Renowned companies like Sony, Blackberry, and Best Buy are among the many companies now struggling to remake themselves in the face of steep performance declines. At difficult times like this, the marketing managers of these firms are under immense pressure as they hold the key responsibility for making strategic decisions that will directly impact sales and in turn, the performance of their companies.

In an effort to better understand how marketing managers make decisions and the types of decisions they are likely to make during performance decline, CEIBS Assistant Professor of Management Daniel Han Ming Chng has undertaken a research study. It is among the first to focus on the marketing decision making process of individual managers; prior studies in this area have mostly concentrated on the organizational level. Moreover, given that organizations facing a decline in their performance often increase their use of incentive pay, this study also offers important insights into the effectiveness of incentive compensation, relative to fixed compensation, in affecting the marketing decision making of these managers during such difficult times.

The results of this study offer unique behavioural insights into how managers make marketing decisions. They show that while managers facing performance decline become less comprehensive and spend less time on making marketing decisions than those facing performance growth, they are also more likely to use short-term marketing decisions, make more strategic change, and take more strategic risks in their marketing decisions. This is a potentially dangerous combination as managers undertake more strategic risk, but do so in a less careful manner.

In addition, the results show that while incentive pay can help mitigate the less comprehensive decision-making process of managers brought on by performance decline, it will also accentuate their tendency toward risk seeking in their marketing decisions. So while incentive pay may be desirable during performance growth to encourage strategic risk taking, it may have less than desirable consequences when the company is performing poorly. Faced with declining performance, company directors cannot simply rely on incentive compensation to influence managerial behaviors. They may need to put in place more comprehensive procedures to influence managers’ behaviours, such as requiring board approval for significant investment decisions. 

The results of the study appear in the paper titled “Managers’ Marketing Strategy Decision Making During Performance Decline and the Moderating Influence of Incentive Pay” which is forthcoming in the Journal of the Academy of Marketing Science. Prof. Chng’s co-authors are Eric Shih of Sungkyunkwan University SKK Graduate School of Business, Matthew S. Rodgers of The Ohio State University Fisher College of Business, and Xiao-Bing Song of Dalian University of Technology School of Management.

View the paper

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