Profit impact of marketing strategy

The PIMS concept ( Abbr. Engl for Profit Impact of Market Strategies, dt profit impact of market strategies ) comes from the strategic management and discusses the key factors which correlate with a company 's economic success.

Brief History

The project in 1960 by General Electric as an internal empirical study with the aim of the different strategic business units (SBU) was initiated to make them comparable. Since General Electric was highly diversified at that time, they were looking for the key factors which acted independently of the product on the economic success; the unit of measurement you used especially the return on investment (ROI) (ie, the profit per unit of fixed capital ). In 1972 the project was transferred to the Harvard Business School, it has expanded to other companies. In 1976, the American Strategic Planning Institute in Cambridge (Massachusetts ) the custody of the project. Between 1970 and 1983, was attended by about 3000 Strategic Business Units (SBU) of about 200 companies participate in the surveys and provided figures for the project.

Collected data

Were collected over 50 different parameters on a regular basis; the most important of which are as follows:

  • Characteristics of the business environment (market attractiveness): ( kurz-/langfristiges ) market growth
  • Market size
  • Market quality
  • Price history
  • Position in the product life cycle
  • Relative competitive position: relative market share (compared to its largest competitor )
  • Relative market position
  • Relative production quality
  • Relative qualifications of staff
  • Relative expertise of senior staff
  • Relative product quality
  • Characteristics of service provision: Investment intensity ( = investment / sales)
  • Extent of vertical integration
  • Labor productivity
  • Capacity utilization
  • Budget breakdown: Marketing intensity ( = marketing expenses / revenues)
  • Research and development intensity ( = research and development expense / sales)
  • Change of key factors (trends): Market share change
  • Product quality change
  • Economic performance indicators (as to explanatory variables ): particular return on investment ( ROI) ( = profit / fixed capital )

Results

The following factors correlate most strongly with the performance measures return on investment or RoS:

  • Investment intensity negatively correlated ( explained approximately 15 %):
  • Relative market share is positively correlated ( explained approximately 12 %):
  • Relative product quality is positively correlated ( explained approximately 10%):

Overall, based on the factors raised about 70 percent of the differences in profitability between successful and unsuccessful business areas of the PIMS database declare (measured as variance).

Criticism

The following main criticisms of the PIMS project out into the field ( to Homburg / Krohmer ):

  • Criticism of the basic data: Subjective assessment of individual variables (eg, relative product quality )
  • Short-term analysis of individual variables
  • Lack of representation from less successful SGE, non-US SGE, SGE and SGE smaller in the service sector
  • Criticism of the research methodology: Conclusion on causal relationships from correlations ( problem of spurious correlations )
  • Neglect of interactions between explanatory variables ( for example, the relative product quality acts partly on the relative market share, see above)
  • Inability of the multiple regression analysis applied to complex structures such as a function to investigate causal chains
  • To large aggregation of data through continuous averaging
  • Criticism of the strategy recommendations (content review ): one-sided orientation on return on investment as a measure of success
  • Neglect possible synergies between individual SGE the same company
  • Not take into account industry- specific features
Empirical research Cambridge (Massachusetts) Operating margin Depreciation Experience curve effects Spurious relationship Christian Homburg
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