Vertical Cooperation

Vertical coordination creates stronger customer-seller bonds, and as a result, their relation will go beyond a simple transaction. Vertical coordination engages both customer and seller in activities that create more value for both them. Trust must be built between business partners to create a long-term relationship. Corporate credibility, reputation, and trust are the key component to create and strength a healthy relationship between suppliers and customers. Customers view a corporate as a credible corporate when the firm is able to design and deliver products and services that please customers’ needs and desires. Corporate credibility is the basis of building a strong relationship between customers and suppliers because it reflects the

202). These factors categorize the customer-supplier relationships into eight classifications. Categories of the customer-supplier relationship include: basic buying and selling, bare bones, contractual transaction, customer supply, cooperative system, collaborative, mutually adaptive, and customer is king. Each category of relation has a distinctive definition that describes the level of relation, cooperation, trust, adoption, and collaboration between customers and suppliers. The relationship between customers and suppliers does not stay the same over the time and will change and shift because the circumstances that link customers and suppliers together will change over time. For example, a supplier realizes that the expected growth will not be met by its customer; therefore, the supplier would not invest on the customer anymore. A close relation forms between a supplier and a customer, when there are obstacles in obtaining a product, alternative suppliers to replace the supplier are limited, and the supply is important to the

Specific investments are expenses that are designed to a specific company and its value chain partner. Specific investments include investment in equipment, the operation of systems or procedures, or the company’s training. Specific investments aid a company to stabilize its positioning and raise profit. For example, Xerox worked with its supplier to create a customized process to reduce its copier manufacturing costs. Both supplier and the Xerox benefited from this investment because Xerox’s costs were reduced and the supplier gained sales, volume, and a strong position with Xerox for future sales. Specific investments, despite creating profit for both customers and suppliers, involve substantial risks. Specific investments enmesh customers and suppliers into a specific relationship because they are “partially sunk” (Kotler & Keller, 2012, p.204). In specific investments, both customers and suppliers are vulnerable because of the involved risks. For example, when costs change, it puts both customer and supplier at risk; a supplier is vulnerable because it has put its knowledge, technology, or assets. A customer is vulnerable as well because the switching costs holdup the