An Exercise in Market Orientation - Essay Example

An Exercise in Market Orientation By: February 21, 2007 Executive Summary Market Orientation isa business concept where firms organize its activities, products and services around the needs and requirements of its customers. It differs from the two other types of orientation, namely Production and Sales orientation, in focus and processes. Firms may be characterized by a combination of the three but it is predominantly of one type. Beyond Petroleum (BP) Corporation, a multinational oil producer, is analyzed and is shown to contain the characteristics of a market oriented firm. 1. Introduction 1.1 History When man began to accumulate surplus of a resource but developed scarcity of another, trade was born. Thru the evolution of time, the rudiments became to be more complex as taxes, trade caravans and other forms of business negotiations began to take shape. It does not necessarily follow that our business concepts today are different from past practices. Indeed, some of the elements of modern business and marketing practices that we know of today were actually practiced as early as the time of the Ancient Greeks, the Phoenicians and the Venetian traders. The marketing concept now commonly dubbed as the market orientation finds its first proponent in Adam Smith when he forwarded the notion that the customer should be the focus of the business in the 1700's. However, it was only in the 1960s when the marketing concept was reintroduced. Nevertheless, from a short span of time, it has become the philosophical foundation for marketing academics and practitioners alike. 1.2. Evolution of the Term As we have said earlier, the term 'market orientation' was originally known as 'marketing concept'. There were many who advocated customer satisfaction as the primary objective of business (Drucker 1954, Keith 1960, Levitt 1960). However, the doctrine has been more of an article of faith than a practical basis for managing a business (Day 1994). Thru the works of Kohli and Jaworski (1990), the term 'marketing concept' was differentiated from 'market orientation' with the former being a business philosophy whereas the later refers to the actual implementation of the marketing concept. 1.3 Other Business Orientations There are other business orientations aside from marketing orientation. These are Sales orientation and Production orientation. Market orientation, however, was tagged as superior among the group. In this paper, we proceed to define what Market Orientation is (i.e. its structures, focus, processes) and compare it to the other business orientations. 2. Comparing Business Orientations 2.1 Definition and Focus A marketing oriented firm is one where strategic decisions are driven by the wants and needs of the customers. We can only speculate that it is the driving logic behind the formulation of the saying that "the customer is always right". All aspects of the firm are designed to systematically respond and create customer value. Later on in this paper, we will be discussing a market oriented company. (Narver and Slater, 1990) The concept of marketing orientation was reintroduced and developed in the late 1960s by scholars of the Harvard University with the participation of a number of companies. (Tutor2u.Net, 2006) A marketing oriented firm has the following characteristics: Extensive use of marketing research Broad product lines Emphasis on a product's benefits to customers rather than on product attributes Use of product innovation techniques The offering of ancillary services like credit availability, delivery, installation, and warranty A production oriented firm is concerned primarily with production, manufacturing, and efficiency issues and was eminent during the 1950's period. The basic notion behind this concept is best expressed by French economist Jean-Baptiste Says who forwarded the notion that 'supply creates its own demand'. Simply put, the concept revolves around the notion that if a product is made, somebody will want to buy it. One must remember that the 1950s saw the growth of consumerism leading to a shortage of manufactured goods so goods sold easily. The classic example of where it was widely considered good practice is the early car industry, exemplified by Henry Ford's Model T. Product oriented firms are marked by the following: Narrow product line(s) Pricing based on the costs of production and distribution Research limited to technical product research Packaging designed primarily to protect the product Promotion and advertising is minimal and limited to raising awareness of the existence of the product Consumers interested in simply being able to get the product, less in its quality The difference between market orientation and product orientation is that the firm has almost a total disregard for the requirements of the customer. The firm is structured to become more efficient and cost effective in its production rather than customizing the product to the tastes of the customer. Sales orientation is a business philosophy and practice which was eminent in the period between 1950 and early 1970's. This places it in the evolution of orientation (in terms of eminence) after the production orientation era and before the marketing orientation era. Production and development of more efficient production processes during the Second World War was tremendous leading to the demise of production orientation era. Machines that were used to fabricate weaponry were converted into machines churning out consumer products. By the mid 50's supply was starting to out-pace demand in many industries. Sales Orientation differs from Market Orientation because it aims to maximize sales by concentrating on processes that does not take into consideration customer safety and requirements. It's like trying to make a person buy by making it very attractive or cheap rather than it being customized to the needs and wants of the consumer. Take for example, food products. A sales oriented firm would just change the packaging of the material, announce discounts or give freebies to increase its attractiveness to customers while a market oriented firm would add more nutrients, make it pre-cooked, add more toppings or place it in a handy container- all customized depending on the result of the market research undergone in a market orientation firm. Sales oriented firms have the following properties: Promotion and advertising is very active Narrow product line(s) Pricing based on competitor's price Packaging designed primarily to become more attractive Consumers are attracted thru the pleasing of their sense such as decorations or configurations which are pleasing to the eyes. 2.2 Processes In a market oriented firm, the company usually needs to conduct marketing research to determine what the customer wants. Market research forms the core of the orientation's processes. It is therefore necessary that the process would yield accurate results because this is where decisions will be made. The process involves three ordered steps : 1. Customer wants are researched. 2. Information is made known throughout the firm and products are developed 3. Customer satisfaction is monitored and adjustments made if necessary. Product oriented firms, instead of carrying out consumer research, focuses on product research and development. It constantly tries to improve its efficiency to cut down costs and to further increase production. Sales oriented firms concentrate on ways of selling their products as the market becomes more competitive. It employs numerous techniques such as closing, probing, and qualifying all developed during its time. The consumer found himself bombarded by promotional techniques like advertising, and sales promotions began. For better appreciation, refer to the following diagram: Fig 1. Schematic Diagram of Process As a final note in this section, it must be noted that marketing, production and sales orientation can actually coexist within a firm. A firm might conduct market research all the while improving and increasing production and improving promotions and sales. Companies like Gilette carry out market research into what consumers want and then organise product research in line with the results of market research. However, firms will actually dominated by one orientation. 3. Market Oriented Company 3.1 The Market The energy industry is dominated mostly by the upstream energy sources producers or what most of us would probably know as the oil production companies. Oil is the company's product and the leading players in terms of production can be seen in the accompanying figure 3. Figure 2: Oil Players (LukOil, 2006) BP (Beyond Petroleum) will be our model company which we will show to be a market oriented company. BP is listed as the top performing oil producer in the world. The extent of operations is worldwide. BP was chosen because it does not focus itself to oil production alone to supply the energy requirements of world. It also has other products that caters to the needs of the customers. The world is being increasingly aware of global warming and customers has taken a liking for renewable energy. 3.2 Company Profile BEYOND PETROLEUM (BP) BP was formerly known as British Petroleum and is a British energy company with headquarters in London. After merging with the Amoco Corporation, the company was named "BP Amoco". After a single year of joint operations, the company drop the Amoco name and BP now stood for "Beyond Petroleum". The company is regarded as one of the oil, natural gas and petrol leaders in the world. In the 2006 Fortune Global 500 list of companies, BP was ranked 4th in the world for turnover with sales at $268 billion which was down from 2nd in 2005 and 1st among oil companies the. The 2006 Forbes Global 2000 ranked BP as the 8th largest company in the world with profits in 2005 amounting to $22.341 billion. The number of service stations stood at 28,500 with 15,900 based in the USA alone. Proven reserves amount to 18.3 billion barrels of oil and gas (57/43 percentage distribution). The company is active in 26 countries with production activities in 22 of them. (BP, 2006) 3.3 Customization of Products to Address Customer Concerns. Realizing the problem of global warming and answering the call of environmental groups and concerned consumers, BP has instituted ways to shift their product dominance from oil to low carbon energy sources. In November 2005, BP announced an investment of $8 billion over 10 years in a single business called BP Alternative Energy. This venture aims to lead the market in low-carbon power generated from the sun , wind natural gas and hydrogen as well as utilizing their skilled trading teams to boost wholesale marketing of cleaner electricity worldwide. With regards to BP's solar business, they offer a range of packages and products. For example, BP has been offering residential solar systems through the Home Depot retail chain to reach consumers in the US markets more effective. This enables consumers to buy a complete system including financing and access to grants. The initiative has been expanded to more than 250 stores in California, New Jersey and Long Island, New York. They formed a joint venture with SunOasis, a leading photovoltaic module and system supplier. This initiative of BP exemplifies the fact that BP is making it easier for the consumers to get hold of the alternative product. It also shows how BP is expanding its product range to enable consumers have a better choice for their consumption. BP is also involved in Hydrogen Power generation. The hydrogen power projects involved taking a fossil fuel such as coal, oil or natural gas and turning it into hydrogen and Carbon Dioxide. The hydrogen will be used to generate electricity while 90% of the Carbon Dioxide will be captured and stored underground in oil and gas reservoirs where it can be used to help force out oil that is difficult to reach. The first planned hydrogen power plant in Scotland would be able to generate 475 MW of electricity. The Carbon Dioxide capture would eliminate 1.8 million tones emitted to the atmosphere every year. The following figures details the Natural Gas Business reserves and production for all oil companies. Note how BP is one of the leaders in the market segment: Figure 3: Gas Production and Reserves (LukOil, 2006) Natural gas production is the cleanest hydrocarbon. When burned to generate power, it emits only about half as much Carbon Dioxide as traditional coal-fired plant. BP already owns, operates or contracts 12 GW of gas fired power plants. Through the BP Alternative Energy Program, it aims to add 700 MW more. BP is also developing its range of lubricant products to cater to the needs of the internal combustion engine users and those with other engine types. (BP Online, 2006) 4. Conclusion At the end of the day, we were able to differentiate Market orientation from Production and Sales orientation. This was made possible by comparing the definition, focus and characteristic processes. The terms would almost speak out the underlying differences. BP is a market oriented company dedicated to provide energy in a way that addresses consumer concerns regarding from global warming and other health and sustainability issues. Thru established presence in different renewable and clean fuel segments, it has been able to consider customer interests and well being. BP is very much active in execution of plans to help develop products and services with large funds allotted. One might argue that BP is actually more of a production-oriented firm since it is basically oriented with the goal of improving production efficiency and volume of its business in various market segments. The crucial point that must be understood that although this is the case, the driving force behind it is the genuine (although this is prone to speculation) desire of the corporation to meet customer's want of a cleaner and environmentally friendlier fuel. Market orientation, as we have said, is a very popular business concept. In this paper, we were able to fully grasp and appreciate the concept. Sources: BP Online (2007). BP Annual Reports. Retrieved February 21, 2007 from www.bp.com Day, George S. 1994. "The Capabilities of Market-Driven Organizations." Journal of Marketing 58 (October): 37-52. Drucker, Peter F. 1954. The Practice of Management. New York: Harper and Row Publishers. Jaworski, Bernard J. and Ajay K. Kohli. 1993. "Market Orientation: Antecedents and Consequences." Journal of Marketing 57 (July): 53-70. Keith Robert J. 1960. "The Marketing Revolution." Journal of Marketing 24 (January): 35-38. Levitt, Theodore. 1960. "Marketing Myopia." Harvard Business Review 38: 45-56. LukOil Online (2006). LukOil Factbook 2005. Retrieved February 21, 2007 from www.lukoil.com Narver, John and Slater , Stanley (1990). The Effect of Market Orientation in Business Proftability. Journal of Marketing, 34. Tutor2u.net (2006). Marketing Orientations. Retrieved February 21, 2007 from www.tutor2u.net Read More