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Is Market Orientation Affected by the Size and Diversity of Customer Networks?

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Abstract

  • The link between market orientation and firm performance is well documented. However, less is known about those factors which lead to firms being market oriented in the first place. Existing antecedent research has emphasized factors internal the firm. A complementary emphasis on external, network-specific factors is taken in this study.

  • Data collected from a sample of international trade intermediaries reveal that market orientation is affected by both the size and diversity of firms’ customer networks and trading activities. Network diversity both promotes and hinders a market orientation. In low diversity environments, increasing levels of network and geographic diversity boost a firm’s market orientation. In high diversity environments, additional diversity confounds the interpretation of market intelligence with adverse consequences for market orientation.

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Notes

  1. Interestingly, this opportunity was first signaled by Kohli and Jaworski (1990, p. 16) when they wrote “though we do not address the issue of variations in the quality of market intelligence… these variations clearly are important and warrant consideration by both managers and researchers.”

  2. For example, companies were retained if their names contained the following words: trade, trader, traders, trading, international, export(s), exporter(s), or exporting, import(s), importer(s), or importing, merchandise(r) or merchandising. Companies were discarded if their names contained words such as investment, holding(s), group or development.

  3. A third construct developed by these authors, interfunctional coordination, was not considered as most ITIs are small, single function enterprises headed by one manager and employing fewer than a dozen staff in their head offices.

  4. I am grateful to an anonymous mir reviewer for suggesting this interpretation.

  5. Interestingly, the largest total customer network recorded in the survey consisted of 8800 customers (scattered across five export markets). However, the highest geographic diversity score came from an ITI with 2064 active and inactive customers spread out over 37 markets. This firm had only five staff in its head office (well below the average) suggesting conditions conducive to being overwhelmed by diversity. Unsurprising, this firm returned a market orientation score more than one standard deviation below the mean. At the other end of the diversity scale, the ITI with the lowest geographic diversity score had just one customer in one export market. With an environment characterized by too little diversity, this firm returned a market orientation score that was more than two standard deviations below the mean.

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Acknowledgements

The author would like to acknowledge the valuable assistance provided by Luk Yim Kwan during the data collection phase of this study. This project was supported by the Research Grants Council of the HKSAR (Project no. PolyU 5234/99H).

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Authors and Affiliations

  1. Department of Management & Marketing, Faculty of Business, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, China

    Paul D. Ellis

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Correspondence to Paul D. Ellis.

Appendix: Measures Used

Appendix: Measures Used

  1. 1.

    Market orientation (anchor points: 1 = not at all/never, 8 = to a great extent/very frequently)

    1. (a)

      Our firm’s objectives are driven by customer satisfaction.

    2. (b)

      We have a good understanding of how our customers value our products and services.

    3. (c)

      Our firm’s business strategies are primarily driven by our understanding of possibilities for creating value for customers

    4. (d)

      We know our competitors well

    5. (e)

      If a major competitor were to launch an intensive campaign targeted at our customers, we would respond immediately

    6. (f)

      How often do managers visit important customers to learn what products/services they will need in the future?

    7. (g)

      How frequently do top managers discuss competitors’ strengths and strategies?

    8. (h)

      How frequently do you take advantage of opportunities to exploit competitors’ weaknesses?

  2. 2.

    Network properties

    1. (a)

      How many customers are you actively selling to at present? Count only those customers with whom you are currently trading.

    2. (b)

      Overall, how many firms are represented in your total customer network/database? How many active and inactive customers are known to you personally? Count only those firms where you have had some previous contact.

    3. (c)

      What proportion of your firm’s total sales is sold to your three largest customers?

    4. (d)

      How many different countries does your firm sell to directly at present?

  3. 3.

    Firm performance

    1. (a)

      What was the approximate total sales income of your firm in the last financial year?

      Table 6
      Full size table
    2. (b)

      How would you rate your firm’s performance in comparison with your major market competitors over the past three years, in terms of (i) sales growth, (ii) operating profits, (iii) ROI and (iv) market share (anchor points: 1 = much worse than competitors, 8 = much better than competitors).

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Ellis, P. Is Market Orientation Affected by the Size and Diversity of Customer Networks?. Manag Int Rev 50, 325–345 (2010). https://doi.org/10.1007/s11575-010-0037-0

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