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Is Your Supplier the Right Person to Ask for Referrals?

Businesses sometimes need horizontal referrals from suppliers. However, there is always the possibility of current suppliers giving an obligatory referral instead of a best possible one. Suppliers give the best possible referral only when they adopt the role of a friend rather than a businessperson. Therefore, when seeking referrals, businesses should approach only trusted suppliers and avoid dependent ones. They should also conduct due diligence before finalising the referred supplier.



Businesses need to add new suppliers for many reasons, from expanding business

requirements to geopolitical events. They often ask their current supplier for referrals in such cases to reduce their search costs. For example, a building contractor might want a new supplier for aluminium window frames if their current supplier doesn’t have the required quantity. However, a current supplier might give them an obligatory referral (meets basic criteria without threatening the supplier’s interests) rather than a best possible one (in the customer’s best interest). Several factors can influence this decision by suppliers. A study investigates these factors to answer the question: When can a business expect their supplier to give them the best possible referral?


The study found that a supplier is more likely to make the best possible referral if they adopt

the role of a friend (vs businessperson) toward the customer. The role of a friend implies that their decisions are determined by relationship expectations. Two factors determine whether a supplier will adopt the role of a friend. The first is trust, which depends on relationship length and interaction frequency. The higher the trust between the two parties, the higher the likelihood of the supplier adopting the role of a friend. The second is dependence, including their economic dependence and product breadth. The more dependent a supplier is on a customer, the less likely they are to act as a friend, as the referral can lead to future business loss.



In contrast, a supplier is more likely to give an obligatory referral, i.e., a referral that meets

the customer’s minimum standards, if they adopt the role of a businessperson (vs friend) toward the customer. A businessperson role is defined by utility maximisation considerations rather than relationship expectations. When they adopt this role, a supplier will likely take their own interests into account and not just the customer’s. Since the best possible referral could offer better options for the customer, which might cause them to move to the new supplier and leave the current one, they avoid giving referrals with attractive characteristics like better economic terms or greater product breadth.


One of the key paradigms of B2B buying and selling today is replacing price with value. How and why does this matter? Find out here.


Interestingly, the study also found that a supplier will not generally go for the two other

potential options available to them when a customer asks for a referral: 1) not giving a referral at all and 2) giving a substandard referral. They avoid refusing a referral because they understand the importance of the request. They also avoid giving substandard referrals because they prefer to maintain a positive relationship with the customer. Both these choices are predicated on continuing their relationship with the customer.



This study has relevant findings for businesses that need horizontal referrals for new

suppliers. While they can approach trusted suppliers and expect them to provide the best possible referrals, they should avoid dependent suppliers as they will most likely offer only obligatory referrals. This may seem counterintuitive as dependent suppliers are expected to want to “keep the customer happy”; however, in reality, the risk of losing business to a competitor might even lead them to give less-than-optimum referrals. Therefore, it is best to seek referrals from trusted and non-dependent suppliers.


Moreover, whenever customers receive horizontal referrals from current suppliers, they will

benefit from doing their due diligence on the potential new supplier. They can investigate the referred supplier thoroughly, as they would do for leads obtained from other sources. They can thus discover whether the potential supplier is a best-fit for their business needs or is, indeed, only an obligatory referral. The results of the investigation will also give them insight into the referring supplier, enabling them to retain or discard them and helping them create a pool of more trustworthy suppliers in the long run.


B2B suppliers can encourage current customers to buy more is through loyalty programmes, which are typically a tool of retail. This post discusses how it might work for B2B firms.

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