A Review Of The Literature On The Topic Of Market Orientation And The Firm With Reference To Three Articles.

A Review of the Literature on the Topic of Market Orientation and the Firm with reference to three articles.

Word count: 2,990

Introduction

Because the focus on market orientation has steadily increased over the last decade, academicians and marketing managers have begun to debate the effectiveness of market orientation as a profit enhancing strategy. Researchers and marketing managers are attempting to measure the benefits and costs associated with the implementation of market orientation. For researches and managers, the key questions that surround market orientation are whether or not it increases performance, and if so, in which circumstances should market orientation be implemented. In order for market orientation to become a cornerstone of business practices in years to come, these questions must be answered. This review will focus on three articles which address these key questions: "Market Orientation and Company Performance: Empirical Evidence from UK Companies" by Greenley, G (1995), "Market Orientation: Antecedents and Consequences", by Jaworski and Kohli (1993) and "The Effect of a Market Orientation on Business Profitability" by Narver and Slater (1990).

Summary of "The Effect of a Market Orientation on Business Profitability" by Narver & Slater (1990)

In "The Effect of a Market Orientation on Business Profitability" (1990), Narver and Slater address the lack of empirical evidence surrounding the effectiveness of market orientation. They begin the article by stating: "market orientation is the very heart of modern marketing management and strategy - yet to date, no one has developed a valid measure of it or assessed its influence on business performance...as a result, business practitioners have had no specific guidance as to what precisely a market orientation is and what its actual effect on business performance may be." Their study attempts to develop a valid measure of market orientation and its effect on the profitability of the firm. Narver and Slater's study is designed to test the hypothesis that there is a strong correlation between market orientation and profit levels for both commodity and non-commodity businesses. Narver and Slater hypothesize that market orientation is a one dimensional construct consisting of three behavioral components: customer orientation, competitor orientation and inter-functional coordination. Additionally, they hypothesize that there are two decision criteria: a long term focus and a profit objective. Based on these criteria, Narver and Slater developed a questionnaire which was given to a sample group of 140 strategic business units in the same division of a major Western corporation. They then used statistical analysis to try to determine the correlation between the adoption of market orientation and the increase in profit and overall performance. In order to obtain accurate results, the researchers attempted to limit the influence of the other forces that impact a business's profit margin; by doing this, they were able to isolate two key variables and find the relationship between them. Based on their data and analysis, Narver and Slater concluded that there is a monotonic relationship between profit and market orientation for the non-commodity business, whereas the relationship with commodity business was only apparent above the stated median in market orientation. Narver and Slater also concluded that market orientation is economical in all environments, and the question was finding the optimal level of market orientation.

Critique of "The Effect of a Market Orientation on Business Profitability" by Narver & Slater (1990)

Narver and Slater's study is one of the first major empirical studies on the subject of market orientation and its impact on the firm's profit. This ground-breaking study offers empirical validation to theories that were unproven prior to the study. However, based on the results of Narver and Slater's study, there are still many questions that remain unanswered. I found that the most significant problem with the study is that their sample was taken from a single corporation, meaning that the data they used was limited to only one industry and one region. As Narver and Slater noted in their conclusion, a sample this limited means that their results can be influenced and skewed by many variables, including corporate culture and regional practices. It is also possible that their findings are industry-specific and do not pertain to other companies outside of foresting. However, in the article's conclusion, Narver and Slater acknowledge these shortcomings and are eager for others in different regions to conduct further research in this field. Although the limited nature of the study makes it difficult to draw any large scale conclusions about the effectiveness of market orientation, Narver and Slater have created a useful model for an empirical study of market orientation which can now be applied to other industries and regions. The most interesting part of the study is not necessarily the results, but the fact that they were able to design the first successful empirical study.

Another problem with the study is that Narver and Slater concluded that an equilibrium existed: the point at which the level of market orientation reaches a point at which its cost is equal to its benefit. At this point, any increase of market orientation would only be detrimental to the firm's profit margin. Although the study states that the equilibrium is present, the authors offer no guidance on how marketing managers can identify this critical point. Further studies should be dedicated to answering this question in order to make market orientation a more effective strategy for businesses. Additionally, in the article's conclusion, Narver and Slater neglected to discuss a very key finding which surfaced in their data. Their study revealed that market orientation can have a detrimental effect on a company's overall performance when certain market forces and internal conditions apply. In my opinion, this finding was largely ignored in the conclusion in order to validate their original hypothesis: that market orientation has a positive impact on the performance of an organization. Although this finding was acknowledged in the article, I felt the conclusion was somewhat misleading with regard to the outcome of the study in this respect.

Summary of "Market orientation: Antecedents and consequences",