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Marketing for Better IPO Performance

If managers want to position their young firms for better performance as they enter the public market, they should devote more resources to marketing activities early in the firm’s lifecycle, says a recent study from researchers at Penn State’s Smeal College of Business and Georgia State University’s J. Mack Robinson College of Business.
April 22, 2013

Rajdeep Grewal
Rajdeep Grewal

If managers want to position their young firms for better performance as they enter the public market, they should devote more resources to marketing activities early in the firm’s lifecycle, says a recent study from researchers at Penn State’s Smeal College of Business and Georgia State University’s J. Mack Robinson College of Business.

Smeal’s Rajdeep Grewal, the Irving and Irene Bard Professor of Marketing, and Robinson’s Alok Saboo, assistant professor of marketing and alumnus of the Smeal Ph.D. program, indicate that investors are looking to firms’ marketing information—particularly customer and competitor orientations (CCOs)—to help them evaluate the firm’s potential to succeed.

In comparing firms’ customer and competitor orientations (CCOs) with their IPO outcomes, Grewal and Saboo demonstrate that CCOs provide valuable information to potential investors. Customer orientations demonstrate a firm’s understanding of its customers, and competitor orientations convey a firm’s understanding of and reaction to its competitors.

The integration of customer and competitor insights provides a more complete understanding of the marketplace in which the IPO exists, assert the authors. As a result, evidence suggests that investors will react favorably to firms emphasizing this integration.

Further, according to Grewal and Saboo, “CCOs of IPO firms provide information on organizational mind-set, strategic intent, and capabilities, which should help investors evaluate the IPOs.” They continue, “They can also provide insight into the beliefs and mental models held by top management.”

The authors add that firms should keep in mind the characteristics that affect the CCO information’s credibility as well as its relevance to the market environment. Investors will look for signals such as venture capital funding and reputable underwriters to speak to the CCO’s credibility. They will also evaluate the CCO information’s relevance to aspects of the current market environment, such as turbulence in the market or rate of technological change.

Rajdeep Grewal and Alok R. Saboo’s study, “Stock Market Reactions to Customer and Competitor Orientations: The Case of Initial Public Offerings,” appeared in the January/February 2013 edition of Marketing Science.

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At a Glance

Rajdeep Grewal and Alok Saboo demonstrate the importance of marketing activities—particularly the development of customer and competitor orientations—even in the early stages of a firm’s life cycle when it is often overlooked. Devoting resources to marketing activities early in the IPO process can lead to better market performance.

  • Investors look to the marketing information in IPO prospectuses to learn more about firms as they aim to predict which will succeed in the marketplace.
  • Firms that integrate customer and competitor orientations (CCOs) in their pre-IPO marketing functions are expected to perform better than firms that focus on just one aspect or devote too few resources to marketing altogether.
  • Managers should be cognizant of the IPO characteristics that effect credibility and aspects that dictate CCO information’s relevance to the current market environment, such as market turbulence and rate of technological change.
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