Topic 1 – Session 1 Developments underlying our current marketing thinking
1 Narver&Slater (1990). The effect of a market orientation on business profitability, October 1990
The history of marketing is about market orientation (1990). When this article was written, no one had developed a
valid measure of it or assessed its influence on business performance.
For an organization to achieve consistent above- normal market performance, SCA must be created à a buyer
purchasing offering X, must perceive the expected value exceeding the value to the buyer above any other alternative
solution.
Market orientation
The organizational culture (i.e., culture and climate) that most effectively and efficiently creates the necessary
behaviors for the creation of superior value for buyers and, thus, continuous long-term superior performance of the
business. à a market oriented business continuously examines these alternative sources of SCA to see how it can be
most effective in creating sustainable superior value for its present and future target buyers.
- Market orientation is crucial for sustainable superior value. It is the implementation of the marketing concept.
Three Behavioral components:
Comprehend the activities of market information acquisition and dissemination and the coordinated creation of
customer value. Cust. and Comp. orientation are based on activities involved in acquiring info about byer and
competitors in the target market and disseminating it through the business
1. Customer orientation
The sufficient understanding of one’s target buyers to be able to create superior value for them continuously. The
seller has to understand the buyers’ entire value chain in which it can be created in two ways:
- Increasing benefits to the buyer in relation to the buyer’s costs
- Decreasing the buyer’s costs in relation to the buyer’s benefits
Seller must understand economic and political constraints at all levels in channel.
2. Competitor orientation
The sufficient understanding of the short-term strengths and weaknesses and long-term capabilities and strategies of
both the key current and potential competitors.
- Parallelling customer analysis: analysis of principal current and potential competitors must include entire set of
technologies capable of satisfying current and expected seller target buyer needs.
3. Interfunctional coordination
The coordinated utilization of company resources in creating superior value for target customers. Different departments
have to work together and have to be involved. It is the focus of the entire business and not of a single department.
(long-term, profit focus)
Any point in the buyer’s value chain affords an opportunity for a seller to create value for the buyer firm.
- A market orientation has primarily a long-term focus in relation to profits and in implementing each of the three
behavioral components. The objective in a market orientation is profitability.
The multidimensional nature of creating superior value for customers, marketing’s interdependencies with other
business functions must be systematically incorporated in a business’s marketing strategy. à Achieving effective
interfunctional coordination requires, among other things, an alignment of the functional areas’ incentives and the
creation of interfunctional dependencies.
Two market orientation focuses/objectives – 2 decision criteria:
- Long- term focus: prevent competitors from overcoming whatever buyer-value superiority has created, a
business must constantly discover and implement additional value for customers, which necessitates a range
of appropriate tactics and investments.
- Profitability: profits are perceived a component of market orientation; however, profitability is viewed as
consequence of market orientation.
à nonprofit organizations: objective to survive, cover long run expenses and/or satisfy all key constituencies
Market orientation
- as culture: set of beliefs that put the customers’ interest first, while not excluding that of all other
stakeholders, such as owners, managers and employees in order to develop a long-term profitable enterprise.
- as behavior: the ability to generate, disseminate and use superior information about customers and
competitors.
3
,Research: exploratory on
- Development of valid measure of market orientation
o New measure development
o Reliability
o Evidence for construct validity of three component model
- Effect of market orientation on profitability
o For both businesses, market orientation is an important determinant of profitability
o Differences between (non-) commodity markets
Sample
- 140 strategic business units of major western corporate companies
- 440 questionnaires were sent out. 371 usable questionnaires returned: 84% response rate
- 7 point liker scale (1: SBU does not engage – 7: SBU engages up to very great extent)
Commodity businesses
Sell physical products, all of which are essentially identical in quality and performance to those of competitors.
When trying to create superior value for buyers, these businesses usually are unable to adapt their generic product,
rather they must add various customer benefits to the generic product and/or reduce buyer’s nonprice costs.
The commodity businesses’ customers are the corporation’s wholesale distributors as well as outside retailers, both
domestic and foreign.
Non- commodity businesses
In trying to create superior value for buyers, they can adapt their generic product/service somewhat and add customer
benefits to their generic product and/or reduce customers’ non-price costs.
- Specialty products businesses: their customers are national retailers, remanufacturers in the building
industries, furniture manufacturers, and the corporation’s own wholesale distributors.
- Distribution businesses: these merchant wholesaler businesses within the corporation buy products primarily
from within the corporation and sell them to building-supply retailers, contractors, and exporters.
Results
1. For commodity and non- commodity businesses: relative costs appear to be an
important determinant of profitability à differentiation and low-cost strategies
2. What they found for a non-commodity market, it is a straight line: the higher the
market orientation, the higher the profitability.
For commodity markets, there is a U shape. You don’t need to be ‘stuck in the
middle’. The reason is that they cannot differentiate.
à To make a difference in that market, you must be or the low-cost competitor
or you must invest a lot to be high on market orientated.
You must go all the way. It is bad to just do a little bit.
3. The results suggest that market growth is an important determinant of profitability for
both types of businesses, but the relationships differ:
- Non- commodity businesses à short-term market growth leads to higher profitability
- Commodity businesses à which general are less adaptable than the non-
commodity businesses à short-term market growth appears to reduce profitability
4. Among the non- commodity businesses, the positive relationship between market
orientation and a business’s profitability appears to be à monotonic (= eentonig)
5. Among the commodity businesses a positive market orientation/profitability
relationship is found only among businesses that are above the median in market
orientation.
You have to outweigh the investment and the benefits that it will give. For every business, at some point the
incremental costs to increase market orientation will exceed the incremental benefits.
à Inclusion of control variables
After this article, a lot of new research has been done since that challenges, refines and enriches these findings. For
example, a research about the effect of market orientation over time.
What can we conclude on this graph: If a lot of companies are implementing this philosophy, your competitors also listen
more to the market and the impact will be less. But there still is impact.
The appropriate question is not market orientation per se, but rather what a business perceives to be its optimal
degree of market orientation within its current and expected market environment.
A question that can be asked here is: did market orientation become obsolete?
NO, you should have it in order to succeed. It is a hygiene factor. You need it, but the effectiveness is less. It is still an
important factor. Is market orientation enough to survive?
It depends on the number of competitors that also implement this philosophy.
4
,2 Slater and Narver (1998) Customer-led and market-oriented, lets not confuse the two
This research supports the conclusion of many experts on the innovation process that a market orientation is essential
to success.
There are two different views on market orientation: Total market orientation:
The marketing concept: an organization’s purpose is to discover needs and wants in its target markets and to satisfy
those needs more effectively and efficiently than competitors.
Two forms of ‘customer orientation’ / management philosophies:
- Customer-led philosophy: is a philosophy in which organizations respond to customers’ expressed needs and
wants and is typically short term in focus and reactive in nature.
o Focuses on customers’ expressed desires and on measures of customer satisfaction
o Successful in relatively predictable environments where it is most important to take care of a stable
served market.
o Focus groups and customer surveys develop close relationships with important customers to gain
understanding of customer needs wants and perceptions of current prod/services/ insights.
o May be successful in relatively predictable environments where it is most important to take care of a
stable served market.
o May be attractive to some managers in dynamic environments because of the uncertainty and risk
associated with attempting to lead the customer. However, being c-l in dynamic market will rarely lead
to a position of CA since it provides insufficient stimulus for the significant innovation that
discontinuous change requires.
- Market-oriented philosophy: goes beyond satisfying expressed needs to understanding and satisfying
customers’ latent needs and, thus, is longer term in focus and proactive in nature to develop innovative
solutions that produce customer value.
o Understanding both expressed and latent customer needs and the capabilities and plans of their
competitors through the process of acquiring and evaluating market information in a systematic and
anticipatory manner. like customer-led businesses
o Listen closely to the voices of their customers. Those voices are only one source of information on
which plans and strategies should be based. Their commitment to continuous market learning, to
discovering latent needs and unserved markets, and to organization-wide mobilization of resources,
enables them to achieve market-focused innovation and to sustain CA in all types of markets.
o Compared to customer-led businesses, market-oriented businesses scan the market more broadly,
have a longer-term focus and are much more likely to be generative learners. Generative learning is
critical to innovation
o Combine traditional market research techniques as customer-led businesses, with other techniques to
discover customers’ latent needs and to drive generative learning.
o They escape the tyranny of the served market by searching for unserved markets.
o New products and unserved markets are the catalyst for organizational renewal in the market-
oriented business.
o Commitment to continuous market learning, to discovering latent needs and unserved markets, and to
organization-wide mobilization of resources, enables them to achieve market-focused innovation and
to sustain competitive advantage in all types of market.
à market orientation is NOT marketing orientation. à marketing is only one function of the business. A business is
market oriented only when the entire organization embraces the values implicit therein and when all business
processes are directed at creating superior customer value.
5
, Implications for competitive advantage
- Stable environment (e.g. retail banking)
Responding quickly to evolving customer wants and focusing on customer satisfaction may provide the
foundation that enduring relationships are built upon. These relationships can be durable and valuable, and
thus provide a foundation for competitive advantage.
- Turbulent environment
More enduring advantage is an ability to anticipate evolving customer needs and to generate new value-
creating capabilities based on that knowledge.
Acceptation of innovations
Successful technology-based innovations must be accepted first by:
1. Early adopters
Who tend to be market visionaries. Their expectation is to exploit the new technology to achieve advantage
over their competitors who use the old solution. They are willing to accept a partial, but potentially superior,
solution from the supplier and to work closely with the supplier to refine the technology or the product to meet
their needs. The solution embraced by the visionaries becomes the core of the product that will be adopted by
early majority buyers.
2. The early majority
Are pragmatists in that they require a clear understanding of how adoption of the new technology will create
economic value for them. Pragmatists require the supplier to pro- duce a whole solution that is more effective
or efficient than the buyers' current solution.
Market orientation consists of norms for behavior that guide the business in learning quickly from and about different
types of needs, and responding in an entrepreneurial manner to deliver superior customer value.
à The capabilities arising from a market orientation enable the business to identify and exploit discontinuities in its
served market(s) as well as unserved markets.
à As a form of business culture, a market orientation is difficult for competitors to observe and under- stand, much
less to imitate and, thus, is a competitive advantages.
Two essential activities of business are 'innovation' and 'marketing’. à Without the other, neither is sufficient
for long-term success.
The problem with the responsive MO is that it is reactive and short term, and generally leads to adaptive rather than
generative learning. Also, customer satisfaction surveys are unreliable indicators of intention to purchase.
Proactive MO serves latent as well as the expressed needs.
A business is market oriented only when the entire organization embraces the values implicit therein and when all
business processes are directed at creating superior customer value.
A latent need is something that customers do not know they want. A customer is not really looking for it. For example,
customers did not know they wanted Starbucks. We were not aware of the latent need of coffee culture. There are
more latent needs that we do not know that we want, but if it is there we want it.
You actually need both the proactive marketing orientation and the responsive marketing orientation. You need to
have innovative ideas but also responsiveness and listen and adapt to make it easy for people to use it.
A market orientation consists of norms of behavior that guide the business in learning quickly from and about different
types of need, and responding in an entrepreneurial manner to deliver superior customer value. The capabilities
arising from a market orientation enable the business to identify and exploit discontinuities in its served markets as
well as unserved. As a form of business culture, a market orientation is difficult to observe and understand, much less
to imitate and thus is a competitive advantage.
The question that can be asked again is: did market orientation become obsolete? No, this is still applicable, but we
have to adapt how we actually implement it.
Marketing is changing, not only the organisation, suppliers and distributors are important, but we have to take other
stakeholders also into account.
6
1 Narver&Slater (1990). The effect of a market orientation on business profitability, October 1990
The history of marketing is about market orientation (1990). When this article was written, no one had developed a
valid measure of it or assessed its influence on business performance.
For an organization to achieve consistent above- normal market performance, SCA must be created à a buyer
purchasing offering X, must perceive the expected value exceeding the value to the buyer above any other alternative
solution.
Market orientation
The organizational culture (i.e., culture and climate) that most effectively and efficiently creates the necessary
behaviors for the creation of superior value for buyers and, thus, continuous long-term superior performance of the
business. à a market oriented business continuously examines these alternative sources of SCA to see how it can be
most effective in creating sustainable superior value for its present and future target buyers.
- Market orientation is crucial for sustainable superior value. It is the implementation of the marketing concept.
Three Behavioral components:
Comprehend the activities of market information acquisition and dissemination and the coordinated creation of
customer value. Cust. and Comp. orientation are based on activities involved in acquiring info about byer and
competitors in the target market and disseminating it through the business
1. Customer orientation
The sufficient understanding of one’s target buyers to be able to create superior value for them continuously. The
seller has to understand the buyers’ entire value chain in which it can be created in two ways:
- Increasing benefits to the buyer in relation to the buyer’s costs
- Decreasing the buyer’s costs in relation to the buyer’s benefits
Seller must understand economic and political constraints at all levels in channel.
2. Competitor orientation
The sufficient understanding of the short-term strengths and weaknesses and long-term capabilities and strategies of
both the key current and potential competitors.
- Parallelling customer analysis: analysis of principal current and potential competitors must include entire set of
technologies capable of satisfying current and expected seller target buyer needs.
3. Interfunctional coordination
The coordinated utilization of company resources in creating superior value for target customers. Different departments
have to work together and have to be involved. It is the focus of the entire business and not of a single department.
(long-term, profit focus)
Any point in the buyer’s value chain affords an opportunity for a seller to create value for the buyer firm.
- A market orientation has primarily a long-term focus in relation to profits and in implementing each of the three
behavioral components. The objective in a market orientation is profitability.
The multidimensional nature of creating superior value for customers, marketing’s interdependencies with other
business functions must be systematically incorporated in a business’s marketing strategy. à Achieving effective
interfunctional coordination requires, among other things, an alignment of the functional areas’ incentives and the
creation of interfunctional dependencies.
Two market orientation focuses/objectives – 2 decision criteria:
- Long- term focus: prevent competitors from overcoming whatever buyer-value superiority has created, a
business must constantly discover and implement additional value for customers, which necessitates a range
of appropriate tactics and investments.
- Profitability: profits are perceived a component of market orientation; however, profitability is viewed as
consequence of market orientation.
à nonprofit organizations: objective to survive, cover long run expenses and/or satisfy all key constituencies
Market orientation
- as culture: set of beliefs that put the customers’ interest first, while not excluding that of all other
stakeholders, such as owners, managers and employees in order to develop a long-term profitable enterprise.
- as behavior: the ability to generate, disseminate and use superior information about customers and
competitors.
3
,Research: exploratory on
- Development of valid measure of market orientation
o New measure development
o Reliability
o Evidence for construct validity of three component model
- Effect of market orientation on profitability
o For both businesses, market orientation is an important determinant of profitability
o Differences between (non-) commodity markets
Sample
- 140 strategic business units of major western corporate companies
- 440 questionnaires were sent out. 371 usable questionnaires returned: 84% response rate
- 7 point liker scale (1: SBU does not engage – 7: SBU engages up to very great extent)
Commodity businesses
Sell physical products, all of which are essentially identical in quality and performance to those of competitors.
When trying to create superior value for buyers, these businesses usually are unable to adapt their generic product,
rather they must add various customer benefits to the generic product and/or reduce buyer’s nonprice costs.
The commodity businesses’ customers are the corporation’s wholesale distributors as well as outside retailers, both
domestic and foreign.
Non- commodity businesses
In trying to create superior value for buyers, they can adapt their generic product/service somewhat and add customer
benefits to their generic product and/or reduce customers’ non-price costs.
- Specialty products businesses: their customers are national retailers, remanufacturers in the building
industries, furniture manufacturers, and the corporation’s own wholesale distributors.
- Distribution businesses: these merchant wholesaler businesses within the corporation buy products primarily
from within the corporation and sell them to building-supply retailers, contractors, and exporters.
Results
1. For commodity and non- commodity businesses: relative costs appear to be an
important determinant of profitability à differentiation and low-cost strategies
2. What they found for a non-commodity market, it is a straight line: the higher the
market orientation, the higher the profitability.
For commodity markets, there is a U shape. You don’t need to be ‘stuck in the
middle’. The reason is that they cannot differentiate.
à To make a difference in that market, you must be or the low-cost competitor
or you must invest a lot to be high on market orientated.
You must go all the way. It is bad to just do a little bit.
3. The results suggest that market growth is an important determinant of profitability for
both types of businesses, but the relationships differ:
- Non- commodity businesses à short-term market growth leads to higher profitability
- Commodity businesses à which general are less adaptable than the non-
commodity businesses à short-term market growth appears to reduce profitability
4. Among the non- commodity businesses, the positive relationship between market
orientation and a business’s profitability appears to be à monotonic (= eentonig)
5. Among the commodity businesses a positive market orientation/profitability
relationship is found only among businesses that are above the median in market
orientation.
You have to outweigh the investment and the benefits that it will give. For every business, at some point the
incremental costs to increase market orientation will exceed the incremental benefits.
à Inclusion of control variables
After this article, a lot of new research has been done since that challenges, refines and enriches these findings. For
example, a research about the effect of market orientation over time.
What can we conclude on this graph: If a lot of companies are implementing this philosophy, your competitors also listen
more to the market and the impact will be less. But there still is impact.
The appropriate question is not market orientation per se, but rather what a business perceives to be its optimal
degree of market orientation within its current and expected market environment.
A question that can be asked here is: did market orientation become obsolete?
NO, you should have it in order to succeed. It is a hygiene factor. You need it, but the effectiveness is less. It is still an
important factor. Is market orientation enough to survive?
It depends on the number of competitors that also implement this philosophy.
4
,2 Slater and Narver (1998) Customer-led and market-oriented, lets not confuse the two
This research supports the conclusion of many experts on the innovation process that a market orientation is essential
to success.
There are two different views on market orientation: Total market orientation:
The marketing concept: an organization’s purpose is to discover needs and wants in its target markets and to satisfy
those needs more effectively and efficiently than competitors.
Two forms of ‘customer orientation’ / management philosophies:
- Customer-led philosophy: is a philosophy in which organizations respond to customers’ expressed needs and
wants and is typically short term in focus and reactive in nature.
o Focuses on customers’ expressed desires and on measures of customer satisfaction
o Successful in relatively predictable environments where it is most important to take care of a stable
served market.
o Focus groups and customer surveys develop close relationships with important customers to gain
understanding of customer needs wants and perceptions of current prod/services/ insights.
o May be successful in relatively predictable environments where it is most important to take care of a
stable served market.
o May be attractive to some managers in dynamic environments because of the uncertainty and risk
associated with attempting to lead the customer. However, being c-l in dynamic market will rarely lead
to a position of CA since it provides insufficient stimulus for the significant innovation that
discontinuous change requires.
- Market-oriented philosophy: goes beyond satisfying expressed needs to understanding and satisfying
customers’ latent needs and, thus, is longer term in focus and proactive in nature to develop innovative
solutions that produce customer value.
o Understanding both expressed and latent customer needs and the capabilities and plans of their
competitors through the process of acquiring and evaluating market information in a systematic and
anticipatory manner. like customer-led businesses
o Listen closely to the voices of their customers. Those voices are only one source of information on
which plans and strategies should be based. Their commitment to continuous market learning, to
discovering latent needs and unserved markets, and to organization-wide mobilization of resources,
enables them to achieve market-focused innovation and to sustain CA in all types of markets.
o Compared to customer-led businesses, market-oriented businesses scan the market more broadly,
have a longer-term focus and are much more likely to be generative learners. Generative learning is
critical to innovation
o Combine traditional market research techniques as customer-led businesses, with other techniques to
discover customers’ latent needs and to drive generative learning.
o They escape the tyranny of the served market by searching for unserved markets.
o New products and unserved markets are the catalyst for organizational renewal in the market-
oriented business.
o Commitment to continuous market learning, to discovering latent needs and unserved markets, and to
organization-wide mobilization of resources, enables them to achieve market-focused innovation and
to sustain competitive advantage in all types of market.
à market orientation is NOT marketing orientation. à marketing is only one function of the business. A business is
market oriented only when the entire organization embraces the values implicit therein and when all business
processes are directed at creating superior customer value.
5
, Implications for competitive advantage
- Stable environment (e.g. retail banking)
Responding quickly to evolving customer wants and focusing on customer satisfaction may provide the
foundation that enduring relationships are built upon. These relationships can be durable and valuable, and
thus provide a foundation for competitive advantage.
- Turbulent environment
More enduring advantage is an ability to anticipate evolving customer needs and to generate new value-
creating capabilities based on that knowledge.
Acceptation of innovations
Successful technology-based innovations must be accepted first by:
1. Early adopters
Who tend to be market visionaries. Their expectation is to exploit the new technology to achieve advantage
over their competitors who use the old solution. They are willing to accept a partial, but potentially superior,
solution from the supplier and to work closely with the supplier to refine the technology or the product to meet
their needs. The solution embraced by the visionaries becomes the core of the product that will be adopted by
early majority buyers.
2. The early majority
Are pragmatists in that they require a clear understanding of how adoption of the new technology will create
economic value for them. Pragmatists require the supplier to pro- duce a whole solution that is more effective
or efficient than the buyers' current solution.
Market orientation consists of norms for behavior that guide the business in learning quickly from and about different
types of needs, and responding in an entrepreneurial manner to deliver superior customer value.
à The capabilities arising from a market orientation enable the business to identify and exploit discontinuities in its
served market(s) as well as unserved markets.
à As a form of business culture, a market orientation is difficult for competitors to observe and under- stand, much
less to imitate and, thus, is a competitive advantages.
Two essential activities of business are 'innovation' and 'marketing’. à Without the other, neither is sufficient
for long-term success.
The problem with the responsive MO is that it is reactive and short term, and generally leads to adaptive rather than
generative learning. Also, customer satisfaction surveys are unreliable indicators of intention to purchase.
Proactive MO serves latent as well as the expressed needs.
A business is market oriented only when the entire organization embraces the values implicit therein and when all
business processes are directed at creating superior customer value.
A latent need is something that customers do not know they want. A customer is not really looking for it. For example,
customers did not know they wanted Starbucks. We were not aware of the latent need of coffee culture. There are
more latent needs that we do not know that we want, but if it is there we want it.
You actually need both the proactive marketing orientation and the responsive marketing orientation. You need to
have innovative ideas but also responsiveness and listen and adapt to make it easy for people to use it.
A market orientation consists of norms of behavior that guide the business in learning quickly from and about different
types of need, and responding in an entrepreneurial manner to deliver superior customer value. The capabilities
arising from a market orientation enable the business to identify and exploit discontinuities in its served markets as
well as unserved. As a form of business culture, a market orientation is difficult to observe and understand, much less
to imitate and thus is a competitive advantage.
The question that can be asked again is: did market orientation become obsolete? No, this is still applicable, but we
have to adapt how we actually implement it.
Marketing is changing, not only the organisation, suppliers and distributors are important, but we have to take other
stakeholders also into account.
6
