Explore or exploit: Strike the right balance for the best outcome
Should your marketing activities focus on retaining current customers and sustaining current products? Or, should you spend more time going after new customers and developing new products? How do you strike the right balance that will result in the best performance outcome? Are there internal or external factors that managers need to acknowledge?
This research seeks to answer these important questions for firms looking to improve their marketing strategies and capabilities.
WHAT YOU NEED TO KNOW
Two key marketing capabilities are customer management (CM) and new product development (NDP). One approach to CM and NDP requires that firms continue to retain current customers and support current products. This is an “exploitation” strategy. The other is that they acquire new customers and develop new products, which is an “exploration” strategy. The performance outcomes of these activities is dependent on the balance in which a specific firm pursues them. Also at play is how internal factors such as the firm’s entrepreneurial orientation (EO), and external factors like environmental dynamism, influence the performance of CM and NPD.
In analysing data from a sample of U.S. manufacturers, the researchers determined what balance of CM and NPD results in better performance, and how EO and environmental dynamism influence this relationship.
MORE DETAILS
What Did the Researchers Do?
The research team, comprised of Hamed Mehrabi, Nicole Coviello, and Chatura Ranaweera, collected survey data from small and medium-sized U.S. manufacturers via an online panel. The participating firms represented a cross-section of manufacturers. Most served B2B markets (48%) while 33% were B2C and 19% were both B2B and B2C.What Did the Researchers Find?
This research shows that to reap performance benefits, firms must combine exploitation and exploration activities. That is, they must be ambidextrous in their approach to each of CM and NPD.
But how much emphasis should a firm place on CM vs. NDP? The results show that when companies: 1) pursue high levels of exploitation and exploration in both CM and NDP, and 2) do so simultaneously, they achieve better performance outcomes. This strategy is what the researchers call “combined ambidexterity.” In contrast, if a company chooses to focus only on NPD ambidexterity and it is weighted towards exploration, it is likely to suffer from lower performance. Interestingly, when a company pursues a similar imbalance for CM, there is no impact, suggesting NPD requires particular attention.
The results also show that if a firm has a higher level of entrepreneurial orientation, then it has a higher level of combined ambidexterity, which leads to better performance. Does this mean a firm always needs to have high EO? No, because the researchers find that if there is little market uncertainty or technological turbulence, then EO makes little difference.
HOW CAN YOU USE THIS RESEARCH?
Managers can use this research in several ways. Based on the finding that companies that pursue combined ambidexterity to achieve higher levels of performance, firms should invest in being entrepreneurially-orientated. This means being more proactive, innovative, and risk-taking. By doing so, companies should see improvements in customer satisfaction and new product performance.
When markets and technology begin to stabilize and slow down, companies should look into reducing their investment in EO because the research reveals the payoff in terms of CM and NPD do not justify the resource spend. This show how important it is for managers to monitor environmental dynamism in order to adjust their strategic orientation (e.g. EO) and their marketing capabilities specific to CM and NPD.
WANT TO KNOW MORE?
Contact: Nicole Coviello
Article citation: Mehrabi, H., Coviello, N., Ranaweera, C. (2019). Ambidextrous marketing capabilities and performance: How and when entrepreneurial orientation makes a difference. Industrial Marketing Management, 129-142.