Customer Value and Superior Performance Essay

Market Orientation, Customer Value, and Superior Performance Stanley F. Slater and John C Narver Thinking in terms of the market (not marketing) is essential in the highiy competitive arenas of today, o achieve superior performance, a business must develop and sustain competitive advantage. But where competitive advantage was once based on structural characteristics such as market power, economies of scale, or a broad product line, the emphasis today has shifted to capabilities that enable a business to consistently deliver superior value to its customers. This, after all, is the meaning of competitive advantage. Our recent research shows that a market-oriented culture provides a solid foundation for these value-creating capabilities. A business is market-oriented when its culture is systematically and entirely committed to the continuous creation of superior customer value. Specifically, this entails collecting and coordinating information on customers, competitors, and other significant market influencers (such as regulators and suppliers) to use in building that value (see Figure 1). The three major components of market orientation+ustomer orientation, competitor focus, and cross-functional coordination-are long-term in vision and profit-driven. Based on extensive interviews with managers and executives, Kohli and Jaworski (1990) conclude that market orientation provides â€Å"a unifying focus for the efforts and projects of individuals, thereby leading to superior performance. † A developing stream of empirical research has found a strong relation- T ship between market orientation and several measures of business performance, including profitability. customer retention, sales growth, and new product success. Customer Orientation The heart of a market orientation is its customer focus. To create superior value for buyers continuously requires that a seller understand a buyer’s entire value chain, not only as it is today but also as it evolves over time. Buyer value can be created at any point in the chain by making the buyer either more effective in its markets or more efficient in its operations. A market-oriented business understands the cost and revenue dynamics not only of its immediate target buyers but also of all markets beyond, for demand in the immediate and â€Å"upstream† markets is derived from the demand in the original â€Å"downstream† markets. Therefore, a market-driven business develops a comprehensive understanding of its customers’ business and how customers in the immediate and downstream markets perceive value. Employees of market-oriented businesses spend considerable time with their customers. Managers and employees throughout the business call on their customers or bring them into their own facilities in a constant search for new ways to satisfy their needs. For example, Ih Pont has developed a program called â€Å"Adopt a Customer† that encourages a blue-collar worker to visit a customer once a month, learn the customer’s needs, and be the customer representative on the factory floor. Market-driven businesses continuously monitor their customer commitment by making im- proved customer satisfaction an ongoing objective. To maintain the relationships that are critical to delivering superior customer value, they pay close attention to service, both before and after sales. Because of the importance of employees in this effort, these businesses take great care to recruit and retain the best people available and provide them with regular training. Some businesses even involve their customers in hiring, training, and developing contact people as well as in making motivation and reward system decisions. Involving customers in these key areas forges strong customer loyalty. ogy development. Top managers frequently discuss competitors’ strategies to develop a shared perspective on probable sources of competitive threats. A reason for the success of many Japanese companies is that they train managers to understand that competitive intelligence is part of everyone’s job. Using this information, marketdriven businesses often target opportunities for competitive advantage based on competitors’ weaknesses. In any case, they keep competitors from developing an advantage by responding rapidly or anticipating their actions. Interfunctionai Coordination Competitor Focus The third of the three core components of a marCreating superior customer value requires more ket orientation is the coordination of personnel than just focusing on customers. The key quesand other resources from throughout the comtions are which competitors, and what technolopany to create value for buyers. Any point in the gies, and whether target customers perceive them buyer’s value chain is an opportunity for a seller as alternate satisfiers. Superior value requires that to create value for the buyer firm. This means the seller identify and understand the principal that any individual in any function in a seller firm competitors’ short-term strengths and weaknesses can potentially contribute to value creation. As and long-term capabilities and strategies. For Michael Porter (1985) explains: example, a team of Marriott employees traveled the country for six months, staying in economy Every department, facility, branch office, hotels and collecting information about their and other organizational unit has a role facilities and services. Armed with this informathat must be defined and understood. All tion about potential competitors’ strengths and employees, regardless of their distance weaknesses, Marriott invested $500 million in a from the strategy formulation process, new hotel chain. Fairfield Inn, its budget market must recognize their role in helping a entry, achieved an occupancy rate 10 points firm achieve and sustain competitive higher than the industry average in one year. advantage. A seller should adopt a chess-game perspective of its current and principal potential competiTo accomplish this, effective companies have tors. Moreover, it should continuously examine developed horizontal structures that focus on the competitive threats they pose, inferring these building value, such as time-to-market for new threats from intent and value-creation capabilities. This is crucial information to a seller in developFigure 1 ing its contingency competitive Market Orientation strategies. In one case, HewlettPackard decided to accelerate the Interfunctional announcement of a new computer Information Assessment Acquisition peripheral after discovering through its travel agency that a rival had booked conference rooms around the country for a specific date. Knowing that this rival had a similar product in development, H-I-’ rushed its announcement and beat the competition to the market. In market-driven businesses, employees from all functions share information concerning competitors. For example, it is crucial for R&D to receive information acquired by the sales group about the pace of a competitor’s technol- Customer InformationCompetitor Information d Coordinated Superior Customer Value Other Market Information Market Orientation. Customer Value, and Superior Performance 23 products. They manage projects through small multifunctional teams that can move more quickly and easily than businesses that use the tradtional function-by-function, sequential approach. For example, cross-functional teams call on customers to identify additional opportunities for value creation. Engineering becomes involved during preliminary market research to help marketers understand what is feasible. Production is involved during product design to ensure that the product can be manufactured at a reasonable cost. Engineers and production people constantly discuss their capabilities and limitations with sales and marketing so capabilities can be leveraged and limitations avoided when promoting products or sewices. When all functions contribute to creating buyer value this way, more creativity is brought to bear on increasing effectiveness and efficiency for customers. Does This Mean the Marketing Department Is in Charge? Shapiro (1988) tells the anecdote of a company CEO explaining to top managers that because of increasing competition, the business needed to become more market-oriented. With that encouragement the marketing vice president jumped in, â€Å"I’ve been saying all along we need to be more marketing-oriented. Marketing has to be more involved in everything Ixcause we represent the customer and we have an integrated view of the company. † At that point the CEO snarled. â€Å"I said more ma&et-oriented. not 177arketin~-oriented. † That story is very epresentative of our experience with marketing orientation as well. A marketing orientation implies an emphasis on the marketing function that may not be appropriate. Customer value is created by core capabilities throughout the entire organization. Whereas Procter and Gamble’s competitive advantage may be based on :I core marketing capability, 3M’s advantag e is innovation: Canon’s is technology. This does not make 3M or Canon any less market-oriented than Procter and Gaml~le. Because market-driven behavior permeates multiple functions at 3M and Canon, they may be more market-oriented and less marketing-oriented. In our view, lvhen a business achieves the objective of developing a pervasive market orientation, the marketing function may become lessnot more-important, because all functions are dedicated to creating and delivering customer value. This is consistent with Regis McKenna’s (1991) notion that â€Å"Marketing is everything and everything is marketing. † Webster (1992) foresees a time when marketing specialists will become increasingly rare while marketing as a general management function becomes more important. This is the result of a general focus on cross- unctional cooperation, which causes internal functional boundaries to lose meaning. GE’s 1990 Annual Report puts it this way: In a boundary-less company, internal functions begin to blur. Engineering doesn’t design a product, then â€Å"hand it off† to manufacturing. They form a team, along with marketing and sales, finance, and the rest. Customer service? It’s not somebody’s job. It’s everybody’s job. However, for businesses that currently have an internal orientation on production or research and development, the marketing department may have to take the lead role in encouraging marketoriented thinking throughout the firm. As the primary boundary between the business and its markets, marketing is â€Å"management’s window on the world† (Holver and Garda 1985). Because it is dependent on other functional areas for the timely and efficient development, production, and delivery of the product, marketing is likely to be the first function that fully appreciates the benefits of market orientation. To maximize its effectiveness. marketing must demonstrate the benefits of market-driven behavior to top management and to other functions. Marketing may have a key role in the development and maintenance of a culture that is truly arket-oriented The crux is that the responsibility for superior buyer value is beyond that of any one function. Creating value for buyers is analogous to a symphony orchestra in which all members contribute according to a general plan and in which the contribution of each subgroup is tailored and integrated by a conductor-with a synergistic effect. A seller must draw upon a nd integrate effectively all of its human and other resources in an ongoing effort to create superior ,alue for buyers at a profit. This coordinated integration of company resources builds directly on both customer and competitor analysis.