Market Orientation, Customer Selectivity and Firm Performance

Abstract

Market orientation is a well-known construct in the marketing literature. One reason for the extensive research on market orientation is that it is seen as the operationalization of the marketing concept itself. Extant literature provides evidence supporting the link between market orientation and firm performance. However, most of the evidence which links market orientation with firm performance comes from studies carried out in the goods context. The few studies that have been done in the services context show either a weak link with firm performance or no link at all. Further, the studies that have been carried out in the services context have generally been limited to a single industry. In this thesis, I explore the reasons as to why market orientation might be more strongly associated with firm performance in the goods context than in the services context. I suggest that one reason could be that services are by their very nature non-standardized, and that market orientation is aimed at satisfying all the customers. Therefore, market orientation may not be the dominant driver of firm performance in the services context, where it becomes very difficult to satisfy every single customer. In the goods context, however, market orientation will be a dominant driver of firm performance. I also suggest another construct, namely customer selectivity, as a driver of firm performance in the services context. Customer selectivity, it is argued, is anchored in the customer relationship management (CRM) literature. Since services are by their nature heterogeneous, i.e. non-standardized, firms which are customer selective will do well in the services context. However, one cannot exclude the possibility that, while market orientation might not be a good driver of firm performance in the services context, it might be an antecedent of customer selectivity. Therefore I develop an alternative model in which market orientation is conceptualized as a cultural orientation, and thus acts as antecedent to customer selectivity, which then leads to firm performance. To test the hypotheses which are developed in the study, I use a pre-existing scale for market orientation, and operationalize customer selectivity using existing items. All the hypotheses are tested on a multi-industry dataset. The first set of hypotheses, relating to the first model, is tested using regression analysis. The second set, relating to the alternative model, is tested using structural equation modelling. The results are, broadly speaking, consistent with the hypotheses. It is seen that market orientation is a direct driver of firm performance in the goods context, while customer selectivity is a direct driver of firm performance in the services context. Similarly, it is also seen that market orientation is an antecedent to customer selectivity. This is consistent with the results obtained in the first model. However, it is also seen that in both models, while the first dimension of market orientation (customer orientation) is associated with firm performance according to the hypotheses derived in the thesis, the second dimension of market orientation (interfunctional coordination) is not associated with firm performance. The study clarifies and delimits the role of market orientation as a direct driver of firm performance in all contexts, and suggests it leads to firm performance primarily in the goods context. Similarly, customer selectivity leads to firm performance primarily in the services context. However, the study also suggests that market orientation is an antecedent to customer selectivity in both contexts. In other worlds, market orientation plays a role in both the goods and services context, but differentially. Managerially, market orientation and customer selectivity are proposed as a pair of strategies that marketers can help their CEOs choose between or possibly combine depending on the goods-service mix that the firm offers.