The impact of resource‐strategy correspondence on marketing performance—financial performance tradeoffs

Abstract

We suggest that the relationships between strategy and financial performance and between strategy and marketing performance depend on the resource bundle and strategy of a firm. The better the correspondence between strategy and resource bundle, the better the performance. We empirically test and find support for this explanation. By building empirically calibrated models of the marketing and financial performance, we are able to show that, indeed, the optimum strategies for the two are not the same and more importantly that the difference varies depending on the resource bundle of a firm.KEYWORDS: Resource-based theory; strategy; coherence; performance; tradeoffs INTRODUCTIONAs one considers a firm's success, it is tempting to assume that marketing success is highly correlated to financial success. Further consideration would lead to the question of what is the relationship between the success of a brand or a product in the market place and that of firm's shareholder returns. In more general terms the question may be posed as one of providing a parsimonious explanation for the differences between the two: Traditionally, marketing activities focus on success in the product marketplace. Increasingly, however, top management requires that marketing view its ultimate purpose as contributing to the enhancement of shareholder returns (Day and Fahey, 1988). This change has led to the recognition that the relationship between marketing and finance must be managed systematically; no longer can marketers afford to rely on the traditional assumption that positive product-market results will translate automatically into the best financial results. (Srivastava, Shervani and Fahey, 1998, p. 2) The above quotation and the extant literature suggest that the traditional assumption that positive product-market results will translate automatically into the best financial results is not true. We propose a resource-strategy correspondence explanation to understand the differences in discrepancy between the two performance measures across firms in an industry.Our paper is set in the literature streams in marketing strategy and strategic management that examine the relationships between resources, strategies, competitive advantage and performance. If early studies have investigated the relationships between market share and profitability (e.g., Buzzell and Gale, 1987), over the last decade, the identification of the relationship between strategy, resources, and competitive advantage has become particularly important in the development of marketing strategy thought and practice (e.g., Bharadwaj, Varadarajan and Fahy, 1993;Capron and Hulland, 1999;Day and Van den Bulte, 2002;Day and Wensley, 1988;Dickson, 1996; Morgan, 1995, 1996;Srivastava, Fahey and Christensen, 2001;Srivastava et al., 1998). Indeed, the primary focus of this stream of the marketing strategy literature has been on identifying sources of competitive advantage, debating over the merits of various performance objectives for assessing competitive strength, and address...

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