The Performance of the Global Marketing - Essay Example

of Xxxxx Business Department The Performance of the Global Marketing Undergraduate Department of Business London United Kingdom YourEmail@xxx.uk April 7, 2006 Research proposal Preliminary Draft - Comments Welcome To be presented on April 10th, 2006 In the subject of XXXXX Directed by: XXXXX, (Ph D. or M.S or anything) Acknowledgments: I am grateful to my tutor for (his or her) solid support. INDEX 1. Introduction 1.1. Problem Statement Marketing has been traditionally a customer oriented task, and it should be so. Nevertheless, the growing importance of the financial function in the company requires the attention of marketers to this aspect. To secure corporate-level influence, marketing must develop tools to quantify its contribution to firm growth and profitability. First and foremost, marketing managers must develop ways to measure the effectiveness of marketing in terms that are meaningful to CEOs, CFOs, and investors. Marketing will assume the central role that deserves as customer representative in the company only when its contributions to firm growth are recognized by top management. In this regard, studies that serve the purpose of linking marketing activities to firm performance and stock value are exceedingly necessary. Undoubtedly these have been reasons for the Marketing Science Institute to list Marketing Metrics among top research priorities. The organization of this proposal is the following. Firstly, a description of the project is presented. Secondly, the methodology is proposed. Thirdly, an approximated time schedule of research is developed. Finally, a provisional table of contents is suggested. 1.2. Main Research Objective The aim of this research is to measure, in financial terms, the marketing performance of the U.S. global companies. Consequently, the general objective is: a. Find out empirical support to the effects of marketing activities of the U.S. global companies over their short and long-term profits. 1.3. Academic and Managerial Relevance of the Subject In reference to academic relevance, this research pretends to support empirical evidence to the field of marketing metrics in a global context. The suggestion of Rust et al. (2004) about search for empirical support to the chain of marketing activities has been taken into account. With respect to managerial relevance, this research pretends not only to tell the board that marketing contributes to the company, but also to give them the effectiveness of marketing in money terms. 2. Description of the Project 2.1. Theoretical Framework According to Holmstrom and Tirole's (1989:65) definition, a theory of the firm must address two central questions: (a) why firms exist, and (b) what determines their scale and scope. In the case of this thesis proposal, there are two theoretical perspectives central to explaining the relationship between Marketing Strategy and firm's performance in a global context: the Industrial Organization (IO) Theory and the Resource-Based View (RBV) Theory. Both of them postulate that the purpose of the firm is to maximize profits. Having fulfilled the first question of Holmstrom and Tirole (1989:65), the logic of this theoretical framework is to connect the drivers of the two theories to the relationship between marketing strategy and firm's performance. 2.1.1. Industrial Organization Theory The IO theory focuses on the external market to identify drivers of a firm's strategy which will consequently affect its performance (Zou and Cavusgil 2002). According to the IO framework, external market and industry environment (structure) determines a firm's strategy (conduct), which in turn determines its performance (Porter 1980). Under IO theory, the development of the marketing strategy has to allow for the structure of the external market and industry, hence being coaligment to environment for getting positive effects on performance (Venkatraman and Prescott 1990) and survive and prosper (Collis 1991). 2.1.2. Resource-Based View Theory The RBV recognizes the importance of a firm's internal organizational resources as determinants of the firm's strategy and performance (Barney 1991; Grant 1991; Wernerfelt 1984). Barney (1991) defines the term internal organizational resources as all assets, capabilities, organizational processes, firm attributes, information, knowledge, that are controlled by a firm and that enable it to envision and implement strategies to improve its efficiency and effectiveness. Hamel and Prahalad (1994) and Prahalad and Hamel (1990) use the term "core competence" for this type of internal organizational resources. In the context of global competition, this theory suggests that historical evolution of a firm (accumulation of different physical assets and acquisition of different intangible organizational assets through tacit learning) constrains its strategic choice and so will affect market outcomes (Collis 1991). 2.2. Literature Review 2.2.1. Marketing Performance The need for measuring marketing impact is intensified as firms feel increasing pressure to justify their marketing expenditures (Gupta and Zeithaml 2005; Rust et al. 2004; Srivastava et al. 1998). According to this, marketing practitioners and scholars are under increased pressure to be more accountable for showing how marketing activities link to shareholder value. Marketing impact studies have three stages of development. The first one is related to research that link marketing activities to accounting-based measures. The most studied activity in this stage has been advertising, and it has been connected to sales (Dekimpe and Hanssens 1995), to profits (Jedidi et al. 1999), and return on investment (Danaher and Rust 1996). The second stage is associated with research that connects marketing activities to marketing assets. Cornwell et al. (2001) explores how the use of advertising and promotion to support the sponsorship, and active management involvement are significant predictors of both the perceived differentiation of the brand from its competitors and adding financial value to the brand. The last stage is related to studies that link marketing activities and marketing assets to shareholder and firm value, measured by data from capital markets such as Market Value, Earnings per Share, among others (Rust et al. 2004). Some of the studies are the following: Srivastava et al. (1998) develop a conceptual framework of the marketing-finance interface which concerns with the task of developing and managing market-based assets such as customer satisfaction and brand equity with the objective of increasing shareholder value by accelerating and enhancing cash flows, lowering the volatility and vulnerability of cash flows, and increasing the residual value of them. The research which associates the three stages mentioned above is the one of Rust et al. (2004). They propose a conceptual framework that can be used to evaluate marketing as a whole. It is a chain-of-effects model that relates the specific actions taken by the firm (marketing actions) to the overall condition and standing of the firm. The chain model includes besides the marketing actions, the impact on customer, on the market, and on financial and firm value. 2.2.2. Global Marketing Performance The studies related to GMS and its impacts on firm value are few. The most important studies are described based on the evolution of research in GMS, in the next paragraphs. The research of Samiee and Roth (1992) is the first empirical study which focuses specifically on GMS and its effect over performance. The dimensions used for comparison are influence of industry and technology, the components of marketing plan, the importance of key policies and strategies, and the financial influence of global standardization. The critical finding is related to the no differences, in performance terms, between firms stressing global standardization and the ones which do not. Schuh (2000) examines why western companies mostly follow a global standardization strategy (marketing program standardization) based on cases studies conducted in Central Eastern Europe. He proposes a framework for determining the degree of marketing program standardization. According to the framework, there are two main factors, the internal (corporate goals, international orientation, nature of product, financial performance, and organizational structure) and the external (progress in transition process, perceived business risk, ease of market entry, quality of target market, and state of marketing infrastructure). He found an important contribution related to the use of GMS in environments characterized by transition economies. The work of Zou and Cavusgil (2002) is one of the few studies which firstly conceptualize GMS and secondly link GMS to firm performance. Their findings support the hypothesis of positive impact of GMS over performance. The other research is of zsomer and Simonin (2004). They measure, at first, the effect of the customer similarity (product usage, product life style cycle and target market) and market infrastructure similarity (marketing regulations and advertising media availability) on mix marketing program standardization; secondly, they measure the effect of the centralization of product and non-product decision as part of the mix marketing program on performance (main product profitability and overall profitability). Their principal finding is that marketing program standardization is better when both the product decision is centralized and the non-product decision is decentralized. Based on this literature review of GMS, there is no a consensus of theoretical frameworks, and every research adopts its proper conceptual model. There is no harmony in empirical evidence, some studies (Zou and Cavusgil 2002) bring to light the positive link of GMS to performance. Others studies (e.g. Samiee and Roth 1992) uncover no differences, in terms of performance, between firms standardized and adapted. Finally, zsomer and Simonin (2004) bring to light that a GMS is positively linked to performance when the product decision is centralized and the non-product decision is decentralized. Almost all the studies base their empirical data on subjective responses. 2.3. Specific Research Questions According to the main objective delineated above, the specific research questions are the following: a. Do the marketing activities of the U.S. global companies increase their marketing assets b. Do the marketing assets of U.S. global companies positively influence their short term profits c. Do the marketing assets of U.S. global companies positively influence their long term profits 2.4. Unit of Analysis The Units of analysis are the U.S. global companies. A company is called Global when competes in a world in which suppliers, competitors, and customers are no longer bound by the nation-state, or even region (Townsend et al. 2004). 2.5. Theoretical Model Adopted and Hypotheses The conceptual model presented (See Figure 1) synthesizes the research proposal. According to Rust et al. (2004) the firm's marketing strategies, which might include product strategy, price strategy, promotion strategy, or any other marketing strategy, lead to tactical marketing actions such as packaging, brand name, density of the distribution channel, advertising, permanent exhibitions, sponsoring, press bulletins (Van Waterschoot and Van den Bulte 1992), or any other initiative designed to have marketing impact. The tactical actions and intangible resources of marketing management (Srivastava et al. 2001) then influence and generate marketing assets (Rust et al. 2004) such as brand equity (Srivastava et al. 1998). Hence we expect that: H1: The marketing activities carried out by U.S. global companies influence positively the generation of marketing assets. At any point in time, tactical actions will have made more marketing assets (e.g. brand equity), but they may not yet have influenced firm's profit and loss account (Rust et al. 2004). As a consequence, these assets can be leveraged to deliver short-term profitability (Rust et al. 2004) and long-term profitability (Srivastava et al. 1998). Therefore we look forward to: H2a: Marketing assets of the U.S. global companies have a positive impact on short-term profitability. H2b: Marketing assets of the U.S. global companies have a positive impact on long-term profitability. FIGURE 1 CONCEPTUAL MODEL OF THE RESEARCH PROPOSAL 3. Research Methodology The research methodology has been developed based on the specific objectives intended to accomplish. Likewise, it contains information related to model specification and description of methodology. Additionally, viability and limitations of the research have been considered. The main objective proposed is to find out empirical support to the effects of marketing activities of the U.S. global companies over their short and long-term profits. Three hypotheses we need to test H1a, H2a and H2b. We have to examine the chain of effects of marketing activities (See Figure 1). Testing the effect of marketing activities carried out by the U.S. global companies over the generation of marketing assets is the first step of this stage. The second step is to test the impact of marketing assets of the U.S. global companies on their short and long-term profits. The procedure about the sequence of testing is explained in the model specification and methodology description. TABLE 1 Model 1 Specifications Constructs Variables Indicators Years of Analysis Sources of Information Kind of Source Marketing Activities Advertising Annual spending in million US$ 2004 - 2005 Advertising Age Digital and Print Edition Secondary Marketing Assets Brand Equity Annual Brand Value in million US$ 2004 - 2005 Interbrand Data Secondary Short-term Profits (Accounting Data) Return on Investor (ROI) Annual ROI in % 2004 - 2005 Fortune Review Secondary Long-term Profits (Capital Market Data) Market Value Annual in million US$ 2004 - 2005 Fortune Review Secondary Earnings per share Annual in US$ 2004 - 2005 Fortune Review Secondary Control Number of Brands Number 2004 - 2005 Web Page Secondary International Experience Years 2004 - 2005 Web page Secondary Source: Self-devised 3.1. Model Specification The model presented in the figure 1 is composed by some constructs following detailed. The construct of marketing activities is composed by the variable advertising spending (Rust et al. 2004; Van Waterschoot and Van den Bulte 1992). The construct marketing assets is shaped by the variables brand equity (Srivastava et al. 1998). The variables used to measure short-term profits are revenues, profits (Anderson et al. 1994) and return on investor (Kirpalani and Shapiro 1973). The long-term profits are measured by the ratio of market value over book value, and earnings per share (Anderson et al. 2004). Control variables used are number of brands(Gruca and Rego 2005) and international experience (Anderson et al. 2004). Other aspects considered in the characterization of the variables are indicators, source of information and kind of source (See Table 1). 3.2. Methodology Description The model presented in the figure 1 will be tested on the U.S. global companies. The sample of analysis considered is composed by U.S. global companies of 8 industries (See Table 2). According to the report of the 500 Largest U.S. Corporations published in Fortune (2005), the number of companies is 129. The companies that form part of this sample will be considered as the base for searching the secondary info needed. The kind of study that will be developed is structured, quantitative, and explanatory. Multiple Regression Analysis (Anderson et al. 2004; Gruca and Rego 2005) will be used as the technique for measuring the effects of the constructs of the model (See figure 1). TABLE 2 Sample Outline Industry N Apparel 11 Beverages 8 Commercial Banks 34 Computer Software 10 Entertainment 10 Food Consumer Products 20 Food Services 11 Telecommunications 25 Total 129 Source: Self-devised based on Fortune (2005) Information. 3.3. Viability and Limitations An important aspect of the viability of the empirical studies is the access to information. The research will be worked with free access data and secondary data. This makes the research be viability and feasible. 4. Approximated Time Schedule of Research TABLE 3 Approximated Time Schedule 2006 2007 Q3 Q4 Q1 Q2 Q3 Q4 FIRST PART Theoretical Review Literature Review Theoretical Model Methodology Results Conclusions Introduction SECOND PART Writing the Dissertation Review/Redact the Dissertation Present the Dissertation Defence the Dissertation Source: Self-devised 5. Provisional Table of Contents TABLE 4 Provisional Table of Contents Introduction Second Part: "The impact of Global Marketing Strategy on Performance" A Study based on U.S. Global Companies Introduction Literature Review Theoretical Framework and Hypothesis Methodology Results Conclusions References Tables Index Figures Index Source: Self-devised * Provisional Part 6. References Anderson, E.W., C. Fornell, and D.R. Lehmann. (1994). "Customer Satisfaction, Market Share, and Profitability: Findings from Sweden". Journal of Marketing, 58 (July), 53-66. Anderson, E.W., C. Fornell, and S.K. Mazvancheryl. (2004). 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