Marketing activities can lead to better IPO performance

UNIVERSITY PARK, Pa. -- 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, according to 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 doctorate program, indicate that investors are looking to a firm's marketing information — particularly customer and competitor orientations (CCOs) — to help them evaluate the firm’s potential to succeed.

In comparing firms’ CCOs with their initial public offering (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 add, “They can also provide insight into the beliefs and mental models held by top management.”

The authors note 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.

Contacts: 

Rajdeep Grewal

Work Phone: 
814-863-0728

Rajdeep Grewal is the Irving and Irene Bard Professor of Marketing in the Smeal College of Business.

Last Updated September 10, 2013