REPUTATION OF FAMILY FIRMS FROM A CUSTOMER PERSPECTIVE

ABSTRACT Family firms aim to build favorable reputation with their stakeholders. The identity of a family firm, which – to varying extents – is conditioned by the owner family, is the basis for the corporate image as perceived by external stakeholders and thus influences the firm’s reputation. Favorable reputation, in turn, stimu-lates purchase decisions and fosters customer loyalty and retention. Based on an experimental survey, this article examines the impact of family ownership on reputation and customer loyalty. The findings indi-cate that family firms are rated higher in terms of customer orientation, social and environmental respon-sibility and other reputation factors. In addition, customers rather tend to recommend businesses known to be family-owned. Keywords : reputation, image, family firm, customer-based reputation, customer loyalty 1. INTRODUCTION Family firms (FFs) are characterized by their long-term orientation (Miller and Le Breton-Miller, 2006), identification of the owning family with their firm (Deephouse and Jaskiewicz, 2013), and strong social ties towards customers, employees, and the community (Arregle et al., 2007; Zellweger et al., 2012). These particularities provide incentives to create a unique image and build a good reputation (Salvato and Melin, 2008; Zellweger et al., 2012). According to corporate identity theory, the family is part of the identity of the firm (Dyer and Whetten, 2006) which provides the basis of corporate image and reputation (Brown et al., 2006). For some FFs, family ownership is obviously visible to the public, especially when the family name is part of the firm’s name (Deephouse and Jaskiewicz, 2013). Other firms hide their family ownership in their communication with external stakeholders (Carrigan and Buckley, 2008; Zellweger et al., 2012). Good reputation has positive effects on the financial success of a company (Basco, 2014), facilitates business transactions (Moog, Mirabella and Schlepphorst, 2011) allows access to capital on better terms (Yang, 2010), and enables entry into social and professional networks (Sieger et al., 2011). Since FFs consider strong relationships important (Arregle et al., 2007), especially relationships with customers (Binz et al., 2013; Craig, Dibrell and Davis, 2008), building a good reputation seems crucial for such firms. However, studies have only occasionally addressed the image or reputation of FFs related to customer loyalty and retention (Binz et al., 2013; Orth and Green, 2009). Moreover, scientific insights into the image and reputation of FFs and their potential impacts on customer loyalty are still rare. The relationship be-tween image as a FF and reputation is also not yet clear. The purpose of this study is to examine whether it is advantageous in terms of reputation to reveal a firm’s family ownership to customers and to identify possible consequences for customer loyalty. Our research contributes to existing literature in two ways. First, by drawing on an experimental survey, we investigate the impact of the communication of family ownership on FF’s reputation with customers. Second, we explore the relationship of reputation to cus-tomer loyalty. This paper is structured as follows. In the next section, corporate image, reputation, and their relevance for FFs are discussed, and hypotheses are developed. Section 3 explains the research methodology. In section 4 the empirical results of the experiment are presented. A discussion of implica-tions, limitations, and future research concludes the paper.