This extensive summary of all the articles/lectures/slides of the Theories of Marketing course will provide you all the information needed to brilliantly pass your exam. I got 9
THEORIES OF MARKETING
WEEK 1 – OVERVIEW OF MARKETING THEORY
1. 1 The Effect of a Market Orientation on Business Profitability
John C. Narver and Stanley F. Slater (1990)
In the paper is showed that business performance is affected by market
orientation- a business that improve market orientation will improve market
performance- and the authors build a measure of market orientation and analyze its
effect on business profitability. Using a sample of 140 business units of commodity
and non-commodity products businesses it is proven that market orientation has a
positive impact on profitability for both type of businesses.
Discussion points:
• Create a measure for market orientation & analyze its effect on business
profitability
• Sustainable competitive advantage – MO relationship
• Why MO creates more efficiently and effectively superior customer value
• Define components of MO and the test used to demonstrate their validity
• MO and profitability relationship
• 8 control variables and profitability relationship (hypothesis: independent
effects ! test the theoretical relationship with the result of the research)
• Limitation and future study
MARKET ORIENTATION AND PERFORMANCE: THE CONCEPTUAL MODEL
In order to achieve consistent above-normal performance an organization needs to
create a sustainable competitive advantage (SCA). In order to create SCA the
organization need to create sustainable superior value for its customers.
The logic of SCA is that for a buyer to purchase offering X, the buyer must perceive
that the expected value to him of that offering (the proposed solutions to his need)
exceeds the expected value to him of any alternative solution.
The value of a seller’s offering to a buyer is the difference between what the buyer
perceives as the offering’s expected benefits and what the buyer perceives as its
expected acquisition and use costs [value of an offering (for a consumer) =
consumer expected benefits – consumer total acquisition and use costs].
A seller can create additional value by
• increasing a buyer’s benefits and/or
• decreasing a buyer’s total acquisition and use costs
Market orientation is the organization culture that most effectively and efficiently
creates the necessary behaviors for the creation of superior value for buyers and,
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,thus, continuous superior performance for the business. It is defined as the
organizationwide information generation and dissemination and appropriate
response related to current and future customer needs and preferences.
A market-oriented business uses alternatives sources of SCA to see how it can be
most effective in creating sustainable superior value for its present and future target
buyers. In order to maximize long-run performance, the business needs to build and
maintain a long-run, mutually beneficial relationship with its buyers.
Market orientation consists of 3 behavioral components:
1. customer orientation
2. competitor orientation
3. interfunctional coordination
and 2 decision criteria:
1. long-term focus
2. profitability
Customer orientation and competitor orientation include all the activities involved
in acquiring information about all the buyers and competitors in the target market
and disseminating it throughout the business.
Interfucntional coordination is based on the consumer and competitor information
and comprises the business’s coordinated effort to create superior value for the
buyers.
In sum, the 3 hypothesized behavior components of a market orientation
comprehend the activities of market information acquisition and dissemination and
the coordinated creation of customer value.
Customer orientation is the sufficient understanding of one’s target buyers to
be able to create continuously superior value for them. The seller need to
understand the whole buyer’s value chain, today and as it will evolve over time. A
seller creates value for a buyer by increasing benefits to the buyer in relation to
buyer’s costs and/or by decreasing the buyer’s costs in relation to the buyer
benefits. It is important that a seller understand the economic and political
constraints at all levels in the channel.
Competitor orientation means that a seller understands the short-term strengths
and weaknesses and long-term capabilities and strategies of key current and
potential competitors. The competitor analysis needs to include the entire set of
technologies capable of satisfying the current and expected needs of the seller’s
target buyers.
Interfunctional coordination is the coordinated utilization of company resources
in creating superior value for target customers. In order to create superior value for
customers, the firm needs to coordinate and integrate business’s resources,
integrate marketing with other business functions within the business’s marketing
strategy, making sure that each area perceives its own advantage in cooperating
closely with the others.
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,Market orientation has a long-term focus for profit and for implementing the 3
components of market behavior. A business must constantly discover and
implement additional value for its customers.
The objective and consequence of market orientation in market orientation is
profitability.
ON DEVELOPING A VALID MEASURE OF MARKET ORIENTATION
HP: market orientation = 𝛼1customer orientation + 𝛼2competitor orientation +
𝛼3interfucntional coordination + 𝛼4long–term focus + 𝛼5profit objective
Con 𝛼1 ≃ 𝛼2 ≃ 𝛼3 = behavioral components
e 𝛼4 , 𝛼5 = decision criteria
To maximize the long-term profits a business needs to continuously create superior
value for its target customers, therefore it needs to be customer oriented,
competitor oriented and interfuncionally coordinated.
Each of the 5 components is measured based on several items, selected by
academicians. After some BU managers reviewed the draft-version of the
questioner, they developed the final instrument.
The sample included strategic business units from Commodity and Non-Commodity
businesses.
Reliability Analysis- it has been conducted by splitting the sample in two and
conducting reliability analyses on both samples.
Due to low reliability scores it’s not possible to draw conclusions on the empirical
relationship of the 2 decision criteria with the 3 behavioral components of MO.
Each component has equal importance, therefore MO is the mean of the
components:
MO = ( Cust_Or + Comp_Or + Internfucntional_Coor ) / 3
The performance variable is the business’s return on assets (ROA) over the past
year in relation to the ROAs of all other competitors in the served market.
3
, Construct Validity- The pattern of correlations among variables conforms to what is
predicted by theory.
A strong correlation among the three components of market orientation indicates
that they are converging on a common construct, proving evidence of convergent
validity.
Discriminant validity is proven since the correlation among the 3 MO components is
higher than the correlation between one of the MO component and other variables.
Concurrent validity is proven because a higher correlation exists between the 3
components of MO and differentiation strategy than it exists between the 3 MOs and
low cost strategy. [Low cost or differentiation are the components of competitive
advantage-Porter]
! Construct validity of the 3 component model of MO.
THE EFFECT OF MO ON BUSINESS PERFORMANCE
The hypothesis is that the greater a business’s MO the greater the business’s
profitability will be, other things being equal (positive relationship between
profitability and each MO component).
For Non-commodity businesses hypothesis is that there is a monotonically
increasing relationship between MO e profitability, while for Commodity it’s
expected a U shaped distribution.
For non-commodity businesses is easier to create value for customers by offering
lower prices or by implementing non-price based buyer-value strategies thus create
superior value for the buyer.
For commodity businesses the low and high MO shows higher profitability than the
businesses in the midrange of MO.
Commodity Business: within this business, firms compete on price as there is
little or no product differentiation.
The relationship between Market Orientation and Profitability is not linear, as it
requires a high investment for firms to be market oriented within this business
model. In order to create differentiation and therefore increase profitability
firms need to highly invest in Market Orientation. As the firms compete only on a
price level in order to create differentiation and increase the profitability firms
need to invest heavily in market orientation, as it does not pay back to be only
partially market oriented.
It is extremely difficult to compete on a non-price based strategy, however it is
possible for some firms to create superior value for buyers.
For Commodity Businesses the relationship between market orientation and
profitability is U-shaped, with low and high market orientation businesses
showing a higher profitability than that businesses in the mid range of market
orientation. The first higher profitability is represented by the firm with the
highest market orientation, while the second highest is represented by the
lowest market orientation.
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