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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

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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.

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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).

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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.

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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.

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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.

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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

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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

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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

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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

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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,

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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

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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

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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

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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

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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.

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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

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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.

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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

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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.

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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.

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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

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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

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.

25

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Table 1: Measurement Scales and Factor Loadings with Varimax Rotation Agency

Creativity Market Dynamism

Competitive Intensity

Campaign 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

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 dynamism*creativity

-.15* -1.66

R2 .07 .22 .33 R2 Adjusted .05 .18 .28 * p < .05 (one-tailed) ** p< .01 (one-tailed)

35

Figure 1: Plots for Three-way Interactions

Low Competitive Intensity

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

Agency Creativity

Campaign Outcome

Low Market Dynamism

High Market Dynamism

Panel A

High Competitive Intensity

-1.5

-1

-0.5

0

0.5

1

Agency Creativity

Campaign Outcome

Low Market Dynamism

High Market Dynamism

Panel B