Volume 4 NOV 2008
Feature articles When a firm is market-oriented
Accounting induced performance
anxiety
Understanding global imbalances
An interview with Robert E. Lucas Jnr.
The use and misuse of intelligent
systems in accounting
Alumni refresher lecture series
Real options analysis and
investment appraisal
New economic geography and
manufacturing
When a firm is market-oriented: product and brand management implications
A market-oriented firm is a business-model innovator, a product-market pioneer and a brand developer
by Bryan A. Lukas
Listen to lecture - 10 June 2008 (MP3 10.3MB)
The meaning of being market-oriented
One of the important debates in the marketing literature since the 1990s is the question of what it means for a firm to be market-oriented. The debate stems from mounting evidence that market-oriented firms deliver superior financial performance to their owners.
Most firms that I have engaged with as a consultant or researcher claim to be market-oriented. Their claim usually goes something like this: ‘I believe in listening to the market carefully. I spend a fortune on market research. I integrate my market research findings in my decision-making process. I am, therefore, market-oriented.’ The truth, however, is that market research does not make a firm market-oriented. Most firms that I engage with are not market-oriented, at all.
So, what makes a firm market-oriented? In my experience, the main building blocks of market orientation are to be customer-oriented, competitor-oriented and collaborator-oriented. Collaborator-oriented means that a firm will put itself in the position of its collaborators – for example, in the position of a supplier or strategic alliance partner. Competitor-oriented means that a firm will put itself in the position of its direct competitors. Customer-oriented means that a firm will put itself in the position of its customers. Then, once a collaborator-competitor-customer perspective has been adopted, the firm has to respond to the following question: ‘What would I as a collaborator, competitor and customer really expect to benefit from my own firm?’
In this short essay, I do not have the space to explore all three orientations in detail. Therefore, let me concentrate on customer orientation – probably the most important and difficult orientation of the three for a firm aspiring to be market-oriented to execute.
Customer orientation as a component of market orientation
To be sure, customer orientation means that a firm will (a) look at itself by pretending to be a customer and (b) answer the question stated above: ‘What would I as my own customer really expect to benefit from my firm?’ The reason why market research of customers does not make a firm market-oriented is that the firm does not become its own customer through market research – market research consists usually of asking people outside of the firm what benefits are needed from the firm. Only by the firm becoming its own customer can it take into consideration the full scope and depth of customer benefits that are technically and otherwise possible. Why? Because only the firm knows what is really possible. Only the firm has insights into what can be really offered to customers. Let us look at some firms that have managed to be market-oriented and have listened to their own answers to their question.
The first example is Virgin Group’s domestic airline venture in Australia. The firm asked itself what it would want from a domestic airline in Australia. The firm admitted that meals on short flights between capital cities were really not value-adding, paper tickets did not add anything either, and that a bit of in-flight fun would not go astray. So Virgin Blue was launched as a no-frills, deep-discount and fun-loving airline in Australia.1 The next example is Starbucks. The firm asked itself what it would want from drinking coffee in a coffee shop in the US. The answer was: to be part of a small community. So Starbucks aimed to become the ‘third place’ in America, in addition to work and home. The firm said to its customers: ‘Stay as long as you like in our coffee shops; bring your family, friends and colleagues along; bring your work along; and you do not have to order a new cup of coffee every twenty minutes to earn your right to be here.’ Then there is the case of ING Group. The Dutch firm asked itself what it would want from a retail bank. The bank conceded that it would expect a decent return for its savings deposits, would not want to pay fees for those deposits, and would want 24-hour access to those deposits from any customer location. So ING Direct was launched as a virtual bank that paid above-average interest on savings deposits and did not charge savings-account fees. The virtual bank was launched in Australia, Europe and North America.
Let us look at these examples more closely. Not only do Virgin Blue, Starbucks and ING Direct exemplify what it means to be customer-oriented; in each instance, these firms have also changed the way business is conducted in their line of work. Specifically, it appears that a truly market-oriented firm is an innovator – but rather than being a product2 innovator in an engineering sense, a truly market-oriented firm is a business-model innovator. Virgin Blue revolutionised Australian domestic air travel. Starbucks revolutionised the American way of ‘having a coffee’. ING Direct revolutionised savings accounts in Australia, Europe, and to some extent even in North America.
Revolutions require a certain mindset – they are disruptive, and they often require a firm to abandon its traditional product markets. Let us explore this observation further.
Market orientation implications for product markets
Truly market-oriented firms are prepared to move away from their existing product market(s), and to ignore both typical customer segments and commonly accepted product lines.
Consider Virgin Blue again. The firm started up and established itself successfully with a focus on tourists and travellers who could not afford to fly with the incumbent airlines. Business people were not part of Virgin Blue’s original target audience. As for Starbucks, this firm started off selling fresh-roasted, gourmet coffee beans and related equipment in a small retail store. Today, it makes coffee in thousands of coffee shops. Finally, look at ING Direct. Its Dutch parent company, ING Group, is a full-service bank that offers banking, insurance and asset management services. In contrast, ING Direct focuses mainly on the savings accounts business and does not offer insurance and asset management products.
Abandoning traditional product markets has a number of follow-on effects. Usually, one effect is that existing product brands need to be adjusted, or new brands need to be built, in order to accommodate the change in product markets. Let me explain this observation in more detail.
Market orientation implications for brand management
A brand’s ability to affect a consumer’s product choice is a function of what consumers know about a brand. What customers know about a brand is, in turn, a function of customers experiencing the brand in its designated product market. If that product market is abandoned by a firm because its market orientation necessitates that move, then the existing brand is detached from its designated context. Therefore, the brand needs to be adjusted, or a new brand needs to be put in place, to fit the new product market(s) of the market-oriented firm. Let us consider Virgin Blue once again. Virgin Group did not call its airline venture in Australia ‘Virgin Group’. Nor did it use any of its existing airline sub-brands – for example, Virgin Express or Virgin Atlantic.
Instead, it created a new sub-brand by using a new suffix: ‘Blue’. With this move, new associations distinctive to the Australian context were added to the well-established parent-brand associations related to ‘Virgin’. ING Group did something similar to Virgin Group by replacing ‘Group’ with ‘Direct’, thereby creating a new sub-brand for its new operations. Starbucks is an example of adopting a new brand. The first Starbucks coffee shop to make coffee the way we experience Starbucks coffee today was actually called ‘Il Giornale’. Mr Schultz, the owner of Il Giornale, bought the small coffee bean roaster, Starbucks, to grow his business. He then dropped the Il Giornale business name and registered all of his shops as ‘Starbucks’. I presume that the name ‘Il Giornale’ did not lend itself as well as ‘Starbucks’ did, as a memorable name, to an aspiring coffee shop empire aimed at being present in nearly every US city and town.
In summary, to be market-oriented is to be a business-model innovator, a product-market pioneer and a brand developer. The concept of market orientation is the philosophical corner stone of the discipline of marketing.
1 In recent times, Virgin Blue has changed its strategic stance from a cost leader to a differentiator. It remains fun-loving, but no longer aims to be a no-frills price-breaker. For the purpose of this essay, however, Virgin Blue’s original strategic stance as a cost leader – lasting from the firm’s launch to approximately 2006 – is a good example.
2 By ‘product’, I mean both goods and services.