Relative Strategic Emphasis and Firm Idiosyncratic Risk: The Moderating Role of Relative Performance and Demand Instability

Kyuhong Han, Vikas Mittal, & Yan Zhang
Article Snapshot
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Relative Strategic Emphasis
Key Takeaways

​What? Companies allocate their scarce resources through two fundamental processes: value creation and value appropriation.

So What? Companies with higher strategic emphasis on value appropriation (vs. value creation) experience lower idiosyncratic risk.

Now What? Companies cannot spend an infinite amount of resources on value creation and value appropriation; rather, they need guidance based on their industry to understand the relative allocation of resources to each.

​Article Snapshot: Executive Summaries from the Journal of Marketing

The current research investigates the association between a firm's relative strategic emphasis and idiosyncratic risk in the presence of two contingent factors (i.e., relative performance and demand instability), which may aid executives in allocating resources to advertising and R&D.


Managers at firms with larger relative performance (than those with smaller relative performance) could exercise more discretion when allocating resources to riskier value-creation processes.

Firms operating in an industry with higher demand instability (e.g., electrnoic/electrical equipment industry) should be particularly more prudent in tracking their relative performance and setting the appropriate level of relative strategic emphasis.


Research Question

As online shopping evolves, from being primarily transactional to being more relational, sellers seek to form online relationships. This article investigates online relationship formation, identifies the performance payoffs that result from forming different types of online relationships (buyer/seller unilateral vs. reciprocal), and tests the most effective relationship-building strategies.

Methods

In Study 1, we estimated our model using a Cox proportional regression model with longitudinal buyer-level data of an online shopping community in the largest e-commerce site (Taobao.com). In Study 2 we used the same longitudinal data but analyze the impact of unilateral and reciprocal buyer-seller relationships on the sales performance of 336 (seller-level analysis), using a vector autoregressive approachl (VARX). Study 3 is a field experiment with an online seller and 772 buyers, which we used to test managerially actionable strategies for leveraging relationships to grow online sales.

Findings

Study 1 - buyers use community-, seller-, and buyer-generated signals to identify suitable relationship partners and reduce online shopping risk. These signals generally diminish in importance as buyers gain experience but become more important when buyers form reciprocal, versus unilateral, relationships.Study 2 - the effect on sales of reciprocal relationships is three times greater and lasts seven times longer than that of seller-initiated, unilateral relationships. Study 3 - the rate of buyer reciprocation of seller-initiated relationships is 70% higher when there is relational observation.

Implications

Sellers should strive to form reciprocal relationships (vs. unilateral) due to much higher paoyffs. To increase the likelihood of potential buyers reciprocating seller-initiated relationships rather than randomly following anyone, sellers should review their existing followers (i.e., intermediaries) and follow those members of the community who are following the intermediaries (vs. following members who lack such intermediaries). Intermediries with high reputations would be best.

Questions for the Classroom

  • Do online relationships pay off for sellers?

  • How much and for how long? What should online sellers do to increase their sales?

  • Why do online buyers follow sellers?


Article Citation: Kyuhong Han, Vikas Mittal, and Yan Zhang (2017) Relative Strategic Emphasis and Firm-Idiosyncratic Risk: The Moderating Role of Relative Performance and Demand Instability. Journal of Marketing: July 2017, Vol. 81, No. 4, pp. 25-44.

doi: http://dx.doi.org/10.1509/jm.15.0509



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Kyuhong Han, Vikas Mittal, & Yan Zhang
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