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Managers’ marketing strategy decision making during performance decline and the moderating influence of incentive pay

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Abstract

This paper focuses on managers’ marketing decision making during performance decline. Drawing on the reconciliation of theories of failure-induced change and threat-rigidity by Ocasio (1995), we examine how performance decline may result in a rigid decision-making process and decision characteristics that reflect the narrowing of attention and increased risk seeking. Furthermore, drawing on managerial compensation research, we consider how incentive pay may affect the marketing decision-making process and decision characteristics of managers during performance decline. Using a simulation game with experienced Chinese managers, our results indicate that performance decline decreases marketing strategy process comprehensiveness but increases reliance on short-term marketing decisions, strategic change, and strategic risk taking. Moreover, incentive pay attenuates the rigid decision-making process of managers but accentuates their heightened risk seeking during performance decline. This paper offers unique behavioral insights into how managers make marketing decisions.

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Notes

  1. Our “marketing strategy process comprehensiveness” construct is conceptually the same as the “marketing strategy comprehensiveness” construct used in prior research (Atuahene-Gima and Murray 2004). However, we renamed our construct following the specific suggestion of one of our reviewers to better reflect its process characteristic.

  2. We propose specific hypotheses for the main effects of performance decline based on the individual information processing model presented by Ocasio (1995). That said, we recognize that opposite predictions may be plausible (McKinley 1993) and accept these as alternate hypotheses but do not formally propose them.

  3. Forward and backward translations of the simulation game were performed by two bilingual co-authors and independently verified by a bilingual third party. The simulation game underwent two rounds of pilot testing with culturally diverse MBAs in South Korea and Chinese undergraduate business students in China prior to the final implementation.

  4. We took several steps to ensure that participants did not discover this condition during the simulation game. First, participants were seated in alternate computer stations in alternate rows to ensure that they were unaware of what other participants were doing. Second, to prevent subject contamination, we scheduled all participants who attended the same classes in the same session. Moreover, participants were told not to disclose details about the simulation game to their classmates during the debriefing sessions and signed a promissory note to that effect. Third, we carefully probed participants to determine if they suspected that the simulation game was not real. Our debriefing sessions revealed that our participants believed that their decisions affected their performance in the simulation game and attributed their overall performances to their own decisions.

  5. One of the items in the original scale was not possible in our simulation and was therefore dropped in our measurement.

  6. We used these three decision rounds because we believe that participants needed the first few decision rounds to calibrate their allocation decisions.

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Acknowledgments

The authors are grateful to Kyeongheui Kim, Minjung Koo, Haiyang Li, James Oldroyd, Anthea Zhang, and seminar participants at Singapore Management University and CEIBS for helpful comments during the development of the paper. We also acknowledge the financial support of SKK Graduate School of Business, Sungkyunkwan University and the National Natural Science Foundation of China (Grant 70902031) and the Humanities and Social Sciences Foundation of the Ministry of Education in China (Project No.13YJC630137). Please contact Eric Shih for any inquiries.

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Authors and Affiliations

  1. China Europe International Business School, 201206, Shanghai, China

    Daniel Han Ming Chng

  2. Sungkyunkwan University SKK Graduate School of Business, 110745, Seoul, South Korea

    Eric Shih

  3. The Ohio State University, Fisher College of Business, 43210, Columbus, Ohio, USA

    Matthew S. Rodgers

  4. Dalian University of Technology, School of Management, 116024, Liaoning, China

    Xiao-Bing Song

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  1. Daniel Han Ming Chng
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Correspondence to Eric Shih.

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Chng, D.H.M., Shih, E., Rodgers, M.S. et al. Managers’ marketing strategy decision making during performance decline and the moderating influence of incentive pay. J. of the Acad. Mark. Sci. 43, 629–647 (2015). https://doi.org/10.1007/s11747-014-0401-x

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