International Trade and Finance Association

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1 International Trade and Finance Association International Trade and Finance Association Working Papers 2006 Year 2006 Paper 15 The Use of Marketing Variables and their Perceived Effectiveness in International Context: An Empirical Study in Finnish Technology Firms Matti J. Haverila American University of Sharjah This working paper site is hosted by The Berkeley Electronic Press (bepress) and may not be commercially reproduced without the publisher s permission. Copyright c 2006 by the author.

2 The Use of Marketing Variables and their Perceived Effectiveness in International Context: An Empirical Study in Finnish Technology Firms Abstract While much research has been directed at variables critical to successful R&D of new and high-technology products, much less work has been directed at factors crucial to success of these products when the firm attempts to enter the international marketplace. This study surveys Finnish technology firms and identifies those variables associated with successful versus unsuccessful attempts to enter the international marketplace. Moreover, the research tries to determine the perceived effectiveness of these marketing methods used. The rank order of importance of the different marketing methods will be presented. This paper was presented at the 16th International Conference of the International Trade and Finance Association in Lodz, Poland, May, 2007.

3 GOALS OF THE RESEARCH: USE OF MARKETING METHODS AND THEIR PERCEIVED EFFECTIVENESS The level of sales or profit performance does not necessarily reflect the effectiveness of marketing. Good performance can be achieved because the company is in the right place in the right time, rather than having an effective marketing management program. i Cooper and Kleinschmidt indicated that new product s achievement can be measured in many different ways such as success/failure, profitability, pay back period, domestic/foreign market share, relative sales/profits, actual sales vs. objectives, actual profits vs. objectives, extent of existing market and new market opportunities. ii Kotler suggests that various concepts should be used in measuring the effectiveness of marketing practices. The end result will be a measure indicating how well the different marketing tasks have performed. The marketing effectiveness of a company depends on a combination of five activities: Customer philosophy, integrated marketing organization, adequate marketing information, strategic orientation, and operational efficiency? iii The purpose of this study is to determine which marketing methods were used when launching new products into foreign markets by Finnish technology companies and how efficient they were perceived to be. The marketing methods included were marketing concept, product, pricing, distribution, personal selling, advertising, publicity, promotion, market organization, use of marketing consultants, market share, NPD, market segmentation, positioning, differentiation, marketing planning, MIS/marketing intelligence and market research. iv RESEARCH METHODOLOGY Data were collected from the managing directors and managers or directors of independent profitcenters of firms having sales revenue from both domestic and foreign markets. The reason for using this level of management was an attempt to avoid the intrinsic prejudices that could affect the responses of managers of departments concerning the relative importance of their own departments. Additionally, directors normally are also in charge of strategic decisions and should therefore have the capability to evaluate new product launches and their results, while department heads often do not have enough information to properly address the strategic questions. The respondents were asked to reply regarding a product launch effort made during last three years. Methodology included the development of questionnaires both for successful and unsuccessful product launches. The difference between the successful and unsuccessful product launches was whether predetermined objectives were reached or not. SAMPLING FRAME AND SAMPLE, AND DATA ANALYSIS METHODOLOGY Virtaharju and Åkerblom v identified the following high technology industries: drugs and medicine, office machinery and computers, electrical machinery for industry, telecommunication equipment, and scientific instruments. The initial sample was received from the Statistics Finland and included all 298 companies in those industries. Two statistical analytical techniques were used. Chi-square analysis was used to check for relationships between two variables. Relationships between variables measured by categorical data, such as nominal or ordinal data, are typically examined using chi-square analysis. Chi-square analysis is used in the questions where the respondent is asked to circle a number on a scale from 1 to 5. vi Chi-square is the "Likelihood ratio chi-square test" of the hypothesis that the model fits no better than fixed Hosted by The Berkeley Electronic Pres

4 response rates across the whole sample. The likelihood ratio chi-square test is computed as twice the negative log likelihood for model in the analysis of likelihood table. vii Findings 1: The use of the various marketing methods Table 1 shows the rank order of importance of the different marketing methods. The marketing methods were also divided into the groups as shown in table 2. Table 1. The importance of marketing methods in ranking order. viii Marketing method Calc. Rank Importance MARKETING CONCEPT 1. Marketing concept Very important MARKETING MIX VARIABLES 1. Personal selling Very important 2. Product/service specialization Rather important 3. Pricing Moderately important 4. Sales promotion Moderately important 5. Distribution Moderately important 6. Publicity Rather unimportant 7. Advertising Very unimportant MARKETING ORGANIZATION AND PLANNING 1. New product development strategy Very important 2. Differentiation Very important 3. Market segmentation Moderately important 4. Marketing organization Moderately important 5. Positioning Moderately important 6. Marketing planning Moderately important 7. Market share Moderately important 8. Market research Rather unimportant 9. MIS/ Marketing intelligence Very unimportant 10. Marketing consultants Very unimportant thp:/services.bepres.com/itfa/16th/art15

5 Table 2. The rank order importance of marketing methods product launches into foreign markets. Marketing method Successful Unsuccessful MARKETING CONCEPT Calc. Rank Calc. Rank 1. Marketing concept MARKETING MIX VARIABLES 1. Personal selling Product/service specialization Pricing Sales promotion Distribution Publicity Advertising MARKETING ORGANIZATION AND PLANNING 1. New product development strategy Differentiation Market segmentation Marketing organization Positioning Marketing planning Market share Market research Marketing information systems/ Marketing intelligence Marketing consultants Findings 2: The perceived effectiveness of the various marketing methods In addition to the use of the various marketing methods both in successful and unsuccessful cases, the opinions of the respondents were asked as regards to the perceived effectiveness of the various marketing methods. Here are the results. Table 4. The use and perceived effectiveness ranking of the marketing methods. Marketing method EffCalc EffRank UsageCalc UsageRank 1. Personal selling Marketing concept New product development strategy Differentiation Product/service specialisation Pricing Sales promotion Market segmentation Marketing organisation Distribution Positioning Marketing planning Market share Publicity Market research Hosted by The Berkeley Electronic Pres

6 16. Advertising MIS/ Marketing intelligence Marketing consultants There were some differences between the usage ranking and perceived effectiveness ranking. The correlation between EffCalc and UsageCalc (Pearson correlation coefficient >0,9). Also the statistical measures confirm this (Prob>F less than 0,0001). Similar conclusions can be drawn from the ranking data. The belief of Finnish technology companies in New Product Development Strategy is, however, very obvious. The usage of the NPD strategy is high, but the perceived effectiveness of it is even higher. If we have alook at the successful cases only, the situation remains pretty much the same as can be seen from the following table. There were some differences between the usage ranking and perceived effectiveness ranking. The previous graph indicates the correlation between EffCalc and UsageCalc (Pearson correlation coefficient >0,9). The statistical measures confirm this (Prob>F less tha 0,0001). Similar conclusions can be drawn from the ranking data. The belief of Finnish technology companies in New Product Development Strategy is more obvious than in all cases. The usage of the NPD strategy is high, but the perceived effectiveness of it is even higher in successful cases. Table 5. The use and perceived effectiveness ranking of marketing methods in successful cases. Rank Marketing method Eff Calc. Eff Rank UsageCalc. UsageRank 1 Personal selling Marketing concept New product development strategy Differentiation Product/service specialisation Pricing Sales promotion Market segmentation Marketing organisation Distribution Positioning Marketing planning Market share Publicity Market research Advertising MIS/ Marketing intelligence Marketing consultants thp:/services.bepres.com/itfa/16th/art15

7 If we have a look at the unsuccessful cases only, the situation remains pretty much the same as can be seen from the following table. Table 6. The use and perceived effectiveness ranking of marketing methods in unsuccessful cases. Rank Marketing method Eff Calc. Eff Rank UsageCalc. UsageRank 1 Personal selling Marketing concept New product development strategy Differentiation Product/service specialisation Pricing Sales promotion Market segmentation Marketing organisation Distribution Positioning Marketing planning Market share Publicity Market research Advertising MIS/ Marketing intelligence Marketing consultants The differences between the usage ranking and perceived effectiveness ranking were much higher in the unsuccessful cases than in successful cases. The previous graph indicates the correlation between EffCalc and UsageCalc (Pearson correlation coefficient >0,78, still very high). Also the statistical measures confirm this (Prob>F less tha 0,0006). Similar conclusions can be drawn from the ranking data. It can be seen from the table that this discrepancy is caused mainly by following factors: Publicity (EffRank = 6 versus UsageRank = 17) Marketing concept (EffRank = 1 versus UsageRank = 6) Differentiation (EffRank = 8 versus UsageRank = 2) Pricing (EffRank = 11 versus UsageRank = 7) Marketing organization (EffRank = 13 versus UsageRank = 9) Market share (EffRank = 16 versus UsageRank = 12) CONCLUSIONS The main of this study was to research the use and their perceived effectiveness of various marketing methods when launching technolgy products abroad. 1. In terms of perceived effectiveness, the highest rating was given to new product development strategy in the whole sample population. Marketing consultants received the lowest rating. Thirteen marketing methods (marketing concept, new product development strategy, product/service specialisation, market segmentation, marketing organisation, distribution, Hosted by The Berkeley Electronic Pres

8 positioning, marketing planning, publicity, market research, advertising, marketing information systems/marketing intelligence and marketing consultants) received higher effectiveness ratings than usage. The major differences between usage and effectiveness were sales promotion, market share and marketing information systems/marketing intelligence. The effectiveness ratings regarding sales promotion and market share were somewhat lower than usage. The effectiveness rating regarding marketing information systems/marketing intelligence, on the other, hand was somewhat higher than usage. 2. The correlation between the usage of the marketing methods and their perceived effectiveness seems to be very high in the total sample population as well as in successful cases (>0,9). 3. The correlation between the usage of the marketing methods and their perceived effectiveness is somewhat lower in unsuccessful cases (0,74). This is caused mainly by the differences between usage and perceived effectiveness as regards to publicity, marketing concept, differentiation, pricing, marketing organization and market share. In spite the fact that the overall correlation is still very high between the usage and effectiveness in unsuccessful cases, the differences in specific marketing methods between usage and perceived effectiveness appears to be significant. i Philip Kotler: Marketing Management: Analysis, Planning and Control, 8th edition, Prentice-Hall, Englewood Cliffs, New Jersey p ii See Cooper, R.G., Kleinschmidt, E.J.: "New Products: What Separates Winners from Losers," Journal of Product Innovation Management 4 (1987), p iii Ann D'Aquila Scheer has used Kotler's approach in a way similar tothat intended in this study. In her study the American export management companies were examined. Philip Kotler: From Sales Obsession to Marketing Effectiveness, Harvard Business Review, November - December iv Ann D'Aquila Scheer: Effective Marketing Methods in Export Management Companies, The Fielding Institute p. 72. v Markku Virtaharju, Mikael Åkerblom: Technology Intensity of Finnish Manufacturing Industries. Statistics Finland. 1993:3. In their study, Virtaharju and Åkerblom determined the total technology intensity of various industries, and were able to divide industries in four different categories as follows: 1) high technology, 2) medium-high technology, 3) medium-low technology and 4) low-technology. vi See O Neal, Larry Reynolds: An Empirical Investigation of the Role of Marketing in New Product Design, Texas A&M University p vii SAS Institute: JMP Statistics and Graphics, Gary, North Carolina p.118 and 102. thp:/services.bepres.com/itfa/16th/art15

9 viii If the marketing method received points, it was classified as Very important, points Rather important, points Moderately important, points Rather unimportant, and finally 0-49 points Very unimportant. Hosted by The Berkeley Electronic Pres