Birmingham Business School

Master in Business Administration 2012 – 2013

International Business

Module Title : Marketing concepts and practice

Assignment No : 1

Lecturer : Dr. Peter Hyde

Assignment Title : Market Driven &. Market Driving behaviour

Word Count : 2960

Date : 17/12/2012

ID numbers : 1212863

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TABLE OF CONTENTS

1. Executive Summery ……………………………….………………………3

2. Introduction…………………………………………….……………………4

3. The firm’s orientation…………………………….…………………………5

4. Stakeholders relations……………………….…………………………….6

5. Competencies and capabilities……………………………………………7

6. Cultural values…….………………………………………………………..8

7. Market driven strategy…………………………………………………….10

8. Market driving strategy…………………………………………………....11

9. Performance outcomes…………………………….……………………..12

10. Conclusion ………………………………………………………………...13

11. Appendix ……………………………………………………………….….14

References .......................................................................................... ..15

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1. Executive Summery

Marketing as defined by Drucker is ‘to make selling superfluous. To know and

understand the customer so well that the product or service fits and sells itself...’ (Drucker

1973). His concept of a business as a whole meant more than just the customer orientation,

he also stressed on customer creation. The paper is an attempt to explore the key

advantages and characteristics of both market driven and market driving behaviors as a

complement to each other; a firm can’t engage in radical innovation and market driving

behavior before it possesses deep market and customer understanding to be able to

anticipate his latent needs in order to innovate. Owing to the fact that the market driving

behaviour depends on the opportunities arise in the market place, and/or on the visionary

who have seen the world differently, who’s opportunity recognition capabilities are the key

driver of the firm’s strategic orientation. This is not an everyday event and it comprises risk

tolerance and serendipity to encourage innovative ideas to see light. Moreover, a firm can’t

be a market driver forever, as by time, it will turn into market driven after a period of time

when a new innovation takes place. Therefore, proactive market driven firms could utilise

their deep customer understanding, to stay close to customer, learning and co-create value,

to establish valuable relationships with customers and non customers, as loyalty and strong

brand value could lead to sustainable business growth. It’s a continuous process of

innovation, leading to new possibilities of further innovation, every solution to a problem leads

to a new problem. I’m inclined to believe that the more the firm’s entrepreneurial values within

it’s market driven behaviour are manifested the more readiness it is to be market driving for a

period of time depending on the opportunities arise in the market place These entrepreneurial

values can alter the industry by radically innovative ideas, either by a new technology,

business system that can’t be replicated or innovative marketing that exceeds customer’s

expectations.

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2. Introduction

‘Berry (1995) defines relationship marketing in terms of a means–end equation; In

other words, companies must establish relationships with non-customer groups (the means)

in order to establish relationships with customers (the end). This definition re-focuses

marketing in terms of end-customer relationships.’ (Baker and Hart 2008). Berthon argues

that there are aspects of business, which come before customer, that create customers and

are concerned with the creation of innovative products and services. Needs, wants and even

value co-arise when products are created and communicated. Innovativeness either occurs

In terms of the value proposition made in customers mind or in terms of the of the business

systems used in creation, production and delivery of value (Saren 2007).

The importance of consistently delighting customers seeking market leadership is

critical for a firm’s sustainable business growth. This market orientation dictates that success

starts with careful learning to identify customers’ needs, and develop differentiated solutions

to well-defined target customers. As the needs in question are fairly observable or articulated,

success is associated with incremental innovation and superior abilities to attract, serve, and

retain customers. That is “market- driven behavior”. Which is different than the radical

innovations, which is the core of the market driving behavior, to build the future; to push the

envelope of possibilities and surprise customers by introducing exceptional solutions that

exceed customer’s expectations (Kumar, Scheer, and Kotler 2002).

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3. The firm’s orientation

In order to maintain competitive advantage, firms must be able to adapt their

structures and capabilities to reflect changes in the industry’s environment and continue to

effectively serve the needs of their target markets. In the past, this adaptability has resulted

in an increased focus of being market oriented. This process by which customer and

competitor information is collected, analyzed and disseminated throughout the firm has

become key to the management practices of many organisations, particularly in the areas of

new product development and marketing strategy development. Market driven firms possess

outstanding learning about the market place and target customers, such understanding

comes from effective marketing research not only on a company’s products and marketing

programs but also on core customer needs, brand experiences, usage and purchase

behavior. It is market-oriented approach; it starts with customers and ends with customers, it

involves deep learning about the customer and market place. Slater and Narver (2000)

suggest that MO comprise either responsive or proactive behavior. Responsive MO finds the

firm catering to suggest the directions provided by customers (Berthon, Hulbert, and Pitt

2004). Or, proactive marketing finds the firm attempting to discover, understand, and satisfy

the latent needs of customers. Understanding, that allows them to respond to stakeholder’s

perceptions and behaviors within a given market, this understanding created market-sensing

competencies and distinctive capabilities of how to consistently exceed customer’s

expectations. Market driven firms really understand the true nature of the customer’s

profitable relationship and try to enhance it by consistently creating value to delight target

customers (Schindehutte, Morris, and Kocak 2008).

The Market driving behavior can’t be copied. In other words, the inspiration for the

radical business ideas can’t be easily replicated, as they come from entrepreneurial behavior,

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visionaries who perceived the world in a different way and whose vision addressed some

deep-seated, latent, or emerging customer needs. This is the entrepreneurial orientation (EO

involves: innovativeness, risk taking, and pro-activeness) (Lumpkin and Dess 2001).

Innovative that is creative, novel solutions to problems and needs. These can take the form of

new technology, new products and services or business systems that surprise customers and

delight them (see Appendix figure 1). Risk taking behavior involves the willingness to invest

significant resources to opportunities having a reasonable chance of costly failure. Pro-

activeness is concerned with effective implementation, with doing what is necessary to bring

concepts to fruition (Saren 2007). This EO anticipate and make use of the strategic

opportunities arise in their environment, and proactively offer radical business ideas, educate

customers by communicating the value which in turn will lead to market ownership for a

period of time (Schindehutte, Morris, and Kocak 2008).

4. Stakeholders relationships

The primary differences among market-driven (reactive MO), market-driven (proactive

MO), and market driving lie in stakeholder emphasis and active industry change (Hills and

Sarin 2003). In both MO, customers are the major stakeholders of interest. The aim of the

entire value chain is to serve target customers and create strong relationships with them.

Market driven firms give big attention on the customer current state in the developments of

their strategies; learning and understanding market stakeholders then setting strategies that

make sense to them. By watching customers and observing their needs, market driven firms

focus on what customer groups and what emerging needs are the most important to serve.

Market driven firms concentrate their resources on delivering superior value to target

customers effectively and also efficiently.

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Broadly, the market-driving behavior takes into account the interests of all

stakeholders involved including competitors, industry regulators, channel members and

alliance partners. Market-driving firms proactively alter market’s stakeholder’s perceptions

and behavior, reflecting an entrepreneurial orientation leading to quantum leap increase in

value proposition. This behavior finds a firm shaping the structure, preferences, and

behaviors of all market stakeholders (Hills and Sarin 2003; Kumar, Scheer, and Kotler 2002).

They produce discontinues leaps in customer value because they have unique business

systems, new channels, unprecedented service levels and fundamentally change the

industry’s standards. Thus, market-driving firms are not restricted to the beginning of a

product or technology lifecycles but can take place any time (Schindehutte, Morris, and

Kocak 2008).

5. Competencies and capabilities

Market driven firms are so close to target customers; gain their insights and position

them in the beginning of every innovation through learning their perceptions to identify their

needs. Marketers use good marketing information systems to gain deep insights of what

customers’ need. Facilitated by the recent marketing technology evolution, great quantities of

information are available for good marketers to fulfill untapped customer needs. Part of the

learning is embedded in their mental representation of how things should be done. This is the

“inside out” perspective that focuses on firm-specific factors such as competencies (Sanchez

and Heene 1996), dynamic capabilities (Teece and Pisano 1994), and idiosyncratic bundles

of resources (Barney 1991) as internal sources of SCA. This possible sustainable competitive

advantage comes from the competencies of transforming customer’s information into

actionable insights. Firms can successfully achieve competitive market position and keep

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competitors behind, by delighting their customer and by delivering value superior to

competition (Porter 1987).

Owing to the fact that Market driving behavior comes into play when the market does

not yet exist, or is being radically redefined. Its focus is on all industry participants countering

opportunities for the future. Environment or market forces such as demand uncertainty,

technological turbulence, and competitive intensity create industry-specific effects based on

an “outside in” perspective (Porter 1985, 1980). In other words, the firm consists of a bundle

of activities that interacts with components of the market such as customers, competitors, and

stakeholders as it seeks a relative positional advantage (McGahan and Porter 1997). The

Market driving behavior manifests in the ability to influence sustainable competitive advantage

centers on ways in which the EO leads the firm to develop superior resources (Barney 1991),

dynamic capabilities (Teece and Pisano 1994), and isolating mechanisms (Kor and Mahoney

2004; Dyer and Singh 1998).

6. Cultural values

Market driven firm’s culture foster information acquisition throughout the organisation, it

is a key part of their Learning process, by encouraging open-minded inquiry, widespread

information access, and the use of Marketers’ interpretations on how markets are likely to

change in the future. Marketers use internal communications to share this knowledge, an

issue that harmonies firm’s competences to achieve corporate objectives. Hence, Strategic

Marketing planning is critical for the firm’s strategic direction. There is no doubt that innovative

products and marketing programs begin with good customer/market information (Kotler

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2012). The usage of this information can make the firm agile; to be able to counter

opportunities arise from rapid macro and micro environmental alterations. The firms Agility

can make firms dramatically more competitive. The brand, which is the key differentiation

factor, is known, clear and reflected in the organisation culture of information sharing. Strong

brands play critical role in building strong culture, its focus is to create value to target

customer.

Market-driving companies recruit and select people who fit into the their values. They

attract talents with little industry experience, individuals who have not been infused with the

industry’s conventional wisdom about why the market driving idea is doomed to fail. Such

employees are motivated strongly by their belief that they are on a mission and can be a

valuable source of SCA. Entrepreneurial capital includes human and social capital that

together enable company leaders to envision the future, recognize opportunity, develop novel

business models, pursue and multi-gate risks, leverage and combine unique resource bundles,

and demonstrate tenacity in exploiting a given opportunity (Erikson 2002; Lounsbury and

Glynn 2001). Entrepreneurial capital is the principal determinant of the level of EO in a firm ”

such as Steven Jobs, who is a part of an innovation culture (Hult et al. 2002), in which all

employees within the firm’s values and beliefs. Strong entrepreneurial capital leads to a

unique business model that shapes the structure and behavior of the market. This business

model is the primary vehicle for capturing the firm’s approach to the Macro-environment

(Schindehutte, Morris, and Kocak 2008).

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7. Market driven strategy

Kotler defines marketing as ‘CC DV TP’, in other words, the marketing aim is to create

and communicate value, to deliver this value to target customer at a profit (Kotler 2008). The

Market-driven strategy starts with exhaustive market research to fully understand an existing

customer need and an existing market. Then STP to focus their resources on target segments

they can to serve best through differentiation; that is the firm’s value proposition. Proactive

market driven firms focus on the ultimate need of customers and try to develop new solutions

to fulfil this need. It positions itself differently in customer’s mind and recalls this positioning

every time a new promise is communicated to target customer. They tailor their marketing

programs to communicate their value proposition (Kotler 2012).

The market program starts by a product or service to fulfil customer’s need at a price

the customer is welling to pay to acquire this value, this price carries many meanings about

the brand and reflects its promise to customer. Market driven firms use different channels for

different purposes; it’s crucial that customers can easily access the firm’s offering.

Furthermore, by using creative promotional activities and branding activities to influence the

customer’s purchase decision. Market driven communications mix of the specific blend of

advertising, public relations, personal selling, sales promotion, and direct-marketing tools that

the company uses to persuasively communicate customer value and build profitable customer

relationships. Market driven firms focus their resources to leverage their brand value by

communicating differentiated value superior to competition to engage, retain and attract

customers to maximize profits (Kotler 2012).

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8. Market driving strategy

Market-driving firms seek differentiation by attracting non-customer groups from a

variety of previously defined market segments. This destroys the conventional market

segmentation replacing it with a new set of segments reflecting the new, altered landscape.

Market-driving firms establish new industry price points for the quality or service levels they

delive. This makes competitors in a challenge, because they can’t replicate the innovative

business system that enables the lower price point. Market driving firms not only sell but also

educate customers on the existence of, and how to consume, their radical value proposition.

In almost every market driving firm, channel reconfiguration appears to play a critical role in

generating the architectural innovation that results in a unique business system. Market

driving firms have unleashed a wide range of innovative distribution and channel management

practices within their industries. Market driving firms often place greater reliance on the ‘buzz

network’ to get their message across. Reporters in trade publications and the popular press

also often publicize the radical new innovation. The commitment and enthusiasm of early

adopters and opinion leaders generates excitement and an intangible brand cachet that the

market driving firm strives to maintain. Consequently, market drivers don’t find it as necessary

to spend a lot of money on traditional advertising; their advertising-to-sales ratio is often less

than that of their established competitors. It captures the unique value combinations, which

enable a firm to configure new markets (Kumar, Scheer, and Kotler 2002).

The leap in customer value provided by market driving firms may involve either

breakthrough technology or breakthrough marketing. (See appendix figure 2). Serendipity has

a role to play in the development of many radical new ideas. For example, 3M researchers are

encouraged to spend up to 15 per cent of their time on a research project of their choice. In

any market-driving firm, it can be found potential entrepreneurs who have ideas are

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encouraged to share the idea with no frustration, creating an entrepreneurial mindset that

allows innovation (Kumar, Scheer, and Kotler 2002).

9. Performance outcomes

Market driven firms’ work to understand consumers, creates customer value, and

builds strong customer relationships to reap the rewards of creating superior customer value.

By creating value for consumers, they in turn capture value from consumers in the form of

sales, profits, and long-term customer equity that in turn leads to market leadership and

superior financial performance. The continued realization of superior financial performance is

important, a second performance dimension relates to prospective firm behavior as a result

of renewal of firm-specific resources and transformation of industry-specific components.

More specifically, it is one manifestation of the strategic orientation of the firm concerns its

behavior as market driving or market-driven. The concept of opportunity focus is the main

driver in the Marketing driving firms. Looking at the future and try to create radically

innovative solutions to overwhelm customer’s expectations. The importance of the

opportunity discovery enables firms to anticipate unarticulated or new needs, to envision

marketing offerings and to acquire, develop or create the required resources associated with

this proactive innovation, resulting in a sustainable competitive advantage and enduring

superior financial performance (Schindehutte, Morris, and Kocak 2008).

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10. Conclusion

To conclude, the importance of the deep learning and understanding customers is

unquestionable; it is the core of any successful strategic marketing. The importance of

consistently develop incremental innovative market offering to create loyal customers and

strong brand equity, the main goal is capture customer life time value, maximise current

customer share through enduring relationship with them. The Market driving behaviour seeks

taking the customer away from the market, develop radically innovative ideas that are

impossible to replicate as they actively change the industry standards and redefine the

meaning of value in customer’s perception. Both are market-focused behaviour on how the

marketplace and the industry structure will evolve (Saren 2007). Obviously, it’s clear that the

market-driving behaviour can drive the industry successfully if the opportunity presents. The

first mover advantage is huge as it shapes the future. Market driven and market driver

behaviours are not mutually exclusive, a single firm’s market driven behaviour can be

leveraged through entrepreneurial values to be market driving behaviour in different

situations depending on the opportunities arise in the market place, the firm’s culture and it’s

risk taking tolerance will shape it’s behaviour and it’s performance outcomes. Thus,

enhancing the creative side of entrepreneurial marketing of the experimentation, flexibility

and discovery innovation is the key to drive the market in all cases; it’s the readiness to take

risks and its entrepreneurial values. A market driven firm can raise it’s entrepreneurial values

seeking market ownership through radically innovative products or business systems or

innovative marketing, this will lead to persistent long-term superior financial performance and

sustainable business growth.

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11. Appendix:

- Figure 1:

The success of market driving firms is

based in radical innovation on two

dimensions; a discontinuous leap in the

value proposition and the implementation

of a unique business system.

- Figure 2:

Market driving firms, rather than playing

on the existing industry iso-value line,

they alter the industry’s standards

FROM MARKET DRIVEN TO MARKET DRIVING

dependent on donations and attempts to maximizethe number of free patients served.

What Aravind Eye Hospital shares with other marketdriving firms such as Amazon.com, Benetton, BodyShop, Charles Schwab, Club Med, CNN, Dell, FedEx,Hennes and Mauritz, IKEA, SAP, Sony, SouthwestAirlines, Starbucks, Swatch, Tetra Pak, Virgin, andWal-Mart is the inability of the market drivenapproach to explain their success. These market driv-ing firms did not use traditional market research todevise their path-breaking strategies that challengethe status quo. Market research, while useful in gener-ating incremental innovation, seldom leads to break-through innovations.2 The inspiration for the radicalbusiness ideas of these market driving firms camefrom a visionary such as Dr Venkataswamy, AnitaRoddick of Body Shop, or Richard Branson of Virginwho saw the world differently and whose visionaddressed some deep-seated, latent, or emergingneed of the customer. Rather than focusing onobtaining market share in existing markets, thesemarket drivers created new markets (e.g. CNN, Fed-eral Express, SAP, Tetra Pak) or redefined the cate-gory in such a fundamental way that competitorswere rendered obsolete (e.g. none of the top 10 dis-counters of 1962, the year Wal-Mart was born, are inbusiness today).3 Ultimately, these firm revol-utionized their industries by changing the rules of thegame and ‘driving’ their markets.

Our research indicates that the success of marketdriving firms is based in radical innovation on twodimensions — a discontinuous leap in the valueproposition and the implementation of a unique busi-ness system (see Figure 1).4 Value proposition refersto the combination of benefits, acquisition efforts/costs,and price offered to customers. For example, IKEAoffers the benefits of clean Scandinavian design andimage, tremendous assortment, immediate delivery,

Figure 1 Types of Strategic Innovation

European Management Journal Vol 18 No 2 April 2000130

a pleasant shopping atmosphere, and low prices,while asking the consumer in return to engage in self-service, self-assembly, and self-transportation, oftenfrom peripheral locations. This was a dramaticallydifferent value proposition from the traditional, fullservice, expensive, high street furniture store. As Fig-ure 2 indicates, rather than playing on the existingindustry iso-value line, market driving firms such asIKEA deliver a discontinuous leap in customer value.

The leap in customer value provided by market driv-ing firms may involve either breakthrough tech-nology or breakthrough marketing. The success ofBody Shop, FedEx, Starbucks, and even CNN andWal-Mart is less about new technology than aboutaggressively exploiting existing technology to see themarketplace differently and to serve the customer inan unconventional manner. The key to the successof these market driving firms is that they create anddeliver a leap in benefits, while reducing the sacri-fices and compromises that customers make toreceive those benefits (e.g. having to organize yourschedule around when the networks wish to broad-cast the news) (Stalk et al., 1996). They create aproduct/service experience that overwhelms cus-tomer expectations and existing alternatives. As aresult, the landscape of the industry is substantiallyaltered.

Business system refers to the configuration of thevarious activities required to create, produce, anddeliver the value proposition to the customer. IKEAcould not deliver its discontinuous value propositionby just improving on the existing business system ofthe traditional furniture store (see Figure 3).5

Traditional furniture channels were beset by expens-ive independent designers, high work-in-progressinventory, labor intensive handicraft manufacturing,

Figure 2 Leap in Customer Value

FROM MARKET DRIVEN TO MARKET DRIVING

dependent on donations and attempts to maximizethe number of free patients served.

What Aravind Eye Hospital shares with other marketdriving firms such as Amazon.com, Benetton, BodyShop, Charles Schwab, Club Med, CNN, Dell, FedEx,Hennes and Mauritz, IKEA, SAP, Sony, SouthwestAirlines, Starbucks, Swatch, Tetra Pak, Virgin, andWal-Mart is the inability of the market drivenapproach to explain their success. These market driv-ing firms did not use traditional market research todevise their path-breaking strategies that challengethe status quo. Market research, while useful in gener-ating incremental innovation, seldom leads to break-through innovations.2 The inspiration for the radicalbusiness ideas of these market driving firms camefrom a visionary such as Dr Venkataswamy, AnitaRoddick of Body Shop, or Richard Branson of Virginwho saw the world differently and whose visionaddressed some deep-seated, latent, or emergingneed of the customer. Rather than focusing onobtaining market share in existing markets, thesemarket drivers created new markets (e.g. CNN, Fed-eral Express, SAP, Tetra Pak) or redefined the cate-gory in such a fundamental way that competitorswere rendered obsolete (e.g. none of the top 10 dis-counters of 1962, the year Wal-Mart was born, are inbusiness today).3 Ultimately, these firm revol-utionized their industries by changing the rules of thegame and ‘driving’ their markets.

Our research indicates that the success of marketdriving firms is based in radical innovation on twodimensions — a discontinuous leap in the valueproposition and the implementation of a unique busi-ness system (see Figure 1).4 Value proposition refersto the combination of benefits, acquisition efforts/costs,and price offered to customers. For example, IKEAoffers the benefits of clean Scandinavian design andimage, tremendous assortment, immediate delivery,

Figure 1 Types of Strategic Innovation

European Management Journal Vol 18 No 2 April 2000130

a pleasant shopping atmosphere, and low prices,while asking the consumer in return to engage in self-service, self-assembly, and self-transportation, oftenfrom peripheral locations. This was a dramaticallydifferent value proposition from the traditional, fullservice, expensive, high street furniture store. As Fig-ure 2 indicates, rather than playing on the existingindustry iso-value line, market driving firms such asIKEA deliver a discontinuous leap in customer value.

The leap in customer value provided by market driv-ing firms may involve either breakthrough tech-nology or breakthrough marketing. The success ofBody Shop, FedEx, Starbucks, and even CNN andWal-Mart is less about new technology than aboutaggressively exploiting existing technology to see themarketplace differently and to serve the customer inan unconventional manner. The key to the successof these market driving firms is that they create anddeliver a leap in benefits, while reducing the sacri-fices and compromises that customers make toreceive those benefits (e.g. having to organize yourschedule around when the networks wish to broad-cast the news) (Stalk et al., 1996). They create aproduct/service experience that overwhelms cus-tomer expectations and existing alternatives. As aresult, the landscape of the industry is substantiallyaltered.

Business system refers to the configuration of thevarious activities required to create, produce, anddeliver the value proposition to the customer. IKEAcould not deliver its discontinuous value propositionby just improving on the existing business system ofthe traditional furniture store (see Figure 3).5

Traditional furniture channels were beset by expens-ive independent designers, high work-in-progressinventory, labor intensive handicraft manufacturing,

Figure 2 Leap in Customer Value

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