A MISUSE OF PIMS FOR THE VALIDATION OF MARKETING MANAGEMENT SIMULATION GAMES

The results of two recent studies that, respectively, put forth and seemingly replicate a PIMS-based criterion for simulation game validity portend a dramatic shift in the design of competitive marketing management games. The two studies suggest that competitors’ strategies may largely be ignored in the formulation of a company’s marketing strategy. However, as conceived and as applied in the two studies, the criterion is itself invalid. This paper challenges the conceptualization of the proposed validation criterion, the design of the studies based on it, and the implication for marketing strategy formulation. INTRODUCTION AND BACKGROUND In the tradition of validating simulation games against real-world criteria (Naylor et al. 1966, p. 40; Napier & House 1990; House, Parks, & Lindstrom 1994; House & Taylor 1992), Green & Faria (1995, hereafter G&F) introduced an ostensible finding of the Profit Impact of Marketing Strategies (PIMS) project (Buzzell & Gale 1987), specifically the PIMS finding, “. that 80 percent of the variance in a company’s performance can be explained by its environment” (G&F, p. 34). In other words, “. successful strategies in a particular marketplace/economic environment will continue to be successful in similar environments-even if competition is changed” (G&F, p. 34). Subsequently, Neal (1999, hereafter Neal) purported to confirm “. the results of G&F in that the strategies continued to be successful in an environment with different competitors” (p. 118). However, (1) the operationalization and empirical findings of PIMS expressly contradict the premise of the G&F and Neal studies, (2) a huge quantity and diversity of other empirical research contradicts that premise, and (3) the common research design used by G&F and Neal does not support the conclusion drawn by the researchers, i.e., the design is invalid. Business games may be classified as competitive or noncompetitive (Biggs 1990, p. 25), synonymously interactive or non-interactive (Meurs & Choffray 1975), respectively, or, in perhaps less ambiguous terminology, dependent-acrossfirms or independent-across-firms (Thavikulwat 1988), respectively. “Thus, games in which the demand [and other outcomes] for individual firms depends on the decisions of the other firms in the game would be >dependent-across-firms’ while those in which demand for individual firms is not dependent on the decisions of other firms in the game would be >independent-across-firms” (Biggs 1990, pp. 25-26). Consider, then, a simulation game condition in which the marketing strategies of a company’ competitors change, the marketing strategy of the focal company remains unchanged, and the effectiveness of the focal company’ strategy is unaffected. Within the taxonomy of business games just described, the game could not be classified as competitive or dependent-across-firms; the game would be classified as noncompetitive or independent-across-firms. POSITING OF A PIMS-BASED CRITERION FOR VALIDITY AND A REPLICATION Green and Faria (1995) derived their criterion from a conclusion they attribute to Schoeffler (1993). Ostensibly, A.80 percent of the variance in a company’ performance can be explained by its environment” (G&F, p. 34). G&F interpret Schoeffler’ finding to mean that the effectiveness of a marketing strategy is largely independent of competitors’ strategies. In other words, “. successful strategies in a particular marketplace/ economic environment will continue to be successful in similar environments-even if competition is changed” (G&F, p. 34). Subsequently, Neal (1999, hereafter Neal) purported to confirm “. the results of G&F in that the strategies continued to be successful in an environment with different competitors” (p. 118). G&F demonstrated the application of their proposed criterion using data from a Compete (Faria, Nulsen, and Roussos 1994) simulation game competition involving 25 industries, each industry comprising five companies. The leading company in each industry, as measured by cumulative earnings, at the end of the competition was identified. Then, in a one-time manipulation, the 25 leading teams were randomly reassigned to different industries-i.e., the leading company in one industry replaced the leading company in a second industry-and the “competition” was rerun using the strategy decisions of the companies in the reconfigured industries. Eighteen of the 25 originally leading companies (72%) again had the highest cumulative earnings in the industries to which they had been reassigned and an additional three companies (12%) had the second highest cumulative earnings. On these results, G&F concluded that, “. a winning strategy remains a sound strategy even when transferred to a new competitive environment” (p. 34). Subsequently, Neal replicated and extended G&F’ study