Interrelation between Market Orientation and Competitiviness
An Overview and literature review
Submitted by: Barış Balcılar
Lecturer : Prof. Zeynep Bilgin
YeditepeUniversity
İstanbul 2007
Table of Contents
Introduction
Market Orientation
Competitiveness
Interrelation of Market Orientation - Competitiveness
Market orientation, Intelligence and innovation
REFERENCES
Introduction
As two major marketingissues had been popular in the last decades, Market Orientation and Competition; It has been always negotiatedon one side we try to focusonto greater customer satisfaction which means Market Orientation , on the other hand we try to compete with our competitors which means to be more competitive than competitors.
If it is the case, the customer would only satisfy with the best price, without no brand, no quality,no product differentiation,then we could organize our self and also our products with minimum costs, make advertisement saying we are the cheapest and we cut our prices then we can conclude on we are competitive and we satisfy our customer
Nevertheless, this was never the case and it will never be.
So, in this article we shall review shortly the literature for both strategies and then extract the interrelation between Market Orientation and the Competition.
Recent studies have reflected the need to investigate the development of market orientation. However, the relationship between the level of market orientation and firm's competitiveness in a competitive environment have not been studied in details so far. .
One of the articles aims is to interrelate two strategies of research: marketorientation and competitiveness which suggeststhat degree of market orientation of an enterprise shouldbe connected to its to its final levels of performance which is competitive strategy.
The paper analyses market orientation as apossible criterion for identification ofcompetitive groups in a competitive sectors. The selection of this subject is basedon the idea that the combined study of marketorientation and competitiveness can beuseful to reduce the competitive environmentwhere companies move.
And finally we shall report two additional studies related with this topic.
Market Orientation
Over the last decade, marketing literature has acknowledged the role of marketorientation (MO) as a major source of achieving a sustainable competitive advantage.
Therefore, its antecedents and consequences have been widely studied (Narver andSlater, 1990; Jaworski and Kolhi, 1993; Gounaris and Avlonitis, 1996; Tuominen andMo¨ller, 1996; Deshpande´, 1999; Matsuno and Mentzer, 2000). Market orientations consequences have concentrated on its relationship withbusiness performance (Narver and Slater, 1990; Jaworski and Kolhi, 1993; Slater andNarver, 1994) which shall be also the starting point for the interrelation with the competitiveness.
Successful market orientation requires both adaptability of structural parameters and a high level of efficiency in established processes. Market orientation occurs on different levels of aggregation in the economy and has implications for (a) the market, (b) exchange, and (c) organizations.
A degreeof consensus exists among the theorists (i.e.Llonch, 1993; Greenley, 1995; Atuahene-Gima, 1996; Pelham and Wilson, 1996) toaffirm that the most explanatorycontributions about the market orientationconcept and what it implies itself are those ofKohli and Jaworski (1990, 1993) and ofNarver and Slater (Narver and Slater, 1990;Slater and Narver, 1994). In addition, Benson Shapiro (1988)states that there arethree characteristics which make a businessoriented to the market:
(1) complete knowledge of the market and ofthe customers;
(2) strategic and tactical decisions madeinterfunctionally and interdivisionally;and
(3) divisions and functions well co-ordinatedand executed with a sense ofcommitment.
These characteristics are repeated in one wayor another in subsequent works (i.e. Kohliand Jaworski, 1990, 1993; Narver and Slater1990; Slater and Narver, 1994; )
Likewise, Kohli and Jaworski (1990) definemarket orientation as:
The organisation-wide generation of market intelligence pertaining to current and futurecustomer needs, dissemination of theintelligence across departments, andorganisation-wide responsiveness to it.
The above mentioned Narverand Slater (1990) define market orientationas a concept consisting of ``three behaviouralcomponents and two decision criteria ±customer orientation, competitor orientation,interfunctional co-ordination, a long-termfocus, and a profit objective . . .''.
Figure 1 Market Orientation
In this article, Narver and Slater (1990) popular approach has been also additionally mentioned due to thepattern is highly operative and has a ``morecompetitive and managerial approach''
Narver and Slater (1994) havesuggested that market orientation consists of customer orientation, competitororientation and interfunctional co-ordination which organises the utilisation ofcompany resources for creating superior value for target customers. Market orientation resultsin a deeper understanding of customer needs, the peculiarities of marketingenvironment and of strengths and weaknesses of the competitors.
Figure 2 Independent Effects Model of relationship beyween Market Orientation, Business Specific Factos and Market level Factors
A great deal of marketing literature was devoted to finding the correlation between the degree of marketing adoption and companies' performance (e.g.Lusch and Laczniak, 1987; Brooksbank, 1991). Performance was definedrelative to the companies' major competitors and took into account bothfinancial and marketing performance. It was demonstrated that to remainsuccessful in the long term companies needed to adopt a higher degree ofmarket orientation (Shaw,1995). We expect the firmswith a higher level of development of market orientation to have a higher levelof competitive advantage and to be superior in terms of performance andadaptability to the changing environment than the firms with an
underdeveloped market orientation. A simple model of this relationship isshown in Figure 3.
Figure 3Market orientation model with relationships
Therefore, finally, our research questions in this are can be formulated as following:
(1) Are different levels of development of market orientation associatedwith different levels of company competitive advantage?
(2) Are different levels of development of market orientation associatedwith different levels of adjustment to a competitive environment?
(3) Are different levels of development of market orientation associatedwith different levels of company performance?
Competitiveness
Competitiveness is a complex subject that has been analyzed by many scholarsusing different conceptual approaches. Some authors view competitiveness ofthe firm in terms of productivity. McKee and Sessions-Robinson (1989) pointedout that the company, industry, or nation with the highest productivity couldbe seen as the most competitive. Porter (1990) defined competitiveness at theorganizational level as productivity growth that is reflected in either lowercosts or differentiated products that command premium prices. The othergroup of authors focus on the association of competitiveness withorganizational performance. For example, Scott (1989) defines competitivenessas the ability to raise incomes as rapidly as competitors and to make theinvestments necessary to keep up with them in the future. Pace and Stephan(1996) offer a more comprehensive definition ± competitiveness is `` . . . theability of the organization to stay in business and to protect the organization’sinvestments, to earn a return on those investments, and to ensure jobs for thefuture''. To be able to stay in business, the company must adapt to the changingbusiness environment by developing the proper adjustment measures.
Competitiveness is also considered as the price performance in such so price sensitivities markets and sometimes it means a total performance for the product and services compared with the price.
Adaptability is especially important if the environmental changes are fast and crucial as in transitional economies where enterprises face systemic changesaccompanied by a deep economic decline. Thus, the ability to adjust to the environmentalimpact is an essential characteristic of company competitiveness.
Competitive companies must produce and deliver products and services thatmeet customer needs and wants. In order to provide their customers withgreater satisfaction than their competitors are able to do, companies mustreduce production cycles and costs, improve the quality of products andservices, improve relationships with suppliers and customers, and re-examinetheir organisational systems in order to respond any change in customerpreferences as fast as possible ( Johnson, 1992; Hammer and Champy, 1993). So,to be competitive, the company must create advantages along the marketingmix according to the peculiarities of the environment.
Thus, three core themes underlie the definitions of competitiveness:
(1) adaptability to changes in the business environment;
(2) advantages across marketing mix;
(3) performance.
To be competitive, the company should adapt to the changing businessenvironment, creating advantages across the marketing mix that will result inbetter performance relative to its competitors. Thus, we propose to analysecompetitiveness of a firm as a multidimensional concept that encompasses afirm's adaptability to environmental changes, competitive advantages andperformance relative to competitors as the main dimensions.
Interrelation of Market Orientation - Competitiveness
Market orientation influences on business position.As it has been commented that it directly effects the business performance we should see that the main outcome should be interpreted as “ Competitiveness “. We can conclude on that in a competitive environment, our main performance is indicator in the competitiveness, in scales market shares, sales volume. All companies target to be the best competition performance and as the outcome of the market orientation is business performance.
The research of Jaworski and Kolhi, 1993; put the model for the antecedents and consequences of market orientation;
Figure 4 The antecedents and consequences of market orientation;
Business performance is the consequence of the market orientation and the study showed that a market orientation appears to be significantly related to business performance.
In a competitive environment, the market intelligence immediately addresses the competitiveness and by receiving the market intelligence info, the business performance shall be deemed as now competitiveness.
The Model of Jaworski and Kolhi, (1993), the main successors for competitiveness are also the successors of Business performance. Structuring the firm as market oriented also shall lead you company to a competitive environment by focusing on evaluation of customer needs, structuring your organization respectively, and the final perfect market orientation model which leads to also understanding the completion criteria’s in front of the customer.
A firm characterized as market oriented might have: developed an appreciation that understanding present and potential customer needs is fundamental to providing superior customer value; encouraged the systematic gathering and sharing of information regarding present and potential customers and competitors as well as other related constituencies; and, instilled the sine qua non of an integrated, organization-wide priority to respond to changing customer needs and competitor activities in order to exploit opportunities and circumvent threats (Hunt and Morgan, 1995; Kohli and Jaworski, 1990; Narver and Slater, 1990).
Specifically, attention has been primarily devoted to the relationship between market orientation and business performance (Diamantopoulos and Hart, 1993; Pitt et al., 1996; Ruekert, 1992; Slater and Narver, 1994). This relationship can be interpreted in light of the theory of sustainable competitive advantage (Day and Wensley, 1983): the ability of the market oriented firm to outperform its less market oriented competitors is based on the premise that the former can create long term superior value for the firm’s customers in comparison with the latter (Pelham and Wilson, 1996; Reed and DeFillippi, 1990).
On the basis that the locus of market orientation can be sourced to top management within an organization (Kohli and Jaworski, 1990; Narver and Slater, 1990), which also provides the forum concerning the formulation of competitive strategy, it is likely that the strategy pursued will reflect the extent of market orientation exhibited by the firm. It has been suggested that
organizations maintaining a market type culture emphasize competitiveness, goal achievement and a strategic focus on market superiority in comparison with adhocracy, clan and hierarchy culture types (Deshpande et al., 1993).
The focus is an investigation of the relationship between market orientation and dimensions of competitive strategy referred to as strategic orientation. Therefore, given that conceptual thinking implies that “market orientation would guide strategy selection” (Hunt and Morgan, 1995, p.11), it is important to study “the strategic ... activities of market oriented businesses so that we can understand how market oriented businesses turn their culture into a competitive weapon” (Slater and Narver, 1996, p. 159).
Figure 5 Market Orientation & Competitiveness
market orientation could be considered a resource of the firm, not only a capability. For example, Langerak and Commandeur (1998) analyse market orientation as a source of competitive advantage and as a set of abilities that a firm could develop to create and offer a superior value for the customer. From an innovative perspective, Grunert et al. (1996) define market orientation as the process that uses abilities, resources and capabilities to satisfy customer needs.
In this sense, the linking between market orientation and business position can be justified by the works from several authors and a concept is figures in Figure 5.
So, Narver and Slater (1990; Slater and Narver, 1994) note that an enterprise will give a better performance if this firm considers market orientation as a sustainable competitive advantage with respect to the rest of its direct rivals. In the same way, Day (1990) sustains that market orientation represents a strong competitive advantage because it is an ``invisible triumph'' and so it requires a lot of time to implement and it is difficult to imitate. Also, Deshpande et al, (1993) point out that market orientation, like organization culture, increases competitiveness and allows us to be oriented strategically towards the competitive advantage in a strategic way. Recently, Llonch (1996) says that ``the orientation that a firm presents, is a determinant factor of its competitiveness . . .''.
In this respect, two research studies are worth to mention; one is research from Irina Akimova (1999) and the other one is from Enrique Bignea ( 2000)
The first research study is from, Irina Akimova (1999) a study concerning the relationship between the level of market orientation and firm'scompetitiveness in a turbulent environment.
The findings of the study show that there is a relationship between the level ofdevelopment of market orientation and company ability in creating competitiveadvantage. The results of the study also give additional empirical evidence to thetheoretical proposal by Kohli and Jaworski (1990) that in weak economies there isa strong relationship betweenmarket orientation and performance.
The findings of the study suggest that developed market orientation isassociated with the highest level of competitiveness across all dimensions thatreflect competitive advantage, adjustment ability and performance, whileundeveloped market orientation is associated with the lowest level ofcompetitiveness. The results of the study also show that the companies with aninward focus (agnostic cluster and production-orientation cluster) are lesscompetitive than the companies with external orientation (sales orientation anddeveloped market orientation).
The second study is from, Enrique Bignea ( 2000 ) concerning the simplification of the competitive environment in which the enterprises of a highly competitive specific sector operate ; Taking a specific sector, cosmetic-perfumery,and based on the firms analyzed, the result of this study is that we can conclude pointing out that market orientationand competitive positioning are not isolatedfields. We can summarize this study conclusion intwo ways.
That is, each ofthe groups will possess a particular marketorientation level and emphasized diversedimensions of market orientation.A group can be more interesting incustomer orientation, another group canaccent a competitor orientation, or highlightany other aspect/dimension of marketorientation.
In the second place, it is possible to observedifferent competitive strategies among the fivepreviously identified groups. So, for example,the firms most oriented to the market basetheir strategies on innovations and newproduct development, as well as on marketingtechniques.
As has been proved, market orientation hasa positive effect over the results. Socompetitive characteristics of these marketoriented enterprises could guide those firmsthat search the exit in the market.
From a general point of view, the groupconcept has been tested, understood as anintermediate level between each individualcompetitor and the global competitive arena.
All of this implies that the perceptions ofthe top management or management team ofthese companies should be considered.
Especially those concerning the degree ofmarket orientation of their enterprise, and thecompetitive strategy. Both concepts cannot bestudied separately, given the strong relationprobed between them.
Managers cognitively partition theirindustry environment to reduce uncertaintyand to cope with bounded rationality. Againstthis background, the group concept has beendeveloped to counteract the lack of resourcesand time that would be necessary to respondwith equal speed and in equal depth to all thecompetitors that constitute a potential threatto the company. Thus, the proposal is toconcentrate on a small number of competitorscharacterised by the fact that they affect thebusiness activity to a greater degree. Theidentification of one's group permits adefinition of its point of reference, in order todefine correctly the competitive positioning.
Market orientation, Intelligence and innovation
As we see from the Market Orientation model, Intelligence is one of the crucial points of the Market orientation. This can be explained as market intelligence for pertaining to current and future customers needs. So it can be evaluated as innovation for the customer in both product base and the process based and in total this is market intelligence. It is generally recommended that firms engaged in innovation will result in higher performance on product development, process renovation, and flexibility and responsiveness. positional advantage may be decided by a firm’s market orientation, learning orientation, entrepreneurial orientation, and innovativeness Hult et al. (2004).
Innovation is one of the main successors of the competition. It should be regarded as in this way, that innovation shall lead;
To have competition on innovation not price
Who innovates first gets the crème of the market, so starting with the significant market power,
To have better “ a margin- Return on investment “ rate
Prahalad and Hamel (1990 ) also viewed that in long the competitiveness derives from the ability to build, at lower cost and speedily than competitors. This can be only achieved by innovation by creating / focusing on the core competences with the incentive of the top management to innovation.