Market Orientation Assessment Form

From free-range meat to vegan haircare, demand for sustainable goods is rising

In a busy north London supermarket the week- end before Christmas, the meat aisle is a hub- bub. Sarah Rymer, 32, picks her way through a shelf of whole chickens. She chooses a free- range bird. ‘I’ve definitely become more con- scious of what I buy in the past few years,’ she says. ‘It can be confusing, but I think it’s worth the money.’ Ms Rymer is one of an increasing number of shoppers driving the UK’s £81.3bn market for ethical products and services. According to not-for-profit consultancy Ethi- cal Consumer, the sector has grown by more than £40bn since 2008, with households spend- ing an average of £1,263 on ethical goods last year. The ethical food and drink market alone was up 9.7 per cent, compared with 5.3 per cent growth in 2015. Businesses are seeing the appeal. For Thanks- giving this year Butterball, the US’s largest turkey pro- ducer, launched its first organic range in response to increasing consumer demand, while earlier in the year UK sandwich chain Pret A Manger opened its second and third all-vegetarian outlets. Ikea, which says that it uses its sustainable credentials to set it apart from other affordable homeware brands, intends to use only recycled or FSC certified wood by 2020. Big consumer

product groups are making concerted efforts, too. French cosmetics company L’Oréal this month unveiled its first vegan hair colour products, aimed at boosting its flagging professional haircare division. As part of a steady strategy of smaller acquisitions, Unilever bought Sir Kensington, a maker of vegan mayonnaise, and Pukka organic teas. Its sustainable brands – those the company describes as ‘combin[ing] a strong purpose delivering a social or environmental benefit’ – grew 40 per cent faster than the rest of the business in 2016, it says.

‘The purpose of marketing is to contribute to maximising shareholder value, and marketing strategies must be evaluated in terms of how much value they create for investors.’ Peter Doyle (2008)

MARKET-LED STRATEGIC MANAGEMENT

CHAPTER 1

With consumers showing increasing concern for animal welfare, demand has risen for free-range poultry

Source: Jamie McDonald / Staff/Getty Images.

Younger consumers drive shift to ethical products By Alice Hancock in London

5INTRODUCTION

Introduction

In the quote that begins this chapter, Professor Peter Doyle highlights that the primary over- arching goal for chief executives of commercial companies is to maximise shareholder value. However, is this at odds with the increasing awareness of, and attention to, environmental and social responsibility issues? Surely firms seeking to maximise shareholder value will pay scant regard to the natural and social environment in which they operate, taking what they can, irrespective of the consequences, in order to make a quick buck? Isn’t this the essence of market-based capitalism – red in tooth and claw?

Wrong! The essence of the shareholder value approach is the long-term sustainability of the organisation through the creation of lasting value. Indeed, Doyle also argues that shareholder value is often confused with maximising profits. Maximising profitability is generally considered to be a short-term approach (and may result in eroding long-term competitiveness through actions such as cost cutting and shedding assets, to produce quick improvements in earnings). Maximising shareholder value, on the other hand, requires long-term thinking, the identification of changing opportunities and investment in the building of competitive advantage.

Younger consumers are fuelling this response. YouGov data show that in the past year alone the proportion of 18- to 24-year-olds turning to veg- etarianism for environmental or welfare reasons has increased from 9 to 19 per cent. And it is not just in their consumer habits. ‘We know that mil- lennials want to work for companies that take this stuff seriously,’ says Rob Harrison, direc- tor of Ethical Consumer. ‘Lots of new start-ups have an ethical mission and it translates across into buying patterns.’ He is speaking to me on his Fairphone, marketed as ‘the world’s first ethi- cal, modular smartphone’. Ben Gleisner is the founder of one such ethically minded start-up. In 2009, while working as an economist in the New Zealand treasury, he identified what he calls a ‘massive market failure’: businesses, unaware that customers were interested in ethical prod- ucts did not invest in them, resulting in a ‘huge undersupply’. Conscious Consumers, the platform he has set up, provides retailers with data about customers’ ethical preferences. Shoppers sign up online and link their credit or debit card to the app. Whenever they spend money at businesses

registered with Conscious Consumers, data entered on their profile – from whether they would prioritise buying organic to whether they are interested in climate change or workers welfare – is sent to the retailer. In 2015 Mr Gleisner and his team ran New Zealand’s second-biggest crowdfund- ing campaign and in autumn next year it plans to launch in its first foreign market: the UK. Richard Collier-Keywood, previously managing partner of PwC UK, has come on board as a director. Mr Gleisner says that 16- to 35-year-olds – Generations Y and Z – are the strongest market. ‘Generation Z is the most environmentally and socially “aware” consumer market yet. Even more so than millenni- als,’ he says. The sticking point is cost. At higher- end supermarket Waitrose, where Ms Rymer is shopping, an Essential range chicken is £2.40 per kg while a free-range bird is £6.25 per kg – more than double the price. Josie Mallin, 27, who is shopping for a Sunday joint in the more affordable Morrisons supermarket nearby, chooses a standard chicken. ‘I try to buy ethically but say a normal chicken is £4 and an organic chicken is £10, I’m going to buy the normal one,’ she says.

Source : from ‘Younger consumers drive shift to ethical products’, Financial Times , 23/12/17 (Hancock, A.).

Discussion questions 1 What issues is Conscious Consumers trying to address?

2 How is the company trying to address them?

6 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT

The role of marketing in the modern organisation poses something of a paradox. As Doyle (2008) again points out, few chief executives come from a marketing background, and many leading organisations have no marketing directors on their boards. Indeed, in many firms, the marketing function or department has had little or no strategic input, and instead is largely con- cerned with public relations (PR), advertising or sales support roles. However, there has been a noticeable change over the last decade or so regarding the importance of the marketing concept in setting strategic direction and influencing the overall culture of firms. Indeed, marketing is now routinely discussed, and embraced as being influential and important, in sectors that might have previously considered its use as irrelevant – for example in not-for-profit enterprises, such as charities and the arts, political parties and public sector organisations such as universities and the police service.

Managers increasingly recognise that the route to achieving commercial or social objectives lies in meeting the needs and expectations of their customers (goods or ser- vices). The concept of the customer has always been strong in commercial businesses, and as supply has outstripped demand in so many industries, so customer choice has increased. Additionally, there has been a vast increase in information available to cus- tomers through media sources such as the Internet, and as a result power in the supply chain has shifted dramatically from manufacturer to retailer/supplier, to end customer. In a rapidly changing and increasingly complex world, organisations that don’t have customer satisfaction at the core of their strategic decision making will find it increas- ingly hard to survive.

In the not-for-profit world, the concept of the ‘customer’ is taking more time to get established but is no less central. Public sector organisations talk in terms of ‘clients’, ‘patients’, ‘students’, ‘passengers’ and the like. In reality, all are customers, in that they receive some form of benefit through an exchange with an entity or service provider. Where customers can make choices between service providers (within the public sector or outside it), they choose providers who best serve their needs. Some private sector provid- ers have successfully identified areas where customers have not been well served by the public sector, and have provided new choices (in healthcare, education, security services and transport, for example). Additionally, and conversely, where private service providers have not delivered promised levels of service/service improvements, they have been ‘taken back’ into public hands. For example, in 2019, Her Majesty’s Prison (HMP) Winson Green in Birmingham (UK) was returned to public hands from the private provider (G4S) by the Ministry of Justice following a series of high-profile issues, and a very poor report from inspectors.

While organisational structures, operational methods and formal trappings of market- ing can, and should, change to reflect new developments and market opportunities, the philosophy and concept of marketing, as described in this chapter, are even more relevant today than ever before.

This first chapter sets the scene by examining the marketing concept and market orienta- tion as the foundations of strategic marketing, the role of marketing in addressing various stakeholders in the organisation, and the developing resource-based marketing strategy approach.

1.1 The marketing concept and market orientation

1.1.1 Evolving definitions of marketing

One of the earliest examples of codification and/or definition in the development of mar- keting as a discipline was concerned with the marketing concept. Over 50 years ago, Felton (1959) proposed that the marketing concept is:

7THE MARKETING CONCEPT AND MARKET ORIENTATION

a corporate state of mind that exists on the integration and coordination of all the market- ing functions which, in turn, are melded with all other corporate functions, for the basic objective of producing long-range profits.

More recently, Kotler et al. (1996) suggested that the defining characteristic of the market- ing concept is that:

the marketing concept holds that achieving organisational goals depends on determin- ing the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors do.

At its simplest, the marketing concept holds that in increasingly dynamic and competitive markets, the companies or organisations that are most likely to succeed are those that take notice of customer expectations, wants and needs, and gear themselves to satisfying them better than their competitors. It recognises that there is no reason why customers should buy one organisation’s offerings unless they are in some way better at serving their wants and needs than those offered by competing organisations.

As it probably should, the meaning and domain of marketing remains subject to evolu- tion and discussion. To exemplify this, in 1985 the American Marketing Association (AMA) reviewed more than 25 marketing definitions before arriving at their own (see Ferrell and Lucas, 1987):

Marketing is the process of planning and executing the conception, pricing, planning and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational objectives.

This has since evolved further, but very much embraces the broad ideas expressed in this initial definition. The AMA’s current definition of marketing (from July 2013) is:

Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.

Taken together, the definitions position marketing as embedded within an organisation, and as something that has extensive impact outside the organisation. They also reinforce the centrality of the marketing concept, value, process, mutually beneficial exchange and customer relationships. These issues may, or may not, be managed by a marketing depart- ment or function. These definitions lead to a model of ‘mutually beneficial exchanges’ as an overview of the role of marketing, as shown in Figure 1.1.

Definitions of marketing are, of course, extremely useful. However, the reality of what marketing means operationally, and in reality, is a far more difficult topic. Webster (1997) points out that, of all the management functions, marketing has the most difficulty in defin- ing its position in the organisation, because it is simultaneously culture, strategy and tactics. He argues that marketing involves the following:

● Culture: marketing may be expressed as the ‘marketing concept’ – that is, a set of values and beliefs embedded in employees that drives organisational decision making through a fundamental commitment to serving customers’ needs, as the path to sustained profitability.

● Strategy: as strategy, marketing seeks to develop effective responses to changing market environments by defining market segments, and developing and positioning product offerings for those target markets.

● Tactics: marketing as tactics is concerned with the day-to-day activities of product man- agement, pricing, distribution and marketing communications such as advertising, per- sonal selling, publicity and sales promotion.

The challenge of simultaneously building a customer (or market) orientation in an organ- isation (culture), developing value propositions and competitive positioning (strategy) and

8 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT

developing detailed marketing action plans (tactics) is complex. It is perhaps unsurprising that the organisational reality of marketing often falls short of the demands suggested previously.

1.1.2 Market orientation

Marketing Science Institute (MSI) studies during the 1990s attempted to identify the specific activities that translate the philosophy of marketing into reality, and hence achieve a market orientation. In one of the most widely quoted research streams in modern marketing that stemmed from the seminal, and still influential, Kohli and Jaworski (1990) study, market orientation was defined in the following terms:

a market orientation entails (1) one or more departments engaging in activities geared towards developing an understanding of customers’ current and future needs and the factors affecting them, (2) sharing of this understanding across departments, and (3) the various departments engaging in activities designed to meet select customer needs. In other words, a market orientation refers to the organisation-wide generation, dissemina- tion, and responsiveness to market intelligence.

This view of market orientation is concerned primarily with the development of what may be called market understanding throughout an organisation, and poses a substantial management challenge.

Another important contribution to this discussion, Narver and Slater (1990), defined market orientation as:

the organisational culture . . . that most effectively and efficiently creates the necessary behaviours for the creation of superior value for buyers and, thus, continuous superior performance for the business.

From this work a number of components, and in essence the context of marketing, are proposed (see Figure 1.2):

● customer orientation: understanding customers well enough to create superior value for them;

● competitor orientation: awareness of the short-term and long-term capabilities of competitors;

● interfunctional coordination: using all company resources, working together, to create value for target customers;

● organisational culture: linking employee and managerial behaviour to customer satisfaction;

● long-term creation of shareholder value: as the overriding business objective.

Figure 1.1 Mutually beneficial exchanges

O�ers Products, services, etc.

Purchases, support Responses

Survival Financial Social Spiritual Ecological etc.

Provider’s goals

Solutions Benefits Altruism Well-being etc.

Customer’s goals

Customer and provider satisfaction

9THE MARKETING CONCEPT AND MARKET ORIENTATION

To support these ideas, there is a significant and quite compelling amount of support for the view that market orientation is associated with superior organisational performance – that is, financial performance and non-financial performance such as employee commit- ment and esprit de corps (Jaworski and Kohli, 1993; Slater and Narver, 1994; Cano et al., 2004; Kumar et al., 2011).

However, it has also been suggested that there may be substantial barriers to achieving market orientation (Harris, 1996, 1998; Piercy et al., 2002). The reality may be that execu- tives face the problem of creating and driving marketing strategy in situations where the company is simply not market orientated. This is probably at the heart of many strategy implementation problems in marketing (see Chapter 16).

The ‘signs’ of market orientation can be summarised in the following terms, and under- lines the links between them and our approach to marketing strategy and competitive positioning:

● Reaching marketing’s true potential may rely mostly on success in moving past mar- keting activities (tactics) to marketing as a company-wide issue of real customer focus (culture) and competitive positioning (strategy). The evidence supports suggestions that marketing has generally been highly effective in tactics, but only marginally effective in changing culture, and largely ineffective in the area of strategy (Day, 1992; Varadarajan, 1992; Webster, 1997; Varadarajan, 2012).

● One key is achieving understanding of the market and the customer throughout the company, and building the capability for responsiveness to market changes. The real customer focus and responsiveness of the company is the context in which marketing strategy is built and implemented. Our approach to competitive market analysis in Part 2 provides many of the tools that can be used to enhance and share an understanding of the customer marketplace throughout the company.

● Another issue is that the marketing process should be seen as interfunctional and cross- disciplinary, and not simply the responsibility of the marketing department. This is the real value of adopting the process perspective on marketing that is becoming more widely adopted by large organisations (Hulbert et al., 2003). We shall see in Part 4 on competitive positioning strategies that superior service and value, and innovation to build defensible competitive positions, rely on the coordinated efforts of many functions and people within the organisation. Cross-functional relationships are also an important emphasis in Part 5.

● It is also clear that a deep understanding of the competition in the market from the customer’s perspective is critical. Viewing the product or service from a customer’s

Figure 1.2 Components and context of market orientation

Customer orientation

Market-led organisational

culture

Focus on the long term

lnterfunctional coordination

Competitor orientation

10 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT

1 Customer orientation

Strongly agree

Agree Neither Disagree Strongly disagree

Don’t know

Information about customer needs and requirements is collected regularly

5 4 3 2 1 0

Our corporate objective and policies are aimed directly at creating satisfied customers

5 4 3 2 1 0

Levels of customer satisfaction are regularly assessed and action is taken to improve matters where necessary

5 4 3 2 1 0

We put major effort into building stronger relationships with key customers and customer groups

5 4 3 2 1 0

We recognise the existence of distinct groups or segments in our markets with different needs and we adapt our offerings accordingly

5 4 3 2 1 0

Total score for customer orientation (out of 25)

Box 1.1 Market orientation assessment

viewpoint is often difficult, but without that perspective a marketing strategy is highly vulnerable to attack from unsuspected sources of competition. We shall confront this issue in Part 3, where we are concerned with competitive positions.

● Finally, it follows that the issue is long-term performance, not simply short-term results, and this perspective is implicit in all that we consider when building and implementing marketing strategy.

A framework for executives to evaluate market orientation in their own organisations is shown in Box 1.1. However, it is also important to make the point at this early stage that marketing as organisational culture (the marketing concept and market orientation) must also be placed in the context of other drivers of the values and approaches of the organisa- tion. A culture that emphasises customers as key stakeholders in the organisation is com- pletely consistent and complementary with one that also recognises the needs and concerns of shareholders, employees, managers and the wider social and environmental context in which the organisation operates.

In addition to any discussion of customer focus or market orientation it is worth noting that advocacy of a completely customer-focused approach comes with a health warning. Occasionally these approaches are confused with the notion of ‘doing whatever the cus- tomers say’. There lies madness! While understanding customers, and potential customers, is clearly important, so are issues of creativity and innovation. Hence it is important for organisations to be market driven, but equally it is important to be market driving – that is, trialling new and possibly edgy (beyond what might be expected) products and services. This is advocated, as asking customers what they want can simply be the wrong question – often they don’t know!

11THE MARKETING CONCEPT AND MARKET ORIENTATION

2 Competitor orientation

Strongly agree

Agree Neither Disagree Strongly disagree

Don’t know

Information about competitor activities is collected regularly

5 4 3 2 1 0

We conduct regular benchmarking against major competitor offerings

5 4 3 2 1 0

There is rapid response to major competitor actions

5 4 3 2 1 0

We put major emphasis on differentiating ourselves from the competition on factors important to customers

5 4 3 2 1 0

Total score for competitor orientation (out of 20)

3 Long-term perspectives

Strongly agree

Agree Neither Disagree Strongly disagree

Don’t know

We place greater priority on long-term market-share gain than on short-run profits

5 4 3 2 1 0

We put greater emphasis on improving our market performance than on improving internal efficiencies

5 4 3 2 1 0

Decisions are guided by long-term considerations rather than short-run expediency

5 4 3 2 1 0

Total score for long-term perspectives (out of 15)

4 Interfunctional coordination

Strongly agree

Agree Neither Disagree Strongly disagree

Don’t know

Information about customers is widely circulated and communicated throughout the organisation

5 4 3 2 1 0

The different departments in the organisation work effectively together to serve customer needs

5 4 3 2 1 0

Tensions and rivalries between departments are not allowed to get in the way of serving customers effectively

5 4 3 2 1 0

Our organisation is flexible to enable opportunities to be seized effectively rather than hierarchically constrained

5 4 3 2 1 0

Total score for interfunctional coordination (out of 20)

12 CHAPTER 1 MARKET-LED STRATEGIC MANAGEMENT

5 Organisational culture

Strongly agree

Agree Neither Disagree Strongly disagree

Don’t know

All employees recognise their role in helping to create satisfied end customers

5 4 3 2 1 0

Reward structures are closely related to external market performance and customer satisfaction

5 4 3 2 1 0

Senior management in all functional areas give top priority to creating satisfied customers

5 4 3 2 1 0

Senior management meetings give high priority to discussing issues that affect customer satisfaction

5 4 3 2 1 0

Total score for organisational culture (out of 20)

Summary

From the totals obtained: Customer orientation (out of 25) Competitor orientation (out of 20) Long-term perspectives (out of 15) Interfunctional coordination (out of 20) Organisational culture (out of 20) Total score (out of 100)

Interpretation

● 80–100. This indicates a high level of market orientation. However, scores below 100 can still be improved! ● 60–80. This indicates moderate market orientation. Identify the areas where most improvement is needed. ● 40–60. This shows that there is a long way to go in developing a market orientation. Identify the main gaps

and set priorities for action to close them. ● 20–40. This indicates a mountain ahead of you! Start at the top and work your way through. Some factors

will be more within your control than others. Tackle those first.

Note: If you scored ‘0’ on many of the scales you need to find out more about your own company!

1.2 The resource-based view of marketing

The dominant view of strategy in the 1980s and early 1990s was proposed by, among others, Michael Porter of the Harvard Business School ( Porter, 1980 , 1985 ). This view suggested that the key to strategy lay in industry dynamics and characteristics. While there has since been a great deal of academic discussion and debate on this perspective, it is a view that is fundamental to strategic management theory, and hence worthy of further discussion. Porter suggested that some industries were inherently more attractive than others, and that the factors driving industry competition were key determinants of profitability. Under this

13THE RESOURCE-BASED VIEW OF MARKETING

approach, the focus for explaining performance differences between organisations shifted from outside the firm (the industries in which it operated) to within the firm itself (its resources and capabilities).

Termed the resource-based view of the firm (Wernerfelt, 1984), with a focus on ‘core competencies’ (Prahalad and Hamel, 1990), this new approach suggested that performance was essentially driven by the resource profile of the organisation, and that the source of superior performance lay in the possession and deployment of distinctive, hard-to-imitate or protected resources.

Our view on strategy and marketing is that these two approaches can be combined successfully to the benefit of both. They do, however, throw into stark relief the dif- ferent approaches to strategy in general, and marketing in particular, that are still evi- dent in many organisations today. Three main alternative approaches are apparent (see Figure 1.3):

● Product push marketing. Under this approach, firms focus activities on existing products and services, and look for ways to encourage or even persuade customers to buy. This is a myopic interpretation of the resource-based view: we have a resource (our product or service) that we are good at producing, and that is different from what competitors offer. The key notion underpinning this approach is to make customers want what we are good at. Car dealerships and their supply chain present good examples of push marketing. Deale

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