Managers’ marketing strategy decision making during performance decline and the moderating influence of incentive pay

Abstract

This paper focuses on managers’ marketing decision making during performance decline. Drawing on the reconciliation of theories of failure-induced change and threat-rigidity by Ocasio (1995), we examine how performance decline may result in a rigid decision-making process and decision characteristics that reflect the narrowing of attention and increased risk seeking. Furthermore, drawing on managerial compensation research, we consider how incentive pay may affect the marketing decision-making process and decision characteristics of managers during performance decline. Using a simulation game with experienced Chinese managers, our results indicate that performance decline decreases marketing strategy process comprehensiveness but increases reliance on short-term marketing decisions, strategic change, and strategic risk taking. Moreover, incentive pay attenuates the rigid decision-making process of managers but accentuates their heightened risk seeking during performance decline. This paper offers unique behavioral insights into how managers make marketing decisions.