Today, a business cannot be a success unless it has its finger on the pulse of its target audience. Companies worldwide invest a lot of time, effort and funds in the process of understanding its customers and their needs while pursuing the goal of higher profitability. Market orientation – a culture where the interests of the customer is upheld by the firm is, today, the order of the day. Academicians believe that in the present global scenario market orientation is the path that will lead the various marketing companies to success. The rationale is that the more a company understands and meets the real needs of its consumers, the more likely it is to have happy customers who come back for more. This process can entail the fostering of long-term relationships with customers.
The concept of market orientation was developed in the late 1960s and early 1970s at Harvard University and at a handful of forward-thinking companies. In spite of understanding the importance of market orientation, there is still a vast area of this vital issue that needs to be studied and deliberated. This essay will conduct a literature review on market orientation – the concept and application.
A marketing-oriented firm is one that allows the needs and wants of customers and possible customers to push all the firm’s long-term crucial decisions. The firm’s corporate culture is systematically committed to creating customer value. In order to determine customer wants, the company usually conducts some form of marketing research. Overall, the marketer expects that becoming marketing-oriented, if done correctly, will provide the company with a sustainable competitive advantage. Under customer focus the customer wants are researched, then the information is disseminated throughout the firm and products are developed, then finally customer satisfaction is monitored and adjustments made if necessary. (Wikipedia, 2006).
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Defining market orientation
Market orientation can be defined as the combination of three broad business activities, the generation of market intelligence, the dissemination of the intelligence and the organisation-wide responsiveness to it. Market orientation can be the emphasis on the implementation of a particular business philosophy – the marketing concept and profit – considered to be the main objective of a firm because profit orientation is an inherent practice in the day-to-day operation of the most successful businesses. Singh defines market orientation as a set of organisation-wide activities coordinated in such a way that derives customer satisfaction through superior performance of products while being competitive in the marketplace (Singh, 2004).
Market orientation of customer focus is also defined as the process that can be applied at the individual level – called personalised marketing, the group level – called market segmentation, and occasionally at the mass level – mass marketing. The larger the group size, the more difficult the concept is to apply. (Wikipedia, 2006).
One set of researchers suggested that customer orientation is a subset of market orientation. Their definition for market orientation is “the set of cross-functional processes and activities directed at creating and satisfying customers through continuous needs-assessment.” If we accept the definition of a “market” as being a set of potential customers and treat the terms market and customer as synonymous except for the level of aggregation in numbers, then we can use the terms market orientation and customer orientation interchangeably. Such an argument does not necessarily negate the three-component structure of the concept of customer focus. To be truly customer focused, the firm has to be driven by the goal of providing the customer with the highest level of satisfaction. This implies that the firm concentrates
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on how the customer is better served and that all processes and activities in the entire firm are integrated and coordinated to accomplish this goal. (John, 2003)
The three major components of market orientation – customer orientation, competitor focus, and cross-functional coordination – are long-term in vision and profit-driven. Therefore market orientation provides “a unifying focus for the efforts of individuals, thereby leading to superior performance.” (Narver, Slater, 1994).
Market orientation includes both a customer and a competitor orientation, as well as market information sharing. It uses the construct of market information sharing rather than interfunctional co-ordination. It is found from extensive qualitative research that interfunctional co-ordination should be limited to `co-ordination related to market intelligence’. The term market information sharing equates closely to `intelligence dissemination’. The three components – customer and competitor orientation and information sharing – are parts of a multidimensional market orientation construct. Furthermore, the customer orientation component itself is viewed as having two sub-components. The first relates to customer analysis, that is, a deliberate emphasis on understanding customer needs and wants. The second is customer responsiveness: responding to the information received about customer needs and preferences. A company should not only analyse customer needs and share that knowledge within the organisation, but must act on it. (Dawes, 2000).
The definitions and meanings of the term ‘market orientation’ as used by different authors are somewhat diverse. But they all agree that market orientation ultimately means that the business is conducted in a customer-friendly environment and in a manner where both the customer and the firm profit.
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In the global context , the firms’ global strategy consists of three strategic orientations in pursuit of global market share including export orientation, home market orientation and foreign production orientation (or multinationality). It is observed that the change in home market orientation is strongly correlated positively with the change in global market share (Kotabe, 1992).
It is not uncommon in management research to be faced with concepts and ideas that appear to rest on commonsense and intuition, and yet at an operational level defy easy definition and use. Market orientation is a case in point. Broadly, market orientation is concerned with the processes and activities associated with creating and satisfying customers by continually assessing their needs and wants, and doing so in a way that there is a demonstrable and a measurable impact on business performance (Uncles, 2000).
The most extreme form of market orientation is customer orientation. The customer oriented business is led by someone who is a fanatic about the customer and able to model the appropriate behaviours. Customer-facing employees are empowered to respond to customer needs. They feel trusted to run the business. They and customers are regularly asked for their views as to how the business should be run. (Chun, Davies, Roper, Dasilva, 2003).
Lewis and Varey believe that ‘market orientation’ means ‘orientation’ as a sense of a direction and not as an operationalisation of the marketing concept. They state that “market orientation is evident in the choice of an internal communications logo, ‘Customer First’.” Lewis & Varey, 2000). The self-explanatory term is the very essence of what market orientation is all about.
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Need for market orientation
The environments of most businesses are currently characterised by increasing competition and environmental turbulences. Most firms have had to find ways of dealing with the stark reality or face the possibility of extinction. The management literature is replete with conceptual propositions on sound business practices and strategies for success in today’s marketplace. In this context, the market orientation has received considerable attention by all involved. Although earlier research on market orientation tended to focus on cross sectional studies to contribute to theory building and to examine the universal importance of the concept, recent empirical efforts have tended to be industry-specific. Most studies have focused on the relationship between market orientation and business performance, with the majority of studies reporting a positive association between the two variables. (Singh, 2004)
Conventional marketing wisdom holds that a market orientation provides a company with a better understanding of its customers, competitors, and environment, which subsequently leads to superior firm performance. For over four decades, market-oriented corporate strategy has been recognised as a pillar of superior company performance by both academics and practitioners. Market orientation in both manufacturing and service industries has attracted a significant amount of academic and practitioner interest in the current marketing literature. (Spillan, 2005).
Many of the market-oriented activities suggested by the measures of orientation used may have been adopted by firms in response to the general admonition “pay attention to the market!” As with the marketing audit, these firms may use market-oriented activities without ever letting the words “market-oriented” pass their lips and
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some have debated whether market orientation represents a set of behaviours or a culture in this regard (Neely, 2002).
But willingly or not academicians and firms alike will agree to the fact that the concept of market orientation is here to stay. Also that at this point of time the companies cannot afford to overlook , what can be termed as a factor for success.
The concept of market orientation
Two main ideas characterise thinking about marketing in recent years. The first is market orientation and the second is the resource-based view of the firm. Market orientation is central to marketing. A firm characterised as market- oriented might have developed an appreciation that understanding present and potential customer needs is fundamental to providing superior customer value; encouraged the systematic gathering and sharing of information regarding present and potential customers and competitors as well as other related constituencies; and instilled an integrated, organisation-wide priority to respond to changing customer needs and competitor activities in order to exploit opportunities and circumvent threats (Proctor, 2000).
“Market orientation,” may actually encompass several different approaches to the strategic alignment of the organisation with the external environment. Specifically, firms can decide to focus primarily on either competitors or customers as the
situation dictates, or perhaps attempt the difficult task of simultaneously monitoring both with equal emphasis. (Heiens, 2000).
There are a number of aspects of a market that can promote or even necessitate the adoption of a customer orientation: low growth, concentration, and a lack of fundamental differentiation. But even the most dynamic of companies can benefit
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from a market/customer orientation rather than a product orientation. A customer orientation goes hand in hand with a ‘bottom up’ philosophy. For this philosophy to work, an organisation has to be focused on its marketplace and on its customers. (Chun, Davies, Roper, Dasilva, 2003).
If marketing is primarily a disciplinary synthesis for creating customer value and understanding exchange behaviour, it must operate within a web of social and economic interactions. In this sense, marketing is a guiding philosophy of the organisation. (Lewis & Varey, 2000).
The market-orientation perspective suggests that good marketing involves activities that develop and use intelligence about the market. The market knowledge developed should be an important asset to future marketing efforts. While definitions across studies vary, common components of being market-oriented include systematic information gathering, analysis, dissemination, and use of market information within the organisation. It is important to maintain a balanced perspective between customers and competitors in this context. (Neely, 2002)
It is now generally accepted that market orientation or a customer focus is a type of culture and is exhibited by a firm that is committed to providing superior
customer value. When compared with different types of business cultures, the customer-focused culture has been found to be superior in delivering the best business
performance. A strong correlation is also found between market orientation, job satisfaction, and trust in management. A firm is seen as clearly supporting the salespeople when the salespeople perceived that the firm was being attentive to customer needs and satisfaction, aware of competitor strategies to deliver superior value, and coordinated through the entire firm. There are proven bottom-line benefits
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from a customer orientated culture for the firm which believes in incorporating the same (John, 2003).
Marketing academics have long held the belief that firms should embrace the philosophy of the marketing concept, which holds that customer needs should drive the firm’s decisions. Acceptance or rejection of this philosophy is not an academic exercise, since the personal values of owner/managers influence the strategies they adopt, and ultimately, the performance of their businesses. Marketing academics
suggest that firms who adopt this philosophy and convert it to actions should see superior performance. However, contrary to this belief, there are firms who manage to be successful without embracing this concept by emphasising technical or production capabilities (Pelham, 2000).
Certainly, marketing as a synthetic discipline has made a virtue of absorbing points of view and techniques from other disciplines. The belief that we have a discipline called marketing is sustained not by the evidence of its subject matter but by its usefulness. At the level of strategy implementation, a recurring issue for debate is whether or not marketing, as a department, really needs more cross-functional authority. However, such a course is likely to stimulate more internal conflict than
solutions. It is very clear that the customer service group would have to be a catalyst for change, rather than attempt to ride roughshod over the authority of other departments. (Lewis & Varey, 2000).
Market orientation starts with understanding of the market and identification of market needs and behaviour. In this sense it is an ‘outside in’ planning approach. This is the segmentation approach and declares that the market offerings cannot hope to be all things to all people and that differences between groups and similarities
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within groups may be analysed for marketing planning purposes. In this way customers are grouped together as far as it is meaningful for them to be targeted with distinct marketing mixes (Baker, 2002).
Practicing market orientation
Implementation of the marketing concept characterises a firm’s intentions to deliver superior value to its customers, by satisfying their wants and needs, on a continuous basis. Market orientation refers to the organisation-wide generation of market intelligence through decision support systems, marketing information systems, marketing research efforts, dissemination of the intelligence across company departments, and organisation-wide responsiveness to the changes taking place in the environment. (Spillan, 2005).
Empirical evidence on the relationship between overall business performance and market orientation is mixed. Various studies have indicated a positive, mixed, or no relationship at all between the two constructs. Empirical generalisations on this subject are particularly complicated due to the varying operationalisations of both market orientation and business performance. Some scholars have also explored the role of
possible moderating variables in this relationship. Beyond its effect on overall performance, studies suggest a host of benefits as perceived by customers and
employees. It is difficult to tell how well the market-orientation practice has penetrated managerial practice, especially as related to the various definitions of particular scholars. (Neely, 2002).
Businesses can have one of a number of orientations, that is to say the focus of the business. For example a company with a unique and desirable product technology
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can focus on its products and on keeping ahead of competition in its research and development. Another company, for example marketing life insurance, may decide that the nature of its business lends itself to a sales orientation and an emphasis on persuasively selling the company’s products. (Chun, Davies, Roper, Dasilva, 2003).
Singh stresses that lesser the extent of market turbulence, greater the positive impact of market orientation on performance. In fact a substantially market-oriented business should find more opportunities in any environment than its less market-oriented counterparts. That is why market orientation is as important, if not more important during low market turbulence as it is during high market turbulence. Also there seems to be a turning point where, beyond a certain level of technological innovation, additional customer benefits from technology cannot be achieved. Therefore improving market orientation by introducing a new product during a high level of technological change may be ineffective. (Singh, 2004).
A business is market-oriented when its culture is systematically and entirely committed to the continuous creation of superior customer value. Specifically, this entails collecting and coordinating information on customers, competitors, and other
market influencers – such as regulators and suppliers – to use in building that value. A developing stream of empirical research has found a strong relationship between market orientation and factors including profitability, customer retention, sales growth, and new product success (Narver, Slater, 1994).
To practice market orientation understanding of customers, and potential customers, is fundamental. This requires a deep appreciation of current and changing needs and wants of consumers, something for which marketers and market researchers claim a
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particular expertise. Information gathering is a key activity for any organisation that purports to be market-oriented. It is an inherently managerial concept, with close attention paid to business processes and activities. There has to be some regard for recurrent processes – for instance, sustained investment in marketing communications for established brands – but the emphasis tends to be on new trends (Uncles, 2000).
The pursuit of a market orientation may be a worthwhile aim, but firms appear to significantly differ in the extent to which they exhibit the required traits, particularly because the firms may experience inter-functional rivalry which can restrict market-oriented activities and behaviours (Proctor, 2000).
Many firms rode strong product and technology focuses to high levels of performance in the high growth environments of the 1970s and early 1980s. Recently however, the globalisation of competition, deregulation, and the emergence of more sophisticated customers have resulted in a more intense competitive environment. This
new environment has pushed academics and many firms to rediscover the marketing concept (Pelham, 2000). The firms which adopted market orientation more often than not found that the system proved to be an advantageous one.
Merits of market orientation
There is a large body of literature dedicated to studying whether marketing orientation results in superior organisational performance and they have verified a strong link between the two while other studies did not support a direct positive relationship between performance and market orientation (Spillan, 2005).
A market-oriented company ensures it has regular customer contact at many levels on a regular basis. It undertakes and uses market research regularly to understand what is happening in its market. Surveys of customer satisfaction are used to guide
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the business. Rewards inside the organisation are based upon performance with the customer. Market orientation has been associated in some research with more profitable and sustainable results. (Chun, Davies, Roper, Dasilva, 2003).
Also studies suggest that greater the degree of competitive intensity, the greater the positive impact of market orientation on performance. The main effects of market orientation is on independent variables such as investment, sales growth, market share, new product success, customer retention, and global presence. It is the only predictor whose regression coefficient is non-significant. (Singh, 2004).
When compared to strategy selection, firm size, or industry characteristics, market orientation has the strongest positive relationship with measures of performance. The
most influential market orientation elements are fast response to negative customer satisfaction information, strategies based on creating value for customers, immediate response to competitive challenges, and fast detection of changes in customer product preferences. The crucial role of market orientation lies in implementing an emphasis on a growth/differentiation strategy, compared to a low cost strategy (Pelham, 2000).
To achieve superior performance, a business must develop and sustain competitive advantage. But where competitive advantage was once based on structural characteristics such as market power, economies of scale, or a broad product line, the emphasis today has shifted to capabilities that enable a business to consistently deliver
superior value to its customers. This, after all, is the meaning of competitive advantage. Research shows that a market-oriented culture provides a solid foundation for these value-creating capabilities. (Narver, Slater, 1994).
The fact that customer-driven companies do better in the long-run has been proved true through various studies. Also the globalised market today stresses on the need to
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be more customer-focused if the company’s products are to be appreciated by a larger section of the consumers. For many years, writers have asserted that a market-oriented approach to business will result in better corporate performance. Only recently have such assertions been empirically tested, with a growing body of research being
conducted in the past ten years. Many studies have found a positive association between market orientation and performance. As a market orientation comprises several components, such as a customer orientation and a competitor orientation, each component of market orientation should also be positively associated with performance. However, little research has tested this proposition (Dawes 2000).
It is accepted widely that market orientation has a positive influence on the performance of firms. This relationship not only has been established firmly for large companies but also has been found in research on small and medium-sized enterprises (Pelham 2000).
Market orientation and variables
Most research on market orientation, innovation and performance is related to big enterprises and small and medium-sized enterprises. The owner’s innovativeness permeates all variables and has a positive influence on market orientation, innovation, and performance. An interesting point is that customer market intelligence influences product innovation positively or negatively, depending on whether the innovativeness of the owner in the new product domain is weak or strong.(Pelham 2000).
In analysing the relationship between market orientation and performance, innovation has been identified as an instrumental variable. In this context, elaborate theories and frameworks about the relationship between market orientation and
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innovation have been proposed. They focus in particular on large firms and only to a lesser extent on small firms. However, it is doubtful whether the type of relationship between market orientation and innovation being ascertained for large firms can be generalised to small firms, because innovation in small firms is different from innovation in large firms. It is important to fill up that gap in our knowledge about small firms because of the importance of innovation and small businesses for today’s economy. In this context, the small firm is defined as one that is run and is controlled under the direct supervision of the owner. (Meulenberg & Verhees, 2004).
Market orientation places emphasis on the high performance of companies with high quality, organisation-wide generation and sharing of market intelligence which produces responsiveness to market needs. The resource-based view of the firm, on the other hand, suggests that superior performance reflects, in the main, historically developed resource endowments. Both these approaches are required to ensure strategic success. Strategy selection must reflect the demands of environmental changes, but at the same time, it should develop a company’s distinctive competencies. It is through competitive positioning that the benefits from both of these independent approaches are obtained. (Proctor, 2000).
Application of market orientation
The strategy is that customer service improvement would lead to better customer relationships, more retained customers and thereby complement the organisation’s marketing activities. Overall, this would contribute to better long-term profitability. However, as the strategy was approved at board level, the linear logic is better expressed in reverse order, starting with profitability, and working back from that to
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the point where someone has to ‘do something’ at the nadir point. This involves more than traditional marketing skills. The more orthodox marketing approach to try to change staff attitudes by formal communications alone can be rejected as superficial and unidirectional. (Lewis & Varey, 2000).
A more concerted approach is required to solve this problem with many debates involving the staff and those concerned. A more democratic approach would be appreciated by the staff and will be more in keeping with the market orientation.
Firms which emphasise customer-focused intelligence gathering activities at the expense of competitor information may be classified as “customer preoccupied” and more interested in long-term business success as opposed to short-term profits. Firms that emphasise competitors in their external market analyses have been labeled “marketing warriors” while firms characterised as “strategically integrated” assign equal emphasis to the collection, dissemination, and use of both customer and competitor intelligence. Many researchers suggest a balance between the two perspectives as most desirable, and say that the firms should seek to remain sufficiently flexible. Consequently, firms that fail to orient their strategic decision making to the market environment may appropriately be labelled as “strategically inept” (Heiens, 2000).
Impact of market orientation
If there are several players in the market with almost similar characteristics, there is a pressing need for becoming market-oriented by paying closer attention to the customer needs and providing a unique or total solution to the problem. Further, the culture of being market-oriented may give rise to customer retention and hence profit. A satisfied customer may come to the same firm seeking solution for another problem
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or recommend the firm to others. Hence a problem solving strategy may lead to higher sales growth. (Singh, 2004).
Of course, there is often a rather weak spread of marketing ideas and techniques across the functional divisions of firms, and this is sometimes thought to explain a lack of organisation-wide marketing orientation. However, the problem could be a lack of sufficient marketing tools as much as a lack of spread in the use of existing marketing tools. (Lewis & Varey, 2000).
“A business that increases its market orientation will improve its market performance.” A proclamation made continuously by market academicians and practitioners. They have been observing for more than three decades that business performance is affected by market orientation yet to date there has been no valid measure of a market orientation and hence no systematic analysis of its effect on a business’s performance. Judged by the attention paid to it by practitioners and academicians in speeches, textbooks and scholarly papers market orientation is the very heart of modern marketing management and strategy. In his exploratory study, Baker uses the term market orientation to mean the implementation of the marketing concept. For an organisation to achieve consistently above normal market performance it must create a sustainable competitive advantage. The logic of sustainable competitive advantage is that the buyer must perceive that the product offered by the firm provides the best value for money. Market orientation is the organisation culture that most effectively and efficiently creates a continuous superior performance for the business. (Baker, 2001).
More such studies are needed to provide clarity to the term market orientation and solution to the problems faced during implementation of the concept.
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Conclusion
Today, when the world is a global village and products from all over the world flood the market, the customer is certainly the king. Unimaginable number of products vie for the consumers attention and companies worldwide compete for their share of the market in a variety of ways. In such a scenario market orientation plays a stellar role in helping a company find its piece of the market pie. Researchers and academics all over the world agree that understanding the consumer and meeting his needs is a sure-fire way to success.
In this context, study and research into market orientation and its various aspects assumes significance. The review of literature on the subject of market orientation suggests that there is lot to be done in this area. The existing research and theories need to be bolstered with more facts and contemporary case studies. Though a lot of texts, set aside entire chapters for the study of market orientation, and a lot of scholarly articles have studied the various aspects of market orientation in detail, the subject is broad enough and vital enough to merit a full text of its own.
Areas such as how the market orientation impacts specific products, specific company culture in different countries and environment needs to be studied. Also market orientation in small, medium and large firms needs to considered in-depth and in detail.
The vitality of market orientation needs to be discussed with more deliberations, while paying special attention to areas such as conversion of a non-market oriented firm into a market oriented one, the specific problems faced by a market oriented firm as opposed to a market oriented one as well as the staff mentality in both a market oriented firm and a non-market oriented one.
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