CHAPTER 1
INTRODUCTION
1.1 Research Focus
This study brings to fore the concept of “marketing audit”, and investigates the concept of an organizations analysis of its market, and examines the conceptual and empirical evidence for the construct of market audit. It provides a comparative analysis of the constructs of marketing audit with marketing fit and market orientation. The study was also constructed to illustrate the association of those constructs with the organizational business performance of larger Indian firms.
The growing complexity intricacy of the current business environment requires a more efficient examination and assessment procedure of the authoritative readiness to manage the element market. The current data assembling and transforming systems, for the most part, fail to offer a thorough and coordinated structure that fuses the whole showcasing capacity and additionally giving key proposals to activity. The promoting review, described as a precise, complete, goal, and free approach, can support the director to comprehend the working of the individual parts of the association and their commitment to the aggregate framework intended for the accomplishment of the hierarchical goals. An empirical study of the marketing audit can provide some insight into management’s perception of the benefits of the marketing audit as well as the current procedural aspects of the marketing audit, which highlight the strength and weaknesses of companies, thereby affecting the results.
The structural capability of an organization to seek purposefully environmental intelligence, and to use the insight gained form it, to redirect its internal processes to respond effectively to market dynamics, can potentially facilitate the long-term provision of superior value to the customer and the achievement of a sustainable competitive advantage in the market.
This thesis suggest the usage of a specifically planned and implemented marketing audit, designed to address the components of the model of market fit to facilitate an organizations efforts to achieve and maintain continued currency in relation to its target market. It is argued that the marketing audit procedures can be used as an integral part of the organization/market matching process and can assist with the establishment and maintenance of the optimum level of fit of an organization to its target market. The thesis also provides an agenda for future research.
1.2 Background
The recent past has been characterized as technologically (Burns and Bush 2003) and economically turbulent. The accelerated rate at which technologically innovations are affecting all business activities from the development of new product concepts to marketing communication (Wilson and Meadows 1998). The rate of new product introduction has increased while the rate of new product failure has been estimated to be between 80% and 95%, depending on one’s definition of success (Berggren and Nacher 2000). The availability of large quantities of data has made it difficult for a business manager to conveniently convert the data into action-oriented information in order to make appropriate key marketing decisions. The level of corporate failures has increased, time for making decisions has become shorter and the negative results of wrong business decisions have become more severe. The competition in some industries has become more intense and sophisticated (Ashil and Jobber, 2002)
In this market environment, that can be characterized as growing in uncertainty and risk, organizations that are unprepared to change in reaction to market dynamics will have little opportunity to survive.
The magnitude and the far reaching consequences of these environmental changes have been demonstrated by the recessions taking place globally in the recent past, and the “downsizing” or “correctsizing” and the restructuring moves by different companies (Farrell 2000). These initiatives are intended to adjust the operational set-up of an organization in line with the level of market volatility and the realities of market dynamics (Farrell, 2000).
Marketing decision-making, therefore, needs more than previously, to consider the factors that are progressively evolving in the operating business environment (Harker, 2001). There is a need for a clearer understanding of the relative importance of different controllable and uncontrollable environmental factors that can collectively influence the conduct of a business, the establishment of organization capabilities for initiating changes in response to market imperatives, and the realistic expectation of marketing decision outcomes.
The important issue is that business performance is not entirely or usually only dependent on marketing initiatives. Other departments and contributing functions within the organization directly and indirectly influence the overall performance of the firm (Lings 2002). This realization highlights a need for more comprehensive understanding and consideration of all the key influencing factors to the overall performance of business activity.
The changes continually occurring in the external and internal environments can disturb the balance and relevance of short and long-term marketing objectives, strategies, and tactical approaches (Carter and Murray 2002). The industry specific characteristics may go through some major or minor changes over time, reflecting new technological developments, change in the intensity of competitive reactions, and customer change of preference (Edgett and Thwaites 1990). Changes can also occur in the organizational capacity to implement decisions, operational skills, cultural values, and strategic direction (Day and Nendungadi 1994), all resulting in an evolving set of influences that can integrate into a new mix that may ultimately determine an organizations changing relative position in the market. The speed and magnitude of changes occurring signify a need for the availability of a current environment appreciation to the management of an organization to enable informed decisions with a reasonable expectation of the outcomes (Taghian and Shaw 2002). Inefficiency in clearly understanding the process and content of environmental changes taking place leaves a marketing decision-maker to rely excessively on inadequate, personal, subjective and intuitive bases to reach a decision.
1.3 Business Performance
Business performance can be, generally, considered as the results achieved or a change in results through conducting a business (de Waal 2002). Business performance may also be considered to be the degree to which an organization has achieved its own set and defined objectives and expectations (Dieckman 2001). The magnitude of a business performance and the indication of the level of achievement may be evaluated in relation to an industry standard as a convention, an industry’s norm, the past performance of the company, or the established objectives and expectations of the organization (Herremans and Ryans Jr 1995). An organization defined objectives and expectations could include different measures such as the level of customer satisfaction, profitability, market share, sales value, and sales volume (Gustafsson and Johnson 2002). However, if the company’s expectation of operational performance were unrealistic and unachievable, given an organizations capabilities, the performance comparison with them may not be indicative of a realistic performance level.
The changes occurring in the business environment and the specific objectives of an organization, as determined by the management, may influence the choice of business performance measures that can be used (Hart and Diamantopoulos 1993). These changes, among other things, include competitive forces, the focus on shareholder value creation, customer focus, product quality, employee empowerment, and information technology advances (Corrigan 1998). Additionally, business performance and profitability are influenced by an organization’s culture and its entrepreneurial orientation (Slater and Narver 1995, 2000a).
The recent advances in electronic technology specifically, enabling progressive data collection, have increased the possibility of using non-financial indicators, like quality and customer satisfaction, more conveniently as measure of performance (Hussain, Gunasekaran and Islam 2002) and hence increasing the management’s capability for a more meaningful and comprehensive assessment of performance.
The issue of selecting appropriate performance indicator, consequently, may rely on what is conventionally established as a norm, which is acceptable and understandable by the market/industry, or what can be acceptable to the management of an organization. The former is industry-based in nature, while the latter is practical and relevant to an organization’s specific business environment. The choice of a business performance indicator, therefore, should both be an arbitrary decision, but a considered performance indicator, therefore, should not be an arbitrary decision, but a considered selection of relevant measurements, which can best reveal the real and meaningful changes occurring in an organizations operational performances (Hudson, Smart and Bourne 2001).
The performance indicators used in this thesis are: (1) a measure that predominantly reflects the influence of marketing decision, viz., market share and (2) the overall financial performance to the organization, which represents the results of the entire organizations activities. This choice has been made to draw a distinction between the marketing decision area of influence and the overall company results.
1.4 Market Fit
It is posited that the ultimate purpose of a business organization is to achieve some specific objective(s). It is further suggested that that association between the overall characteristics of an organization in conducting business activities and business performance is a measure of the overall fit of the organization to the target market it is intending to serve. The level of success for an organization in achieving its intended results is an indication of how well it matches the critical success factors in that specific market, and the extent to which it matches market dynamics. The measure of market fit is an indication of how an organization, with consideration of its market characteristics, as structured its activities and mobilized its resources to best match realities of market imperatives. It also indicates how well the organization is capable of reorganizing itself to maintain a closer match with the dynamic market.
Market fit is, therefore, a measure of an organizations intrinsic preparedness to mobilize its internal capabilities to match market imperatives. Market fit is a construct that reflects the consolidation of the entire set of relevant, key internal resources moderated by external forces that impose constraints or facilitate its activities. (Taghian, 2002)
1.5 Market Orientation
The general acceptance of the marketing concept as the foundation of the marketing discipline has led to the search for the methods that can be used to implement it (Kohli and Jaworski 1990; Narver and Slater 1990; Slater and Narver 2000a). The marketing concept implies that “achieving an organizational goal depends on determining the needs and wants of target markets and delivering the desired satisfactions more effectively than competitors” (Kotler, Adam, Brown and Armstrong 2003). Therefore, an organization needs to focus on the customer and aim to achieve long-term customer satisfaction. This requires the ability of the organization to continuously provide superior value to the customer, achieving a sustainable competitive advantage, and using an integrated organizational effort that can facilitate the achievement of organizational objectives. The establishments of a systematic link with the market in order to gain an accurate understanding of the emerging changes in the environment has led marketing scholars and practitioners to consider some organizational cultural and behavioral characteristics that may assist the implementation of the marketing concept (Ruekert 1992; Kohli and Jaworski 1990; Narver and Slater 1990)
Market orientation refers to a specific organizational behavioral pattern that can facilitate the implementation of the marketing concept. Market orientation as a strategy, therefore, addresses a set of measurable activities that can collectively create an organizational capability in the understanding of, and reacting to, the dynamic market environment (Ruekert 1992).
The search for the identification and definition of those specific sets of activities has led to the development of two conceptual approaches in market orientation pioneered by Narver and Slater (1990) Kohli and Jaworski (1990).
Although these two approaches have common grounds, they offer some differences in focus (Ruekert 1992, Farrell and Oczkowski 1997). Kohli and Jaworski (1990) defined market introduction as the association wide market knowledge, the scattering of insights crosswise over divisions, and association wide responsiveness to market elements. These activities focus on the planned gathering and management of information, as well as organizational structural characteristics of timely and effective response capability to the market intelligence gathered. Narver and Slater (1990), then again, characterized business introduction as the hierarchical society that can create the fundamental practices for the formation of unrivaled estimation of purchasers, prompting prevalent execution for the business. The components of, and contributions to, the construct of market orientation according to Narver and Slater (1990) include customer orientation, competitor orientation and inter-functional coordination, and two-decision criteria, long term focus and profitability. The important characteristics of these two approaches are that they provide a basis for measurement. Market orientation is a construct, which may be transformed into quantified entity that enables the investigation of its association with business performances (Gainer and Padanyi 2001).
The differences between those two approaches in defining the construct of market orientation are more in emphasis rather than substance (Ruekert 1992).
To quantify the construct of market orientation, researchers have developed clearly defined components of each contributing sub-construct and have established specific questionnaire items to enable their measurement (Cadogan, Diamontopoulos, and Pahud de Mortanges 1999;Deng and Dart 1994; Jaworski and Kohli 1993; Kohli, Jaworski and Kumar 1993; Narver and Slater 1990; Slater and Narver 1994).
Aside from some variations in approach, the two main research instruments MARKOR (Jaworski AND Kohli 1993) and MKTOR (Narver and Slater 1990), include measures of a firm’s interaction with market dynamics, and organizational capacity to change with, and react to, changes occurring in the environment. There are many studies that have attempted to validate and compare these two research instruments (Mavondo and Farrell 2000).
Since the introduction of the concept of market orientation, many studies have investigated the components of the construct and its association with various organizational performance indicators under different conditions. These conditions include different moderating elements in the internal and external environments (Homburg and Pflesser 2000; Jaworski and Kohli 1993; Narver and Slater 1990; Ottesen and Grundvag 2002), the process of strategy formulation in the organization (Tadepalli and Avila 1999), the industry types and organization size (Pelham 2000), export markets (Sundqvist, Puumalainen, Salminen and Cadogan 2000),different forms of market orientation (Greenley 1995), and the generalisability of the finding across the different industries (Conduit and Mavondo 1998), just to mention a few.
Although there is a general understanding that market orientation appears to be related positively to organizational performance, there are, however, some market and industry circumstances that may not necessitate a market orientation strategy as a requirement for success (Tse 1998; Henderson 1998). These circumstances may include market conditions, the organization’s market status/power, or when the benefit/cost ratio of achieving an effective level of market orientation would be negative (Marsuuno and Mentzee 2000; Pelham 1997b; Pelham 2000; Slater and Narver 1994, 2000b; Sundqvist et al 2000).
In many cases, scholars investigating the association between the construct of market orientation and business performance have had to modify/purify the original items in the lists of both MARKOR (Kohli and Jaworski 1990) and MKTOR (Narver and Slater 1990) to suit their target of study, and have had to add new relevant items to their topic of study (Matsuno and Mentzer 2000; Venkatesan and Soutar 2000).
The issue that emerges from the current studies is that various environmental moderators influence the association of market orientation and business performance. This research suggests that these moderators, if considered collectively, can alter the character and level of effectiveness of market orientation, and hence change the degree of association between the construct of market orientation and business performance (Tanghian and Shaw 2001). Therefore, the extent of the organizational overall fit to its intended market can be assumed to be the result of the combined influences of the key contributors to, and moderators of, the construct of market orientation. Clearly, to consider the influence of individual moderators in the association between orientation and business performance, separately, would provide an incomplete explanation, as this association would not allow for the simultaneous interaction between the contributors and, therefore, may not appropriately measure the dynamic nature of the association (Tanghian and Shaw 2001).
The construct of market fit incorporates, and in a composite manner synthesizes, different positive and negative environmental influence into a consolidated mix that takes a new collective character representing, but being different from, all the individual influences, in one separate score (Tanghian and Shaw 2001).
Since the formulation of those market orientation approaches introduced by Narver and Slater (1990) and Kohli and Jaworski (1990), marketing scholars have studied the concept aimed at identifying and verifying the measurements variables, environmental moderator factors, and the association of market orientation scores with organizational performance (Pulendran, Speed and Widing 2000). The general findings of different studies conducted, using the models of market orientation indicate that there appears to be positive relationship between the construct of market orientation and organizational performance, that is, “ a business that increases its market orientation will improve its market performance” (Narver and Slater 1990).
The model of market orientation used in this study (figure 1.1) replicated the conceptual model developed by Kohli and Jaworski (1990). The relationship between the components of this model have been tested and verified (Pulendran, Speed and Widing 2000). The model represents the contribtion of the three behavioral categories of intelligence generation, intelligence dissemination within the organization to all the relevant decision makers, and the responsiveness of the organization to the market dynamics. The construct of market orientation in this model is associated with two measures of business performance (1) a predominantly marketing influenced performance, market share, and (2) organizational financial performance. The expectation was that market orientation would demonstrate a stronger association with the predominantly marketing influenced, market share, measure.
Figure 1.1 Model of Market Orientation by Kohli and Jaworski
The important issues emerging from the findings of market orientation studies can be summarized as follows:
1. Market orientation and business performance are usually, positively associated, however, this association, varies in magnitude across different markets, industries and company demographics.
2. There are circumstances in which this association is non-existent or unnecessary, or unattractive due to negative benefits/costs ratios.
3. Environmental variables direct the relationship between business introduction and business execution.
4. Different environmental moderators influence the association between the market orientation and business performance differently.
5. The current models of market orientation do not incorporate the key environmental moderators, in combination, to enable a comprehensive measure of association with business performance.
6. Since environmental moderators interact, this may enhance or restrict the influence that each may exert on the overall business performance.
It may therefore, be argued that, although the existing models characterize an organization’s degree of market orientation, they may not necessarily represent the organization’s overall capability in association with business performance. Perhaps, the current differences reflected in the writing in the greatness and type of the relationship between market orientation and business performance may, in part be, due to the condition that the current models do not account for the key environmental moderators in combination.
This thesis advances the idea that it is not simply the level of market orientation that is, or should be, of primary interest, but the overall organizational fit to the market. It is indicated that it is the overall correspondence of an organization with the intended target market that eventually produces the results. In order to demonstrate the difference between the constructs of market orientation and the overall fit of an organization, this thesis tries to ascertain the model fit given by Tangian, 2004 in the Indian scenario including the key internal and external environmental moderators, including market orientation, to provide an illustration of a comprehensive approach that may assist in characterizing an organizations strength and weakness through use of marketing audit.
1.6 Organization/ Market Matching Process
The dynamic market environment continually changes the circumstances of an organizations operation condition, thereby requiring a continual change by an organization to maintain, as closely as possible, its correspondence with the market evolution. The management of the strategy designed to achieve market fit can benefit from the usage of the techniques and procedures of the marketing audit in order to provide a full examination of an organization’s operating environment and to generate recommendations for the readjustments of organization activities accordingly. The marketing audit, as a comprehensive, systematic, independent and periodic examination of all relevant organization activities would be potentially a suitable tool capable of assisting management in conduction the organization/market re-matching process.
It is also argued that the familiarity with, and the involvement in, conduction a marketing audit, can orient the decision-making process in an organization to be tolerant of, and reliant on, independent and impartial assessments of internal and external environmental dynamics as the basis for conducting a business. The practice of the marketing audit, if it becomes a culturally accepted and established organizational practice, can potentially establish an objective approach to the formulation of marketing strategy and the implementation of marketing programs. This may lead to the minimization of subjective and intuitive personal orientation in the organizational decisional making process.
This thesis addresses the current status of marketing audit in organizations. It also provides an analysis of the differences in the association of market fit and business performance measures for the users and the non-users of the marketing audit.
1.7 Sources of Information
Irrespective of the type and character of the conceptual models used, the market orientation and market fit constructs can be only as meaningful and effective business management tools, as the type and quality of information used to quantify them.
Drucker (1968) stated that to manage a business well is to manage its future, and to manage the future is to manage information. One of the difficulties in marketing decision-making is the unavailability, inadequacy and even at times, inaccuracy of information (Kotler 1997). At the same time, the required degree of skills, motivation, personality, and temperament of the decision maker can influence the effort and foresight needed to seek and interpret the information required for decision.
In order to respond properly to the dynamic market environment, management requires substantial amounts of accurate, up to date, comprehensive and action-oriented information. This type of information needs to be continually collected, analyzed and disseminated to all key decision-makers in the organization who are involved in the planning, and are contribution to the implementation, coordination and control, of marketing activities (Jaworski and Kohli 1993; McDonald 1992b, 1996; Reed 1992).
Some of the managements needs for continually collected and analyzed information are provided by the following methods:
• Marketing Information Systems (MkIS), which is a facility defined as a continuing, organized procedure to generate, analyze, disseminate, store and retrieve information for use in making marketing decisions. MkIS is a structure consisting of people, equipment, and procedures (Kotler, Adam, Brown and Armstrong 2003).
• Marketing Decision Support Systems (MDSS), which is a facility that provides collected and analyzed data using tools and techniques which can assist the marketing decision maker. MDSS includes facilities such as breakeven analysis, regression models, and linear programming that enable asking “what-if” questions (Wierenga and Oude Ophius 1997; Burns and Bush 2003).
However, these technologically assisted information sources do little more than the procession of existing historical information. The proper use of these techniques as decision-making tools required analysis and interpretation of the information by the user (Buttery and Tamasehke 1995). The more advanced method, Intelligent Marketing Information System (IMkIS) incorporates the capabilities of Marketing Information Systems (MkIS) and Artificial Intelligence (AI) to provide management not only with analyzed and interpreted data, but action oriented information. This system, however, has its limitations in being dependent on a comprehensive knowledge base covering all aspects of marketing situations relevant to a firm in an industry. It is, consequently, lacking a wide application as a decision-making tool (Amaravandi, Samaddar and Dutta, 1995).
The existing state of the art computer technology, including the computer-mediated collaborative tools, and methods of information gathering and data management, provide a unique type of facility, which contributed to the availability and management of information (Malhotra, Majchrzak, Carmen and Lott, 2001). The advanced computer technology has contributed to progressively easier and faster information processing. However, the availability of more efficient information gathering and analysis facilities do not provide a method and a process for more effective decision-making. They do not improve the substance and the process of decision-making, but they add to the efficiency and speed of the decision making process (Taghian and Shaw, 2002).
Additionally, the application of short-term reactive measures only to combat immediate problems would not be in the best interest of the long-term viability of an organization. Short-term decisions need to be made in the context of the long-term strategic directions. To assist with the understanding of the substantial changes with long-term effect occurring in the internal and external business environments, managers need additional tools and processes that enable the appreciation of tactical decisions in the context of a strategic framework (Buttery and Tamasehke, 1995). A comprehensive and impartial review of marketing objectives, strategies, policies and organization structure on a recurrent basis (Kotler, Gregor and Rodgers, 1977) would be beneficial in assisting managers to maintain a realistic perspective of short-term decisions and long-term strategic implications. The business performance is ultimately an indication of the quality of management decisions, given the organization’s operating circumstances incorporating marketing realities, organizational capabilities, and the specific objective of the business.
An ideal decision support tool not only would provide the information base on which decisions can be made, but it should also suggest the various alternative strategies available to the decision maker, the suitability of each alternative against the organizations goals and strategic directions, and the likelihood of outcomes (Taghian and Shaw, 1998).
The marketing audit has been characterized as a tool that can assist with the evaluation of the entire marketing system and its components. This evaluation is undertaken with the purpose of identifying inconsistencies, shortcomings, problems and opportunities for providing objective appraisal of the situation, leading to recommendations that can potentially improve business performance (Kotler 1967, Brownlie 1993, Rothe, Harvey and Jackson 1997). The marketing audit itself is not a source of information but a method of gathering, analyzing and using information to reach a meaningful understanding of the conditions a company is in and to provide recommendations for the necessary corrective actions under different circumstances.
1.8 Research Objectives
The general objective of this research was to identify and explain the relationships between the construct of marketing audit and business performance. The construct of market audit has been suggested as a measure of an organizations overall fit to its intended target market incorporating the influence of key environmental moderators including market orientation.
The specific key objectives were:
1. To develop a conceptualization of organization marketing audit.
2. To identify the factors contributing to organizations market fit.
3. To investigate the association of marketing audit and business performance.
4. To review the current practice of the marketing audit and address its suitability as a tool for organization/market re-matching process that can be used to facilitate a closer fit of the business to the market.
1.9 Importance of the Subject
The concept of market orientation has received a great deal of attention from marketing scholars, indication conceptual and practical importance. The concept has been investigated from many perspectives and examined in many ways. The general findings are that market orientation, in most cases, is positively related to business performance and that different internal and external environmental factors moderate this relationship. The current status, as reflected in the literature, is that marketing scholars continue to investigate this relationship under a variety of conditions. However, the continued reaffirmation of the concept and revalidation of the current models of market orientation in different market situations and industry types, and in relation to internal organizational characteristics, etc., will not necessarily provide a new insight into the nature of the fit of an organization to its target market. This thesis suggests looking beyond the current established knowledge of the validity of market orientation construct, with the aim of proposing an extended model that can facilitate a closer scrutiny of the issue if the mobilization of an organization’s activities towards the achievement of its objectives. This model should be constructed to reflect the interaction of key environment facilitators and constraints that collectively, characterize an organization’s overall correspondence to its market.
It can be argued that the inclusion of the simultaneous interaction of the contributing factors to the measure of market fit may provide a more realistic assessment of the construct and its association with business performance.
The identification of the key contributors and moderators, their interaction, and relative importance can potentially provide a suitable analytic foundation for the management of an organization to better appreciate the current situation and to identify the areas in which change may be implemented to assist with the achievement of a more desirable fit to the market.
The model of market fit also allows for the assumption that the dynamic operating environment of a business necessitates a dynamic organizational characteristic, one that can be flexible to restructure quickly and be tolerant of change. The suggested model also recommends the inclusion of a facility for an organization/market rematching process that can be provided by the use of the marketing audit procedure.
1.10 Limitations of the study
The key limitation of the study is that it was restricted to large organizations listed on Bombay Stock Exchange in India. Therefore, the findings of this research would not necessarily be representative of the totality of India’s businesses, making it not possible to generalize the results. Additionally, the sample frame used might not be a total representative of all Indian Firms.
1.11 Organization of the Thesis
Chapter 1 – Background and Introduction
This chapter introduces the background and objectives of the study and the structure of the thesis.
Chapter 2 – Literature Review
Chapter 2 presents a review of the literature on marketing audit, market orientation and the environmental moderators used in the models, and provides the background to, and justification for the concept of market fit.
Chapter 3- Research questions and hypotheses
Chapter 3 introduces and discusses the general models of market orientation and market fit, and details the research questions and hypotheses that guided the study.
Chapter 4 – Research Methodology
Chapter 4 discusses the research methodology including the research design, sampling, research instrument development, data collection method, and statistical procedures used in the study.
Chapter 5 – Data analysis and results of the study
Chapter 5 presents and discusses the data analysis used in the study, including AMOS estimates of the models used, and presents the findings.
Chapter 6 – Hypothesis testing
Chapter 6 reports the results of the study addressing the research questions and hypotheses discussed in Chapter 3
Chapter 7 – Discussion of the results
The results of the study as detailed in Chapter 6 are discussed in the context of the literature review.
Chapter 8 –The academic and managerial implications of the findings and the limitations of the research and recommendations for further studies.
This chapter presents the benefits of the results of the study in relation to the issues identified in chapter two. It also outlines the usefulness of the results, both in terms of the conceptual development of the market fit construct and the implication of it for marketing practitioners. The chapter also presents a discussion of the limitations of the study and presents recommendations for future studies.
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