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Managing a firms behaviorthrough market orientation

development: some empiricalfindings

Spiros P. Gounaris, George J. Avlonitis andPaulina Papastathopoulou

Athens University of Economics and Business, Athens, Greece

Keywords Market orientation, Behaviour modification, Classification

AbstractWhile significant empirical work exists around the conceptualization of the notion of

market orientation, as well as its relation to company performance, little empirical work hasattempted to sketch how a firms behavior alters when the principles of market orientation areadopted. In this study, the authors investigate empirically the notion of market orientationcontinuum, according to which companies can be classified depending on the degree of adoption.

Next, the behavioral implication of the companys position on the continuum is investigated. Moreover, the role of the companys market environment in explaining the degree of marketorientation adoption and its classification along this continuum is also assessed. Finally, thebehavioral consequences of this classification are considered.

IntroductionThe marketing literature reflects a remarkable variety of definitions of market

orientation (MO; Tuominen et al., 1997). However, Day (1994) suggests three common

denominators:(1) a set of beliefs that put the customers interest first (Hooley et al., 1990;

Deshpande et al., 1993);

(2) the ability of the organization to generate, disseminate and make use of superior

information about customers and competitors (Kohli and Jaworski, 1990); and

(3) the coordinated application of inter-functional resources to the creation of

superior customer value (Narver and Slater, 1990). These three main pillars

of MO could be further grouped into two main perspectives of conceiving MO,

i.e. a philosophy-attitude perspective and a behavioral perspective (Avlonitis

and Gounaris, 1997).

Despite the significant empirical findings pertaining to its impact on companyperformance (e.g. Kohli and Jaworski, 1990; Narver and Slater, 1990; Hooley et al., 1990;Diamantopoulos and Hart, 1993; Greenley, 1995; Bhuian, 1998), many companies still

fail to adopt a MO. This has led some researchers to claim that a more holistic

approach is required as opposed to a single market orientation (e.g. Fritz, 1996), while

others have even claimed that there is no need for a market orientation (Henderson,

1998). However, the findings regarding the positive consequences of adopting a MO are

so compelling that it is worthwhile investigating MO development and its adoption

The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at

www.emeraldinsight.com/researchregister www.emeraldinsight.com/0309-0566.htm

Marketorientation

development

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Received August 2003

European Journal of Marketing

Vol. 38 No. 11/12, 2004

pp. 1481-1508

q Emerald Group Publishing Limited

0309-0566

DOI 10.1108/03090560410560209

http://www.emeraldinsight.com/researchregisterhttp://www.emeraldinsight.com/0309-0566.htmhttp://www.emeraldinsight.com/0309-0566.htmhttp://www.emeraldinsight.com/researchregister

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further. Particularly, questions which have still not been investigated empirically arewhether it is possible to manage a firms behavior through the system of values andbeliefs that MO stands for, whether there is an optimal level of market orientation, andif so, what the determinants of this level are. This study will attempt to embellish the

limited platform of understanding in relation to these two issues by reporting thefindings of an empirical study which develops a taxonomy of firms with differentlevels of MO adoption which were also found to have quite different behaviors whilecompeting in very distinctive task environments. Moreover, by answering thesequestions, the work of Narver et al. (1998) on how a company can actually increase itsMO is hopefully extended by pointing out the key behavioral shifts that must followthe adoption of the MO culture.

The rest of the paper is organized as follows. First, we define the notion of MOthrough an extensive discussion of the literature. Next, specific research hypothesesare developed. We then present the methodology of the research followed by ananalysis of the data and presentation of the findings. We conclude with a discussion ofthe findings, along with the implications and the limitations of this study that future

research may wish to address.

The notion of market orientation and its measurementMost studies on MO have conceptualized and measured the notion by using either theexact instruments originally developed by Narver and Slater (1990), Kohli and

Jaworski (1990) or some variation of them. Narver and Slater (1989) suggest a closeconceptual relation between the notion of MO and that of marketing orientation bypointing out unsuccessful attempts to devise scales in order to use the latter as a proxymeasure for the former. Their response was a measure of market-oriented behaviorcomprised of three dimensions (customer orientation, competitor orientation andinter-functional coordination) and consisting of 15 items, each describing different

business practices. Kohli and Jaworski (1990) also perceive a close conceptual relationbetween marketing and MO. They conceive a market-oriented company to be one inwhich the three pillars of the marketing concept (customer focus, coordinatedmarketing and profitability) are manifest operationally (Kohli and Jaworski, 1990).They propose a different measure comprised of intelligence-related business practices(intelligence collection, intelligence dissemination and response to intelligence).

Later work in MO (e.g. Deshpande et al., 1993; Day, 1994) points to the culturalnature of the concept. MO is perceived as a system of corporate beliefs and valuespivoting around:

. the creation of superior customer value at a profit while not neglecting theinterests of other key stakeholders; and

.

the shaping of a companys internal environment and climate in order to increasethe companys responsiveness to market information.

According to more recent studies (Morgan and Strong, 1998), being proactive andanalytic as well as having long-term orientation are at the core of this system. Wrenet al. (2000) share this cultural approach in conceiving MO and highlight theimportance of endorsing a MO at senior levels before it can be embraced by thecompany as a whole. Kohli and Jaworski (1992) as well as Slater and Narver (1994)concede this cultural dimension of MO, although their measurement does not capture

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it, thus leaving specific attitudes and beliefs as well as specific practices masked.Interestingly, recent efforts to develop a better measure of MO, although clearlyquestioning the practicality of the more traditional approaches in measuring MO, haveretained the focus on only the behavioral aspects of the notion (Gray et al., 1998).

Hooley et al. (1990) were the first to attempt to deal with cultural aspect of MO. Theymeasured different perceptions of the role of marketing within a company in order tounveil the alternative system of beliefs and attitudes which might be held by marketand non-market oriented companies. Because normative and empirical work inmarketing highlights the importance of the marketing function in developing andsustaining a MO, this justifies the use of the companys perception of the functionalrole of marketing as a proxy measure of MO development (Kotler, 1997; Archrol andKotler, 1997; Homburg et al., 1999; Moorman and Rust, 1999). Recent empirical workhas also moved towards this direction. For example, Gounaris and Avlonitis (2001)have also used the same approach in order to compare differences in market orientationdevelopment between consumer and industrial goods producers. Similarly, Dobni andLuffman (2000a, b) used a behavior-based approach to derive a proxy for the adoption

of the MO culture and classified companies according to seven specific dimensionsof MO.

In summary, it appears that MO represents a fundamental approach tounderstanding markets (Slater and Narver, 1994). As such, it represents theimplementation of the marketing concept (Kohli and Jaworski, 1990), and is a culturalorientation (Slater and Narver, 1994; Deshpande and Webster, 1989) with behavioralimplications since it focuses the firms efforts on understanding the market and ondeveloping strategies in response to market opportunities or threats (Tuominen et al.,1997). Moreover, as Dobni and Luffman (2000a, b) have showed, it is possible toclassify companies depending on the degree of MO adoption and, by doing so, derivesignificant implications for both academia and practitioners.

Firms behaviors relating to market orientationStrategic planning and market intelligenceMarket oriented firms are inclined to act proactively in order to develop their marketsand differentiate themselves from their competition (Slater and Narver, 1993). This is inline with findings from a recent research which has demonstrated that futurity (i.e. afirms preparedness for and positioning in future market situations and conditions) is amajor component of the MO culture (Morgan and Strong, 1998). This in turn calls forsuccessfully control of the factors which affect the results of this effort ( Jackson, 1975).The process for achieving this is strategic planning (SP), since SP has basically twomain objectives:

(1) the analysis of the companys market environment; and

(2) the organization of the companys resources to secure an effective and efficientmatch with the markets in which it operates (Chisnall, 1995).

Although the contribution of formal strategic planning to company performance is stillunder debate, it has been argued that once planning equilibrium has been developed inthe industry, the company that relies exclusively on intuition, prejudices, etc., and doesnot plan puts itself at a competitive disadvantage (Fritz, 1996). Thus, MO companiesare expected to engage more heavily than their competitors in SP and adopt a

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long-term focus in order to strategically manage their customer relations, delivercustomer value, and thus build customer loyalty while remaining focused on servingtheir principal targeted markets (Webster, 1994; Dalgic, 2000).

On the other hand, satisfying the customer and developing loyalty presupposes that

the company understands the needs of the market. Hence, one could argue that theeffectiveness of SP is directly related to the market research capabilities of thecompany and a need for a strong understanding of the companys market environment.In doing so, market-oriented companies use a great variety of information sources suchas internal accounting, marketing intelligence, formal market research, etc. (Piercy,1992; Dobni and Luffman, 2000a, b) in order to unveil existing and also latent needs. Onthese grounds we investigate the two hypotheses shown below:

H1. Companies that have developed a MO, as opposed to those that have not,place more emphasis on SP as a reflection of their long-term commitment toserve the specific needs of their customers.

H2. Companies that have developed a MO, as opposed to those that have not,generate more market intelligence and disseminate it at a company-wide level.

Design of marketing strategiesThe need for an integrated and coordinated marketing strategy, coupled with theheterogeneity of buyers needs, forces companies to invest effort in forming distinctivegroups of existing and potential customers with rather homogeneous needs andexpectations. One group of such customers represents a potential target market, andthis process of market segmentation and targeting allows market-oriented companiesto fine-tune their marketing strategies and improve their market position, as well astheir profitability and customers degree of satisfaction (Chaganti and Chaganti, 1983;Brooksbank, 1991; Dibb et al., 1998). However, market segmentation depends on

marketing research capabilities because it requires that the company understands thebehavior of customers. Following the discussion presented in the previous paragraphs,one could speculate that market-oriented companies will be more inclined to identifysuch groups and segment their market.

However, the implementation of market segmentation is reflected in the companysmarketing strategy, and particularly in those elements pertaining to the companysproduct, pricing and communication (Baker et. al., 1986). The distribution channels, onthe other hand, remain the least controllable element of the marketing strategy since,for many markets, they are more or less given, with companies frequently adapting toexisting channels (Avlonitis, 1985).

With regard to product strategy, many have accused market orientation of leadingmerely to incremental innovation and product line extensions because it compels the

company to follow customers demands and wishes (e.g. Bennett and Cooper, 1979;Hayes and Wheelright, 1984). However, empirical studies have demonstrated that astrong market orientation is essential for the success of those firms pursuinginnovation and seeking to establish their position well in advance in order to pre-emptthe competition (Slater and Narver, 1993). Moreover, successful innovation and newproduct development cannot be realized unless the company has, among otherqualities, a strong market orientation (Rothwell, 1992). Furthermore, recent empiricalstudies have shown the importance of the interaction between marketing and R&D

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personnel in order to ensure the success of a new product (Atauhene-Gima andEvangelista, 2000), which only stresses the importance of sound knowledge of themarkets needs and wants and the ability of the new product to cater for them(goodness of fit factor of success) as a prerequisite for success (Cooper and

Kleinschmidt, 1987).However, because me too products appear rapidly (Butz and Goodstein, 1996),

innovation alone does not provide a competitive advantage. Rather, firms ought tofocus on delivering superior value, value being defined as the ratio of benefits toprice (Webster, 1994). For this purpose, creative and demand-oriented pricingtechniques are necessary (Chisnall, 1995). Market-oriented firms, without neglectingcost-related issues, are particular in ensuring that the aforementioned ratio hasbeen considered while making pricing decisions (Vorhies et al., 1999).

Communicating the value of the firms offering to potential customers andreminding customers about the benefits of products they already use is another taskrelating to the companys success in the market (Baker et al., 1986). Its contribution in

developing loyalty has long been established, and consequently one could consider itas a major investment at a strategic level which aims to sustain present and futurerevenue. Various techniques are available for deciding on the investment incommunication, all pivoting around five generic approaches:

(1) percentage of sales;

(2) parity with competition;

(3) all that can be afforded;

(4) previous experience; and

(5) objective and task.

Of these approaches, the last has been characterized as the one which best bridges

marketing objectives and communication tasks with market conditions, while the otherfour have been criticized on various grounds. However, evidence regarding theadoption of the objective-and-task method remains rather frustrating, since despitesome promising findings regarding its adoption (Lynch and Hooley, 1989; Blasko andPatti, 1984; Piercy, 1987), it is still not the most widely used approach (Keown et al.,1989; Ramaseshan, 1990). According to Hunt and Morgan (1995), such sophisticatedapproaches as the objective-and-task method are used mainly by firms which strive toalign their marketing strategy with market conditions, and thus one could speculatethat in general, market-oriented firms will use such methods more frequently than willnon-market oriented firms.

In summary, based on the preceding discussion, one could argue that

market-oriented companies will try harder to fine-tune their marketing strategiesaccording to the unique market conditions they face. In other words, they should bemore inclined to segment their market and tailor a customized marketing strategydeveloped specifically for the target markets they choose to compete for. On this basiswe investigate the following hypothesis:

H3. Companies that have developed a MO, as opposed to those that have not, ingeneral place more emphasis on adapting their marketing strategy to theconditions of their target markets.

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Marketing organization and controlThe primary task of the marketing function is to facilitate the establishment of therequired links between customers and markets with various key processes within thefirm (Day, 1994). This is important to bear in mind because as companies become

cognizant of the MO notion they might be deceived into assuming that the marketingfunction has little to offer once the firm has become market-oriented (McKenna, 1991).However, the truth is far from this. Empirical findings have substantiated that themarketing function offers value to the firm by contributing to the strategic businessunits (SBUs) financial and customer relationship performance (Moorman and Rust,1999), and this value is developed independently of internal company characteristicssuch as SBU size or customer concentration (Homburg et al., 1999). On the contrary, themarketing function is actively involved during the development of the companysstrategic plans, and leads the relevant process (Piercy, 1992). In addition, the marketingfunction needs to maintain a larger number of marketing tasks under its directauthority and control in order to ensure that the philosophy of serving specificcustomer needs and adjusting to market conditions is translated to specific actions on a

tactical level (Hooley et al., 1990; Avlonitis and Gounaris, 1997). Thus, one canspeculate that MO firms will allow their marketing functions to play this orchestratingrole not only on strategic level, but also on a tactical level. On this basis we investigatethe following hypothesis:

H4. Companies that have developed a MO, as opposed to those that have not, givethe marketing function greater responsibilities at a tactical level.

Moreover, given the changeable nature of markets, another important aspect of themarketing management process ought to be controlling the effectiveness with whichthe firm adapts to its task environment. In doing so the company needs to generatecustomer-related and competition-related intelligence (Turner, 1991) in order to

monitor deviations from its strategic marketing objectives and develop correctiveactions. Thus, a management information system (MIS) capable of analyzingmarketing information is required (McDonald and Leppard, 1993; Kotler, 1997), sincewhen the notion of MO was originally conceived and described it was done on the basisof the firms ability to manage and respond to market intelligence (Kohli and Jaworski,1990). Thus, we investigate the following hypothesis:

H5. Companies that have developed a MO, as opposed to those that have not,place more emphasis on controlling their marketing efforts.

Perceived task environment and MO adoptionA dominant view regarding corporate culture and strategic behavior is that it has to bealigned with the external environment (Hofer, 1975; Bourgeois, 1980; Hitt et al., 1982;Anderson and Zeithaml, 1984; Prescott, 1986; Chatman and Jehn, 1994). However, thisis not always an easy task, and the reasons for this can be manifold. For example, along stream of empirical studies have pointed that the organizational environment is amulti-dimensional concept (Aldrich, 1979; Dess and Beard, 1984; Keats and Hitt, 1988;McArthur and Nystrom, 1991). Thus, firms may find it difficult to decide the major andmost important dimensions of the market that ought to drive their culture and strategy.Similarly, the business-policy literature distinguishes between corporate and strategicbusiness unit strategies, and the organization literature distinguishes between general

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and task environments. Bourgeois (1980) has argued that corporate strategies arecarried out at the general environmental level, while the task environment is whereSBUs strategies are carried out. According to Dill (1958), the latter is composed ofcustomers, competitors, and regulatory groups and approximates the economists

definition of industry.Recent empirical studies (e.g. Van Egeren and OConnor, 1998; Dobni and Luffman,

2000a, b) have provided empirical evidence to support the notion that the taskenvironment impacts the development of MO, and that it also influences the strength ofthe relationship between MO and financial performance. Hence, this study focuses onthe task environment and its impact on the development of MO. Although earlierresearch by Downey et al. (1975) suggested that from the various dimensions of thetask environment, dynamism alone is more critical when the analysis is done at theSBU level, more recent studies have demonstrated that when it comes to MOdevelopment, competitive intensity as well as munificence are also associated withspecific attitudes and behaviors which manifest its adoption (Avlonitis and Gounaris,1999).

From the above discussion, it would appear that since the task environment impactsthe culture and behavior of a firm, MO development ought to be related with specificconditions of the task environment. Hence, the following hypothesis is investigated:

H6. The managements perception regarding the characteristics of the companystask environment will impact on the companys degree of MO adoption.

Research methodologySample and data collection methodThe hypotheses put forward in this paper were assessed against data from 444 Greekcompanies. Because certain marketing skills should be present among the companiesin the sample, we ensured that larger companies would be adequately represented in

the sample since it was felt that the larger the company, the higher the probability ofpossessing such skills. Of the 3,500 companies comprising the initial sample, 300 firmswere eventually excluded because of changes in addresses and/or close-down. Thus,3,200 companies were eventually approached by means of a mail questionnaire sent tothe marketing manager or to the sales manager if a marketing department did notexist.

Prior to mailing, the questionnaire was pre-tested in order to increase the contentvalidity of the research instrument. For this purpose, 12 personal interviews wereconducted with marketing managers who had agreed to provide assistance andcomments on the development (scales and items) of the questionnaire. The initialmailing and a follow-up effort generated 452 responses. However, nine questionnaireswere excluded due to excessive missing data, thus reducing the number of respondents

to 444 (response rate of approximately 14 percent).

Measurement of variablesMany of the measures employed in this study relied on scales which were originallydeveloped in English. In order to ensure equivalent meaning (Brislin, 1980) these scaleswere translated into Greek by native speakers and then translated back into English. Inthe following paragraphs we elaborate on the measurement of each variable includedin the study.

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Measurement of MO and classification schemeIn order to measure whether the main system of beliefs and values that manifest a MOwere adopted by the respondents, the same 15 statements that Hooley et al. (1990) havevalidated to capture the pertinent culture were employed, and respondents were asked

to indicate the degree of their agreement or disagreement with each statement using aLikert scale (1 I fully disagree to 5 I fully agree). Their responses were factoranalyzed using both exploratory factor analysis (EFA) and confirmatory factoranalysis (CFA).

Conventionally, EFA is used for situations where the relationships between theobserved and latent (factors) variables are unknown or uncertain. The approachproceeds in an exploratory manner to reveal the underlying factors, therebyillustrating the relationships between the latent factors and the observed variables.The purpose is to come out with the minimum number of factors that will explain thecovariation among the observed variables. In contrast, the CFA approach to a verygreat extent overcomes the limitations of EFA (Ahire et al., 1996) and addresses thesituation wherein the researcher specifies a model a priori and tests the conjecture thata relationship between the observed and the latent variables does in fact exist. In short,the hypotheses that form the constraints are an integral part of the CFA technique.Moreover, the researcher knows which factors account for the covariation among theobserved variables. The proposed model is built on logic and other research andtheoretical findings, and if the researcher has a reasonably good idea about theobserved variables that are likely to be reliable indicators of a particular factor, CFA ismore appropriate than EFA (Arbuckle and Wothke, 1995).

Thus, given the fact that this study entailed measures for which the relationshipsbetween the observed and latent (factors) variables were unknown or uncertain, we hadto employ both approaches. To do this, we randomly split the sample in two halves,sample A and sample B (n 196 for each sample). EFA was run in sample A in order

to unveil the underlying dimensions for PMO and CSA. CFA was run in sample B inorder to examine the dimensionality and psychometric properties of the measures.Tables I and II summarize the results of CFA and EFA analyses.

EFA reveals that the 15 statements basically comprise six underlying constructs:

(1) market analysis and adaptation;

(2) high-tech selling;

(3) ignorance;

(4) high-tech production;

(5) traditional selling; and

(6) marketing philosophy.

Each construct captures a different aspect of the respondents beliefs regarding the roleof the marketing function. The unidimensionality of each construct was examined insample B using CFA. The x2, GFI, AGFI and RMSEA measures were employed inorder to examine the integrity of the constructs. In all cases the measures employedwell exceeded their recommended levels, suggesting that the constructs employed wereunidimensional in all cases. Moreover, all six constructs were found to be reliable, withCronbachs a coefficients of well above 0.75. Thus, added scales were developed tocapture these six constructs.

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Following the same practice used recently in similar studies (Dobni and Luffman,2000a, b), we sought to classify respondents using Quick Cluster. We examined three-,four- and five-cluster solutions. The three-clusters solution resulted in large clusterswith unacceptably diverse membership, while the four-clusters solution did notsignificantly improve the description of the data. Thus, the five-clusters solution was

Factors Variables EFA loadings

F1, Market analysis and adaptation(22.6 percent of variation)

Intelligence on competitionAdapt to the market

Market analysis

0.8410.818

0.740F2, High-tech selling (22.2 percentof variation)

Promoting productsSupporting salesConfined in sales andmarketing departments

0.8140.7850.682

F3, Ignorance (9.3 percent of variation) Not existent 0.884A confusing concept 0.785

F4, High-tech production(7.9 percent of variation)

Design and production managementDecisions on quality and quantity

0.8800.866

F5, Traditional selling(6.8 percent of variation)

Build customer relationsMaintain customer contacts

0.8450.757

F6, Marketing philosophy(6.1 percent of variation)

Satisfy customer needsBuild product positioning and imageA company culture

0.7530.6760.445

Notes: Kaiser-Meyer-Olkin measure of sampling adequacy 0:73621; Bartlett test ofsphericity 1; 979:5292; significance 0.000

Table I.

Factor analysis ofcorporate attitudes

towards marketing (EFA)

FactorsF1 F2 F3 F4 F5 F6

Intelligence on competition 0.66Adapt to the market 0.84Market analysis 0.66Promoting products 0.68

Supporting sales 0.64Confined in sales and marketing departments 0.62Non existent 0.77A confusing concept 0.83Design and production management 0.83Decisions on quality and quantity 0.82Build customer relations 0.94Maintain customer contacts 0.62Satisfy customer needs 0.76Build product positioning and image 0.78A company culture 0.75

Notes: F1 market analysis and adaptation; F2 high-tech selling; F3 ignorance; F4 high-tech production; F5 traditional selling; F6 marketing philosophy; GFI 0:94;

AGFI 0:

91; RMSEA 0:

05; x276 247

:

5

Table II.Standardized regression

weights using CFA

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tentatively adopted. To test the clarity of the cluster solution, we ran an analysis ofvariance along with Duncans multiple range test across each cluster. This analysisrevealed that the solution was fitting the data in a meaningful way, producing fivedistinctive clusters of companies:

(1) market-oriented;

(2) product-oriented;

(3) production-oriented;

(4) sales-oriented; and

(5) agnostics.

Table III summarizes the results of this analysis.The convergent validity of the classification was examined through the extent to

which the various cultural profiles identified by the analysis differed in terms ofintelligence collection, intelligence dissemination and response to intelligence, i.e. thebehavioral dimensions validated by Kohli and Jaworski (1990) for measuring the

behavioral aspect of MO. Table IV presents the results of this analysis, and shows thatmarket-oriented companies outperform all others in all three dimensions suggested byKohli and Jaworski (1990). Furthermore, since MO is known to have a positive impacton company performance, criterion validity was also examined by investigating thefinancial performance of the different clusters that resulted from Hooley et al.s (1990)measurement of MO. Table IV is also informative of this analysis, and shows thatcompanies classified as market-oriented have the highest financial performance, thusproving the criterion validity of the measurement.

Strategic marketing planning (SMP) and market intelligence. In order to investigatethe emphasis placed on SMP activities, respondents were asked to indicate, using afour-point scale (ranging from 1 Little or none to 4 Heavily involved in SMP), the

extent to which their company gets involved in designing such plans (mean 2:

41,SD 1:16). Market intelligence collection (mean 3:56, SD 0:89; see Appendix)

TotalAlternative beliefs regardingthe role of the marketingfunction A B C D E Mean SD F Significance

Market analysis andadaptation [4.65] [4.02] (2.13) 3.15 0.85 28.790 0.000High-tech selling [3.83] 3.16 1.20 22.168 0.000Ignorance (1.31) [3.34] 2.25 1.18 41.338 0.000

High-tech production [3.84] [4.01] 3.26 1.18 10.482 0.000Traditional selling [4.26] 3.98 1.10 23.206 0.000Marketing philosophy [4.12] (2.23) (2.27) (2.29) 3.25 1.21 46.214 0.000

Notes: A market-oriented (24.2 percent); B product-oriented (20.2 percent); C sales-oriented(14.5 percent); D production-oriented (11.5 percent); E agnostics (29.6 percent); valuessignificantly higher than sample average are shown in brackets, while values significantly lowerthan sample average are shown in parentheses (based on Duncans multiple range test, p , 0:10);significance level is based on one-way analysis of variance

Table III.Company profiles basedon the perceived role ofthe marketing function

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and market information dissemination (mean 3:52, SD 0:93) were measuredfollowing Kohli and Jaworskis (1992) measurement. The extent to which therespondents generated intelligence from formal market research studies was assessedusing a three-point scale (ranging from 1 Not at all to 3 Systematically;

mean 1:84, SD 0:79).Design of marketing strategies. In order to examine the degree of adaptation of the

marketing strategy to market conditions, we first investigated whether respondentssegmented their markets using a three-point scale (1 Not at all, 2 Partly, 3 To alarge extent; mean 1:96, SD 0:82). We also investigated whether new products aredeveloped in order to meet specific market needs and requirements. A review of theextant literature revealed ten specific criteria for new product evaluation prior tolaunch. These were included in the first version of the questionnaire. This list wasfine-tuned with the assistance of the marketing managers who provided assistance indeveloping the questionnaire. As a result, five additional criteria were included.Participants were then asked to use a four-point scale (ranging from 1 Little to noimportance to 4 Very important) and indicate the importance of each of the 15

criteria. Their answers were factor analyzed, and four distinct blocks of evaluationcriteria were derived:

(1) market considerations;

(2) competitiveness considerations;

(3) financial considerations; and

(4) economic performance considerations.

Factor scores were calculated and used in the subsequent analysis.We also examined the extent to which pricing and communication budgeting

decisions reflect market conditions. As far as the pricing decisions are concerned, thefocus was on the methods the respondents use to price their products. Participants

were asked to indicate whether their pricing strategy is predominately designed. on a cost plus basis (59 percent of respondents);. on a what the competitors charge basis (17.6 percent of respondents); and. on a what the market can bear basis (22.5 percent of respondents).

With regard to communication budgeting, participants were asked to indicate whethertheir budget was predominantly

Kohli and Jaworskis (1992) A B C D E F Significance

Intelligence collection [4.041] 3.879 3.0762 3.527 3.317 16.972 0.000

Intelligence dissemination [4.025] 3.890 3.014 3.543 3.340 14.726 0.000Response to intelligence [4.195] 3.705 2.758 3.290 3.094 16.902 0.000Market share versus competitors [29.039] 24.167 (14.895) 20.477 (16.815) 7.688 0.000ROI versus competitors [21.536] 14.908 (10.812) 20.568 (13.680) 10.290 0.000

Notes: A market-oriented; B product-oriented; C sales-oriented; D production-oriented;E agnostics; values significantly higher than sample average are shown in brackets, while valuessignificantly lower than sample average are shown in parentheses (based on Duncans multiple rangetest, p , 0:10); significance level is based on one-way analysis of variance

Table IV.Convergent and criterion

validity of theclassification

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. based on previous experience (22.6 percent);

. reflecting their economic ability (26.3 percent);

. set as a percentage of sales (22.6 percent);

.

designed to maintain parity with competitors spending (2.5 percent); or. dependent on the product objectives (26 percent).

Marketing implementation. In assessing the role of the marketing function, twoparameters were considered. The first is its contribution to the business units strategicplanning, gauged by asking the participants to use a four-point scale (1 Little ornone, 4 Leading) and indicate the role that the marketing function plays in thestrategic planning process (mean 2:78, SD 0:79). Second, we also tried todetermine the number of marketing tasks (i.e. activities for which the marketingfunction actually holds the major responsibility). To accomplish this, respondents werepresented with the same list of 16 marketing tasks used by Hooley et al. (1990), andwere asked to indicate which function held responsibility for each activity. Then, for

each SBU, we calculated the sum of activities (ranging from 0 to 16) for which themarketing function held responsibility (mean 3:51, SD 3:83).

Marketing control. In order to measure the emphasis placed on marketing control wefocused on the dimensions covered by the SBUs MIS. Based on a literature review andthe suggestions of the marketing managers, we developed a list of 24 topics that a MISshould cover for control purposes, and participants were asked to use a four-point scale(ranging from 1 Minimum informed to 4 Very well informed) to indicate how wellinformed they were about each of these 24 areas. Their answers were factor analyzedand five distinct areas/topics of information were derived:

(1) customer-related information;

(2) competition-related information;

(3) market-environment related information;(4) sales force and promotion-related information; and

(5) product-related information.

Again, factor scores were calculated and used in subsequent analysis. Finally, thecompanys responsiveness to the information generated by the MIS was measuredusing the scale (mean 3:28, SD 0:87; see Appendix) developed by Kohli and

Jaworski (1992).Task environment. The perceived dynamism of the companys task environment

was assessed by gauging the perceptions of the respondents regarding the distributionof power, competitive mobility and degree of technological change. More specifically,the measures suggested by Narver and Slater (1989) were employed to assess the

distribution of power between the company and its suppliers (suppliers power:mean 3:581, SD 1:056) as well as its customers (buyers power: mean 2:745,SD 1:056). The existence of strong barriers to competitors mobility in (barriers toentry: mean 3:714, SD 1:098) and out (barriers to exit: mean 3:114, SD 1:176)of the market was again evaluated using the measures suggested by Narver and Slater(1989). Competitive intensity was assessed using the measurement developed by Kohliand Jaworski (1992). However, the results of the Cronbachs a analysis indicated thatone of the four original statements had to be eliminated. Thus, only the first three of the

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four statements were eventually employed (mean 4:043, SD 0:720). The degree oftechnological change of the environment (mean 3:446, SD 1:281) was assessedusing the same measure as Narver and Slater (1989). Finally, the munificence of thetask environment was assessed using a five-point scale (ranging from 1 Rapidly

declining to 5 Rapidly growing) and asking the respondents to indicate how theirmarket had evolved during the last five years (mean 3:486, SD 1; 068) and whattheir forecast was for the next five years (mean 3:342, SD 0:895).

Data analysisChi square tests, ANOVAs and t-tests were used where appropriate to test thehypotheses. Multivariate analysis (discriminant analysis) was employed in an attemptto discriminate market-oriented from non-market oriented companies based on thedegree of MO adoption, both as culture and as behavior, and on the firms perception ofits task environment.

Strategic marketing planning and market intelligenceThe analysis pertaining to strategic marketing planning (H1) and market intelligence(H2) is presented in Table V. As can be seen from Table V, market-oriented companiesplace significantly more emphasis on SMP than companies with a different orientation.This leads us to accept H1. The findings in Table V also suggest that market-orientedcompanies, as compared to non-market oriented ones, are also more inclined tosystematically use market research and are committed to producing marketintelligence and disseminating it at a company-wide level. This leads us to accept H2.

Design of marketing strategiesThe analysis pertaining to the companys marketing strategy (H3 ) is presented inTable VI. From Table VI it can be seen that market-oriented companies are keener inusing market segmentation strategies, hence adopting their marketing strategyaccordingly.

Moreover, the findings in Table VI suggest that market-oriented firms, whenevaluating new products prior to commercialization, place more emphasis onmarket/customer considerations than do non-market oriented companies. Thisprovides further support for H3. Finally, with regard to pricing and communicationbudgeting issues, again from Table VI it is evident that market-oriented companies are

A B C D E Total sample F

Emphasis on strategic

marketing in planning [3.141] (2.215) (1.952) 2.906 (2.079) 2.410 19.094*Use of market research [2.371] 1.835 (1.476) 1.981 1.772 1.960 9.421*Intelligence collection [4.041] 3.527 (3.076) [3.879] 3.317 3.559 16.972*Intelligence dissemination [4.125] 3.890 (3.014) 3.544 3.341 3.527 14.726*

Notes: Figures represent the mean of each variable in each cluster; maximum values are shown inbrackets while minimum values are shown in parentheses (based on Duncans multiple range test;A market oriented; B product oriented; C sales oriented; D production oriented;E agnostics; *significant at 0.001

Table V.Strategic marketing and

planning intelligence

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A

B

C

D

E

Totalsample

F

Useofmarketsegmentat

ion

[2.3

13]

2.118

(21.533)

2.108

1.827

1.960

10.0

93*

Newproductdevelopmentcriteria

Marketconsiderations

[0.4

54]

2

0.037

(20.597)

0.168

2

0.011

NA

9.872*

Competitivenessconsiderations

0.168

2

0.031

2

0.124

0.089

2

0.073

NA

0.939

Financialconsiderations

(20.211)

2

0.002

0.129

2

0.011

0.086

NA

1.205

Economicperformanceconsiderations

[0.1

55]

0.011

(20.203)

0.080

(20.053)

NA

3.777**

Pricingmethoda

Costplus(percent)

38

57

54

68

68

58

Followcompetition(percent)

16

22

37

9

12

19

Whatmarketwillbear(p

ercent)

45

21

10

22

20

24

Communicationbudgetingmethodb

Previousexperience(percent)

12

21

44

25

27

23

Economicability(percent)

22

30

11

36

27

Percentageofsales(percent)

26

25

10

40

19

23

Paritywithcompetition(percent)

0

1

6

0

1

2

Objectiveandtask(percent)

41

23

14

24

17

26

Notes:A

marketor

iented;B

productoriented;C

salesoriented;D

productionoriented;E

agnostics;ax

2

35:

90(s

ignificantat

0.001);bx

2

73:

17(significantat0.001);*significantat0.001;

**significantat0.010

Table VI.Design marketingstrategies

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more likely to use methods (e.g. what the market can bear and objective and task)which manifest adaptation to prevailing market conditions. Thus, H3 is accepted.

Marketing implementation and controlTable VII shows the results of the analysis concerning the implementation ofmarketing (H4). Our findings suggest that the marketing function in market-orientedcompanies is involved in corporate strategic planning at a significantly greater levelthan in non-market oriented firms. Similarly, in Table VII it can also be seen that thenumber of marketing tasks for which the marketing function holds the mainresponsibility is significantly higher among market-oriented companies than it isamong non-market oriented companies. These findings lead us to accept H4.

Table VII is also informative with regard to the analysis pertaining to control of themarketing effort (H5). As can be seen, of the five MIS dimensions examined, customer-and market-related information are two dimensions on which market-orientedcompanies place significantly more importance as compared to companies pursuing

other orientations. Similarly, market-oriented companies appear to be more responsiveto this information than non-market oriented companies. Based on these findings, weaccept H5.

Perceptions of the task environmentTable VIII summarizes the results pertaining to the analysis of the respondentsperceptions regarding their task environment (H6). Overall, our findings support H6.More specifically, market-oriented companies, in contrast to those which have notdeveloped a market orientation, perceive that they operate in a quite unstable

A B C D E Totalsample F

Marketing/sales departmentparticipation in strategicplanning [3.077] 2.576 (2.457) 2.784 (2.576) 2.780 6.175*Activities monitored bymarketing/sales department [6.439] 4.622 (2.186) (2.436) (2.506) 3.510 15.270*

Information generated by the MISCustomer-related information [0.352] 0.067 20.441 20.014 ( 20.083) 5.138*Competition-related information 0.261 20.008 20.083 0.175 ( 20.336) 4.875*Market environment relatedinformation [0.549] 0.252 ( 20.370) (20.113) (20.335) 10.789*Sales force and promotion-

related information 0.168 20.178 0.274 0.380 ( 20.249) 5.315*Product-related information [0.141] [0.177] (20.326) 0.099 ( 20.019) 2.039**Response to intelligence [4.195] 3.705 2.758 3.290 3.094 3.283 16.902*

Notes: A market-oriented; B product-oriented; C sales-oriented; D production-oriented;E agnostics; figures represent the mean of each variable in each cluster; maximum values are shownin brackets while minimum values are shown in parentheses (based on Duncans multiple range test,

p , 0:10); significance level is based on one-way analysis of variance; *significant at 0.001;**significant at 0.100

Table VII.Marketing

implementation andcontrol

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environment in terms of competition. In their view, the market is characterized by

increased levels of instability, mainly due to the frequent changes of technology andthe impact of these changes upon the main protagonists of the market (e.g. shifts incustomer behavior, changes in competitors competitive advantages, etc.). The

perception of instability and dynamism is further enhanced by the low barriers to entryand the subsequent ease with which new entrants come into the market, thus

contributing to competitive hostility.Moreover, the perceptions of companies not pursuing a MO regarding their own

task environment are significantly different from those of market-oriented companies.

For example, companies pursuing a product orientation would appear to perceive their

task environment as stable but not very predictable: while they seem to perceive acertain degree of instability, mainly attributed to frequent technological changes, theywould seem to consider their market to be more stable since the high barriers to entry

do not allow new players to enter the market. A similarly different perception of thetask market is evidenced for companies pursuing a production or sales orientation, aswell as for those characterized as agnostics. For example, production-oriented

companies appear to conceive that they operate in a protective environment which ischaracterized by significant barriers to new entrants and infrequent technological

changes, and is placid in terms of competitive activity. Pessimism about the future oftheir market and its growth is also evident among production-oriented firms. On thebasis of the overall findings presented in Table VIII, we accept H6.

The last phase of the analysis involved discriminant analysis, with the intention toderive a clearer perception of what differentiated highly market-oriented companies

from less market-oriented companies. Thus, a new variable (MARK) was developedbased on the company profiles that the previous phase of the analysis had revealed.

Companies that were not identified as being market-oriented were all grouped in asingle category (coded 0), while market-oriented companies formed a second category

(coded 1). We also recoded the two non-metric variables that we used to investigate thepricing and promotion budgeting methods of the companies in the sample. Thus, for

A B C D E Total sample F

Barriers to entry (2.670) [4.492] 3.741 [4.218] 3.651 3.714 18.194*Barriers to exit 3.850 2.884 (1.476) 3.770 3.590 3.114 10.221*

Buyers power [3.110] (1.435) 2.210 2.310 2.450 2.745 14.972*Suppliers power 3.766 3.890 (3.014) 3.894 3.341 3.581 14.346*Technological change [4.214] [4.298] (2.833) (2.712) 3.173 3.446 11.652*Competitive intensity [4.801] 4.414 [4.617] (3.172) (3.211) 4.043 15.810*Market growth for the next fiveyears [4.251] 2.983 2.790 (2.569) [4.117] 3.342 11.433*Market growth over the past fiveyears 3.630 3.510 3.334 3.400 3.556 3.486 0.967

Notes: A market-oriented; B product-oriented; C sales-oriented; D production-oriented;E agnostics; figures represent the mean of each variable in each cluster; maximum values are shownin brackets while minimum values are shown in parentheses (based on Duncans multiple range test,

p , 0:10); significance level is based on one-way analysis of variance; *significant at 0.001

Table VIII.Perceptions regarding thetask environment

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example, in order to include the alternative pricing methods employed in the analysis,three new variables were generated, one for each alternative:

(1) cost plus;

(2) follow competition; and(3) what the market can bear.

These new variables were coded 1 if the company used this specific pricing methodand 0 if it did not. A similar approach was followed for the five alternative budgetingmethods investigated in this research.

In total, 25 variables pertaining to various marketing practices and eight variablespertaining to the task environment were included in the discriminant analysis asindependent variables and as dependent variables with MARK. Table IX shows thestandardized coefficients of the discriminant function that the analysis produced, alongwith the variables that entered into the discriminant analysis.

As can be observed from Table IX, four variables referring to the task environment

and seven variables pertaining to marketing practices entered into the discriminantfunction. The discriminating power of each aspect is reflected in the value of thestandardized coefficient, with larger absolute values indicating a strongerdiscriminating power. A discriminant score for each case was computed from thecoefficients by using the original values of the independent variables that wereincluded in the discriminant function and multiplying it by its respective coefficientvalue. The following predictive model format was developed, where Dm is thediscriminant score for case m, and fx is the discriminating variable:

Dm 0:728f1 0:632f2 0:513f3 0:417f4 0:562f5 0:541f6 0:453f7

0:444f8 0:410f9 0:318f10 0:279f11:

The discriminant function and related statistics are presented in Table X. Thecanonical correlation of 0.58 indicated that the proportion of the total varianceattributable to differences between the two groups had a good level of correlation.

Discriminating variables Standardized discriminant function coefficients

F1, Technological change 0.728F2, Competitive intensity 0.632F3, Weaker than customers 0.513F4, Barriers to entry 20.417

F5, Marketing participation in LTP 0.562F6, Pricing method: cost plus 20.541F7, New product development criteria:competitiveness considerations 0.453F8, Activities performed by marketing department 0.444F9, Frequency of formal market research 0.410F10, New product development criteria: marketconsiderations 0.318F11, Information generated by the MIS: customer 0.279

Table IX.Discriminant functioncoefficients (stepwise)

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Similarly, there is a good degree of the total variance in the discriminant scores that is

not explained by the differences among means (Wilks l 0:612). This is furthersupported by a transformed x2 value of 51.2 (significant at 0.000).

The ability of the discriminant function to predict market or non-market orientationwas determined by the classification matrix presented in Table XI. Overall, thefunction correctly classified 79 percent of the cases: 80 percent of the market orientedcompanies were classified correctly, while approximately 78 percent of the non-marketoriented companies were also correctly classified. A final validation of the discriminantmodel was carried out using the U-method validation technique (Dillon, 1979). Thismethod provided an estimation of error rate in the classification, thus meeting thevalidation requirements for this study, which were to evaluate the classification abilityof the discriminant function. Table XI is also informative in terms of thecross-validated classification results. Although the classification success is

somewhat reduced (77 percent), it is still within a reasonable range of the stepwiseclassification rates.

With regard to the results of this analysis, the findings suggest that although manypractices are different between companies that have developed a MO and those that

Group Function

Market 1.1126Non-market 20.5209

Related statisticsEigenvalue 0.5660Canonical correlation 0.576Wilks l 0.6125x2 51.17Degrees of freedom 11Significance 0.000

Notes: Functions are evaluated at group means (group centroids) and represent the average scorefor developing a market and a non-market orientation; x2 is a transformation of Wilks l

Table X.Canonical discriminantfunction

Classification resultsa

Predicted group membership (percent)Company orientation Market oriented Non-market oriented

StepwiseMarket oriented 80.00 20.00

Non-market oriented 22.33 77.67Cross-validatedb

Market oriented 78.26 21.74Non-market oriented 24.27 75.73

Notes: a78.9 percent of original grouped cases were correctly classified, and 77.1 percent ofcross-validated grouped cases were correctly classified; bcross validation is done only for those casesin the analysis: in cross validation, each case is classified by the functions derived from all cases otherthan that case

Table XI.Marketing practices andMO development:classification matrix

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have not, not all of them are important discriminators. The same is also true withregard to specific aspects of the companys task environment. In particular, accordingto the results, the upgrade of the marketing departments participation in thecompanys LTP, the relinquishing of cost-plus pricing methods, the increase in the

number of marketing activities controlled by the marketing department, frequentconducting of formal market research, consideration of market-specific issues whendeveloping new products and the design of the companys MIS in order to producecustomer specific information appear to be the most important practices whichdifferentiate market-oriented from non-market oriented companies. When it comes tothe task environment, market-oriented companies appear to face increased levels oftechnological change, competitive hostility as well as turbulence (as manifested by thelow barriers to entry) which result in a particularly competitive arena, buyers who arepowerful enough to negotiate and impose terms, and a growing market which it isworthwhile to be part of.

Discussion and implicationsThe data and the findings presented in this paper fall within a broader research streamconcerning MO development. Until now, empirical research has mainly focused on thedevelopment of measurements of MO (Narver and Slater, 1990; Kohli and Jaworski,1990), the examination of its effect on company performance (Hooley et al., 1990;Narver and Slater, 1989; Kohli and Jaworski, 1992; Diamantopoulos and Hart, 1993;Greenley, 1995; Bhuian, 1998; Slater and Narver, 2000) and on the success of newproducts (Atauhene-Gima, 1995, 1996; Tiger et al., 1999). However, despite theseintensive research efforts, MO has not yet been widely adopted. Given the compellingfindings which have substantiated a strong association between MO development andcompany performance, the question why MO is still not widely adopted is particularlyintriguing.

This study tried to improve our understanding of this phenomenon by attemptingto address two questions:

(1) Can the system of values and beliefs that comprise MO influence and managethe companys behavior?

(2) Is there an optimal level of MO development?

To achieve this, first an effort was made to classify firms along the continuum(Avlonitis et al., 1992) of MO adoption. This attempt resulted in a taxonomy of fivetypes:

(1) market-oriented;

(2) product-oriented;

(3) sales-oriented;

(4) production-oriented; and

(5) agnostics.

Each type is characterized by a different degree of espousal of MO culture. Then theirpractices and the market conditions in which they compete were investigated.

Thus, with regard to the possibility of managing a firms behavior through thesystem of beliefs and values that MO stands for, the analysis of specific practices

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vis-a-vis alternative orientations has shown that, adopting a MO does influence specificpractices. In summary, our findings would seem to suggest that four major aspects of afirms practices are influenced when it develops a MO:

(1) the planning process;

(2) strategy formation;

(3) strategy implementation; and

(4) control (see Figure 1).

More specifically, our study suggests that companies which have aligned their cultureaccording to the system of values that MO stands for use more systematically formalmarket research and also collect and disseminate company-wide intelligence on their

Figure 1.Proposedconceptualization of thenecessary and requiredchanges for marketorientation development

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market within a broader framework of increased emphasis on strategic marketingplanning and a long-term orientation regarding the development of their marketposition. As a result of MO adoption, market-oriented firms are also more inclined tosegment their markets and tailor their product, pricing and promotion strategies

according to their targeted segment(s). With regard to the implementation of theirstrategy, the vast majority of activities such as logistics, physical distribution, pricing,new product development, etc., are mainly placed under the responsibility of themarketing function, the status of which is also upgraded by the participation inthe strategic planning process which it leads. Finally, control is also influenced by theadoption of MO since, as opposed to firms that have developed MO at a lower degree,market-oriented companies focus specifically on customer-, market- andproduct-related information to control their efforts, while also exhibiting the highestresponsiveness to the information they collect.

The second issue that this study attempted to address was whether an optimallevel for MO exists. The investigation of this issue was carried out in relation tothe firms task environment, following the rationale that corporate culture andbehavior ought to match the market environment (e.g. Hofer, 1975; Chatman and

Jehn, 1994). Again, our study provided some interesting insights since it seems tosuggest that the values of MO fit specifically with competitive and rather volatilemarket conditions. On the other hand, as the findings would seem to suggest,developing a high degree of MO is not a prerequisite when faced with lessdynamic markets. For example, production orientation, near the bottom end of thecontinuum, is associated with relatively uncompetitive markets, since it is relatedto markets characterized by particularly high barriers to entry for new competitorsand competitive intensity is kept very low. When the latter is increased, however,as the analysis shows, firms appear to respond by passing to the next level, thatof a sales orientation. A further modification of the task environments conditions,

an increase in the rate of technology change, but with buyers power remainingrelatively moderate, is combined with a further upward movement along thecontinuum, with companies becoming product-oriented.

The contribution of this study is two-fold, since the findings are of interest to bothscholars and practitioners. With regard to the former, this study helps to derive anempirically based taxonomy of firms that have developed MO at different levels whichis based on the firms attitude towards the role of the marketing function of thecompany. Doyle and Wong (1998) and Baker et al. (1986) have shown the vital role thatthe Marketing Function can play in ensuring corporate success, while Homburg et al.(1999) stressed the close relationship between the perception of the marketingfunctions role and the development of MO. Following this stream of research, thepresent study derives this classification on the basis of the degree of MO development

as a company philosophy, which in turn can help future researchers to derive a moreholistic perception of various complex phenomena that are potentially related to MO(e.g. human resource issues, job satisfaction, management styles) and compare themacross companies that pursue a different orientation.

Moreover, this study can help improve our understanding as to why MO is notwidely adopted despite hard evidence that it improves company performance. Bisp(1999) identifies five company specific dimensions that under certain conditions couldimpede a company from developing market-oriented behavior. The findings from this

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study broaden our understanding by bringing into focus the companys taskenvironment and its underlying role in developing or not developing a high level ofMO. This in turn can also explain paradoxical findings which have foundmarket-oriented companies to be equally successful, at least in terms of specific

aspects of corporate performance, as firms that do not pursue a market orientation(Avlonitis and Gounaris, 1997). As our findings seem to suggest, prior to consideringthe impact of a firms orientation on various aspects of its performance, researchersought to ensure that a homogeneous sample in terms of the market conditions in whichrespondents compete is selected.

Finally, a third contribution for academia rests on the identification of the keybehavioral changes that come together with the development of a high level of MOadoption. As the findings of this study would seem to imply, although maximizing thedegree of MO is clearly related to extensive fine-tuning of the firms behavior, somespecific aspects of its practices are unique for thsse companies that have adopted theculture of MO at the highest level, discriminating them from those that have not doneso. In other words, although, for example, financial performance considerations are apriority for MO companies when evaluating new products, considering the conditionsof the market in which the new product will compete and its competitive advantage iswhat really discriminates the new product development process of highlymarket-oriented from less market-oriented companies. The identification of thosepractices that actually discriminate highly market-oriented companies can help toderive a more integrated insight of how MO develops. For example, Narver et al. (1998)have suggested a two-stage process for MO development:

(1) the programmatic approach, representing the educational learning process todevelop MO; and

(2) the market-back approach, representing an experiential learning processinvolving experimentation with specific actions which, eventually, modifythe way a company competes in the market.

The findings of the present study help to define the content of the market-backapproach and the priorities of the actions that must be taken.

The present study also makes a contribution with regard to practitioners. Itsubstantiates empirically the required fit between a companys task environmentand its orientation. What is more, it are important because it pinpoints both theenvironmental conditions which coerce the development of MO and also thechanges in behavior that have to happen to achieve a high level of MO.

By doing so, the findings of this study help practitioners to decide on the degree ofMO that is required for their company and what the consequences will be with regardto their practices. From our findings it appears that developing a MO is not a necessity

unless the firm operates under very specific market conditions, namely a dynamic (interms of new technology and/or new entrants), competitive and munificent market.However, under such conditions, firms ought to consider various changes in theirbehavior, such as upgrading market research to the level of becoming an internalcomponent of the companys formal strategic marketing planning process. Also, theyare required to radically change their pricing policies, leaving behind traditionalcost-oriented approaches in favor of more market-focused methods. Similarly, thecompetitive advantage and the market conditions in which new products will be

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launched have to become key criteria for deciding whether or not a new product will bedeveloped. Likewise, the marketing department must be given the authority to lead theprocess of strategic planning and the control of activities which influence theimplementation of the companys marketing strategy (e.g. pricing, new product

development, market research, advertising, etc.). Moreover, control of themarketing activities also has to become more customer-focused by trackingcustomers behavior and attitudes towards the companys products in comparison tocompetitors offerings.

Limitations and future researchAlas, the research and the conclusions presented in this paper are not withoutlimitations. However, Future research can easily address them, and thus assist infurther understanding the process of MO development.

The first limitation concerns the national context of the study, which putsconstraints on the ability to generalize our findings for other companies and nationalcontexts. To this end, replication of the study is necessary before we can generalize,and thus would be particularly welcome.

Another limitation concerns the response rate of the study. Although a responserate of around 14 percent is generally considered acceptable for studies addressingsenior managers of European companies and involving a cross sectional sample, againfuture research is needed before generalization is possible.

A third limitation concerns the cross-sectional nature of the research design.Although cross-sectional samples enable generalization of the findings, they preventclose investigation of several aspects of the relationships that are examined. Forexample, it may be possible that for specific sectors of economic activity, certainpractices may be more important in increasing the level of the companys MO. Thismay be particularly so for companies in the services sector, where the context of

marketing varies considerably as compared to that of the marketing of goods. Thus,replications of the study with section-specific samples are required before we canproduce action-specific plans which can address the issue of MO developmentfor companies competing in different sectors and facing different problems in theprocess.

The final limitation refers to the focus of the study on a more traditional,transaction-oriented conceptualization of marketing. Contemporary marketingpractices involve management of the relationships which develop between thecompany and the main protagonists of its market. For example, when it comes todistribution strategy, the major issue is how the company handles relationships withthe members of the channels, since the structure of the channels is frequently a given,and beyond the companys direct control. Thus, future research which seeks to

investigate this issue is strongly recommended.

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Appendix

Mean SD

Variable to scalecorrelation

Cronbachs a

Intelligence collection 3.561 0.892 0.7017Effort to collect information of future customersneeds 3.640 1.291 0.447Slow to detect changes in customers preferences (2 ) 3.452 1.292 0.422Frequently contact users to assess product quality 3.501 1.297 0.519Frequently contact intermediaries to assess productquality 3.471 1.408 0.437Slowto detectchanges in the market environment(2 ) 3.730 1.328 0.459

Intelligence dissemination 3.523 0.931 0.805Minimal communication between marketingdepartment and other departments about marketdevelopments (2 ) 3.606 1.371 0.536

Information on customers satisfaction isdisseminated throughout the organization andhierarchical levels 2.945 1.397 0.560Marketing people meet managers from otherdepartments to discuss future needs of the end-users 3.237 1.391 0.670When something big happens to a major customer ormarket the whole organization knows about it in ashort time 3.845 1.246 0.548Marketing employees meet regularly with employeesof other functional units to discuss future trends inthe market 3.651 1.249 0.628The various departments are slow to be informed onmatters relating to competition, customers, etc. (2 ) 3.870 1.234 0.441

Response to intelligence 3.282 0.873 0.682Employees from different functional units meetfrequently to design the company response tochanging market conditions 3.434 1.219 0.456Strategies and plans are based more on thecompanys production capabilities than on marketresearch results (2 ) 2.614 1.329 0.310There is a tendency to ignore changes in thepreference patterns of end-users regarding theproducts they buy (2 ) 3.711 1.253 0.469New product development procedures are oftenscrutinized in order to ensure that they produce theright products that will satisfy customers 3.368 1.391 0.449

Table AI.Kohli and Jaworski (1992)measures for marketintelligence collection,dissemination andresponse

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