Marketing Activities, Strategic Competition, and Firm Value

• Author: Jin Q. Jeon,Hwanseok Winston Choi,Juyoun Ryoo,Cheolwoo Lee
• Published date: 01 December 2018
• DOI: http://doi.org/10.1002/cjas.1471
• Date: 01 December 2018

Marketing Activities, Strategic Competition, and

Firm Value

Juyoun Ryoo

Sungkyunkwan University

Cheolwoo Lee

Ferris State University

Jin Q. Jeon*

Dongguk University

Hwanseok Winston Choi

University of Southern Mississippi

Abstract

This study extends the prior literature on the effect of

marketing activities on f‌irm value by investigating whether

the nature of strategic competition affects f‌inancial out-

comes differentially. Using the competitive strategy measure

(CSM), we show that marketing spending is benef‌icial

(detrimental) to f‌irm value when the f‌irm is in strategic

substitutes (complements) and the eff‌icacy is a decreasing

function of the degree of industry competition. The relative

competitive position of a f‌irm in the industry—whether it is

a leader or a follower—matters in the quality and size of

the effect of marketing spending. By bifurcating the nature

of strategic competition into strategic substitutes and

complements, we disentangle the dichotomous effects of

marketing activities on f‌irm value. Copyright © 2018 ASAC.

Published by John Wiley & Sons, Ltd.

Keywords: marketing, strategic competition, strategic

complement, strategic substitute, Tobin’sq

Résumé

Les auteurs de cette étude enrichissent les travaux consacrés

àl’effet des activités de marketing sur la valeur de

l’entreprise en se demandant si la nature de la concurrence

stratégique inf‌luence différemment les résultats f‌inanciers. À

l’aide de la mesure de la stratégie concurrentielle (MSC), ils

montrent que les dépenses de marketing sont bénéf‌iques

(défavorables) à la valeur de l’entreprise lorsque cette

dernière se trouve dans des substituts stratégiques

(compléments) et que l’eff‌icacité est une fonction

décroissante du degré de concurrence de l’industrie. La

position concurrentielle relative d’une entreprise dans

l’industrie - qu’elle soit chef de f‌ile ou adepte - est

importante quant à la qualité et à l’ampleur de l’effet des

dépenses de marketing. En divisant la nature de la concur-

rence stratégique en substituts et compléments stratégiques,

les auteurs démêlent les effets dichotomiques des activités de

marketing sur la valeur de l’entreprise. Copyright © 2018

ASAC. Published by John Wiley & Sons, Ltd.

Mots-clés: marketing, concurrence stratégique, complément

stratégique, substitut stratégique, Tobin’sq

Introduction

Does marketing enhance the value of a f‌irm? The value

of intangible assets has traditionally been ruled out in the

study of f‌irm valuation research, being mainly evaluated

by marketplace outcomes (Gupta & Feldberg, 2004). Such

an approach is potentially problematic because a substantial

portion of f‌irm value ref‌lects intangible assets such as

customer satisfaction and brand equity (Anderson, Fornell,

& Mazvancheryl, 2004; Chan, Lakonishok, & Sougiannis,

2001; Luo, 2008). In response to this concern, recent studies

on the marketing-f‌inance interface literature have investi-

gated this question using the accounting and f‌inancial

metrics of f‌irm value that incorporate the value of intangi-

bles. The general consensus is that various marketing efforts

increase f‌irm value, consistent with Chemmanur and Yan’s

(2009) f‌indings that product markets

1

are tightly linked to

f‌inancial markets through marketing. In a world with imper-

fect information, marketing actions may have the ability to

improve customer perceptions about a f‌irm and its products,

which will eventually lead to better f‌irm value (Rotemberg

& Scharfstein, 1990).

In general, marketing actions

2

can have a positive effect

on f‌irm sales and shareholder wealth.

3

However, the out-

comes of these actions are a function of both a f‌irm’s own

actions and of the reactions of its rivals. The outcomes will

*Please address correspondence to: Jin Q Jeon, Dongguk University, 3-26

Pil-dong, Chung-gu, Seoul 100-715, South Korea. Email: jjeon@dongguk.

edu

Canadian Journal of Administrative Sciences

Revue canadienne des sciences de l’administration

35: 577–591 (2018)

Published online 22 January 2018 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/CJAS.1471

Can J Adm Sci

35(4), 577–591 (2018)Copyright © 2018 ASAC. Published by John Wiley & Sons, Ltd. 577