market orientation and its implications

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Market Orientation and its ImplicationsContents

1. Objectives

2. 1 Market orientation: A definition

3. Box 2.1 The price of good night's sleep

4. 2 Market orientation: A historical analysis5. Box 2.2 Different orientations of businesses

6. The lucky Bulgarian customer

7. The risks of adopting a production orientation

8. 3 Market orientation in the USA and Europe

9. 3.1 Market orientation and the USA

10. 3.2 Market orientation and Europe

11. 3.2.1 Two world wars

12. 3.2.2 Delayed market integration

13. 3.2.3 Heavy regulations

14. 3.2.4 Public sector involvement

15. 3.2.5 National markets

16. 3.2.6 Protectionist tendencies17. 3.2.7 Language differences

18. 3.2.8 Local business traditions and practices

19. 3.2.9 Dilatory approach to marketing education

20. 4 Organizational and managerial characteristics of market-oriented companies

21. 4.1 Company response and innovation

22. 4.2 Two distinct organizational types of market orientation

23. 4.3 Management and market orientation

24. Talk to your customers if you wish to be profitable

25. 4.4 The relationship between market orientation and the learning organization

26. 5 Implanting market orientation in organizations

27. 5.1 A strategic vision and long-term commitment

28. Marketing matters too much to be left to everybody

29. Making dedication to customers an obsession

30. 5.2 Managing the change for market orientation

31. 5.3 A guideline for implanting market orientation

32. 6 The future

33. Further reading

34. Discussion questions

Section: Customers, Markets, and Marketing Objectives

The objectives of this chapter are:

1. to define the term ‘market orientation’; 2. to describe the development of the concept of market orientation; 3. to explain why European organizations were slower than those in America to accept theconcept; 4. to set out the characteristics of organizations that are market orientated; 5. to consider how a market orientation can be implanted in an organization.

1 Market orientation: A definition

THE short story in Box 2.1 portrays a case of a ‘niche’ marketer—a small business organizationthat has discovered a ‘niche’, a tiny segment or segment of a segment, in the market that had

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been ignored by the big companies in the same industry. It is a highly flexible, lean, and meanorganization, operating very closely to its customers and supplying its customers with the bestbeds in every form they may require to suit their different needs. In return, it may charge apremium price, but customers do not mind this because they believe they are getting value fortheir money. They have flexibility of choice, flexible delivery time, and prompt response from theshopkeepers. In this shop are stored different types of beds, in different colours, shapes, andtypes, including plastic ones, orthopaedic ones, ones with springs, and so on. The owner of the

Bed Centre keeps a list of his customers and keeps them informed about new stocks, sales, etc.He asks what types of beds they require and he has close connections with several bedmanufacturers in both Ireland and the UK. They can deliver his requests without delay. A nichemarketer applies the marketing concept by operating very closely to its customers and taking thecustomers to the centre of its operations. It is also classified as a market-oriented business.

Market orientation has been classified in different ways by several researchers. The following arethe most frequently used classifications:

• a corporate philosophy; • the implementation of the marketing concept; • an ideal; •

a policy statement; • a corporate state of mind; • a faith; • an organizational culture; • a concept of periods or stages of development and degree of maturity of an organizationthat parallels the economic development of the national market within which it operates.

The author wishes to thank P. Blackhurst and M. Leuw (Henley Doctoral Fellows) for theirassistance.

Despite these seemingly different classifications of market orientation, we may conclude that allof the above labels hold true. Market orientation can be a business philosophy held by themanagement of an organization (McGee and Spiro 1988), or the implementation of the marketing

concept (McCarthy and Perreault 1997). Market orientation can also be described as a form of organizational culture that:

• places the highest priority on the profitable creation and maintenance of superior customervalue while considering the interests of other key stakeholders; • provides norms for behaviour regarding the organizational development of andresponsiveness to market information.

As Day (1994: 43) puts it: ‘A market driven culture supports the value of thorough marketintelligence and the necessity of functionally coordinated actions directed at gaining acompetitive advantage.’ Essentially the market-oriented culture is externally oriented.

Business organizations may be classified according to their tendencies or orientations. In

business, some companies are described as production or sales oriented, while others may comeunder the category of market oriented. The first two descriptions indicate an emphasis onproduction and sales, while the latter indicates an emphasis on the marketplace, indicating thatsuch companies are directed towards or centred around their customers. Some authors add moreorientations. For example, Payne (1988) argues that most organizations have a range of conflicting orientations and associated attitudes. Similarly, other authors, such as Levitt (1960),argue that many organizations do not serve their markets satisfactorily because of the fact thattheir managers are product oriented. Different orientations that may possibly exist in businessorganizations are given in Box 2.2.



Box 2.1 The price of good night's sleep

Mr Tony Johnson had got a new job in an international service company with its European HeadOffice in Dublin, the capital city of the Irish Republic. Together with his wife, Mr Johnson found alovely house in the south of Dublin at a small town called Dun Laoghaire. It takes fifteen minutesto drive to his office, which is situated in the industrial district of Tallaght. Resettlement problem

were solved without any hustle and the family travelled from Amsterdam by plane, leaving someold furniture there. They wanted to buy household durables, etc., new in Ireland. They had evenfound an international school for their son Jim. The school is called St Andrews College, is situatednot far from their new house, and has a good reputation in Ireland among both local andexpatriate communities.

Everything went well until Mr Johnson started to look for an orthopaedic bed for his back problem.He and his wife visited almost all the department stores in Dublin but they could not find a high-quality orthopaedic bed. Although some of the stores displayed good-quality beds, they did nothave good-quality orthopaedic ones. Even if the Johnsons were to choose one of those displayedbeds, department stores asked for at least a week for delivery, and he needed one as soon aspossible. One day, after they had spent hours in the shops, they were returning to their homewhen they saw a shop in Dun Laoghaire, on the main street, with a sign ‘Bed Centre’. Mr Johnsonpulled up his car and they went into the shop. This was a small shop displaying beds of different

types, colours, and shapes, including good orthopaedic ones. They were delighted with thisdiscovery so close to their home. Mr Johnson asked for the delivery time; the shopkeeper said ‘Ican deliver tonight’. So the sale was completed easily, although the price was over £400. Mr Johnson was ready to pay a premium for the good-quality product and prompt service. At last hehad a restful night in Ireland.

2 Market orientation: A historical analysis

MARKET orientation has also been defined as a stage of development of an organization, or as alevel that reflects an organizational maturity that parallels with the development of a nationaleconomy, from a historical point of view. Several authors, including Baker (1991), Dalgic (1992),Cannon (1996), and Kotler et al. (1996), subscribe to this definition. They see a marketorientation as the ultimate stage of development of a business organization, and draw a parallelwith the economic development of a country by accepting the fact that a market orientationdevelops through stages or eras of business orientations. These economic development stages

are production orientation, sales orientation, and market orientation. This approach tries toexplain the enabling macro-environmental factors, mainly supply and demand relationships andcompetitive conditions, that are thought to have influenced the progression of firms throughthese different orientation stages.

In this view, market orientation has been a natural progression from the practice of sellingtowards the understanding of customers, their problems, and needs, and it works towards asolution and satisfaction of those needs. At first the emphasis was on producing. After theIndustrial Revolution, mass production, assembly lines, and division of labour made it possible tomanufacture products more efficiently and cheaply. As a result of new technology, new ways of using labour, and an increasing demand for goods, production was of the greatest importance inthe West. Companics were manufacturing/production oriented and ‘marketing’ was limited totaking orders and shipping goods. In such a situation, with excess demand needing to besatisfied, companies were usually not very interested in customers' desires and wishes. This wasclearly illustrated in Eastern Europe under the communist regimes, where demand for mostproducts exceeded supply and as a result customers were treated in a dismissive manner (seeInsert).

During this period companies grew in size and this began to put distance between executivedecision-making and the customer. However, this had little impact on corporate performance atthe time, as the prevailing shortages meant that it was easy for entrepreneurs to find markets fortheir goods. Raw materials, capital, technology, and labour were viewed as scarce resources;customers were not.





According to some authors this so-called production era began in the early part of the twentiethcentury (Pride and Ferrell 1989), and according to some others with the Industrial Revolution,which focused on plant efficiency and quantitative output, and operated on principles of scientificmanagement (F.W. Taylor 1947; Skinner 1990). Jobs were broken down into discrete parts andlabour was specialized in order to become highly efficient in the execution of a small, repetitivepart of the whole. Henry Ford's production line was the physical manifestation of the principle of scientific management. Production-line operatives, often paid by piecework rates, became

detached from the holistic nature of work. Individual and departmental objectives and rewardsystems became inconsistent with satisfying the needs of the final customer (see Insert overleaf).In retrospect, this gave rise to disenchanted, demotivated employees, satisficing behaviour (thatis, behaviour that seeks a satisfactory rather than optimal outcome), and low-quality output.

It is interesting to debate whether Henry Ford, in setting up his River Rouge plant in the 1920s,was a production-oriented man who satisfied a huge demand in a market, or, in fact, a perceptivemarketer who saw the enormous need in the market for a car that the working man could afford.His own words suggest the latter, in which case the man credited with the initial application of the production line should be seen not only as someone in the vanguard of production technologybut also as an early mass marketer, for whom that production-line technology made possible thecreation of the product that the market wanted: a no-nonsense one-colour car that wasaffordable ($500) to the working man. In Baker's (1985: 46) words, ‘when Henry Ford firstproduced the Model T, he was exactly in tune with the needs of his market, and … his failing, if such it was, was not seeing that the basic demand for cars had become saturated and that thedemand needed to be stimulated through the provision of a differentiated product’. As Levitt(1960: 51) states, ‘Mass production was the result not the cause of his low prices.’

In time, of course, ‘any colour they like as long as it's black’ began to sound arrogant, and, whenAlfred P. Sloan at General Motors (GM) began to offer cars in a variety of colours, manycustomers moved to GM. These two examples help us to illustrate another complexity inmarketing, and thus business in general: that the competitive environment is always changing.Different industries may exhibit different characteristics regarding the rate of change, but it istrue in all industries that what works today, in terms of satisfying customers, may not worktomorrow, and most likely will not work in the long term. The implication for market orientation isthe necessity to monitor, share, and respond to changes in the market that arise both from thesupply side (competitors and suppliers) and from the demand side (consumer demands, changes

in the needs of buyers).

The production orientation raises another debate over whether marketing is required in shortageor monopoly situations. One view holds that marketing is an expensive luxury to exercise unlesscompetitive forces demand its application. The opposing view says that marketing is notnecessarily more expensive and that any organization that is perceived to survive by exploiting amonopoly position rather than by creating customer satisfaction has not customers but hostages.Sooner or later, particularly in the late-twentieth-century era of deregulation and increased globalcompetition, an alternative supplier will materialize and then the customers will desert. There canbe (but do not have to be) aspects of cost in market orientation, such as in providing variety orenhanced customer service, but these should be accepted only if they are offset by increased, ormore profitable, business (Houston 1986). If we take another look at the Ford/GM example above,Ford held an early monopoly at the price level that it established (the $500 car). At this point, bydisplaying superior (to currently competing car manufacturers) understanding of customer needs

and responding to them, Ford was displaying a high degree of market orientation. When itentered the market, GM would have incurred higher costs than Ford, by offering multiple colours.However, because of its superior (compared to Ford) understanding of the needs of the market atthat time, GM was able to gain a price premium and increased its business at the expense of Ford. It did this by offering something to which the customer attributed a value greater than theprice of the car, which itself was greater than GM's cost. To the extent that market orientationtakes into account profitability and core competencies in order to supply goods/services that themarket will value at a price that is more than they will cost to supply, market orientation, likequality, is free.



Key words in marketing are ‘matching’, ‘appropriateness’, and ‘suitability’. A commonmisunderstanding concerning the application of marketing is that ‘more is better’. Any companythat indiscriminately loads its market offering with services, variety, and options without takingaccount of whether the target market needs, values, and hence will pay for those additionalservices is not market oriented and is not applying the marketing concept. A market orientationis the degree to which a business unit obtains and uses customer information, develops astrategy that will meet customer needs, and implements that strategy by being responsive to

customer needs and wants. Marketing is choosing and understanding a certain part of the marketvery well, and using company strengths and its core competence to satisfy the needs of thatmarket segment with a suitable, appropriate, matching product.

If the segment that the company chooses to serve requires low-price, low-service, standardproducts, then the company that delivers that, reliably and to an acceptable (or better) standardof quality, can rightly be described as market oriented. The degree of market orientation in thefirm cannot be measured by what it spends on advertising, or the number of its salesmen orproduct lines. These attributes are easy to measure but, without a situational context, aremeaningless. Market orientation must be approached by asking questions about how well thecompany's offers ‘fit’ the target market's needs, how closely the company monitors changes inthose needs, and how prepared the company is to change in order to satisfy new or modifiedneeds.

Bartels (1962), in his book about the history of marketing thought, reveals that in the late 1950sthere was a growing need for problem-solving salesmen who could understand the customers'needs and offer solutions. This need created the practice of customer problem-solving, whichrequired a new approach to be adopted by the salesmen. They were expected to be closer totheir customers in order to understand their needs and problems. This was simply a customer-oriented approach rather than a company-oriented ‘sales-only’ approach. Earlier, when the issuewas simply sales only, it was expected that salesmen should be familiar with customers' buyingmotives; now it was assumed that they should have some familiarity with the idea that sellingand all other business functions logically begin with an understanding of the customers and theirneeds and the interpretation of this understanding into all activities of the business. This was, of course, the manifestation of a new business philosophy, the ‘marketing concept’.

Box 2.2 Different orientations of businesses

Product orientation. We sell what we can make. The quality of our products speaks itself and ourproducts sell themselves. They should be glad we exist.

Cost orientation. By reducing our production and marketing costs we can improve the profits of our business.

Capacity orientation. The bigger the production of our company, the more profitable it becomes.

No-commitment orientation. We cannot plan the future in our industry. No one knows what willhappen from today to tomorrow.

Competitor orientation. We observe and understand the strengths and weaknesses and the

strategies and capabilities of the current and potential competitors.

Market orientation. We make what we can sell. We make our profit by creating opportunities tosatisfy our customers' needs more effectively within the constraints of our resource and skilllimitations.

Sources: Aaker (1988); Day and Wensley (1988); McCarthy and Perreault (1997).

The lucky Bulgarian customer



‘Lucky customers are those who, on reaching the front of the queue, find that the product onoffer is not so defective as to be beyond their capability of repairing it.’

Source: Bulgarian sales manager, 1989.

The risks of adopting a production orientation

‘The scarcity of a particular item puts the producer into a privileged position vis-à-vis theconsumer. And so we get the rule of the producer under which contact is lost with the demandsof the consumer and society.

But when the producer rules, absolutely everything is done the wrong way round. The factorysees it as more profitable to increase the output, to mass produce …

The producer's main aim is to get rid of his output. Out of sight—out of mind. How and where theproduct will be used and how long it will work are not the producer's worry.’

Source: Ganbegyan (1989: 43).

3 Market orientation in the USA and Europe

3.1 Market orientation and the USA

In the USA, by the early 1950s, living standards were relatively high, discretionary incomebecame available, and, by definition, the consumer was able to make choices regarding the waythat such money was spent. In the academic world, textbooks that featured a marketingmanagement perspective began to appear (McCarthy 1960), and the ground-breaking article byLevitt (1960) on marketing myopia helped enormously in raising marketing consciousness amongthe US businessmen. Some of the larger US firms began to establish marketing departments(admittedly, mainly to coordinate sales and advertising) by the 1950s and by the end of thatdecade many academic articles had begun to appear. At this stage, some of them were alreadyseeking to follow the pure ‘ideology’ that marketing puts the customer first and involves theentire organization in the creation of customer value (Levitt 1960).

3.2 Market orientation and Europe

The European experience on this matter, however, showed a different pattern. If we look at thegrowth of marketing as a distinct aspect of business management, it was stimulated at thebeginning of the 1960s because of the prevailing climate of goods and services shortage on theContinent. There was not a single united economy in Europe, as was the case in the USA, whereone economy embraced the whole continent as a unified, single, internal market. As early as1959 the US authors Myers and Smalley had suggested that the evolutionary course of the futureEuropean Common Market might be more accurately predicted if the development of marketingin the USA were better understood. What they were saying was that the interstate trade barriersthat did exist in the USA were threatening US economic development in its earlier phases. Someother authors called these interstate barriers the ‘Balkanization of America’ —the division of theUS market into small economic-warring sectors (Hollander and LaFrancis 1993). This was similarto the case of Europe between the two world wars and was reflecting the reality after the SecondWorld War.

Historically, in Europe, a real Balkanization took place. Several smaller markets were formed as aconsequence of the turbulent European history and they exhibited different patterns of economicdevelopment, from very early industrialization levels to mass-production stages. This may lead usto the conclusion that market orientation in Europe showed differing levels of practicalapplication depending upon each national economy's own environments. However, despite these





national differences of application levels and moderating factors, it may be claimed that Europein general was later in applying market orientation than the USA. Again, we may claim that, ingeneral, there were European-wide causes that delayed a similar economic development for thewhole of Europe and consequently hampered the development of market orientation byEuropean business organizations. The obvious conclusion of this is that market orientation did nottake place in European markets at the same time as in the US market. There are several reasonsfor this late development of marketing in Europe.

3.2.1 Two world wars

Two world wars destroyed not only the material wealth and production facilities in Europe, butalso human resources such as design and manufacturing engineers, scientists, and qualifiedproduction workers. It took two decades after the Second World War to return to a level wherebasic production needs were satisfied. This may have delayed the European economies ingeneral reaching a level of excess supply where competition could have forced the companies toadopt a market orientation. Indeed, since the Second World War, the economic conditions havebeen such that there has been a seller's market most of the time. The most acute problems havebeen those associated with meeting promised delivery dates and other more production orienteddifficulties.

3.2.2 Delayed market integration

Old rivalries, cultural bias, and political problems meant that there was very littleintergovernmental cooperation among the European states after the war. This delayed thecreation of a larger European market, that in turn could have created a larger Europeaneconomy. However, the Marshall Plan, and then the establishment of Benelux (Belgium, theNetherlands, and Luxembourg), the Organization for Economic Cooperation and Development(OECD), the Council of Europe, the European Coal and Steel Community (ECSC), the EuropeanEconomic Community (EEC), and the European Atomic Energy Community (Euratom) gave manyEuropean countries the impetus to increase their production ability and capacity.

3.2.3 Heavy regulations

Although almost all West European countries had theoretically free market economies andmultiparty democracies as their common goals, in many parts real competition did not exist. Thereason for this could be attributed to heavy regulatory practices governing business life inseveral parts of Europe. Even in 1999 some broadcasting, telecommunications, and transportsystems as well as utilities were in the hands of the public sector.

3.2.4 Public sector involvement

During the post-war period, governments interfered with the markets by establishing companiesthat were owned and run by the public sector. This practice was particularly dominant in thecountries in the Soviet-led Eastern bloc that were run on communist principles based on a one-party and state-owned economic system, and continued until the early 1990s. In addition to that

practice, many West European countries had formed companies owned solely by theirgovernments. These practices delayed the establishment and development of private companiesbased on profit motivation. At the end of the twentieth century many European countries still hadseveral nationalized or renationalized companies—the so-called stateowned enterprises. ThisEuropean public-sector tradition is in contradiction to the US business traditions.

3.2.5 National markets



Strong national identities and nationalist thoughts in terms of business practices did little tosupport a unified European market but rather accelerated a tendency towards morefragmentation. Products would be labelled as made in a specific country, and until the 1990s itwas not possible to find products with the label ‘Made in Europe’. This fragmentation of Europeinto smaller markets did not help West European countries develop the conditions necessary toachieve economies of scale in many production areas.

3.2.6 Protectionist tendencies

In several European national markets, import substitution was a national economic policy formany years. This practice hampered the development of a bigger European market and helpedthe further fragmentation into many industries with smaller production capacity. Consequently, ittook a long time to develop global, standard European products that can compete in globalmarkets.

3.2.7 Language differences

Strong feelings supporting the maintenance of national languages and regional diversities haveinfluenced the economic and political agenda of many European states over the centuries. This

supported the fragmentation tendencies and prevented the development of a common Europeanbusiness language, though English is becoming the language of both European and globalbusiness, perhaps because of the influence of the US companies in international markets (Dalgic1992).

3.2.8 Local business traditions and practices

In many European markets some companies were kept going despite the fact that they were noteconomically as sound as they could be. Several forms of government subsidies and governmentcontracts were used to keep many non-economic entities working. In the end, many Europeancompanies have had to rely on continued government support in order to continue to exist in theface of competition. This practice, which is characterized by lack of competition and protection byvarious means, has delayed many West European markets from reaching the level of the sales

era and from proceeding on to the era of market orientation.

3.2.9 Dilatory approach to marketing education

Marketing was seen as an unimportant activity in many European universities until the 1970s.Even at the end of the twentieth century some old European universities still retained thistradition. This might have led to the late entrance of European researchers into the field of marketing as compared to their North American colleagues. In many European universities,marketing as an independent area of study was introduced only in the late 1960s or early 1970s.According to a European practitioner, Europeans should blame themselves for this lack of interest. A European marketing author, Grönroos (1989: 53), points out that marketing mix andthe other basic ideas of marketing were developed in North America and are widely accepted inthe Western world, and admits: ‘We have no European marketing theory or model geared to

European conditions.’ He also blames the European researchers as the cause for thisdevelopment.

However, these views do not seem to be justified in the light of the reasons discussed. It isneither a matter of laziness nor a lack of vision of European scholars but a cultural, historical,political, and economic reality of Europe and its macroenvironmental factors. Even in the late1990s, differing opinions among the EU nations about the interpretation and application of articles of the Maastricht Treaty and enlargement issues were perceived to be a reflection of thepast, which could explain some of the reasons why Europeans did not develop coherentEuromarket and Euromarketing models.



After studying 436 organizations in the Netherlands, Bamossy (1988) concluded: ‘Marketing hasa bad image. At best, marketing was seen as equal to advertising, and at worst marketing wasassociated with aggressive attempts to stimulate demand for and increase the market share of commercial goods. Potential contribution of marketing management concept is not wellunderstood.’

Piercy (1985,1989) and Piercy and Morgan (1989) reported several research studies from the UK

about the state of marketing as a function, marketing as a department, and marketing as aguiding principle among UK companies. They concluded that a great majority of the UK firms thatwere the subject of those surveys had had problems understanding and handling their marketingactivities. Another European author, Baker (1991: 5), in explaining the state of market orientationin the UK, concluded that the Americans ‘appreciated this in the 1950s, the West Germans and Japanese in the 1960s, the British belatedly in the late 1970s (up until the mid-1970s nearly allour commercial heroes were sales people, not marketers)’.

Much of the literature since 1970 concerns itself with a renaissance of the original marketingconcept. The number of theoretical papers published since 1974 in the Journal of Marketing andthe European Journal of Marketing has steadily increased following a period of neglect in the early1970s (Howard et al. 1991). The Marketing Science Institute in the USA added weight to theseinvestigations by declaring the understanding of customer-oriented organizations ‘as one of four

… highest priority research topics’ (Marketing Science Institute 1990:4).

4 Organizational and managerial characteristics of market-oriented companies

ORGANIZATIONAL and managerial characteristics of market-oriented companies and theantecedents of this orientation in terms of managerial implementation issues have been coveredin various conceptual and practical studies. In two separate empirical studies by differentresearchers, similar or very close conclusions were reached about the definitions and constructsof market orientation. Kohli and Jaworski (1990: 2) define market orientation as theorganizationwide generation of market intelligence pertaining to:

• current and future customer needs; • Dissemination of the information across departments; • Organization-wide responsiveness to it.

In another study aiming at the exploration of the correlation between the market orientation andbusiness profitability, Narver and Slater (1990a: 21) stated that the three hypothesizedbehavioural components of a market orientation comprised the activities of:

• market information acquisition; • dissemination; • the coordinated creation of customer value.

A careful analysis between these two conclusions will reveal the following three commonconstructs that underline a market orientation:

• organization-wide acquisition/generation of market intelligence/information pertaining tocurrent and future customer needs; • dissemination of market intelligence/information across departments within theorganization; • organization-wide responsiveness/coordinated creation of customer value.

The authors of these studies consider market intelligence (market information) as the primaryactivity and as a starting point for market orientation, while, Kohli and Jaworksi (1990) considerthe following as market information:





maximal) levels of customer satisfaction, consistent with profit objectives, must be the realisticgoal.

The way that these companies can achieve a better fit between a standard product offering andvariable customer needs is by empowering frontline staff to vary the service component of theoffer, and to provide unbundled pricing options. This way, the full-service/premium-price buyercan, for example, have product, delivery, installation, training, credit, etc., whilst the budget

buyer can opt for the core product and collect it himself. Customers in the middle ground can‘customize’ their own product package to suit their price range and resources. This is entirelyconsistent with the marketing concept and is a contributor to the third element of marketorientation, as we have defined it: organization-wide responsiveness/coordinated creation of customer value.

According to the shareholder value maximization view (Rappaport 1986; McTaggart et al. 1994),no company can create wealth for its shareholders without having very satisfied and loyalcustomers, yet it is quite possible to do the opposite and to achieve high levels of customersatisfaction and be unable to translate this seeming advantage into adequate returns toshareholders. McTaggart et al. (1994) conclude that the limits to customer satisfaction should bedetermined as follows:

As long as management invests in higher levels of customer satisfaction that will enableshareholders to earn an adequate return on their investment, there is no conflict betweenmaximizing shareholder value and maximizing customer satisfaction. If, however, there isinsufficient financial benefit to shareholders from attempts to increase customer satisfaction, theconflict should be resolved to avoid diminishing both the financial health and long-termcompetitiveness of the business.

‘The personal-contact network will be used by the entrepreneur owner manager to seek out salesopportunities and to glean actual sales on the back of wider information exchanges.’ (Chapter 25,p. 578)

‘A large number of contact employees interacting with the customers create value for them invarious service processes …’ (Chapter 21, p. 505)

4.1 Company response and innovation

There seems to be a dilemma between satisfying customers' needs and desires and the newlevels of technology and innovations. Technological innovations take place gradually and manynew technologies are so different from previous offerings on the market that customers may notrecognize their need for them before they are marketed. How can the customer know what thecustomer does not know? As Hamel and Prahalad put it in 1994:

Customers are notoriously lacking in foresight. Ten or 15 years

ago, how many of us were asking for cellular telephones, fax

machines and copiers at home, 24-hour discount brokerage

accounts, multivalve automobile engines, compact disk players,

cars with on-board navigation systems, MTV or the Home Shopping

Network? … if the goal is getting to the future first,rather than merely preserving share in existing businesses, a

company must be much more than customer-led.

As we have discussed, being market oriented is more than being customer led. Americanbusiness magazine Fortune in an article of 1 May 1995 followed this theme and concluded, ‘… if acompany truly understands its customers' needs, it can in good conscience disregard what theyclaim to want’.

The term ‘customer intimacy’ is sometimes used to describe this closeness to the customer, andmarket orientation must depend upon an expanded definition of customer needs to include latent



needs. Customer needs are evident but not yet obvious, and successful managers will needsuperior skill in understanding customers in order to identify and satisfy these unidentified, yetsignificant, needs (Day 1990). Information processing (the major process exhibited in marketorientation) is again shown to be the key to satisfying customers, whilst respecting competitivepressures and value-creation constraints. In many situations, of course, the value-maximizingresponse may well be no response—that is, ‘market oriented’ does not carry the same reactiveobligations as ‘market led’.

4.2 Two distinct organizational types of market orientation

The marketing literature appears to disagree regarding what is the impetus to the adoption of amarket orientation in companies. There seem to be two distinct organization types regardingtheir market orientation; one group can be labelled as Type A, the other as Type B.

A-type firms exhibit a purer form of market orientation, and embody a genuine philosophy thatgenerating satisfied customers and satisfactory profits are not mutually incompatible goals andthat, in fact, they are the only long-term goals that make business sense. They are ‘learningorganization’, as Slater and Narver (1995) put it. A-type firms are likely to be small and growing,to have strong leadership and culture, to be innovative, lean, and flexible. As Peters andWaterman (1982) describe, these firms may be identified by the kinds of myths and heroes that

the company celebrates. A-type firms focus on customer satisfaction, customer loyalty, focus onrelationships, and the lifetime value of the customer.

B-type firms view market orientation as a ‘magic bullet’solution to external pressures, particularlyincreased competition, a more expensive modus operandi to be used only when necessary and inorder to stay one step ahead of the competition. This group of firms regards market orientationas a corporate stage of evolution, brought about by external pressures, particularly competition. The B-type firm is driven by cost considerations and by competitor analysis. It is likely to belarge, bureaucratic, and reactive.

B-type firms are obsessed with benchmarking their offerings against competitors, whilst A-typefirms attempt to satisfy their customers to the point where a loyalty exists and the companyeffectively eliminates competitors by domesticating (Arndt 1979) the relevant market, so that the

price-driven microeconomic paradigm no longer applies. This (A-type/B-type) distinction mayaccount for the two schools of thought regarding the definitions of market orientation: one (Dayand Wensley 1988; Narver and Slater 1990a) includes ‘focus on competitors’ explicitly; the other(Kohli and Jaworski 1990; Jaworski and Kohli 1993) does not include separate reference to thecompetitor in the list of attributes or exhibited processes in the market-oriented firm, but ratherincludes competitor intelligence in a broader category of market intelligence includingcompetitors, customers, and other stakeholders. These two organization types of marketorientation are compared in Box 2.3.

Marketing strategy can be viewed as a continuum, but it is not wise for a business continuouslyto attempt to adjust the magnitude of its market orientation in relation to various moderators(Dalgic and van der Weijden 1994). This is the challenge for most mature companies. For existingA-type firms, the challenge is to avoid becoming a B-type as the company grows. The challengefor B-type companies is how to become more like the A-type, and, as the literature on corporate

culture shows (Kotter and Heskett 1992), it is much more difficult to change an existing culturethan it is to establish an appropriate culture in a new company.

If the link between market orientation and performance can be shown to be robust across allindustries and environments, then the B-type firm has no reason to accept a limited amount of matket orientation at a minimum cost. The message for all companies will be to adopt a fullmarket orientation to achieve superior and sustained business performance.

4.3 Management and market orientation



In the management of the company top managers play a critical role in encouraging theemployees to act in harmony with the norms and values of market orientation (Kohli and Jaworski1990). The emphasis of top management on market orientation will encourage personnel to besensitive for market developments, to share this information with colleagues, and to respond onthis information accordingly (see Insert).

We can rephrase this relationship with the following conclusions. The greater the top-

management emphasis on market orientation, the greater the

• market-intelligence generation, • intelligence dissemination, and • responsiveness of the organization.

Responsiveness to the market developments often encompasses the courage to invest in newproducts and services without knowing beforehand if these investments will yield the expectedresults. Jaworski and Kohli (1993: 55) found several factors as important antecedents of theimplementation of a market orientation. These factors are:

• top management emphasis on market orientation; • calculated risk-taking and willingness to accept occasional failures of new products andservices by top management; • the development of interdepartmental dynamics and connectedness, and the elimination of interdepartmental conflicts; • the installation of a market-based rewards system; and • less centralization, formalization, and departmentalization within the company.

A willingness of top management to take risks is, therefore, crucial for a market-orientedcompany. We may then reach the following conclusion: the greater the risk aversion of topmanagement, the lower the market-intelligence generation, the intelligence dissemination, andthe responsiveness of the organization.

Another point of importance is the quality of the interdepartmental cooperation. A certainamount of interdepartmental conflict will affect the sharing and the responsiveness of relevantmarket information. Thus the following conclusion may be reached: the greater theinterdepartmental conflict, the lower the intelligence dissemination, and the responsiveness of the organization.

Closely related to the former point is the measure of formal and informal contact betweendepartments. The greater the extent to which employees through different departments areconnected, the more information will be shared and will be responded on. As a consequence, thegreater the interdepartmental connectedness, the greater the market-intelligence dissemination,and the, responsiveness of the organization.

Market orientation is directed at innovation and risk-taking. Formal and centralizeddecisionmaking is essentially conservative in character. Therefore, it seems likely that

formalization and centralization are inversely related to information generation, dissemination,and design of responsive programmes of action. A market orientation stimulates innovativebehaviour. Innovative behaviour consists of an initiation stage and an implementation stage.Formalization and centralization may hinder the initiation stage where creativity and flexibilityare much needed. In the actual implementation stage, however, where the organization andmanagement of the (production of) the innovation are decisive, it is likely that formalization andcentralization actually facilitate the implementation. So, the greater the formaiization, the lowerthe intelligence generation, dissemination and response design, and the greater the responseimplementation.



It also seems likely that, if managers are evaluated and rewarded by market-related factors, thiswill have a positive influence on a market orientation. This means that, the greater the relianceon market-based factors for evaluating and rewarding managers, the greater ( 1) the market-intelligence generation, ( 2) the intelligence dissemination, and ( 3) the responsiveness of theorganization.

Researchers Kohli, Jaworksi, and Kumar (1993) have developed an instrument to measure market

orientation of the organizations. This instrument is called Markor. It is in fact, a diagnosingquestionnaire and consists of one general market-orientation factor, one factor for intelligencegeneration, one factor for dissemination and responsiveness, one marketing-informant factor,and one non-marketing-informant factor. Markor has been accepted as a valuable instrument tomeasure market orientation and, is therefore, used as a point of departure for the research to beundertaken in this field by several researchers.

A developing stream of empirical research has found a strong relationship between marketorientation and several measures of business performance, including profitability, customerretention, sales growth, and new-product success. Day (1994) stresses the role of capabilities increating a market-oriented organization. He observes, ‘Capabilities are complex bundles of skillsand collective learning, exercised through organizational processes that ensure superior co-ordination of the functional activities. I propose that organizations can become more market

oriented by identifying and building the special capabilities that set market-driven organizationsapart’ (1994: 38). According to Day (1994) market-driven organizations are superior in theirmarket-sensing and customer-linking capabilities.

Slater and Narver (1995: 65) state: ‘presumably, learning facilitates behaviour change that leadsto improved performance.’ It therefore seems most likely that a committed learning organizationwill perform better than one that is not so committed. Organizations that are able to adapt to,and perhaps even create, their environments, that learn from the behaviour of their customers,and that know how to improve their skills and knowledge continuously must somehow be moresuccessful than their counterparts. Indeed, especially in knowledge-based industries. This may bethe only basis on which to build a sustainable competitive advantage.

Some authors have written on the role of the environment for the market orientation-businessperformance link. In the Jaworski and Kohli (1993) study the following three moderators are found

to influence market orientation-business performance (they are three of the four environmentalcharacteristics mentioned above): market turbulence, technological turbulence, and competitiveintensity. The performance of the economy appeared to be too complex to measure, so thisvariable was not included. Kohli and Jaworski consider market turbulence as the rate of change inthe composition of customers and their preferences. If an organization operates in a turbulentmarket, it has to modify its products and services more often than when it operates in a stablemarket. It therefore seems likely that firms operating in turbulent markets have a greater need tobe market oriented and committed to learning than those operating in relatively stable markets. They have to monitor and respond quickly to evolving customer preferences. This leads us to thenext conclusion, which is that, the greater the market turbulence, the stronger the relationshipbetween market orientation and business performance.

If competition is low, it does not seem to be difficult for an organization to be profitable. The needto be a market-oriented or learning organization is low, as customers will buy the company's

products and services anyhow. If a business meets high competition, customers can walk away tothe competition at any moment. Therefore, under these circumstances it seems worthwhile to behighly market oriented and to make a commitment to learning so as to be able constantly tosatisfy the customers' needs and wants. This leads to the conclusion that the greater thecompetitive intensity, the stronger the relationship between market orientation and businessperformance.

Technological turbulence or the rate of technological change may influence the marketorientation and learning-performance link negatively. Organizations that work with nascenttechnologies that are undergoing rapid change may be able to obtain a competitive advantage

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through technological innovation, thereby diminishing—but not eliminating—the importance of amarket orientation. By contrast, organizations that work with stable (mature) technologies arerelatively poorly positioned to leverage technology for gaining a competitive advantage and mustrely on market orientation to a greater extent (Jaworski and Kohli 1993). The same will be thecase for the need to be a learning organization. It is likely that the need to learn from thecustomers is conversely related to the degree of a technologically driven strategy: this can bestated as: the greater the technological turbulence, the weaker the relationship between market

orientation and business performance.

Talk to your customers if you wish to be profitable

The Chairman of Marks & Spencer spends sixteen hours out of his 7–80 hours working week inshops talking with customers and staff. By doing so he keeps in touch with the customers andmotivates staff to do the same. He says about using his time in this way, ‘It is more profitablethan cosying up to the City.’

Source: Marketing Business (1998).

4.4 The relationship between market orientation and the learning

organization

Learning organizations have the collective capacity to learn as entire organizations. They learnfrom their environment, they learn from their clients, they learn from their competitors, and onepart of the organization can learn from the mistakes of another part. So essentially a marketorientation and the learning organization seem to have much in common. For instance, market-orientation theorists stress intelligence generation and intelligence dissemination, while thelearning-organization scholars mention openminded enquiry and synergistic informationdistribution. Slater and Narver (1995) support this notion. Their argument is that a marketorientation (complemented by an entrepreneurial drive) is beneficial for the performance of thecompany. However, this will be the case only if it is accompanied ‘by an appropriate climate toproduce a learning organization’. This climate must entail generative learning. According toSlater and Narver (1995), learning organizations consist of five critical components:

• market orientation; • entrepreneurship; • facilitative leadership; • organic and open structures; • a decentralized approach to planning.

Only when all of these five characteristics are present will superior performance be produced.

There is a leak between a market orientation and the learning organization from the viewpoint of the relationship between market information processing and organizational learning. Insuccessful organizations market information is first acquired, secondly distributed, thirdly

interpreted, and fourthly stored for future use in the organizational memory. This describes asound way of market information processing that is typical for both a learning and a market-oriented organization.

As Day (1994: 43) puts it, ‘learning is more than simply “taking in information”. The learningprocess must include the ability of managers to ask the right questions at the right time, absorbthe answers into their mental model of how the market behaves, share the understanding withothers in the management team, and act decisively.’ In his paper on market-driven firms—whichcould also be called market-oriented firms—Day (1994) investigates the learning processes in



this kind of company. He states that learning processes in market-driven firms are distinguishedby:

• open-minded enquiry, based on the belief that all decisions are made from the market back;

• widespread information distribution that assures relevant facts are available when needed; • mutually informed mental models that guide interpretation and ensure everyone pays

attention to the essence and potential of the information; • an accessible memory of what has been learned so the knowledge can continue to be used.

So, for Day (1994), market-driven or market-oriented organizations are characterized by learningprocesses.

5 Implanting market orientation in organizations

WHILE the theoretical arguments in favour of following a marketing orientation are clear inpractice, it seems extremely difficult to implant such an approach in an organization. What isrequired is a strong and decisive lead from top management.

5.1 A strategic vision and long-term commitment

Market orientation is a continuous, strategic commitment. The decision to implant a marketorientation into an existing or a start-up business requires the support of the entire organization.For this reason, it must be decided and implemented by the top management team led by theChief Executive Officer (CEO) of the company on a long-term basis (see Insert). Ansoff (1987: 61)stresses the importance of this long-term view, commenting:

Exclusive concern with proximate profitability would be almost certain to leave the firm run downat the end of the period. Total emphasis would be on current products and markets; onadvertising, promotion, sales force, productivity of the manufacturing organization. But to remainprofitable into the long-term, the firm must continue to renew itself; new resources must bebrought in and new products and markets must be developed. Many key phases of this self-renewal activity have long lead times. Therefore, during the proximate period resourcecommitments must be made to such long-term needs as research and development,

management training and new plant and equipment.

Levitt in 1983 saw marketing as a lifetime commitment, like a marriage: ‘The era of the one-nightstand is gone. Marriage is both necessary and convenient. Products are too complicated, repeatnegotiations too much of a hassle and too costly. Under these conditions, success in marketing istransformed into the inescapability of a relationship. Interface becomes interdependence.’ Thisinterdependence should be reflected in a lifetime commitment to good quality, adaptation to thecustomers' changing needs, and the establishment of ongoing relationships with the customers.Not only existing customers, but those who have already left the company, must be taken intoaccount, and every effort should be made to regain their support. An outline for applyingdifferent customer-relationship strategies for different customer groups is given in Box 2.4.

These strategies may require conscientious efforts, carefully detailed analysis, well-planned,realistically timetabled, and sensitively applied and controlled methods. It may be concluded that

a solid reputation in the minds of the customers is essential to be successful as a marketer (seeInsert).

Marketing matters too much to be left to everybody

Kodak's Chief Marketing Officer, Carl Gustin, explains why marketing still matters.

‘We've seen all the articles predicting the death of the marketing organization. Some saymarketing should be embedded throughout the organization, eliminating any need for the





marketing department. Others note that the classical organizational structures have collapsed,leaving marketing teams without any useful function. Many say that since the Internet ischanging everything, it won't be long before people make their major purchases on-line. This, of course, will eliminate sales people, drive retailers out of business, kill newspapers andmagazines, and so on.

At Kodak we think marketing matters more than ever; that's why we formed the office of CMO

(viz. Chief Marketing Officer) over two years ago. To achieve corporate growth (in volumes,margins, and share), you must enjoy and intimate relationship with your customers and end-users.’

Source: MSI Review (1997).

Making dedication to customers an obsession

Hewlett Packard successfully combines a dedication to customers with an obsession withmeasurements. The performance of every employee is evaluated against a scorecard and everyscorecard includes some customer-led measures.

5.2 Managing the change for market orientation

To implant a market-orientation strategy may require several changes within an organization. Onthis matter, Lichtenthal and Wilson (1992) conclude ‘to change, a firm must analyze the currentsystem and then prepare a detailed plan to create the norm structure that will support thedegree of market orientation it needs to implement its market strategy’. It is clear that analysingthe current system and behaviour and preparing a detailed plan for the norm structure that willsupport the degree of market orientation require changes in the planning and execution of firms'strategic marketing activities. These changes should be planned and implemented. Managementshould develop methods to influence the behaviour of the people by rewarding the good ones. Topmanagement commitment and exemplary behaviour support the emergence of new normsbecause they reinforce the transmission of norms between individuals: stories, rituals, andsymbols. With managerial skills and exemplary behaviour, managers must inspire employees andchannel their energy, abilities, and qualifications, and they must also exhibit a strong support for

the plan for executing the policy (Robbins 1992).

Next to exemplary management behaviour, a well-aimed reward system, and the powerstructure, the level of delegation and the communication system play an important role ininstitutionalizing a culture (Ansoff 1990). The job descriptions and policy statements must reflecta market view (Lichtenthal and Wilson 1992). The support of the entire organization in generaland employees in particular is vital for a market orientation; as the same authors conclude, ‘wemight require a majority of the members of the organization to possess a market orientation for itto become normative’. Here internal marketing may offer a better chance of success.

5.3 A guideline for implanting market orientation

As a guideline for implanting a market orientation, the following points may be followed:

• Put the CEO and the top management team in charge of the process. • Ensure that the reason for change towards market orientation is clearly communicated toevery individual in the firm by every means of communication. • Create an internal environment for

consultation and feedback.



• Take time to finish the total change process including the feedback stage. • Involve employees and give them freedom to work out the change for their own functionalareas. • Provide training in new values, work methods, and customer understanding and servicequality improvement. • Acknowledge and reward the successful employees.

• 5.4 Action plan for implementation

The following is a guideline towards achieving the changes in the organizational culture requiredto implant a market orientation:

• establishing a market intelligence system and its related departments equipped withhuman, physical, and financial resources, directed to the market environment to collectinformation; • developing and implementing a method of information dissemination that will beresponsible for the distribution and interpretation of the market intelligence; • creating an informal, flexible, active communication system between and amongdepartments in a supportive manner, reducing the bureaucracy within the company, supportingbottom-up information flows as well as top-down ones; • establishing market-based reward and payment systems, as well as internal communicationsystems; • abolishing formal structures and establishing market-based departments and project teams;

• planning for an internal marketing system to present the market-orientation strategy to thecompany personnel; • planning company-based training programmes aimed at creating customer sensitivity,service quality improvement programmes, and customer understanding strategies; • establishing a customer-retention philosophy within the company; • preparing for a relationship marketing strategy, depending upon the size of the company; • adopting of one-to-one marketing with big customers, and building niches aroundcustomers; • applying total quality management and periodical service quality surveys amongmanagement and customers; •

setting up customer help lines; • undertaking customer satisfaction surveys about both goods and services and action uponthe results.

6 The future

IN order to develop more accurate, well-developed, and fine-tuned management methods andmarketing decision-making tools, we need more research in the market-orientation field. Thisfield will help many companies to operate successfully and eliminate failures. We needcomparative research between service companies, inter-industry and intra-industry surveys insimilar and dissimilar business fields. In addition to studies only in the marketing area, we needcross-fertilization among other fields of study: organization theory, sociology, psychology, socialpsychology, finance, history, economics, IT, and strategic management. Many marketing issuesrequire multidisciplinary approaches. There are also several issues that need to be investigated.For example:

• Are market-oriented companies in national markets also market oriented in foreignmarkets? • What is the impact of national culture on market orientation? • How long does it take a company to increase its market orientation? • What is the relationship between market orientation and entrepreneurship?

Further reading







Dalgic, T. (1994b), ‘International Marketing and Market Orientation—An Early Attempt at integration’, Advances in International Marketing, 6: 69–82.

----- (1998), ‘“Niche” Marketing Principles—Guerrillas vs. Gorillas’, Journal of Segmentation inMarketing, 2/1:5–16.

Day, G. S. (1994), ‘The Capabilities of Market-Driven Organizations’, Journal of Marketing,58/4:37–52.

Kohli, A., Jaworski, J., and Kumar, A. (1993),‘MARKOR: A Measure of Market Orientation’, Journalof Marketing Research (Nov.), 467–78.

Lichtenthal.J. D., and Wilson, D.T. (1992), ‘Becoming Market Oriented’, Journal of BusinessResearch, 24: 191–207.

Slater, F. S., and Narver, C.J. (1995), ‘Market Orientation and Learning Organization’, Journal of Marketing, 59/3: 63–75.

Ruckert, R. W. (1992), ‘Developing a Market Orientation: An Organizational Strategy Perspective’,International Journal of Research in Marketing, 9:225–45.

Discussion questions

1. Try to identify those shops that adopt market orientation in your neighbourhood shoppingmall or shopping centre. 2. Why is market orientation not a once-off activity, but a long-term commitment? 3. Critically examine the contention that ‘Marketing is the least developed activity in anunderdeveloped country’. 4. ‘Marketing is the management of life-time relationships with the customers.’ Do you agree?Why is managing a relationship with customers so important? 5. Try to find at least five niche marketers in your country. 6. ‘Today's market-oriented companies may turn out to be production oriented if they do notfollow the changes in the market place.’ Do you agree? Explain why.

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Published in the United States by Oxford University Press Inc., New York

© Oxford University Press 2000

Box 2.3 Two types of organization for market orientation

A type B type

Genuine market customer- Customer orientation

Orientation philosophy accepted when market

forces require itBelief that profits come Emphasis on cost cutting

from satisfied customers and profit

maximization

Learning organization Learning only when

Competitors make it

necessary

Customers/competitors/ Competitor-based

stakeholders/ market information

technology-based generation





market information

generation

Lean, mean, flexible Large, bureaucratic

Strong leadership and Change in organization

organization culture for culture

Customer care

Innovative Imitative

Long-term focus Short-term focus

Box 2.4 Customer types and customer relationship strategies

Customer type Customer relationship strategy

Past Regain

Existing Retain

Potential Gain

Source: Dalgic (1998).

~~~~~~~~

By Tevfik Dalgic

Edited by Keith Blois

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