Cut price, advertise, or innovate : a study of managerial decision tendencies in increasing market share.
Lee, Shu Fen.
Lee, Eileen Yi Ling.
Poh, Xiao Wei.
Date of Issue2009
College of Business (Nanyang Business School)
Price cut, advertising, and product innovation, the three common actions by managers to increase firms’ market shares, have always been focus of many studies. We have observed that out of the three actions, managers are more inclined to carry out price cuts particularly in highly competitive industries, despite research findings pointing to the disadvantages of aggressive price cuts. However, little research has been conducted to examine the relative frequencies of price cuts, advertising and innovation decisions in a single setting. This study aims to bridge the research gap by comparing the occurrences of the three managerial decisions in a standardised, controlled setting. The study uses reports from Markstrat simulation and the written executive memorandums to study managerial decision-making in the fast moving consumer electronic industry. Markstrat simulation is commonly used by numerous researchers to study the strategic and tactical marketing decisions to compete in assigned industry [Glazer, Steckel, and Winer, 1989; Hogarth and Makridakis, 1981; Larréché and Gatignon, 1990]. We found that occurrences of price cuts undertaken were significantly higher than occurrences of both product innovation and advertising expenditure increments. In addition, we observed that firms placed more emphasis on advertising price features as compared to product features in the perceptual objectives in advertisement. Yet, engaging in price cutting alone is not always useful. Our research also indicates that the frequency of performing either action has no relationship with market share. Thus, there is a need for managers to fine-tune their mindset and make more prudent decisions in maximising market shares. Managers need to understand that consumers do not blindly follow price cut but rather purchase according to their desired pricing, product features, and optimal exposure to advertisements. Our report helps managers to understand how decisions in marketing mix can be integrated to reach the ultimate goal of increasing market share.
Final Year Project (FYP)
Nanyang Technological University