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The Marketing Concept Necessary But Not Sufficient: The Effectiveness Of Strategy In Business Environment Types Steve Peter Ward and Alecksandra Lewendowska, Murdoch University Abstract A Growing number of studies have found evidence that the environment moderates the effectiveness of marketing orientated strategies (Diamantopoulos and Hart, 1993; Slater and Narver, 1994a; Greenley, 1995b; Matsuno and Mentzer, 2000; Pulendran, Speed and Widing, 2000) although it is not clear in what specific environmental conditions or which business strategies will produce higher returns. Results in this study of 217 companies from Australia, Singapore, The Netherlands and China finds general support for Elliott’s (1990), hypotheses that different environmental situations, as defined by Emery and Twist (1965), provide the suitable conditions for a customer, competitor or societal orientated strategy. Implications for managers are that the choice of marketing strategy needs to be carefully considered given the nature of the type of industry environment. Background The general relationship between market orientation and performance has been also been found in some cases to be moderated by the environmental situation (Jaworski and Kohli, 1993; Slater and Narver 1994a, Greenley, 1995b, Appiah-Adu, 1998; Gray et al., 1998 Matsuno and Mentzer 2000). A research question that remains unanswered in research is in what particular type of marketing strategy is suitable for a particular type of environment. A useful theoretical typology in which to examine this is the Emery and Twist (1965) environmental of four environmental types; Placid-Random, Placid-Clustered, Disturbed-Reactive and Turbulent environment. The type of environment an organisation finds itself in is determined by the degree and predictability of change (turbulence) and corresponding threats and opportunities. In a placid-random environment according to Glaser (1985) and Elliott (1990) opportunities and threats are randomly distributed, there is little or no turbulence, hence no particular marketing strategy should yield significantly higher results. Thus: H1: In a Placid Random environment, there will be no significant differences in performance between firms pursuing a customer, competitor and societal based strategies. Elliot (1990) argued that in a placid-clustered environment, opportunities (market segments) become more clustered and the environment is ordered in a more meaningful way for the manager. A good example of an industry faced with this type of environment may be brewing industry in Australia (Elliott 1990, p. 24) although such conditions can easily change. Therefore, market based, or customer orientated strategies will yield higher returns in this type of environment. H2: In a placid clustered environment there will be significantly higher performance by companies pursuing the customer orientated strategy. In a disturbed-reactive environment, environment there is more than one organisation of the same kind, and the existence of a number of similar organisations now becomes the dominant characteristic of the environmental field. This environment is characterised by Glaser (1989) as a zero-sum game, gains of one firm occur at the expense of the other. Marketing becomes ANZMAC 2005 Conference: Strategic Marketing and Market Orientation 133 more complex as firms need to develop their marketing strategies beyond the customer, to include distribution channel arrangements, dealing with suppliers and the activities of competitors (for example, the airline industry). Therefore a competitor based strategy is more appropriate for this type of environment. H3: In a disturbed reactive environment there will be a significantly higher performance by companies which pursue a competitor orientated strategy. In a turbulent environment organisations are faced with a significant increase in relevant uncertainties. The consequences which flow from their actions lead off in ways that become increasingly unpredictable (for example, the present university sector or tobacco industry). The marketer moves from examining the consumer to the study of society. Concepts such as ‘domesticated markets’, ‘sustainability, ‘societal marketing’ and the ‘stakeholders’ come into play when marketing theorists attempt to comprehend the demands of the turbulent environment. Companies in turbulent environments need not only address competition and customer concerns but must also of stakeholders, particularly government, who by policy and regulation have a significant effect on environmental turbulence which may be counterproductive to a firms very survival let alone performance. Therefore societal based marketing strategies are the appropriate tool of choice for the manger. H4: In a turbulent environment there will be a significantly higher performance by companies which pursue a societal marketing orientation strategy. Methodology Measures In order to measure the degree of customer, competitor orientation, the relevant subscales from MKTOR (Narver and Slater 1990) were used in the analysis. The Cronbrach’s alpha of customer and competitor orientation, were .87, and. 86 respectively (the list of measures is shown in Appendix A). The measure of societal marketing orientation was developed as part of the study as there is at present no accepted measure of this construct. The measure used in the study was based on an initial pool of 11 items, which were determined from focus group research with managers in Singapore. Confirmatory factor analysis (2=3.10, d.f=3, p>.40, SRMR=.03, and RMSEA=.01, AGFI=.97, NNFI=.99 and CFI=1.00) reduced this measure to five items (see Appendix B) Cronbrach’s Alpha being .82 for this measure. Performance was both objectively and subjectively measured. The measure of objective performance included statements of sales, gross and net profit, and current assets, all recorded on seven point scales from (1) less than AUD $100, 000 to (7) greater than AUD $100, 000, 000. These items were summed to form a composite score (Cronbrach’s alpha=.94). Subjective performance was measured by a series of five point scales, which assessed satisfaction with financial performance, being at close to breakeven point, satisfaction with return on investment, corporate liquidity, return on shareholders’ funds, and increased penetration of existing markets. These items were summed to construct an index score (Cronbrach’s alpha=.91). The degree of turbulence in the environment was assessed by the degree of predictability of demographic, customer, technological and production levels within each industry, these were measured on scale where a lower number represents a more turbulent environment. These items were summed to produce a composite score (Cronbrach’s alpha=.65, country factor weighted scores derived from SEM were used to construct the ANZMAC 2005 Conference: Strategic Marketing and Market Orientation 134 composite score). The competitive environment was measured by four items, as used in research by Laczniak, Pecotich and Spadaccini (1995). These items assessed the degree of competition ranging from zero, not competitive at all, to eight very high level of competition. The measures included in the final composite score included competition in the areas of prices, products, technology, distribution, labour raw materials, as (Cronbrach’s alpha=.80). The measurement properties of the major variables of the study are shown in Table 1. Data Collection A sample of 217 firms was collected from four countries, Australia, (81 cases) Singapore (79 cases), China (16 cases) and The Netherlands (41 cases). Firms were sampled from published lists, similar to the Fortune 500 of both large and small companies. It was felt that that a sample containing both large and small companies would provide more generalisable results since there has been a tendency in the past to survey mainly larger firms (Narver and Slater 1990; Slater and Narver 1994; Greenly 1995 Pulendran, Speed and Widing (2000) and Noble, Shina and Kumar 2002). The response rate was low around 15%. Most (60%) were service organisations, although other types of firms ranging from manufacturing (22%), distribution (9.3%) and e-commerce (1.9%) were represented in the sample. The companies surveyed had around a third of their sales derived from the household sector (30%), followed by business customers (28%), manufacturing (21%) government customers (12%) and sales to contractors (7%). Across the sample, around two thirds (61%) of companies reported that their sales were generated within their home country. The firms surveyed ranged from small companies of less than 50 people (28.4%), to organisations employing more than 10000 people (14.2%). This was reflected in their current assets, which ranged from less than $100 000 (13.9%), Australian dollars (AUD) to greater than $1 billion AUD (17.1%). Differences in composition of the sample from the four countries is presented in appendix 1. Results In order to examine the hypotheses Environmental typologies were formed on the basis of cut-off scores corresponding to quartiles ranges a low score represented a high degree of environmental turbulence, therefore the turbulent environment corresponds to scores up to and including the 25 percentile etc. For the sake of brevity a detailed description of each environment is not presented in this paper, but can be provided on request from the authors. Use of High and low strategies was determined if companies scored above or below the median for measures of customer, competitor and societal orientation. In the main H1 was accepted, only companies pursuing a societal marketing strategy (t=2.66, p<.01) reported higher financial performance that firms that did not concentrate on this strategy. Support was found for H2, with firms emphasising a customer orientated strategy expecting to perform better in a placid-clustered environment (t=3.34, p<.01), than companies that did not. Companies using Customer orientated strategies were also found to perform better in turbulent environments (t=3.00, p<.01). No support was found for H3, although the means were in right direction for high and low competitor orientated companies in the disturbedreactive environment. Support was not found for H4, although societal marketing strategies appear to be effective in placid clustered environments (t=3.34, p<.01) like competitor (t=2.08, p<.05) and customer orientated strategies. ANZMAC 2005 Conference: Strategic Marketing and Market Orientation 135 Table 1: Measurement Properties of Major Variables in the Analysis Fit Statistics Scale and items and loadings to latent constructs 2 Mean (std deviation) Alpha Reliability (df) RMSEA RMR 1.82 (1) 0.06 0.00 16.38 (2.74) 0.87 0.00 0.00 11.13 (2.60) 0.86 40.62(33) 0.13 0.03 14.13 (4.72) 0.82 5.43 (2) 0.09 0.07 4.24 (1.56) 0.65 .44 (2) 0.00 0.03 5.61 (1.41) 0.80 Objective Performance Na Na Na 17.06 (7.40) 0.94 Subjective Performance Na Na Na 14.14 (1.41) 0.91 Customer Orientation (4 items) AVE=.80. Customer commitment (mo1) (.84) Create customer value (mo2) (.81) Understand customer needs (mo3) (.75) Customer satisfaction objectives (mo4) (.79) Competitive Orientation (3 items) AVE=.81 0.00 (1) Respond to competitors’ actions (mo19) (.80) Top Management discusses competitors’ strategies (mo20) (.82) Target opportunities for competitive advantage (mo21) (.82) Societal Marketing Orientation (5 items) AVE=.67 The firm provides advice to government on behalf of the industry (mo24) (.66) The firm actively lobbies government. (mo25) (.66) The firm spends considerable money on public relations (mo26) (.78) The firm donates money to charity. (mo27) (.52) The firm actively invests resources and/or money in activities outside its business which aim to benefit the community (mo28) (.73). Business Environment (4 items) AVE=.57 Customer Trends (ind1) (.58) Production Levels (ind2) (.61) Technological Developments (ind3) (.56) Demographic Trends (ind4) (.52) Competitive Environment (4 items) AVE=.71 Competitive Prices (ind5) (.72) Competition on Products (ind6) (.86) Competition on Technology (ind7) (.69) Competition on Distribution (ind8) (.59) ANZMAC 2005 Conference: Strategic Marketing and Market Orientation 136 Table 2: Means and Standard deviations of objective and subjective Performance by strategy and environmental typology. Environment Strategy Placid-Random Placid-Clustered Low Competitor Obj 14.191 (7.85) 16.672 (1.46) 14.547 (8.62) Sub 13.69 (4.67) 15.82 (3.60) 15.04 (4.19) Obj 18.223 (6.73) 19.004 (7.83) 17.949 (8.34) Sub 12.91 (6.74) 16.48** (3.29) 13.42 (3.54) High Competitor 16.128 (7.40) 14.62 (4.34) 19.0910 (6.74) 15.84* (4.27) Low Societal 12.4515 (6.85) 15.00 (4.08) 15.7517 (7.89) 14.71 (4.62) High Societal 17.9116** (7.91) 14.63 (4.44) 21.2618** (5.76) 15.15 (3.76) Low Customer High Customer DisturbedReactive Obj Sub 17.12 14.00 (6.57) (3.67) 16.39 14.00 (6.88) (3.81) 16.09 13.77 11 (3.23) (7.89) 17.20 14.12 12 (4.06) (5.74) 15.20 13.83 19 (4.80) (6.41) 18.03 14.14 20 (2.51) (6.80) Turbulent Obj 18.815 (7.76) 15.566 (6.81) 17.1113 (8.15) Sub 11.71 (3.18) 14.30** (3.01) 12.75 (3.67) 18.0514 (6.09) 12.94 (3.45) 15.7421 (7.91) 12.89 (3.53) 19.1122 (6.76) 12.74 (3.25) Note: **=p<.01, *=p<.05. Standard deviations are shown in prentices. Obj=Objective financial performance. Sub= Subjective or expected performance Sample sizes 1: N=26 2: N=28 3: N=22 4: N=29 5: N=31 6: N=23 7: N=22 8: N=32 9: N=19 10:N=32 11: N=22 12: N=32 13: N=36 14: N=18 15: N=24 16: N=30 17:N=24 18: N=27 19: N=24 20: N=28 21: N=27 22: N=27 Discussion The results provide mixed support on Elliott’s thesis on the appropriate us eof marketing strategies given the environment. It appears though that a societal marketing strategy may be used as companies to maintain rather than reduce environmental turbulence or hostility. Most marketing strategies appear to be useful in conditions of relatively stable environments such as placid-clustered environments. In turbulent environments it does seem though that concerns for customers should be the major focus of organisations, although preventing the emergence of turbulent business environments by the use of societal marketing is important strategic consideration even for companies operating in more favourable and placid environments. The results of this research are limited somewhat by the nature of the sample and differing sample sizes used to examine the effectiveness of each strategy in a particular environment. Still it would be interesting to see if these results could be replicated over a larger sample and across a diverse set of countries and industries. Such findings would also be of value to managers facing many dilemmas in the uncertain business environment of today. ANZMAC 2005 Conference: Strategic Marketing and Market Orientation 137 References Appiah-Adu, K. (1998) “Market Orientation and Performance: Empirical Tests in a Transition Economy”, Journal of Strategic Marketing, Vol. 6, pp 25-45. Diamantopoulos, Adamantios and Susan Hart (1993) “Linking Market Orientation and Company Performance: Preliminary Work on Kohli and Jaworski’s Framework”, Journal of Strategic Marketing, 1 (2), pp 93-122. Elliot, G., R. (1990) “The Marketing Concept - Necessary but not Sufficient - An Environmental View.” European Journal of Marketing 24(8): 20-30. Emery, Fred E. and Eric L. Trist (1965) “The Casual Texture of Organisational Environments”, Human Relations, Vol. 18, pp 21-33. Gray, Brendan, Sheelagh, Matear, Christo Boshoff and Phil Mateson (1998) “Developing a Better Measure of Market Orientation”, European Journal of Marketing, 32 (9), pp 884-903. Greenley, Gordon E. (1995b) “Market Orientation and Company Performance: Empirical Evidence from UK Companies”, British Journal of Management, 6, (1), pp 1-13. Glaser, S. (1985) “The Marketing System and the Environment”, European Journal of Marketing, Vol. 19(No.4), pp 54-72. Jaworski, B., J. and Kohli, Ajay, K., (1993) “Market Orientation: Antecedents and Consequences.” Journal of Marketing Vol. 57(July): 53-70. Laczniak, Gene R., Anthony Pecotich and Angela Spadaccini (1995) “Towards 2000: A Tougher Future for Australian Business?”, Asia Pacific Journal of Management, Vol.11 (No. 1), pp 67-90. Matsuno, Ken and John T. Mentzer (2000) “The Effects of Strategy Type on the Market Orientation-Performance Relationship”, Journal of Marketing, Vol. 64 (4), pp 116. Mavondo, Felix T. and Farrell, Mark A. (2000) “Measuring Market Orientation: Are there Differences Between Business Marketers and Consumer Marketers?” Australian Journal of Management, Vol.25 (2), pp 223-244. Narver, John C. and Stanley F. Slater (1990) “The Effect of a Market Orientation on Business Profitability”, Journal of Marketing, Vol.54 (4), pp 20-35. Noble, Charles H., Rajiv K. Shina and Ajith Kumar (2002) “Market Orientation and Alternative Strategic Orientations: A Longitudinal Assessment of Performance Implications”, Journal of Marketing, Vol. 66 (4), pp 25-39. Pelham, Alfred M. and David T. Wilson (1996) “A Longitudinal Study of the Impact of Market Structure, Firm Structure, Strategy, and Market Orientation Culture on Dimensions of Small-Firm Performance”, Journal of the Academy of Marketing Science, 24 (1), pp 27-43. Pulendran, Sue, Speed, Richard and Widing, Robert (2000) “The Antecedents and Consequences of Market Orientation in Australia”, Australian Journal of Management Vol. 25(2), September, pp 119-143. Slater, Stanley F. and John C. Narver (1994a) “Does Competitive Environment Moderate the Market Orientation-Performance Relationship?” Journal of Marketing, Vol. 58 (1), pp 46-55. Slater, Stanley F. and John C. Narver (1994b) “Market orientation, customer value and superior performance”, Business Horizons, Vol.37 (2), pp 22-29. ANZMAC 2005 Conference: Strategic Marketing and Market Orientation 138 Appendix 1: Composition of the Sample across the Four Countries of the Study. Australia The Singapore China Total (%) Netherlands (%) (%) (%) (%) Service Industry 55.6 60.0 62.2 58.8 Less than 50 38.2 25.0 17.4 35.3 28.2 51-100 13.2 10.0 7.2 0 9.4 101-500 3.9 17.5 18.8 11.8 12.4 501-1000 10.5 5.0 7.2 17.6 8.9 1001-5000 13.2 25.0 20.3 29.4 19.3 5001-10000 5.3 10.0 11.6 0 7.9 More than 10000 15.8 7.5 17.4 5.9 13.9 Number of Employees: Note: The split of companies in the service industry is comparable across all countries at around 60%. There were differences in the terms of industry size, but these differences are not significant at the 5% level Chi-Square=28.48, d.f=18, p>.05). ANZMAC 2005 Conference: Strategic Marketing and Market Orientation 139