Download The Contingency Approach

The Contingency Approach:
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Its l^oundations and Relevance
to Theory Building and Research
in Marketing
by
Valarie A. Zeithaml
Duke University, Durham, North Carolina,
P. "Rajan" Varadarajan
Texas A&M
University, and
Carl P. Zeithaml
University of North Carolina, Chapel Hill
Introduction
During the 1960s, management theory and research began to adopt a
new orientation, one that embodied a remarkably simple concept and
enabled significant advancements in the study of management and
organisations. This orientation, now referred to as the contingency
approach, emphasises the importance of situational influences on the
management of organisations and questions the existence of a single,
best way to manage or organise. Today, the contingency approach
dominates theory and research in the management literature.
Contingency approaches are positioned within management as mid-range theories
between the two extreme views which state ei±er that universal principles of
organisation and management exist or that each organisation is unique and each
situation must be analysed separately. The contingency approach entails identifying
commonly recurring settings and observing how different structures, strategies
and behavioural processes fare in each setting[l]. Prominent contingency theories
have been proposed and tested relating to organisational environments,
characteristics and structures [2,3,4,5,6], competitive conditions and organisational
strategies[1,7,8,9], and organisational characteristics and behavioural
processes[10,ll,12]. In addition to explicit use by many authors, the contingency
approach has been an underlying theme for theory buildhig and research throughout
the management literature [9].
The contingency approach to theory building and research can be useful to
marketing scholars in at least two important ways. First, the management literature
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offers a variety of established contingencyframeworkswhich may contribute directly
to the development and content of marketing theory. At least three sub-disciplines
within management — organisation theory, strategic management and organisational
behaviour — provide contingency theories with potential value for marketers. In
addition, several existing contingency theories have extensive research traditions
which may represent an empirical foundation for research in related marketing
areas [13].
Second, consistent with recent appeals in the marketing literature[14,15], the
contingency approach offers an alternative technique for generating marketing
theory. Although situational factors (e.g. the stage of the product life cycle) have
been recognised in certain areas of marketing theory and practice, they have not
generally been included as primary concepts in theoretical frameworks. Through
the contingency perspective, marketing concepts and variables may be
systematically related both in theory and research. The perspective should provide
marketers with another avenue to pursue problems and issues that are unique
to the marketing discipline.
The purposes of this article, therefore, are to describe the contingency approach
and to demonstrate its value for marketing. Specific objectives are:
(1) to delineate the contingency approach to theory development;
(2) to outline several established contingency theories within the management
discipline and highlight the research they have stimulated on related topics
in marketing;
(3) to provide an assessment of the current state of the contingency approach
in marketing literature, and
(4) to review the major issues associated with use of the contingency approach.
The Contingency Approach to Theory Development
The contingency approach to management has its roots in general systems theory
and the open systems perspective[16,17,18,19], as well as in the Simon-March-Cyert
stream of theory and research[20,21,22]. Thompson[5] recognised the intersection
of these traditions and extended them in a landmark work that represents a
cornerstone of the contingency approach. These foundation concepts are described
briefly in the next section, and are followed by a discussion of current perspectives
on the contingency approach.
Theoretical Foundations
The open systems perspective views the complex organisation as a set of
interdependent parts that, together, constitute a whole which, in tum, is
interdependent with some larger environment. The interactive nature of the
elements within the organisation — and between the oi:ganisation and the
environment — result in at least two open system characteristics that are central
to the contingency approach: adaptation and equifinality. First, the principle of
adaptation asserts that the elements within the system adapt to one another to
preserve the basic character of the system. Second, the principle of equifinality
holds that a system can reach the same final state from differing initial conditions
The
and by a variety of paths.
Contingency
The Simon-March-Cyert stream of work adds to the open systems perspective
Approach
the view that organisations are problem-facing and problem-solving entities. The
organisation develops processes for searching, learning and deciding — processes
that attempt to achieve a satisfactory level of performance under norms of bounded
rationality. Organisational decision-makers undertake rational decision processes ^ ^ ^ ^ ^ ^ ^ ^
designed to cope with the complexity and uncertainty of their situations, all of
which result in deliberate decisions by using a satisficing criterion for performance.
In marketing, Alderson[19] highlighted the need to observe and conceptualise
marketing agencies and their relationships as components of a system. Building
on the work of Alderson, Nicosia[23] addressed the merits of viewing marketing
as a system of structural and dynamic relationships. In his view, systems
conceptualisations of phenomena constitute attempts to identify the properties
stemming from the modes by which entities mutually relate, making them preferable
to conceptualisations that deal only with individual entities. Nicosia[23] provides
an extensive treatise on Alderson's conceptualisation of marketing as a complex
ecological system engaged in economic operations. He also presents a set of major
postulates of the functionalist approach pertaining to the formation and persistence
of systems and the system's major structures.
Although contingency approaches began to emerge almost simultaneously from
a variety of sources[19,24,25,2,10,3,6], Thompson[5] forged much of the theoretical
superstructure of the contingency perspective. Integrating and extending previous
work, Thompson conceived of complex organisations as open systems faced with
uncertainty tliat are, at the same time, subject to a rationality criterion. He argued
that differences in technological and environmental dimensions result in differences
in structures, strategies and decision processes. Thompson operationalised these
dimensions through the use of a technological typology and simple, yet powerful,
2x2 matrices, techniques that have become standard in contingency theory
development. Contingent on the situational factors within these frameworks,
Thompson proposed a set of organisation and decision strategies which provide
the organisation a degree of self-control despite interdependence with the
environment.
Current Perspectives on the Contingency Approach
As derived from these conceptual antecedents, the essential premise of the
contingency approach is that effectiveness, broadly defined as organisational
adaptation and survival[26], can be achieved in more than one way. For example,
management theorists and researchers have recognised more than one way to
organise effectively, more than one strategy that maximises profitability and market
position, and more than one leadership style that achieves organisational goals.
Each way is not equally effective under all conditions; certain organisational actions
or responses are more appropriate than others, depending on the situation[27].
The contingency approach suggests, therefore, that we can observe wide
variations in effectiveness, but that these variations are not random. Effectiveness
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depends on the appropriate matching of contingency factors with internal
organisational designs that can allow appropriate responses to the environment.
Theoretical and practical contributions are achieved through:
(1) identifying important contingency variables that distinguish between
contexts;
(2) grouping similar contexts based on these contingency variables, and
(3) determining the most effective internal organisational designs or responses
in each major group.
These contingency theory-building steps involve three types of variables;
contingency variables, response variables and performance variables. Contingency
variables represent situational characteristics usually exogenous to the focal
organisation or manager. In most instances, the opportimity to contix)l or manipulate
these variables is, at best, limited and indirect. In contrast, response variables
are the organisational or managerial actions taken in response to current or
anticipated contingency factors. Performance variables are the dependent measures
and represent specific aspects of effectiveness that are appropriate to evaluate
the fit between contingency variables and response variables for the situation under
consideration.
These steps typically result in contingency theories that focus primarily on
outcome or content issues, rather than on processes. They attempt to determine
the organisation structure, strategy or leadership style to be used in a particular
situation, but do not emphasise the dynamics of the process by which an
organisation adapts or a leader becomes effective [28]. This point will receive further
elaboration later in this article.
Specific contingency frameworks have been conceptually derived[29,2,11,4,5]
and empirically derived[24,l,6]. Considerable effort in many of these works has
been directed towards the identification of important contingency variables within
the major sub-disciplines of management. Many contingency frameworks,
particulariy in the early phases of development, employ a single dimension (e.g.
level of environmental uncertainty, type of technology, organisational size, stage
of the product life cycle), or construct 2x2 matrices that dichotomise two critical
contingencies (e.g. envirorunental complexity and stability, growth rate and market
position). The current trend, however, is to expand these frameworks through
the development of contingency theories that employ multiple dimensions or
contingency variables[l,9]. Although the added complexity of these recent
formulations may lessen the straightforward appeal of simpler fameworks, they
allow greater precision in the determination of high-performance response variables.
Table I summarises the previous discussion through examples of selected
contingency approaches and their characteristics. Although this table is far from
an exhaustive list of contingency approaches, it provides a general overview of
representative frameworks. The next section is designed to expand on this
theme by outlining several contingency theories relevant to marketing in more
detail.
Contingency
Variablesis)
Response
Variables
Markets and
technology:
stable vs. changing
Growth strategy;
internal growth
diversification
Management Style:
Organic style
Mechanistic style
Structure:
centralised,
functional vs.
decentralised
multidivisional
Technological type:
custom
mass production
continuous process
Task environment:
uncertainty
Structure:
tall vs. flat
design
Organisation
theory
Technological type:
craft
routine
non-routine
engineering
Structure:
bureaucracy
flexibility
Strategic
management
Stage of the
product life cycle
Business strategy:
[9]
Strategic
management
Industry competitive
forces
Business strategy:
differentiation
focus
cost leadership
Hambrick
[17]
Strategic
management
Environmental
dimensions
Business strategy:
differentiation
asset parsimony
cost-efficiency
scale/scope
Fiedler
[10]
Organisational
Behaviour
Leadership style:
considerate
task-orientated
House
[11]
Organisational
Behaviour
Task structure
leader-member
relations
leader position
power
Subordinate needs
task characteristics
Vroom and Yetton
[12]
Organisational
behaviour
Decision situation
characteristics
Decision style:
autocratic
consultative
group
Author
Source
Burns and Stalker
[24]
Organisation
theory
Chandler
[25]
Organisation
theory and
strategic
management
Woodward
[6]
Organisation
theory
Lawrence and
Lorsch
Organisation
theory
[3]
Perrow
[4]
Hofer
[8]
Porter
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Structure:
differentiation
and integration
Leader behaviour:
directive
supportive
achievementparticipative
Contingency Streams in Management and their Parallels in Marketing
Contingency approaches to theory building and research prevail in three major
management sub-disciplines:
Table I.
Selected Contingency
Frameworks
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(1) organisation theory, which focuses on the relationship between the external
environment, organisation design, and the organising process;
(2) strategic management, which concentrates on the formulation and
implementation of organisational goals, strategies and plans; and
(3) organisational behaviour, which is concerned with the role of individuals
and groups within the organisation.
Several existing theories have contributed to theory buDding and research within
related areas of marketing. This section briefly discusses contingency perspectives
in each of these sub-disciplines and their parallels in marketing.
Contingency Approaches in Organisational Theory and Marketing Organisation
Design
In organisation theory, the organisation and its units are conceptualised as subsystems of individuals performing tasks designed to achieve a variety of
organisational, group and individual goals. The major emphasis within this discipline
has been to identify the organisational designs or structures (i.e. the patterns
of interactions among individuals) that promote organisational adaptation to
environmental, technological and information-processing contingencies.
Environmental contingencies were highlighted in the landmark research of Bums
and Stalker[24], Lawrence and Lorsch[3] and Duncan[29], while technology and
organisation were examined by Woodward [6], Thompson [5], and Fry and
Slocum[30]. The primary proponent of the relationship between information
processing requirements and organisational design has been Galbraith[31,27].
Contingency perspectives from organisational theory have been used in marketing
organisation contexts [32,33,34,35]. Many contingency approaches within
organisation theory emphasise moderating effects of environmental characteristics
on the relationship between organisation structure and effectiveness
[24,36,29,27,3,37,5]. In a synthesis of this work, Weitz and Anderson[32] developed
a model for the design of the marketing function. This model was based on the
contingency perspective that the structure of the marketing function depends on
the environmental situation. Consistent with the organisational theory literature,
their approach matches environmental characteristics (i.e. complexity,
unpredictability, interconnectedness) with organisational characteristics (i.e.
differentiation and integration) to suggest when functional, decentralised, brand
management and matrix organisations are appropriate. Figure 1 reproduces the
Weitz and Anderson Structure-Environment Match Model, illustrating their
adaptation of the 2x2 contingency matrix commonly used in organisation theory.
The environmental dimensions (contingency variables) are expressed from low
to high along the horizontal and vertical axes. The proposed organisation design
characteristics (i.e. high vs. low differentiation, conventional vs. unconventional
integration methods) are ones that theory and research suggest are consistent
with the different environments. The authors then prescribe for each cell (different
environments) the response variables (appropriate ways to design the marketing
function) appropriate to each combination of design characteristics.
High
Decentralised
organisation
Complexity of
environment
1
Matrix
organisation
II
High differentiation
High differentiation
Conventional
integration methods
Unconventional
integration methods
Functional
organisation
Brand
management
III
The
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IV
Low differentiation
Low differentiation
Conventional
integration methods
Unconventional
integration methods
Low
•High
Low
Unpredictability, interconnectedness o ^ n v i r o n m e n t
Source: Weitz and Anderson[32].
i-^,
In another study, Nonaka and Nicosia[33] focus on optimal marketing management
organisational structures for processing information generated by the market
environment. They view the marketing department as a processor of market
information and propose that the best organisation for processing environmental
information is one that matches the variety of the environment. A simple centralised
marketing department organisation is posited to be sufficient to process
homogenous and certain environmental information. A complex, decentralised
marketing department is viewed as appropriate to process heterogeneous and
uncertain environmental information.
Ruekert, Walker and Roering[34] propose a contingency framework of marketing
task structure and performance, in which the performance outcome of marketing
activities is viewed as dependent on the nature of the task, the way in which the
task is organised and the nature of its environment. The authors outline contingency
theory propositions pertaining to organisation and efficiency, formalisation and
efficiency, centralisation and effectiveness, and specialisation and adaptiveness.
The authors also identify four archetypal structures that emerge from these
propositions and discuss their implications to marketing management.
Contingency Approaches in Strategic Management and Strategic Marketing
The management sub-discipline of strategic management, a field closely related
to marketing strategy, employs the contingency approach as the primary theorybuilding technique for its study of business strategy. This sub-discipline focuses
on strategies that specific businesses formulate and implement to compete in an
industry or product/market segment. Hambrick[l] argues that contingency
Figure 1.
Weitz and Anderson's
Structure-Environment
Match Model
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approaches are particularly useful for business strategy because past research
has either:
(1) viewed strategy as an art and conducted in-depth case studies of individual
firms, an approach which lacked generality, or
(2) sought universal laws of strategy and investigated them through database
research such as PIMS (Profit Impact of Market Strategies), an approach
that originally de-emphasised key contextual differences'
Contingency approaches to theory and research in strategy represent a middle
ground between these extremes, improving the generalisability of the former, while
obtaining richer characterisations than the latter[38].
The contingency approach in strategy literature holds that the appropriateness
of different strategies are contingent on competitive settings of businesses. The
competitive setting is typically defined in terms of environmental and/or
organisational contingencies, as evidenced by the following research thrusts:
(1) The appropriateness of pursuing alternative strategies under various
environmental contingencies — for example, strategies for competing in
stagnant industries[39]; declining industries[40]; hostile environments[41];
fragmented, mature and declining industries[9]; different stages of the
product's life cycle[42,43].
(2) The appropriateness of pursuing alternative strategies under various
organisational contingencies — for example, strategies for high market share
businesses [44]; low market share businesses [45]; effective low market share
businesses[46,47,48]; market leaders, challengers, followers and nichers[43].
(3) The appropriateness of pursuit^ alternative strategies under various
environmental and organisational contingencies — for example, strategies
for leaders and followers in low and high-growth markets [49, pp. 175-8];
generic strategy options for varying levels of market attractiveness and
relative competitive position[49, pp. 204-5].
Many recent contingency approaches to business unit strategy formulation view
both environmental and organisational variables as relevant contextual variables.
This tendency is apparent in the contingency models adapted for practitioner use:
BCG growth-share matrix, GE/McKinsey Business Screen, and the Shell
Directional Policy Matrix (see Wind and Mahajan[50] for a critical review). Similarly,
in the strategy matrix (contingency framework) outlined by Day[49], the appropriate
generic strategyfijomthe standpoint of a firm is contingent on market attractiveness
(high, medium or low) and relative competitive position of the firm (strong, medium
or weak). Day cautions that generic strategy options matrices are suggestive, rather
than substitutes for careful analysis of feasible strategic options for each business
segment. However, he also emphasises that, because choice of strategy must
be grounded in the realities of the situation facing each business, the compatibility
of the chosen strategy with the normative generic strategy option should be tested
(pp. 204-5).
Recent work by Hambrick[l,7] illustrates a contingency approach to business
The
strategy that employs multiple environmental and organisational dimensions or
Contingency
contingency variables. Analysing a sample of mature industrial-product businesses
Approach
fi:x)m the PIMS database, Hambrick[l] empirically identified eight different settings
based on a set of ten contingency factors. In a companion article, Hambrick[7]
focused on two of tbe eight settings and empirically identified high and lowperforming clusters of business strategies. Hambrick's contingency approaches ^ ^ _ _ _ _ ^ ^ ^
are complex, and highlight the value of greater precision and detail in the
identification of contingency settings. Without the empirically derived taxonomy
of the first Hambrick article [1], the two types of businesses emphasised in the
second[7] would have been pooled in a study of mature capital goods. Hambrick's[7]
study illustrates how strategies associated with high profitability differ greatly in
two contexts.
The contingency approach in a strategic marketing context is illustrated in a
recent study by Burke [51]^. She hypothesised that four general elements of the
environment (tiie market, the business unit within the market, the firm and the
business unit within the firm) infiuence the strategic choices made by marketing
managers. Burke collected perceptual data pertaining to seven product/market
and organisational context factors thought to influence strategic choices of marketing
managers from 86 managers in six firms. The focal decision of interest was the
strategic thrust of the business unit (i.e. significantly and permanently to increase
market share, to maintain market share or to allow share to fall). Burke found
that the choice of a build, hold or harvest strategy is related to the manager's
perceptions of five aspects of the product/market environment and organisation
context: market attractiveness, relative competitive strength, entry barriers, control
over resources and the manager's perception of the relative importance of shortrun business unit performance to his/her career success and monetary rewards.
Contingency Approaches in Organisational Behaviour and Marketing
Behaviour
Within the or^inisational behaviour literature, the contingency approach has made
its most significant contribution in the area of leadership theory and research[52,ll].
Contingency approaches to leadership tie the leader's effectiveness to the nature
of the situation and acknowledge that workers' needs and problems vary, requiring
that leadership style match the types of individuals involved and the characteristics
of their work situation.
While the situational approach has been used to study leadership since the 1950s,
House [11] proposed a theory of leadership that clearly illustrates the contingency
approach. He contends that the functions of a leader vary depending on the needs
of subordinates and the type of work to be accomplished. According to House's
theory, a leader obtains good performance from his/her work unit by increasing
subordinates' personal rewards firom goal attainment and by making the path to
these rewards easier to follow (e.g. by instructing, reducing roadblocks and pitfalls,
and increasing the opportunities for personal satisfaction along the way). To be
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effective, the leader must tailor his/her style and approach to individual subordinates
situations. In ambiguous situations (and with subordinates to whom ambiguity
^^ frustrating), effectiveness is achieved when the leadership provides
structure. In routine situations, on the other hand, the additional structure provided
may be viewed as redundant and insulting by subordinates, who may consequentiy
become dissatisfied. In essence, the theory holds that the level of leader structure
depends on the ambiguity of the task, and tiie level of leader consideration depends
on the intrinsic satisfaction of the task. The theory has been elaborated and tested
since it was proposed [53,54].
The contingency approach to marketing behaviour is evidenced in the works
of Weitz [55] and Williams and Spiro[56]. Weitz proposed a contingency model for
investigating the effectiveness of sales behaviours across customer interactions.
The model postulates that effectiveness of sales behaviours across customer
interactions is contingent on the salesperson's resources, the nature of the
customer's buying task, the customer-salesperson relationship, and the interactions
of these three sets of variables. Weitz presents contingency propositions for the
moderating effects of the salesperson's resources, the customer's buying task,
and the customer-salesperson relationship on the effectiveness ofthe salesperson's
behaviour (i.e. adaptive sales behaviour, establishment of an influence base, use
of closed vs. open influence techniques, and exerting control over the sales
interaction).
An Assessment of the Status of the Contingency Approach in Marketing
How developed is the contingency perspective in the marketing discipline? Only
a few studies, most of them detailed in the previous sections, have expliciUy
employed the contingency approach. Judging from these applications, the
contingency approach has yet to be firmly established in the marketing discipline.
However, we contend that the implicit notion of contextual relevance of
environmental and organisational variables is an underlying theme for theory building
and research in numerous marketing studies. In the field of channel management,
for example, Frazier and Sheth[57] focus on the contextual relevance of boundary
personnel's attitude-behaviour consistency or inconsistency with respect to the
appropriateness of implementing influence processes and of seeking influence
objectives in distribution channel relationships. In the areas of sales force
management, Futrell and Parasuraman[58] investigate the moderating effect of
salesperson performance on the relationship between propensity to leave and job
satisfaction. Yoon and Lilien[59] examine the contextual relevance of market
situation variables to the appropriate launch time for new industrial products
and best use of marketing resources. While not formally called contingency
approaches, these and other marketing studies can be recast in the contingency
perspective.
The foundation for developing an organised body of knowledge centred on the
contingency approach is already in place. Building on this foundation should allow
marketers to study more precisely the relationships among contingency, response
and performance variables. Critical situational variables may be integrated into
frameworks that advance theory, research and practice. Before reviewing a group
of marketing studies that impUcitly represent the contingency approaches, we
present evidence of the general relevance of the contingency notion for marketing.
Contextual Relevance in Marketing
The emergence of general research streams, such as industrial marketing, services
marketing, health care marketing, industrial buying behaviour, international
marketing, social marketing, marketing under various states of supply and demand,
and marketing during periods of shortage, testify to marketers' realisation of the
contextual relevance of contingency variables to marketing strategy formulation.
Better understanding of important differences among these contexts have led to
the formulation of specialised marketing strategies and marketing behaviours.
Specific topics within marketing also reflect this tendency. For example, the
literature on the classification of goods highlights the relevance of product
characteristics and consumer behaviour variables for marketing strategy
[60,61,62,63,64,65]. Although controversy surrounds the concept, the extensive
body of marketing literature on marketing strategies for the product life cycle
suggests that marketers view stage of the product life cycle as a contingency
variable^. Finally, the emerging body of literature on strategies for high market
share and low market share companies [44,45,46,47,48], marketing strategies for
market leaders, challengers, followers and nichers[43], and strategies for leader
and followers in high and low-growth markets[49] indicate marketing's recognition
of the contextual relevance of an organisation's competitive position in strategy
formulation.
In particular, the marketing strategy literature has emphasised this approach.
Abell[66] summarised the interrelationship between strategic variables, situation
variables, company-specific variables and performance variables quite succinctly
by noting that: "Strategies of Type A, in markets/situations of Type B, pursued
by companies of Type C, will lead to performance of Type D. (p. 2, italics
ours)''. A similar line of reasoning is also revealed in a number of empirically testable
propositions pertaining to competitive marketing strategy summarised in Eliashberg
and Chatterjee[67]. Illustrative of the contingency thrust of these propositions are
the following (the propositions are rephrased in line with Abell's[66] generalised
statement):
(1) Entry-deterring product positioning strategies pursued in markets where
the fixed cost of entry is high and product repositioning infeasible by earlyentrant firms will be profitable in the long run [68].
(2) Positioning the product to appeal to the larger (and more profitable) segments
pursued by early entrant firms in situations where it is difficult (prohibitively
expensive) for firms to change their product positioning strategies once
implemented will lead to higher profits [68].
(3) Allocating the budget over all customers is the appropriate strategy for
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firms with a lai:ger budget to pursue in a duopolistic situation where the
companies compete for the business of several customers whose (single)
vendor choice is based on the relative sales promotion efforts of the firms.
Concentrating only ?i fraction of customers, effectively ignoring the others,
is the appropriate strategy for the smaller firm to pursue [69].
Along similar lines, the contextual relevance of market-situation variables for
strategic choice has been highlighted by Yoon and Lilien[59]. Summarising the
results of their empirical study on the effects of market characteristics and strategy
on the performance of a new industrial product, the authors note:
Ourfindingssuggest that two major sets of variables seem to be at work in determining
the success of a new industrial product. These are market-situation variables and
R&D/marketing-strategy variables. We see varying levels of success for different product
types in different market situations here. And strategy variables must be tuned to the
specific market situation, determining the best use of marketing resources and the
best time to launch the new product (p. 143).
A potential contribution of the contingency approach to the marketing management
field is the integration of basic laws or principles of marketing management with
relevant situational factors. Contingency propositions may be viewed as extensions
of the basic principles of marketing management, thereby introducing the
contingency approach as a refinement of established marketing thought. An example
of this potential contribution may be found in the works of Leone and Schultz [70],
and Eliashberg and Chatterjee[67]. Leone and Schultz [70], in a study of marketing
generalisations, state a number of basic laws and principles of marketing. Among
them are the following:
(1) Selective advertising has a direct and positive influence on individual company
(brand) sales.
(2) Distribution, defined by a number of outlets has a positive influence on
company sales (market share).
Eliashberg and Chatterjee[67], in a review of analytical models of competition,
present the following propositions in a contingency approach that can be viewed
as extensions of the Leone and Schultz generalisations — extend these
generalisations in a contingency perspective:
(1) A strategy of spending more on advertising by a firm with a cost advantage
will generally result in a larger market share and higher profits. The best
strategy for the rival firms may be to employ different competitive tools,
even when the sales response to different instruments is identical for all
firms [71,72].
(2) A strategy of spending more on advertising, particularly during the beginning
of the planning period by the firm with the smaller sales decay parameter
(a greater long-run effect of a dollar spent on advertising, relative to the
rival), will result in larger profits as well as a larger terminal market share[73].
(3) Expenditure on distribution and awareness advertising should be decreased
in response to new entries, unless it is possible, through a pre-emptive
distribution or advertising strategy, to prevent the entry of a new
brand[74].
These extensions have both scholarly and practical implications. Theorists and
researchers can easily build on existing streams of literature, allowing for the
coherent and systematic development in the marketing literature. Incorporating
the situational variables also allows marketing practitioners to use resources more
efficiently for these activities, increasing the likelihood that their firms can compete
more effectively.
Explicit and Implicit Contingency Approaches in Marketing
Table II summarises selected contingency perspectives evidenced in marketing
literature. The contextual relevance of environmental variables and/or organisational
variables is the underlying theme common to all 25 studies. As previously noted,
explicit reference to a contingencyfi:ameworkis made in only six[33,55,32,51,34,75].
A contingency perspective is implied in the additional 19 studies summarised in
the table. These studies are intended to be illustrative rather than exhaustive,
for many other marketing studies could also be viewed as contingency approaches.
The examples reveal the use of an implicit contingency perspective in most areas
of marketing. General marketing strategy (studies 7, 8, 9 and 15), market share
strategies (10 and 11), generic competitive strategies (12), and market segmentation
strategies (13 and 14) are represented. All elements of the marketing mix have
been treated in the contingency perspective: product (16, 17, 21), pricing (18, 19,
20), promotion (18, 20, 21) and distribution (23, 24, 25).
Examination of the table reveals that most works cited are normative/conceptual
in scope, and very few are empirical in nature. This parallels the early development
of the contingency perspective in the management literature, suggesting that
empirical research is the next logical step. A detailed review of all relevant literature
(both theoretical and empirical) pertaining to the topics covered in Table II would
also aid in identifying a more comprehensive and richer set of relevant contingency
variables.
Major Issues Associated with Use of the Contingency Approach
The contingency perspective provides an opportunity to build a body of knowledge
centred on appropriate strategic choices for commonly recurring marketing settings.
In order for the approach to be used effectively, certain key issues must be
addressed.
(1) Selection and measurement of performance variables — The selection and
measurement of performance variables in contingency fi^meworks will
influence the match between contexts and appropriate response variables.
Because organisational effectiveness can be measured in many ways (e.g.
productivity, return on investment, employee job satisfaction, profit.
The
Contingency
Approach
employee turnover and efficiency), different contingency frameworks have
emerged to achieve the objectives. Therefore, the muldpUcity of contingency
frameworks associated with organisational effectiveness is due in part to
the absence of consistent definitions and operationalisations of
effectiveness[76]. In using contingency approaches, performance measures
should be clearly defined and widely accepted [77,78]. If possible and
appropriate to the subject of interest, they should rely on multiple criteria[76].
Tosi and Slocum[26] provide a detailed discussion on the theoretical and
practical implications of:
(a) defining organisational effectiveness either too broadly or too narrowly,
and
(b) failing to realise the multi-dimensional nature of the concept of
effectiveness.
European
Joumal of
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50
Author(s)
Focus
Contingency
Variable(s)
Response
Variable(s)
1. Nonaka and
Optimal organisational
structures for marketing
management for
processing
information generated
by the environment
(ECF; N/C)
Certainty-uncertainty
of environmental
information
Homogeneity-heterogenity
of environmental
information
Marketing organisation
structure:
Decentralised
Centralised
[32]
Organising the marketing
function
(ECF; N/C)
Environmental complexity
Environmental uncertainty
Interconnectedness of
elements in the
environment
Marketing organisation
structure —
differentiation and
integration: Decentralised
organisation
Matrix organisation
Functional organisation
Brand management
3.
Ruekert, Walker
and Reoring
[34]
Organisation of marketing
activities
(ECF; N/C)
Macro environmental
conditions
Task characteristics
Task organisation:
Internal vs. external
Task structuring:
Centralisation
Formalisation
Specialisation
Marketing Organisation
Structure:
Internal-organic
Internal-bureaucratic
External-transactional
External-relational
4.
Burke [51]
Market share
strategy
(ECF; N/C & E)
Market attractiveness
Entry barriers
Perceived environmental
uncertainty
Strategic choice:
build, hold or
harvest share
Nicosia
[33]
2.
Table II
Selected Contingency
Perspectives in
Marketing
Weitz and
Anderson
Relative competitive
strength
Reward system
Synergy
Exit barriers
5. Weitz [55]
6. Ferrell and
Gresham
[75]
7. Kotler [79]
Effectiveness of sales
behaviours across
customer interactions
(ECF; N/Cl
Salesperson's resources
Nature of customer's
buying task
Customer-salesperson
relationship
Selling behaviours:
Adapting to customers
Establishing influence
bases
Influence techniques
used
Controlling the sales
interaction
Ethical decision-making
in marketing
organisations
(ECF; N/C)
Ethical issue
Individual's
characteristics
Significant others
Opportunity
Behaviour of marketing
decision maker
Marketing strategy
(ICF; N/C)
Demand state:
Negative demand
No demand
Latent demand
Faltering demand
Irregular demand
Full demand
Over-full demand
Unwholesome demand
Marketing task:
Conversational marketing
Stimulational marketing
Developmental marketing
Re-marketing
Synchromarketing
Maintenance marketing
De-marketing
Counter-marketing
Stage of product life
cycle
Marketing strategies for
various stages of the
product's life cycle
8. Levitt [80],
Marketing strategies
(ICF; N/C)
Doyle [81],
Weber [82],
Wasson [83],
Swan and Rink
[84],
and many others
9. Kotler ]43]
Marketing strategies
(ICF; N/C)
Relative size of firm
Relative competitive
position of firm
Marketing strategies for
leaders, challengers.
followers and nichers
10. Jacobson and
Market share strategy
(ICF; E)
Buyer concentration
Purchase frequency
Marketing intensity
Product quality
Firm size
Relative emphasis firms
should place on market
share from the standpoint
of profitability
11. Day [49]
Market share strategy
(ECF; N/C) +
Market growth rate —
high vs. low
Firm's competitive
position — leader
vs. follower
Strategic choice:
Build share
Hold share
Harvest share
Divest business
12. Day [49]
Generic strategy
options
(ICF; N/C) +
Market attractiveness —
high, medium or low
Relative competitive
position — strong.
medium or weak
Strategy choice:
Project position
Invest to build
Build selectively
Manage for earnings
Limit expansion
Harvest
Project and refocus
Divest
Aaker [85]
The
Contingency
Approach
51
Table II (continued)
Selected Contingency
Perspectives in
Marketing
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13. Kotrba [86]
Market segmentation and
targeting strategies
(ICF; N/C)
Stage of product life
cycle
Variability in customer
needs across segments
(homogenous vs.
heterogeneous markets)
Firm's size
Firm's resource position
Competitors' market
segmentation and targeting
strategies
Strategic Choice:
Undifferentiated marketing
Differentiated marketing
Concentrated marketing
14. Resnik, Turney
and Mason
[87]
Market segmentation
(ICF; N/C)
Customers' willingness to
accept lower prices in
exchange for products less
tailored to their needs
(great vs. limited)
Potential for production
and marketing economies
by eliminating or fusing
market segments (high
vs. low)
Strategic choice:
Counter-segmentation
(reverse segmentation)
Further segmentation
15. Bishop, Graham Industrial marketing
and Jones [88] (ICF; N/C & El
Degree of volatility of
derived demand
Strategic choice:
Appropriate, product/
market, promotion.
distribution and pricing
strategies
16. Yoon and Lilien Optimal launch
time for new industrial
[59]
products
(ICF; N/C & E)
Type of new product:
Original new product
(ORNP) vs. reformulated
new product (RFNP)
It pays to launch a RFNP
as early as possible,
whereas success levels
are highest for an
ORNP when launch
is delayed somewhat
Firm's choice of productmarket opportunity as
vehicle for growth
Extent of protection for
innovation
Scale of market — market
and associated economies
of scale
Competition — barriers to
entry and relative size
of competitors
Firm's position and power
in the production/distribution system
Strategic Choice:
Reactive strategies —
defensive, imitative.
second but better, and
responsive
Proactive strategies —
research and development, marketing.
entrepreneurial and
acquisition.
(The authors note that
each strategy is
appropriate under certain
conditions and that a
successful organisation
recognises when each is
appropriate and responds
accordingly)
52
17. Urban and
Hauser [89]
Table II (continued)
Selected Contingency
Perspectives in
Marketing
New product strategies
(ICF; N/C)
18. Kotler [43]
Promotion-pricing
strategies for introducing
new products
(ICF; N/C)
Market size
Price elasticity of
demand
Markets' level of
awareness of product
Markets' state of readiness
to buy product
Threat of potential
competition
Cost dynamics — scale
and experience effects
Strategic Choice:
Rapid skimming
Slow skimming
Rapid penetration
Slow penetration
The
Contingency
Approach
53
19. Day [49]
Pricing strategies
(ICF; N/C)
Price elasticity of demand Strategic Choice:
Market growth rate/stage Penetration pricing
of product life cycle
Skimming pricing
Barriers to entry
Barriers to capacity
expansion
Cost dynamics — scale
and experience effects
Potential for creating and
maintaining superiority
over competitors
20. Robinson and
Lakhani [90]
Pricing
(ICF; E)
Nature of competition
Nature of consumer
demand
Conditions under which
a penetration price
substantially below initial
costs is the optimal price
policy
21. Udell [91]
Non-price competitive
marketing strategy
(ICF; N/C & E)
Buyer's knowledge
concerning the product
and its want satisfying
power
Effort expended by buyers
to make a wise purchase
Motives for purchasing
the product
Product complexity from
the buyer's perspective
Relative emphases on
product and promotion
facets of marketing
strategy
22. Kotler [43]
Promotion mix strategy
(ICF; N/C)
Stage of product life cycle
Product characteristics
Economic environment
Primary communications
task
Optimal allocation of
promotional effort
between advertising.
personal selling, sales
promotion and publicity
23. Stern and Reve
[92]
Marketing channels
(ICF; N/C)
Internal political economy
— internal structuring
and functioning of the
distribution channel
External political economy
— the task environment
of the distribution
channel
Appropriate interorganisational management strategy (for
maintaining and
expanding channel
operations and for
dealing with channel
conflicts)
24. Frazier and
Sheth [57]
Distribution channel
management
(ICF; N/C)
Attitude-behaviour
consistency or inconsistency (of target) organistion's boundary personnel
towards the channel
programme)
Appropriate influence
processes
Appropriate influence
objectives
Table II (continued)
Selected Contingency
Perspectives in
Marketing
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25. Kotler [43]
54
Legend:
Table II (continued)
Selected Contingency
Perspectives in
Marketing
Distribution strategies
(ICF; N/C)
Market size
Degree of customer
concentration
Purchase frequency
Purchase quantity
Firm's size
Firm's resource position
Firm's product mix
Competitors' distribution
strategies
Product characteristics
Economic factors
Political/legal factors
Channel characteristics
Strategic
Intensive
Selective
Exclusive
Choice:
distribution
distribution
distribution
ECF — Explicit contingency framework (1 to 6)
ICF — Implicit contingency framework (7 to 25)
N/C — Normative/Conceptual
N/C & E — Normative/Conceptual and Empirical
E — Empirical
+ The source cited[49] is intended to be illustrative. These two dimensions form the basis for a
number of contingency approaches to business unit strategy formulation such as the BCG GrowthShare Matrix, the GE-McKinsey Business Screen, and the Shell Directional Policy Matrix. See, Wind
and Mahajan[50] for detailed descriptions and comparisons of several portfolio models.
(2) Identification and grouping of contingency factors — Effectiveness is often
related to numerous contingency variables. The key is to identify the
contingencies which explain the greatest variance in performance. This
identification process begins with an examination of the literature for a
relevant set of contingency variables based on theoretical grounds and/or
prior researchfindings.A systematic plan of research can then be developed
to evaluate the impact of these contingency variables, and to determine
whether other contingency variables should be identified. Contingency
frameworks are compelling because of their simplicity, but this simplicity
may lead researchers to stop short of identifying all relevant factors.
Hambrick and Lei [93] offer a method that empirically prioritises contingency
variables. Based on an analysis of 636 PIMS businesses, the authors ranked
ten contingency variables widely cited in the strategy literature by their
relative significance. Significance was defined as the degree to which
businesses that differ on that variable also exhibit major differences in how
strategic attributes or actions are associated with performance. Major
differences indicate the presence of a significant contingency variable
[93, pp. 765-6].
Another example of consolidation of contingency variables is illustrated
by Achrol, Reve and Stem's[94] discussion of framing the environment.
Researchers have expressed concern about the immense inventory of
environmental variables and sub-variables that may serve as contingency
variables. In Achrol, Reve and Stem's view, excessive detail results in
an inventory of situational factors that limits the generalisability across
situations. They propose an altemative approach, although still consistent
with the contingency perspective, that entails conceptualising the
environment as a dynamic but amorphous reality (without well-defined
shape, size or elements) that can be characterised in terms of its abstract
qualities or dimensions. For example, the following qualitative dimensions
could be used to conceptualise the environment: environmental capacity
(rich vs. lean); environmental homogeneity-heterogeneity; environmental
stability-instability; environmental concentration-dispersion, and environmental turbulence. The practice of framing the environment in terms of
its abstract qualities or dimensions is prevalent in the contingency research
stream[33,32,34].
Problems associated with multiplicity of contingency variables can also
be handled by first identif3Tng all relevant factors, grouping the factors into
broad categories, eliminating highly interrelated variables, and empirically
prioritising the remaining variables. For example, after identifying a
comprehensive set of relevant factors, Hofer[8] grouped environmental and
organisational contingency variables of relevance to business strategy
formulation into six broad classes—
(a) broader environmental variables;
(b) industry structure variables;
(c) competitor variables;
(d) supplier variables;
(e) market and consumer behaviour variables, and
(f) organisational characteristics and resources.
From this point, interrelated variables could be eliminated and empirical
prioritisation could take place.
(3) Independence of contingency factors — The contingency approach has been
criticised in the organisation theory literature for encouraging the
development of different contingency factors to represent the same
phenomena[95,76]. This difficulty may stem from conceptual confusion in
specifying the contingency variables [76] or from high correlations between
variables. In the latter case, conceptually different models may represent
the same phenomena and yield similar predictions[95]. As a case in point,
Udell[91], in his study of successful marketing strategies, considered a fifth
contingency variable — value of typical purchase — that was found to be
highly intercorrelated with the other four variables and was therefore dropped
from further consideration. To deal with this issue, clear conceptualisation
of variables and measurement of relationships among contingencies are
required.
(4) Number of levels in the contingency variable — The number of levels for
contingency variables can be an arbitrary decision. Many of the early
contingency frameworks used simple dichotomies that were difficult to
justify: stable vs. changing environments[24], centralised vs. decentralised
The
Contingency
AoDroach
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structure [25], routine vs. non-routine technology[4]. Some critics argue that
simple dichotomies yield as much variation within contexts as between
contexts. Contingency variables that are differentiated along commonly
accepted guidelines are preferable to those that are arbitrarily and
simplistically established. Empirical approaches such as the cluster analysis
technique used by Hambrick[l] may help in dealing with this issue.
(5) Deterministic view of the organisational context — Most contingency theories
assume that the contexts or environments in which organisations operate
are fixed and outside the control of the organisation. This deterministic
view of the organisational context has been challenged by theorists [27,96]
who claim that variations in performance may be due in part to managerial
discretion in changing the contexts. The revised view, called environmental
management[27,97] or the strategic choice view[98,99,100], argues that
managers have freedom to select and to influence their environments and
situations, and need not merely accept them as constraints. This view does
not invalidate the contingency frameworks themselves, but suggests that
an organisation can move from context to context and need not merely accept
its current situation.
(6) Outcome models, not process models — The contingency approach has been
compared to stimulus-response models of the behaviourists in that they
both largely ignore the processes by which a given outcome is achieved [28].
Contingency frameworks view the relationships among variables at one point
in time; they are static, rather than dynamic models. They can, however,
incorporate dynamic models as reasons for choosing contingency variables.
Current research examining strategic decision processes has begun to
integrate process models and contingency approaches [101].
(7) Post hoc inference — A number of classic and current contingency
frameworks were empirically derived[24,l,7,6]. Inferences based on empirical
work or case analysis led to the development of these frameworks. While
some scholars would argue that using data to develop theory is incorrect,
Hanrigan[38] encourages multiple "hybrid" technologies for developing and
testing contingency approaches.
(8) Mechanistic flavour — Child[102] criticised the mechanistic flavour of
contingency approaches that advocated a single response to a given context.
The tendency to under-emphasise or ignore the possibility of more than
one feasible organisational response to the same task environmental stimulus
characterised many early contingency theories[28]. More recent frameworks
acknowledge that different responses may yield similar performance [1] and
specify more than one organisational response where appropriate.
(9) Issue of strength vs. form — Schoonhoven[103] argues that a central issue
for contingency theorists is "whether the environment modifies the strength
or form of the relationship between strategic variables and performance''.
If environment modifies only the strength of the relationship, the role of
contingency approaches would be to identify meaningful sub-environments
and the relative strength of strategic variables within and across the subenvironments. On the other hand, if environment modifies the form of the
relationship, the role of contingency theory would be to identify key
interacting variables and establish their links to performance [13]. Moderating
effects of contingency variables have been investigated in the contingency
literature by including interaction variables in additive models (to examine
the form ofthe relationship), and by estimating parameters of an additive
model for sub-groups of the total sample (to examine the strength of the
relationship)^. The issue of form vs. strength of the relationship appears
to remain unresolved. Based on a review of prior empirical research and
analysis of 1,638 PIMS businesses using moderated regression and subgroup analysis, Prescott[13] reports that environment modifies the strength
but not the form of the strategy-performance relationship. On the other
hand, the market share-profitability implications ofthe new BCG matrix[104]
illustrate contingency variables that moderate the form rather than the
strength of the relationship between strategy and performance*. In that
matrix, the relationship between market share and profitability is viewed
as being moderated by the size of the competitive advantage and the number
of ways of achieving competitive advantage.
(10) Fine-grained, coarse-grained and hybrid methodologies — In a recent review
of contingency studies focusing on methodological issues, Harrigan[38]
contends that the study of contingency approaches to strategy formulation
requires the use of hybrid designs, incorporating attributes of both fineand coarse-grained research methodologies. She notes that the salient
characteristics of the proposed hybrid methodology — the use of the multiple
sites, multiple data sources and intricate sample designs — compensate
for some of the limitations of the fine- and coarse-grained methodologies.
Harrigan points out that while coarse-textured studies (such as early PIMS
studies) foil satisfactorily to incorporate intra-industry competitive nuances,
fine-textured single-site studies (such as case-studies) lack generalisability
and statistical rigour.
Directions for Theory and Research
Although a variety of theory and research issues have been suggested above, several
general topics appear most appropriate for immediate enquiry. First, theorists
and researchers need to develop and group environmental and organisational
contingency variables directly relevant to marketing management and strategy.
Because the level of analysis often differs between management and marketing
(i.e. the organisation vs. a functional unit), marketing contingency variables may
be more specialised. As suggested earlier, the management literature may provide
a helpful starting point, but contingency approaches to marketing must be tailored
to the specific issue and level of analysis. Second, the relevance of consumer
behaviour variables in strategy contexts has not been addressed sufficiently. While
this omission is understandable, given the primary focus of researchers in the
The
Contingency
Approach
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58
strategic management area, further research on the contextual relevance of
consumer behaviour variables to marketing strategy formulation holds the potential
for a major contribution. A logical starting point for such a research endeavour
would be to review the extensive body of literature on situational influence
paradigms in consumer behaviour and their relevance to marketing strategy (see
Leigh and Martin[105] for a review). The contextual relevance of consumer
behaviour variables in marketing strategy studies is illustrated by Udell[91]. Third,
the contingency approach can be extended to areas of marketing other than strategy.
Conclusion
Contingency approaches to theory building represent an alternative to searching
for universal principles, and instead focus on key situational relationships. These
approaches reduce the vast array of combinations a researcher must consider by
focusing research on key variables and inter-relationships. They also provide
important pedagogic usefulness[l] by helping to translate theory and research to
practice. Day and Wensley[106] emphasise the dividends obtainable through focusing
on these mid-range approaches:
Productivity will be further assured by building upon existing conceptual and
methodological strengths within marketing, and focusing these strengths on the
development of mid-range integrative theories (p. 85).
Wind and Robertson[107] urge the development of approaches that change the
"isolatory focus of marketing" and call for new linkages between marketing and
the other management disciplines. Contingency approaches, such as the ones
discussed in this article, offer an opportunity to integrate perspectives from
management and marketing, thereby acknowledging the interdependency of the
business functions.
Footnotes
1. It should, however, be noted that in recent years, the PIMS database has heen extensively
used by strategy researchers for investigating the moderating effects of contextual variables
on the strategy-performance linkage, e.g.ft2,108,93,13]; see also, Ramanujam and
Venkataraman[109, pp. 141-5] for a summary of findings of several other studies.
2. More realistically, Burke's[51] contingency framework builds on the contributions of
researchers in at least three major areas — marketing, business policy and strategy, and
industrial organisation economics.
3. See Day[49] for a review of studies critical of the PLC concept, as well as an extensive
discussion on the strategic relevance of the PLC concept and its potential shortcomings.
4. While Abell's[66] generalised statement appears to befairlycomprehensive (i.e. its reference
to response (strategy) and performance variahles, and environmental and oi;ganisational
contingencies), a cursory examination of numerous other contingency statements reveals
no explicit reference to performance. Nevertheless, implicit in statements that postulate
that the appropriateness of alternative strategies is contingent on certain environmental
and oi;ganisational variables is the notion that pursuit of appropriate strategies is conducive
to superior performance, as opposed to pursuit of inappropriate strategies.
5. See Prescott[13] for a review of literature. See Sharma, Durand and Gur-Arie[110] for a
discussion of various types of moderator variahles (homologiser, quasi-moderator and pure
moderator) and methods for identifying moderator variahles (sub-group analysis and
moderated regression analysis).
6.
See Hax and Majluf[lll] for a graphic exposition of the moderating effects of contextual
variables on the form of the relationship between market share and profitability; also, of
related interest are thefindingsreported in a recent study by Jacobson and Aaker[85]. Based
on an analysis of a sample of PIMS business, the authors found that a large proportion
of the market share-ROI relationship is spurious in the sense that both market share and
ROI are joint outcomes of some third factors. The direct impact of market share on ROI
was found to be much smaller than previous studies indicated them to be. The authors
report that the impact of market share on profitability to be greater under certain
contingencies:
(1) the more fragmented the buyer concentration;
(2) the less frequent the purchase;
(3) the higher the marketing intensity, or
(4) the higher the product quality.
The effect of conditions relating to product life cycle, product importance, vertical integration
and relative price on the relationship between market share and profitability were found
to be insignificant.
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Further Reading
Boston Consulting Group, Perspectives on Experience, Boston Consulting Group, Boston, 1972.
Ginsberg, A. and Venkataraman, A., "Contingency Perspectives of Organisational Strategy: A Critical
Review of the Empirical Research'', Academy of Management Review, Vol. 10, July 1985, pp. 421-34.
Hambrick, D.C, "Taxonomic Approaches to Studying Strategy: Some Conceptual and Methodological
Issues", Journal of Management, Vol. 10, Spring 1984, pp. 27-41.
MacMillan, I., Hambrick, D. and Day, D., "The Product Portfolio and Profitability - A PIMS~^~^^^^^
based Analysis of Industrial Product Businesses", Academy of Management Journal, Vol. 25,
December 1982, pp. 733-55.
Schneider, B. and Bowen, D., "New Services Design, Development and Implementation and the
Employee", paper presented at the Symposium on Developing New Services, Philadelphia, 1983.