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IF View - Issue No. 20

CHANNEL ALIGNMENT
AND THE
MARKET ORIENTED FIRM

Issue No 20

Marketing Channel Strategy Consultants
USA - EUROPE - AUSTRALIA - BRAZIL - HONG KONG
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Introduction

It is becoming more common to hear of companies which attribute their success to a deliberate strategy of becoming customer focused or market oriented, a strategy of focusing on providing customers with the products or services they desire when and where they desire them. This practice is not new to marketing channels, as market behaviour has long dominated optimal channel design. What is topical, however, is that organisational design now demands an alignment of strategy from the consumer through the channels to the organisation itself.

This IF View illustrates the elements of a market orientation through channel alignment, the conditions where it works best and what results can be expected from adopting this orientation. Other orientations (or alignments) are discussed.

    1. The Market Oriented Company

Market orientation gives a company a method of developing competitive advantage in an increasingly challenging marketplace. A market orientation requires five key steps:

A. Customer Focus

The first step is adopting a customer orientation which focuses the company on meeting the needs and wants of its customers. Both the supplierís intermediaries and final consumers can be the focus of this orientation.

B. Competitor Focus

The second step is to gain an understanding of competitive behaviour in the industry. Strategies, tactics, marketing campaigns, competitor strengths and weaknesses must be clearly understood by the market oriented firm to be well positioned to respond to challenges. IF View 17 "Competitor Evaluation in Marketing Channels Strategies" examines competitor focus in more detail.

C. Organisational Focus

The third step is to promote an organisational structure which values close, cooperative working relationships across business functions and ensures the functions enhance market performance. Traditional rivalries such as those between marketing and production must give way to attitudes of cooperation for the benefit of the companyís customers. If we believe the customer is the companyís reason for existence, then each function must benefit the customer Ė directly or indirectly, rather than be designed to benefit the organisation.

D. Long Term Focus

The fourth step is the recognition that a long term commitment is required to achieve profit objectives. As a substantial degree of organisational change may be required, short-term or expedient strategies must be avoided.

E. Marketing Focus

The final step involves a decision that the company will adopt a marketing orientation, that is, it will provide what customers want, rather than what the company has historically sold.

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The following diagram summarises the systemic nature of a market oriented channel structure:

 

2. Alternate Orientations

Alternate orientations are possible although it is impractical to adopt more than one orientation at a time. Particular orientations are chosen for various reasons and are not always inferior to a market orientation.

Selling Orientation

A selling orientation places the organisationís entire focus on sales. The achievement of sales budgets is the key success factor for such a business. Motivation and remuneration of key employees is based on commissions or other transaction based methods

Technology Orientation

A technological orientation emphasises finding solutions to problems through technology in a company that invests a high proportion of its revenue in research and development. Key success factors for such businesses include adoption of new technology to solving problems. Motivation and remuneration normally comes through funding specific research and development programs.

Production Orientation

A production orientation focuses on obtaining the most efficient, low cost production methods. This orientation is often adopted in mass manufacturing industries where considerable economies are available through long production runs. Key success factors include productivity measures which focus on cost-containment. Motivation and remuneration are often productivity based.

Internal Orientation

An internal orientation is focused on functions provided where there is no traditional customer identity. This orientation is often adopted by professional organisations such as hospitals, universities.

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3. When is a Market Orientation Most Critical to Success

A number of factors indicate when a market orientation is most critical to an organisationís success.

  1. When supply is greater than demand - in which case companies need to differentiate their product and market offer from those of their competitors. A company attuned to the customerís needs is better able to differentiate itself and respond to competitorsí attempts to differentiate.
  2. In a mature market where there is limited opportunity for a new market entrant or product innovation
  3. When word of mouth and customer awareness of performance are key elements of success, a market oriented firm will be well positioned to satisfy current users. It is well documented that dissatisfied consumers report their dissatisfaction more often than satisfied customers.
  4. When products or services are similar to competitorsí and switching costs are low.
  5. When customer satisfaction and repeat purchases are critical to future success

4. Why is a Market Orientation Desirable

Research has indicated a number of benefits which have been identified for companies which adopt a market orientation.

1.  Positively affects key performance indicators in virtually all situations

2.  Market orientation has a stronger relationship with return on assets, growth, new product success

3.  Provides a means to compete, make sound judgements and to adapt to change

4.  Contributes to better employee attitudes

5.  Contributes to lower employee turnover

6.  Contributes to superior financial performance

5. Examples

Fast moving consumer goods is a prime example of where market orientation is essential to success. Most packaged goods markets are mature, switching costs are low and products are difficult to differentiate and rely largely on brand advertising. The deregulating energy sector is also emerging as a candidate for market orientation, where in the past it has had the luxury of local monopolies.

Conclusion

Marketing channel theory has traditionally looked to consumer behaviour to guide it in the design of new channels. The focus of organisations is changing to align its strategies with those of its channel partners to maximise the benefit to the entire system. Conventional marketing channels frequently suffer from the absence of such a system-wide approach. This lack has led to the development of vertical marketing systems which embody system-wide goals with structural formality and compulsion. The extension of vertical marketing systems to market orientation requires the addition of the customer focus.

It is not necessary to go to an extreme such as adopting a vertical marketing system to gain the benefits of a market orientation. Less formal structures utilising electronic data interchange technology could also be effective in delivering some benefits to channel participants. However, without some degree of common goals through the channel and the ability to motivate the channel to act in concert, the benefits of a market orientation could not be maximised.

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