Market Orientation versus Market Profitability
The study’s purpose is to establish an efficient mechanism that can be used to measure market orientation and after that establish the relationship between market performance and market orientation. According to article’s authors, the issue had not been addressed for over thirty years even if marketing academicians had constantly talked about it. As a result, with the help of this study, the article’s author wished to evaluate the relationship between the two aspects so that the effects of market orientation on market performance could be established.
Upon establishing the relationship between aspects, the authors hoped to identify the direction that future researches on the issue should take. With respect to this aspiration, the authors have established that future researches should focus their attention on the mechanisms that can be used to increase and sustain market orientation. They have also established that future researches should focus their attention on factors that increase market orientation with an aim of enhancing market profitability.
The study hypothesizes that market orientation and market performance have positive association with each other. This hypothesis is based on the presumption that businesses that increase their market orientation are likely to improve their business performances. It is based on the presumption that businesses need to maximize their long-run profits by creating superior value for their target customers (Narver, & Slater, 1990).
Relevance of the research article
Economically, the study’s subject is of great importance in marketing because it helps marketers to understand the relationship between market performance and market orientation with an aim of enabling them to develop efficient marketing practices. In particular, they enable marketers to understand the significance of market growth in both commodity and non-commodity businesses. On one hand, marketers understand that short-term market growths enhance profitability in non-commodity businesses. On the other hand, marketers understand that short-term market growths appear to reduce profitability in commodity businesses (Narver, & Slater, 1990). With such an understanding, marketers understand what they can do to enhance profitability in both types of businesses. Apart from understanding these two aspects, marketers are left with the responsibility of determining whether their businesses are in equilibrium or they need to increase their market orientations to enhance productivity or not. Furthermore, marketers are left with responsibility of understanding whether there are certain market environments that enhance market orientations while others do not enhance market orientation. Once marketers understand this aspect, they will be able to make informed decisions. As a result, the study is an important one in marketing not only in establishing the relationship between market growth and profitability, but also enabling marketers to understand their markets with an aim of enhancing those markets.
The study starts by conducting an extensive literature review of the factors that make up market orientation. Upon conducting the literature review, the study establishes that market orientation comprises of three behavioral components namely inter-functional coordination, competitor orientation, and customer orientation (Narver, & Slater, 1990). Based on this assumption, the study goes ahead to sampling 140 business units that deal with forest products. All these businesses are aimed at making profit and each of them has salespersons as well as sales managers. The top management teams in these business units were interviewed to provide the data that was used in data analysis. Out of 440 questions that were sent to the top management teams in the business units only 371 questionnaires were completed correctly and used in the study.
The 140 business units used as sampling units in the study were further divided into commodity businesses and non-commodity businesses. Commodity businesses dealt with physical products whereas non-commodity businesses created superior value for customers. In order to control other factors that influence business profitability, eight control variables were evaluated and considered in the study. Among these control variables were supplier power, seller concentration, and business size. Other control variables included rate of market growth, ease of entry of new competitors and the power of buyers as well as the rate of technological changes (Narver, & Slater, 1990). Likert scale was used as the empirical model. On the other hand, data analysis involved regressing independent variables on dependent variable to establish the relationship between these two variables. Some results were tabulated whereas others were reported without tables.
After conducting the study, the researchers found that market orientation played a significant role in determining the market profitability for both commodity and non-commodity businesses. In particular, the study established that the coefficients for non-commodity business were statistically significant at alpha less than or equal to 0.05. These results indicated that the relationship between relative return on investment (ROA) was monotonically increasing with market orientation. For the commodity businesses, the study established that the square coefficient for market orientation was also significant. Nevertheless, this coefficient had a non-linear relationship with ROA indicating that market orientation for commodity businesses differed slightly with market orientation for non-commodity businesses. This finding was consistent with the study’s expectation that market orientation for commodity businesses would be non-linear in the short-term. In addition to these findings, the study established that five control variables out of the eight variables considered in the study were statistically significant at alpha less than or equal to 0.05 (Narver, & Slater, 1990). For the buyers’ power, the sign of the coefficients was in the opposite direction as the one projected in the literature review indicating that buyer’s power and market growth were in opposite directions with each other.
Given that the study has been able to establish the various factors that measure market orientation and at the same time has been able to control all other variables that affect business profitability, then I feel this is an efficient study in marketing. For me, I feel that the study has established its authority in marketing by demonstrating that it understands the dynamics in marketing and the way they affect business profitability. Furthermore, I feel that the study has contributed significantly in determining what marketers need to do as they market their businesses. In particular, I feel that the study has apart from determining the relationship between market performance and market orientation has established the mechanisms that marketing experts should pursue as they promote their businesses. In this regard, I understand that market growth may differ for different types of businesses. Accordingly, as I venture into marketing or evaluate various attributes in marketing I may approach marketing with this information in mind. Right now, I understand that the relationship between market performance and market orientation can be either linear or non-linear. This is in contrast to my expectation that this relationship need to be linear in all circumstances. In line with this study, future researches should focus their attention on strategies that can increase and sustain market orientation, and at the same time evaluate factors that can improve market orientation to make business profitable.
Narver, J., & Slater, S. (1990). The effects of a market orientation on business profitability. Journal of marketing, 54(4); 20-35.