Ajay Kalra & David A. Soberman
Executive Summary
Evidence from the literature indicates that mangers are overly competitive and overemphasize competitors’ payoffs in making decisions. The literature has primarily viewed nonoptimal decision making as the result of a lack of information or the decision rules used by managers. These factors are important in many situations, but operational decisions made by midlevel managers, such as promotional allocations and regional pricing, are made under considerable informational and time constraints. Given this pressure, two inputs that these managers use to assist in their decision making are advice from colleagues and employee training. The authors show how both sources of guidance lead managers to place emphasis on relative (not absolute) performance.
The authors conduct a first experiment in which one generation of participants plays a noncooperative game and then passes on advice on how to play the same game to the second generation. The authors find that the second generation is more likely to take decisions that negatively impact the competitor’s profits, even when the decisions result in lower payoffs for themselves. The results suggest that the advice of the first generation causes the second generation to be more sensitive to relative performance.
The second experiment demonstrates that some elements of training programs overemphasize the importance of reducing the performance of competitors by creating negative affect toward competitors. Although engineering employee emotions can have several beneficial aspects, the results of our study show that there may be drawbacks to this practice. The training increases the willingness of managers to sacrifice own-profits to reduce competitor profitability.
These findings have important implications for managers in competitive markets, especially given the current trend among traditionally centralized firms, such as Sara Lee and Coca-Cola, to decentralize and give local managers more autonomy and responsibility.
First, the sharing of information among marketing managers may contribute to performance that progressively worsens. It is important that advice be shared among frontline managers. Experienced managers can often help explain the complexity that confronts a manager in a new position. However, this study shows that the type of advice can have a significant effect on whether its ultimate impact is positive or negative. An option to manage this issue is to devote resources to understand the content and nature of advice that managers share with each other. Second, this research raises significant doubt regarding the wisdom of standard training materials that emphasize the importance of beating competitors. A potential avenue is to examine whether training that focuses on evoking analytical rather than emotional reactions to making competitive decision is more effective.
Biography
Ajay Kalra is Associate Professor of Marketing in the Tepper School of Business at Carnegie Mellon University. He received his undergraduate degree in Economics from Birla Institute of Technology and Science, Pilani, and a PhD in Marketing from Duke University. His research interests include designing incentive systems and determining how consumers form quality assessments. His research has appeared or is forthcoming in Journal of Marketing Research, Marketing Science, Management Science, and Journal of Advertising. He is the recipient of the William F. O’Dell Award in 1998 and the George Leland Bach Award for teaching excellence and is a finalist for the John Little Award in 1999. His more recent research is on why consumers buy products but may often not use them and on identifying when consumers are more likely to purchase extended service contracts.
David A. Soberman holds a PhD in Management from the University of Toronto and an MBA and BSc in Chemical Engineering from Queen’s University in Kingston. His research and teaching focus is on industrial marketing; distribution channels for consumer packaged goods; and retailing, with direct involvement in the beer industry, the market research industry, and markets for durable goods. Professor Soberman’s research consists of using applied microeconomics and game theory to analyze marketing phenomena. He uses this approach to examine how the operation of markets is affected by the exchange of information between firms and customers, relationships within the distribution channel, and the nature of competition in evolving markets. Professor Soberman’s research has appeared in Marketing Science, Management Science, Journal of Marketing Research, Journal of Marketing, and California Management Review. His coauthored article (with Philip Parker) “The Economics of Quality-Equivalent Store Brands” was the 2006 recipient of the Best Paper Award in International Journal of Research in Marketing. His coauthored article (with Ganesh K. Iyer) “Markets for Product Modification Information,” was the 2000 recipient of the John D.C. Little Best Paper Award. Professor Soberman is an area editor for International Journal of Research in Marketing and a member of the Marketing Science editorial board. Before his doctoral studies, Professor Soberman held several positions in marketing management, sales, and engineering with Molson Breweries, Nabisco Brands Ltd., and Imperial Oil Ltd.
Journal of Marketing, Vol. 72, No. 3, May 2008
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