Content:
Summary of all mandatory articles in the Theories of Marketing course.
Topic 1:
Marketing origins
Narver&Slater (1990), The effect of a market orientation on business profitability, journal of marketing, October 1990
Slater and Narver (1998) Customer-led and market-oriented, let�...
Week 1 – Overview of Development in Marketing Thinking
The Effect of a Market Orientation on Business Profitability, Narver &
Slater (1990)
Business performance is affected by market orientation, yet there is no valid
measure of market orientation and hence no systematic analysis of its effect on
a business’s performance. The authors report the development of a valid
measure of market orientation and analyse its effect on business profitability.
They find substantial positive effect of a market orientation on the profitability of
both commodity and non-commodity businesses.
ï‚· Relationship between sustainable competitive advantage and market
orientation, and why MO most effectively/efficiently creates superior
customer value.
ï‚· 8 control variables.
Market Orientation and Performance: The Conceptual Model
To achieve above normal market performance, a business must create a
sustainable competitive advantage: For a buyer to purchase X, the
perceived expected value must exceed the expected value of any alternative
solution.
Value = Expected benefits – Costs.
Market orientation: The organization culture that most effectively and
efficiently creates the necessary behaviours for the creation of superior value for
buyers and, thus, continuous superior performance for the business.
 Creating additional benefits or reductions in buyers’ acquisition/use costs
are sources of SCA.
ï‚· Continuous assessment of these alternative sources.
ï‚· To maximize long-run performance, businesses must build/maintain long-
run beneficial relationships with buyers.
Behavioural characteristics and management policies of market-oriented
business
Behavioural components: Activities of market information acquisition and
dissemination and coordinated creation of customer value.
Customer Orientation All activities involved in acquiring
Competitor Orientation information about the buyers and
competitors in the target market and
disseminating it throughout the
business.
Interfunctional Coordination Based on customer and competitor
information and comprises the
business’s coordinated efforts to
create superior value.
Two decision criteria
Long-term focus
Profitability
Behavioural content is similar to findings of Kohli & Jaworksi (1990): The
organization wide information generation and dissemination and appropriate
response related to current and future customer needs and preferences.
,Customer orientation: Sufficient understanding of one’s target buyers to be
able to create superior value for them continuously (throughout the entire value
chain, as well as how it will evolve over time).
Competitor orientation: A seller must understand the short-term strengths
and weaknesses and long-term capabilities and strategies of both the key
current and the key potential competitors. Must include the entire set of
technologies capable of satisfying the current and expected needs of the seller’s
target buyers.
Interfunctional coordination: The coordinated utilization of company
resources in creating superior value for target customers. Creating value for
buyers is a seller’s creation of value for buyers is analogous to a symphony
orchestra in which the contribution of each subgroup is tailored and integrated
by a conductor – with synergistic effect.
ï‚· Achieving effective interfunctional coordination requires an alignment of
the functional areas’ incentives and the creation of interfunctional
dependency so that each area perceives its own advantage in co-
operating closely with the others.
Long-term focus: In relation to profits and in implementing each of the three
behavioural components of market orientation. A business must discover and
implement additional value for its customers, which requires a range of tactics
and investments.
Profitability: Economic wealth as the overriding objective of MO. An objective of
a business. Kohli & Jaworksi (1990): component of MO or result of MO.
On Developing a Valid Measure of Market Orientation
One dimension construct: 3 behavioural components, 2 decision criteria are
closely related. Each component is on average of equal importance; equilateral
triangle.
,Sample of 140 strategic business units of a major western corporation.
Commodity business: Sells physical products. To add superior value they must
add various customer benefits to the generic product and/or reduce the buyers’
nonprice costs.
Non-commodity business: Ones that, in trying to create superior value, can
adapt their generic product/service somewhat as well as add customer benefits
to generic product and/or reduce the customer’s nonprice costs.
ï‚· Specialty products business
ï‚· Distribution business
Evidence is found of convergent validity, discriminant validity, and concurrent
validity, thus evidence is found for construct validity of the three-component
model of market orientation.
The Effect of Market Orientation on Business Performance
Eight situational variables that may affect a business’s profitability:
Buyer power: The degree to which a buyer can negotiate lower prices or a
higher value from a seller (negative relation to profitability).
Supplier power: The degree to which a supplier can negotiate higher prices or
a higher value from a buyer (negative relation to profitability).
Seller concentration: The degree to which sales in a market are accounted for
by the four or eight firms with the largest sales.
ï‚· High concentration of sellers may encourage tacit or explicit joint-
maximizing monopoly behaviour. Profit umbrella: Created if the four
largest firm behave in accordance.
, ï‚· High seller concentration may be a proxy for the firms with the largest
sales capturing substantial scale and volume economies.
Ease of entry of new competitors into the market: The unique incremental
costs required of a firm to enter and become competitively viable in the market.
Rate of market growth: When market demand is growing, it is easier for all
sellers to acquire and retain customers and earn profits
ï‚· Unexpected demand change to which a business is unprepared and
unable to respond.
ï‚· Production and marketing capacity may be fixed in quantity/quality,
adjustments to demand changes are slow.
ï‚· If easy entry by new sellers, when market demand increases new
competitors will easily enter, capture some of the profits, and drive
profitability to a negative level.
ï‚· Business may choose to capture its gains from short-run demand
increases in the form of increased sales at current prices, increasing short-
run ROA less than it could by raising prices in the face of a demand
increase.
Rate of technological change: The greater the technological change in the
market, the more diverse will be the opportunities to create value for buyers
(negative relation between short-term technological change and profitability).
Size of a business: Advantages associated with a large relative market share
(positive relation to profitability).
Average total operating cost of a business: Captures only cost advantage
effects, measures difference in average of all operating costs (positive relation to
profitability).
Discussion
For both the commodity and noncommodity business, market orientation is an
important determinant of profitability.
Among noncommodity businesses, the positive relationship between MO and
profitability appears to be monotonic, whereas among the commodity business a
positive market orientation/profitability relationship is found only among
businesses that are above the median in market orientation.
Conclusion
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