, with a total of 67 suppliers.
The findings indicate that the status of the buyer has a strong and very significant influence on the satisfaction of the suppliers and, therefore, also on the relationship between both, increasing or decreasing the level of conflict.
In fact, the buyer’s status should have twice the influence that other factors have. A high status would not only promote the satisfaction of the provider with respect to that client, but also, as hypothesized by the authors, it would reduce the relational conflict between both.
The results also show that the coercive and rewarding powers of a buyer have no significant direct effect on supplier satisfaction. However, coercive power has a direct influence on creating conflicts between both parties, degrading the status of the one who exercises it.
These results have implications for theories of power and conflict. In particular, what the authors consider most important is what has been mentioned with respect to coercive power.
As a conclusion, authors point out that, with their findings, it can be indicated that the relational conflict and its negative effects on supplier satisfaction can be influenced by the buyer’s status.
As in all investigations, there are limitations. One of them is that the study considers the power of the buyer, but the power of the supplier is neglected.
Therefore, authors point out that future studies should investigate how different power dynamics, both on one side and the other, would influence the relationship between providers and organizations.
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