Proceedings of Applied International Business Conference 2008
THE ROLE OF ‘ETHICAL BRAND’ AND ITS EFFECT ON INDUSTRIAL BUYERS’
RESPONSES IN MALAYSIA
Sulaiman M.Ali a, ψ,, Sharifah Faridah Syed Alwi b and Muhammad Abrar a
a
b
University of Syiah Kuala, Indonesia
University of Malaya, Kuala Lumpur
______________________________________________________________________________________
Abstract
This paper reports the initial finding on examination of the effect of ‘ethical brand’on company’s
reputation, which in turn may influence a brand loyalty among industrial buyers that use electronic office
equipment. The study is based upon the responses of industrial buyers’ from experienced customers in
buying electronic office equipment in Malaysia. Previous literature stresses that a good brand provides a
positive impact on its owner and user and no negative impact on the general public. In general, this study
adds to the existing literature on branding and reputation by introducing the concept of the ‘ethical brand’
(the EB) in the model. The present study enhances this understanding by providing empirical evidence in
the context of industrial buyers’ responses. The ethical brand is hypothesized to have a direct effect on
brand loyalty behaviour of industrial buyers toward electronic office’s equipments. The mediating effects
are also investigated via company’s reputation. The current study is informed by 50 experienced industrial
buyers using electronic office equipment in Malaysia. Data analysis (screening test) consisted of outliers;
normality; homoskedasticity; and multicollinearity had been conducted to fulfil the basic assumption in
regression analysis. The initial result does show that there is a direct relationship and significant between
variable “ethical brand”, “company reputation” and “brand loyalty”. An indirect relationship indicates that
role of mediating variable “company reputation” is as partially mediator for “ethical brand” and “brand
loyalty”.
______________________________________________________________________________________
Keywords: Ethical Brand; Company’s Reputation; Brand loyalty; Industrial buyers.
JEL Classification Codes: M3; M31.
1. Introduction
The Internet revolution took place in the early 1990s and has brought us into a new era—the digital era. In
this phase, buyers and suppliers are now sourcing industrial products almost solely online. Consequently,
the business practice conditions are dramatically influenced by the adoption of digital technology, and
strategies must change to remain innovative and competitive (Ainin, 2005). For global industrial sourcing,
the move to the electronic equipment now appears to be completed, and it is clear that suppliers must
provide detailed product information in a quick and easy manner in order to attract and keep customers.
The use of new technology, global logistics, and information systems is a part of industrial buyer’s process,
and has been identified as source of firm’s market orientation (Kohli and Jaworski, 1990) and sustainable
competitive advantage (Day, 1991). In this wake of globalization, one specific issue with increasing
relevance in business and theoretical studies is the role of ethics in business (see, e.g. Pearson, 1995;
Halme, 1997; Dienhart and Curnutt, 1998; Sen, 1995, 1999). Reasons for the rise of ethical concerns in
business are many-sided and complex. Social and environmental concerns have also materialized as a
consequence. Ethical aspects have already been noted as important factors in business encounters. One can
also cite the increasing integration of environmental issues within the industrial buyer is office equipment
products. Like the computer, toner, paper, monitors, copiers, fax machines, audio, and video equipment are
some of these common electronic products equipment. Many electronic products contain high level of
nickel, lead, accumulators, mercury-switches, glass from cathode-ray tubes and other activated glass or
ψ
Corresponding author. Sulaiman M. Ali. Faculty of Economics, Universiti of Syiah Kuala, Province
Aceh, Banda Aceh, Indonesia. Corresponding author Email: [email protected]
Proceedings of Applied International Business Conference 2008
polychlorinated biphenyl-capacitors, or contaminated with cadmium, mercury, lead, nickel, chromium,
copper, lithium, silver, manganese or polychlorinated by phenyls, and other toxic elements that render them
hazardous waste when disposed. According to regulation of Malaysia (E-waste.com, 2005), all of this thing
will effect the environment of quality due to waste.
The above issue clearly affecting every type of business, enterprise, organization and person, becomes the
question of ethics. Zabid and Alsagoff (1993) indicate that the ethical business climate in Malaysia is at a
critical stage, and the companies compete on the issue of ethical standard.
This area has however, received little attention previously. Ethical brands, which promise social
performance as well as economic and environment performance, clearly indicate that there is a close link
between ethical branding and corporate reputation. Moreover, the corporate ethics is important in
globalization as it has positive affect on corporate reputation (Singhapakdi et al., 1999) and enhances a
company’s reputation. (Fan, 2005 & Paluszek, 2006).
It is thus the present study intention to determine the importance of the role of ethical brands on the
behaviour of industrial buyers. The specific research questions are as follows:
1. Do customers (industrial buyers) perceiving the brand as ethical affect company’s reputation)?
2. Does company’s reputation mediate the effect between predictor (ethical brand) and a brand
loyalty?
This study will determine whether or not ethical brands influence company’s reputation, and consequently
brand loyalty of industrial buyers in Malaysia. It is a step towards gathering information from industrial
buyers to ascertain the right marketing strategy for the product in the market.
2. Literature review and the study’s contribution
A current study based on the model of branding that is useful in explaining the brand power has a number
of deficiencies. According to Fan (2005), there are two basic elements missing: legality and ethics. These
elements form the foundation of brand equity. Consequently, a good brand contains a legal as well as an
ethical standard. Thus brand value needs to be assessed by both financial and ethical measures. Second, the
past model of branding (conventional brand model) by Aaker (1991); Kapferer (1997) and Keller (1998)
truly emphasizes product brands rather than corporate brands. However, brands and branding have a
considerable impact on the customers who buys them as well as on society as whole. In every market place
companies face a wider public who may be potentially affected by branding decisions. These may include –
employees, suppliers, and the wider community. Brands that satisfy one group may also possible negatively
affect another. Therefore, stakeholders as a whole, who are impacted by branding, should be considerate. A
good brand must provide a positive impact on its owner and user and also ensure there is no negative
impact on the general public. It means that brands must contribute positively to society by inserting ethical
values, especially in the broader social context. Thus, a positive association of the brand with the general
public will result.
The above explanation is relevant with Narver and Slater (1990) who emphasizes that the marketer’s
responsiveness to stakeholder issues is included in market oriented concept, and Maignan et al. (1999)
concludes that there is an empirical relationship between market orientation and corporate citizenship.
Thus, responding to customer concerns for marketing practices, including ethical obligation to anticipate
the complaint are very crucial to be applied in order to maintain the reputation and commitment. A
proactive response to stakeholders’ complaint is part of maintaining and upholding the ethical
responsibilities in marketing activities. From that viewpoint, then an ethical brand is defined as a brand that
recognizes environment, social, and economic responsibility and also commitment (Fan, 2005; and
Paluzsek, 2006) to doing the right thing, create added value to both firms and customers.
Cretu and Brodie (2005) used the customer value methods developed by Gale (1994) and Rust et al. (1995).
Cretu and Brodie (2005) extended their work by paying explicit attention to the influences on company
reputation. Company (corporate) reputation is defined as a particular type of feedback received by an
organization from its stakeholders, concerning the credibility of the organization’s identity claims (Whetten
and Mackey, 2002). Consequently, the feeling of ethical branding via corporate reputation is expected to
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enhance customer loyalty. While brand loyalty is define as a commitment of the buyer to maintain stability
in a long-term relationship with a brand’s manufacturer (Lam et al., 2004; Oliver, 1999). Thus, Brands play
the key role in enhancing the value of products and protecting them from being imitated by competitors
(Aaker, 1991). Therefore, a strong brand with ethical characteristics is counted as a valuable asset for a
company.
Actually, a set of factors could encourage business firms in repeated purchasing behaviour. This means that
without a good image of company reputation, repeated behaviour is not guaranteed. It required other factors
including ‘ethical brand’ related to company reputation as complementary to the explanatory variables
(Fan, 2005; Paluszek, 2006).
Thus it may reasonably be assumed that ethical branding will affect corporate reputation and gain brand
loyalty. Therefore, it is very important to conduct in depth research, especially to explore relationships with
company’s reputation and brand loyalty. The concept of ‘ethical brand’, which is an integrated element of
the new paradigm, is as an additional variable included in the model (Paluszek, 2006). The constructs that
either directly or indirectly (via both ethical brand and company reputation) affects brand loyalty of an
industrial buyer.
Brands are now seen as the key success factor in order to achieve competitive advantages for firms through
differentiation (Wood, 2000). These competitive advantages may be achieved by ethical brands in terms of
a brand being one construct in addition to set up corporate reputation and loyalty.
3. Theoretical and hypothesis development
The Link between Ethical Brand and Company’s Reputation
Ethical brand has been defined as a brand that recognizes environment, social, and economic responsibility
and also commitment (Fan, 2005; and Paluzsek, 2006) to doing the right thing, create added value to both
firms and customers. From the viewpoint, in the present study, nineteen elements have been combined to
conceptualize ethical brand: (1) maximizes profit, (2) continually improves productivity, (3) continually
increase the wealth of stakeholders, (4) always respects its supplier, (5) being fair to its competitors, (6)
provides health care insurance, (7) re-educate and empower its employees (I to 7 is to measure economic
responsibility, Enderle, G. and Tavis, L.A., 1998), (8) respecting the laws and regulations, (9) encourage
the diversity of the workforce, (10) preventing discrimination, (11) respecting social customs and cultural
heritage, (12) engages selectively in cultural and political life (8 to 12 is to measure social responsibility,
Enderle, G. and Tavis, L.A., 1998), (13) consuming less natural resources, (14) burden less the
environment with effluents, (15) monitoring the potential negative impacts on our community (16)
preserves the jobs at a reasonable profit margin and helps its employees to engage in community work
(Enderle, G. and Tavis, L.A., 1998) (17) having a recycling program, (18) having a recovery program, (19)
having a disposal program (Malaysia Regulation cited in E-waste.com, 2005), (13 to 19 is to measure
environment responsibility). While the company’s reputation is derived from perceptions of all
stakeholders (Whetten & Mackey, 2002, p. 401), Wartick (2002, p. 377) suggests it is pragmatic to focus
on just the immediate customers as they usually are the group that have the major influence. Greyser (1996)
advocates that the core component of corporate reputation is a corporate brand. Moreover, he also discovers
that there is an interesting relationship between corporate reputation and corporate performance, especially
from social performance. Thus, concerning ethical brands, which promise social performance as well as
economic and environmental performance, it is clear that there is a close link between ethical branding and
corporate reputation. Thus, it could be posited that:
H1.
Ethical Brand will have a positive direct relationship with Company’s Reputation.
The Link between Ethical Brand and Brand Loyalty
Brand loyalty has been defined as a commitment of the buyer to maintain stability in a long-term
relationship with a brand’s manufacturer (Lam et al., 2004; Oliver, 1999). Based on the above point of
view, the scale items generated from previous literatures that capture these elements are depicted as (1) the
relationship with brand X is very committed to, (2) Maintaining relationships with brand X (3) doing
anything to keep relationship with brand X, (4) care of long-term relationship with brand X (Morgan and
Hunt, 1994 cited by Davis, 2003), (5) recommending brand X, and (6) Intend to use brand X in the future
(Van Riel et al., 2005). On the other hand, According to Fan (2005), brand value needs to be assessed by
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ethical measures. In this case, it needs to develop standards for marketing practice and standards for
stakeholder as whole to continue the business relationship. Ethical brands that recognize environment,
social, and economic responsibility and also commitment (Fan, 2005; and Paluzsek, 2006) to doing the
right thing, create added value to both firms and customers. Then, according to Paluszek (2006), ethical
brand can be a strategic differentiation to provide a superior value to customer by high standards of
business integrity and social responsibility. Through this strategic element, a company can provide a longterm corporate value to enhance the commitment of the customers. It is clear that there is a close link
between ethical branding and brand loyalty. An ethical brand enhances brand loyalty. Therefore, the
hypothesis can then be stated as:
H2.
Ethical Brand will have a positive direct relationship with Brand Loyalty.
The Link between Ethical Brand and Brand Loyalty Via Company’s Reputation
Company (corporate) reputation has been defined as a particular type of feedback received by an
organization from its stakeholders, concerning the credibility of the organization’s identity claims (Whetten
and Mackey, 2002). In general, inspirited by the view of definition, company’s reputation is conceptualized
by seven key drivers are: (1) being well managed, (2) having customer focus, (3) keeping us well informed
about what is happening with the company, (4) being a good corporate citizen, (5) being product driven,
and (6) being successful company, (7) being innovative (Cretu, A.E., and Brodie, R.J., 2005). Reputation
can play an important role in business-to-business market; therefore it is a key factor to be successful in the
competitiveness (Cretu and Brodie, 2005). By the strategic point as being described by Paluszek (2006),
company can enhance the commitment of the customers through reputation. Consequently, the feeling of
ethical brand with the energy brand is expected to enhance customer loyalty via company reputation. Based
on the above explanation, the ethical brand will lead to a long-term commitment. Thus, an indirect effect of
ethical brand on loyalty via company’s reputation is suggested to be hypothesized. The associations can be
then hypothesised as follows:
H3.
Ethical brand will have positive relationship with brand loyalty via company’s reputation
(indirect effect).
The following model explains the theoretical propositions for the context of the current study:
Company’s
Reputation
H1
H2
Ethical
Brand
H3
Brand
Loyalty
Figure 1: Theoretical framework of the role of ‘Ethical Brand’ and its effect on industrial buyers’
responses
4. Methodology
Data Collection
As mentioned, the current study reports on the initial result as data collection is currently still in progress.
Online and mail survey are used to assist data collection in Malaysia for three areas (Kuala Lumpur,
Selangor, and Negeri Sembilan) from industrial buyers that use electronic office equipment. Simple random
sampling is constructed to get respondents using the electronic office equipment. 50 respondents have been
collected in the areas. They consist of 18 respondents in Kuala Lumpur, 23 of them in Selangor, and the
rest are 9 respondents in Negeri Sembilan. All the respondents are the executives involved in buying
decision-making.
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Questionnaire Development
There are three main constructs identified in the present study: (1) Ethical Brand (EB); (2) Company’s
Reputation (CR); and (3) Brand Loyalty (BL). Measures for the variables are developed from Enderle, G.
and Tavis, L.A., (1998), Malaysia Regulation cited by E-waste.com, (2005), Cretu and Brodie (2005), and
Morgan and Hunt (1994) and Van Riel, et al., (2005). Content and face validity were conducted through the
reviews of experts in scale construction and, by participants in this pretest. A validity testing was also
conducted. The questions were viewed as valid and understandable for the current study.
5. Analysis and result
Data was analyzed by using SPSS. To investigate the initial result, factor analysis and reliability test are
commonly used. Malhotra (1996) suggests to indicate some variables correlating each other’s, and its must
be reduced first before conducting the further analysis. According to Hair et al., (1998), minimum value of
factor loading depends on number of respondent. Having 50 respondents, this study used .6 as minimum
value of factor loading. Composition of measures and items, descriptive statistics for the resulting factors
are presented in Appendix at Table 1. Reliability test shows that Cronbach's Alpha of constructs is between
0.953 and 0.968. The result of Cronbach’s Alpha for ethical brand is 0.968, company’s reputation is 0.953,
and brand loyalty is 0.961.
In terms of discriminant validity inspection, Pearson Correlation was used and the result indicates that there
is no collenearity among the constructs as there is no high correlation (above .90) as being considered by
Hair et al, 1998. Correlation and descriptive statistics for the resulting factors are presented in Appendix at
Table 2. Besides that, there is no indication of heterocedasticity from scatterplot graph and standardized
residual and data appear to be normally distributed around the diagonal line as the predictive line.
Regression Analysis
Linear regression is used to test direct relationship of the conceptual model. Results are presented in the
following table.
Equation
1
2
Table 1: Linear regression estimates conceptual model
Relationship Coefficient TValue
R Square= .750;F = EB to CR
.262
2.604
74.356 (p< .012)
R Square= .660;F = EB to BL
.554
5.249
96.017 (p< .000)
Model fit
PValue
< .05
Conclusions
Supports H1
< .05
Supports H2
The above table indicates that all hypotheses (direct relationship) are supported. The next step was
performing hierarchical regression in order to analyse indirect relationships among variables of the model
following Baron and Kenny’s step (1986). Results are presented in the following table:
N
1
2
Table 2: Hierarchical regression estimates conceptual model
R
R
Adjusted
R Square F
Sig.
Square
R Square
Change
Change Change
EB - BL
.817 (a)
.667
.660
.667
96.017
.000
EB – CR – .880 (b) .774
.765
.107
22.317
.000
BL
Relationship
Conclusions
Partial Mediated
Supports H3
Based on the above table, the changing of R2 from the second equation (without mediating variable) is R2 =
.660 to the third equation (with mediating variable) is R2 = .765. This changing is significant (F change =
22.371, p < .05).
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The overall model is presented in below figure:
Company’s
Reputation
.262
.554
Ethical
Brand
.464
Brand
Loyalty
Figure 2: The full model based on coefficient significant at p < .001
Additionally, relationship between variable “company reputation” and “brand loyalty” is also significant (β
= .464, p < .05). Therefore, the mediating effect can be explained by which β1= .262, p < .05; β2 = .554, p
< .05; β3 = .464, p < .05; and β4= .481, p < .05 (see appendix at figure 1). Based on Baron and Kenny
(1986), it can be concluded that variable “ethical brand” has a role as a partially mediator between variable
“company reputation” and “brand loyalty”. It means that hypothesis 3 stating that there is a positive indirect
relationship between ethical brand and brand loyalty via company reputation cannot be rejected.
6. Conclusion
Finding of this study indicates that ethical brand can also play an important role in the business markets and
affect company reputation and brand loyalty. This study discovers that company’s reputation is a
significant component as a mediating variable in this model of industrial buyer. This current study appear
consistent with previous research by Whetten and Mackey (2002), Wartick (2002) and Greyser (1996) who
argue that company’s reputation is derived from perceptions of all stakeholders, therefore, spending
attention for social responsibility is necessary for the company. Therefore, a strong brand with ethical
concerned is counted as a valuable asset of a company (Fan, 2005) to achieve good reputation and
consequently brand loyalty (Paluszek, 2006).
Suggestions for Future Research
This current study has incorporated the ‘ethical brand’ construct and investigating its effect among
industrial’s buyers toward electronic office equipment. Future studies could replicate this research in other
product categories.
The current study is not without its limitations. As the current study is still in progress, 50 sample
respondents from the industrial buyers are yet to be sufficient for generalisation but the current study will
be increasing its sample sizes in near future. Although low in sample size as what is reported here is our
initial finding, however, 50 responses from industrial buyers may not be comparable with individual
consumers. Moreover, the present study examines the industrial buyers’ responses of the electronic office
equipment. Thus, the findings of this study could not be generalized in other industries. Cross-validation to
other industries could not be performed in this study as it is out with scope. Replicating this research in
similar or other industries is therefore essential in generalizing the findings of this study. Adding new
construct into this constructed model is also requested in order to outcome the future model will be more
sophisticated.
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Appendix
Table 1: Composition of measures, and item descriptive statistics
No.
4
5
6
Loading
KMO = .842; BTS = .000
Ethical Brand (EB) (Cronbach's Alpha = .968; Eigenvalues = 13.093)
Improve productivity
(EB2)
Increases the wealth
(EB3)
Re-educate and empower employees (EB7)
Respect the laws and regulations of the country (EB8)
Encourage the diversity of our workforce (EB9)
Prevent discrimination (EB10)
Consuming less natural resources (EB13)
Burden less the environment with effluents (EB14)
Monitor the potential negative impacts (EB15)
Preserve the jobs
(EB16)
Recycling the material (EB17)
Recovery the valuable material (EB18)
Disposal for final disposition (EB19)
Company Reputation (CR) (Cronbach's Alpha = .953; Eigenvalues = 1.295)
Being well managed
(CR1)
Having customer focus (CR2)
Keeping well informed
(CR3)
Being a good corporate citizen (CR4)
Being successful (CR6)
Being innovative (CR7)
KMO = .844; BTS =
.000
Brand Loyalty (BL) (Cronbach's Alpha = .961; Eigenvalues = 13.093)
Committed buyer (BL1)
Maximum effort to maintain relationship (BL2)
Do almost anything to keep relationship (BL3)
Care a great deal about long term relationship (BL4)
Recommend (BL5)
Intend to use (BL6)
0.812
0.761
0.673
0.724
0.748
0.686
0.730
0.754
0.757
0.811
0.755
0.780
0.757
0.814
0.833
0.743
0.817
0.895
0.725
0.916
0.905
0.901
0.953
0.922
0.890
Table 2 Descriptive statistics: Pearson Correlation among constructs
Brand Loyalty
Brand Loyalty
1
Company's Reputation
.854**
Ethical Brand
.833**
Correlation is significant at the 0.01 level (2-tailed)
392
Company's
Reputation
1
.821**
Ethical Brand
.833**
.821**
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Proceedings of Applied International Business Conference 2008
CR
β1= .262
EB
β4= .481
β3 = .464
BL
β2 = .554
R2 = .750
R2 = .660
R2 = .765
EB = .262PQ
CR = .554PQ
CR = .464PQ + .481EB
F = 74.357
F = 96.017
F = 80.568
Note: p < .05
Figure 3: Mediating effect testing between ethical brand (EB) and brand loyalty (BL) via company
reputation (CR).
393