Membership Matters: On the Value of Being Embedded in Customer Networks

Abstract

Learning about customers and their contexts is vital to firm strategy. We examine how firms can learn by participating in their customers' networks. Specifically, we explain how a bank can increase the value that it creates for customers by being embedded in the networks in which the customers are embedded. We argue that knowledge pertinent to a particular customer is available in the network of affiliated, inter-related customers, and that being structurally embedded in this network can help banks overcome information asymmetries. We use hierarchical linear modelling to test the argument that a bank's structural embeddedness in its customers' network positively affects the bank's ability to offer favourable credit terms. We find that not only does such structural embeddedness affect credit terms, but it also moderates the effects of previously examined relational embeddedness on credit terms.