This document discusses a study that examines the effect of agency creativity on advertising campaign outcomes and how this relationship is moderated by market conditions of dynamism and competitive intensity. The study hypothesizes that agency creativity has a positive linear but negative quadratic effect on campaign outcomes, meaning excessive creativity can be counterproductive. It also hypothesizes that the impact of agency creativity will be greater in markets with high competitive intensity but less in highly dynamic markets, where it is difficult to anticipate changes. The study uses a survey of advertisers and agencies in China to test these hypotheses.

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: hairong@msu.edu
Wenyu Dou
Associate Professor
Department of Marketing
City University of Hong Kong
Tat Chee Avenue, Hong Kong
E-mail: mkwydou@cityu.edu.hk
Guangping Wang
Associate Professor
School of Graduate Professional Studies
Penn State University
30 East Swedesford Rd.
Malvern, PA 19355-1443
E-Mail: gww10@psu.edu
Nan Zhou
Professor
Department of Marketing
City University of Hong Kong
Wuhan University, China
E-mail: mkzhou@cityu.edu.hk
For 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
Abstract
This study examines the effect of agency creativity on campaign outcomes as moderated
by different levels of market dynamism and competitive intensity. Using data from
matched interviews of advertisers and agency creative teams in China, the study reveals
complicated relationships among agency creativity, market conditions and campaign
outcomes. The impact of agency creativity on campaign outcomes is positive but the
impact of excessive creativity is negative and agency creativity is more powerful in high
rather than low competitive intensity and in low rather than high market dynamism.
Theoretical and managerial implications are derived from findings of the study along
with 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 Delorme
1998; 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 give
it an advantage over its rivals in terms of more positive market response (Frazer 1983;
Newman 1993). Researchers have explored various aspects of advertising creativity, such
as definitions and measurement of creativity (El-Murad and West 2004; Koslow, Sasser
and Riordan 2003; White and Smith 2001), the relationship between myth and creativity
(Johar, Holbrook and Stern 2001) and between psychographics and creativity (Winter and
Russell 1973), impacts of marketer characteristics and actions on agency creativity
(Koslow, Sasser and Riordan 2006), and links between creativity and risk-taking by
advertisers (West and Berthon. 1997; West and Ford 2001) and by agencies (West and
Ford 2001; West 1999). These studies have advanced our understanding of advertising
creativity and many institutional and situational factors that may affect advertising
creativity and its effects.
Agency creativity is an integral part of advertising creativity; it refers to the
creative quality of agency teams in producing innovative ads (O’Conner, Willemain and
MacLachlan; Smith and Yang 2004). Koslow, Sasser and Riordan (2006) examined the
influence of advertisers on the creativity of their advertising agencies and identified three
ways in which advertisers can actively affect agency creativity: direction setting, resource
allocation, and performance evaluation. Because creativity involves risks, researchers
have 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 the
agency affect agency creative risk taking. West and Ford (2001) further investigated the
relationship between agency creative philosophies and employee risk seeking behaviors
and found that personnel working in agencies with clear creative philosophies are more
likely to take creative risks than those without such philosophies.
Despite the significant advances in advertising creativity research, little is known
regarding the impact of agency creativity on campaign outcomes under different market
conditions. The conventional wisdom is that creative ads result in better advertising
effects (e.g. in brand recalls), but how the creativity of advertising agencies affects sales
outcomes of specific campaigns has rarely been examined. As Taylor (2005) points out,
“…advertising studies have not been examining advertising’s contribution to successful
strategic 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 from
testing the effect of creative ads on individual consumers in that the former involves the
incorporation of the market context of advertising campaigns in the analysis. This kind of
research is necessary as campaign outcomes become increasingly important for
advertisers; many advertisers have begun compensating their agencies on the basis of
market outcomes of their campaigns (Geist 2006; Spake et al 1999). As a result, better
knowledge about the agency creativity and campaign outcome relationship is especially
valuable for advertisers and their agencies that jointly make strategic decisions (Low and
Mohr 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 market
dynamism and competitive intensity, which have received heightened attention in recent
research of firm performance because of accelerated technology development and
globalization of markets (Cui, Griffith and Cavusgil 2005). For advertising agencies,
market dynamism and competitive intensity constitute both market opportunities and
challenges and they are likely to moderate the impact of advertising creativity.
The purpose of this study is to examine the impact of agency creativity on
campaign outcomes at different levels of market dynamism and competitive intensity.
Specifically, it examines both the linear and non-linear relationships between agency
creativity and campaign outcomes by accounting for the possibility that excessive
creativity may turn out to be counterproductive. In addition, we expand the scope of
advertising creativity research by investigating the impact of agency creativity in the
market context where advertising campaigns are developed and executed. To deal with
such a broad and complicated issue, this study adopts a dyadic method in collecting data
from multiple informants of advertisers and their agencies. The sophisticated study
design is effective in terms of minimizing methodological concerns that are associated
with survey research (Slater and Atuahene-Gima 2004). Finally, the study was conducted
in China, one of the fastest growing yet most turbulent and competitive advertising
markets in the world (Prendergast, West and Shi 2006), where the impact of agency
creativity has never been examined but may have useful implications for multinational
advertisers 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 analysis
results largely support the research propositions that creativity has a non-linear effect on
campaign outcomes and that competitive intensity and market dynamism regulate this
effect 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 agency
creativity on campaign outcomes. The contingency perspective in management theory
emphasizes that performance of a firm is reliant on the interplay of the firm’s strategy
and 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 the
national and global context of social, political, regulatory, economic and technological
conditions, such as market uncertainty and dynamism. The operating environment is the
set of suppliers, customers and other interest groups with which the firm deals with
directly, such as competitive intensity. In the international business setting, Cui, Griffith
and Cavusgil (2005) empirically test the impact of market dynamism and competitive
intensity on a multinational corporation subsidiary's knowledge management capabilities
and resultant performance. Their results indicate that both competitive intensity and
market dynamism individually influence knowledge management capabilities. In
advertising, Stanton and Herbst (2006) contend that market conditions may play a greater
role in campaign outcomes than advertising creativity.
6

7. In this study, we examine how market dynamism and competitive intensity can
moderate the effect of agency creativity on campaign outcomes. We speculate that
competitive intensity may function to facilitate the impact of agency creativity on
campaign outcomes because high competition requires greater product differentiation,
which in turn demands creative advertising. On the other hand, market dynamism may
hinder the impact of creative advertising on campaign outcomes due to the
unpredictability of high market dynamism, which may blunt the power of creative
advertising. Further, market dynamism and competitive intensity may interact to regulate
the effect of agency creativity. These effects are empirically examined in this study.
Agency Creativity
Advertising creativity is characterized by the process of developing and producing
creative 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 is
perceived to possess the target audience or the creative quality of an agency team that
develops the advertising strategy and produces the actual ads, which we call “agency
creativity” and is the focus of this study. Both types of creativity share key commonalties.
Smith and Yang (2004) identify divergence and relevance as two characteristics
of advertising creativity and their conceptualization of determinants of divergence
includes elements such as originality, unusual perspective and provocative questions.
Koslow, Sasser and Riordan (2003) consider originality a key aspect of advertising
creativity and operationalize it as being “unexpected, different, novel and original” (p.
105). They compared the perceptions of advertising creativity across different agency
roles (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, Sasser
and Riordan 2003) for the task at hand. Creative advertising must be able to communicate
effectively and achieve the advertiser’s goals efficiently. El-Murad and West (2004)
argue that creativity in advertising is different from creativity in art; advertising creativity
must achieve objectives set by others (i.e., advertisers), which is not necessarily the case
for art. This study’s conceptualization of advertising creativity as a two-dimensional
concept 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 is
more controversial. Kover, Goldberg and James (1995) note that advertisers tend to value
effectiveness, usually measured by changes in awareness or sales, whereas creative
people generally do not care much about these measures. Smith and Yang (2004) state
that incorporation of the notion of effectiveness confounds advertising creativity with its
consequences. They further argue that the reason researchers and practitioners are
interested in advertising creativity is to use it as an explanatory variable of advertising
effectiveness; as a result, making effectiveness part of creativity itself is to eliminate its
usefulness as an explanatory variable. This study adopts this position because we believe
that market conditions play important moderating roles in the impact of creative
advertising on campaign outcomes. Therefore, to assess the moderating roles of
marketing conditions in the impact of advertising creativity, we need to separate
8

9. advertising effectiveness from advertising creativity. It is the basic proposition of this
study that the impact of advertising creativity on campaign outcomes varies in different
market conditions.
Advertising Accountability
Recent industry trends call for an accountability from marketing that involves the
assessment of the return on marketing investment in concrete business performance terms
(Rust et al 2004). For advertisers, the effect of advertising campaigns is often measured
in terms of sales and in many cases agency compensations are associated with the
outcomes of advertising campaigns. Performance-based compensations move the
evaluation of advertising effectiveness from the message level to the campaign level. At
the message level, advertising effectiveness is typically tested by audience recall,
recognition, liking and buying intent (Stewart and Koslow 1989). Moving beyond the
message level, this study explores the impact of creativity on campaign outcomes
because such effects have become key measures of return on advertising investment.
Following Korgaonkar, Moschis and Bellenger (1984), we define campaign outcome as
the degree to which an advertising campaign has accomplished the sales objective from
the client’s perspective. Such an assessment can be either subjective on the basis of the
client’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 of
campaign outcome, we should note that advertising is only one of several factors that
affect the sales. As Dutka (1995) states, “Many variables intercede between an
advertising-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’s
other 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 the
outcome of an advertising campaign (Vakratsas and Ambler 1999). Media mix, ad
repetition and length of ad placement also affect the impact of advertising (Tellis et al
2005; Tellis, Chandy and Thaivanich 2000). As a result, the relationship between
advertising 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 advertising
creativity. Researchers agree that the most important and irreplaceable driver of
advertising effectiveness is advertising creativity (Steward and Koslow 1989; Steward
and Furse 1986). Advertising creativity can make the focal product stand out from the
crowd and is instrumental in enhancing sales (El-Murad and West 2003; Ang and Low
2000; Koslow, Sasser and Riordan 2003). However, the impact of advertising creativity
may be more intricate than it appears to be, in that creative ads may not always result in
the intended outcomes for various reasons (Broadbent and Colman 1986; Stewart and
Furse 1986; Stewart and Koslow 1989). We further argue that “excessive” creativity may
even lead to decreased return on advertising investment in terms of sales. Advertisements
that 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 by
negative feelings tend to cause unfavorable attitudes toward advertised brands and to
reduce 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 in
unexpected social consequences (van den Heuvel 2007). While research in this regard is
conducted largely at the consumer level, it is logical to assume that such negative
responses to advertised brands, when aggregated among target consumers, may translate
into damaging impact on campaign outcome measures such as sales.
Considering the complicated relationships between advertising and sales and
advertising 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 unpredictability
of the external environment (Jaworski 1988b; Miller 1983). In highly dynamic
environments, the bases for competitive advantage, industry structure and product
performance standards are generally short lived because of rapid economic transitions,
market reforms and technological innovations (Li, Zhang and 2005). Consumer
preferences and demands are rapidly changing and difficult to anticipate (Reid 2005, Rust
et al 2004).
This kind of market condition constitutes a real challenge for advertising agencies
that develop creative strategies on the basis of their understanding of the marketplace and
their perception of how consumers may respond to advertising campaigns. Given the
difficulty in obtaining and comprehending market information in a highly dynamic
environment, agency creativity may end up being misguided because creative teams may
encounter difficulty in pinpointing a distinctive creative selling point. Not surprisingly,
11

12. organizational researchers suggest that in a highly turbulent market, the firm’s strategic
consistency 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 highly
dynamic 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 producing
products that are close substitutes (Porter 1980). In a highly competitive market, to
differentiate their own products from those of competitors, advertisers must develop
unique positioning strategies and formulate distinctive appeals for the target audience
(Newman 1993). Marketing scholars posit that creative and differentiating advertising
campaigns are valuable investments in marketing assets that can be leveraged to create
brand 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 brand
shield against competitive influence, we expect that the effect of agency creativity on
campaign outcomes will be stronger in a more competitive than a less competitive market.
These two market conditions, market dynamism and competitive intensity, are
likely to join forces in shaping the relationship between agency creativity and campaign
outcomes. As previously discussed, high market dynamism means fast changes in market
situations and the unpredictability of consumer needs and preferences. In this kind of
market 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 of
generating positive campaign outcomes, even if competitive intensity is high.
In comparison, when the market is highly competitive but less dynamic, agencies
can better pinpoint customer needs and develop captivating advertisements. Because the
differentiation and brand shield effects that are rendered by creative advertising are
essential in a highly competitive market, agency creativity is likely to generate better
campaign outcomes. Considering this possible interaction of market dynamism and
competitive 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.
Methods
Data Collection
The hypotheses of this study are tested with matched responses from advertisers
and 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 decades
and 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 vary
considerably. An adequate level of variance in advertising creativity is essential for a
robust test of our hypotheses.
A professional marketing research firm in Shanghai, China, was contracted for
assisting with data collection. It first compiled a list of advertisers who had entered their
advertisements in the 2005 Great Wall Advertising Awards contest, the largest contest for
13

14. creative advertisements in China (Cnad 2007). The contest received approximately 3,000
entries, representing more than 2,000 advertisers and their agency teams. Excluding
entries from government and non-profit advertisers whose campaign outcome was not
necessarily product sales, there was a pool of 856 unique advertisers in the sampling
frame. Interviews were conducted after the contest was completed.
To avoid potential method bias, this study used a multiple-informant, dyadic data
collection method (Slater and Atuahene-Gima 2004), in which we recruited two
respondents from each advertiser and one respondent from the advertiser’s agency. The
research firm contacted each of the advertisers and its agency team individually and a
total of 149 advertisers and their agency teams participated in the study, resulting in a
response rate of 17.4%. Given the difficulties of obtaining full cooperation from paired
advertisers 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 in
terms 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 were
conducted onsite. Among the four variables of this study, three (market dynamism,
competitive intensity and campaign outcome) were measured in the advertiser survey and
one (agency creativity) was measured in the agency survey. In the advertiser survey, the
marketing director or manager was interviewed as the first informant, who then
recommended a knowledgeable colleague as the second informant. The interviewer
surveyed the two informants independently. To ensure the response quality of the two
informants, the interviewer asked each informant about his or her level of involvement
14

15. with the advertising agencies and the campaign development processes. Response
categories ranged from 1 (not involved at all) to 7 (highly involved). The means of each
pair 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 the
agency side, one person in charge of the overall creative process for the advertiser’s
campaign was interviewed. In most cases, this person was the lead member of the
creative team for the campaign.
The survey instrument was drafted first in English and then translated into
Chinese by a bilingual researcher fluent in both English and Chinese. A standard back-
translation procedure was applied to ensure its accuracy. Lastly, ambiguities in questions
were identified and eliminated through pretests of 15 marketing managers and 15 agency
team leaders before the questionnaires were finalized.
Variable measures
Our measures of agency creativity are adopted from Koslow, Sasser and
Riordan’s (2003) study and consist of six items; three items on originality and three items
on relevance/appropriateness (Table 1). They are used with advertising agencies.
Measuring agency creativity with agency teams is a unique advantage of our study design
because creative work is professional in nature, often opaque to the advertiser and
therefore difficult for advertisers to judge accurately (Sharma 1997). Thus, measuring
agency creativity with creative teams can produce more reliable responses. Although
Koslow, Sasser and Riordan (2003) find some level of interaction between originality and
appropriateness for one segment of their respondents (i.e., those currently in creative
positions), the effects of originality and appropriateness on creativity across all
15

16. respondents are mostly main effects. We therefore take an additive approach in
constructing our creativity scale by averaging the subtotals.
Campaign outcomes was measured with advertisers and consists of four items
adopted from Korgaonkar, Moschis and Bellenger (1984). Prior research has shown that
subjective measures of performance correlate well with objective measures of
performance (e.g., Powell 1992). Besides, our use of perceptual measures of performance
is consistent with other research in China where actual data on performance was deemed
difficult to obtain (e.g., Ambler, Styles and Wang 1999). Market dynamism and
competitive intensity were also in the advertiser survey, each consisting of three items
adapted from Desarbo et al (2005). Response categories for all measures ranged from 1 to
7. 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 creative
philosophy, all of which were used in regression analyses.
Analysis and Results
Data analysis was conducted using multivariate moderated hierarchical
regressions (Aiken and West 1992). Before testing the hypotheses, we examined
measurement dimensionality and reliability of the construct scales with exploratory factor
analysis and reliability analysis. A principal component factor analysis with Varimax
rotation extracted a clear four-factor structure with 66% variance explained. All items
loaded on their respective factors and no significant cross-loadings were detected,
suggesting unidimensionality of the construct scales (see Table 1). The Cronbach’s alpha
estimates 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 each
construct. Standardization helps minimize the multicollinearity problem associated with
interaction and quadratic terms.
To test the hypotheses, we estimated a series of regression coefficients in three
models using hierarchical regressions. We first regressed campaign outcome in Model 1
on a set of control variables including client size, past cooperation (0 = no, 1 = yes), and
whether the agency has an agency-wide creative philosophy (0 = no, 1 = yes), based on
West and Ford 2001). We then added agency creativity, market dynamism and
competitive intensity to Model 2. Finally, in Model 3, we added the quadratic term of
creativity and we added 2- and 3-way interaction terms to the model to test the
curvilinear and moderation effects of creativity. The coefficient of determination
increased from .07 for Model 1 to .22 for Model 2 and to .33 for Model 3, suggesting
agency creativity, market dynamism, competitive intensity and their interactions
contributed significantly to explaining the variance in campaign outcomes. In Table 3, we
present the standardized regression coefficients for the three models.
As the final model (Model 3, Table 3) shows, agency creativity has a positive
linear main effect on campaign outcome (b = .38, t = 4.40, p < .01). However, the
squared 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 a
decreasing incremental effect on campaign outcomes.
H2 posits that market dynamism interacts with agency creativity such that the
effect 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 dynamism
and competitive intensity. The 3-way interaction coefficient was statistically significant
(b = -.15, p < .05). To facilitate interpretation, we plotted the regression slopes in Figure
1 based on the coefficient estimates from Model 3. The high and low levels of the
explanatory 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 a
positive 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 slope
difference 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 positive
effect on campaign outcomes only when market dynamism is low. When both
competitive intensity and market dynamism are high, agency creativity has almost no
effect on campaign outcomes. The t-test result shows that the slope for the high
competitiveness and low market dynamism condition is significantly steeper than that for
the high competitive intensity and high market dynamism condition (t = 2.36, p < .01). In
other words, the effect is strongest when competitive intensity is high and dynamism is
low, providing support for H3.
18

19. Summary and Discussion
Using dyadic data collected from advertisers and their agency creative teams, this
study explores the effect of agency creativity on campaign outcomes as well as the
moderating role of environmental market conditions. Findings of the study have
important theoretical and managerial implications for creativity researchers, advertisers
and advertising agencies.
Theoretical Implications
The theoretical implication for this study centers on the positive yet non-linear
effect of advertising creativity on campaign outcomes. Though creativity has been a key
issue of advertising research for many years, most studies investigate its effect in terms of
consumer-level responses rather than market outcomes in terms of sales, especially from
the advertiser’s perspective. Thus, by expanding the research scope to creativity
outcomes, the study provides fresh evidence on whether agency creativity indeed is
beneficial for generating sales outcomes (Kover, Goldberg and James 1995). In addition,
by detecting the diminishing return of excessive creativity on campaign outcomes, we
offer a more balanced view of the creativity effect than previous research. We contend
that the characteristics associated with creativity effect in this study are probably closer to
reality than either an optimistic or pessimistic view regarding the effect of advertising
creativity 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 firm
strategy-performance link is well established in the strategy field, it has been largely
overlooked 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 helps
incorporate factors that are germane to real market situations of advertising campaigns.
The study thus represents a more realistic and accurate rendering of advertising creativity
effects. For example, while creativity is generally constructive for generating positive
campaign outcomes, our study results suggest that this effect may be lessened in dynamic
conditions and augmented under competitive conditions. Had we not examined these
market conditions, we would have had difficulty explaining why same advertising
campaigns perform satisfactorily under certain market conditions but not under others.
To investigate advertising creativity effect from the contingency perspective, we
further differentiated between the moderating roles of market dynamism and competitive
intensity. This distinction is necessary because the two seem to exert influences through
different mechanisms. Market dynamism is related more to the challenge in developing
creative ads when consumer tastes and preferences are rapidly changing. Competitive
intensity, on the other hand, is concerned more with the ability of creative ads to make
products stand out and build brand equity to shield products from competitions. By
contrasting the influence mechanisms of these two market conditions and environmental
factors, we have derived and confirmed an interaction effect between them. The finding
that creative advertising functions better in low market dynamism is more pronounced in
a highly competitive market than in a less competitive one. The implication of this
finding for creativity research is that environmental factors set boundaries for the
creativity 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 roles
of 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 tangible
marketing outcomes. Therefore, advertisers should take necessary risks in encouraging
their agencies to develop innovative advertising campaigns. Accordingly, agencies
should build creative capacities as their core competency and continue to hone their
creative skills. On the other hand, the zest for creative advertising should be checked and
balanced as excessively creative advertisements may be counterproductive. Given that
advertisers do not possess the same level of professional knowledge as agency creative
teams, they may not easily discern the difference between creativity and excessive
creativity. Therefore, agencies should share more of the responsibility and take the
initiative to avoid the trap of being creative for its own sake.
Our findings on the moderating roles of environmental factors highlight the
significance of environment scanning and monitoring in creative advertising. We
recommend that advertisers and agencies refrain from chasing creative ideas without
giving due considerations to market conditions. For example, a market characterized by
high 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 market
conditions that are less conducive (e.g., high market dynamism and low competitive
intensity), 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 more
objective in assessing the effects of creative advertising. They should realize that the
effects of creative advertising on campaign outcomes also depend on external
environmental conditions, which are out of the control of both parties. Merely blaming
agencies for disappointing campaign outcomes without accounting for environmental
factors would demoralize agency creative spirit and in the long run, damage the
relationship between the advertiser and its agency.
Limitations and Future Research Directions
The above findings should be interpreted with caveats in mind, which point to
future research directions. First, this study was conducted in China. While the high level
of growth and relative novelty of advertising make China an ideal test bed for studying
the relationship between advertising creativity and campaign outcomes, the findings
about the moderating role of market dynamism and competitive intensity may not be
representative of other markets. This limitation calls for validation studies comparing
China with more mature markets such as the U.S. and European markets, preferably
using objective measures where appropriate.
Second, our sample selection, based in a country with a very dynamic and
competitive advertising industry, may not be representative of the advertising business in
other countries. In particular, given that the sampling frame consists of advertisers who
entered their advertisements in a nationwide advertising contest, creativity levels of the
firms studied may be higher than average advertisers. To be more generalizable, future
studies should use a larger random sample of advertisers and compare results from
samples 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 of
creative risk taking or the extremity of advertising creativity. We encourage interested
researchers to explore this intriguing issue in greater depth.
Lastly, the possibility of common method variance (CMV) exists for our study, as
it is prevalent in almost all survey studies (Podsakoff et al 2003). One key remedy to
minimize 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 advertisers
as a way to address this issue. In addition, we had two informants from the same
advertiser company in order to minimize the common method bias among the dependent
and moderating variables (Slater and Atuahene-Gima 2004). Yet, the fact that we asked
the first informant to recommend a second informant in the same advertiser company
might have introduced some selection bias. Selection of a second informant with similar
opinions is possible due to implicit theories and illusory correlations that the respondents
might hold (Podsakoff et al 2003). Because our study focuses on the interactions between
creativity and environmental contingencies, however, such complicated two-way and
three-way interactive relationships are almost impossible for the respondents to
comprehend or manipulate (Podsakoff et al 2003). We believe that the possibility is
minimal that common method variance arising from informant selection bias could
distort the interaction findings. Nevertheless, future research in this area should strive to
further minimize CMV.
Although we have discovered that the impact of creativity on advertising
campaigns can be moderated by external environmental factors, additional research is
23

24. necessary to investigate the specific intervening mechanisms that may have contributed
to this effect. In this regard, studies may consider using more complex designs in which
market level and consumer level data are collected in tandem so that they can delineate
how advertising creativity affects consumers and how these consumer level influences
are aggregated into sales outcomes in different market conditions.
In sum, advertising creativity is essential for generating positive marketing
outcomes. The investment in developing creative advertising is well justified and should
be actively pursued by both the advertiser and its agency. At the same time, it is
significant to recognize that the power of creative advertising is influenced by market
conditions and any valid performance metrics of advertising effectiveness should
consider these factors.
24

25. References
Aiken, Leona S. and Stephen G. West (1991), Multiple Regression: Testing and
Interpreting Interactions. Thousand Oaks, CA: Sage.
Amabile, Teresa M. (1983), The Social Psychology of Creativity. New York: Springer-
Verlag.
Ambler, Tim, Chris Styles and Xiucun Wang (1999). "The Effect of Channel
Relationships and Guanxi on the Performance of Inter-Province Export Ventures
in the People's Republic of China." International Journal of Research in
Marketing 16 (1): 75-87.
Anonymous (2007), "The 2007 Great Wall Advertising Contest," accessed on July 20,
2007 at http://www.mtklw.com.cn/oservices/sdad/zp2.asp.
Ang, Swee Hoon and Sharon Y. M. Low (2000), "Exploring the Dimension of Ad
Creativity," Psychology and Marketing, 17 (October), 835-854.
Atuahene-Gima, Kwaku (2005), "Resolving the Capability-Rigidity Paradox in New
Product Innovation," Journal of Marketing, 69 (April), 61-83.
Broadbent, Simon and Stephen Colman (1986), "Advertising Effectiveness: Across
Brands," Journal of the Market Research Society, 28 (January), 15-24.
Cui, Anna Shaojie, David A. Griffith and S. Tamer Cavusgil (2005), "The Influence of
Competitive Intensity and Market Dynamism on Knowledge Management
Capabilities of Multinational Corporation Subsidiaries," Journal of International
Marketing, 13 (3), 32-53.
25

26. Dawson, Jeremy F. and Andreas W. Richter (2006), "Probing Three-Way Interactions:
The Development and Application of a Slope Difference Test," Journal of
Applied Psychology, 91, 917-26.
DeSarbo, Wayne S., C. Anthony Di Benedetto, Michael Song and Indrajit Sinha (2005),
"Revisiting the Miles and Snow Strategic Framework: Uncovering
Interrelationships between Strategic Types, Capabilities, Environmental
Uncertainty and Firm Performance," Strategic Management Journal, 26 (1), 47-
74.
Dutka, Soloman (1995), Defining Advertising Goals for Measured Advertising Results,
2nd ed., NTC Business Books, Linconwood, IL.
El-Murad, Jaafar and Douglas West (2004), "The definition and Measurement of
Creativity: What Do We Know?" Journal of Advertising Research, 44 (June),
188-201.
Frazer, Charles F. (1983), "Creative Strategy: A Management Perspective," Journal of
Advertising, 12 (4), 36-41.
Geist, Laura Clark (2006), "GM Ties Ad Agency Pay to Results," in Automotive News,
Vol. 80.
Harris, Lloyd C. (2001), "Market Orientation and Performance: Objective and Subjective
Empirical Evidence from UK Companies," Journal of Management Studies, 38
(1), 17-43.
Hill, Railton and Lester W. Johnson (2004), "Understanding Creative Service: A
Qualitative Study of the Advertising Problem and Delineation, Communication
26

27. and Response (APDCR) Process," International Journal of Advertising, 23, 285-
307.
Jaworski, Bernard J. (1988), "Toward a Theory of Marketing Control: Environmental
Context, Control Types and Consequences," Journal of Marketing, 52 (March),
23-39.
Johar, Gita Venkataramani, Morris B. Holbrook and Barbara B. Stern (2001), "The Role
of Myth in Creative Advertising Design: Theory, Process and Outcomes," Journal
of Advertising, 30 (February), 1-24.
Joshi, Ashwin W. and Alexandra J. Campbell (2003), "Effect of Environmental
Dynamism on Relational Governance in Manufacturer-Supplier Relationships: A
Contingency Framework and an Empirical Test," Journal of Academy of
Marketing Science, 31 (February), 176-188.
Korgaonkar, Pradeep K., George P. Moschis and Danny N. Bellenger (1984), "Correlates
of Successful Advertising Campaigns," Journal of Advertising Research, 24
(January), 47-53.
Koslow, Scott, Sheila Sasser, L. and Edward A. Riordan (2006), "Do Marketers Get the
Advertising They Need or the Advertising They Deserve? Agency Views of How
Clients Influence Creativity," Journal of Advertising, 35 (March), 81-101.
Koslow, Scott, Sheila L. Sasser and Edward A. Riordan (2003), "What Is Creative to
Whom and Why: Perceptions in Advertising Agencies," Journal of Advertising
Research, 43 (March), 96-110.
27

28. Kover, Arthur J., Stephen M. Goldberg and William L. James (1995), "Creativity vs.
Effectiveness? An Integrating Classification for Advertising," Journal of
Advertising Research, 35 (June), 29-40.
Li, Haiyang, Yan Zhang and Tsang-Sing Chan (2005), "Entrepreneurial Strategy Making
and Performance in China's New Technology Ventures: The Contingency Effect
of Environments and Firm Competences," The Journal of High Technology
Management Research, 16 (1), 37-57.
Low, George S and Jakki J. Mohr (1999), "Setting Advertising and Promotion Budgets in
Multi-brand Companies," Journal of Advertising Research, 39 (January), 67-78.
Lumsden, Charles J. (1999), "Evolving Creative Minds: Stories and Mechanisms," in
Handbook of Creativity, R. J. Sternberg, Ed. Cambridge: Cambridge University
Press.
Miller, Danny (1983), "The Correlates of Entrepreneurship in Three Types of Firms,"
Management Science, 29 (7), 770–91.
Mitchell, Paul C. (1984), "Accord and Discord in Agency-Client Perceptions of
Creativity," Journal of Advertising Research, 24 (May), 9-24.
Mumford, Michael D. and Sigrid B. Gustafson (1988), "Creativity Syndrome: Integration,
Application and Innovation," Psychological Bulletin, 103 (1), 27-43.
Newman, Karin (1993), "Editorial," International Journal of Advertising, 12 (January), ii.
O'Connor, Gina Colarelli, Thomas R. Willemain and James MacLachlan (1996), "The
Value of Competition among Agencies in Developing Ad Campaigns: Revisiting
Gross's Model," Journal of Advertising, 25 (January), 51-62.
28

29. Ozsomer, Aysegul and Gregory E. Prussia (2000), "Competing Perspectives in
International Marketing Strategy: Contingency and Process Models," Journal of
International Marketing, 8 (January), 27-50.
Podsakoff, Philip M., Scott B. MacKenzie, Jeong-Yeon Lee and Nathan P. Podsakoff
(2003), “Common Method Bias in Behavioral Research: A Critical Review of the
Literature and Recommended Remedies,” Journal of Applied Psychology, 88 (5),
879-903.
Porter, M.E. (1980), Competitive strategy: Techniques for Analyzing Industries and
Competitors. New York: Free Press.
Powell, T. C. 1992. Organizational Alignment as a Competitive Advantage. Strategic
Management Journal. 13 119-134.
Prendergast, Gerard, Douglas West and Yi-Zheng Shi (2006), "Advertising Budgeting
Methods And Processes In China," Journal of Advertising, 35 (March), 165-77.
Reid, Leonard N., Karen Whitehill King and Denise E. Delorme (1998), "Top Level
Creatives Look at Advertising Creativity," Journal of Advertising, 27 (2), 1-16.
Reid, Mike (2005), "Performance Auditing Of Integrated Marketing Communication
(IMC) Actions and Outcomess," Journal of Advertising, 34 (4), 41-54.
Rust, Roland T., Tim Ambler, Gregory S. Carpenter, V. Kumar and Rajendra K.
Srivastava (2004), "Measuring Marketing Productivity: Current Knowledge and
Future Directions," Journal of Marketing, 68 (October), 76-89.
Sasser, Sheila L., Scott Koslow and Edward A. Riordan (2007), "Creative and Interactive
Media Used by Agencies: Engaging an IMC Media Palette for Implementing
29

30. Advertising Campaigns," Journal of Advertising Research, 47 (September), 237-
256.
Sharma, Anurag (1997), "Professionals as Agent: Knowledge Asymmetry in Agency
Exchange," Academy of Management Review, 22 (March), 758-98.
Slater, Stanley F. and Kwaku Atuahene-Gima (2004), "Conducting Survey Research in
Strategic Management," in Research Methodology in Strategy and Management,
David J. Jr. Ketchen and Don D. Bergh, Eds. Amsterdam: Elsevier/JAI Press.
Smith, Robert E. and Yang Xiaojing (2004), "Towards a General Theory of Creativity in
Advertising: Examining the Role of Divergence," Marketing Theory, 4
(January/February), 31-58.
Spake, Debroah F., Giles D'Souza, Tammy N. Crutchfield and Robert M. Morgan (1999),
"Advertising Agency Compensation: An agency Theory Explanation," Journal of
Advertising, XXVIII (March), 53-71.
Stanton, John L. and Kenneth C. Herbst (2006), "The Effects of Current Market Forces
on the Impact of a TV Commercial in Creating Persuasion: Advertising Agencies
Cannot Do It All Alone," Journal of Promotion Management, 12 (February), 119-
135.
Stewart, David W. and David H. Furse (1986), Effective Television Advertising: A Study
of 1000 Commercials. Lexington, MA: Lexington Books.
Stewart, David W. and Scott Koslow (1989), "Executional Factors and Advertising
Effectiveness: A Replication," Journal of Advertising, 18 (March), 21-32.
Taylor, Charles R. (2005), "Moving International Advertising Research Forward: A New
Research Agenda," Journal of Advertising, 34 (1), 7.
30

31. Tellis, Gerard J., Rajesh K. Chandy, Deborah MacInnis and Pattana Thaivanich (2005),
"Practice Prize Report: Modeling the Microeffects of Television Advertising:
Which Ad Works, When, Where, for How Long and Why?," Marketing Science,
24 (3), 359.
Tellis, Gerard J., Rajesh K. Chandy and Pattana Thaivanich (2000), "Which ad works,
when, where and how often? Modeling the effects of direct television
advertising," Journal of Marketing Research, 37 (1), 32.
Vakratsas, Demetrios and Tim Ambler (1999), "How Advertising Works: What Do We
Really Know?," Journal of Marketing, 63 (1), 26.
van den Heuvel, Eric (2007), "Here's One Bridge That Went Too Far," in Brandweek
(February 12).
Vanden Bergh, Bruce G., Sandra J. Smith and Jan L. Wicks (1986), "Internal Agency
Relationships: Account Services and Creative Personnel," Journal of Advertising,
15 (2), 55-60.
West, Douglas (1999), "360 Degrees of Creative Risk," Journal of Advertising Research,
39 (January/February), 39-50.
West, Douglas and Pierre Berthon. (1997), "Antecedents of Risk-Taking Behavior by
Advertisers: Empirical Evidence and Management Implications," Journal of
Advertising Research, 37 (May), 27-40.
West, Douglas and John Ford. (2001), "Advertising Agency Philosophies and Employee
Risking Taking," Journal of Advertising, 30, 77-91.
31

32. West, Douglas C. and Stanley J. Paliwoda (1996), "Advertising Client-Agency
Relationships" The Decision-Making Structure of Clients," European Journal of
Marketing, 30 (8), 22-39.
White, Alisa and Bruce L. Smith (2001), "Assessing Advertising Creativity Using the
Creative Product Semantic Scale," Journal of Advertising Research, 41 (June),
27-34.
Winter, Edward and John T. Russell (1973), "Psychographics and creativity," Journal of
Advertising, 2 (1), 32-35.
Wright, Malcolm and Nicholas Ashill (1998), "A Contingency Model of Marketing
Information," European Journal of Marketing, 32 (January/February), 125-144.
Zinkhan, George M. (1993), "From the Editor: Creativity in Advertising," Journal of
Advertising, 22 (2), 1-3.
32

33. Table 1: Measurement Scales and Factor Loadings with Varimax Rotation
Agency Market Competitive Campaign
Creativity Dynamism Intensity Outcomes
In developing the ad campaign, our creative team made its
best efforts to ensure that the advertisement will be
perceived 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 .134
With regard to the market environment that coincided with
your 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 .219
With regard to the competitive environment that coincided
with 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 .052
With regard to the outcomes of your company’s advertising
campaign, 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 4
1. 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 diagonal
Table 3: Standardized Results from Hierarchical Regression Analysis
Independent Variables Campaign Outcomes
Model 1 Model 2 Model 3
β t β t β t
Client size .10 1.20 .06 .68 .10 1.21
Past cooperation .19 2.15 .15 1.80 .13 1.73
Creative philosophy -.08 -1.01 -.05 -.70 .01 .07
Creativity .35 4.49 .38** 4.40
Market dynamism .11 1.04 .18* 1.86
Competitive intensity .07 .71 .21* 2.00
Creativity squared -.16* -2.11
Market dynamism*creativity -.23* -1.91
Competitive intensity*creativity .05 .44
Market dynamism*competitive intensity .37** 3.78
Competitive intensity*market -.15* -1.66
dynamism*creativity
R2 .07 .22 .33
R2 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