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Changing Market Relationships in the Internet Age

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Jean-Jacques Lambin

Chapter 2. The market orientation concept

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1The objective of this chapter is to introduce the concept of market orientation presented as an alternative to the traditional marketing concept. The Internet technology is creating a dual trading arena where traditional market actors have changing roles and new actors are emerging. To cope with this increased market complexity, a distinction is made between a cultural and an instrumental definition of the Market Orientation (MO) concept. Market orientation as an organisational culture is a corporate business philosophy that puts the customer’s satisfaction first, taking into account the role played by the other market actors. The MO, as an instrumental fonction can be defined as a set of capabilities, activities and behaviors needed to implement a strong MO. A distinction is made between two types of capabilities in the instrumental fonction: the strategic marketing and the operational marketing capabilities.

2.1. AN ALTERNATIVE: THE MARKET ORIENTATION CONCEPT

  • 1 Day G.S. and Wind J. (1980), op.cit.

2To deal with the complexity of the global market, in the 1990s, there has been increasing attention in the academic literature to a reorientation of the traditional marketing concept. This new market orientation concept is the outgrowth of a double dissatisfaction: the weak implementation of the traditional marketing concept discussed in the previous chapter and, more important, its conceptual shortcomings which does not provide appropriate normative guidance for the firm in today’s context. As pointed out in 1980 by the Editors of the Journal of Marketing, Day and Wind (1980, p. 7)1 “... there is a growing belief that a solely consumer-oriented search for differential advantages is an unbalanced approach to strategy formulation and that greater weight must be given to competitive factors and other stakeholders”. The objective of this section is to propose a revised and updated definition of the marketing concept that we shall call the extended market orientation concept, called for short, the EMO concept.

  • 2 Day G.S. (1990), Market Driven Strategy, New York, The Free Press. See also: Day G.S. (1999), The M (...)
  • 3 Kohli A.K. and Jaworski B.J. (1990), Market Orientation: The Construct, Research Propositions, and (...)
  • 4 Narver J.C. and Slater S.F. (1990), The Effect of a Market Orientation on Business Profitability, J (...)
  • 5 Lambin J.J. (1986), Le marketing stratégique, Paris, McGraw-Hill, 1st Edition.. See also, Market-dr (...)
  • 6 Deshpandé R. and Farley J.U. (1998), Measuring Market Orientation: Generalization and Synthesis, Jo (...)
  • 7 Langerak F. (2003), An Appraisal of the Predictive Power of Market Orientation, European Management (...)
  • 8 Gotteland D. (2005), L’orientation-marché: nouvelle méthode, nouveaux outils, Paris, Editions d’Org (...)
  • 9 Gonzalez-Benito O. and Gonzalez-Benito J. (2005), Cultural vs Operational Market Orientation and Ob (...)
  • 10 Baker W.E. and Sinkula J.M. (2005), Market Orientation and the New Product Paradox, Journal of prod (...)

3Different conceptualisations of the MO concept have been proposed in the academic and professional literature. The main contributions are those of Day (1990 and 1999)2. Kohli and Jaworski (1990)3, Narver and Slater (1990)4, Lambin (1986/2000)5 and Deshpandé and Farley (1998)6, More than 100 studies since 1990 have looked at the market orientation-performance relationship. For reviews of this literature, see Langerak (2003)7, Gotteland (2005)8 and Gonzalez-Benito O. and J. (2005)9. For a review of the relationship between market orientation (MO) and new product success, see Baker and Sinkula (2005)10. In what follows, we shall refer mainly to the early seminal contributions on the subject.

• The Kohli and Jaworksi (K&J) model of market orientation

  • 11 Kohli A.K. and Jaworski B.J. (1990), op.cit.

4Kohli and Jaworski (1990)11 use the term “market orientation” to mean the implementation of the marketing concept, which is viewed retrospectively as an idealistic business philosophy short of practical value. These authors have proposed an operational definition of MO where two of the three pillars of the traditional marketing concept (customer focus and integration) are operationally defined. Kohli and Jaworski offer the following formal definition,

  • 12 Kohli and Jaworski (1990), op.cit., p. 69.

Market orientation is organisational wide generation of market intelligence pertaining to current and future customers needs, dissemination of the intelligence across departments and organisational wide responsiveness to it. (Kohli and Jaworski, 1990, p. 69)12

5Thus, for these authors, the three key elements of MO are: market intelligence generation, market intelligence dissemination, and responsiveness.

  • Market intelligence generation is a broader concept than customer intelligence. It includes monitoring factors like competition, government regulations, technology and other environmental forces. It pertains not just to customers’ current needs but also to future needs as well.

    • 13 Zeithmal V.A., Berry L.L., and Parasuraman (1988), Communication and Control Processes in the Deliv (...)

    Market intelligence dissemination implies that responding to a market need requires the participation of virtually all departments in an organisation. This means that market intelligence must be communicated to all the departments, through formal and/or informal formal dissemination procedures, or through what is called horizontal communication (Zeithmal, Berry, and Parasuraman, 1998)13.

  • Responsiveness is the action taken in response to market intelligence that is generated and disseminated. Responsiveness takes the form of selecting target segments, designing the products or services that cater to current and future needs and promoting them.

  • 14 Levitt Th. (1969), The Marketing Mode, New York, McGraw-Hill Company.

6Thus, the K&J model gives a more operational view of the first two pillars of the traditional marketing concept, customer focus, and integration. It is interesting to note that, in the K&J model, the profit objective is not part of MO but rather a consequence, an opinion shared by Levitt (1969, p. 236)14, who considers that viewing profit as a component of MO is “... like saying that the goal of human life is eating”.

  • 15 In a subsequent article, Kohli, Jaworski and Kumar (1993) have developed a 20-item market orientati (...)

7From an operational viewpoint, the K&J model remains very general however. For instance, neither does it specify the type of market intelligence to collect nor the type of response to be taken by the firm. No direct link is made with the marketing function15.

• The Narver and Slater (N&S) model of market orientation

  • 16 Narver J.C. and Slater S.F. (1990), op.cit.

8These authors16 are concerned by the problem of developing a valid measure of MO and of analysing its effect on business profitability. In the N&S model, MO is defined by reference to three behavioural components: customer orientation, competitor orientation, and interfunctional coordination, with two decision criteria - long-term focus and profitability. Customer and competitor orientation include all the activities involved in acquiring information about customers and competitors in the target market and disseminating it throughout the organisation. Interfunctional coordination refers to the business coordinated efforts involving other business fonctions than the marketing department.

  • 17 Dickson P.R. (1992), Toward a General Theory of Competitive Rationality, Journal of Marketing, 56, (...)
  • 18 Ries A. and Trout J. (1986), Warfare Marketing, New York, McGraw-Hill.
  • 19 Day G.S. and Wensley R. (1988), Assessing Advantage: A Framework for Diagnosing Competitive Superio (...)

9If the similarity with the K&J model is substantial, the N&S model is not only more specific but also conceptually more restrictive, since it is limited to two market actors: customers and competitors. A strong point of the N&S model is its explicit insistence on competitors’ orientation. As stated by Dickson (1992, p. 78)17, “... the marketing concept can be linked to the invisible hand by recognizing that it is competition that forces a customer or market orientation. The greater the rivalry between sellers, the greater will be the customer focus and service.” Thus, a competitive focus is not an alternative to a customer focus as suggested by (Ries and Trout (1986)18. On the contrary, a balance of the two orientations is needed (see Day and Wensley, 1988)19.

  • 20 Deshpandé, Farley, and Webster (DFW) (1993) have developed a customer orientation scale as an eleme (...)

10Using a sample of 140 business units consisting of commodity product businesses and non-commodity businesses, N&S have found a substantial positive effect of MO on the profitability of both types of businesses. As stated by N&S, this study gives marketing scholars and practitioners a basis beyond mere intuition for recommending the superiority of the MO concept over the traditional marketing concept20.

• Pitfalls in implementing market orientation

  • 21 Mason K. and Harris L.C. (2005), Pitfall in Evaluating Market Orientation: An Exploration of Execut (...)
  • 22 Day G.S. (1999), Misconceptions about Market Orientation, Journal of Market-Focused Management, 4, (...)

11The majority of studies linking the level of market orientation with the firm’s business performance have found supportive evidence. Despite the credibility of the MO concept, contemporary research (Mason and Haras, 2005)21 finds that many companies have difficulties in evaluating the extent of market orientation of their company (Day, 1999)22 and in implementing a high level of MO. For a review of eight common misinterpretations of market orientation among a sample of 101 practitioners, see Mason and Harris (2005). Several factors can explain this state of affairs.

12A first issue is the range of differing definitions of the MO concept itself. For the majority of MO theorists, market orientation is limited to two market players, customer and competitors, neglecting the other key market actors like distributors in B2C markets, influencers in B2B markets and other key market stakeholders like consumerist, ecologists, etc. Thus the dominant definition of MO gives an incomplete view of the real complexity of today’s markets. It is not surprising therefore that practitioners in B2C markets, for example, confronted with powerful mass merchandisers have difficulties in developing a genuine MO strategy.

13Second in those early studies, MO is viewed as an organisational culture and no formal links are established with the marketing function and no normative implications are proposed to implement effectively this MO culture. What role should the marketing function play and what capabilities should the marketing function have in an organisation that has a strong MO? Thus, there is a missing link with the marketing function.

  • 23 Moorman C. and Rust R.T. (1999), The Role of Marketing, Journal of Marketing, 63, Special Issue, 18 (...)
  • 24 Gonzalez-Benito O. and Gonzalez-Benito J. (2005), op.cit.

14Market orientation is more than simply a culture. A distinction should be made between a cultural and an instrumental definition of MO (Moorman and Rust 199923 and Gonzalez-Benito O. and J. 200524). Market orientation as an organisational culture is a corporate business philosophy that puts the customer’s satisfaction first, taking into account the role played by the other market actors. The MO as an instrumental function (the marketing function) can be defined as a set of capabilities, activities and behaviour needed to implement a strong market orientation. The majority of the MO studies published so far have not used simultaneously cultural and instrumental measures of MO. The merit of the extended MO model presented hereafter is to provide an integrative framework analysing MO in its different dimensions, cultural and instrumental, thereby establishing a link with the marketing function.

15Finally, as a result of these shortcomings in the definition of the MO concept, the scales proposed in the literature for measuring MO do not properly reflect the complexity of the market and provide incomplete measures of MO.

2.2. THE EXTENDED MODEL OF MARKET ORIENTATION

16Building on these previous works and on their shortcomings in the MO concept, we adopt the following definition,

Market orientation is a business corporate culture, disseminated in the organization through interfunctional coordination, having the objective to design and promote, at a profit for the firm, superior value solutions to the firm’s direct and indirect customers and to the other involved market stakeholders. (Lambin et al., 2007, p. 6)

17Several features have to be noted in this definition.

  • The term “design” refers to the analysis function performed by strategic marketing and the term “promote” refers to the firm’s commercial arm articulated by operational marketing.

  • By “superior value solutions”, we mean bundles of products and services satisfying customers articulated or latent needs which are better than competitors offerings. Whereas products are about functionality, solutions are about outcomes or results that make life easier or better for customers.

  • This definition recognises the existence of different types of customers, “direct and indirect” customers and of other stakeholders.

  • Interfunctional coordination is the vehicle used to disseminate in the organisation the EMO culture.

  • 25 Lambin J.J. (1986), op.cit.
  • 26 Webster F.E. (1992), The Changing Role of Marketing in the Corporation, Journal of Marketing, 56, O (...)

18Following Lambin (1986)25 and Webster (1992)26, this definition of MO makes a distinction between the cultural dimension of the MO concept and two dimensions of the instrumental function: analysis and action.

  • Culture refers to the corporate business philosophy at the core of the social market economy, which places the emphasis (a) on the process of value creation for the market participants, (b) in a way compatible with the objective of sustainable development, (c) as the best mean for firm to achieve its profitability objective.

  • Analysis refers to the firm’s strategic brain or to its strategic capabilities (a) to develop market sensing tools to understand the market structure and to anticipate current and future customer’s needs, (b) to design sustainable value solutions to customers’ problems, and (c) to differentiate these solutions from competition.

  • Action refers to the commercial arm of the firm and to its operational marketing instruments (the 4 or 7Ps) used to make the value proposition (a) known, (b) conveniently accessible, and (c) at price affordable by the target customer group.

  • 27 Christensen C.M., Cook S., and Hall T. (2005), op.cit.

19Thus a distinction is made between two types of capabilities in the instrumental function: the strategic marketing capabilities (analysis) to identify market opportunities and the positioning options for the firm and operational marketing capabilities (action through the 4 or 7ps) required to implement the options taken. This distinction is important to avoid falling into the trap of the short-term perspective of the 4 or 7s paradigm which refers only to the “action” dimension. The effectiveness of the operational marketing programme will be determined by the solidity of the strategic options taken by the firm. The weakness of the strategic thinking is one of the main causes of the high failure rate of new products launching (Christensen, Cook, and Hall 2005)27.

20Figure 1 summarises the concept of the EMO model. Strategic marketing can be “responsive” or “proactive” depending on the types of needs addressed (expressed or latent) and operational marketing can be “transaction” or “relationship” depending on the type of market served and the intensity of the trade relationship between the buyer and the seller.

21Central in this EMO model is the view of the market as a complex grouping of market stakeholders: suppliers, customers (direct and indirect), competitors, distributors, influencers, and other stakeholders representing the civil society voice that gain mutual benefit from one another. Thus, the existence of sub-orientations in the EMO concept is recognised. The MO configuration of each specific market can, of course, be different but this presentation has the merit of greater generality.

22The proposed model assigns responsibilities for the three dimensions of the EMO concept: “culture” or the business philosophy is a transversal corporate responsibility assumed by the CEO of the firm through interfunctional coordination; “analysis” is the transversal responsibility of strategic marketing assumed by the head of each business unit or, in a small business company, by a cross functional group of managers; “action” is typically the responsibility of operational marketing assumed by the marketing function. Thus a link is established here with the marketing function which defines the content of market driven management.

Figure 1. The extended model of market orientation

Figure 1. The extended model of market orientation

Source: Lambin et al. (2007)

• Measuring the extended market orientation model

23In the scale designed by Lambin D Chumpitaz (L&C) to measure the extended market orientation model, each sub-orientation is described by four propositions, two for “analysis” (AL) and two for “action” (AT). In addition, four propositions are used for the interfunctional coordination variable and one proposition to measure the intensity of each of five environmental turbulences: technology, economy, distribution, competition and ecology28.

24Thus, in the most general case, we have six sub-orientations, and a total of 33 (24+4+5) propositions to be evaluated by the respondent. The performance indicators (maximum five) can be expressed in quantitative terms or in subjective evaluation terms. Respondents are required to comment on the degree to which each indicator of MO is present in their company, using a Likert-type scale

  • 29 Lambin J.J. (1996), The Misunderstanding About Marketing, CEMS Business Review, 1, 37-56.
  • 30 Lambin J.J. and de Moreau J.P. (1996), Orientation-marché et performance commerciale et financière (...)
  • 31 Lambin J.J. and Chumpitaz R. (2000), Being customer-driven is not enough, European Business Forum, (...)
  • 32 Narver J.C. and Slater S.F. (1990), op.cit.

25The L&C model has been implemented in several empirical studies in Europe, using either subjective or objective measures of performance. In the private insurance sector (Lambin, 1996)29, in the metallic sector (Lambin and de Moreau 1996)30, and in the European manufacturing sector (Lambin and Chumpitaz, 2000 and 2006)31. In each study, the results have evidenced a positive effect of MO on business performance, thereby confirming the results of Narver and Slater in 199032.

26In addition to the interfunctional coordination, there are several similarities between the K&J and N&S models. In the EMO model, “analysis” and “action” correspond in the K&J model respectively to “market intelligence generation” and to the “firm’s responsiveness”. In the N&S model, two sub orientations (customer and competitor) are included. In the three models, business performance is viewed as a consequence of the intensity of the MO. The results also demonstrate that environmental turbulences affect the MO-Performance relationship.

• Is the EMO model really different from the traditional marketing concept?

27To reply to this question, one can identify four elements of differentiation between the traditional marketing concept and the extended MO concept.

  1. The traditional marketing concept is basically customer-oriented, while the extended market orientation concept is oriented towards customers, and also towards the other key market actors: competitors, distributors, influencers and other stakeholders, be they offline or online.

  2. The traditional marketing concept is based on commonsensical “market pull” model (response strategic marketing), while the extended MO concept is based of course on the “market pull” and also on the “technology push” (proactive strategic marketing) innovation models.

  3. The traditional marketing concept in practice is basically “action-oriented” using the 4Ps (or the 7Ps) paradigm, while the MO concept is based on the solution approach, a more customer-centric view.

  4. The traditional marketing concept is generally confined to the marketing function, while the extended MO concept is viewed as an organisational culture disseminated at all levels and in every function of the firm.

28One could add that traditional marketing has been developed by reference to physical markets while today, with the development of the Internet technology, most firms operate in a dual trading arena, physical and electronic markets (see Figure 3 below). In this new and more complex environment, the roles of strategic and of operational marketing are deeply modified as shown in the forthcoming Chapter 4.

• The need for a new terminology

29For consistency and clarity, the adoption of the EMO model would imply some change in the vocabulary commonly used in the marketing discipline. The term market-driven or market-focused management appears to be preferable to the popular term marketing management and this for four reasons. First, as mentioned above, the term “marketing” has lost credibility in the general public (in particular among management students) and is heavily loaded. It suggests more selling and advertising than customers and stakeholders’ needs satisfaction. Second, the label market-driven management suggests that the concept is not exclusively a concern of the marketing function. Rather all the departments should participate in the analysis of the market needs and configuration and in the design of the appropriate response. Third, the label market-driven management is less politically charged in that it does not inflate the importance of the marketing function and is therefore more likely to be accepted by the other departments. Fourth, the term focuses on the market and not only on customers and designates other market actors and environmental forces. The term marketing management should be used only to describe the tasks of operational marketing.

30In what follows, we shall analyse in more depth the managerial and organisational implications of this business philosophy both in the global traditional market and in the global electronic market.

2.3. THE INTERNET TECHNOLOGY

31The development of the new technologies of information and communication gives a new impetus to the MO concept by breaking down the traditional barriers of the physical market and allowing the identification of individual consumers and of their demographic and preferences profiles. Thus, the ultimate objective of the MO concept, i.e. to provide customised solutions and services according to individual preferences, becomes a more realistic objective thanks to the development of the Internet technology.

• From e-commerce to e-business

32Despite the early setbacks of electronic commerce in late 1999, expansion of Internet use has proceeded without interruption. Consumer and public confidence in the Internet has been restored, fostering renewed growth and expansion. The Internet is increasingly integrated into the daily routines of households and businesses throughout the world. By all measures, a majority of adults are now online and increasing numbers have access to broadband connections.

  • 33 Papazoglou M.P. and Ribbers P.M.A. (2006), e-Business, The Atrium Southern Gate, Chichester, John W (...)

33Initially, Internet was assimilated to e-commerce and perceived as a narrow selling instrument deployed through a Web site - little more than a banner presenting the company and a catalogue of products from which customers can order directly online. E-business is the application of information and telecommunication technologies to conducting business. Compared to e-commerce, e-business is a more generic term because its refers not only to information exchange related to buying and selling, but also to servicing customers and collaborating with business partners, distributors, and suppliers (Papazoglou and Ribbers, 2006)33.

  • 34 Porter M. (2001), Strategy and the Internet, Harvard Business Review, March, 63-78.

34It has been widely assumed that the Internet is cannibalistic, that it will replace all conventional ways of doing business and overturn all traditional advantages. “It is now clear that it was a vast exaggeration” (Porter, 2001, p. 73)34. In many cases, Internet complements, rather than cannibalises, companies’ traditional activities and ways of competing. Virtual activities do not eliminate the need for physical activities but, on the contrary, often amplify their importance. In addition, Internet creates new opportunities for meeting customers’ needs in a more efficient way.

• Impact of Internet

35The main characteristics of Internet are well known: virtual ubiquity of demand and supply - easy access to quality information by a large public any where, any time - world-wide comparison of offerings and prices - absence of entry barriers - separation between production and selling - equal opportunities for each seller.

  • 35 Porter M. (2001), op.cit.
  • 36 Papazoglou and Ribbers (2006), op.cit., p. 39.

36The explosive growth of Internet has often confused companies, provoking widespread questioning and reassessment of the way markets are likely to be organised and marketing strategy developed in the future. Analysing the impact of the Internet, Porter35, Papazoglou and Ribbers (2006)36 have identified several trends from the perspective of producers and of customers.

  • The Internet tends to weaken the bargaining powers of channels by providing companies with new, more direct avenues to customers.

  • The Internet can augment an industry’s efficiency by expanding the size of the market and by improving its position relative to traditional substitutes.

  • The Internet technology provides consumers with easier access to information about products and suppliers, thus bolstering their bargaining and countervailing power.

  • The Internet mitigates the need for an established sales force or access to existing channels, reducing barriers of entry.

  • By enabling new approaches to meeting needs and performing fonctions, the Internet creates new substitues.

  • Because the Internet is an open system, companies have more difficulty maintaining proprietary offerings, thus intensifying the rivalry among competitors.

  • The use of Internet also tends to expand the geographic market, bringing many more companies into competition with one another.

37Thus, the Internet technology, not only modifies the functioning of the market, but more importantly facilitates the implementation of the MO concept by reinforcing the power of the market players over the firms’ market power. In this context, the objective of value creation for the client becomes more difficult to achieve given the limited potential for differentiation and the absence of protection of new ideas.

38Most firms today have created their own Website, but very few (particularly SMEs) have so far been able to sell to their end-customers through the Web. By contrast, however, many have adopted Electronic Data Interchange (EDI) systems, which hook together computers of commercial partners via telephone lines. Once established, this connection facilitates and accelerates communication within the supply chain for ordering between suppliers, distributors, and customers, for disseminating information and thereby generating substantial cost savings. In addition to selling online and to EDI, other electronic applications include an extranet to reinforce links with traditional commercial partners (wholesalers, importers, retailers), multimedia kiosks at the points of sale to present a catalogue, or a system of personalised electronic messages to maintain continuous relationships.

  • 37 Simon H. (2003), Seven e-commerce Lessons, European Business Forum, 58-63

39The Internet has two unique characteristics: the ability to distribute digital products at close to zero costs to a large number of customers, and the ability to network, i.e. to connect large numbers of people. Many products and services are either totally or largely non-digital: cars, steel, chemicals, food, hair care, and hospitals services. On the other hand, some are almost completely digital: music, data, stock prices, software, schedules, banking, and insurances. There is a composite alternative that is physical but can be made digital. These “‘digitisable” products include newspapers, books, entertainment, films, financial services, images. Simon (2003)37 considers that the highest gains from Internet will be achieved for digital/digitisable products that are sold to many customers through versioning.

Penetration of Internet in Europe

  • 38 Macklin B. and von Abrams K. (2008), The New European Internet Hot Spots, eMarketer, February 19.
  • 39 Eurostat Report (2002), E-Commerce in Europe. Results of the Pilot Surveys carried out in 2001, Eur (...)
  • 40 Jupiter Research, (2005), European Online Retail Forecast 2005 to 2010 (www.jupiterresearch.com).
  • 41 eMarketer (2008), The New European Internet Hot Spots, February 13.

40According to eMarketer (2008)38, more than 50 per cent of Europeans are Internet users in 2008. eMarketer (www.emarketer.com) defines an Internet user as any person who uses the Internet from any location at least once per month. As evidenced in Table 2.1. and 2.2. (see Appendix 2.), Internet penetration varies largely across the continent, the highest penetrations being observed in Nordic countries, UK, and Germany. According to a Eurostat Report (2002/2006)39, early 2005, 23 per cent of European households had a broadband connection; These figures are changing rapidly however and observers, like *upiterResearch (2005)40 and Forester Research (2008)41, consider that a 70 per cent penetration rate will be reached by 2010 in Europe. In the US - 2006, fully 73 per cent of American adults and 87 per cent of American teens are Internet users.

  • 42 Jupiter Research, (2005), op.cit.
  • 43 Rainie L. (2006), How the Internet is Changing Consumer Behavior and Expectations, Speech to SOCAP (...)

41While Western Europeans online users primarily value the non-commercial side of Internet - information search and email - the proportion of users involved in online commerce is less than 50 per cent but is expected to increase steadily over time as shown in Table 2.3. in Appendix 2. A JupiterResearch Consumer Survey (2005)42 has observed that online tenure is a major factor in online purchasing. More than half of all Internet users with tenure of five or more years make purchases online. Online buyers represent more than one-half of all Internet users in long tenured markets such as the UK and the Nordic countries, while online buyers represent only one-third of all Internet users in short tenured markets such as Italy and Spain. Thus, as people gain confidence and experience online, they become more serious in the things they do online (Rainie, 2006)43.

42The share of European online retail spending remains very small, ranging in 2007 from three to four per cent of total retail sales and is expected to reach seven percent in 2010. This share of the online channel varies widely however between countries and between product categories like apparel, books, consumer electronics, DVD and videos, travel, leisure, etc.

• The information role of Internet

  • 44 Rainie L. (2006), op.cit., p. 12.

43As already underlined above, a minority of firms have been able to sell to their end-customers through the Web. The major role played by Internet is information providing. In a survey conducted by Pew (www.pewInternet.org) quoted by Rainie (2006, p. 12)44, to the question, “gwhat role did the Internet play in the event like buying a car, making a major investment, getting additional career training, choosing a school for self or child or helping someone with a major illness or health condition....” The replies were:

Source: Pew Internet & American Life Project, March 2005 Survey.

  • 45 Interactive Advertising Bureau (2008), 15 Barometers, February 19.

44Thus, Internet facilitates word-of-mouth communication which has always been among the top and most reliable information sources. As observed in the 15 Barometers published by the Interactive Advertising Bureau (IAB, 2008)45, not surprisingly, the information most expected online are product prices, practical information, contact information and vendor location. In the IAB travel barometer, Websites are the number 1 information source followed by word-of-mouth and travel agencies.

45In short, Internet has changed consumer behaviour in the following ways.

  • Potential customers are more connected, informed and discerning.

  • They prefer to use the Internet and user-generated media to research products.

  • They tend to ignore the advice of the sales staff and push marketing efforts.

  • Web sites are mainly used to search information before and after the purchase.

  • Traffic to Websites is mainly conducted through search engines.

    • 46 Rainie L., (2006), op.cit.

    Communication devices are no longer place-bound: 45 per cent of Internet users go online from some place other than work or home (Rainie, 2006, p. 3)46.

  • As people gain experience online, they become more sophisticated in the things they do online.

  • The rise of interactive Web-2.0 technologies has enabled people to tell their own stories that have the capacity to reach considerable audiences.

  • 47 Bughin J., Erbenich C. and Shenkam A. (2007), How Companies are Marketing Online: A McKinsey Global (...)

46Surveys conducted all over the world agree: getting information is the most highly valued and most popular type of everyday activity done online. For confirmation see the McKinsey Global Survey (2007)47 on how companies are marketing online (www.mckinseyquartely.com).

• Differential advantages of Internet technology

47The Internet technology has a major impact on the way in which markets function. Several trends are emerging that distinguish electronic markets from traditional physical markets.

  • Personalisation and customisation. Consumer tracking technology allows the identification of individual buyers and of their demographic and preference profiles. Increasing sales effectiveness comes from being able to design the appropriate products to address the needs of individual consumers and from being able to identify the moment when a customer’s purchasing decision is likely to occur.

  • Product bundling. The seller must decide which components or features will be included to the “solution” proposed to the customer and whether they will be marketed and priced individually or as a package. The costs of bundling (production, distribution, binding and menu pricing costs) impose fewer constraints in electronic than in traditional markets. New types of intermediaries arise who create value by bundling products and services that used to be offered by separate industry.

  • Information goods. The Internet allows the almost costless creation and distribution of perfect copies of digital information goods, such as books, articles, digital images, software and music. This creates new opportunities for meeting indirect demand by versioning, repackaging content, by bundling, site licensing, subscriptions, rentals, differential pricing, per use fee, etc.

  • Search. Electronic markets lower the costs consumers face for obtaining information about prices and product features as well as the costs sellers face for advertising such information. E-Markets also enable buyers to identify and purchase a better solution to their problem and stimulate the emergence of new markets.

  • Price discrimination. Charging of different prices to end consumers is facilitated by the Internet technology as data generated by CRM help measuring customers’ willingness to pay and price sensitivity. As discussed below (see section 4.3. below), the implementation of this pricing strategy is difficult.

  • Facilitation. Electronic markets improve information between consumers and sellers which helps lowering logistic costs and promote quickjust-in-time delivery which in turn leads to lower inventories.

48Sellers in the electronic market, increasingly contract with third party providers for direct delivery from the manufacturers to the final consumer, reducing cost and time delivery. Delivery providers such as FedEx and DHL emerge as major Internet intermediaries because of their logistics expertise and their economies of scale in distribution. The growing accessibility of information technologies puts at everybody’s reach the tools required to develop networks, to cooperate with competitors and to co-create value with customers.

2.4. ACTORS IN THE GLOBAL MARKET

  • 48 Jingzhi Guo and Chengzheng Sun (2004), Global Electronic Markets and Global Traditional Markets, El (...)

49In a market economy, an ecosystem is a complex grouping of market actors, companies and customers, suppliers, competitors, distributors, influencers and partners that gain mutual benefit from one another. In physical markets, we identify five market actors: suppliers, direct and end-customers, distributors, competitors, influencers and other market stakeholders. As suggested by Guo and Sun (2004)48, with the development of the Internet technology, markets are shifting towards two specialised yet collaborative global markets: Global Electronic Markets (GEM) and Global Traditional Markets (GTM). The GEM globally produces and distribues digital products and services, while GTM collaborates with GEM to consume or continue the physical part of production and distribution. The firms in traditional markets extend their demand and supply to GEM, while firms of electronic markets create new demand and supply of both GTM and GEM. New market actors coming from GEM are playing an increasingly important role. In what follows, we shall describe the role and motivation of the key actors in the global market as presented in Figure 2.

• Direct and end-customers

50Customer satisfaction is at the core of the MO concept. It implies the commitment to understand customer needs, to create value for the customer and to anticipate new customers’ problems. Customers may be close to or remote from the firm depending on the type of organisation: B2C or B2B markets. The B2B firms generally operate within an industrial chain and are confronted with several customers: its direct customer and the customers of its customer, the end-customer being situated at the end of the chain. Being customer-oriented involves taking actions based on market intelligence, not only on direct customers, but on end-customers as well. Increasingly B2C and B2B customers have access to the GEM and are ordering across country borders. They expect broader selections, cheaper prices, and customised services.

Figure 2. The key market actors in the global market

Figure 2. The key market actors in the global market

Source / Adaptedfrom Lambin et al., (2007)

• Partners and indirect demand.

51Direct and end-customers belong to the traditional or core market of the firm and express a “direct demand” for the goods or services and the firm knows who these customers are and how to satisfy them. In many sectors however, there are additional customers groups representing a potential demand often ignored because firms are not able to reach these customers directly. This “indirect demand” exists because the value of certain products is realised when they are used with other products. At first sight, for instance, there is no reason why Nestlé a manufacturer of chocolate confections should have any dealing with Baxter international; a medical device conglomerate and Distribution Company. In fact the two companies have formed an alliance for jointly offering liquid nutritional supplements to be used intravenously with hospital patients who therefore are indirect customers of Nestlé.

  • 49 Manning B. and Thorne C. (2003), Demand Driven, New York, McGraw-Hill.

52To become fully demand-driven by satisfying indirect demand as well, many companies have adopted a “solution-selling” approach (see section 4.2. below). For the company aiming at becoming a solution provider, it is unlikely that it will have the resources to supply all the required solutions components (e.g. products, service, financing). Therefore the challenge is to find the right partners to take advantage of indirect demand. To target direct demand, wholesalers and retailers are the traditional business partners. For targeting indirect demand, many more fonctions than simply location and assortaient must be provided. The types of partners found in various customer ecosystems are aggregators, integrators, syndicators, educators, and underwriters (Manning and Thorne, 2003)49. In B2B markets, for example, catalogue aggregators are important indirect customers based in e-market places.

• Distributors and resellers in GTM

53The struggle for the control of the end-market has always been a major issue both for manufacturers and distributors. In the food sector, for many years, manufacturers have succeeded in restricting the role of distributors to the physical tasks of distribution. Their relationship was more that of partners having common interests, even if conflicting interests were inevitably also present.

54The retailer looks for maximum return on space and contribution to overall retailer image. The supplier seeks maximum shelf space, trial for new (unproved) products and preference over competitors. It is easy to see where the potential for conflicts lie.

55The shift of power from suppliers to mass retailers in the FMCG sector requires the adoption of a much more proactive strategy vis-à-vis distributors. Today, as underlined above, key changes in the environment include increasing retailer concentration, the growth of internationally based retail buying groups and the growing use of information technology by European food retailers. While suppliers would like to see retailers as partners, it is clear that retailers tend to see their relationships with manufacturers more in terms of competition than co-operation.

56The level of competition or co-operation is influenced by the market structure that determines the power of prospective partners in a market. With the exception of the situation where both levels of concentration are weak, manufacturers have to explicitly define appropriate relationship marketing strategy vis-à-vis distributors. As developed in section 4.2. below, the Internet technology is changing the balance of power between producers and distributors, thereby creating new market opportunities.

• Direct and substitute competitors

  • 50 Trout J. (1985), Forget Satisfying the Consumer - Just Outfox the Competition, Business Week, 7, Oc (...)

57The traditional marketing concept focuses solely on customers needs and ignores the effects of competition thereby providing an incomplete view of a market. Competitors, be they direct and/or substitute competitors, are key market participants and the attitude to be adopted towards competition is central in any strategy formulation, since it will serve as the basis for defining competitive advantage. As noted by Trout (1985)50, “...knowing what the customer wants isn’t too helpful if a dozen other companies are already serving the customers wants.”

58The objective is to set out a strategy based on a realistic assessment of the forces at work and to determine the most appropriate means of achieving defined objectives. Competitors’ orientation includes all the activities involved in acquiring and disseminating information about competitors in the target market.

59The firm’s autonomy is influenced by two kinds of factors: the sector’s competitive structure and the importance of the product’s perceived value for customers. With the exception of the situation of perfect competition, an explicit account of competitors’ position and behaviour is required in the most frequently observed common market situations.

60In saturated or stagnant markets, the aggressiveness of the competitive struggle tends to increase and a key objective is to counter rivals’ actions. In this competitive climate, the destruction of the adversary often becomes the primary preoccupation. The risk of a strategy based only on warfare marketing however, is that too much energy is devoted to driving rivals away at the risk of losing sight of the objective of satisfying customers’ needs. A proper balance between customers’ and competitors’ orientations is therefore essential and a market orientation, as described in this chapter, tends to facilitate the implementation of this objective (see Section 3.3. below).

• Influencers

61In many markets, in addition to the traditional market actors - customers, distributors, and competitors - other individuals or organisations can play important roles in advising, recommending or prescribing brands, companies, products or services to customers or to distributors. The most obvious example is the pharmaceutical market where doctors exert a key influence on the success of a drug and are viewed by pharmaceutical companies as the most important market player or intermediate customer, even if they are not actually users, buyers, or payers. A similar role is assumed in the home building market by architects, who are important influencers for many construction pieces of equipment, like window frames, glass, heating systems, and so on. Independent designers in the furniture market or in the ‘haute couture’ or fashion markets are also playing an important role as influencers (see Section 4.4. below). The development of Consumer Generated Media on the Web has contributed to increasing the role of opinion leaders.

• E-tailers and E-market places

62The market forces of a GEM come from the demand and supply of global services generated by global market participants in both traditional and electronic markets. A GEM can be defined as a virtual online market, i.e. a network of company interactions and relationships, where consumers, suppliers, distributors, and sellers find and exchange information, conduct trade, and collaborate with each other via an aggregation of content from multiple suppliers.

63In GEM, electronic retailers, or E-tailers, use the Internet as their communication means of retailing. Pure play e-tailers use Internet exclusively, while brick and click e-tailers use the Internet to promote their goods or services and also have the traditional physical store accessible to consumers. Pure play e-tailers, like Amazon.com and Dell Computers, are generating higher profit margins by eliminating the expenses associated with a physical retail space (rent, labour, inventory, etc.). Moreover, they can reach customers worldwide 24 hours a day, 7 days a week. For customers, and for goods like books, DVD, electronic equipment, e-tailing can be a fast and convenient way to shop. But problems can sometimes occur for securing payments, goods delivery, and exposure of privacy (see section 4.3. below).

64In B2B markets, a growing number of firms are experimenting with buying and selling goods through e-marketplaces, which become increasingly important for the organisation of procurement and sales activities. An e-marketplace may be defined as an inter-organisational information system, which allows the participating buyers and suppliers to exchange information about prices and product offerings, thereby eliminating inefficiencies of traditional supply chain.

65E-entrepreneurs have launched marketplaces, like www.netbuy.com with a virtual inventory four times larger than the biggest distributor in the electronic components market. As a result, product searches that took a week of catalogue sifting and phone calls now take seconds. Companies such as Paper-Exchange (www.paperexchange.com), Chemdex, (www.chemdex. com), PlasticsNet (www.plasticsnet.com), Alibaba (www.alibaba.com) for international trade among many others, are doing the same thing. These agents are called catalogue aggregators. Their challenge is to gather the information from hundreds of catalogues of product offerings into a database for presentation on a single Web site easily accessible. These catalogues must be constantly maintained as products availability and prices change.

  • 51 Rask M. and Kragh H (2004), Motives for E-marketplaces Participation: Differences and Similarities (...)

66As observed by Rask and Kragh (2004)51, the main motivational factor for buyers to participate in e-marketplaces is efficiency, i.e. obtaining price, process time, and cost reductions through paperless transactions. For sellers, following existing buyers and suppliers and fear of falling behind technological development are the main motives.

  • 52 The Boston Consulting Group (2003), Electronic Marketplaces: Strategies for Sellers (www.bcg.com/pu (...)

67Online market places provide an efficient platform connecting buyers and sellers from around the world. By making easier to compare products attributes and prices, E-market places put a downward pressure on prices. In a survey conducted by The Boston Consulting Group52 (www.bcg.com/publications), 24 per cent of sellers using e-marketplaces said they have felt price pressure as existing customers move online, and 79 per cent said they expected to feel it in the near future. Thus, with the development of e-marketplaces, sellers must prepare to compete more aggressively on prices.

• Online market facilitators

68Market facilitators are a special group of service providers in both GTM and GEM. They are motivated to provide infrastructure of markets and secure the operations of markets. In GTM, banks, warehouse, shipping companies, Customs and taxation offices are market facilitators. In GEM, providers of Internet services, online financial services, logistics, security and legal services are the new market facilitators. Where disintermediation takes place, the absence of physical contact between the seller and the buyer creates a new need among consumers, the need for assistance in collecting and processing information. In traditional markets, and in particular in B2C markets, the seller has more information than the buyer: information on costs, levels of quality, product availability, and prices of competing or substitute products. Different levels of middlemen (wholesalers, retailers, agents,) were there to disseminate this information along the distribution chain. The elimination of these filters transfer the responsibility of the search and of the selection costs directly to the consumer who is confronted with a problem of information overload.

• Towards an integrated dual-trading-arena

  • 53 Jingzhi Guo and Chengzheng Sun, (2004), op.cit.

69The development of Internet technologies in the global economy is shaping a dual-trading arena with two types of market: Global Traditional Markets (GTMs) and Global Electronic Markets (GEMs)53. The motives and expected benefits for participating in this dual-trading arena are different for each participant.

  • Consumers expect broader selections, lower prices, higher quality and more personalised services. They have the ability to easily compare prices between multiple vendors and to search larger catalogues. They can interact with people thousands of miles away.

  • Retailers have an unprecedented opportunity to increase their trading area, using the services of e-market facilitators. Pure e-tailers can reduce overhead costs and transaction costs, both order-taking and customer service costs, by automating processes.

    • 54 Shapiro C., Varian H.R. (1998), Versioning: the Smart Way to Sell Information, Harvard Business Rev (...)

    Digital producers supply GEM with digital products such as software, MP songs and digital books. To their customers, they propose “versioning” (Shapiro and Varian, 1988)54, i.e. the strategy of offering information goods in different versions, at zero or very low cost for them, to appeal to different types of customers.

  • Physical producers, the traditional producers of physical products and onsite services, can enlarge their market size and decrease production costs by using the services provided by e-market facilitators.

  • In markets driven by electronic commerce, a new breed of intermediaries - the “infomediaries” - is emerging and assumes the management of information on behalf of the customer. The success factor for an infomediary is customer trust. This new type of middleman can solve four problems for the consumer: (a) to reduce the costs of collecting information, (b) to provide relevant and unbiased information, (c) to certify the reliability and quality of the suppliers, and (d) to facilitate transactions.

70By contrast with traditional intermediaries who typically relay the manufacturer’s message and share its profit margin, these new networks of middlemen reverse the communication flow through systematic use of tenders. The GEMs typically offer a wide variety of ancillary services required by members of the trading community. They perform three particular fonctions:

  • They act as an exchange for business transactions - not only for purchasing but also for checking prices and stock availability, invoicing and order chasing.

  • They manage catalogue content, converting product information into a common format understood by all parties.

  • They provide additional services to support the trading process, from shipping, payment, and tax to online auction, tendering and vetting a company financial status.

  • 55 Jingzhi Guo and Chengzheng Sun, (2004), op.cit.

71In the Internet age, the global market can be viewed as dual-trading arena (see Figure 3) where all market participants can take advantage over GTM and GEM. Collaboration in and between GTM and GEM would reduce costs of production, distribution and procurement (Jingzhi Guo and ChengzhengSun2004)55.

Figure 3. The global market: A dual-trading arena

Figure 3. The global market: A dual-trading arena

Source: Guo and Sun (2004)

• Other market stakeholders

  • 56 Mitchell R.K., Agle R.R. and Wood D.J. (1997), Toward a Theory of Stakeholder Identification and Sa (...)

72In a social market economy, many other actors can have a powerful influence in the market. Who are these other stakeholders? A popular definition is that “stakeholders” are any group or individual who can affect or are affected by the firm’s objectives. Thus in addition to the above key market players, other stakeholders could be employees, unions, non-governmental organisations (NGOs), local community, consumerists, investors, and, last but not least, the environment. The stakeholder approach asserts that the firm is responsible to and should be run for the benefit of number of constituencies, i.e. its stakeholders. The stakeholder approach does not specify however which stakeholder group has priority over another (Mitchell, Agle, and Wood 1997)56. At the heart of the stakeholders model - a somewhat slippery concept - is the principle that all persons must be respected and that the firm exists to equally satisfy all stakeholders, a complex objective. Multiple stakeholders only compound the complexities (see Section 3.5. below).

2.5. IMPLEMENTING STRATEGIC MARKETING

73Stratégie marketing is an analysis-oriented process. The objectives typically include: a systematie and eontinuous analysis of the needs and requirements of key customer groups and the design and production of a product or service package that will enable the company to serve selected groups or segments more effectively than its competition. In achieving these objectives, a firm is ensured a sustainable competitive advantage.

• Response versus pro-active stratégie marketing

74Innovation is at the core of strategic marketing. New product ideas can have two very distinct origins: the market or the firm. Thus, in strategic marketing, a distinction must be made between two distinct but complementary approaches: response strategic marketing and pro-active strategic marketing (see Figure 4).

Figure 4. Innovation and strategic marketing

Figure 4. Innovation and strategic marketing

Source: Lambin et al. (2007)

  1. In response strategic marketing, the objective is to meet expressed needs or wants and to fulfill them. The goal of operational marketing is to develop an existing demand or potential market. Innovations are market-pull. The key question is: Is it feasible?

  2. In proactive strategic marketing, the objective is to identify latent or unarticulated needs or to find new ways to fill existing needs or wants. The objective is to create new markets through technology and/or organisational creativity. Innovations are technology-push. The key question is: Is there a need?

75In this latter case, the role of strategic marketing is more complex. The question is: “Is there a need and a potentially profitable market segment =” Strategic marketing will have then to assess the size of the target segment and the success factors of the innovation. The role of operational marketing may be also more complex and challenging because its role is to create the market for a product or service which is not explicitly demanded or expected by the market and which may require from potential customers a change in their consuming or using habits.

  • 57 Hayes R. and Abernathy W. (1980), Managing Our Way to Economic Decline, Harvard Business Review, 58 (...)
  • 58 Bennett R. and Cooper R. (1981), The Misuse of the marketing Concept: An American Tragedy, Business(...)

76Some marketing scholars (Hayes and Abernathy 198057, Bennett and Cooper, 198158) have argued that the MO concept hurts rather than helps the competitive performance of firms because of its over reliance on market pull innovations (i.e. response strategic marketing). Many companies, indeed, gain competitive advantage by being primarily technology-driven and not customer-driven. Imagine - say these scholars - consumers trying to tell a market researcher about their need for a mobile phone or a digital camera before those products were introduced.

77This criticism is based on an incomplete view of the MO concept by ignoring the proactive approach of strategic marketing. Scientists and engineers, rather than consumers, may well be the source of new product ideas in technology-driven companies, but the products that arise from those ideas must satisfy customers needs, even if latent or unarticulated, or they will end up serving no market at all. Thus, technology-driven companies must ultimately apply the MO concept if they are to be successful. There are enough examples, in industrial history, of technological monsters developed in ivory towers by engineers that have never found a market.

78In affluent economies, where most needs and wants are well met and where the majority of existing markets are stagnant, Proactive strategic marketing has an important role to play to create new market opportunities in the future. The Internet technology provides these new opportunities.

79In short, the objective of strategic marketing is not only (a) to listen to customers and then to respond to their articulated needs, but also (b) to lead customers where they want to go, even if they do not know it yet. This underlines the importance of the distinction between expressed (or articulated) and latent (or unarticulated) needs. What a customer wants is an appropriate solution to his or her problem. Merely satisfying expressed needs may be insufficient for a firm to attract or to retain customers.

• Steps in implementing strategic marketing

80The role of strategic marketing is (a) to lead the firm towards existing opportunities or (b) to create attractive opportunities, that is, opportunities which are adapted to its resources and know-how and which offer a potential for growth and profitability. The process of strategic marketing has a medium- to long-term horizon; its task is to specify the firm’s mission, define objectives, elaborate a development strategy and ensure a balanced structure of the product portfolio. This process can be implemented in seven steps.

Step 1: Reference market definition

  • 59 Levitt Th. (1960), Marketing Myopia, Harvard Business Review, 38, July August, 2 447.
  • 60 Abell D. (1980), op.cit.

81As put by Levitt (1960)59 and Abell (1980)60, the first question to address in a strategic thinking exercise is: “What business are we in? The objective is to define the reference market in terms of generic needs in order to anchor the firm’s business on stable ground and in a market-oriented perspective. The business definition is the starting point for strategy development. It helps identify the customers to be served, the competitors to surpass, the key success factors to master and the alternative technologies available for producing the service or the function sought by customers. The reference market definition does not imply that the firm should pursue all the options identified, but is helpful to delineate the battle field and to identify the opportunities and threats susceptible to come from substitute and/or complementary activities. Ideally, the business definition should be stated in terms narrow enough to provide practical guidance, yet broad enough to stimulate imaginative thinking, such as openings for product line extensions or for diversification into adjacent product areas.

Step 2: What is the diversity of needs in the reference market?

  • 61 Lambin J.J. et al. (2007), op.cit., see chapter 6.

82In the majority of reference markets, there is a large diversity of needs and it is impossible to satisfy all customers with a single product or service. The “one size fits all” concept is obsolete in most advanced economies. Different consumers have varying desires and interests. This variety stems from basic variations of customers’ expectations and benefits they seek from products. Increasingly, companies have found it essential to move away from mass marketing towards target marketing strategy, where the focus is on one (or several) well identified group(s) of customers. The objective is to subdivide the market in more homogeneous sub-groups in order to adapt the firm’s offering on the basis of a better understanding of their needs. Knowing how to creatively segment the market is one of the most important strategic skills a firm should have. Segmentation is generally done in two steps: macro and micro segmentation (Lambin et al., 2007)61. Different methods of micro-segmentation exist: socio-demographic, benefit, behavioral, and life style. The expected output is a segmentation grid describing the profile of the three or five (maximum) most important segments in qualitative (needs, buying habits, sensitivities to marketing variables, strength of competition,...) and quantitative terms (size, growth, profitability,...).

Step 3: How attractive is the business opportunity of the identified segments?

83Before deciding which segment(s) to target, the firm has to evaluate the intrinsic attractiveness of each segment, i.e. its current size, absolute market potential, growth rate, accessibility, logistic support, competition intensity, etc. All those indicators are objective and out of the control of the firm. They describe the economic and competitive environment of each segment within which each competing firm operates. These market indicators can be evaluated through standard market research. Attractiveness indicators, and in particular the sales potential estimates and projections, will be used by general management to calibrate future investments and production capacity, should the firm decide to target one of these segments.

Step 4: Do we have a sustainable value proposition to propose to each segment?

84A market segment can be very attractive in it-self, but not for a particular firm, given the skills and resources required to be a successful player. A firm should concentrate on those areas where its creative abilities lie. The objective here is to identify the kind of competitive advantage that the firm can enjoy in each segment and to assess its sustainability. Competitive advantage refers to those characteristics or attributes of a product or a brand that give the firm some superiority over its direct competitors while generating value to customers. A company can outperform rivals only if it can establish a difference that it can preserve. A strategic competitive advantage is more sustainable in the long term than an operational competitive advantage (see Section 3.3. below).

Step 5: Which segment (s) to target by priority?

85Having completed the market segmentation and the “attractiveness/competitiveness” analyses of the different product markets and segments, the next task is to decide what type of market coverage to adopt. Several market coverage strategies can be considered. In a focused strategy, market boundaries are defined narrowly. In a full market coverage, two options are open: (a) a “mass marketing” strategy, where the firm focuses on what is common in the needs of customers rather than on what is different; (b) a “mass customization” strategy, where the firm approaches the market with a tailor-made programme for each segment. In a mixed strategy, the firm is diversifying its activities to ensure that its portfolio of activities is well balanced in terms of profit and growth potentials and well diversified in terms of risks.

Step 6: How do we want to compete in the target segment(s)?

86Once the market coverage decisions are made, the next step is to decide on the positioning strategy to adopt within each targeted segment(s). Selection of the positioning strategy provides the unifying concept for the development of the marketing mix programme. This is one of the most critical steps in the implementation of strategic marketing, because the firm has to decide how to best differentiate its brand from competing brands. Positioning, is defined as the decision made by the firm to choose the benefit(s) that the brand has to put forward to gain a distinctive place in the market. In a price sensitive market, product positioning generally requires a lower price, because other sources of differentiation are not valued by target customers. For markets in which differentiation is possible and valued by target customers, three types of differentiation strategies are possible: product differentiation, price differentiation and image differentiation. The objective of the company will be then to communicate clearly the chosen positioning to potential customers so that it is clearly recorded in their minds.

Step 7: How to get a well balanced product portfolio?

87The purpose of a product portfolio analysis is to help a multi-business firm decide how to allocate scarce resources among the target segments it competes in, called the Strategic Business Units (SBU). Product portfolio analysis relates attractiveness and competitiveness indicators to help guide strategic thinking by suggesting specific marketing strategies to achieve a balanced mix of SBUs that will ensure growth and profit performance in the long run, given their differentiated positions along the attractiveness-competitiveness dimensions.

88Portfolio analysis is obviously not a panacea, but it has the merit of emphasising some important aspects of management.

  • It moderates excessively short-term vision by insisting on keeping a balance between immediately profitable activities and those that prepare the future.

  • It encourages the firm to keep both market attractiveness and competitive potential in mind.

  • It establishes priorities in allocation of human as well as financial resources.

  • It suggests differentiated development strategies per type of activity on a more data-oriented basis.

  • It creates a common language throughout the organisation and fixes clear objectives to reinforce motivation and facilitate control.

89The output of these seven steps of the strategic marketing process constitutes the backbone of the operational marketing plan. Once the answers to these questions are obtained, the task remains to define the positioning options to be taken, to define the means required to achieve the stated objectives and, last but not least, to prepare a projected profit and loss statements for each activity and for the company as a whole.

2.6. TRANSACTIONAL VERSUS RELATIONSHIP OPERATIONAL MARKETING

  • 62 Payne A. and Frow P. (2006), Customer relationship Management: from Strategy to Implementation, Jou (...)

90Two approaches can be adopted in operational marketing: transactional or relationship selling. In transactional selling, when a purchase is made by the customer, the sale is closed as well as the relationship with the seller, except in the case of product defect. This is the most common situation observed in the field of consumer goods and in particular the FMCG sector. By contrast, in relationship selling, the objective is “... to efficiently and effectively increase the acquisition and retention of profitable customers by selectively initiating, building and maintaining appropriate relationships with them (Payne and Frow, 2006)62. The objective of relationship market management (and not relationship marketing) is to develop long-term and mutually profitable relationships, not only with valued customers, but with multiple stakeholders, while the focus of customer relationship management (CRM) should be primarily on the customer.

• Opposition between transactional and relationship selling

91Selling techniques are undoubtedly efficient to close a sale and are often associated with various aggressive selling methods: hard sell or manipulative marketing. These techniques were popular in the 1960s in operational marketing when the sales orientation was predominant. They have been challenged over the past years, under the influence of the changes in customer behaviour and in the competitive environment. The differences between transactional and relationship selling are many.

  • Transactional selling focuses on a discrete, individual sale. The relationships end once the sale is consummated.

  • Relationship selling is oriented towards a strong and lasting relationship. Maintaining and cultivating the customer base is the key objective, in order to create a mutually profitable relationship.

  • Relationship selling presupposes the opportunity for shared benefits, while transaction marketing works on a model of contradictory needs: the customer wants a good price; the seller wants a high profit.

92Relationship selling differs from transactional selling in other respects as well. While the latter focuses almost solely on price, the former shifts the emphasis to non-economic benefits, such as services, delivery time, and the certainty of continued supply. Traditional selling techniques had to evolve towards relationship selling for three reasons.

  1. In traditional selling, it is rarely understood that selling is above all an act of communication, a mutual discovery of questions and answers and not a unilateral act of manipulation.

  2. If traditional selling techniques seem less efficient today and often come up against resistance and scepticism from well-informed prospects - partially due to the information role of Internet and of consumerism -this is because the decision to buy depends more upon complex mechanisms of social influence and less upon elementary psychological mechanisms.

  3. Third, traditional selling techniques do not consider the fact that the practice of relationship selling, that is helping a customer find the solution to a problem, has become the core principle of a market-oriented strategy, where selling is customer problem solving, not merely selling available products.

  • 63 Grönroos C. (1991), op.cit.

93As already underlined above, the distinction between “transaction” and “relationship” marketing made by Grônroos63 is challenged by some marketing scholars. As soon as we have exchange, there is a relationship. The terminology of “limited” (or “spot”) versus “extensive” relationship would be more appropriate.

• Customer Relationship Management, a new paradigm 2

  • 64 Reichfeld F.F. (1996), L’effet loyauté, Paris, Dunod.
  • 65 Pepper D. and Rogers M. (1993), The one-to-one Future, New York, Doubleday/Currency.

94As many markets reached maturity in highly industrialised economies, it became increasingly obvious that keeping existing customers happy was less costly than recruiting new customers, a difficult and risky strategy implying increased price competition (Reichfeld, 1996)64. Progressively, in affluent economies, the objective of “customer retention” over “customer attraction” has gained acceptance, in particular in non-expansible markets. What sets present day CRM apart is that organisations now have an increased potential to utilise the Internet technology and manage one-to-one relationships (Pepper and Rogers, 1993)65 with potentially huge number of customers in a context of the global market.

95This new paradigm implies that the objective becomes more to maximise customers share than market share. In practice, it means that once a customer is gained, to try to cover the largest share of his/her purchases within the product category. Instead of trying to close a transaction, it is preferable to build a long lasting and mutually profitable relationship with the customer.

96This new selling orientation has several impacts in market driven management.

  • It creates a new culture where the relationship is more important than the transaction itself. Success is measured by reference to the number of lasting relationships generated.

  • It creates a change in the analysis tools used. Personal data banks are required. All the information concerning the customer is recorded and everybody within the firm has a free access to the bank.

  • It creates a change in the selling and communication instruments used. The tools of online communication, direct marketing, mailing, call centres and so on, are the more popular instruments.

  • 66 Donaldson B. (1998), Sales Management: Theory and Practice, London Macmillan, 2nd Edition.

97The practice of relationship or counselling selling - as opposed to the “impose-convince-suggest-please” system - is characterised by the importance given (a) to true and non-manipulative exploration of the customer’s motivations and motives and (b) to the search for a long-lasting mutually satisfactory relationship between buyers and sellers. Relationship selling has shifted attention from “closing” a singular sale to creating the necessary conditions for a long-term relationship between the firm and its customers that in the long run breeds successful sales encounters. As stated by Donaldson (1998, p. 79)66

...relationship selling is customer-oriented, as opposed to traditional selling which is product-oriented. Relationship selling is customer problem-solving, not merely selling available products.

98In market-oriented firms, there is a tendency to change the vocabulary from sales force to “sales counselors”, “professional representatives” or “sales consultants”.

  • 67 Slymotsky A. and Shapiro B.P.(1993), Leveraging to Beat the Odds: The New Marketing Mind Set, Harva (...)

99In a company having chosen to develop a market-oriented strategy, the profit centre is the customer and not the product or the brand. Attracting new customers is viewed as an intermediate objective; maintaining the existing customer base is a major objective for a long-term, mutually profitable relationship. In this context, the monitoring of the customer’s portfolio composition and of the quality of the market share is of primary importance. Read Slymotsky and Shapiro (1993)67 on this subject.

• Role of cross functional coordination

100Customer relationship management (CRM) is a managerial tool which requires a deep reorganisation of the firm’s management, not only within the marketing department, but also within the other fonctions. As suggested by the cultural dimension of the MO concept, successful application of CRM demands that members of different fonctions such as operational marketing, information technology, logistic and human resources management work together. In many organisations there are interfunctional tensions that inhibit a positive customer oriented organisational culture that prevent effective cross functional collaboration. Establishing cross functional teams, also called Venture Marketing Organisation (VMO), which are drawn from across departments will facilitate the implementation of CRM (see Section 2.7. below).

• Pitfalls of relationship selling

  • 68 Schnaars S.P. (1998), Marketing Strategy, New York, The Free Press.

101As indicated by Schnaars (1998)68, sometimes relationships between buyers and sellers are forced, in particular when the sellers engineer switching costs into their transactions that tie the customer in a way that denies the client a real choice and makes him a captive customer. Firms that rely on proprietary technologies and patented parts are also forcing lasting relationships. Long-term contracts do the same. There are other limitations to relationship marketing:

  • The firm that builds a relationship usually charges a premium price and is therefore vulnerable to price competition from low price sellers.

  • Some customers may refuse to become dependent on a single supplier, a very sensitive issue inB2B markets.

  • Customers may place their easy-to-fill orders to lower-price competitors and leave the more difficult or less profitable orders to the high service firm.

  • In other cases, there may be simply no mutual benefit for buyer and seller.

102Relationship selling is particularly useful in B2B marketing where this supplier-customer link is especially close, lasting and important for both parties. This is also the philosophy underlying trade marketing, in the relationship binding manufacturers and distributors. In general, relationship selling is the irreplaceable complement to a strategy based on the solution-to-a-problem approach as described below (see Section 4.1. below).

2.7. CHARACTERISTICS OF A MARKET DRIVEN ORGANISATION

103The developments in the macro-marketing environment and the wide adoption of a MO at all levels of the firm have had several implications for the marketing function.

  • 69 George M., Freeling A. and Court D. (1994), op.cit.
  • 70 Webster F.E. Malter A.L. and Ganesan L.S. (2005), op.cit.

104First, the brand management system so successfully adopted by many companies during the past forty years seems, today, unable to face the complex challenges of the new environment. As put by George, Freeling, and Court (1994)69 and Webster, Malter, and Ganesan (2005)70, brand managers today are:

  • too junior, too inexperienced and too narrowly centred on operational marketing,

  • too removed from the source of value added (which is not just advertising),

  • too overwhelmed with day-to-day tasks (like developing trade promotions),

  • too focused on implementing quick fix solutions that will get them promoted in 18 months.

105They are not the “mini general managers” they were supposed to be and are not able to provide the cross-functional leadership required in complex markets.

  • 71 Day G.S., (1999), op.cit.

106Second, as the market orientation concept becomes more and more accepted and increasingly implemented across all fonctions within the firm - in particular as a result of the adoption of the solution-to-a-problem strategy - the specific rôle of marketing as a separate fonction is coming under questioning and has to be reassessed. As suggested by Day (1999)71. the main characteristics of a market-driven company can be summarised as follows.

  1. An externally oriented culture with dominant beliefs, values and behaviours emphasising superior customer value and the continual quest for new sources of advantages.

  2. Distinctive capabilities in market sensing, market relating and anticipatory strategic thinking. This means market-driven firms are better educated about their markets and better able to form close relationships with valued customers.

  3. A configuration that enables the entire organisation continually to anticipate and respond to customer requirements and market conditions.

107Supporting these three elements is a shared knowledge base in which the organisation collects and disseminates its market insights. This knowledge builds relationships with customers, forms the company strategy and increases the focus of employees on the needs of the market.

Figure 5. Typical organisation of a market-oriented company

Figure 5. Typical organisation of a market-oriented company

Source / Lambin, et al., (2007)

108The challenge for a market-driven organisation is to devise a structure that combines the depth of knowledge found in a vertical hierarchy with responsiveness of horizontal process teams as illustrated in the matrix organisation form presented in Figure 5.

• Towards cross- functional forms of organisations

  • 72 Sy Th. and D’Annunzio L.S. (2000), Challenges and Strategies of Matrix Organisations, Human Resourc (...)

109The matrix form is a grid-like organisational structure that allows a company to address multiple business dimensions using multiple command structure (Sy and D’Annunzio, 2000)72. As illustrated in Figure 5, basic matrix structures have two dimensions: a functional responsibility and a specific project, such as a new product launching, category management or customer relationship management assumed by a cross-functional team, also called Venture Marketing Organisation (VMO). The matrix allows companies to leverage resources while staying small and task-oriented and to focus employees on market orientation. This matrix structure also facilitates the dissemination of the market culture throughout the entire organisation and encourages innovation and fast action.

  • 73 Aufreiter N.A., Lawver T.L. and Lum C.D. (2000), A New Way to Market, McKinsey Quarterly, Number 2

110This cross-functional team approach extends the idea of venture teams as a way of responding to high priority opportunities faster than conventional organisational approaches allow. The VMO adopts the principles of venture capitalism. They have a number of defining characteristics (Aufreiter, Lawver, and Lum 200073).

  • Fluidity to keep pace with the market, the VMO continually reconfigures, with little formal structure or fixed membership in opportunity teams.

  • People have allocated roles, notjobs: the issue is managing talent within the organisation.

  • Fast decision-making is made from the top. Opportunity identification is everyone’sjob.

  • Resources are focused on the highest payback opportunity and losers are quickly pruned.

  • 74 George M., Freeling A. and Court D. (1994), op.cit.

111According to McKinsey74, today’s marketing organisations are organised around two roles, integrators and specialists, linked together through teams and processes rather than functional or business unit structures.

112Integrators (or process managers) are marketers with broad skills who will play the critical role of guiding activities across the firm’s entire value chain, identifying which market segments to compete in and which levers to pull to maximise long-term profitability. They will be charged with tearing down the walls that divide function from function and with leading cross-functional teams to execute these strategies. Typically, they will be responsible for marketing strategy development. Integrators can be responsible for a distinct end-user segment (consumer integrators) or specific group of business customers like giant retailers (customer integrator) or be responsible for a process, like new product development (process integrators).

113Specialists will provide the technical and specialised skills required to successfully implement the marketing strategy in the different disciplines such as marketing research, business intelligence, pricing strategy, advertising, promotion, online communication, direct marketing, and so on. The trend will also be towards subcontracting to outside specialists marketing activities such as market research and analysis, database management, and even the execution of some operational marketing tasks.

114In this new organisational context, inter-functional co-ordination is particularly important because it implies the involvement of all levels in the firm’s organisation. The key idea here is to consider that MO is the business of everyone and not only of the marketing people. But marketers have a key role to play in disseminating the MO culture within the organisation. They have to take the lead in turning the organisation in this direction.

• Strategic Marketing in Small Business Firms

115The product or brand management organisation is a costly structure unaffordable by a small- or medium-sized business firms. An alternative, which works well, is the cross-functional team in charge of strategic marketing issues. It is composed of the key functional managers (operations, finances, human resources, operational marketing) and is chaired by the firm’s CEO. Two different structures can be considered:

  • The temporary ad hoc team - or task force - in charge of a specific problem during a limited period of time, typically the launching of new product.

  • The permanent cross-functional team reviewing regularly (twice a month) strategic marketing problems, typically the management of the firm’s product portfolio, a task, which does not necessarily, requires a full-time job.

116One of the benefits of this organisation structure, in addition of its low cost, is the dissemination of the market orientation culture in the entire organisation.

2.8. CAN MARKETING ALLEVIATE POVERTY IN THE WORLD?

  • 75 Rahul J. (2002), A No-frills Chain Sells to the Poor, The Financial Times, March 25.
  • 76 Ponson B. (2003), Fighting Poverty through Entrepreneurship, European Business Forum, Issue 15, Aut (...)

117One of the big challenges of the twenty-first century will be to deal with the world poverty issue. Some four billion people - approximately two-thirds of the world population - live on less than 1 000 dollars a year. They outnumber the rich - or at least those earning $10 000 or more a year - by a factor of 8 to 1. It is today a well-established fact that economic growth of a country is closely correlated to the creation of new enterprises of the country. Thus, entrepreneurship can be a powerful mean to reduce poverty (Rahul J. 200275 and Ponson B., 200376).

  • 77 Little A.D. (2003), The Ethics of Making Money from the Poor, Boston MA, Environment and Risk Discu (...)

118For many decades, various institutions have tried to address this challenge: developed country governments, international organisations like the World Bank and the United Nations, numerous consulting firms (Little, 2003)77, private foundations and NGOs. Shouldn’t we - marketing scholars and marketing professionals - also develop forms of low-cost or low-frills marketing - both in strategic and operational marketing - to give poor countries entrepreneurs appropriate marketing instruments?

  • 78 Prahalad C.K. (2004), Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, Sa (...)

119More recently, management experts and business schools have entered the field. In particular C.K. Prahalad (2004)78, from the University of Michigan Business School, has argued in his book - Fortune at the bottom of Pyramid - that selling to the poor can simultaneously be profitable and eradicate poverty. Prahalad’s proposition canbe summarised as follows:

  • There is a much untapped purchasing power at the bottom of pyramid. Private companies can make significant profits by selling to the poor.

  • By selling to the poor, private companies can bring prosperity to the poor and thus can help eradicate poverty.

  • Large multinational companies (MNCs) should play the leading role in this process of selling.

120Prahalad (2004, p. 18) argues that the priority objective should be to create the capacity to consume in developing countries, To achieve this, three simple principles should guide management.

  • Affordability - Make unit packages that are small and therefore affordable. The single serve revolution.

  • Access - Stores must be easy to reach, often within a short walk. The geographical intensity of distribution.

  • Availability - Consumers in developing markets cannot defer buying decisions. The distribution efficiency.

  • 79 Karnani A. (2007), The Mirage of Marketing to the Bottom of the Pyramid: How the Private Sector Can (...)

121Prahalad’s vision has drawn much attention from senior managers and from economists. Yet limited research support Prahalad’s recommendations and many marketing scholars question the objective that selling to the poor at a profit, is an appropriate way to alleviate poverty. Can marketing really contribue to eradicate poverty or is it a mirage, as suggested by Karnani (2007)79?

• A fortune at the bottom of the pyramid?

  • 80 Karnani A. (2007), op.cit.
  • 81 Landrum N.E. (2007), Advancing the Base of the Pyramid Debate, Strategic Management Review, 1.

122A key assumption of Prahalad’s book is the existence of a substantial untapped market potential among poor people, at the bottom of the pyramid. Researchers disagree on the size of this target market. The level of poverty is usually defined at $2 per day at purchasing power parity (PPP) rates in 1990 prices (equivalent to $3.10 in 2006 prices). At this level of poverty the basic needs of survival are met, butjust barely. Prahalad states that there are more than 4 billion people with per capita income below $2 per day, while the World Bank estimated the number at 2.7 billion in 2001. The average consumption of poor people is $1.25 per day. With 2.7 billion poor people, this implies a market potential of $1.2 trillion, at PPP in 2002. For several economists (see Karnani, 200780 and Landrum, 200781), this figure is grossly overestimated and the global market potential would be less than a $0.3 trillion, a small market compared to the $11 trillion economy in the USA alone.

123Some companies are now deliberately targeting the poor by adapting their marketing strategy. Several options can be considered by the firm having the objective of selling to the poor.

• Smaller packaging strategy

124A frequently adopted strategy is to reformulate consumer goods being sold in much smaller packages, thus making them affordable for the poor. This single serve strategy has been adopted for various products like shampoos, ketchup, tea, biscuits, cigarettes, skin cream, etc. The effectiveness of this strategy is doubtful as illustrated by the following examples.

In India, Coca-Cola has launched a carbonated soft drink in smaller packages size of200 ml and Amul, a large diary Indian cooperative, has introduced a 50ml serving of ice cream (a luxury in tropical India). Both products were sold at Rs5, a so called “affordable” price, but which is nevertheless the equivalent to $0.57 (at PPP). Not too many people living on less than $2 per day will find that a bargain (Quoted by Karnani, 2007)

125Even though small packages create value by increasing convenience and helping manage cash flow, neither do they increase “affordability” nor solve the problem of hunger and malnutrition.

  • The only way the poor can purchase a newly available product is to divert expenditures from some other product, with the risk to neglect higher priority needs such as education or health.

  • Many products sold in smaller package size are marketed exactly at the same price per kilogram as larger packages.

  • The proliferation of single serve plastic packaging has a negative impact on the environment; a serious problem in poor villages and slums, where trash collection is inadequate.

126It is clear that simply selling to the poor does not necessarily improve their welfare or reduce poverty.

• Lower price strategy

127The only way to help the poor and alleviate poverty is to raise the real income of the poor. There are only two ways to do this: lower the price of the goods (which will in effect raise the income) or raise the income that the poor gain. The only way to increase real affordability is to reduce the price per use. There are only three ways to reduce prices; reduce profits, reduce cost without reducing quality, and reduce cost by reducing quality.

128The potential for profit reduction is in general very limited because markets for selling to the poor are costly to serve. The poor are generally geographically dispersed and the markets have weak infrastructure in transportation, cold chain, communication, media, and limited potential for economies of scale. This contributes to increase costs of doing business. Also charging lower prices for brands of the same quality generate risks of parallel imports from low-price countries to high-price countries, a risk particularly high for pharmaceutical products.

129Some companies have taken that risk. A good example is the Groupe Danone who has launched a dairy product at highly affordable price that is specially developed to meet specific nutritional needs of Bangladeshi children. The project was developed in 2006 in partnership with GAIN (Global Alliance for Improved Nutrition) (www.gainhealth.org) and with the Grameen Group (www.grameen-info.org). The plan was to use local supplies and to design simple equipment to facilitate the appropriation by local workers. The long-term objective is to gradually deploy this model within the whole country with around 50 small plants (www.csreurope.org/solutions).

130Some companies provide credit even for low or unpredictable income consumers charging low interest rate. These financing schemes provide value to the poor (instant gratification), but do not change the affordability of the product which is a fonction of its price.

• Reduced product quality

131To really reduce costs, without undermining the global strategy of the firm, it is often necessary to reduce quality in such way that the cost-quality trade off is acceptable to poor consumers. Karnani (2007) gives the example of an Indian firm, Nirma, having launched very low price detergent of clearly inferior quality to that of Surf, the brand marketed by Hindustan Lever. To reduce cost, the brand Nirma does not contain whitener, perfume, or softener. Nevertheless, in ten years, this brand has increased its market share from 12 per cent to 62 per cent.

132Selling inexpensive, low quality products does not hurt the poor as long as they understand any tradeoffs related to safety. In rich countries, the success of private labels sold by distributors at a lower price than national brands but for reduced quality products, support this observation. Other realistic ways to make products more affordable are

  • The shared-access model, where products like cell phones, washing machines, bicycles are rented or shared.

  • Adopting technologies like solar cells to generate electricity in low-income communities.

  • Trying to cut transaction costs by introducing more appropriate distribution systems that link old and new technologies (bicycles and mobile phones).

133Thus, developing a marketing strategy for selling to the poor implies a redesign of the product concept itself where the emphasis is placed on the core service or fonction, neglecting the frills and the secondary benefits. Similarly, distribution and communication policies must be customised to meet the specific needs and characteristics of these markets.

• The role of microcredit

  • 82 Khawari A. (2004), Microfinance: Does it Hold its Promises? A Survey of Recent Literature, Discussi (...)

134In awarding the Nobel Prize to the pioneer of microcredit Muhammad Yunus, the Nobel committee affirmed that microcredit plays a major part in eliminating poverty. In reality, most studies suggest that microcredit is beneficial, but only to a limited extent. Several reasons have been identified by Khawari (200482).

  • Microcredit does not alleviate poverty, but rather reduces vulnerability by smoothing consumption.

  • The majority of microcredit clients are caught in subsistence activities with no prospect for competitive advantage.

  • Microcredit businesses operate at a too small scale, with no paid staff, very few assets, low productivity, and modest earnings.

  • Only a small fraction has used credit for entrepreneurial purposes. They are “own account workers”, and they do little to create jobs for others.

135In China where the incidence of poverty has declined significantly, a large and growing fraction of the population is employed for wages, as opposed to self employed or farmers. Economists agree today that creating decent employment opportunities is the best way to take people out of poverty.

• Ethical issues

136If making profits from poverty may make good financial sense, is it ethically acceptable? The argument goes like this: if those who are currently excluded from consumer society are not brought into the economy, the divide between rich and poor will widen further, creating more social tension and undermining future development.

137A word of caution. The poor are vulnerable by virtue of lack of education, lack of information, and economic, cultural and social deprivation. Aggressive operational marketing could induce the poor to spend money on products such as television, shampoos, tobacco, and alcohol that would have been better spent on higher priority needs such as nutrition, education, and health. Consumer protection, restrictions on advertising and “sin taxes” for alcohol and tobacco that exist in rich countries, are inadequate or nonexistent in the developing countries.

138In conclusion, it seems that marketing, and in particular strategic marketing, has indeed a role to play in reducing poverty, but this role is modest and should be carefully calibrated to meet the needs of the poor. The best opportunities exist when the firm develops affordable products by innovatively changing the price-quality trade-off in a way acceptable to consumers in developing countries.

139In contradiction with the recommendation of Prahalad (2007), rather than focusing on the poor as a consumer, the best way to eradicate poverty is to develop the poor as a producer and as an entrepreneur, in order to raise his/her income by creating more employment opportunities.

• Searching for the appropriate business model

  • 83 Elkington J. and Hartigan P. (2008), The Power of Unreasonable People, Boston, Mass., Harvard Busin (...)

140In view of the problems and obvious limitations of a pure play for-profit business model, the question is raised to know which business model should be adopted by social and environmental entrepreneurs to successfully contribute to alleviate poverty. Social and environmental entrepreneurs operate across a spectrum of enterprises, from the purely charitable to the purely commercial. On the purely charitable side, customers pay little or nothing; capital comes in the form of donations and grants, the workforce is largely made-up of volunteers and suppliers make in-kind donations. At the purely commercial end of the spectrum, by contrast, most transactions are at market rates. Elkington and Hartigan (2008, p. 3)83 observed that the most interesting experiments take place in the middle ground, where hybrid organisations pursue new forms of blended value, where better-off customers sometimes subsidise less well-off customers.

  • 84 Elkington J. (1997), Cannibals with Forks: The Triple Bottom Line of 21st Century, Oxford, Capstone (...)

141Blended value is what results when businesses - whether for-profit or non-profit - create value in multiple dimensions - economic, social, and environmental. This blended value concept is at the base of the Triple Bottom Line (TBL) reporting system (Elkington J. 1997)84 promoted by social and environmental entrepreneurs.

142In the past economic history, there has been a real separation in the notion of value. Corporations sought to maximise economic value, while public interest groups have sought to maximise social and environmental value. However a growing group of practitioners, investors, philanthropists are advancing strategies that intentionally blend social environmental and economic value. These activities have resulted in a wave of new practices across the for-profit and non-profit sectors. Corporations are realising the positive social and environmental impacts of their work can increase (or at least not compromise) shareholder value while simultaneously addressing the concerns of wider stakeholder groups. Many nonprofits are seeing that by incorporating business practices that create economic value into their management strategies, they can better deliver on their social and environmental missions (www.blendevalue.org). Several interesting short case histories illustrating this hybrid approach are resented in the Elkington and Hartigan’s book (2008).

143The prevailing business models adopted by social entrepreneurs tend to fall into three categories: the non-profit business model (model 1), the hybrid non-profit (model 2) and the social business (model 3).

144In the non-profit model (model 1), social entrepreneurs aim to meet needs that are ignored by current market mechanisms. They want to act where governments are not able or willing to provide a public good or a service and where the private sector cannot justify the risk in relation with a realistic prospect for profit. A public good is delivered to the most economically vulnerable who are unable to afford the service rendered. The key success factor is the ability to leverage available resources. Non-profit enterprises are totally dependent on philanthropic donations and this dependence runs counter the possibility of expansion, as the supply of donors’ monies is limited. The sustainability of such business model is fragile.

145In the hybrid non-profit model (model 2), as in the previous model, the objective is to deliver products and services to populations that have been excluded by mainstream markets, but the notion of making profit and of reinvesting a profit is not excluded. To avoid being 100 per cent donor dependent, the social enterprise will try to recover a portion of its costs through the sales of goods and services. For instance the enterprise will charge wealthy patients more and poorer patients less. While keeping its specific social objective, the organisation will have to evolve progressively towards a social business model to ensure access to capital market and achieve sustainability,

146The social business model (model 3), in contrast with models 1 and 2, is set-up from the outset as for-profit but it differs from mainstream business model about what to do with any profits. The specific mission is to drive transformational social and/or environmental changes. Profits are generated but the main objective is not to maximise financial returns for the shareholders but instead to financially benefit low-income groups and to grow the social venture. The social entrepreneur seeks investors interested in combining financial and social returns. To leverage resources, social business models are significantly easier to understand for business people and to develop partnerships. Their opportunities for growth and sustainability are also greater because they can take on debt and equity.

147By way of conclusion, one has to realise that to eradicate poverty in the world is big business. Without downplaying the importance of philanthropy, neither non-profit social entrepreneurs alone nor governments alone, have the capacity to leverage the required financial, human, and organisational resources to eradicate poverty. To give an example, there are an estimated 37 million people worldwide who are blind and an additional 124 million who are visually impaired. The global economic burden of blindness is estimated to be around $25 billion per year. In India alone, an estimated 12 million are blind, yet 60 percent of blindness there is a result of cataracts which are almost always curable. To resolve a problem of this magnitude, the market mechanisms and the management know-how have clearly a role to play.

148In India, the social entrepreneur Aravind Eye Care System (www.aravind.org) has pioneered a sustainable business model that follows the principle that large volume, high quality, and community-centric services can result in low cost and long-term viability. By charging wealthier patients more and poorer customers less, it has developed a sustainable social business model. Treating over 2 million patients a year, with less than 1 per cent of country’s ophthalmic workforce, Aravind performs about 5 per cent of all cataracts surgeries in India. Since its inception, Aravind has performed more than 2.8 million surgeries and handled over 22 million outpatients and is still managing to make a profit that is reinvested in growing the enterprise and continuously upgrading its services. This success has been achieved without diluting poor patient’s quality of care. As a result of the fee system, and effective management, Aravind is able to provide free eye care to two-third of the patients and is still able to maintain profit margins of 40 percent85.

APPENDIX 2. Internet penetration in Europe

2.1. European Online Users and Buyers (in millions)

2.1. European Online Users and Buyers (in millions)

Source: Jupiter Research, (2005)

2.2. European Online Retail Sales (in € billions)

2.2. European Online Retail Sales (in € billions)

Source: Jupiter research, (2005)

2.3. Internet Users (in millions) and Penetration (in %) in Europe

2.3. Internet Users (in millions) and Penetration (in %) in Europe

Source: eMarketer, February 13, 2008, p. 2.

Notes

1 Day G.S. and Wind J. (1980), op.cit.

2 Day G.S. (1990), Market Driven Strategy, New York, The Free Press. See also: Day G.S. (1999), The Market Driven Organisation, New York, The Free Press.

3 Kohli A.K. and Jaworski B.J. (1990), Market Orientation: The Construct, Research Propositions, and Managerial Implications, Journal of Marketing, 54, April, 1-18.

4 Narver J.C. and Slater S.F. (1990), The Effect of a Market Orientation on Business Profitability, Journal of Marketing, 30, October, 20-35.

5 Lambin J.J. (1986), Le marketing stratégique, Paris, McGraw-Hill, 1st Edition.. See also, Market-driven Management: Strategic and Operational Marketing (2000), London, Palgrave Macmillan.

6 Deshpandé R. and Farley J.U. (1998), Measuring Market Orientation: Generalization and Synthesis, Journal of Market Focused Management, 2, 213-232.

7 Langerak F. (2003), An Appraisal of the Predictive Power of Market Orientation, European Management Journal, 21. August, 417-64.

8 Gotteland D. (2005), L’orientation-marché: nouvelle méthode, nouveaux outils, Paris, Editions d’Organisation.

9 Gonzalez-Benito O. and Gonzalez-Benito J. (2005), Cultural vs Operational Market Orientation and Objective vs Subjective Performance: Perspective of Production and Operations, Industrial Marketing Management, 34, 797-829.

10 Baker W.E. and Sinkula J.M. (2005), Market Orientation and the New Product Paradox, Journal of product Innovation and Management, 22, 483-502

11 Kohli A.K. and Jaworski B.J. (1990), op.cit.

12 Kohli and Jaworski (1990), op.cit., p. 69.

13 Zeithmal V.A., Berry L.L., and Parasuraman (1988), Communication and Control Processes in the Delivery of Service Quality, Journal of Marketing, 52, April, 35-48.

14 Levitt Th. (1969), The Marketing Mode, New York, McGraw-Hill Company.

15 In a subsequent article, Kohli, Jaworski and Kumar (1993) have developed a 20-item market orientation scale (MARKOR) validated on a sample of multi-informant sample of marketing and non marketing executives. Kohli A. K., Jaworski B. J. and Kumar A. (1993), MARKOR: A Measure of Market Orientation, Journal of Marketing Research, 30, November, 467-477.

16 Narver J.C. and Slater S.F. (1990), op.cit.

17 Dickson P.R. (1992), Toward a General Theory of Competitive Rationality, Journal of Marketing, 56, January, 69-83.

18 Ries A. and Trout J. (1986), Warfare Marketing, New York, McGraw-Hill.

19 Day G.S. and Wensley R. (1988), Assessing Advantage: A Framework for Diagnosing Competitive Superiority, Journal of Marketing, 52, April, 1-20.

20 Deshpandé, Farley, and Webster (DFW) (1993) have developed a customer orientation scale as an element of a broader study which included the impact of corporate culture and organisational innovativeness on firm performance. The nine-item scale (the DFW scale) was developed using the results of a study of 138 Japanese executives. Deshpandé R., Farley J.U., and Webster F.E. (1993), Corporate Culture, Customer Orientation, and Innovativeness in Japanese Firms, Journal of Marketing, 57, January, 22-27.

21 Mason K. and Harris L.C. (2005), Pitfall in Evaluating Market Orientation: An Exploration of Executives’ Interpretations, Long Range Planning, 38, 373-391.

22 Day G.S. (1999), Misconceptions about Market Orientation, Journal of Market-Focused Management, 4, 5-16.

23 Moorman C. and Rust R.T. (1999), The Role of Marketing, Journal of Marketing, 63, Special Issue, 180-197

24 Gonzalez-Benito O. and Gonzalez-Benito J. (2005), op.cit.

25 Lambin J.J. (1986), op.cit.

26 Webster F.E. (1992), The Changing Role of Marketing in the Corporation, Journal of Marketing, 56, October, 1-17.

27 Christensen C.M., Cook S., and Hall T. (2005), op.cit.

28 The questionnaire is available at: www.palgrave.com/business/lambin. Click on the « For Students » Section and then on the “Supplementary Readings” Section to find: A Questionnaire to Measure the Level of Market Orientation of a Firm.

29 Lambin J.J. (1996), The Misunderstanding About Marketing, CEMS Business Review, 1, 37-56.

30 Lambin J.J. and de Moreau J.P. (1996), Orientation-marché et performance commerciale et financière dans le secteur Fabrimetal, Unpublished Working Paper, IAG, Louvain School of Management.

31 Lambin J.J. and Chumpitaz R. (2000), Being customer-driven is not enough, European Business Forum, 2, Summer, 2-8.

32 Narver J.C. and Slater S.F. (1990), op.cit.

33 Papazoglou M.P. and Ribbers P.M.A. (2006), e-Business, The Atrium Southern Gate, Chichester, John Wiley and Sons, p. 2.

34 Porter M. (2001), Strategy and the Internet, Harvard Business Review, March, 63-78.

35 Porter M. (2001), op.cit.

36 Papazoglou and Ribbers (2006), op.cit., p. 39.

37 Simon H. (2003), Seven e-commerce Lessons, European Business Forum, 58-63

38 Macklin B. and von Abrams K. (2008), The New European Internet Hot Spots, eMarketer, February 19.

39 Eurostat Report (2002), E-Commerce in Europe. Results of the Pilot Surveys carried out in 2001, Eurostat, July.

40 Jupiter Research, (2005), European Online Retail Forecast 2005 to 2010 (www.jupiterresearch.com).

41 eMarketer (2008), The New European Internet Hot Spots, February 13.

42 Jupiter Research, (2005), op.cit.

43 Rainie L. (2006), How the Internet is Changing Consumer Behavior and Expectations, Speech to SOCAP Symposium, Washington DC.

44 Rainie L. (2006), op.cit., p. 12.

45 Interactive Advertising Bureau (2008), 15 Barometers, February 19.

46 Rainie L., (2006), op.cit.

47 Bughin J., Erbenich C. and Shenkam A. (2007), How Companies are Marketing Online: A McKinsey Global Survey, The McKinsey Quarterly, July.

48 Jingzhi Guo and Chengzheng Sun (2004), Global Electronic Markets and Global Traditional Markets, Electronic Markets, 14, 1, 4-12.

49 Manning B. and Thorne C. (2003), Demand Driven, New York, McGraw-Hill.

50 Trout J. (1985), Forget Satisfying the Consumer - Just Outfox the Competition, Business Week, 7, October, 2915, 55-58.

51 Rask M. and Kragh H (2004), Motives for E-marketplaces Participation: Differences and Similarities between Buyers and Sellers, Electronic Markets, 14, 4, 270283. These authors base their analysis on a dataset consisting of 41 case studies covering 20 industries in 12 countries.

52 The Boston Consulting Group (2003), Electronic Marketplaces: Strategies for Sellers (www.bcg.com/publications).

53 Jingzhi Guo and Chengzheng Sun, (2004), op.cit.

54 Shapiro C., Varian H.R. (1998), Versioning: the Smart Way to Sell Information, Harvard Business Review, 76, 6, 106-114

55 Jingzhi Guo and Chengzheng Sun, (2004), op.cit.

56 Mitchell R.K., Agle R.R. and Wood D.J. (1997), Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Count, Academy of Management Review, 22, 4, pp. 853-886.

57 Hayes R. and Abernathy W. (1980), Managing Our Way to Economic Decline, Harvard Business Review, 58, 4, July August, 6 778.

58 Bennett R. and Cooper R. (1981), The Misuse of the marketing Concept: An American Tragedy, Business Horizons, 24, 6, November-December, 5 160

59 Levitt Th. (1960), Marketing Myopia, Harvard Business Review, 38, July August, 2 447.

60 Abell D. (1980), op.cit.

61 Lambin J.J. et al. (2007), op.cit., see chapter 6.

62 Payne A. and Frow P. (2006), Customer relationship Management: from Strategy to Implementation, Journal of Marketing Management, 22, 135-168. For the same reasons explained earlier (see section 2.2 above) the term “market relationship” management is preferable to “marketing relationship” management.

63 Grönroos C. (1991), op.cit.

64 Reichfeld F.F. (1996), L’effet loyauté, Paris, Dunod.

65 Pepper D. and Rogers M. (1993), The one-to-one Future, New York, Doubleday/Currency.

66 Donaldson B. (1998), Sales Management: Theory and Practice, London Macmillan, 2nd Edition.

67 Slymotsky A. and Shapiro B.P.(1993), Leveraging to Beat the Odds: The New Marketing Mind Set, Harvard Business Review, 71, 5, 97 107.

68 Schnaars S.P. (1998), Marketing Strategy, New York, The Free Press.

69 George M., Freeling A. and Court D. (1994), op.cit.

70 Webster F.E. Malter A.L. and Ganesan L.S. (2005), op.cit.

71 Day G.S., (1999), op.cit.

72 Sy Th. and D’Annunzio L.S. (2000), Challenges and Strategies of Matrix Organisations, Human Resources Planning, 28, 1.

73 Aufreiter N.A., Lawver T.L. and Lum C.D. (2000), A New Way to Market, McKinsey Quarterly, Number 2

74 George M., Freeling A. and Court D. (1994), op.cit.

75 Rahul J. (2002), A No-frills Chain Sells to the Poor, The Financial Times, March 25.

76 Ponson B. (2003), Fighting Poverty through Entrepreneurship, European Business Forum, Issue 15, Autumn.

77 Little A.D. (2003), The Ethics of Making Money from the Poor, Boston MA, Environment and Risk Discussion Forum.

78 Prahalad C.K. (2004), Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, Saddle River, New Jersey, NJ, Wharton School Publishing.

79 Karnani A. (2007), The Mirage of Marketing to the Bottom of the Pyramid: How the Private Sector Can Help Alleviate Poverty, California Management Review, 49, 4, Summer.

80 Karnani A. (2007), op.cit.

81 Landrum N.E. (2007), Advancing the Base of the Pyramid Debate, Strategic Management Review, 1.

82 Khawari A. (2004), Microfinance: Does it Hold its Promises? A Survey of Recent Literature, Discussion Paper 276, Hamburg Institute of International Economics.

83 Elkington J. and Hartigan P. (2008), The Power of Unreasonable People, Boston, Mass., Harvard Business Press.

84 Elkington J. (1997), Cannibals with Forks: The Triple Bottom Line of 21st Century, Oxford, Capstone/John Wiley.

85 These figures are based on the Aravind 2006 report (www.aravind.orgpublications/reports.asp).

Table des illustrations

Titre Figure 1. The extended model of market orientation
Légende Source: Lambin et al. (2007)
URL http://books.openedition.org/pucl/docannexe/image/1648/img-1.jpg
Fichier image/jpeg, 440k
Légende Source: Pew Internet & American Life Project, March 2005 Survey.
URL http://books.openedition.org/pucl/docannexe/image/1648/img-2.jpg
Fichier image/jpeg, 184k
Titre Figure 3. The global market: A dual-trading arena
Légende Source: Guo and Sun (2004)
URL http://books.openedition.org/pucl/docannexe/image/1648/img-3.jpg
Fichier image/jpeg, 316k
Titre Figure 4. Innovation and strategic marketing
Légende Source: Lambin et al. (2007)
URL http://books.openedition.org/pucl/docannexe/image/1648/img-4.jpg
Fichier image/jpeg, 292k
Titre Figure 5. Typical organisation of a market-oriented company
Légende Source / Lambin, et al., (2007)
URL http://books.openedition.org/pucl/docannexe/image/1648/img-5.jpg
Fichier image/jpeg, 324k
Titre 2.1. European Online Users and Buyers (in millions)
Légende Source: Jupiter Research, (2005)
URL http://books.openedition.org/pucl/docannexe/image/1648/img-6.jpg
Fichier image/jpeg, 292k
Titre 2.2. European Online Retail Sales (in € billions)
Légende Source: Jupiter research, (2005)
URL http://books.openedition.org/pucl/docannexe/image/1648/img-7.jpg
Fichier image/jpeg, 248k
Titre 2.3. Internet Users (in millions) and Penetration (in %) in Europe
Légende Source: eMarketer, February 13, 2008, p. 2.
URL http://books.openedition.org/pucl/docannexe/image/1648/img-8.jpg
Fichier image/jpeg, 715k

© Presses universitaires de Louvain, 2008

Conditions d’utilisation : http://www.openedition.org/6540