ADVERTISING STANDARDIZATION’S POSITIVE IMPACT ON THE BOTTOM LINE A Model of When and How Standardization Improves Financial and Strategic Performance

Building on Zou and Cavusgil’s (2002) global marketing strategy (GMS) framework, the authors propose a structural model of advertising standardization that explores (1) the factors that encourage firms to engage in standardized advertising; and (2) the impact of advertising standardization on advertising effectiveness, as well as on two measures of firm performance. Results from a survey of Japanese and U.S. subsidiaries operating in the European Union (EU) provide support for the model. They also suggest that standardized advertising does enhance a firm’s financial and strategic performance, provided that the external environment and internal resources of the firm are conducive to standardization. Shintaro Okazaki (Ph.D., Universidad Autónoma de Madrid) is an assistant professor of marketing, College of Economics and Business Administration, Universidad Autónoma de Madrid. Charles R. Taylor (Ph.D., Michigan State University) is the John A. Murphy Professor of Marketing, College of Commerce and Finance, Villanova University. Shaoming Zou (Ph.D., Michigan State University) is an associate professor of marketing, College of Business, University of Missouri–Columbia. During the last few decades, the topic of standardization of advertising has received considerable attention in the academic literature. As Agrawal (1995) noted, the issue has been formally studied for over 50 years, and it is one of the most researched topics in international advertising. Despite this attention, only a few studies (e.g., Laroche et al. 2001; Samiee et al. 2003) have examined the factors that lead companies to standardize their advertising (Taylor 2002). Harris (1994) pointed out that there has been too much focus on whether firms should standardize and too little focus on how they should go about it. Prior studies also overlooked the related issue of the relation between standardized advertising and global measures of financial and strategic performance. While calls for more emphasis on the financial return provided by marketing practices abound, virtually no attention has been paid to whether standardized advertising pays off for companies in terms of “bottom-line” performance measures. The purpose of this study is to develop and test a theoretical model that (1) identifies the factors that lead firms to standardize advertising, and (2) examines whether standardized advertising is effective in achieving firms’ goals that are related to financial and strategic performance. Our model’s predictions are based on the theoretical perspective provided This research was funded by a grant from the Yoshida Hideo Memorial Foundation (Tokyo) to the first author. The authors thank the Editor and three anonymous reviewers for their insightful comments on an earlier version of this manuscript. by global marketing strategy (GMS) theory (Zou and Cavusgil 2002). Primary data from a survey of marketing executives of Japanese and U.S. subsidiaries in the European Union (EU) was collected to test the model. The use of subsidiaries from both the United States and Japan is designed to provide a robust test of the model, which is hypothesized to apply across cultures. As Samiee et al. (2003) have noted, most prior research on standardization has emphasized the perspective of the headquarters of multinational corporations (MNCs). Because those located at headquarters are closely exposed to strategic planning for advertising, but are often less involved in actually implementing advertising programs, some researchers have questioned the reliability and validity of the perceptions of standardization collected from executives based at company headquarters (Dunn 1976; Onkvisit and Shaw 1999). Thus, there have been calls for more research at the subsidiary level (Samiee et al. 2003). Examining managerial perceptions at the subsidiary level allows measurement to take place closer to the actual implementation of the advertising program. Although the viewpoints at both the headquarter and subsidiary level provide insight into the firm’s advertising programs (Laroche et al. 2001), the focus of the present study is at the subsidiary level. The EU context of the study is important because it allows for a test of the model in a key economic region. The following section provides an overview of European economic unification. Presentation of the study’s model and development of research hypotheses are followed by discussion of its methodology and results. 18 The Journal of Advertising EUROPEAN ECONOMIC UNIFICATION AND ITS IMPACT ON ADVERTISING The current European Union is the result of years of effort toward greater European unity, which dates back to the postwar period in which Europe had to rebuild itself (Cunningham 1999). Over the years, the EU has gradually grown, from the six original member countries to 25 as of 2004. To ensure its effective functioning in light of its continued growth, EU decision making has been streamlined, and the Treaty of Nice (effective February 1, 2003) imposed new rules governing EU institutions (European Union 2003). Integration efforts have gone through several iterations and have taken many years, but some have argued that Europe can now be treated more as a single market than it was in the past (e.g., Leeflang and van Raaij 1995). As a result, much attention has been paid to whether unification has led to a greater possibility of pan-European marketing and advertising. At the same time, recent developments, including French voters’ rejection of a new Constitution for the EU, indicate that obstacles to complete unification remain. Moreover, research findings suggest that some marketers still adapt advertising to a considerable extent when operating in the EU. By conducting personal interviews of the European advertising managers of 15 multinational corporations, Rijkens (1992) found that all the firms allowed their local European offices to adapt the basic advertising idea, albeit to varying degrees. These findings appear to be consistent with other empirical studies showing some level of adaptation by marketers (e.g., Harris 1994; Harris and Attour 2003; Leeflang and van Raaij 1995; Seitz and Johar 1993). The above studies do not refute the notion that it may be possible to standardize advertising strategy throughout Europe, but they suggest that adaptation of executions is often necessary for legal, structural, and cultural reasons. Each European country maintains its own rules and regulations for the advertising industry, although some rules have had to be modified to be consistent with more general EU laws. Still, enough differences remain to support the finding of Howard and Ryans (1989) that advertising executives believe that government regulations will continue to present an obstacle to true panEuropean advertising. In addition, a meta-analysis identified substantial differences between EU nations in terms of media shares, levels of advertising, sales promotions, and expenditures on direct marketing and marketing research (Leeflang and van Raaij 1995). These findings suggest that structural factors may also require modifications in ad executions. Howard and Ryans (1989) noted that social customs and languages are still perceived as obstacles to standardization, and they are likely to remain so. At the same time, it is clear that many advertisers are attempting to engage in pan-European advertising. Firms that follow a consistent brand strategy across Europe include non-European MNCs such as Microsoft, Dell, Electronic Arts, and Kawasaki (Kaplan 2003; Sweney 2003a, 2003b; Weernink 2002). Thus, it appears that the consensus of prior research on the extent of advertising standardization is that there is a trend toward standardization of strategy, while executions are often adapted when necessary. As a result of these variations, the EU represents an excellent research context for testing our model, because the focal constructs in the model will have sufficient variation in this context, a key requirement for a sound research design. MODEL AND HYPOTHESES