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  • 1. The Effect of Agency Creativity on Campaign Outcomes: The Moderating Role of Market Conditions Hairong Li* Associate Professor Department of Advertising, Public Relations and Retailing Michigan State University East Lansing, MI 48824 E-mail: Wenyu Dou Associate Professor Department of Marketing City University of Hong Kong Tat Chee Avenue, Hong Kong E-mail: Guangping Wang Associate Professor School of Graduate Professional Studies Penn State University 30 East Swedesford Rd. Malvern, PA 19355-1443 E-Mail: Nan Zhou Professor Department of Marketing City University of Hong Kong Wuhan University, China E-mail: the Special Issue of the Journal of Advertising on Creativity Research August 1, 2007 Revised May 15, 2008 *The order of authors is random and all contribute equally 1
  • 2. The Effect of Agency Creativity on Campaign Outcomes: The Moderating Role of Market Conditions AbstractThis study examines the effect of agency creativity on campaign outcomes as moderatedby different levels of market dynamism and competitive intensity. Using data frommatched interviews of advertisers and agency creative teams in China, the study revealscomplicated relationships among agency creativity, market conditions and campaignoutcomes. The impact of agency creativity on campaign outcomes is positive but theimpact of excessive creativity is negative and agency creativity is more powerful in highrather than low competitive intensity and in low rather than high market dynamism.Theoretical and managerial implications are derived from findings of the study alongwith directions for future advertising creativity research. 2
  • 3. The Effect of Agency Creativity on Campaign Outcomes: The Moderating Role of Market Conditions Creativity lies in the core of the advertising profession (Reid, King and Delorme1998; Smith and Yang 2004; Vanden Bergh, Smith and Wicks 1986; Zinkhan 1993).Creative advertising can provide a competitive edge for a brand, add to its value and giveit an advantage over its rivals in terms of more positive market response (Frazer 1983;Newman 1993). Researchers have explored various aspects of advertising creativity, suchas definitions and measurement of creativity (El-Murad and West 2004; Koslow, Sasserand Riordan 2003; White and Smith 2001), the relationship between myth and creativity(Johar, Holbrook and Stern 2001) and between psychographics and creativity (Winter andRussell 1973), impacts of marketer characteristics and actions on agency creativity(Koslow, Sasser and Riordan 2006), and links between creativity and risk-taking byadvertisers (West and Berthon. 1997; West and Ford 2001) and by agencies (West andFord 2001; West 1999). These studies have advanced our understanding of advertisingcreativity and many institutional and situational factors that may affect advertisingcreativity and its effects. Agency creativity is an integral part of advertising creativity; it refers to thecreative quality of agency teams in producing innovative ads (O’Conner, Willemain andMacLachlan; Smith and Yang 2004). Koslow, Sasser and Riordan (2006) examined theinfluence of advertisers on the creativity of their advertising agencies and identified threeways in which advertisers can actively affect agency creativity: direction setting, resourceallocation, and performance evaluation. Because creativity involves risks, researchershave explored agency creativity from the risk taking perspective (Hill and Johnson 2004). 3
  • 4. West’s (1999) findings suggest that the characteristics of both the advertiser and theagency affect agency creative risk taking. West and Ford (2001) further investigated therelationship between agency creative philosophies and employee risk seeking behaviorsand found that personnel working in agencies with clear creative philosophies are morelikely to take creative risks than those without such philosophies. Despite the significant advances in advertising creativity research, little is knownregarding the impact of agency creativity on campaign outcomes under different marketconditions. The conventional wisdom is that creative ads result in better advertisingeffects (e.g. in brand recalls), but how the creativity of advertising agencies affects salesoutcomes of specific campaigns has rarely been examined. As Taylor (2005) points out,“…advertising studies have not been examining advertising’s contribution to successfulstrategic performance or to bottom-line measure of performance, such as profitability” (p.11). His calls for studying the effect of advertising on campaign outcomes differs fromtesting the effect of creative ads on individual consumers in that the former involves theincorporation of the market context of advertising campaigns in the analysis. This kind ofresearch is necessary as campaign outcomes become increasingly important foradvertisers; many advertisers have begun compensating their agencies on the basis ofmarket outcomes of their campaigns (Geist 2006; Spake et al 1999). As a result, betterknowledge about the agency creativity and campaign outcome relationship is especiallyvaluable for advertisers and their agencies that jointly make strategic decisions (Low andMohr 1999; West and Paliwoda 1996). To further our knowledge of advertising creativity,it is essential to examine the consequence of creativity at the market level. 4
  • 5. Different market forces may jointly affect the creativity and outcome relationship.Two market factors of particular interest to advertisers and researchers are marketdynamism and competitive intensity, which have received heightened attention in recentresearch of firm performance because of accelerated technology development andglobalization of markets (Cui, Griffith and Cavusgil 2005). For advertising agencies,market dynamism and competitive intensity constitute both market opportunities andchallenges and they are likely to moderate the impact of advertising creativity. The purpose of this study is to examine the impact of agency creativity oncampaign outcomes at different levels of market dynamism and competitive intensity.Specifically, it examines both the linear and non-linear relationships between agencycreativity and campaign outcomes by accounting for the possibility that excessivecreativity may turn out to be counterproductive. In addition, we expand the scope ofadvertising creativity research by investigating the impact of agency creativity in themarket context where advertising campaigns are developed and executed. To deal withsuch a broad and complicated issue, this study adopts a dyadic method in collecting datafrom multiple informants of advertisers and their agencies. The sophisticated studydesign is effective in terms of minimizing methodological concerns that are associatedwith survey research (Slater and Atuahene-Gima 2004). Finally, the study was conductedin China, one of the fastest growing yet most turbulent and competitive advertisingmarkets in the world (Prendergast, West and Shi 2006), where the impact of agencycreativity has never been examined but may have useful implications for multinationaladvertisers and advertising agencies in emerging markets. 5
  • 6. In the following sections, we first discuss the theoretical concepts and hypotheses.We then describe a dyadic survey study conducted to test the hypotheses. Our analysisresults largely support the research propositions that creativity has a non-linear effect oncampaign outcomes and that competitive intensity and market dynamism regulate thiseffect in different ways. We conclude with theoretical and managerial implications. Theoretical Background and Hypotheses This study takes a contingency perspective to examine the effect of agencycreativity on campaign outcomes. The contingency perspective in management theoryemphasizes that performance of a firm is reliant on the interplay of the firm’s strategyand its external environment (Joshi and Campbell 2003; Ozsomer and Prussia 2000;Wright and Ashill 1998). In his study of marketing control mechanisms, Jaworski (1988)defines environmental context as general situational circumstances of the marketing unit,which includes macro and operating environments. The macro environment is thenational and global context of social, political, regulatory, economic and technologicalconditions, such as market uncertainty and dynamism. The operating environment is theset of suppliers, customers and other interest groups with which the firm deals withdirectly, such as competitive intensity. In the international business setting, Cui, Griffithand Cavusgil (2005) empirically test the impact of market dynamism and competitiveintensity on a multinational corporation subsidiarys knowledge management capabilitiesand resultant performance. Their results indicate that both competitive intensity andmarket dynamism individually influence knowledge management capabilities. Inadvertising, Stanton and Herbst (2006) contend that market conditions may play a greaterrole in campaign outcomes than advertising creativity. 6
  • 7. In this study, we examine how market dynamism and competitive intensity canmoderate the effect of agency creativity on campaign outcomes. We speculate thatcompetitive intensity may function to facilitate the impact of agency creativity oncampaign outcomes because high competition requires greater product differentiation,which in turn demands creative advertising. On the other hand, market dynamism mayhinder the impact of creative advertising on campaign outcomes due to theunpredictability of high market dynamism, which may blunt the power of creativeadvertising. Further, market dynamism and competitive intensity may interact to regulatethe effect of agency creativity. These effects are empirically examined in this study.Agency Creativity Advertising creativity is characterized by the process of developing and producingcreative advertisements (El-Murad and West 2004, Reid, King and DeLorme 1998;Sasser, Koslow and Riordan 2007). It refers to either the creative quality of an ad that isperceived to possess the target audience or the creative quality of an agency team thatdevelops the advertising strategy and produces the actual ads, which we call “agencycreativity” and is the focus of this study. Both types of creativity share key commonalties. Smith and Yang (2004) identify divergence and relevance as two characteristicsof advertising creativity and their conceptualization of determinants of divergenceincludes elements such as originality, unusual perspective and provocative questions.Koslow, Sasser and Riordan (2003) consider originality a key aspect of advertisingcreativity and operationalize it as being “unexpected, different, novel and original” (p.105). They compared the perceptions of advertising creativity across different agencyroles (creatives, account executives, media and researchers and others) and concluded 7
  • 8. that “originality predicts subjective creativity consistently across all groups” (p. 108).Their study established originality as an essential dimension of advertising creativity. Divergence and originality alone are not sufficient for advertising creativity,which also must be “relevant”(Smith and Yang 2004) or “appropriate” (Koslow, Sasserand Riordan 2003) for the task at hand. Creative advertising must be able to communicateeffectively and achieve the advertiser’s goals efficiently. El-Murad and West (2004)argue that creativity in advertising is different from creativity in art; advertising creativitymust achieve objectives set by others (i.e., advertisers), which is not necessarily the casefor art. This study’s conceptualization of advertising creativity as a two-dimensionalconcept consisting of originality and relevance is consistent with previous research(Amabile 1983, Lumsden 1999, Mumford and Gustafson 1988). “Effectiveness” as the third aspect of advertising creativity also is discussed but ismore controversial. Kover, Goldberg and James (1995) note that advertisers tend to valueeffectiveness, usually measured by changes in awareness or sales, whereas creativepeople generally do not care much about these measures. Smith and Yang (2004) statethat incorporation of the notion of effectiveness confounds advertising creativity with itsconsequences. They further argue that the reason researchers and practitioners areinterested in advertising creativity is to use it as an explanatory variable of advertisingeffectiveness; as a result, making effectiveness part of creativity itself is to eliminate itsusefulness as an explanatory variable. This study adopts this position because we believethat market conditions play important moderating roles in the impact of creativeadvertising on campaign outcomes. Therefore, to assess the moderating roles ofmarketing conditions in the impact of advertising creativity, we need to separate 8
  • 9. advertising effectiveness from advertising creativity. It is the basic proposition of thisstudy that the impact of advertising creativity on campaign outcomes varies in differentmarket conditions.Advertising Accountability Recent industry trends call for an accountability from marketing that involves theassessment of the return on marketing investment in concrete business performance terms(Rust et al 2004). For advertisers, the effect of advertising campaigns is often measuredin terms of sales and in many cases agency compensations are associated with theoutcomes of advertising campaigns. Performance-based compensations move theevaluation of advertising effectiveness from the message level to the campaign level. Atthe message level, advertising effectiveness is typically tested by audience recall,recognition, liking and buying intent (Stewart and Koslow 1989). Moving beyond themessage level, this study explores the impact of creativity on campaign outcomesbecause such effects have become key measures of return on advertising investment.Following Korgaonkar, Moschis and Bellenger (1984), we define campaign outcome asthe degree to which an advertising campaign has accomplished the sales objective fromthe client’s perspective. Such an assessment can be either subjective on the basis of theclient’s perception or objective on the basis of the goal that is specified contractually. While it is advantageous for advertisers to use sales as the primary criterion ofcampaign outcome, we should note that advertising is only one of several factors thataffect the sales. As Dutka (1995) states, “Many variables intercede between anadvertising-induced positive disposition on the part of a consumer to buy a product(which advertising may have helped induce) and its actual purchase” (p.11). In addition 9
  • 10. to market dynamism and competitive intensity, which are elaborated later, an advertiser’sother elements in marketing mix, e.g., product quality, product life cycle, price,distribution and target market likely combine to mediate the impact of advertising on theoutcome of an advertising campaign (Vakratsas and Ambler 1999). Media mix, adrepetition and length of ad placement also affect the impact of advertising (Tellis et al2005; Tellis, Chandy and Thaivanich 2000). As a result, the relationship betweenadvertising and sales cannot be always assumed to be direct and linear (Dukta 1995).Creativity and Campaign Outcomes With the complicated relationship between advertising and sales duly emphasized,we are ready to explore the relationship between advertising effectiveness and advertisingcreativity. Researchers agree that the most important and irreplaceable driver ofadvertising effectiveness is advertising creativity (Steward and Koslow 1989; Stewardand Furse 1986). Advertising creativity can make the focal product stand out from thecrowd and is instrumental in enhancing sales (El-Murad and West 2003; Ang and Low2000; Koslow, Sasser and Riordan 2003). However, the impact of advertising creativitymay be more intricate than it appears to be, in that creative ads may not always result inthe intended outcomes for various reasons (Broadbent and Colman 1986; Stewart andFurse 1986; Stewart and Koslow 1989). We further argue that “excessive” creativity mayeven lead to decreased return on advertising investment in terms of sales. Advertisementsthat are too novel and original may score better in recalls but not in likeability measures. For example, Ang and Low (2000) found that unforeseen novelty accompanied bynegative feelings tend to cause unfavorable attitudes toward advertised brands and toreduce purchase intention. A case in point is the Cartoon Network’s Mooninites Invading 10
  • 11. Boston advertising campaign that strived for excessive creativity but resulted inunexpected social consequences (van den Heuvel 2007). While research in this regard isconducted largely at the consumer level, it is logical to assume that such negativeresponses to advertised brands, when aggregated among target consumers, may translateinto damaging impact on campaign outcome measures such as sales. Considering the complicated relationships between advertising and sales andadvertising effectiveness and creativity as previously discussed, we hypothesize: H1: Agency creativity has a diminishing incremental effect, that is, (a) a positive linear effect but (b) a negative quadratic effect on campaign outcomes.Market Dynamism Market dynamism refers to the degree of change, uncertainty and unpredictabilityof the external environment (Jaworski 1988b; Miller 1983). In highly dynamicenvironments, the bases for competitive advantage, industry structure and productperformance standards are generally short lived because of rapid economic transitions,market reforms and technological innovations (Li, Zhang and 2005). Consumerpreferences and demands are rapidly changing and difficult to anticipate (Reid 2005, Rustet al 2004). This kind of market condition constitutes a real challenge for advertising agenciesthat develop creative strategies on the basis of their understanding of the marketplace andtheir perception of how consumers may respond to advertising campaigns. Given thedifficulty in obtaining and comprehending market information in a highly dynamicenvironment, agency creativity may end up being misguided because creative teams mayencounter difficulty in pinpointing a distinctive creative selling point. Not surprisingly, 11
  • 12. organizational researchers suggest that in a highly turbulent market, the firm’s strategicconsistency may be more critical than swift adaptation to changing market conditions(Harris 2001). As a result, agency creativity may lose much of its power in a highlydynamic market due to the difficulty of focusing on the right creative challenge.Therefore, we hypothesize: H2: The effect of agency creativity on campaign outcomes is negatively moderated by market dynamism such that the effect is stronger when market dynamism is low than when it is high.Competitive Intensity Competitive intensity refers to the degree of rivalry among firms producingproducts that are close substitutes (Porter 1980). In a highly competitive market, todifferentiate their own products from those of competitors, advertisers must developunique positioning strategies and formulate distinctive appeals for the target audience(Newman 1993). Marketing scholars posit that creative and differentiating advertisingcampaigns are valuable investments in marketing assets that can be leveraged to createbrand equity, hence making the firm less vulnerable to competition (Rust et al 2004).Because creative advertising can make products stand out and also help form a brandshield against competitive influence, we expect that the effect of agency creativity oncampaign outcomes will be stronger in a more competitive than a less competitive market. These two market conditions, market dynamism and competitive intensity, arelikely to join forces in shaping the relationship between agency creativity and campaignoutcomes. As previously discussed, high market dynamism means fast changes in marketsituations and the unpredictability of consumer needs and preferences. In this kind ofmarket condition, the agency’s ability to develop creative ads is challenged. Thus, we 12
  • 13. suspect that, in a highly dynamic market, even creative agencies are less capable ofgenerating positive campaign outcomes, even if competitive intensity is high. In comparison, when the market is highly competitive but less dynamic, agenciescan better pinpoint customer needs and develop captivating advertisements. Because thedifferentiation and brand shield effects that are rendered by creative advertising areessential in a highly competitive market, agency creativity is likely to generate bettercampaign outcomes. Considering this possible interaction of market dynamism andcompetitive intensity, we hypothesize: H3. There is a three-way interaction such that the generally positive effect of agency creativity on campaign outcomes is the strongest when market dynamism is low and competitive intensity is high. MethodsData Collection The hypotheses of this study are tested with matched responses from advertisersand their advertising agencies in China. China is the setting of this study for two reasons.First, its advertising business has been continuously growing during the past two decadesand is increasingly dynamic and competitive. Second, given the diverse types of agencies(e.g., multinational, state-owned, private) in the Chinese advertising industry(Prendergast, Shi and West 2001), we anticipate the level of agency creativity will varyconsiderably. An adequate level of variance in advertising creativity is essential for arobust test of our hypotheses. A professional marketing research firm in Shanghai, China, was contracted forassisting with data collection. It first compiled a list of advertisers who had entered theiradvertisements in the 2005 Great Wall Advertising Awards contest, the largest contest for 13
  • 14. creative advertisements in China (Cnad 2007). The contest received approximately 3,000entries, representing more than 2,000 advertisers and their agency teams. Excludingentries from government and non-profit advertisers whose campaign outcome was notnecessarily product sales, there was a pool of 856 unique advertisers in the samplingframe. Interviews were conducted after the contest was completed. To avoid potential method bias, this study used a multiple-informant, dyadic datacollection method (Slater and Atuahene-Gima 2004), in which we recruited tworespondents from each advertiser and one respondent from the advertiser’s agency. Theresearch firm contacted each of the advertisers and its agency team individually and atotal of 149 advertisers and their agency teams participated in the study, resulting in aresponse rate of 17.4%. Given the difficulties of obtaining full cooperation from pairedadvertisers and their creative teams, this response rate is reasonable. To check for non-response bias, we compared a sample of participating and non-participating advertisers.The analysis of variance test shows no significant difference between the two groups interms of sales in the most recent year (F = 1.21) or number of employees (F = 1.09). Similar to previous studies in China (Atuahene-Gima 2005), the interviews wereconducted onsite. Among the four variables of this study, three (market dynamism,competitive intensity and campaign outcome) were measured in the advertiser survey andone (agency creativity) was measured in the agency survey. In the advertiser survey, themarketing director or manager was interviewed as the first informant, who thenrecommended a knowledgeable colleague as the second informant. The interviewersurveyed the two informants independently. To ensure the response quality of the twoinformants, the interviewer asked each informant about his or her level of involvement 14
  • 15. with the advertising agencies and the campaign development processes. Responsecategories ranged from 1 (not involved at all) to 7 (highly involved). The means of eachpair of informants for the two measures were 5.57, 5.60 and 5.48, 5.59, respectively,indicating no significant difference in involvement between the paired informants. On theagency side, one person in charge of the overall creative process for the advertiser’scampaign was interviewed. In most cases, this person was the lead member of thecreative team for the campaign. The survey instrument was drafted first in English and then translated intoChinese by a bilingual researcher fluent in both English and Chinese. A standard back-translation procedure was applied to ensure its accuracy. Lastly, ambiguities in questionswere identified and eliminated through pretests of 15 marketing managers and 15 agencyteam leaders before the questionnaires were finalized.Variable measures Our measures of agency creativity are adopted from Koslow, Sasser andRiordan’s (2003) study and consist of six items; three items on originality and three itemson relevance/appropriateness (Table 1). They are used with advertising agencies.Measuring agency creativity with agency teams is a unique advantage of our study designbecause creative work is professional in nature, often opaque to the advertiser andtherefore difficult for advertisers to judge accurately (Sharma 1997). Thus, measuringagency creativity with creative teams can produce more reliable responses. AlthoughKoslow, Sasser and Riordan (2003) find some level of interaction between originality andappropriateness for one segment of their respondents (i.e., those currently in creativepositions), the effects of originality and appropriateness on creativity across all 15
  • 16. respondents are mostly main effects. We therefore take an additive approach inconstructing our creativity scale by averaging the subtotals. Campaign outcomes was measured with advertisers and consists of four itemsadopted from Korgaonkar, Moschis and Bellenger (1984). Prior research has shown thatsubjective measures of performance correlate well with objective measures ofperformance (e.g., Powell 1992). Besides, our use of perceptual measures of performanceis consistent with other research in China where actual data on performance was deemeddifficult to obtain (e.g., Ambler, Styles and Wang 1999). Market dynamism andcompetitive intensity were also in the advertiser survey, each consisting of three itemsadapted from Desarbo et al (2005). Response categories for all measures ranged from 1 to7. Descriptive statistics and correlations among the measures are in Table 2. In addition to these four variables, we included a set of control variables, e.g.,client size, past cooperation between the advertiser and agency and the agency’s creativephilosophy, all of which were used in regression analyses. Analysis and Results Data analysis was conducted using multivariate moderated hierarchicalregressions (Aiken and West 1992). Before testing the hypotheses, we examinedmeasurement dimensionality and reliability of the construct scales with exploratory factoranalysis and reliability analysis. A principal component factor analysis with Varimaxrotation extracted a clear four-factor structure with 66% variance explained. All itemsloaded on their respective factors and no significant cross-loadings were detected,suggesting unidimensionality of the construct scales (see Table 1). The Cronbach’s alphaestimates for scale reliability ranged from .86 to .92, above the recommended .70 level. 16
  • 17. Each scale was summed and then standardized to create a single measure for eachconstruct. Standardization helps minimize the multicollinearity problem associated withinteraction and quadratic terms. To test the hypotheses, we estimated a series of regression coefficients in threemodels using hierarchical regressions. We first regressed campaign outcome in Model 1on a set of control variables including client size, past cooperation (0 = no, 1 = yes), andwhether the agency has an agency-wide creative philosophy (0 = no, 1 = yes), based onWest and Ford 2001). We then added agency creativity, market dynamism andcompetitive intensity to Model 2. Finally, in Model 3, we added the quadratic term ofcreativity and we added 2- and 3-way interaction terms to the model to test thecurvilinear and moderation effects of creativity. The coefficient of determinationincreased from .07 for Model 1 to .22 for Model 2 and to .33 for Model 3, suggestingagency creativity, market dynamism, competitive intensity and their interactionscontributed significantly to explaining the variance in campaign outcomes. In Table 3, wepresent the standardized regression coefficients for the three models. As the final model (Model 3, Table 3) shows, agency creativity has a positivelinear main effect on campaign outcome (b = .38, t = 4.40, p < .01). However, thesquared term of creativity has a negative coefficient (b = -.16, t = -2.11, p < .05, one-tail).These two findings lend support to H1a and H1b, which posit agency creativity has adecreasing incremental effect on campaign outcomes. H2 posits that market dynamism interacts with agency creativity such that theeffect of creativity on campaign outcomes is stronger when market dynamism is low. We 17
  • 18. found a negative coefficient for the market dynamism in the creativity interaction term (b= -.23, t = -1.91, p < .05, one tail), to support this hypothesis. H3 specifies a three-way interaction among agency creativity, market dynamismand competitive intensity. The 3-way interaction coefficient was statistically significant(b = -.15, p < .05). To facilitate interpretation, we plotted the regression slopes in Figure1 based on the coefficient estimates from Model 3. The high and low levels of theexplanatory variables were set at one standard deviation above and below the mean(Cohen and Cohen 1983). We further used the t-test method of Dawson and Richter(2006) to test the slope differences under high and low levels of two market conditions. As Panel A shows, when competitive intensity is low, agency creativity has apositive effect on campaign outcome regardless of the levels of market dynamism.Although this effect seems greater when market dynamism is low, the t-test for slopedifference between high and low market dynamism was not significant (t = -1.02, p >.05).Panel B suggests that, when competitive intensity is high, agency creativity has a positiveeffect on campaign outcomes only when market dynamism is low. When bothcompetitive intensity and market dynamism are high, agency creativity has almost noeffect on campaign outcomes. The t-test result shows that the slope for the highcompetitiveness and low market dynamism condition is significantly steeper than that forthe high competitive intensity and high market dynamism condition (t = 2.36, p < .01). Inother words, the effect is strongest when competitive intensity is high and dynamism islow, providing support for H3. 18
  • 19. Summary and Discussion Using dyadic data collected from advertisers and their agency creative teams, thisstudy explores the effect of agency creativity on campaign outcomes as well as themoderating role of environmental market conditions. Findings of the study haveimportant theoretical and managerial implications for creativity researchers, advertisersand advertising agencies.Theoretical Implications The theoretical implication for this study centers on the positive yet non-lineareffect of advertising creativity on campaign outcomes. Though creativity has been a keyissue of advertising research for many years, most studies investigate its effect in terms ofconsumer-level responses rather than market outcomes in terms of sales, especially fromthe advertiser’s perspective. Thus, by expanding the research scope to creativityoutcomes, the study provides fresh evidence on whether agency creativity indeed isbeneficial for generating sales outcomes (Kover, Goldberg and James 1995). In addition,by detecting the diminishing return of excessive creativity on campaign outcomes, weoffer a more balanced view of the creativity effect than previous research. We contendthat the characteristics associated with creativity effect in this study are probably closer toreality than either an optimistic or pessimistic view regarding the effect of advertisingcreativity on campaign outcomes. Another contribution of this study rests on the contingency perspective it adopts.While the contingency perspective on moderating roles of market conditions in the firmstrategy-performance link is well established in the strategy field, it has been largelyoverlooked by advertising creativity research. That research has focused primarily on 19
  • 20. characteristics of advertisers, advertising agencies and the relationships between the two.The introduction of the contingency perspective in this study is important because it helpsincorporate factors that are germane to real market situations of advertising campaigns.The study thus represents a more realistic and accurate rendering of advertising creativityeffects. For example, while creativity is generally constructive for generating positivecampaign outcomes, our study results suggest that this effect may be lessened in dynamicconditions and augmented under competitive conditions. Had we not examined thesemarket conditions, we would have had difficulty explaining why same advertisingcampaigns perform satisfactorily under certain market conditions but not under others. To investigate advertising creativity effect from the contingency perspective, wefurther differentiated between the moderating roles of market dynamism and competitiveintensity. This distinction is necessary because the two seem to exert influences throughdifferent mechanisms. Market dynamism is related more to the challenge in developingcreative ads when consumer tastes and preferences are rapidly changing. Competitiveintensity, on the other hand, is concerned more with the ability of creative ads to makeproducts stand out and build brand equity to shield products from competitions. Bycontrasting the influence mechanisms of these two market conditions and environmentalfactors, we have derived and confirmed an interaction effect between them. The findingthat creative advertising functions better in low market dynamism is more pronounced ina highly competitive market than in a less competitive one. The implication of thisfinding for creativity research is that environmental factors set boundaries for thecreativity effect; they each may play different roles and even interact with each other. 20
  • 21. Therefore, future studies on creativity effect should take into account the complex rolesof environmental factors and explore the interactions of these and other market factors.Managerial Implications The results also offer useful guidelines for advertisers and advertising agencies.We provide evidence that creative advertising does matter and can deliver tangiblemarketing outcomes. Therefore, advertisers should take necessary risks in encouragingtheir agencies to develop innovative advertising campaigns. Accordingly, agenciesshould build creative capacities as their core competency and continue to hone theircreative skills. On the other hand, the zest for creative advertising should be checked andbalanced as excessively creative advertisements may be counterproductive. Given thatadvertisers do not possess the same level of professional knowledge as agency creativeteams, they may not easily discern the difference between creativity and excessivecreativity. Therefore, agencies should share more of the responsibility and take theinitiative to avoid the trap of being creative for its own sake. Our findings on the moderating roles of environmental factors highlight thesignificance of environment scanning and monitoring in creative advertising. Werecommend that advertisers and agencies refrain from chasing creative ideas withoutgiving due considerations to market conditions. For example, a market characterized byhigh competitive intensity and low market dynamism (e.g., the grocery food market)would be an ideal context for creative advertising. On the other hand, for marketconditions that are less conducive (e.g., high market dynamism and low competitiveintensity), the best strategy for the advertiser and its agency is probably to stick to “tried-and-true” types of advertising or to consider other forms of promotions. 21
  • 22. Following this line of reasoning, advertisers should be less demanding but moreobjective in assessing the effects of creative advertising. They should realize that theeffects of creative advertising on campaign outcomes also depend on externalenvironmental conditions, which are out of the control of both parties. Merely blamingagencies for disappointing campaign outcomes without accounting for environmentalfactors would demoralize agency creative spirit and in the long run, damage therelationship between the advertiser and its agency.Limitations and Future Research Directions The above findings should be interpreted with caveats in mind, which point tofuture research directions. First, this study was conducted in China. While the high levelof growth and relative novelty of advertising make China an ideal test bed for studyingthe relationship between advertising creativity and campaign outcomes, the findingsabout the moderating role of market dynamism and competitive intensity may not berepresentative of other markets. This limitation calls for validation studies comparingChina with more mature markets such as the U.S. and European markets, preferablyusing objective measures where appropriate. Second, our sample selection, based in a country with a very dynamic andcompetitive advertising industry, may not be representative of the advertising business inother countries. In particular, given that the sampling frame consists of advertisers whoentered their advertisements in a nationwide advertising contest, creativity levels of thefirms studied may be higher than average advertisers. To be more generalizable, futurestudies should use a larger random sample of advertisers and compare results fromsamples in different countries. Third, while our findings have confirmed the notion that 22
  • 23. excessive creativity bears considerable risks, we did not attempt to quantify the limit ofcreative risk taking or the extremity of advertising creativity. We encourage interestedresearchers to explore this intriguing issue in greater depth. Lastly, the possibility of common method variance (CMV) exists for our study, asit is prevalent in almost all survey studies (Podsakoff et al 2003). One key remedy tominimize CMV is to collect dependent and independent variables from different sources.We measured creativity (independent variable) from agencies and campaign outcomes(dependent variable) and environmental factors (moderating variables) from advertisersas a way to address this issue. In addition, we had two informants from the sameadvertiser company in order to minimize the common method bias among the dependentand moderating variables (Slater and Atuahene-Gima 2004). Yet, the fact that we askedthe first informant to recommend a second informant in the same advertiser companymight have introduced some selection bias. Selection of a second informant with similaropinions is possible due to implicit theories and illusory correlations that the respondentsmight hold (Podsakoff et al 2003). Because our study focuses on the interactions betweencreativity and environmental contingencies, however, such complicated two-way andthree-way interactive relationships are almost impossible for the respondents tocomprehend or manipulate (Podsakoff et al 2003). We believe that the possibility isminimal that common method variance arising from informant selection bias coulddistort the interaction findings. Nevertheless, future research in this area should strive tofurther minimize CMV. Although we have discovered that the impact of creativity on advertisingcampaigns can be moderated by external environmental factors, additional research is 23
  • 24. necessary to investigate the specific intervening mechanisms that may have contributedto this effect. In this regard, studies may consider using more complex designs in whichmarket level and consumer level data are collected in tandem so that they can delineatehow advertising creativity affects consumers and how these consumer level influencesare aggregated into sales outcomes in different market conditions. In sum, advertising creativity is essential for generating positive marketingoutcomes. The investment in developing creative advertising is well justified and shouldbe actively pursued by both the advertiser and its agency. At the same time, it issignificant to recognize that the power of creative advertising is influenced by marketconditions and any valid performance metrics of advertising effectiveness shouldconsider these factors. 24
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  • 33. Table 1: Measurement Scales and Factor Loadings with Varimax Rotation Agency Market Competitive Campaign Creativity Dynamism Intensity OutcomesIn developing the ad campaign, our creative team made itsbest efforts to ensure that the advertisement will beperceived as… a. suitable for the advertiser .756 .076 .097 -.018 b. appropriate for the campaign .735 .214 -.065 .190 c. based on a good creative strategy .643 .143 -.101 .357 d. commonplace (reverse coded) .671 -.134 .022 .146 e. novel .806 -.004 -.041 .135 f. different from others .832 -.068 -.022 .134With regard to the market environment that coincided withyour advertising campaign, it could be judged as… a. consumer preferences were changing rapidly -.032 .831 .222 .048 b. consumers were looking for new products .117 .797 .235 .049 c. consumer needs were changing rapidly -.043 .771 .339 .219With regard to the competitive environment that coincidedwith your advertising campaign, it could be judged as… a. competition was cut-throat .137 .299 .797 .067 b. many “promotion wars” existed in the industry -.023 .335 .801 .052 c. price competition was intense .151 .276 .805 .052With regard to the outcomes of your company’s advertisingcampaign, it can be concluded that the campaign… a. increased sales .053 .058 .209 .750 b. enhanced brand image .046 -.019 .009 .746 c. improved market share .280 -.140 -.168 .684 d. was successful overall .183 .028 .020 .734 33
  • 34. Table 2: Means, Standard Deviations and Correlation Matrix Mean S. D. 1 2 3 41. Campaign Outcomes 5.23 .59 (.89)2. Creativity 5.76 .58 .40** (.86)3. Market Dynamism 4.68 1.02 .18* .08 (.92)4. Competitive Intensity 5.17 .98 .13 -.03 .65** (.92)** Correlation is significant at the 0.01 level (2-tailed).* Correlation is significant at the 0.05 level (2-tailed).Cronbach’s alpha reliability estimates are on the diagonalTable 3: Standardized Results from Hierarchical Regression Analysis Independent Variables Campaign Outcomes Model 1 Model 2 Model 3 β t β t β tClient size .10 1.20 .06 .68 .10 1.21Past cooperation .19 2.15 .15 1.80 .13 1.73Creative philosophy -.08 -1.01 -.05 -.70 .01 .07Creativity .35 4.49 .38** 4.40Market dynamism .11 1.04 .18* 1.86Competitive intensity .07 .71 .21* 2.00Creativity squared -.16* -2.11Market dynamism*creativity -.23* -1.91Competitive intensity*creativity .05 .44Market dynamism*competitive intensity .37** 3.78Competitive intensity*market -.15* -1.66dynamism*creativityR2 .07 .22 .33R2 Adjusted .05 .18 .28* p < .05 (one-tailed)** p< .01 (one-tailed) 34
  • 35. Figure 1: Plots for Three-way Interactions Low Competitive Intensity 0.4 0.2 0 Campaign Outcome -0.2 Low Market Dynamism High Market Dynamism -0.4 -0.6 -0.8 -1 Agency Creativity Panel A High Competitive Intensity 1 0.5 Campaign Outcome 0 Low Market Dynamism High Market Dynamism -0.5 -1 -1.5 Agency Creativity Panel B 35