MITIGATING THE EFFICIENCY-INNOVATION TENSION WITH STRATEGIC MARKETING LEVERS

Jaakko Aspara,Xueming Luo 글로벌지식마케팅경영학회 2014 Global Marketing Conference Vol.2014 No.7

A well-known dilemma in strategic marketing is whether a firm can be simultaneously both efficient in its existing business and innovative in creating new business (Atuahene-Gima 2005; Christensen 1997). Beleaguered companies such as AOL, Kmart, Motorola, Nokia, Polaroid, and Sears are examples that were once highly efficient in serving customers, but partly due to that efficiency in their existing business, paradoxically failed to introduce innovations. The potential tension “between innovation and efficiency-is one that’s bedeviling CEOs everywhere” (Hindo 2007). Two questions regarding the efficiency-innovation tradeoffs are especially intriguing to researchers and managers alike. First, to what extent are such tradeoffs driven by efficient firms’ lack of eagerness or willingness to innovate in the first place, or lack of ability to innovate and promote innovations? Second, can certain strategic marketing factors mitigate the tension of such tradeoffs? Indeed, anecdotal evidence indicates that not all firms that are efficient in their current business (e.g., Charles Schwab, Capital One) lack innovative thrust. In fact, efficient firms may actually be eager to innovate: Nokia, for instance, originally innovated an online “app store” service as well as touchscreen smartphones and Internet tablets in the 1990s and 2000s, much earlier than Apple (Ben-Aaron 2009; MobileGazzette 2008). Similarly, Polaroid was originally a pioneer in developing digital cameras and imaging services in the 1980s (Tripsas and Gavetti 2000). The eventual failures of Nokia’s and Polaroid’s innovation efforts, thus, do not seem to be due to their lack of eagerness to innovate, but perhaps the inability to manage the efficiency-innovation tension. In contrast, other companies seem to be able to manage this tension. For instance, in financial services, Charles Schwab is often commended both for its efficiency and its innovativeness, and the firm itself feels the “need to invest in innovation to maintain a competitive edge” (Gilson 2012). Against this backdrop, we focus on two questions: (1) What exactly are the tradeoffs and tensions between a firm’s existing efficiency, innovativeness in its new offerings, and new offering performance? And (2) how can strategic marketing assets such as customer base and advertising intensity mitigate the tradeoffs? Should such assets help to alleviate the inherent tension, they would give executives tools to pursue both efficiency and innovation at the same time and succeed with their new innovative offerings. Empirically, we focus on the service sector, whereby the actual technical development of innovations is not very costly in tangible financial terms (Crawford and di Benedetto 2008; Droege et al. 2009; Thomke 2003)-making the intangible firm capabilities most likely determinants of (innovation) performance rather than tangible resources (cf. Vorhies, Morgan, and Autry 2009). Therewith, we examine our research questions with a comprehensive census dataset of all new service introductions (n≈500) in one national market: The Finnish mutual funds industry (1997-2010). The sector of financial services is especially relevant for the efficiency-innovation tradeoffs because in this sector, many firms are compelled to engage in both efficient operations and effective (financial) innovations. Our empirical focus on all firms in one market precisely identifies and measures the efficiency levels of all competing firms, relative to the best-performing competitors, as well as innovativeness (earliness) in introducing new services compared to all rivals. For a marketing perspective, we focus on firms’ existing customer-perceived service efficiency (over the entire portfolio of existing services, i.e., funds)-defined through the ratio of output value that customers obtain from the firms’ current services to the (customer) cost inputs. We also carefully delineate between (a) innovativeness of a new service introduction and (b) its performance. Doing so can reveal the potentially contradictory effects of existing efficiency on new service innovativeness (willingness to innovate) vis-à-vis new service performance (ability to make innovations succeed). As our key results, we firstly identify and explicate the baseline efficiency-innovation tradeoffs. Specifically, our results suggest that while existing service efficiency increases the innovativeness of new services introduced by the firm, it simultaneously (1) leads to decreased business performance for the new services introduced and (2) diminishes the positive influence of innovativeness on performance. In sum, these findings imply that on the baseline, highly efficient service firms may be too eager to innovate, considering the sub-par performance they are likely to receive for those innovations. Secondly, our results reveal two strategic marketing factors, which have the potential to mitigate the tradeoffs. We find that the firm’s (a) focused customer base and (b) high advertising intensity can nullify the negative effect of existing service efficiency on innovativeness and the negative moderating effect of efficiency on the innovativeness-performance link.

CONSUMERS’ DIFFERENTIAL BEHAVIOR TOWARDS PLATFORM-SHARING AND INDEPENDENT BRANDS: THE ROLE OF GENERAL INTELLIGENCE

Jaakko Aspara 글로벌지식마케팅경영학회 2015 Global Fashion Management Conference Vol.2015 No.06

The marketing practice in several industries, including fashion and luxury goods, increasingly relies on the utilization of shared product platforms across different brands (Halman, Hofer, & Van Vuuren, 2003; Krishnan & Gupta, 2003; Luo, 2011; Sawnhey, 1998). For instance, manufacturers of products ranging from automobiles (di Benedetto 2012) to wines (Beverland, 2004) offer consumers several products under different brand names, but partly based on the same product components or architecture. However, while such platform branding practices have been increasingly adopted by companies and studied by marketing research, less is known about the consumer behavior implications of such branding. In particular, the few extant studies on the consumer behavior implications (e.g., Sullivan, 1998; Strach and Everett, 2006; Olson, 2008) do not take into account consumer heterogeneity, i.e., the potentially different behavior towards platform brands by different consumers. This issue is, in essence, the focus of the present study. Specifically, as the focal consumer trait, we concentrate on the role that consumers’ general cognitive ability, i.e. intelligence, may play in their choices of platform vs. independent brands. While intelligence has been shown to affect consumers’ financial decisions in the stock market (Grinblatt, Keloharju, & Linnainmaa, 2011, 2012), we are unaware of studies that would have directly examined the link between intelligence and brand choices in the product market. Our contribution is to report such an investigation with over 200,000 consumers’ purchase choices of cars in Finland. As the car brands studied differ in price points, higher-income individuals can, on the baseline, better afford the higher-premium platform brands (and, possibly, independent brands). Intelligence, in turn, correlates with income, possibly giving rise to a spurious, overall correlation between intelligence and higher-premium platform brands through income. Therefore, to study the ceteris paribus association between intelligence and brand choice, independent of income, we estimated an ANCOVA of the mean intelligence of individuals possessing cars of different brands, controlling for income and the other control variables. As to results, the least squares mean intelligence of individuals possessing higher-premium platform brands was lower (M = 5.55, s.e. = 0.01) than individuals possessing lower-premium platform brands (M = 5.64, s.e. = 0.01; pairwise comparison significant at p < .0001 level). Furthermore, the mean intelligence of independent, non-platform brand owners resulted even higher (M = 5.76, s.e. = 0.02) than that of the low-premium platform brand owners (M = 5.64, s.e. = 0.01; comparison significant at p < .0001 level). Ordered probit regression analysis of purchased brands, provided consistent results. In summary, the results support our hypotheses that controlling for income, greater intelligence is associated with the preference for lower-premium platform brands over higher-premium platform brands and, further, with the preference for independent platform brands over platform brands. Managerially, the results demonstrate that smarter consumers may have suspicions towards higher-priced platform brands. Correspondingly, such consumers may be more predisposed either to seek lower-priced brands of equal quality, or to pursue brands of independent posture. To attract these consumers to higher-premium platform brands, marketers may need to provide convincing information on which tangible quality aspects are distinctive in the products of the higher-premium platform brand, as opposed to the lower-premium brand that is based on the same platform. At the same time, the independent brands may face a harder marketing task among less smart consumers, who seem to have more trust in the larger platform constellations of brands.