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The Road to JBRPaper Title Primary
Influences of Environmental Uncertainty on
Promotion Budget Allocation and Performance A
Cross-Country Study of Small AdvertisersKim-Shya
n Fam, University of OtagoZhilin Yang, City
University of Hong Kong

• Paper accepted for publication by Journal of
  Business Research
• (vol. 58, 2005), online publication -June 2005

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Conceptual Background
Figure shows that promotion budget allocation
decisions could be influenced by retailers
perceptions of the environment. Model is based on
environment-strategy-performance paradigm. Model
is an extension of that provided by Low and Mohr,
1992, 1998 Piercy, 1986 Lilien and Weinstein,
1984.
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Resource-based Theory

• A retailers competitive advantage comes from
  its resources and capabilities
• Retailers will utilise various promotional tools
  to help consumers become aware of available goods
  and services, to attract new customers, and to
  increase sales and market share

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Resource-based Theory

• Might use below-the-line or above-the-line
  promotions
• Small businesses are often constrained by
  budget, lack of time and expertise ? to limited
  and often ad hoc irrational promotion decisions
• Hence, opportunistic retailers are more likely
  to focus on taking advantage of the changes in
  the environment

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Research Question
To what extent does environmental uncertainty
influence small businesses decision on choice of
promotional tools (in-store versus outdoor),
budget allocation and market performance
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In-store Promotion vs Outdoor Advertising

• In-store promotion price mark-downs, in-store
  displays
• like dump bins, buntings, posters and
  end-of-aisles
• cheap to stage, quick and efficient to draw
  customers
• to the store

• Outdoor advertising prints, broadcast, radio,
  pr, sales
• promotion and direct mail materials like
  leaflets, brochures
• an outside in approach to attract potential
  customers
• ability to reach a wider segments of the
  population

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Research Hypotheses
H1 Small businesses will allocate more
advertising and promotion budget to
in-store promotion than to outdoor
advertising. H2 Environmental uncertainty has a
more significant positive effect on budget
allocation to outdoor advertising than to
in-store promotion. H3 Outdoor advertising will
have a more significant positive effect on
market share change than will in-store
promotion. H4 When environmental uncertainty is
increasing, allocating more advertising
and promotion budget to outdoor advertising than
in-store promotion in an increasingly
uncertain environment will lead to a
significant positive change in market share.
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Research Methodology
New Zealand Portugal
Sampling Frame Yellow Pages list of clothing and shoes retail stores in Dunedin Yellow Pages list of clothing and shoes retail stores
Questionnaire Distribution Methods Delivered by post to Managers 2 waves of mailing3 weeks apart Delivered by post to Managers 2 waves of mailing 3 weeks apart
Definition of size of retailers Large retailers with 6 or more outlets in the chain (franchise retailers inclusive) Small retailers between 1-5 outlets, majority of sample has 1 outlet Large retailers with 6 or more outlets in the chain (franchise retailers inclusive) Small retailers between 1-5 outlets, majority of sample has 1 outlet
Research Instruments In-store promotion (price markdowns, in-store displays) Outdoor (print ads, broadcast ads, press release, direct mails) Environmental uncertainty (consumers tastes, preferences, competitors modes of competitions) Market share (change in market share relative to national past 12 mths) In-store promotion (price markdowns, in-store displays) Outdoor (print ads, broadcast ads, press release, direct mails) Environmental uncertainty (consumers tastes, preferences, competitors modes of competitions) Market share (change in market share relative to national past 12 mths)
Scale 1 strongly disagree/ very unimportant, 7 strongly agree/ very important 1 strongly disagree/ very unimportant, 7 strongly agree/ very important
Response Rate 213 responses (29) 124 responses (73)
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Measures

• eight Promotion tools
• budget - based on personal selling spending where
  
• retailers were asked compare budget spent on
• each tool relative to spending on personal
  selling
• environmental uncertainty (buying habits, nature
  of
• competition, tastes and preferences of
  customers, market activities of
• competitors and legal, political and
  economic constraints)
• Performance market share change (in the past 12
  moths)
• Control variables chain store, shoe category
  and
• number of employees

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Measures

• For reliability and validity of the ONE
  environmental scale (4 items), we
• performed CFA using LISREL 8.
• Alpha 0.81 (NZ) and 0.76 (Portugal)
• Average variance extracted (AVE)(0.61) and (0.56)
• Composite reliability (0.78) and (0.75)
• The four items were further examined by
  multi-sample analysis and
• proved adequate model fit
• For NZ (?2 4.64, d.f. 2, RMSR 0.034, CFI
  0.98, GFI 0.99
• For Portugal (?2 7.52, d.f. 2, RMSR 0.046,
  CFI 0.96, GFI 0.97).

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Data Analysis

• Percentage Comparisons
• Standardized Regression
• Multicollinearity test
• Chow test to assess the stability of the
  regression coefficients across the New Zealand
  and Portugal samples
• Hierarchical Moderating Regression Analysis
• Independent variables are mean centred

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Table 1 Regression of Environmental Uncertainty
and Control Variables to Budget Allocation
In-store Promotion In-store Promotion Outdoor Advertising Outdoor Advertising
NZ Portugal NZ Portugal
Environment Uncertainty -0.023 -0.173 0.026 0.187
Chain Stores 0.026 0.281 -0.067 0.213
Number of Full-time employees -0.175 -0.091 -0.096 0.030
Shoe Category 0.048 0.021 0.008 -0.013
Chow Test 21.136 7.428
R2 0.031 0.102 0.016 0.095
F 1.675 3.363 0.845 3.121
Note p lt .05, p lt .01, p lt .001 Chain
Stores six or more outlets under one brand
name
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Table 2 Moderated Regression Analysis of the
Effect of Environmental Uncertainty on Market
Share Change
New Zealand New Zealand New Zealand Portugal Portugal Portugal
Model 1 Model 2 Model 3 Model 1 Model 2 Model 3
Control Variables
Chain Stores 0.047 0.049 0.075 -0.016 -0.019 -0.018
No. of Full-time Employees -0.104 -0.115 -0.157 -0.001 0.004 0.005
Shoe Category 0.079 0.065 0.060 0.157 0.151 0.149
Independent Variables
In-store Promotion 0.107 0.073 0.110 -0.313 -0.315 -0.308
Outdoor promotion 0.179 0.141 0.056 0.270 -0.269 0.264

Environment Uncertainty -0.257 -0.254 -0.094 -0.095
Relevant Interaction
In-store promotion x environmental uncertainty -0.129 0.018
Outdoor advertising x environmental uncertainty 0.218 -0.016

R2 0.075 0.137 0.168 0.098 0.107 0.107
Adjusted R2 0.036 0.093 0.111 0.076 0.081 0.072
F-value 1.922 3.094 2.912 4.501 4.109 3.060
Incremental R2 0.062 0.031 0.009 0
F-value for Incremental R2 0.947 1.254 7.277 1.762
Note p lt .05, p lt .01, p lt .001 Chain
Stores six or more outlets under one brand name
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Results
H1 Accepted small businesses allocate more
budget to in-store promotion than
outdoor advertising NZ allocated 60.4 to
in-store versus 39.6 outdoor PT
allocated 74.8 to in-store versus 25.2
outdoor H2 Partially accepted - greater
environmental uncertainty will lead to
more budget allocated to outdoor advertising
- NZ result is positive, but insignificant
- PT result is positive and significant
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Results
H3 Accepted budget spending on outdoor
advertising has significant positive
effect on market share change relative
to in-store promotion NZ PT positive
for outdoor advertising NZ PT negative
for in-store promotion H4 Partially accepted
when environmental uncertainty is
increasing, spending more on outdoor advertising
is likely to improve market share
- NZ result is positive and significant (when OD
ad interacts with EU) - PT result is
negative and insignificant (when OD ad interacts
with EU) OD Ad outdoor advertising interacts
with (EU) environmental uncertainty
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Discussion

• retailers tended to allocate more budget to
  in-store promotion relative to outdoor
  advertising
• but why is there a shift in promotional strategy
  when retailers perceived the environment is
  becoming uncertain?
• - contingency theory says any solution is
  situational rather than absolute
• - in-store promotion may not reach out to the
  wider audience relative to outdoor advertising
  the pie is getting smaller
• - thrust of outdoor advertising is to cast a
  wider net, draw more customers which will lead to
  a positive market share

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Conclusion

• Managers should understand their business
  environment as the environment-strategy-performan
  ce paradigm indicates that a fit between
  environment characteristics and a
  strategic-orientation will lead to a superior
  performance. Our study confirms it.
• Limitations
• only two countries were involved in the study
• sample respondents were small business retailers
• need to look at other industries

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Take out Points

• Specify theory/conceptual foundation at the
  front-end
• of the manuscript
• Get the right literature
• Simple model
• 4. Hypotheses should be based on solid arguments

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Take out Points

• Methodology used existing scales if possible
• Do a rigorous test of reliability Validity of
  scales used.
• 7. Data analysis many methods and try to
  triangulate
• the results
• 8. BUT, no matter how careful we were, there were
  gaps.
• Here are the reviewers queries

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What Reviewer A Wanted?
To start with, the authors do not clearly define
what they mean by small retailer. They have
included in the their sample two categories of
retailers, namely independent and chain stores
and while they give a definition of an
independent retailer (one to five outlets, less
than ten employees) they say nothing regarding
the chain store. In this study, chain store is
defined as six outlets or more under one brand
name. We have included this definition in page
9, line 4 of the Results section. It is also
confusing that in the Data Collection section,
they mention for some relatively large
retailers Thank you for pointing out the
confusion. This sentence has been deleted as we
tightened our manuscript from 34 to 20 pages.
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What Reviewer A Wanted?
The most critical omission is the turnover of the
sample companies. The authors should have
reported the turnover of the sample companies in
order to justify not only their smallness but
also their ability to have a promotional
budget. We agree with the reviewer that the
turnover data is a good measure of smallness.
But this sort of data is hard to come by as it
is relatively sensitive and retailers are
reluctant to reveal for fear of falling into the
competitors hands. Nevertheless, from our
preliminary discussions with some New Zealand
retailers, we found that they spent
approximately NZ25,000 per annum on advertising
and promotion. We have inserted this information
in page 3, para 1, line 3.
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What Reviewer A Wanted?
Besides, the most widely used method for
determining advertising promotional budget
(despite its major weakness) is the percentage
of sales approach whereby marketers simply
multiply a companys past sales, plus a factor
for planned sales growth or decline, by a
standard percentage, based on both what the
company traditionally spends and what the
industry averages. Thank you for your good
suggestion. We agree that the percentage of
sales approach is widely used by businesses.
The major concern in our study is that not all
small retailers use this approach to determine
their budget. Thus, comparisons can not be made
across various retailers. In our study, we use
percentages of personal selling due to three
reasons (see p. 8 under Measures section)
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What Reviewer A Wanted?
The authors measure the performance construct by
asking the respondents to indicate the extent
to which their market share changed relative to
their competitors in the past 12 months. Who are
their competitors? Those in the same street, in
the same city or those competing nationally?
How can we expect from a small retailer selling
clothes or shoes in a neighbourhood to know its
market share when large organizations in many
sectors of the economy face extreme difficulties
in defining their markets and estimating market
share.
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What Reviewer A Wanted?
Given the lack of archival data sources, the
issue here is how to minimize the level of
subjective measures. Under anonymity and
confidentiality, archival source of data are no
less subjective than subjective data assessed by
top managers (Dean and Sharfman 1996). To
overcome this problem, we chose the countrywide
sales volume as the retail industry usually
published an annual report of the past 12 months
total sales. This way, the retailer will be able
to compare his/her sales volume against the
countrywide figure and finds out whether his/her
market share has increased or decreased relative
to the year before. We have clarified who our
sample retailers competitors were in page 9,
line 4 of the Performance and Control
Variables section. We have also pointed out the
limitation of this measure in the Limitation
section (see p. 14).
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What Reviewer B Wanted?
Would the study findings change significantly if
retailing in developed versus underdeveloped
countries were to be compared? This is an
interesting suggestion for future research. For
the present study, we looked at New Zealand and
Portugal. Both countries have relatively advanced
economy. The differences are in population size
and GDP growth. We have pointed out the
limitation of this study in the Limitation
section (see p. 14).
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What Reviewer B Wanted?
In some countries when the environmental
uncertainties are severe the retailers simply
cut down their costs and promotion costs are
about the first to go. In fact, the stagflation
in the U.S. is related to such practice. This
is a valid point. Our study was conducted at a
particular point in time, that is, in an economy
with strong growth and low inflation. We agree
that the results might be different had we
conducted the study in an economy with
stagflation. . We have pointed out the
limitation of this study in the Limitation
section (see p. 14).
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What Reviewer B Wanted?
Why market share changes as opposed to the
profitability or return on investment? Under
uncertain business environment, one major
motivation of promotion is to occupy more market
share which in turn will bring more profit and
improve the ROI. We chose the market share
approach as it is one of the performance
indices. We agree that it would be a better
approach if we used a triangulate method, namely
gauging performance through market share,
profitability, and ROI. We have clarified
our position on using market share in page 9,
line 4 of the Performance and Control
Variables section, and also in the Limitation
section (see p. 14).
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What Reviewer B Wanted?
The authors must talk about the shortcomings of
the study and future research as to what needs
to be done in the future studies. I believe this
study is publishable with some minor. Thank
you for your excellent suggestions. We have added
a Limitations and Future Research section in
the manuscript (see p. 14) to explain the
shortcomings of this study. Overall, this
manuscript is now more focused and has greatly
benefited from your suggestions.
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Thank you !!!