Download The Marketing Concept Necessary But Not Sufficient

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
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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
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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.
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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)
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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.
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References
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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).
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