The Contingency Approach: ^ , to Theory Building and Research in

TheThe Contingency Approach: ^ ,Y. Y^ -a . . ' ^ 1 i^-^ .g Contingency

Its lôundations and Relevance Approachto Theory Building and Research

in Marketingby

Valarie A. ZeithamlDuke University, Durham, North Carolina,

P. "Rajan" VaradarajanTexas A&M University, and

Carl P. ZeithamlUniversity of North Carolina, Chapel Hill

IntroductionDuring the 1960s, management theory and research began to adopt anew orientation, one that embodied a remarkably simple concept andenabled significant advancements in the study of management andorganisations. This orientation, now referred to as the contingencyapproach, emphasises the importance of situational influences on themanagement of organisations and questions the existence of a single,best way to manage or organise. Today, the contingency approachdominates theory and research in the management literature.

Contingency approaches are positioned within management as mid-range theoriesbetween the two extreme views which state ei±er that universal principles oforganisation and management exist or that each organisation is unique and eachsituation must be analysed separately. The contingency approach entails identifyingcommonly recurring settings and observing how different structures, strategiesand behavioural processes fare in each setting[l]. Prominent contingency theorieshave been proposed and tested relating to organisational environments,characteristics and structures [2,3,4,5,6], competitive conditions and organisationalstrategies[1,7,8,9], and organisational characteristics and behaviouralprocesses[10,ll,12]. In addition to explicit use by many authors, the contingencyapproach has been an underlying theme for theory buildhig and research throughoutthe management literature [9].

The contingency approach to theory building and research can be useful tomarketing scholars in at least two important ways. First, the management literature

EuropeanJoumal ofMarketing22,7

38

offers a variety of established contingency frameworks which may contribute directlyto the development and content of marketing theory. At least three sub-disciplineswithin management — organisation theory, strategic management and organisationalbehaviour — provide contingency theories with potential value for marketers. Inaddition, several existing contingency theories have extensive research traditionswhich may represent an empirical foundation for research in related marketingareas [13].

Second, consistent with recent appeals in the marketing literature[14,15], thecontingency approach offers an alternative technique for generating marketingtheory. Although situational factors (e.g. the stage of the product life cycle) havebeen recognised in certain areas of marketing theory and practice, they have notgenerally been included as primary concepts in theoretical frameworks. Throughthe contingency perspective, marketing concepts and variables may besystematically related both in theory and research. The perspective should providemarketers with another avenue to pursue problems and issues that are uniqueto the marketing discipline.

The purposes of this article, therefore, are to describe the contingency approachand 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 topicsin marketing;

(3) to provide an assessment of the current state of the contingency approachin marketing literature, and

(4) to review the major issues associated with use of the contingency approach.

The Contingency Approach to Theory DevelopmentThe contingency approach to management has its roots in general systems theoryand the open systems perspective[16,17,18,19], as well as in the Simon-March-Cyertstream of theory and research[20,21,22]. Thompson[5] recognised the intersectionof these traditions and extended them in a landmark work that represents acornerstone of the contingency approach. These foundation concepts are describedbriefly in the next section, and are followed by a discussion of current perspectiveson the contingency approach.

Theoretical FoundationsThe open systems perspective views the complex organisation as a set ofinterdependent parts that, together, constitute a whole which, in tum, isinterdependent with some larger environment. The interactive nature of theelements within the organisation — and between the oi:ganisation and theenvironment — result in at least two open system characteristics that are centralto the contingency approach: adaptation and equifinality. First, the principle ofadaptation asserts that the elements within the system adapt to one another topreserve 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 Theand by a variety of paths. Contingency

The Simon-March-Cyert stream of work adds to the open systems perspective Approachthe view that organisations are problem-facing and problem-solving entities. Theorganisation develops processes for searching, learning and deciding — processesthat attempt to achieve a satisfactory level of performance under norms of boundedrationality. Organisational decision-makers undertake rational decision processes ^ ^ ^ ^ ^ ^ ^ ^designed to cope with the complexity and uncertainty of their situations, all ofwhich result in deliberate decisions by using a satisficing criterion for performance.

In marketing, Alderson[19] highlighted the need to observe and conceptualisemarketing agencies and their relationships as components of a system. Buildingon the work of Alderson, Nicosia[23] addressed the merits of viewing marketingas a system of structural and dynamic relationships. In his view, systemsconceptualisations of phenomena constitute attempts to identify the propertiesstemming from the modes by which entities mutually relate, making them preferableto conceptualisations that deal only with individual entities. Nicosia[23] providesan extensive treatise on Alderson's conceptualisation of marketing as a complexecological system engaged in economic operations. He also presents a set of majorpostulates of the functionalist approach pertaining to the formation and persistenceof systems and the system's major structures.

Although contingency approaches began to emerge almost simultaneously froma variety of sources[19,24,25,2,10,3,6], Thompson[5] forged much of the theoreticalsuperstructure of the contingency perspective. Integrating and extending previouswork, Thompson conceived of complex organisations as open systems faced withuncertainty tliat are, at the same time, subject to a rationality criterion. He arguedthat differences in technological and environmental dimensions result in differencesin structures, strategies and decision processes. Thompson operationalised thesedimensions through the use of a technological typology and simple, yet powerful,2x2 matrices, techniques that have become standard in contingency theorydevelopment. Contingent on the situational factors within these frameworks,Thompson proposed a set of organisation and decision strategies which providethe organisation a degree of self-control despite interdependence with theenvironment.

Current Perspectives on the Contingency ApproachAs derived from these conceptual antecedents, the essential premise of thecontingency approach is that effectiveness, broadly defined as organisationaladaptation and survival[26], can be achieved in more than one way. For example,management theorists and researchers have recognised more than one way toorganise effectively, more than one strategy that maximises profitability and marketposition, and more than one leadership style that achieves organisational goals.Each way is not equally effective under all conditions; certain organisational actionsor responses are more appropriate than others, depending on the situation[27].

The contingency approach suggests, therefore, that we can observe widevariations in effectiveness, but that these variations are not random. Effectiveness


40

depends on the appropriate matching of contingency factors with internalorganisational designs that can allow appropriate responses to the environment.Theoretical and practical contributions are achieved through:

(1) identifying important contingency variables that distinguish betweencontexts;

(2) grouping similar contexts based on these contingency variables, and

(3) determining the most effective internal organisational designs or responsesin each major group.

These contingency theory-building steps involve three types of variables;contingency variables, response variables and performance variables. Contingencyvariables represent situational characteristics usually exogenous to the focalorganisation or manager. In most instances, the opportimity to contix)l or manipulatethese variables is, at best, limited and indirect. In contrast, response variablesare the organisational or managerial actions taken in response to current oranticipated contingency factors. Performance variables are the dependent measuresand represent specific aspects of effectiveness that are appropriate to evaluatethe fit between contingency variables and response variables for the situation underconsideration.

These steps typically result in contingency theories that focus primarily onoutcome or content issues, rather than on processes. They attempt to determinethe organisation structure, strategy or leadership style to be used in a particularsituation, but do not emphasise the dynamics of the process by which anorganisation adapts or a leader becomes effective [28]. This point will receive furtherelaboration 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 hasbeen directed towards the identification of important contingency variables withinthe 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, stageof the product life cycle), or construct 2x2 matrices that dichotomise two criticalcontingencies (e.g. envirorunental complexity and stability, growth rate and marketposition). The current trend, however, is to expand these frameworks throughthe development of contingency theories that employ multiple dimensions orcontingency variables[l,9]. Although the added complexity of these recentformulations may lessen the straightforward appeal of simpler fameworks, theyallow greater precision in the determination of high-performance response variables.

Table I summarises the previous discussion through examples of selectedcontingency approaches and their characteristics. Although this table is far froman exhaustive list of contingency approaches, it provides a general overview ofrepresentative frameworks. The next section is designed to expand on thistheme by outlining several contingency theories relevant to marketing in moredetail.

Author

Burns and Stalker[24]

Chandler[25]

Woodward[6]

Lawrence andLorsch[3]Perrow[4]

Hofer[8]Porter[9]

Hambrick[17]

Fiedler[10]

House[11]

Vroom and Yetton[12]

Source

Organisationtheory

Organisationtheory andstrategicmanagement

Organisationtheory

Organisationtheory

Organisationtheory

Strategicmanagement

Strategicmanagement

Strategicmanagement

OrganisationalBehaviour

OrganisationalBehaviour

Organisationalbehaviour

ContingencyVariablesis)

Markets andtechnology:stable vs. changing

Growth strategy;internal growthdiversification

Technological type:custommass productioncontinuous processTask environment:uncertainty

Technological type:craftroutinenon-routineengineering

Stage of theproduct life cycle

Industry competitiveforces

Environmentaldimensions

Task structureleader-memberrelationsleader positionpower

Subordinate needstask characteristics

Decision situationcharacteristics

ResponseVariables

Management Style:Organic styleMechanistic style

Structure:centralised,functional vs.decentralisedmultidivisional

Structure:tall vs. flatdesign

Structure:differentiationand integration

Structure:bureaucracyflexibility

Business strategy:

Business strategy:differentiationfocuscost leadership

Business strategy:differentiationasset parsimonycost-efficiencyscale/scope

Leadership style:consideratetask-orientated

Leader behaviour:directivesupportiveachievement-participative

Decision style:autocraticconsultativegroup

TheContingency

Approach

41

Table I.Selected Contingency

Frameworks

Contingency Streams in Management and their Parallels in MarketingContingency approaches to theory building and research prevail in three majormanagement sub-disciplines:

European (1) organisation theory, which focuses on the relationship between the externalJournal of environment, organisation design, and the organising process;Marketing (2) strategic management, which concentrates on the formulation and22,7 implementation of organisational goals, strategies and plans; and

(3) organisational behaviour, which is concerned with the role of individuals4 2 and groups within the organisation.

Several existing theories have contributed to theory buDding and research withinrelated areas of marketing. This section briefly discusses contingency perspectivesin each of these sub-disciplines and their parallels in marketing.

Contingency Approaches in Organisational Theory and Marketing OrganisationDesignIn organisation theory, the organisation and its units are conceptualised as sub-systems of individuals performing tasks designed to achieve a variety oforganisational, group and individual goals. The major emphasis within this disciplinehas been to identify the organisational designs or structures (i.e. the patternsof interactions among individuals) that promote organisational adaptation toenvironmental, technological and information-processing contingencies.Environmental contingencies were highlighted in the landmark research of Bumsand Stalker[24], Lawrence and Lorsch[3] and Duncan[29], while technology andorganisation were examined by Woodward [6], Thompson [5], and Fry andSlocum[30]. The primary proponent of the relationship between informationprocessing requirements and organisational design has been Galbraith[31,27].

Contingency perspectives from organisational theory have been used in marketingorganisation contexts [32,33,34,35]. Many contingency approaches withinorganisation theory emphasise moderating effects of environmental characteristicson the relationship between organisation structure and effectiveness[24,36,29,27,3,37,5]. In a synthesis of this work, Weitz and Anderson[32] developeda model for the design of the marketing function. This model was based on thecontingency perspective that the structure of the marketing function depends onthe 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, brandmanagement and matrix organisations are appropriate. Figure 1 reproduces theWeitz and Anderson Structure-Environment Match Model, illustrating theiradaptation of the 2x2 contingency matrix commonly used in organisation theory.The environmental dimensions (contingency variables) are expressed from lowto high along the horizontal and vertical axes. The proposed organisation designcharacteristics (i.e. high vs. low differentiation, conventional vs. unconventionalintegration methods) are ones that theory and research suggest are consistentwith the different environments. The authors then prescribe for each cell (differentenvironments) the response variables (appropriate ways to design the marketingfunction) appropriate to each combination of design characteristics.

High

Complexity ofenvironment

Low

Decentralised 1organisation

High differentiation

Conventionalintegration methods

Functional IIIorganisation

Low differentiation

Conventionalintegration methods

Matrix IIorganisation

High differentiation

Unconventionalintegration methods

Brand IVmanagement

Low differentiation

Unconventionalintegration methods

Low • H i g hUnpredictability, interconnectedness o^nvi ronment

Source: Weitz and Anderson[32]. i-̂ ,

TheContingency

Approach

43

Figure 1.Weitz and Anderson's

Structure-EnvironmentMatch Model

In another study, Nonaka and Nicosia[33] focus on optimal marketing managementorganisational structures for processing information generated by the marketenvironment. They view the marketing department as a processor of marketinformation and propose that the best organisation for processing environmentalinformation is one that matches the variety of the environment. A simple centralisedmarketing department organisation is posited to be sufficient to processhomogenous and certain environmental information. A complex, decentralisedmarketing department is viewed as appropriate to process heterogeneous anduncertain environmental information.

Ruekert, Walker and Roering[34] propose a contingency framework of marketingtask structure and performance, in which the performance outcome of marketingactivities is viewed as dependent on the nature of the task, the way in which thetask is organised and the nature of its environment. The authors outline contingencytheory propositions pertaining to organisation and efficiency, formalisation andefficiency, centralisation and effectiveness, and specialisation and adaptiveness.The authors also identify four archetypal structures that emerge from thesepropositions and discuss their implications to marketing management.

Contingency Approaches in Strategic Management and Strategic MarketingThe management sub-discipline of strategic management, a field closely relatedto marketing strategy, employs the contingency approach as the primary theory-building technique for its study of business strategy. This sub-discipline focuseson strategies that specific businesses formulate and implement to compete in anindustry or product/market segment. Hambrick[l] argues that contingency


44

approaches are particularly useful for business strategy because past researchhas either:

(1) viewed strategy as an art and conducted in-depth case studies of individualfirms, an approach which lacked generality, or

(2) sought universal laws of strategy and investigated them through databaseresearch such as PIMS (Profit Impact of Market Strategies), an approachthat originally de-emphasised key contextual differences'

Contingency approaches to theory and research in strategy represent a middleground between these extremes, improving the generalisability of the former, whileobtaining richer characterisations than the latter[38].

The contingency approach in strategy literature holds that the appropriatenessof different strategies are contingent on competitive settings of businesses. Thecompetitive setting is typically defined in terms of environmental and/ororganisational contingencies, as evidenced by the following research thrusts:

(1) The appropriateness of pursuing alternative strategies under variousenvironmental contingencies — for example, strategies for competing instagnant industries[39]; declining industries[40]; hostile environments[41];fragmented, mature and declining industries[9]; different stages of theproduct's life cycle[42,43].

(2) The appropriateness of pursuing alternative strategies under variousorganisational contingencies — for example, strategies for high market sharebusinesses [44]; low market share businesses [45]; effective low market sharebusinesses[46,47,48]; market leaders, challengers, followers and nichers[43].

(3) The appropriateness of pursuit^ alternative strategies under variousenvironmental and organisational contingencies — for example, strategiesfor leaders and followers in low and high-growth markets [49, pp. 175-8];generic strategy options for varying levels of market attractiveness andrelative competitive position[49, pp. 204-5].

Many recent contingency approaches to business unit strategy formulation viewboth 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 ShellDirectional Policy Matrix (see Wind and Mahajan[50] for a critical review). Similarly,in the strategy matrix (contingency framework) outlined by Day[49], the appropriategeneric strategy fijom the standpoint of a firm is contingent on market attractiveness(high, medium or low) and relative competitive position of the firm (strong, mediumor weak). Day cautions that generic strategy options matrices are suggestive, ratherthan substitutes for careful analysis of feasible strategic options for each businesssegment. However, he also emphasises that, because choice of strategy mustbe grounded in the realities of the situation facing each business, the compatibilityof 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 Thestrategy that employs multiple environmental and organisational dimensions or Contingencycontingency variables. Analysing a sample of mature industrial-product businesses Approachfi:x)m the PIMS database, Hambrick[l] empirically identified eight different settingsbased 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 low-performing clusters of business strategies. Hambrick's contingency approaches ^ ^ _ _ _ _ ^ ^ âre complex, and highlight the value of greater precision and detail in theidentification of contingency settings. Without the empirically derived taxonomyof the first Hambrick article [1], the two types of businesses emphasised in thesecond[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 intwo contexts.

The contingency approach in a strategic marketing context is illustrated in arecent study by Burke [51]^. She hypothesised that four general elements of theenvironment (tiie market, the business unit within the market, the firm and thebusiness unit within the firm) infiuence the strategic choices made by marketingmanagers. Burke collected perceptual data pertaining to seven product/marketand organisational context factors thought to influence strategic choices of marketingmanagers from 86 managers in six firms. The focal decision of interest was thestrategic thrust of the business unit (i.e. significantly and permanently to increasemarket share, to maintain market share or to allow share to fall). Burke foundthat the choice of a build, hold or harvest strategy is related to the manager'sperceptions of five aspects of the product/market environment and organisationcontext: market attractiveness, relative competitive strength, entry barriers, controlover resources and the manager's perception of the relative importance of short-run business unit performance to his/her career success and monetary rewards.

Contingency Approaches in Organisational Behaviour and MarketingBehaviourWithin the orînisational behaviour literature, the contingency approach has madeits most significant contribution in the area of leadership theory and research[52,ll].Contingency approaches to leadership tie the leader's effectiveness to the natureof the situation and acknowledge that workers' needs and problems vary, requiringthat leadership style match the types of individuals involved and the characteristicsof 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 contingencyapproach. He contends that the functions of a leader vary depending on the needsof subordinates and the type of work to be accomplished. According to House'stheory, a leader obtains good performance from his/her work unit by increasingsubordinates' personal rewards firom goal attainment and by making the path tothese rewards easier to follow (e.g. by instructing, reducing roadblocks and pitfalls,and increasing the opportunities for personal satisfaction along the way). To be

EuropeanJournal ofMarketing22 7

effective, the leader must tailor his/her style and approach to individual subordinatessituations. 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 providedmay be viewed as redundant and insulting by subordinates, who may consequentiybecome dissatisfied. In essence, the theory holds that the level of leader structuredepends on the ambiguity of the task, and tiie level of leader consideration dependson the intrinsic satisfaction of the task. The theory has been elaborated and testedsince it was proposed [53,54].

The contingency approach to marketing behaviour is evidenced in the worksof Weitz [55] and Williams and Spiro[56]. Weitz proposed a contingency model forinvestigating the effectiveness of sales behaviours across customer interactions.The model postulates that effectiveness of sales behaviours across customerinteractions is contingent on the salesperson's resources, the nature of thecustomer's buying task, the customer-salesperson relationship, and the interactionsof these three sets of variables. Weitz presents contingency propositions for themoderating effects of the salesperson's resources, the customer's buying task,and the customer-salesperson relationship on the effectiveness ofthe salesperson'sbehaviour (i.e. adaptive sales behaviour, establishment of an influence base, useof closed vs. open influence techniques, and exerting control over the salesinteraction).

An Assessment of the Status of the Contingency Approach in MarketingHow developed is the contingency perspective in the marketing discipline? Onlya few studies, most of them detailed in the previous sections, have expliciUyemployed the contingency approach. Judging from these applications, thecontingency approach has yet to be firmly established in the marketing discipline.

However, we contend that the implicit notion of contextual relevance ofenvironmental and organisational variables is an underlying theme for theory buildingand research in numerous marketing studies. In the field of channel management,for example, Frazier and Sheth[57] focus on the contextual relevance of boundarypersonnel's attitude-behaviour consistency or inconsistency with respect to theappropriateness of implementing influence processes and of seeking influenceobjectives in distribution channel relationships. In the areas of sales forcemanagement, Futrell and Parasuraman[58] investigate the moderating effect ofsalesperson performance on the relationship between propensity to leave and jobsatisfaction. Yoon and Lilien[59] examine the contextual relevance of marketsituation variables to the appropriate launch time for new industrial productsand best use of marketing resources. While not formally called contingencyapproaches, these and other marketing studies can be recast in the contingencyperspective.

The foundation for developing an organised body of knowledge centred on thecontingency approach is already in place. Building on this foundation should allowmarketers to study more precisely the relationships among contingency, response

and performance variables. Critical situational variables may be integrated into T h eframeworks that advance theory, research and practice. Before reviewing a group Contingencyof marketing studies that impUcitly represent the contingency approaches, we Approachpresent evidence of the general relevance of the contingency notion for marketing.

Contextual Relevance in MarketingThe emergence of general research streams, such as industrial marketing, servicesmarketing, health care marketing, industrial buying behaviour, internationalmarketing, social marketing, marketing under various states of supply and demand,and marketing during periods of shortage, testify to marketers' realisation of thecontextual relevance of contingency variables to marketing strategy formulation.Better understanding of important differences among these contexts have led tothe formulation of specialised marketing strategies and marketing behaviours.

Specific topics within marketing also reflect this tendency. For example, theliterature on the classification of goods highlights the relevance of productcharacteristics and consumer behaviour variables for marketing strategy[60,61,62,63,64,65]. Although controversy surrounds the concept, the extensivebody of marketing literature on marketing strategies for the product life cyclesuggests that marketers view stage of the product life cycle as a contingencyvariable^. Finally, the emerging body of literature on strategies for high marketshare and low market share companies [44,45,46,47,48], marketing strategies formarket leaders, challengers, followers and nichers[43], and strategies for leaderand followers in high and low-growth markets[49] indicate marketing's recognitionof the contextual relevance of an organisation's competitive position in strategyformulation.

In particular, the marketing strategy literature has emphasised this approach.Abell[66] summarised the interrelationship between strategic variables, situationvariables, company-specific variables and performance variables quite succinctlyby noting that: "Strategies of Type A, in markets/situations of Type B, pursuedby companies of Type C, will lead to performance of Type D. (p. 2, italicsours)''. A similar line of reasoning is also revealed in a number of empirically testablepropositions pertaining to competitive marketing strategy summarised in Eliashbergand Chatterjee[67]. Illustrative of the contingency thrust of these propositions arethe following (the propositions are rephrased in line with Abell's[66] generalisedstatement):

(1) Entry-deterring product positioning strategies pursued in markets wherethe fixed cost of entry is high and product repositioning infeasible by early-entrant firms will be profitable in the long run [68].

(2) Positioning the product to appeal to the larger (and more profitable) segmentspursued by early entrant firms in situations where it is difficult (prohibitivelyexpensive) for firms to change their product positioning strategies onceimplemented 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 thecompanies 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 forstrategic choice has been highlighted by Yoon and Lilien[59]. Summarising theresults of their empirical study on the effects of market characteristics and strategyon the performance of a new industrial product, the authors note:

Our findings suggest that two major sets of variables seem to be at work in determiningthe success of a new industrial product. These are market-situation variables andR&D/marketing-strategy variables. We see varying levels of success for different producttypes in different market situations here. And strategy variables must be tuned to thespecific market situation, determining the best use of marketing resources and thebest time to launch the new product (p. 143).

A potential contribution of the contingency approach to the marketing managementfield is the integration of basic laws or principles of marketing management withrelevant situational factors. Contingency propositions may be viewed as extensionsof the basic principles of marketing management, thereby introducing thecontingency approach as a refinement of established marketing thought. An exampleof 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 marketinggeneralisations, state a number of basic laws and principles of marketing. Amongthem 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 oncompany 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 viewedas extensions of the Leone and Schultz generalisations — extend thesegeneralisations in a contingency perspective:

(1) A strategy of spending more on advertising by a firm with a cost advantagewill generally result in a larger market share and higher profits. The beststrategy for the rival firms may be to employ different competitive tools,even when the sales response to different instruments is identical for allfirms [71,72].

(2) A strategy of spending more on advertising, particularly during the beginningof 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 therival), will result in larger profits as well as a larger terminal market share[73].

(3) Expenditure on distribution and awareness advertising should be decreased Thein response to new entries, unless it is possible, through a pre-emptive Contingencydistribution or advertising strategy, to prevent the entry of a new Approachbrand[74].

These extensions have both scholarly and practical implications. Theorists andresearchers can easily build on existing streams of literature, allowing for thecoherent and systematic development in the marketing literature. Incorporatingthe situational variables also allows marketing practitioners to use resources moreefficiently for these activities, increasing the likelihood that their firms can competemore effectively.

Explicit and Implicit Contingency Approaches in MarketingTable II summarises selected contingency perspectives evidenced in marketingliterature. The contextual relevance of environmental variables and/or organisationalvariables is the underlying theme common to all 25 studies. As previously noted,explicit reference to a contingency fi:amework is made in only six[33,55,32,51,34,75].A contingency perspective is implied in the additional 19 studies summarised inthe 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 areasof marketing. General marketing strategy (studies 7, 8, 9 and 15), market sharestrategies (10 and 11), generic competitive strategies (12), and market segmentationstrategies (13 and 14) are represented. All elements of the marketing mix havebeen 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/conceptualin scope, and very few are empirical in nature. This parallels the early developmentof the contingency perspective in the management literature, suggesting thatempirical 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 wouldalso aid in identifying a more comprehensive and richer set of relevant contingencyvariables.

Major Issues Associated with Use of the Contingency ApproachThe contingency perspective provides an opportunity to build a body of knowledgecentred on appropriate strategic choices for commonly recurring marketing settings.In order for the approach to be used effectively, certain key issues must beaddressed.

(1) Selection and measurement of performance variables — The selection andmeasurement of performance variables in contingency fi^meworks willinfluence 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.


50

employee turnover and efficiency), different contingency frameworks haveemerged to achieve the objectives. Therefore, the muldpUcity of contingencyframeworks associated with organisational effectiveness is due in part tothe absence of consistent definitions and operationalisations ofeffectiveness[76]. In using contingency approaches, performance measuresshould be clearly defined and widely accepted [77,78]. If possible andappropriate to the subject of interest, they should rely on multiple criteria[76].Tosi and Slocum[26] provide a detailed discussion on the theoretical andpractical 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.

Table I ISelected ContingencyPerspectives inMarketing

Author(s)

1.

2.

3.

4.

Nonaka andNicosia[33]

Weitz andAnderson[32]

Ruekert, Walkerand Reoring[34]

Burke [51]

Focus

Optimal organisationalstructures for marketingmanagement forprocessinginformation generatedby the environment(ECF; N/C)

Organising the marketingfunction(ECF; N/C)

Organisation of marketingactivities(ECF; N/C)

Market sharestrategy(ECF; N/C & E)

ContingencyVariable(s)

Certainty-uncertaintyof environmentalinformationHomogeneity-heterogenityof environmentalinformation

Environmental complexityEnvironmental uncertaintyInterconnectedness ofelements in theenvironment

Macro environmentalconditionsTask characteristics

Market attractivenessEntry barriersPerceived environmentaluncertainty

Relative competitivestrengthReward systemSynergyExit barriers

ResponseVariable(s)

Marketing organisationstructure:DecentralisedCentralised

Marketing organisationstructure —differentiation andintegration: DecentralisedorganisationMatrix organisationFunctional organisationBrand management

Task organisation:Internal vs. externalTask structuring:CentralisationFormalisationSpecialisationMarketing OrganisationStructure:Internal-organicInternal-bureaucraticExternal-transactionalExternal-relational

Strategic choice:build, hold orharvest share

5.

6.

7.

8.

9.

10.

11.

12.

Weitz [55]

Ferrell andGresham[75]

Kotler [79]

Levitt [80],Doyle [81],Weber [82],Wasson [83],Swan and Rink[84],and many others

Kotler ]43]

Jacobson andAaker [85]

Day [49]

Day [49]

Effectiveness of salesbehaviours acrosscustomer interactions(ECF; N/Cl

Ethical decision-makingin marketingorganisations(ECF; N/C)

Marketing strategy(ICF; N/C)

Marketing strategies(ICF; N/C)

Marketing strategies(ICF; N/C)

Market share strategy(ICF; E)

Market share strategy(ECF; N/C) +

Generic strategyoptions(ICF; N/C) +

Salesperson's resourcesNature of customer'sbuying taskCustomer-salespersonrelationship

Ethical issueIndividual'scharacteristicsSignificant othersOpportunity

Demand state:Negative demandNo demandLatent demandFaltering demandIrregular demandFull demandOver-full demandUnwholesome demand

Stage of product lifecycle

Relative size of firmRelative competitiveposition of firm

Buyer concentrationPurchase frequencyMarketing intensityProduct qualityFirm size

Market growth rate —high vs. lowFirm's competitiveposition — leadervs. follower

Market attractiveness —high, medium or lowRelative competitiveposition — strong.medium or weak

Selling behaviours:Adapting to customersEstablishing influencebasesInfluence techniquesusedControlling the salesinteraction

Behaviour of marketingdecision maker

Marketing task:Conversational marketingStimulational marketingDevelopmental marketingRe-marketingSynchromarketingMaintenance marketingDe-marketingCounter-marketing

Marketing strategies forvarious stages of theproduct's life cycle

Marketing strategies forleaders, challengers.followers and nichers

Relative emphasis firmsshould place on marketshare from the standpointof profitability

Strategic choice:Build shareHold shareHarvest shareDivest business

Strategy choice:Project positionInvest to buildBuild selectivelyManage for earningsLimit expansionHarvestProject and refocusDivest

TheContingency

Approach

51

Table II (continued)Selected Contingency

Perspectives inMarketing


52

Table II (continued)Selected ContingencyPerspectives inMarketing

13. Kotrba [86]

14. Resnik, Turneyand Mason

[87]

15. Bishop, Grahamand Jones [88]

16. Yoon and Lilien[59]

17. Urban andHauser [89]

Market segmentation and

targeting strategies(ICF; N/C)

Market segmentation(ICF; N/C)

Industrial marketing(ICF; N/C & El

Optimal launchtime for new industrialproducts(ICF; N/C & E)

New product strategies(ICF; N/C)

Stage of product lifecycleVariability in customerneeds across segments(homogenous vs.

heterogeneous markets)Firm's sizeFirm's resource positionCompetitors' marketsegmentation and targeting

strategies

Customers' willingness toaccept lower prices in

exchange for products lesstailored to their needs(great vs. limited)Potential for productionand marketing economiesby eliminating or fusingmarket segments (highvs. low)

Degree of volatility ofderived demand

Type of new product:Original new product(ORNP) vs. reformulatednew product (RFNP)

Firm's choice of product-market opportunity asvehicle for growthExtent of protection forinnovationScale of market — marketand associated economiesof scaleCompetition — barriers toentry and relative sizeof competitorsFirm's position and powerin the production/distribu-tion system

Strategic Choice:Undifferentiated marketingDifferentiated marketingConcentrated marketing

Strategic choice:Counter-segmentation

(reverse segmentation)Further segmentation

Strategic choice:Appropriate, product/market, promotion.distribution and pricingstrategies

It pays to launch a RFNPas early as possible,whereas success levelsare highest for anORNP when launchis delayed somewhat

Strategic Choice:Reactive strategies —defensive, imitative.second but better, andresponsiveProactive strategies —research and develop-ment, marketing.

entrepreneurial andacquisition.

(The authors note thateach strategy isappropriate under certainconditions and that asuccessful organisationrecognises when each isappropriate and respondsaccordingly)

18. Kotler [43]

19. Day [49]

20. Robinson andLakhani [90]

21. Udell [91]

22. Kotler [43]

23. Stern and Reve[92]

24. Frazier andSheth [57]

Promotion-pricingstrategies for introducingnew products(ICF; N/C)

Pricing strategies(ICF; N/C)

Pricing(ICF; E)

Non-price competitivemarketing strategy(ICF; N/C & E)

Promotion mix strategy(ICF; N/C)

Marketing channels(ICF; N/C)

Distribution channelmanagement(ICF; N/C)

Market sizePrice elasticity ofdemandMarkets' level ofawareness of productMarkets' state of readinessto buy productThreat of potentialcompetitionCost dynamics — scaleand experience effects

Price elasticity of demandMarket growth rate/stageof product life cycleBarriers to entryBarriers to capacityexpansionCost dynamics — scaleand experience effectsPotential for creating andmaintaining superiorityover competitors

Nature of competitionNature of consumerdemand

Buyer's knowledgeconcerning the productand its want satisfyingpowerEffort expended by buyersto make a wise purchaseMotives for purchasingthe productProduct complexity fromthe buyer's perspective

Stage of product life cycleProduct characteristicsEconomic environmentPrimary communicationstask

Internal political economy— internal structuringand functioning of thedistribution channelExternal political economy— the task environmentof the distributionchannel

Attitude-behaviourconsistency or inconsist-ency (of target) organis-tion's boundary personneltowards the channelprogramme)

Strategic Choice:Rapid skimmingSlow skimmingRapid penetrationSlow penetration

Strategic Choice:Penetration pricingSkimming pricing

Conditions under whicha penetration pricesubstantially below initialcosts is the optimal pricepolicy

Relative emphases onproduct and promotionfacets of marketingstrategy

Optimal allocation ofpromotional effortbetween advertising.personal selling, salespromotion and publicity

Appropriate inter-organisational manage-ment strategy (formaintaining andexpanding channeloperations and fordealing with channelconflicts)

Appropriate influenceprocessesAppropriate influenceobjectives

TheContingency

Approach

53

Table II (continued)Selected Contingency

Perspectives inMarketing


54

Table II (continued)Selected ContingencyPerspectives inMarketing

25. Kotler [43] Distribution strategies(ICF; N/C)

Strategic Choice:Intensive distributionSelective distributionExclusive distribution

Market sizeDegree of customerconcentration

Purchase frequencyPurchase quantity

Firm's sizeFirm's resource positionFirm's product mixCompetitors' distributionstrategiesProduct characteristicsEconomic factorsPolitical/legal factorsChannel characteristics

Legend: ECF — Explicit contingency framework (1 to 6)ICF — Implicit contingency framework (7 to 25)N/C — Normative/ConceptualN/C & E — Normative/Conceptual and EmpiricalE — Empirical

+ The source cited[49] is intended to be illustrative. These two dimensions form the basis for anumber of contingency approaches to business unit strategy formulation such as the BCG Growth-Share Matrix, the GE-McKinsey Business Screen, and the Shell Directional Policy Matrix. See, Windand Mahajan[50] for detailed descriptions and comparisons of several portfolio models.

(2) Identification and grouping of contingency factors — Effectiveness is oftenrelated to numerous contingency variables. The key is to identify thecontingencies which explain the greatest variance in performance. Thisidentification process begins with an examination of the literature for arelevant set of contingency variables based on theoretical grounds and/orprior research findings. A systematic plan of research can then be developedto evaluate the impact of these contingency variables, and to determinewhether other contingency variables should be identified. Contingencyframeworks are compelling because of their simplicity, but this simplicitymay lead researchers to stop short of identifying all relevant factors.Hambrick and Lei [93] offer a method that empirically prioritises contingencyvariables. Based on an analysis of 636 PIMS businesses, the authors rankedten contingency variables widely cited in the strategy literature by theirrelative significance. Significance was defined as the degree to whichbusinesses that differ on that variable also exhibit major differences in howstrategic attributes or actions are associated with performance. Majordifferences indicate the presence of a significant contingency variable[93, pp. 765-6].

Another example of consolidation of contingency variables is illustratedby Achrol, Reve and Stem's[94] discussion of framing the environment.Researchers have expressed concern about the immense inventory ofenvironmental variables and sub-variables that may serve as contingencyvariables. In Achrol, Reve and Stem's view, excessive detail results in

an inventory of situational factors that limits the generalisability across T h esituations. They propose an altemative approach, although still consistent Contingencywith the contingency perspective, that entails conceptualising the AoDroachenvironment as a dynamic but amorphous reality (without well-definedshape, size or elements) that can be characterised in terms of its abstractqualities or dimensions. For example, the following qualitative dimensions - ^could be used to conceptualise the environment: environmental capacity(rich vs. lean); environmental homogeneity-heterogeneity; environmentalstability-instability; environmental concentration-dispersion, and environ-mental turbulence. The practice of framing the environment in terms ofits abstract qualities or dimensions is prevalent in the contingency researchstream[33,32,34].

Problems associated with multiplicity of contingency variables can alsobe handled by first identif3Tng all relevant factors, grouping the factors intobroad categories, eliminating highly interrelated variables, and empiricallyprioritising the remaining variables. For example, after identifying acomprehensive set of relevant factors, Hofer[8] grouped environmental andorganisational contingency variables of relevance to business strategyformulation 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 empiricalprioritisation could take place.

(3) Independence of contingency factors — The contingency approach has beencriticised in the organisation theory literature for encouraging thedevelopment of different contingency factors to represent the samephenomena[95,76]. This difficulty may stem from conceptual confusion inspecifying the contingency variables [76] or from high correlations betweenvariables. In the latter case, conceptually different models may representthe same phenomena and yield similar predictions[95]. As a case in point,Udell[91], in his study of successful marketing strategies, considered a fifthcontingency variable — value of typical purchase — that was found to behighly intercorrelated with the other four variables and was therefore droppedfrom further consideration. To deal with this issue, clear conceptualisationof variables and measurement of relationships among contingencies arerequired.

(4) Number of levels in the contingency variable — The number of levels forcontingency variables can be an arbitrary decision. Many of the earlycontingency frameworks used simple dichotomies that were difficult tojustify: stable vs. changing environments[24], centralised vs. decentralised


56

structure [25], routine vs. non-routine technology[4]. Some critics argue thatsimple dichotomies yield as much variation within contexts as betweencontexts. Contingency variables that are differentiated along commonlyaccepted guidelines are preferable to those that are arbitrarily andsimplistically established. Empirical approaches such as the cluster analysistechnique used by Hambrick[l] may help in dealing with this issue.

(5) Deterministic view of the organisational context — Most contingency theoriesassume that the contexts or environments in which organisations operateare fixed and outside the control of the organisation. This deterministicview of the organisational context has been challenged by theorists [27,96]who claim that variations in performance may be due in part to managerialdiscretion in changing the contexts. The revised view, called environmentalmanagement[27,97] or the strategic choice view[98,99,100], argues thatmanagers have freedom to select and to influence their environments andsituations, and need not merely accept them as constraints. This view doesnot invalidate the contingency frameworks themselves, but suggests thatan organisation can move from context to context and need not merely acceptits current situation.

(6) Outcome models, not process models — The contingency approach has beencompared to stimulus-response models of the behaviourists in that theyboth largely ignore the processes by which a given outcome is achieved [28].Contingency frameworks view the relationships among variables at one pointin 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 tointegrate process models and contingency approaches [101].

(7) Post hoc inference — A number of classic and current contingencyframeworks were empirically derived[24,l,7,6]. Inferences based on empiricalwork or case analysis led to the development of these frameworks. Whilesome scholars would argue that using data to develop theory is incorrect,Hanrigan[38] encourages multiple "hybrid" technologies for developing andtesting contingency approaches.

(8) Mechanistic flavour — Child[102] criticised the mechanistic flavour ofcontingency approaches that advocated a single response to a given context.The tendency to under-emphasise or ignore the possibility of more thanone feasible organisational response to the same task environmental stimuluscharacterised many early contingency theories[28]. More recent frameworksacknowledge that different responses may yield similar performance [1] andspecify more than one organisational response where appropriate.

(9) Issue of strength vs. form — Schoonhoven[103] argues that a central issuefor contingency theorists is "whether the environment modifies the strengthor 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 Theand the relative strength of strategic variables within and across the sub- Contingencyenvironments. On the other hand, if environment modifies the form of the Approachrelationship, the role of contingency theory would be to identify keyinteracting variables and establish their links to performance [13]. Moderatingeffects of contingency variables have been investigated in the contingency _ _literature by including interaction variables in additive models (to examinethe form ofthe relationship), and by estimating parameters of an additivemodel for sub-groups of the total sample (to examine the strength of therelationship)^. The issue of form vs. strength of the relationship appearsto remain unresolved. Based on a review of prior empirical research andanalysis of 1,638 PIMS businesses using moderated regression and sub-group analysis, Prescott[13] reports that environment modifies the strengthbut not the form of the strategy-performance relationship. On the otherhand, the market share-profitability implications ofthe new BCG matrix[104]illustrate contingency variables that moderate the form rather than thestrength of the relationship between strategy and performance*. In thatmatrix, the relationship between market share and profitability is viewedas being moderated by the size of the competitive advantage and the numberof ways of achieving competitive advantage.

(10) Fine-grained, coarse-grained and hybrid methodologies — In a recent reviewof contingency studies focusing on methodological issues, Harrigan[38]contends that the study of contingency approaches to strategy formulationrequires the use of hybrid designs, incorporating attributes of both fine-and coarse-grained research methodologies. She notes that the salientcharacteristics of the proposed hybrid methodology — the use of the multiplesites, multiple data sources and intricate sample designs — compensatefor some of the limitations of the fine- and coarse-grained methodologies.Harrigan points out that while coarse-textured studies (such as early PIMSstudies) foil satisfactorily to incorporate intra-industry competitive nuances,fine-textured single-site studies (such as case-studies) lack generalisabilityand statistical rigour.

Directions for Theory and ResearchAlthough a variety of theory and research issues have been suggested above, severalgeneral topics appear most appropriate for immediate enquiry. First, theoristsand researchers need to develop and group environmental and organisationalcontingency 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 maybe more specialised. As suggested earlier, the management literature may providea helpful starting point, but contingency approaches to marketing must be tailoredto the specific issue and level of analysis. Second, the relevance of consumerbehaviour variables in strategy contexts has not been addressed sufficiently. Whilethis omission is understandable, given the primary focus of researchers in the


58

strategic management area, further research on the contextual relevance ofconsumer behaviour variables to marketing strategy formulation holds the potentialfor a major contribution. A logical starting point for such a research endeavourwould be to review the extensive body of literature on situational influenceparadigms in consumer behaviour and their relevance to marketing strategy (seeLeigh and Martin[105] for a review). The contextual relevance of consumerbehaviour variables in marketing strategy studies is illustrated by Udell[91]. Third,the contingency approach can be extended to areas of marketing other than strategy.

ConclusionContingency approaches to theory building represent an alternative to searchingfor universal principles, and instead focus on key situational relationships. Theseapproaches reduce the vast array of combinations a researcher must consider byfocusing research on key variables and inter-relationships. They also provideimportant pedagogic usefulness[l] by helping to translate theory and research topractice. Day and Wensley[106] emphasise the dividends obtainable through focusingon these mid-range approaches:

Productivity will be further assured by building upon existing conceptual andmethodological strengths within marketing, and focusing these strengths on thedevelopment 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 andthe other management disciplines. Contingency approaches, such as the onesdiscussed in this article, offer an opportunity to integrate perspectives frommanagement and marketing, thereby acknowledging the interdependency of thebusiness functions.

Footnotes1. 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 variableson the strategy-performance linkage, e.g.ft2,108,93,13]; see also, Ramanujam andVenkataraman[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 ofresearchers in at least three major areas — marketing, business policy and strategy, andindustrial organisation economics.

3. See Day[49] for a review of studies critical of the PLC concept, as well as an extensivediscussion on the strategic relevance of the PLC concept and its potential shortcomings.

4. While Abell's[66] generalised statement appears to be fairly comprehensive (i.e. its referenceto response (strategy) and performance variahles, and environmental and oi;ganisationalcontingencies), a cursory examination of numerous other contingency statements revealsno explicit reference to performance. Nevertheless, implicit in statements that postulatethat the appropriateness of alternative strategies is contingent on certain environmentaland oi;ganisational variables is the notion that pursuit of appropriate strategies is conduciveto 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 adiscussion of various types of moderator variahles (homologiser, quasi-moderator and puremoderator) and methods for identifying moderator variahles (sub-group analysis andmoderated regression analysis).

6. See Hax and Majluf[lll] for a graphic exposition of the moderating effects of contextualvariables on the form of the relationship between market share and profitability; also, ofrelated interest are the findings reported in a recent study by Jacobson and Aaker[85]. Basedon an analysis of a sample of PIMS business, the authors found that a large proportionof the market share-ROI relationship is spurious in the sense that both market share andROI are joint outcomes of some third factors. The direct impact of market share on ROIwas found to be much smaller than previous studies indicated them to be. The authorsreport that the impact of market share on profitability to be greater under certaincontingencies:

(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 integrationand relative price on the relationship between market share and profitability were foundto be insignificant.

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TheContingency

Approach

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European Further ReadingJournal of Boston Consulting Group, Perspectives on Experience, Boston Consulting Group, Boston, 1972.Marketing Ginsberg, A. and Venkataraman, A., "Contingency Perspectives of Organisational Strategy: A Criticalnn n 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 MethodologicalIssues", 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.

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The Contingency Approach: ^ , to Theory Building and Research in