When Not All Conflict Is Bad: Manufacturing-Marketing Conflict and Strategic Incentive Design

Sridhar Balasubramanian () and Pradeep Bhardwaj ()
Additional contact information
Sridhar Balasubramanian: Department of Marketing, Kenan-Flagler Business School, The University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599
Pradeep Bhardwaj: Department of Marketing, The Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095-1481

Management Science, 2004, vol. 50, issue 4, 489-502

Abstract: Researchers and managers broadly agree that coordination and harmony between manufacturing and marketing improve firm performance by eliminating suboptimal practices within the firm. In this paper, we present a contrasting view of the manufacturing-marketing interface. We model a duopoly in which the firms compete on price and quality dimensions. The manufacturing and marketing managers within each firm are presented with conflicting incentives focused on cost minimization and revenue maximization, respectively. These managers bargain with each other before arriving at compromise decisions regarding price and quality. While frequently encountered in practice, this "conflicting-objectives puzzle" is surprising because one expects that centralized coordination by the owners of the firm towards profit maximization would lead to higher profits. In this paper, we resolve the conflicting-objectives puzzle and demonstrate that, surprisingly, the firm's resulting profits in this setting of conflict can be higher than those obtained when the decisions of the managers are perfectly coordinated. We also analyze the equilibrium in incentive plans when the owners can choose between compromise and perfect coordination. Our results offer a new interpretation of manufacturing-marketing conflict as a strategic tool that can enhance firm profits.

Keywords: manufacturing-marketing conflict; manufacturing-marketing coordination; marketing strategy; pricing strategy; product quality; strategic incentive design; game theory (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.1030.0180 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:50:y:2004:i:4:p:489-502

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().