The Brand Orientation-Performance Relationship and Industrial Contingencies –

Some Empirical Evidence of Moderating Effects

Saku Hirvonen, University of Eastern Finland, saku.hirvonen@uef.fi

Tommi Laukkanen, University of Eastern Finland, tommi.laukkanen@uef.fi
Helen Reijonen, University of Eastern Finland, helen.reijonen@uef.fi

Keywords: brand orientation, brand performance, industrial contingencies, moderation

Abstract

Recent studies show that brand orientation is a positive determinant of brand performance. In
an attempt to cover this relationship in more detail, the authors examine whether the
performance benefits of brand orientation are dependent on industrial contingencies. 820
effective responses collected among Finnish SMEs operating in various industries were
submitted to moderated regression analysis in order to find out whether such industrial
contingencies as demand growth, market type and industry type moderate the brand
orientation-performance relationship. The results show that demand growth serves as a
negative moderator, indicating that brand orientation has a greater effect on brand
performance in industries characterized by decreasing demand. With regard to market type
and industry type, no moderating effects were found.

Introduction

The last few decades have witnessed major developments in the branding research in terms of
new models, concepts and so-called “best practices”. The evolution of the field is
indisputable, yet not inclusive. While researchers widely acknowledge the performance
benefits of strong brands, they simultaneously lack generic branding guidelines. The
explanation can be searched from two directions. On the one hand many studies build only on
case examples and base their guidelines on inadequate theoretical argumentation (Kay, 2006).
On the other hand the explanation may be offered in the form of the contingency approach
(Zeithaml, Varadarajan and Zeithaml, 1988) as the complexity of today’s markets does not
enable many branding models to be applicable across different environmental conditions.
Given that branding models aim at simplifying the complexity of business reality (de
Chernatony and Dall’Olmo Riley, 1998), both perspectives may hold some explanatory
potential. However, recognizing the intricacy of branding, the authors provoke the discussion
by suggesting that instead of pursuing any universal codes of branding, researchers may
benefit more from a realization that one size does not fit all when it comes to branding.
Building the study on this claim, the authors empirically examine moderating effects of three
industrial factors assumed to alter the effect of brand orientation on brand performance.

Literature Review and Hypotheses Development

The brand orientation construct was introduced in the 1990s alongside two seminal papers by
Urde (1994, 1999). However, the concept has not received much academic attention until
recently (e.g., Baumgarth, 2010; Ewing and Napoli, 2005; Napoli, 2006; Reid, Luxton and
Mavondo, 2005; Simões and Dibb, 2001; Wong and Merrilees, 2005, 2007, 2008).
Consequently, several definitions have been proposed, most addressing either organizational
values and beliefs or brand-oriented practices (Brïdson and Evans, 2004). While differences
in emphasis and detailing are evident, different definitions nevertheless provide a rather
consistent picture of brand orientation as a strategic approach on branding. Wong and
Merrilees (2008), for example, define brand orientation as an organizational mindset favoring
brands in the marketing strategy; Hankinson (2001) defines brand orientation through four
dimensions, namely understanding, communicating, using, and managing the brand; and,
Brïdson and Evans (2004) define brand orientation as the extent to which brands are valued
within a firm, and whether its operations are managed in way supportive of the development
of distinctive, functional, value adding, and symbolic brand capabilities.

A number of recent studies prove the development of a brand orientation beneficial to brand
performance (e.g., Baumgarth, 2010; Tuominen, Laukkanen and Reijonen, 2009; Wong and
Merrilees, 2008). In order to examine this relationship in more detail (i.e., whether the
relationship is robust across different environmental conditions), three moderator variables
are introduced to the research setting, namely demand growth, market type and industry type.

Moderating effects have been extensively explored in the market orientation literature (e.g.,
Gatignon and Xuereb, 1997; Langerak, 2003; Rose and Shoham, 2002; Sin et al., 2005;
Subramanian and Gopalakrishna, 2001). One of the suggested moderators is demand growth
that is said to negatively moderate the market orientation-performance relation (Kohli and
Jaworski, 1990). Though equivocal empirical evidence has been reported (Diamantopoulos
and Hart, 1993; Slater and Narver, 1994), this study follows the work of Kohli and Jaworski
(1990) in suggesting that the effect of brand orientation varies with demand fluctuations.
Decreasing demand has its origin in customers having less disposable income, consequently
translated into more deliberate buying decisions (Kohli and Jaworski, 1990). Firms inclined to
reach high brand performance are thus necessitated to pay more attention to customer needs.
Firms must develop the value propositions of their brands in a comprehensive way as
customers evaluate them more critically on account of perceived risk associated with a
purchase (Erdem and Swait, 1998; Erdem, Swait and Valenzuela, 2006). Brands do matter in
growing markets, too, yet upsets in brand orientation may be dissipated by customers being
more permissive to incidental discrepancies due to decrease in perceived risk. Hence:

H1: The positive effect of brand orientation on brand performance is greater in industries
characterized by slow (and/or negative) demand growth than in industries where demand
growth is rapid and/or positive

Secondly, given that organizational buying behavior is often said to be more calculative and
rational than consumer buying behavior (Doyle, 1989; Kotler and Keller, 2009), the authors
suggest that brand orientation is of greater importance in the business-to-consumer markets.
Although some studies argue that brands are important also for business customers (e.g.,
Kuhn, Alpert and Pope, 2008; Mudambi, 2002), some fundamental differences nevertheless
exist. That is, organizations buy products and services to keep their businesses running, while
consumers buy products and services for their personal use (Kotler and Keller, 2009).
Therefore, given that brands are increasingly important for their capability to deliver benefits
beyond technical and/or functional features (Orth et al., 2004), it is assumed that brands are
likely noticed by consumers instead of business buyers. Hence, it is hypothesized:

H2: The positive effect of brand orientation on brand performance is greater in business-to-
consumer markets than in business-to-business markets

Finally, differences between service and product industries are discussed. Researchers
generally agree that service branding and product branding are distinct tasks (e.g., de
Chernatony and Dall’Olmo Riley, 1999; McDonald, de Chernatony and Harris, 2001). In
services, the strength of a brand is highly dependent on customer service employees (Vallaster
and de Chernatony, 2005). This inherently requires organization-wide commitment to the
brand; that is, brand orientation (Wong and Merrilees, 2008). Service employees should
support the brand message through their behaviors in order to ensure consistency between the
brand promise and service quality delivered (Papasolomou and Vrontis, 2006). With regard to
product brands, however, high product quality can be achieved with the help of detailed
guidelines and production standards. Furthermore, a product brand is often developed distinct
from the customers and represents a sort of back-office activity (de Chernatony and Segal-
Horn, 2003). Hence, having a brand-centric integration (Wong and Merrilees, 2007) may
benefit service firms more than production firms, where other predictors may outrun the effect
of brand orientation with respect to brand performance. Thus:

H3: The positive effect of brand orientation on brand performance is greater in service firms
than in production firms

Methodology: Sample, Measurement Scales and Steps of Research

An online questionnaire was sent to 9409 profit-seeking SMEs operating in the province of
Eastern Finland. 820 effective responses were received, indicating a response rate of 8.7 per
cent. The five-item scale for brand orientation and the four-item scale for brand performance
were both derived from the work of Wong and Merrilees (2008). Moderator variables were
developed intuitively. A seven-point Likert scale (‘1’ indicating strongly disagree and ‘7’
indicating strongly agree) was used in measuring brand orientation and brand performance.
With regard to the moderators, demand growth was measured with a five-point scale (‘1’
indicating considerable decrease and ‘5’ indicating considerable increase), while market type
and industry type had both only two distinct alternatives.

First, confirmatory factor analysis (CFA) was used to establish construct validity. Factor
loadings were examined in order to establish convergent validity. Factor loadings ranged
between .81 and .96 for brand orientation, and .71 and .91 for brand performance. Loadings
top the recommended level of .70 (Hair et al., 2010), thus proving the constructs internally
consistent. Furthermore, the average variance extracted was calculated (Fornell and Larcker,
1981). The AVE values of brand orientation and performance are .84 and .64, respectively.
AVE values above the .50 level offer further confirmation regarding construct validity.
Moreover, given that the AVE values exceed the squared correlation of the constructs,
discriminant validity is also confirmed. Consequently, two composite variables (brand
orientation and brand performance) were created. Table 1 summarizes the results.

Table 1: CFA results and AVE values

Composite Cronbach’s Brand Brand
Construct
reliability Alpha Orientation Performance
Brand Orientation .96 .96 .84a
Brand Performance .88 .87 .12b .64a
Goodness-of-fit statistics
X2(26) GFI NFI RFI CFI
395.46*** .90 .95 .93 .95
Note: *** p< 0.001; aAVE value; bsquared interconstruct correlation
Next, moderating effects were examined. According to Baron and Kenny (1986, p. 1174),
"moderation implies that the causal relation between two variables changes as function of the
moderator variable". In order to find out whether any such effects exist, moderated regression
analysis was used. The procedure advised in Sharma, Durand and Gur-Arie (1981) was
followed (i.e., moderated regression analysis; steps one through three):

Step 1: Step 2: Step 3:

Y = b0 + b1X1 Y = b0 + b1X1 + b2X2 Y = b0 + b1X1 + b2X2 + b3X1X2,

where Y represents the dependent variable (i.e., brand performance), b0 is the intercept, b1X1
is the linear effect of the independent variable (i.e., brand orientation), b2X2 is the linear effect
of the moderator variable, and b3X1X2 represents the moderating effect of X2 on X1.
Introducing the product term X1X2 at the third step results in X1 's effect on Y being now
dependent on X2 (Hayes and Matthes, 2009). With regard to the interpretation of the results,
different types of moderator variables exist, namely pure moderators, quasi moderators and
homologizers (Sharma, Durand and Gur-Arie, 1981). However, only pure moderators (i.e., b2
= 0, b3 0) and quasi moderators (i.e., b2 b3 0) are of interest of this study.

Results

First, demand growth was addressed. It was assumed that brand orientation’s effect on brand
performance would be greater in industries where demand growth was negative. This
assumption was found valid in the light of the results (p< .05), thus supporting hypothesis H1.
Following this, the authors examined whether market type moderates the brand orientation-
performance relationship. The business-to-business category was coded as zero (X2=0) and,
consequently, used as a reference group against which the business-to-consumer category
(X2=1) was compared. The results rejected hypothesis H2 as it was found that market type
does not serve as a moderator (p> .05). Finally, hypothesis H3 was studied by replacing the
moderator in the regression model with a dummy variable indicating industry type. The same
procedure was followed as with regard to market type. The product category was coded as
zero, while services were coded as one. The results reveal that industry type does not hold a
moderating effect over the brand orientation-performance relationship (p> .05).

Table 2: Results of Moderated Regression Analysis

Step 1 Step 2 Step 3
b ) t b ) t b ) t
*** ***
H1 Brand orientation .302(.369) 11.352 .283(.347) 10.502 .501(.613) 5.249***
Demand growth .143(.109) 3.288** .398(.303) 3.435**
BO * DG -.062(-.369) -2.377*
H2 Brand orientation equivalent to H1 .298(.365) 11.188*** .252(.309) 6.580***
Market type .112(.043) 1.303 -.265(-.101) -1.095
BO * MT .089(.167) 1.667
H3 Brand orientation equivalent to H1 .302(.369) 11.350*** .245(.300) 3.370**
Industry type -.046(-.012) -.383 -.320(-.087) -.913
BO * IT .065(.105) .832
Note: dependent variable= brand performance; *** p< .001, ** p< .01, * p< .05
With regard to H1, the results were analyzed further in order to form a more detailed picture
of the moderating effect of demand growth. The pick-a-point approach instructed in Hayes
and Matthes (2009) was adopted. The authors analyzed whether the regression coefficient of
brand orientation (b1) is statistically significant across different values of X2. As being
reported in Table 3, the effect of brand orientation holds statistical significance throughout the
demand growth scale.

Table 3: Regression Coefficient Across Different Values of the Moderator Variable

Value of the moderator variable (=demand growth)
1 (decrease) 2 3 4 5 (increase)
b1 .439*** .376*** .314*** .258*** .189***
Note: *** p< .001; calculations base on unstandardized values

Discussion and Conclusions

The purpose of this study was to examine whether the performance benefits of brand
orientation reported in recent studies (e.g. Baumgarth, 2010; Wong and Merrilees, 2008) vary
with industrial contingencies. Three moderator variables were covered, namely demand
growth (H1), market type (H2) and industry type (H3). The results of moderated regression
analysis support hypothesis H1 as the results show that brand orientation’s effect on brand
performance is greater in industries characterized by decreasing demand. In other words,
brand orientation becomes a less important contributor to brand performance when demand
growth becomes more positive. Hypotheses H2 and H3, however, were not supported. This
indicates that branding is an equally important factor in both service and product industries,
and in business-to-business and business-to-consumer markets.

With regard to hypothesis H1, an intuitively appealing conclusion suggests that brands should
be given less attention in growing markets. Increase in demand represents an opportunity for
many firms to grow their businesses, if only supply can be matched with demand.
Consequently, investments in production technologies can be more beneficial than
investments in branding. For example, if the markets are growing rapidly due to new
innovative technologies, it might be reasoned to invest in such technologies and try to
enhance the brand image by being the number one in technological innovations.

However, neglecting the brand appears dangerous when a longer-term time horizon is
adopted. Markets growing today may not grow tomorrow. Firms should recognize that the
instant performance benefits of brand orientation may be lesser when the market is booming,
yet the efforts made to develop a brand-oriented mindset are not fruitless in the long term.
Developing a brand orientation entails long-term commitment (Urde, 1999). Firms should
keep on investing in brand orientation during the times when the performance benefits are
getting smaller. Yet, some adjustments are encouraged. This study adopted the idea of brand
orientation as an organizational mindset (Wong and Merrilees, 2008). However, such a
mindset is futile if not implemented at the level of behaviors. The organizational mindset
should remain brand-oriented at all times, but branding practices should, and can be adjusted
to fit for different situations. This applies to hypothesis H2 and H3 also. Such an implication
derives from the fact that changing organizational culture is not a swift process (Slater and
Narver, 1994), whilst adjustments of behaviors (e.g., resources allocated to marketing
campaigns) are rather easy to execute within a shorter period of time.
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