Offensive and defensive marketing: An empirical investigation of their impacts on business performance.

Abstract

The objective of this study is to investigate the relations between offensive and defensive marketing strategies and two types of business performance: market performance measured by market share and retention, and financial performance. To better understand the optimizing behavior of the firms, the dynamic models of offensive and defensive marketing are analyzed. Most importantly, the steady-state equilibrium characterized by the elasticities with respect to offensive and defensive marketing shows that the more the market is sensitive to offensive or defensive marketing, the more a firm tends to be offensive or defensive. The empirical models are estimated by PLS using the Swedish Customer Satisfaction Barometer data (Fornell, 1992). From the first model relating marketing strategies to retention and market share, we find a negative relations between offensive marketing and retention as well as between defensive marketing and market share. The second empirical model to assess the impacts of marketing strategies on profitability is developed by an exploratory study. The model reveals the obviously different mechanisms of the two marketing strategies. Defensive marketing positively influences financial performance via profit margin by making demand less elastic, while offensive marketing has a positive impact on financial performance via market share, which is moderated by the negative direct impact on profit margin. A comparison of the measurement models of defensive marketing reveals that the relative impact of customer satisfaction on profit margin is much larger than that of switching costs, while customer retention is determined by customer satisfaction and switching costs with equal weights. Finally, this study suggests a paradigm for future research, which includes market characteristics as the determinants of the firm's strategic behavior.