The effect of performance feedback on firms’ unplanned marketing investments

Abstract

Organizations often follow organizational routines to allocate resources to various strategic ends, such as marketing. However, managers may need to allocate unplanned resources to strategies when addressing performance concerns. Drawing on the behavioral theory of the firm, this study extends the existing literature by specifically investigating how performance feedback, including both historical performance and social performance, influences a firm’s unplanned marketing investment. Using panel data on 421 S&P 500 companies, the analysis shows that both historical performance and social performance affect a firm’s marketing investment, but in different ways. Specifically, performance falling below historical aspiration can directly result in increased marketing investment that cannot be explained by organizational routines alone. In comparison, social performance has an indirect impact. When social performance interacts with historical performance to generate inconsistent performance feedback, it may encourage managers to become more willing to invest in marketing. This effect is more prominent when a firm (1) receives more favorable stock recommendations from financial analysts, (2) has more slack resources, or (3) faces more intense competition.