Competitive Responsiveness

Marketing strategy and tactics depend on the firm’s strengths and weaknesses, including marketing activities relative to those of current and potential competitors, and on customer demand. The impact of marketing often depends on how a firm’s own activities compare to those of competitors (Day and Reibstein 1997). For example, a customer’s willingness to pay for a product or service offered by a firm often depends on the prices of alternative items. Preferences and perceptions of quality similarly depend on the perceived qualities of alternatives. Many managers specify marketing activities based on a desired level relative to that of competitors, such as share of voice or relative prices.Market share is still a frequently used measure of relative performance, even though marketers increasingly are asked to demonstrate the return on investment (ROI) implications of marketing. We note that there is a strong rationale for measuring performance on a relative basis, particularly in industries that are sensitive to economic conditions or to other exogenous factors. For example, when the economy thrives or dips, it is inappropriate to evaluate the outcome of the marketing strategy based on absolute financial consequences alone. Thus, it is important to ask: “How are we doing relative to our competitors who operated under the same economic conditions?” This perspective should (but often does not) also apply to the incentives executives receive in terms of lucrative stock options. Thus, measures that reflect relative performance in meaningful ways should give a better sense of the wisdom of an adopted strategy. Although there is a plethora of possible reasons for managers’ interest in relative measures, it is also