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Theories of Marketing Summary
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Week 1Lecture
What is marketing?
• A business philosophy → a way to approach the market
• Functions & processes/activities to deliver “customer value”
Marketing is mostly located at the corporate level of the firm.
History (from product-driven “quality” to customer-driven “satisfaction & customer value”)
1. Just getting the product out there → product-driven
a. Orientation: production
b. Focus: exploitation of a technical capability
c. Objective: profits through supplying markets where task is one of allocating supplies
2. Convince that my product is better than the other
Because if there are competitors, you have to do things to still survive.
a. Orientation: selling
b. Focus: promoting the consumption of a product that the organization is able to make
or produce.
c. Objective: profits through persuading people that what the organization happens to
have, is what they really wanted.
3. Listen to the customer and then produce. Not just producing and convincing as earlier.
→ Customer-driven
a. Orientation: marketing
b. Focus: Identifying wants and needs and matching these to organizational resources.
c. Objectives: profits through the provision of customer satisfaction by meeting their
needs and wants.
Definition Marketing: Marketing is the process of planning and executing conception, pricing,
promotion and distribution of goods, ideas and services to create exchanges that satisfy individual
and organizational goals.
Two kind of papers:
- Conceptual paper: new view – without specific new data to proof that. Just proof it with old
information, making a new view → big ideas but no proof
- Empirical paper: test ideas. You have proof. → smaller experiments with proof
The effect of a market orientation on business profitability
– Narver & Slater 1990
= Empirical
Subject: Business performance is affected by market orientation.
Definition market orientation: Market orientation is the organization culture that most effectively
and efficiently creates the necessary behaviors for the creation of superior value for buyers and,
thus, long-term superior performance of the business → set of beliefs that puts customers’ interest
first.
,Reason for research: no one has developed a valid measure of a market orientation and hence no
systematic analysis of its effect on a business’s performance.
Sample: 140 business units consisting of commodity products businesses and non-commodity
businesses.
Finding: positive effect of a market orientation on the profitability of both types of businesses.
For an organization to achieve consistently above-normal market performance, it must create a
sustainable competitive advantage → superior value for its customers → this is the difference
between what the buyer perceives as the offerings’ expected benefits and what the buyer perceives
as its expected total acquisition and use costs.
Market orientation consists of three behavioral components and two decision criteria:
Behavioral components:
1. Customer orientation: include all activities involved in acquiring information about buyers in
the target market and disseminating it throughout the business(es).
Value creation by (1) increasing benefits to the buyer in relation to the buyer’s costs and by
(2) decreasing the buyer’s costs in relation to the buyer’s benefits.
2. Competitor orientation: include all activities involved in acquiring information about
competitors in the target market and disseminating it throughout the business(es).
Understand the short term strengths and weaknesses, and long-term capabilities and
strategies of both the key current and the key potential competitors.
3. Interfunctional coordination: is based on the customer and competitor information and
comprises the business’s coordinated efforts, typically involving more than the market
department, to create superior value for the buyers.
The Interfunctional coordination requires, among other things, an alignment of the
functional areas’ incentives and the creation of Interfunctional dependency so that each area
perceives its own advantage in cooperating closely with others.
Market orientation as a behavioral component: The ability to generate, disseminate and use superior
information about customers and competitors.
Market orientation is the implementation of the marketing concept
Two decision criteria:
1. Long-term focus: for long-term survival in the presence of competition, a business cannot
avoid a long-run perspective → constantly discover and implement additional value for its
customers, which necessitates a range of appropriate tactics and investments.
2. Profitability: is seen as a consequence of market orientation. This is an objective.
So, for a business to maximize its long-run profits, it must continuously create superior value for its
target customers. To create superior value for customers, a business must be customer oriented,
competitors oriented, and interfunctionally coordinated.
Method
1. Face validity: three academicians rated each time that characterize the hypothesized five
components of market orientation for its consistency, and recommended additional items.
, 2. Sample test: 140 strategic business units (SBUs) of a major western cooperation, in forest
products. Within each SBU, the top management team was identified. SBU: an organizational
unit with a defined strategy and a manager with sales and profit responsibility.
a. 113 SBUs answered
i. 36 commodity businesses: sell physical products such as dimension lumber,
plywood, wood chips, and logs (are all identical products as these of
competitors). Cannot adapt their generic product, must add various
customer benefits to the generic product/reduce the price.
ii. 77 non-commodity businesses: can adapt their generic product as well as
add customers’ non-price costs.
1. 23 specialty products businesses: hardwood cabinets, laminated
doors, oriented strand board, particle board, roof truss systems.
2. 51 distribution businesses: the merchant wholesales businesses
within the corporation buy products primarily from within the
corporation and sell them to building-supply retailers, contractors,
and exporters.
3. 3 export businesses
3. 440 questionnaires were sent. 371 returned.
4. Reliability analysis: customer orientation, competitor orientation and interfunctional
coordination exceed the 0.7, so reliable. Long-term and profit not (probably because they are
insufficient).
5. Construct validity: is present when the pattern of correlations among variables conforms to
what is predicted by theory.
a. Convergent validity: if there is a strong correlation between the three components.
b. Discriminant validity: correlation between HRM policy and interfunctional
coordination is less than the correlations between interfunctional coordination and
the other market orientation components.
c. Concurrent validity: the correlation of market orientation with differentiation
strategy is .45 and with low cost strategy is .28. So the difference between the
correlations is significant.
6. Respondents were asked to consider return on investment, return on assets, and return on
net assets as equivalent, for the respondents were to compare their SBU’s profitability with
that of their competitors in their principal served market → relative performance to control
for performance differences among the SBU’s served markets.
Hypothesis: the greater a business’s market orientation, the greater the business’s profitability, other
things being equal → expected to find a positive relationship between market orientation and
business profitability within all three types of businesses in the sample.
- Least likely: commodity business: a company with an internal orientation sees itself to be in
“price-auction” marketing strategy, instead of satisfaction of customers.
- Most likely: distribution and specialty businesses → easier to implement the three
components of market orientation.
The most effective way for a seller to discover opportunities to increase buyer value is to visit a
buyer’s business and the buyer’s customers frequently, not through telemarketing. This is because
over the telephone a seller has more difficulty identifying value increasing opportunities that the
buyer has not already thought of and because of the telephone approach to selling may increase the
price sensitivity of buyers.
Expectation 1: commodity business in the subject company has a lower mean score on market
orientation as well as a lower mean score on each of the three components of market orientation
than either the specialty or distribution businesses.
, Expectation 2: commodity business has a lower average relative profitability than either specialty or
distribution businesses.
In the research they controlled for other influences on business profitability:
1. Buyer power: hypothesize negative relationship. NOT significant.
2. Supplier power: hypothesize negative relationship
3. Seller concentration: the firm one of the four or eight largest firms; hypothesize positive
relationship
4. Ease entry of new competitors: hypothesize negative relationship
5. Market growth: hypothesize positive relationship. *see article for reasons why. NOT
significant because of lower profits than competitors in three years.
6. Rate of technological change: hypothesize negative relationship
7. Size of a business in relation to its largest competitor in a market: hypothesize positive
relationship
8. Average total operating cost of a business in relation to that of its largest competitor:
hypothesized positive relationship
Effect of Market Orientation on profitability:
- Significant for non-commodity and commodity businesses. The nonlinear relationship is
consistent with the expectation that commodity businesses with a medium market
orientation will earn a lower ROA than commodity businesses that have either the least or
most market orientation.
A lot of new research has been done since that challenges, refines, overthrows and enriches findings.
Did market orientation become obsolete? No, you just have to think in another way. The findings
only emphasize the importance for organizations to focus on both stated and unstated needs, and to
study consumer needs and wants and how to satisfy them in a broader context in which networks
are considered. However, we argue that the findings of Achrol & Kotler (2012) at the super-
phenomena level call for an extension of the current marketing concept in which human welfare and
satisfying consumer needs in both short-run and long-run should be the focus.
Results
Market orientation is for both non-commodity and commodity businesses important. Among the
non-commodity businesses, the positive relationship is monotonic. For the commodity businesses
the positive relationship is found only among businesses that are above the median in market
orientation.
Both types of businesses can pursue either or both differentiation and low cost strategies → because
relative costs appear also to be an important determinant of profitability.
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