The Effect of the Positioning Strategy on the Firms' Performance Moderated by the Product Market Competition

Tessarolo, Guilherme Lecco; Azolin, Luiza Gagno; Louzada, Luiz Cláudio

doi:10.1590/1807-7692bar2023210124

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Research Article • BAR, Braz. Adm. Rev. 20 (4) • 2023 • https://doi.org/10.1590/1807-7692bar2023210124 copy

The Effect of the Positioning Strategy on the Firms' Performance Moderated by the Product Market Competition

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

This research aims to investigate the effect of generic positioning strategies (cost leadership and product differentiation), adopted in pure or hybrid form, on firms’ performance and to verify the moderating effect of product market competition in this relationship. A sample with 11,322 firm-year (2008-2019) observations, including data from firms in the G20 countries, was analyzed through logistic regression models. The competition level in the product market is measured using the Herfindahl-Hirshman index. The results indicate that firms adopting a hybrid strategy are more likely to achieve good performances than the others. The relationship between strategic positioning and operational performance is moderated by product market competitiveness level. In a low competition market, the adoption of a strategy is unnecessary. For low to medium levels of competition, pure strategy appears superior. In highly competitive environments, the hybrid strategy is more advantageous. This study brings a new discussion about choosing a more advantageous positioning strategy, in which the main issue is not which positioning strategy is superior, but under what conditions of the market environment the adoption of the hybrid strategy is related to superior performance. Contributing to advance in this research field, our outputs suggest that the effect of the positioning strategy on performance is moderated by the product market competition. The effort to establish a hybrid strategy is advantageous in highly competitive environments.

Keywords:
competitive strategies; cost leadership; product differentiation; hybrid strategy; product market competition

	Observation
Initial sample generated	172,596
Selection of economic industries:	115,980
Consumer goods and cyclical services	53,376
Consumer goods and non-cyclical services	21,324
Technology	41,280
Base cleaning:
Observations with missing data	66,567
Observations with negative profit and/or sales below US $ 500,000.00 and/or negative CAPEX	38,091
Outlier treatment: winsorization 1%	-
Adjusted final sample	11,322
Sample distribution by industry	Observ.	Firms
Consumer Cyclicals	5,531	1,038
Automobiles & Auto Parts	1,822	325
Textiles & Apparel	678	129
Homebuilding & Construction Supplies	535	110
Household Goods	372	81
Leisure Products	194	35
Hotels & Entertainment Services	504	94
Media & Publishing	457	100
Diversified Retail	297	52
Specialty Retailers	672	112
Consumer Non-Cyclicals	2,797	483
Beverages	344	54
Food & Tobacco	1431	271
Personal & Household Products & Services	376	62
Food & Drug Retailing	646	96
Technology	2,994	648
Semiconductors & Semiconductor Equipment	639	139
Communications & Networking	339	79
Electronic Equipment & Parts	382	83
Office Equipment	116	21
Computers, Phones & Household Electronics	394	86
Software & IT Services	1,124	240

Variables	Cost leadership factor loading	Product differentiation factor loading	Communalities
SGA/SALES		0.856	0.735
R&D/SALES		0.595	0.366
SALES/CGS		0.827	0.685
SALES/CAPEX	0.759		0.577
SALES/P&E	0.850		0.735
EMPL/P&E	0.759		0.584
Accumulated explained variance	31.5%	61.4%
Cronbach’s alpha	0.705	0.647

	Variable	Description	Type	Calculation or classification	References
Positioning	DIF1	Product differentiation indicators	Continuous	SGA/SALES	Banker et al. (2014); Fernando et al. (2016); Tripathy (2006)
	DIF2		Continuous	R&D/SALES
	DIF3		Continuous	SALES/CGS
	CST1	Cost leadership indicators	Continuous	SALES/CAPEX
	CST2		Continuous	SALES/P&E
	CST3		Continuous	EMPL/P&E
Dependent	Performance	Firm’s performance	Categorical	Based on the RNOA: $R N O A = \frac{N e t o p e r a t i n g i n c o m e}{T o t a l a s s e t s}$ Classified into: 1 - Good performance 0 - Poor performance	Delen et al. (2013)
Independent	Positioning	Firm’s strategic positioning	Categorical	Based on the factors established with the PCA, classified into: Product differentiation Cost leadership Hybrid ‘Stuck in the middle’	Banker et al. (2014); Fernando et al. (2016); Tripathy (2006)
Independent	Competition	Degree of competition between firms in the same industry	Continuous	$\frac{1}{\sum_{i = 1}^{n} {(m a r k e t s h a r e_{i})}^{2}}$	Lapersonne (2018); Yamin et al. (1999)
Control	Size	Firm’s size	Continuous	$\frac{F i r m' s s a l e s}{I n d u s t r y' s t o t a l s a l e s}$	Banker et al. (2014); Fernando et al. (2016); Tripathy (2006)
	Leverage	Leverage	Continuous	$\frac{T o t a l l o n g - t e r m d e b t}{T o t a l s h a r e h o l d e r s' e q u i t y}$
	Book to market	Book to market (at the beginning of the year)	Continuous	$\frac{B o o k v a l u e}{M a r k e t v a l u e}$
	Industry	Industry in which the firm operates	Categorical	Dummy by industry
	Live Cycle	Firm’s life cycle stage	Categorical	Dummy by stage; stages: introduction; growth; mature; decline; and shake-out	Dickinson (2011); Gort and Klepper (1982)
	Country	Country	Categorical	Dummy by country	Healy et al. (2014); Maury (2018)

		All strategic groups*					Pure strategy		Hybrid strategy
	Variables	n = 11,322 (100%)					n = 5,741 (50.7%)		n = 1,127 (10.0%)
	Variables	Mean	Median	Q1	Q3	Standard deviation	Mean	Median	Mean	Median
All performance levels**	RNOA	0.092	0.075	0.045	0.119	0.068	0.095	0.079	0.118	0.099
	Competition	0.243	0.189	0.095	0.304	0.209	0.242	0.191	0.222	0.176
	Book to market	2.775	1.900	1.060	3.420	3.322	2.860	1.960	3.914	2.810
	Leverage	0.395	0.187	0.012	0.516	0.806	0.367	0.173	0.327	0.109
	Size	0.093	0.020	0.007	0.072	0.190	0.093	0.020	0.130	0.020
		n = 4,529 (40.0%)					n = 2,471 (21.8%)		n = 584 (5.2%)
Good performance	RNOA	0.152	0.133	0.104	0.178	0.067	0.152	0.133	0.173	0.153
	Competition	0.215	0.176	0.078	0.273	0.190	0.214	0.176	0.230	0.176
	Book to market	3.756	2.800	1.540	4.830	4.221	3.720	2.820	4.990	4.005
	Leverage	0.337	0.111	0.001	0.433	0.914	0.319	0.108	0.311	0.058
	Size	0.103	0.021	0.007	0.076	0.208	0.100	0.020	0.118	0.019
		n = 4,529 (40.0%)					n = 2,143 (18.9%)		n = 329 (2.9%)
Poor performance	RNOA	0.039	0.039	0.025	0.051	0.018	0.039	0.040	0.043	0.043
	Competition	0.267	0.209	0.109	0.328	0.219	0.264	0.215	0.224	0.199
	Book to market	1.963	1.330	0.830	2.320	2.338	2.065	1.330	2.745	1.710
	Leverage	0.444	0.252	0.036	0.578	0.715	0.432	0.251	0.301	0.170
	Size	0.082	0.020	0.007	0.069	0.169	0.085	0.019	0.125	0.025

Panel A: Complete sample
	Variables	1	2	3	4	5
1	RNOA	1
2	Competition	-0.107***	1
3	Book to market	0.311***	-0.024**	1
4	Leverage	-0.097***	-0.060***	0.310***	1
5	Size	0.064***	-0.342***	0.064***	0.061***	1
Panel B: Sample by strategy group - Pure and hybrid strategies
		Hybrid strategy Pure strategy
	Variables	1	2	3	4	5
1	RNOA		0.038	0.342***	-0.023	-0.007
2	Competition	-0.118***		0.031	-0.074**	-0.362***
3	Book to market	0.292***	-0.034**		0.382***	-0.073**
4	Leverage	-0.101***	-0.059***	0.322***		0.019
5	Size	0.050***	-0.351***	0.041***	0.054***
Panel C: Sample by strategy group - Product differentiation and cost leadership strategies
	Cost leadership Differentiation
	Variables	1	2	3	4	5
1	RNOA		-0.082***	0.340***	-0.048*	-0.011
2	Competition	-0.143***		-0.034	-0.035	-0.356***
3	Book to market	0.266***	-0.035*		0.226***	0.053**
4	Leverage	-0.128***	-0.069***	0.371***		0.079***
5	Size	0.092***	-0.353***	0.033*	0.047**

Independent variables		Model 1	Model 2
Constant		-1.663	-1.223
Constant		(-1.355)	(-0.978)
Stuck in the middle^a
Pure strategy		0.276***	0.122
Pure strategy		(5.117)	(1.446)
Hybrid strategy		0.404***	-0.066
Hybrid strategy		(4.351)	(-0.481)
Competition		-0.325*	-0.860***
Competition		(-1.667)	(-3.369)
Competition * Pure strategy			0.617**
Competition * Pure strategy			(2.300)
Competition * Hybrid strategy			1.922***
Competition * Hybrid strategy			(4.560)
Book to market		0.981***	0.979***
Book to market		(25.816)	(25.728)
Leverage		-0.737***	-0.737***
Leverage		(-21.985)	(-21.964)
Size		0.005	0.001
Size		(0.147)	(0.046)
Life cycle (dummy)	Decline^b
	Growth	0.651	0.647
	Growth	(1.509)	(1.504)
	Introduction	-0.530	-0.584
	Introduction	(-0.821)	(-0.901)
	Mature	1.725***	1.741***
	Mature	(8.825)	(8.877)
	Shake-out	1.946***	1.962***
	Shake-out	(12.032)	(12.078)
Industry dummy		Yes	Yes
Country dummies		Yes	Yes
R² Cox & Snell (%)		25.65	25.83
R² Nagelkerke (%)		34.20	34.44
AIC		9,998.55	9,980.68
BIC		10,446.57	10,442.92
VIF (mean)		2.67	3.29

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[1] Corresponding author:
Guilherme Lecco Tessarolo Universidade Federal do Espítito Santo Av. Fernando Ferrari, 514, Goiabeiras, CEP 29075-910, Vitória, ES, Brazil