Market Orientation and Firm Performance

Introduction

Market orientation is defined as the implementation of the marketing concept. This implies to be more than just customer oriented. It requires that there is full support from the organization for it to be fully implemented in the long-term and may in some instances result in a complete organization change especially on its culture. Although marketing concept is considered as a cornerstone of marketing discipline, there is little attention given to its implementation. Thus marketing orientation can also be considered to mean implementation of marketing concept. Hence a market oriented organization is one whose actions go along with the marketing concept, Narver, JC & Slater (1990).

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Pillars of market orientation

There are three pillars of market orientation. These include customer focus, coordinated marketing and profitability. Market intelligence is the first point towards market orientation. Market intelligence includes the exogenous factors analysis that influences customer needs and preferences. Government regulation and competition are some of the factors considered to be monitoring that eventually influence the preferences and needs of the customers. Thus managers who have been interviewed in various researches have pointed out that market orientation also includes the analysis of changing conditions in their customers industries a swell as their impact on the wants and needs of the customer, Kohli, A.K & Kowalski, B.J (1990).

Market intelligence pertains to customer preferences and needs and how this may be affected by such factors as technology, government regulation, competitors as well as environmental forces. This thus implies that effective market intelligence pertains also to the future needs and not just to the current needs. This is important since organizations are able to anticipate customer needs and prepare in advance since it usually takes years for a new product to be developed, Deshpandé, R. and Farley, J.U. (1998)

Assessment of customer needs remains to be the cornerstone of market orientation. Customers’ definition may not be necessary simple. Some instances may have a business having both consumers who are end users of services and products as well as clients that the organization can influence or dictate their choice. Some executives running several packaged companies indicated that it is important for organizations to fully comprehend the preferences as well as needs of not just their end customers but also for the retailers through whom they sell their products. It has been noted that retailers satisfaction is important to ensure that they carry and promote the companies products. This task of identifying the company’s customers may be difficult when the services are provided to one party but another party delivers the payment, Day, G. S. (1994)

Marketing department is not the only department mandated with the responsibility of intelligence generation. It should be noted that getting customer opinion is the first step which is followed by analysis and eventual interpretation of the factors that affect customer needs and preferences. The entire departments within an organization have the responsibility of generating market intelligence.

Firm performance and market orientation relationship

Several studies have shown that there could be a positive correlation between market orientation and market performance. Thus the mechanism that is of most importance is how market orientation would positively influence business performance. The logic behind the conclusions in this area is that market orientation enables the collection as well as analysis of market information and thus focuses on the co-ordination of resources to result to superior customer value, Day, G.S. and Wensley, R. (1988).

This logic is tested in the comparison of companies performances especially on areas such as relative profit, profit, return on investment or assets, as well as non-financial measures such as new product innovation and success. Most of the empirical results confirm a positive correlation with these identified measures of performance although the relationship may sometime not be statistically significant, Pride, W., (2006).

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Logics behind market orientation

The strategy of market orientation involves understanding markets as well the culture within an organization that is geared towards developing customer value strategies that are ready to take advantage of opportunities and thus repel threats. The dimension consistent with this emphasis is based on acquiring market intelligence about the customers, dissemination of market knowledge across the work groups and departments, and monitoring of competitors. Hence market oriented organizations are able to build sustainable competition through,

  1. Creating business models that deliver the value customers desire,
  2. Learning what customers want,
  3. Adapting the value generating process as market conditions change and
  4. Monitoring and reacting to current and potential competitors.

Market orientation gives the basis for customer value strategy generation and such a strategy is found to be the basis of a sustainable competitive advantage that would give a contribution to a financial performance. Market based assets that consists of relational assets (outcomes of relationships with stakeholders that includes customers, channel members and other players), intellectual assets (knowledge about the market), and the interaction that is formed by these assets.

It should be noted that market based assets can only effectively accumulate by the development of knowledge, resources and skills that cannot be easily imitated, Pride, W., (2006). These can be built as well as acquired through various forms such as investment which may include databases, time spent on building relationship, sponsorship, promotion and advertising. Market based assets have been shown to create value for an organization by;

  1. Leveraging the asset
  2. Building strong barriers to entry that divert competitors to higher cost or less effective strategies
  3. Deploying the asset to create customer value

Deploying of the assets in order to create customer value is of most importance when determining how market orientation does influence the way that a firm interacts with its customers, Day, G.S. and Fahey, L. (1988).

Customer perceived ratio is the most useful framework for having an understanding of value in service markets. It is the ratio between the perceived benefits and the perceived costs or sacrifices. If the ratio is found to favor the former over the latter, then it may be concluded that value has been generated. Customer perceived benefits include factors such as product physical attributes, technical support available, service attributes, quality characteristics of the product and the purchase price. The customer perceived sacrifices includes the ownership of the product offering (ordering, processing, acquisition cost, risk of service failure, poor performance, handling and opportunity cost) and the specific cost that the buyer is faced with on purchase completion, Kohli, A.K & Kowalski, B.J (1990).

In marketing thus, there has to be established means that would increase and or decrease benefits and /or the total costs respectively. Since the business world is highly competitive, the marketer must seek to deliver and communicate value proposition that would be recognized by the targeted market as a better proposition than that which is presented by the competitors. Although there may be different value segments in most markets, customer value ratio must be treated superior to competitive offerings in order to be successful in any of them. Ways that can be used to create value for the customers include lowering of costs and a better matching of price and performance requirements, innovative new products, trust and improved service, Narver, JC & Slater (1990).

Customer orientation remains an important ingredient of the customer value based propositions. It places the highest priority upon a continuous search of a superior customer value. Although it is combined with competitor orientation as well as inter-functional teamwork in a market orientation, it has been considered to be a very crucial element in a firms cooperate culture. Ways in which customer orientation may add value to a proposition include,

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  1. Firm-employee interface (internal marketing). Viewing employees as a market in their own right stimulates an innovative view of value perception and encourages the firm to evaluate how value can be provided to the customer via the functions in the value chain.
  2. Firm-customer interface (external marketing). Traditional marketing activities take place by means of marketing research and development, which in turn determine the marketing mix program of product, price, distribution and communication.
  3. Employee-customer interface (interactive marketing). Face-to-face interaction and other forms of encounter with the boundary spanners representing the firm are critical agents in the value creation and delivery process, Day, G.S. and Fahey, L. (1988).

A sample organization, British Telecommunications Major Business Divisions, BT-MB

Most of the technology (IT) companies such as BT have been having a common approach to business marketing. Their main focus has been on product-centric and technological innovation. Companies adopting the product centric approach are performing below the expectations because of the new changes in customer demands and the IT climate turbulence. One major challenge of this field is identifying the strategic group analysis and referents due to the competitive boundaries that are changing regularly because of strategic alliances, market shifts, and the many breakthrough in systems, infrastructure and market methods, Pride, W., (2006).

This is a company that exclusively deals with government agencies and corporate customers. Although its goal of shareholder value dominates, its emphasis on customer value creation has improved. With the slogan, “marketing makes the difference”, the company recognizes that marketing is of major importance and has thus of late introduced a marketing unit that is geared towards improving response to its customers.

This is a shift from the traditional product orientation to value proposition that is offered to the customers. It should be noted that a product oriented company sells based on their technological functionality/advancement and pricing while the market oriented company will focus on the business drivers specific to their customers and have their propositions tailored towards addressing those concerns, Narver, JC & Slater (1990). It thus means that although a market oriented company will take up the best available technology, it will concentrate on it only if the customer doest value it. The shift to market orientation at BT-MB had a clear mark in 1999 with the creation of central marketing. These are the different aspects of this shift.

Market orientation

It is marked by the development of insight interactive. This is a web portal that is designed to expound on the propositions that BT-MB has to offer most of them being in form of case studies and one in which can be tailored to the customers needs. Requirements as well as customer needs can be collected from;

  1. Relationship marketing divisions which are designed to introduce customers into various business driver scenarios and industry events. Here BT-MB typically invites academics from leading research institutions and industry gurus to work with customers in business planning and solution scenarios.
  2. Product lines such as BT Ignite and BT Open world which are corporate engine houses for all of BT-MB’s products and services. These organizations primarily function by analyzing demand fluctuations for their services and building accordingly.

Market based assets

BT-MB has these kinds of assets in form of relational capital and intellectual capital. To share information on competition, customers and business climate, it has invested on knowledge management applications that are based on Extranet/Intranet technology. To keep everyone on the marketing and sales community updated on the organizational news, it has a news based prime/services corporate communications vehicle called infopower.

Customer value

BT-MB has categorized customer value strategies into; Customer Relationship Management, Organizational Effectiveness, Supply Chain Management and Knowledge Management.

Customer Relation Management (CRM)

This is a business strategy to deliver a personalized service which exceeds customers’ expectation and thus creates as well as maximizes customer lifetime value. There are three main area applied by BT-MB in this,

  1. Customer Information and Profiling. This is the process of collating, managing and analyzing customer information held across the business to understand customer profitability and lifetime value. By harnessing this customer knowledge, organizations are able implement targeted one-to-one marketing programs that deliver long and profitable relationships through acquiring new customers, retaining customers and managing less profitable customers, Narver, JC & Slater (1990).
  2. CRM Strategy. This concern the strategic vision required at Board level to adopt and implement a Customer Relationship Management approach. Financial investment and business process re-engineering to challenge and change current business thinking across all of its operations are required
  3. Customer Contact Solutions. This concerns the personalization and integration of the multiple touch points that every company has with its customers, for example, retail branches, direct operations (customer service or telemarketing), Web sites, digital TV, Internet mobile phones, kiosks, etc. to provide a seamless view of interactions/transactions.

Supply chain management (SCM)

This strategy has provided the link between the corporate objectives as well the tactical processes that are needed to operate business. Policies, innovative supply chain strategies and procedures are among the key drivers that increase the shareholders value mainly through cost minimization, profitable growth, working capital efficiency, tax minimization and fixed capital efficiency. Improvement in SCM has shown that BT can reduce purchasing costs by 90%, external costs by 5-15% and cost of sales by 50%, Kohli, A.K & Kowalski, B.J (1990)

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Organizational effectiveness (OE)

BT primary focus is to enable organizational agility and flexibility thus increasing shareholder value. For BT, this involves work processes (functions and applications that deliver for BT customers) and work styles (organization operates). It’s mainly concerned with getting the best from support processes, assets and functions and thus best value services from and to employees.

Knowledge management (KM)

This involves the process of making people and the organization smart through new working ways that has support of new technology. It involves the shift at an economic level in the traditional ways of wealth generation from labour, land and capital towards innovation, learning, collaboration, leverage and integration of intellectual assets. BT-MB has taken this kind of framework into practice.

Customer Retention and Customer Attraction

On of the BT-Mb’s strategy key on loyalty is customer retention. The campaign has launched various campaigns in this regard such as From Legacy to Dotcom that has sought to have the company advance to creation of virtual business. The company also tries to avoid moving to other telecommunication service providers to get the same basic services. The cost of maintaining customers includes maintaining the older style legacy technology and having customers who are not willing to migrate to newer networks, Pride, W., et al., (2006).

Conclusion

A customer’s value strategy is bound to influence a financial position of a firm. A market oriented organization is in a position to build market based assets that can be released to create customer value. A customer value strategy would result in satisfied and more loyal customers that would be more willing to receive marketing initiatives that would cost less. The favorable customer characteristic would accelerate and enhance net cash flow, decrease the volatility of the cash flow and increase the residual value of cash, Deng, S. and Dart, J. (1994).

Market based assets have also been shown to create value for the organization by creating barriers for competitors which through co-branding, increased demand for stock and sales of expertise or data can be directly leveraged. Just like investment in tangible assets, benefits of market orientation are not realized at the time of investment. An example is the dot.com companies with a customer value strategy business model and a market oriented organizational culture. In their early accounting periods, they experience high cash burn rate in their external investment. The studies that have attempted to correlate market orientation with the traditional measures of financial performance have found a negative relationship of kind.

Reference

Narver, JC & Slater (1990). The effect of a market orientation on business profitability. Journal of Marketing, 20-35.

Kohli, AK & Kowalski, BJ (1990). Market Orientation: The construct, research, propositions and managerial implications. Journal of Marketing, 1-18.

Pride, W., Elliot, G., Rundle-Thiele, S.R., Waller, D., Paladino. (2006). Marketing- Core Concepts and Applications, 2nd ed.Asia Pacific Edition.

Day, G. S. (1994) The Capabilities of Market-Driven Organizations, Journal of Marketing, 58, 37-52.

Day, G.S. and Fahey, L. (1988) Valuing Market Strategies, Journal of Marketing, 52, 45-57.

Day, G.S. and Wensley, R. (1988) Assessing Advantage: A Framework for diagnosing Competitive Superiority, Journal of Marketing, 52, 1-20.

Deng, S. and Dart, J. (1994) Measuring Market Orientation: A Multi-Factor, Multi-Item Approach, Journal of Marketing Management, 10, 725-742.

Deshpandé, R. and Farley, J.U. (1998) Measuring Market Orientation: Generalization and Synthesis, Journal of Market Focused Management, 2, 213-232.

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