Drivers of Organic Sales Growth

Growth PathsBahadir, S. C.; Bharadwaj, S.; Parzen, M. · 2009International Journal of Research in Marketing

Topicsorganic growth·sales growth·pooled studies·advertising·innovation·market orientation·omitted variable bias

Organic growth comes from developing products or taking existing products to new markets. Imagine your growth plan pairs product development with advertising. How should you coordinate their funding and timing?

Innovation ranks first among marketing levers linked to organic growth, with advertising second.

Data chart

Innovation leads advertising among marketing variables

Percent change in a firm's organic growth, measured as sales growth or market-share growth, for a 1% increase in each input, after adjusting for study design.

Innovation ranks first among marketing variables.
Advertising may communicate innovation's value; that mechanism was not tested.

Innovation has the strongest positive link with organic growth among marketing variables, followed by advertising.

Labels marked (n.s.) mean not distinguishable from zero. Estimates from corrected Table 4, erratum p. 88, pooling studies published 1960 to 2008; exact values are innovation 0.60, advertising 0.38, networks between firms 0.26 and market orientation 0.20, expressed as percent growth per 1% input increase. Inputs differ: innovation uses research and development intensity or new product counts; advertising uses advertising intensity; networks use link counts or other measures; market orientation uses scores for using market information or focusing on customers and competitors. These are estimates adjusted for study design, not simple averages of the studies' results, and are associations rather than investment returns. Innovation's longer growth horizon is a planning caution drawn from earlier literature, not a measured lag (paper p. 272).

Data chart

Entrepreneurial behavior has the strongest positive link with organic growth

Percent change in a firm's organic growth, measured as sales growth or market-share growth, for a 1% increase in each input, after adjusting for study design.

Entrepreneurial behavior has the strongest positive association across all drivers.

Entrepreneurial behavior has the largest positive estimate across all 11 drivers. Company age and market volatility have clearly negative estimates; competition's is near zero.

Labels marked (n.s.) mean not distinguishable from zero. Corrected Table 4, erratum p. 88; exact estimates are entrepreneurial orientation 1.13, management capacity 0.70, innovation 0.60, advertising 0.38, interorganizational networks 0.26, firm size 0.26, market orientation 0.20, firm age -0.96, munificence 0.06, competition -0.05 and dynamism -0.61, expressed as percent growth per 1% input increase. Entrepreneurial behavior means innovativeness, initiative and risk taking, or investment in new businesses; management capacity measures managers' experience or management team size; company size uses sales, assets or employees; company age uses years since founding. Entrepreneurial behavior rests on fewer studies than innovation or company size (Table 2, p. 266); more evidence is needed for it and management capacity (paper p. 264). Resource availability includes demand growth; competition uses competitor counts or competitive actions; market volatility uses demand volatility or changes in preferences and technology. The remaining input measures are described under the first chart. Associations adjusted for study design are not guarantees for one firm.

Action guide

Prioritize innovation and fund advertising to communicate its value.Set your growth horizon before you allocate resources.
Weigh market volatility when you review growth budgets.Have your strategy team favor less volatile expansion options.
Require marketing variables in every organic growth model.Ask your analytics team which variables its models include.
Check US innovation evidence before applying it abroad.Ask your insights team which country each innovation study comes from.
Monitor management capacity against your company's size.Make sure growth projects get management attention beyond routine operations, and support training and career planning for managers.
Pilot an entrepreneurial, market-oriented culture.Encourage initiative, risk taking and awareness of customers and competitors, which may lead to innovation. The study did not test that link.

Evidence

A 1% increase in innovation is associated with 0.60% more organic growth, and the same increase in advertising with 0.38% more. Innovation's growth is likely to arrive later than advertising's, because product development takes time. These estimates, like those below, adjust for study design.
Entrepreneurial behavior (innovativeness, initiative and risk taking) has the strongest positive link with organic growth.
A 1% increase in management capacity is associated with 0.70% more organic growth, and the same increase in company size with 0.26% more.
A 1% increase in market volatility is associated with 0.61% less organic growth. For competition, the drop is 0.05% and cannot be distinguished from zero.
Outside the US, the growth linked to a 1% increase in innovation is 0.62 percentage points lower.
Growth models that omit marketing variables give biased estimates for other drivers.

Key takeaway

For organic growth, innovation ranks first among marketing levers and advertising ranks second.

Limitations

Studies published from 1960 to 2008 cover organic growth in sales or market share, not acquisitions or profit, across industries, countries and company types. Estimates vary with study design and growth measure and show associations, not causes.

Source

Bahadir, S. C., Bharadwaj, S., & Parzen, M. (2009). A meta-analysis of the determinants of organic sales growth. International Journal of Research in Marketing, 26(4), 263–275. https://doi.org/10.1016/j.ijresmar.2009.06.003

https://doi.org/10.1016/j.ijresmar.2009.06.003

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