Abstract This paper focuses on managers’ marketing decision
making during performance decline. Drawing on the
reconciliation of theories of failure-induced change and
threat-rigidity by Ocasio (1995), we examine how performance
decline may result in a rigid decision-making process
and decision characteristics that reflect the narrowing of attention
and increased risk seeking. Furthermore, drawing on
managerial compensation research, we consider how incentive
pay may affect the marketing decision-making process
and decision characteristics of managers during performance
decline. Using a simulation game with experienced Chinese
managers, our results indicate that performance decline decreases
marketing strategy process comprehensiveness but
increases reliance on short-term marketing decisions, strategic
change, and strategic risk taking. Moreover, incentive pay
attenuates the rigid decision-making process of managers but
accentuates their heightened risk seeking during performance
decline. This paper offers unique behavioral insights into how
managers make marketing decisions.