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7 - The model by Phillips, Chang, and Buzzell revisited – the effects of unobservable variables

Published online by Cambridge University Press:  22 September 2009

By
Lutz Hildebrandt  and
Dirk Temme
Edited by
Paul W. Farris  and
Michael J. Moore
Lutz Hildebrandt
Affiliation:
Professor of Marketing and Director of the Institute of Marketing Humboldt University of Berlin; President European Marketing Academy
Dirk Temme
Affiliation:
Assistant Professor of Marketing Humboldt University of Berlin
Paul W. Farris
Affiliation:
University of Virginia
Michael J. Moore
Affiliation:
University of Virginia
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Summary

This chapter reviews some key hypotheses from empirical research on success factors in marketing. These hypotheses on drivers of business profitability, in particular quality and market share, have been a major subject of critique, and these critiques have come primarily from the resource-based view in management research. According to this perspective, general laws of business success based on manageable strategic input factors do not exist. Instead, unobservable, firm-specific variables are regarded as the key drivers of profitability. However, only a few studies have been able to show that strong relations discovered in empirical success factor research disappear if unobservable variables are controlled in econometric models.

In this chapter, we show that some of these results may be methodological artifacts. Based on the hypotheses of Phillips, Chang, and Buzzell (1983) regarding the effects of quality and market share on profitability, we use PIMS data to replicate their study using a modified modeling approach. Whereas Phillips, Chang, and Buzzell use data taken at two points in time to investigate the relationships between some key variables, this chapter uses a six-year cross-section of time series and a panel modeling approach to estimate the parameters. This approach allows us to overcome some major objections to the traditional PIMS approach; key relations between observable success factors and profitability highlighted by the PIMS research can be estimated while simultaneously the effects of different types of unobservable firm-specific factors can be controlled.

Type
Chapter
Information
The Profit Impact of Marketing Strategy Project
Retrospect and Prospects
 , pp. 153 - 187
Publisher: Cambridge University Press
Print publication year: 2004

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