Customer Bargaining Power, Strategic Fit, and Supplier Performance

Abstract

Prior studies report mixed evidence on the impact of customers' bargaining power on supplier performance. We shed light on this mixed evidence by considering the moderating role of strategic fit. A strategically aligned supplier can provide long‐term benefits to the customer. As a result, powerful customers may trade off the short‐term benefits obtained through supplier concessions with the long‐term benefits derived from strategic fit. Thus, strategic fit can mitigate the negative impact of customers' bargaining power on supplier performance. We use data on supplier–customer dyads identified using financial disclosures of firms' major customers to examine this research question. We find that a strategic fit between suppliers and their customers on three distinct dimensions (innovation, customer orientation, and efficiency) attenuates the negative association between customers' relative bargaining power and supplier performance. These findings are robust to several sensitivity tests.