Explore The Relative Advantages Of Both Market Driven Marketing Essay

Explore The Relative Advantages Of Both Market Driven Marketing Essay In marketing research and literature, debate has been surrounding two approaches of market orientation that firms could adopt: market-driven and market-driving. Some argue that market-driving behavior is superior to market-driven behavior in creating customer values that contribute to growth and profitability, such as IKEA, Dell and Southwest Airlines, to name a few. (eg. Kotler et al., 2000) On the other hand, majority of authors stresses that these two behaviors are complementary. (e.g. Jaworski et al., 2000; Sheth and Sisodia, 1999) Such controversy leaves open questions to practitioners: Which is the winning approach for the firms to adopt? Should these two the competing approaches or complement each other? This essay begins with an introduction of market orientation, along with the market-driven and market-driving behavior. The next section will explore the relative advantages of these two behaviors from the marketing perspective and then to draw a conclusion to suggest that these two behaviors are complementing each other of which both play important roles in generating sustainable competitive advantage in todays dynamics business environment. Overview of Market Orientation Since late 1980s, significant amount of research in marketing suggesting that market orientation is the most effective strategy of achieving and maintaining long term competitive advantage and continue to stress its importance to the firms superior profitability. (e.g., Day, 1994b; Jaworski et al., 2000; Kohli Jaworski, 1990; Kotler et al., 2000; Narver and Slater 1990) Jaworski and Kohli (1996) defined market orientation as the organization wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organization-wide responsiveness to it. (see figure 1) On the other hand, Narver and Slater (1990) defined market orientation as an organization culture committed to the continuous creation of superior value for the customers and thus, continuous superior performance for the business. Narver and Slater (1990) classified the market orientation into responsive and proactive. The responsive approach, a typical response of a firm that exhibits a market driven behavior, is customer led, considering the market structure and customer preferences as given and focusing on the satisfaction of expressed customer needs. In contrast, the proactive market orientation, a typical response of market-driving firm, aims towards the satisfaction of latent needs, reshaping the customer preferences and market structure to enhance the competitive position of the company. (see figure 1) Figure Market Orientation Process (Neuenburg, 2010, p.49) Figure 2 below provides a framework adopted from Neuenburg (2010), which shows the whole spectrum of market-oriented behaviors that summarizes the discussion above. Figure 2 Marketing driven behavior vs market driving behavior (Neuenburg, 2010, p.46) In a nutshell, although there are differences in the precise definition, the market orientation is a fundamental approach for a firm to understand its markets, which represent an additional strategic dimension (Narver and Slater, 1998) and the implementation of the marketing concept (Jaworski and Kohli, 1990) that focuses the firms efforts on the needs of the market, learn about market developments, share this information within the organization and adapt the offering to the market. (Jaworski and Kohli, 1990) The Market Driven and Its Advantages Figure Conceptual Framework: Two Forms of Market Orientation (Jaworski et al., 2000, p.130) According to Jaworski et al. (2000), the term market-driven refers to learning, understanding, and responding to stakeholder perceptions and behaviors within a given market structure. (see figure 3) Specifically, the focus of a market-driven approach is to keep the status quo on existing customer preferences and behavior within an existing market structure. (Day, 1999a; Day, 1999b; Jaworski et al., 2000) The key element of market-driven behavior is to monitor customer satisfaction and analyzing customer needs, finding competitive advantage and strategic targeting. (Cravens and Shipp, 1991) Monitoring customer satisfaction allows firms to get an early indication about changing customer needs and preferences and the identification of future customer needs. Analyzing these needs helps the firms to prevent bad decisions or overlooking important parts of the customer value proposition as well as identifying its current or potential competitive advantage. (Cravens and Shipp, 1991) Firms gain advantage by matching the requirements of market segments with its capabilities to identify the best opportunities to serve its customers. (Cravens and Shipp, 1991) As markets become more fragmented the decision about which segments to target becomes increasingly important because each segment represents its own specific needs. (Neuenburg, 2010) Understanding of Markets, Customers, and Competitors Successful companies like Nestle, Procter Gamble, and Unilever are market-driven which reflects the conventional wisdom of marketing philosophy wherein they establish a clear understanding of markets, customers, and competitors. (Day, 1994b) Market-driven firms gain advantage to have good understanding of the market and how it is likely to change in the future. Furthermore, they hear the voice of the customers and develop differentiated products or services for a well-defined segment and then create combinations of marketing mix to adapt its offerings to satisfy customer needs. (Hills and Sarin, 2003; Kotler et al., 2000) As Day (1994b) argues, market-driven organizations are superior in their market-sensing and customer-linking capabilities, which enable them to understand, attract, and keep valuable customers. (Day, 1999a) When these two capabilities are deeply embedded within the organization, all functional activities and organizational processes will be better directed toward a nticipating and responding to changing market requirements ahead of competitors. (Day, 1994b) Therefore, market-driven firms are well equipped to achieve high levels of performance (Day, 1994b) and are expected to be more adaptable and perform better than less market-driven competitors because they stay in touch with existing and potential customer needs and competitor moves better than more internally focused firms. (Day, 1990) They are also predicted to be better and more successful at introducing new products to the market than their competitors. (Narver and Slater ,1990) They may not be the most innovative firm in their industry but, they will excel at adapting technologies to meet current and future customer needs. Thus, they often exhibit the adaptive characteristics of the Analyzer organization. (Miles and Snow 1978) Home Depot and Cisco Systems represent two examples of firm successfully adopting market-driven strategy of which their business focuses on putting customers first and sees themselves engage in the relationship business, not the transaction business. They strive to provide superior customer value through unprecedented customer service to increase customer satisfaction. This is how Home Deport leads with home improvement mega-stores by offering low prices and low frills but excellent services. IBM, on the other hand, failed to recognize market changes and customer preferences for personal computers which had resulted with a record loss for the fourth quarter of 1992 of $5 billion. IBM set a record for the largest annual loss in an American corporation in 1992 with a loss of $4.97 billion. Brand Portfolios as Assets In term of brand, companies with strong brands have more loyal customers, get greater return on marketing investments and are rewarded with attractive price premiums. As such, market-driven firms view their brand portfolios as assets to be leveraged and market development activities as investments rather than expenses. (Day, 1998) According to Day (1998), to manage a brand as an asset requires the deep market insights, organizational commitment and reasoned investment decisions that come naturally to market-driven firms. Moreover, the focus on long-run return from marketing investments enables market-driven firms to understand which customers are profitable to pursue, and knowing how to encourage loyalty by reducing customer acquisition costs. (Day, 1998) Creation of Permanent Value of the Existing Products or Services As quoted from Stoclhorst and Van Raaij (2004), customers do not always strive towards new and technologically superior products or services, but towards permanent value of the existing products or services so that the competition would find it hard to imitate. Hence, it is possible for market-driven firms to become irreplaceable for customers if the firms put serious focus on customers attempts constantly to offer something that are better and faster than the competitors and make the accessibility to the products and services easier. Importantly, there is support from research findings (Stull et al., 2007) validating that market-driven companies are 31% more profitable, twice as fast to bring products to market, twice as likely to lead, and enjoy 20% higher customer satisfaction rates. Furthermore, empirical results of another study (Vorhies et al., 1999) demonstrated that, the 43 market-driven firms outperformed the 44 less market-driven firms across adaptability, customer satisfaction, growth, and profitability dimensions. This finding supports the marketing literature about the capabilities of market-driven firms (Day, 1994; Day and Wensley 1988) and extends the findings on empirical research of market orientation. (e.g Jaworski et al.,1993; Narver Slater 1994) The Market Driving and Its Advantages Figure Conceptual Framework: Two Forms of Market Orientation (Jaworski, Kohli, and Sahay 2000, p.46) The term market-driving refers to changing the structure or composition of a market and/or the behavior(s) of players in the market. (Jaworski, et al., 2000) (see figure 4) It matches a proactive business logic that enhances the competitive position of the business (Tuominen et al., 2004) of which it involves the shaping of the market structure via deconstruction (eliminating competitors in the value chain), construction (adding players into the industry value chain) or a functional modification (shifting the functions performed by players in a market), and the shaping of market behavior by creating or reversing new customers or competitors preferences. (Carrillat et al., 2004; Jaworski, et al., 2000) Schindehutte et al. (2008) presented a different view of market-driving construct clarifying that it is an entrepreneurial phenomenon. They argue that the interface between the entrepreneurship and marketing offers a unique perspective on the market related decisions of firms and the observed impact of these decisions in achieving sustainable competitive advantage. Schindehutte et al. (2008) further argued that the market-driving behavior reflects a strong entrepreneurial orientation (EO). It has both the dynamic advantage that creates capability and a disruptive advantage that destroys the performance outcome. (Schindehutte et al., 2008) Despite the many different views on the notion of market-driving behavior, it has appeared as an alternative to market-driven strategy which has been recognized as a successful strategy for a number of established firms such as Amazon.com, BodyShop, CNN, IKEA and Dell, all of which has a clear brand image, a strong market position, and exhibit sustainable international business growth whereby success is based on radical business innovation, ventured into new markets, revolutionized existing industries by changing rules of the game. (Kotler et al., 2000) Kotler et al. (2000) indicate that the success of market-driving firms is based on two dimensions of radical innovation a discontinuous leap in the value proposition and the implementation of a unique business system (see Figure 5 and 6). Kotler et al. (2000) define value proposition as the combination of benefits, acquisition efforts/costs, and price offered to customers. While, unique business system refers to the configuration of the various activities required to create, produce, and deliver the value proposition to the customer. Figure Types of Strategic Innovation (Kumar et al., 2000, p.130) Figure Leap in Customer Value (Kumar et al., 2000, p.130) Therefore, the market-driving advocates argued that the market-driving firms gain more viable competitive advantage with greater performance and reap vast rewards than those that are not in a number of ways. Delivering Superior Value Kotler et al., (2000) suggested that the leap in customer value involve either breakthrough technology or breakthrough marketing enables firms to create a product and service experience that overwhelms customer expectations and existing alternatives. (Kotler et al., 2000) For example, FedEx constantly led its customers to ever higher expectations for quick delivery times, leaving competitors struggling to meet the spiraling demands. (Kotler et al., 2000) According to Carrillat et al. (2004), successful market-driving firms deliver superior value that best matches with their capabilities and by exploiting the competitors weaknesses. It also allows firms to exploit opportunities that competitors cannot (Hamel and Prahalad, 1994) and that includes addressing the deep-seated, latent or emerging customer needs. (Kotler et al., 2000) The study results in the paper of Market-driving in retail banking (Martà ­n-Consuegra et al., 2008) revealed that the two characteristics of market-driving: driving the market structure and shaping the market behavior if combined together contribute positively to overall performance of retail banks, particularly in terms of enabling them to satisfy their customers latent and expressed needs better. (Martà ­n-Consuegra et al., 2008) This study further suggested that bank-marketing managers should emphasize customer understanding in pursuing proactive market orientation, which will lead to improved performance. Market-driving behavior also enables firms to benefit from free advertising via buzz network through strong brand attachment. Customers are delighted by the leap in customer value of the offerings and are excited to share their customer experience with friends and public. Traditional printed media and online social media are often publicizing the review on radical new innovation. While early adopters and opinion leaders who are enthusiastic and committed to new innovation products and services has the influential power to generate excitement and emotional attachment among their followers. Consequently, The advertising-to-sales ratio is often less than that of their established competitors. (Kotler et al., 2000). Nike is one of the examples provided by Kotler et al. (2000) Nike didnt run a single national television ad until they had 1 billion dollars in sales. Phil Knight observes they instead used word-of-foot advertising by getting the best athletes to wear their products. Further more, study of Tuominen et al. (2004) revealed that market-driving behavior contribute to higher customer intimacy and is associated with generative (explorative) learning. On top of that, market-driving firms gain the advantage to establish new industry price points for the quality or service levels they deliver, either towards higher performance at lower price points or to charge a price premium that is higher than typical in an industry. Firms like Swatch and Southwest Airlines set the prices much lower than their competitors for similar products and services. (Kotler et al., 2000) For example, Southwest Airlines charged $15.00 for a trip from Dallas to San Antonio when Braniff, the next most inexpensive competitor, was charging $62.00. (Kotler et al., 2000) Such significant price gap and low price policy has successfully attracted many of the ground transportation users to choose Southwest Airlines. Their focus to compete on the ground transportation enable them to create new business opportunities in a market segment that has been ignored by their competitors. (Kotler et al., 2000). On the other hand, CNN, Starbucks, and FedEx are those market-driv ing firms that have a value proposition that is significantly more compelling than the existing alternatives, which enables them to set prices considerably higher than the standard in the industry. (Kotler et al., 2000) Implementation of Unique Business System According to Kotler et al. (2000), the success of IKEA and Dell is not only by just delivering discontinuous leap in customer value but also is attributed to the implementation of unique and radical business system which is hard to imitate by their competitors. Kotler et al. (2000) argued that such business system creates a more sustainable advantage, as it takes time for a would-be competitor to assemble the intra-organizational and inter-organizational players needed to replicate that unique system architecture. In term of distribution and channel management, market-driving firms focus a wide range of innovative practices within their industries. For example, Southwest Airlines handles its own ticketing instead of make seats available through the standard industry computerized reservation systems such as Sabre and Apollo. As a result, only 55 per cent of its tickets are sold through travel agents compared to 90 per cent for the industry, adding up to substantial savings on travel agents commissions. (Kotler et al., 2000) Reshaping the Customer Preferences and Market Structure Market-driving firm could lead customer value opportunities in new directions to achieve superior business performance by destroying the existing market segmentation and replacing it with a new set of segments reflecting the new altered landscape. (Kotler et al., 2000) For example, Southwest Airlines destroyed the market segmentation between ground transportation and airlines, attracting many ground transportation user who would not otherwise traveled by air. Jaworski, et al. (2000) suggested that firms could shape the market behavior directly or indirectly. One of the indirect options is by changing the existing preferences of customers or other stakeholders from a positive (negative) to a negative (positive) evaluation (Jaworski, et al., 2000). Examples of products that were formerly negative but are now positive are Skoda in automotive industry and Adidas in fashion and accessory industry. (Jaworski, et al., 2000) The proactive behavior of market-driving firms would also contribute to more innovative products and services, and more new product success (Narver et al., 2004) that enable firms to pioneer new markets, which would eventually lead to market ownership. In the case study about De Beers in China, Harris and Cai (2002) explored the advantage of market-driving behavior in practice and incurred, as cited from Neuenburg, (2010), firms gain significant market control in environments where markets are immature and product preferences are not yet formed. Conclusion Clearly, each of the market-driven and market-driving behavior has its own advantages and the notion of these two is highly relevant for business marketers (Tuominen et al., 2004). It is suggested that firms should well aware of the business logic they are applying (e.g. proactive or reactive) then it should be a match with the type of market orientation they emphasized. That is, according to Tuominen et al. (2004), the implementation of the specific strategic logic presumes matching marketing capabilities and learning capability. However, to sustain success in the long run, Sheth and Sisodia (1999) provided a more convincing argument, that firms need to be market-driven and market-driving simultaneously. Jaworski et al. (2000) echo such argument and proposed that truly market-oriented firms combine both behaviors of which these two are complementary. In other words, firms should devote effort in market-driven activities, such as incremental innovation and traditional market research. Nevertheless, firms should also continue to search for their next radical business innovation to drive them into new competitive position or the market leader risks being leap-frogged and deposed by upstart market drivers. (Neuenburg, 2010)