Strategic Market Management - Research Paper Example

For many years, marketing researchers have been observing whether the influence of market orientation leads to profitability. There are contrasting results for this. However, much of the literature reveals that market orientation leads to higher quality of products which then leads to increased profits. Being market oriented means focusing on customers changing needs and wants. This may also leads to product innovation. The goal of this paper is to explain the benefits of adopting market oriented culture and how segmentation strategies benefit a business. Introduction Several fundamentals of modern business and marketing practices date back to the ancient Greeks, the Phoenicians, and the Venetian traders. The term "marketing concept" was presented first in the1700s by Adam Smith, the Father of Modern Economics. He said that the customer should be made the focus of a business. According to Kohli and Jaworski (1990), the marketing concept is a business philosophy, whereas the term market orientation refers to the actual implementation of the marketing concept. Market orientation involves the production of goods vigilantly researched and designed to appeal to customers. Product orientation, on the other hand refers to the culture where the product is designed and produced without any market research and thus it is unclear whether the product would appeal and satisfy the customer or not. Proponents of Market orientation believe that the customer is the king and so it is important to continually assess and satisfy the changing needs and wants of the customer (Slater and Narver 1994). What does he prefer What product size is most beneficial to him From where does he make his purchases Does he buy in bulk To answer these questions organizations need timely marketing information systems, market research, decision support systems and diffusion of such market intelligence at all levels in the organization (Kohli and Jaworski 1990) Based on extensive interviews with managers and executives, Kohli and Jaworski (1990) conclude that market orientation provides "a unifying focus for the efforts and projects of individuals, thereby leading to superior performance." Research has also found a strong correlation between market orientation and increased profits, higher sales and new product growth1. Market Orientation Matrix2 Market orientation is a concept with two major components: (1) customer-focus and (2) competitor-focus. This conceptualization leads to four distinct strategic types. In an ideal world, firms should seek to understand both customers and competitors but resource constraints may lead to trade offs. However, much before a business starts to gather competitive intelligence it must conduct a SWOT analysis for itself. It must know where exactly does it stand in the market. Customer Preoccupied: are firms that stress on gathering customer focused intelligence at the expense of competitor information. According to Von Hippel (1986) a customer oriented approach is important, but focusing on competitors is more important when markets are growing as they serve as 'reference points for later adopters'. Marketing Warriors are firms that focus their attention to who their competitors are, what they are doing, and what do they plan to do. Such firms try to identify their own strengths and weaknesses in order to stay ahead of competition. This may be suitable when demand is predictable and there are few powerful customers. Strategically Integrated: are those firms that assign equal importance to customer and competitor intelligence. According to Day & Wensley a focus largely on either customer or competitors can lead to 'a partial and biased picture of reality.' Therefore a balance between these two is the most appropriate option. Strategically inept: are firms that fail to adapt to the changing market environment and focus only on internal operations, technological advances etc. Since external analysis is an imperative part of strategic planning, failure to do so can be dangerous. Competitive Advantage For any organization to consistently achieve exceptional market performance it must create a sustainable competitive advantage. According to Kotler (1977), an effective marketing organization focuses on the external environment, which is said to include both customers and competitors. Therefore ccompetitive advantage is vital to achieving enhanced business functioning. There was a time when competitive advantage was based on structural characteristics like market power, economies of scale, broader product line. Today the trend has changed. The stress is more on consistently delivering superior value to customers. Superior customer value is what market orientation is all about and thus, market orientation and competitive advantage go hand-in-hand. In order to be able to best satisfy the customer, organizations need to dwell into competitive research. They need to know what their competitors are doing right in order to attract more customers. For example, Marriott employees spent six months traveling across the country, staying at different economy hotels and gathering information about their facilities and services. Once this was done, Marriott invested $500 million in a new budget hotel chain "Fairfield Inn" and was able to achieve an occupancy rate 10 points higher than the industry average in one year3. Know Your Customer (KYC) It is also important to know the customer profile i.e what are his demographics, where does he live etc. Such profiles help to form potential target markets. In market-oriented businesses, employees make a conscious effort to spend time with their customers. This way they get to know their customer (KYC). Du Pont, for example has a program called "Adopt a Customer" according to which a blue-collar worker has to pay a visit to a customer, at least once a month, and learn about the customer's needs and in turn voice those needs on the factory floor3. Qantas Airways realized the importance of listening to its customers and responding in a highly competitive industry. Armed with information about the market and its competitors, Qantas aimed to improve its service and overall image before the Sydney Games of 2000. It upgraded its fleet and introduced new e-ticketing systems showing its commitment to its customer base. Customer Satisfaction If customer satisfaction is the main aim of the company, then all efforts are made in this direction. Some organizations go far enough to involve their customer in hiring and rewarding decisions. All such efforts lead to greater customer loyalty. According to research conducted by Cravens (1998), being market-oriented generates an environment for listening, comprehending and responding to the market and the competition. This way customer satisfaction is enhanced and competitive barriers are erected. Companies like Virgin have benefited from this philosophy. Virgin acknowledges the importance of adapting its structures, roles and processes according to the changing market requirements. In the same way, senior management at Dell Computers foster a culture that facilitates market orientation. Profitability Market oriented activity can lead to increased profitability. Business performance can be improved by providing high quality products, supported by market-oriented features like customer feedback, regular tracking, information exchange and a strong sense of anticipation of changing environments. In times of market swings, it is more imperative for companies to become market oriented. Study conducted by Chang and Chen (2004) suggests that market orientation leads to improved quality and this in turn leads to increased profits. In a market oriented culture, marketers spend time and effort in developing and modifying their offering mix in response to the changing needs of the customers and competitors' actions. However, market orientation can not be achieved with the blink of an eye. Apart from gathering market information, it requires top management's dedication and support through provision of employee training, motivation and an adequate reward system. Jaworski and Kohli (1993) recommend that physical closeness of departments is also vital, in addition to technological links such as voice mail, chat rooms etc. Communication can be improved by informal meetings, open door policy and interdepartmental teams. For a long time marketing researchers have been observing whether business performance is affected by market orientation. Studies4 undertaken to address the influence of market orientation on business performance indicate, the relationship between these two variables is positive. This is primarily because being market oriented helps a firm better understand its environment and customer. Some studies have also found a positive relationship between managers' perceptions and financial performance (Pelham and Wilson 1996; Slater and Narver 1994) Quite a number of studies5 also reveal a positive influence of market orientation on new product introduction. The higher the consumer orientation intensity, the greater the probability that the company will supplement its existing product lines with new products. Segmentation Vs Mass marketing Once the product is developed and ready, the next question arises on how should it be sold in the market Should it be promoted in the same manner to all the consumers Or should it be promoted in different manner to different people. Proponents of Mass marketing believe that the product should be marketed in a way that reaches to the maximum number of people. They believe that by reaching a wider audience, possible exposure to the product is maximized. Consider a toothpaste for example, it is not manufactured keeping a specific consumer in mind and it is sold in huge quantities. The main aim of the manufacturer is that the consumer should remember his brand at the point of sale. On the other hand, proponents of segmentation strategies believe that addressing the entire market in a homogenous manner, dilutes the effect of the promotion. A more effective strategy would be to restrict the entire population to a target market, whom you would want to be exposed to the product. Even in the case of a toothpaste, an advertisement showing an old lady brushing her white teeth may not appeal to the younger audience and although they may remember the brand at the point of purchase but they might not want to buy the brand. Market segmentation is thus making groups of consumers who have similar tastes and needs an each group reacts to the marketing mix in a similar manner. Hence forth, a different promotional strategy is developed for each group. Groups or segments can be made according to the following components: Geographic variables, such as region of the world or country, country size, or climate Demographic variables, such as age, gender, sexual orientation, family size, income, occupation, education, socioeconomic status, religion, nationality/race, and others Psychographic variables, such as personality life-style, values, and attitudes Behavioral variables, such as benefit sought, product usage rates, brand loyalty, product end use, readiness-to-buy stage, decision making unit, and others As companies become more consumer oriented, the need for segmentation is increasing. Segmentation strategies form the basis of customer relationships and lead to amplified customer loyalty. Segment oriented strategies lead to a range of advantages for both, businesses and customers. Improved service to customers' needs and wants: It is not possible to create a product catering to each individual's tastes; however it is possible to satisfy a variety of customers with a limited product range by using different promotion activities. Dell computers, for instance, does not organize its website by product groups (desktops, notebooks, servers, printers etc), but by customer groups (privates, small businesses, large businesses, public/state organizations). They offer the same products to all customer groups. Higher Profits: Usually it is not possible to increase product prices for the whole market. But, through segmentation, it is possible to develop premium segments in which customers accept a higher price level. Products may be sold at higher prices in elite localities of a city as compared to a mediocre neighborhood. Even staple food items are often sold at higher prices in the heart of the city as compared to suburbs. Such strategies lead to higher profits. Sustainable customer relationships in all phases of customer life cycle: With time and age, customers change their preferences. In this way the marketer has a product catering to different segments along a customer's life cycle. For e.g. skin care brands often offer special series of products for babies, teens, normal skin, and elder skin. Mass marketing treats all segments as one. Advocates of this strategy say that some customers fall in more than one segment and they are bombarded with multiple offers. Traditionally, undifferentiated marketing uses tools of mass advertising like television, radio and newspapers. This strategy benefits from economies of scale and is usually adopted as it leads to cost savings. Undifferentiated marketing is successful when the competition is scarce or the product has mass appeal. Mass marketing efforts rely greatly on mass production, mass distribution and mass advertising. Apart from cost savings, such efforts lead to low marketing complexity and less usage of time and effort. This is common in the pharmaceutical industry where a similar brand image is created and promoted globally and a large sales force is employed to promote the product. For example, Tylenol has the same brand image (pain reliever/fever reducer) all over the world. Conclusion Market orientation refers to a culture rather than a strategy. It involves giving unconditional importance to the customer's needs and wants. For this purpose it is imperative to gather competitive intelligence along with top management's support and backing. Market segmentation is a component of market oriented culture. FMCG* Giants like P&G closely follow the changing dynamics of their markets. They may not know the exact number of Crest toothpaste used by Mr. X and his family, but they periodically gather data and know the usage for the average household whose demographics are similar to Mr. X's. This is why companies that claim to be market oriented usually follow a segmentation strategy. There is room for further research to be conducted in this area, especially to measure the extent to which business profitability is influenced by market orientation. Bibliography Aaker, David A. (1988), Strategic Market Management, 2nd ed. New York: John Wiley & Sons, Inc. Adu K. Appiah,Singh S, (1998) Customer orientation and performance: A study of SMEs. Management Decision 36(6), 385-394 Bozic Ljiljana, (2006) The effects of Market orientation on Product Innovation. Economic Trends and Economic Policy,107,46-65. Chang Tung-Zong, Chen Su-Jane (2004) Is there a direct effect of market orientation on business performance Retreived September 18, 2007 Website: www.sbaer.uca.edu/research/mma/1998/pdf/28.pdf Cravens D., Greenley G., Piercy N.F. & Slater, S.F. (1998). Mapping the path to market leadership', Marketing Management. 7(3), 29 Day, George S. 1994. "The Capabilities of Market-Driven Organizations." Journal of Marketing 58 (October): 37-52. Dragoon Alice, Customer Segmentation Done Right. Retrieved September 16, 2007 from CIO Website http://www.cio.com/article/12558/Customer_Segmentation_Done_Right_/2 Heiens A. Richard, Market Orientation: Toward an Integrated Framework Academy of Marketing Science Review, 2000 Hutton Nick, (2003 September). Does Mass marketing have a future The Pharamaceutical Journal p.424 Jaworski, B.J., Kohli, A.K. (1993), "Market orientation: antecedents and consequences", Journal of Marketing, 57, 53-70. Kohli, Ajay K. and Bernard J. Jaworski (1990), "Market Orientation: The Construct, Research Propositions, and Managerial Implications," Journal of Marketing, 54(April), 1-18. Kotler, P. (1977) From Sales Obsession to Marketing Effectiveness. 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