How Customer-Centric Structures Leverage the Effects of Advertising and R&D on Brand Equity and Firm Performance

Abstract

Academic research and marketing practice emphasize the role of advertising and R&D in building brand equity to achieve superior financial performance. Yet, prior research fails to consider that these marketing mix variables (advertising and R&D) may vary in their effectiveness depending on a firm's organizational structure. Accordingly, this dissertation offers a theoretical framework derived from configuration and contingency theories that identifies structural factors determining the effectiveness of key marketing mix variables by examining how structural sources of customer centricity leverage the effects of advertising and R&D on financial performance through brand equity. The author thus predicts and finds evidence supporting the strategic relevance of three primary structural sources of customer centricity that alter the effectiveness of advertising and R&D: a firm's customer-centric structure, or organizing divisions around customer groups; size-based centricity, or having smaller divisions; and scope-based centricity, or competing in a limited set of end markets. Using multiple secondary sources of longitudinal data on publicly-traded firms over the 2005-2011 period, the author conceptually and empirically investigates the moderating effects of structural sources of customer centricity on the effects of advertising and R&D on brand equity measures (brand awareness, perceived brand quality). Results reveal that structural customer centricity generally enhances the effectiveness of advertising and R&D on perceptions of brand quality, but reduces the efficiency of advertising on brand awareness. Specifically, advertising is less efficient at generating brand awareness when a firm organizes its divisions around customer groups (customer-centric structure), and when a firm has smaller divisions (high size-based centricity). Alternatively, advertising is more effective at generating perceived brand quality as structural customer centricity increases. For instance, the effects of advertising on perceived brand quality are stronger for firms with smaller divisions (high size-based centricity), and for firms who serve narrower end markets (high scope-based centricity). Similarly, all three structural sources of customer centricity enhance the effect of R&D on brand quality. Furthermore, both brand awareness and brand quality lead to higher firm performance. Only by simultaneously considering the nature of all three structural sources of customer centricity can a firm evaluate the ultimate impacts of advertising and R&D.