Market orientation and customer satisfaction: Evidence from British machine tool industry

Industrial Marketing Management 33 (2004) 135 – 144

Market orientation and customer satisfaction: Evidence from British machine tool industry Satyendra Singha,*, Ashok Ranchhodb,1 a

Department of Administrative Studies, University of Winnipeg, 515 Portage Avenue, Winnipeg, Canada, R3B 2E9 b Southampton Business School, Southampton Institute, East Park Terrace, Southampton, SO14 OYN, UK Received 1 September 2001; received in revised form 1 February 2003; accepted 1 April 2003

Abstract This paper examines empirically the relationship between market orientation and business performance in the context of British machine tool industry. An industry-specific market orientation scale was developed. Factor analysis revealed that there were four latent dimensions underlying the market orientation: customer orientation, competitor orientation, departmental responsiveness, and customer satisfaction orientation. Findings suggest that customer orientation and customer satisfaction orientation have a stronger impact on performance than the other dimensions, and that competitor orientation has a U-shape relationship with performance. Departmental responsiveness did not appear to be significantly related to the business performance. Managers could use the multidimensional conceptualization to develop particular kinds of orientations required for better performance. D 2003 Elsevier Inc. All rights reserved. Keywords: Market orientation; Customer orientation; Competitor orientation; Customer satisfaction; Business performance

1. Introduction The environments of most businesses are currently characterized by increasing competition and environmental turbulence. Most firms have had to find ways of dealing with this stark reality or face the possibility of extinction. As a consequence of the increasing efforts by managers to develop a competitive edge in their respective business sectors, the management literature is filled with conceptual propositions for sound business practices and strategies for success in today’s competitive marketplace (Day & Wensley, 1988). In this context, marketing philosophy has received considerable attention from practitioners as well as academic researchers because marketing is regarded as a driving force for business strategies and operations. Although earlier research on market orientation tended to focus on cross-sectional studies in order to contribute to theory building and examining the universal importance of the concept, recent empirical efforts have tended to be industry specific (Chee & Peng, 1996; Liu, 1995; Morgan * Corresponding author. Tel.: +1-204-786-9424. E-mail addresses: [email protected] (S. Singh), [email protected] (A. Ranchhod). 1 Tel.: +44-23-8031-9541. 0019-8501/$ – see front matter D 2003 Elsevier Inc. All rights reserved. doi:10.1016/S0019-8501(03)00056-7

& Morgan, 1991). One particular feature of the literature is that most studies have focused on the relationship between market orientation and performance, with the majority of studies reporting a positive association between the two variables. Clearly, findings from studies on the consequences of a market orientated stance are important since they can provide managers with the knowledge associated with factors required for developing a market-oriented culture. This study intends to contribute to the existing literature on market orientation in a number of ways: Firstly, an industry-specific market-oriented scale was developed and tested; secondly, the characteristics of underlying factors of market orientation and performance in the UK machine tool sector were examined; thirdly, from a theoretical viewpoint, the degree to which market orientation factors were related to performance were considered; and finally, from an empirical perspective, this study has avoided the conventional focus on single-authored measures of market orientation, and rather adopted a multifaceted view of the concept. Similarly, the performance measures are based on a multidimensional view of financial and other organisational performance indicators. In the following sections, a brief review of the literature on the market orientation concept and its applicability in the machine tool industry is presented together with an argu-

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ment as to how it may influence business performance. Background information on the industrial context, the research methodology adopted for the development of the measures, the sampling frame, and data collection procedure are presented later. In the analysis section, a variety of statistical techniques are used to confirm the reliability of the redeveloped market orientation scale and some aspects of validity are examined. Multiple regression analysis and one-way ANOVA results are utilized in assessing the influence of factors underlying market orientation on business performance. Next, the findings of the study in relation to the previous research are discussed. The paper concludes by discussing the implications of the findings to machine tool business executives and practitioners, as well as the limitations of the current study.

2. Rationale for the study A review of the literature reveals that the majority of the most recent industry-specific market orientation studies appear to be either on service firms or cross industry in nature (Appiah-Adu & Singh, 1988; Deshpande & Webster, 1989; Jaworski & Kohli, 1993). It appears that there has been no empirical research in this area in the British machine tool sector; therefore, this study seeks to examine the market orientation – performance link in this sector. This sector is also acknowledged as an indicator for the health of the entire manufacturing industry as many other industry sectors rely on the machine tool industry for the supply of innovative and new machines. Despite the growing interest in market orientation and recent advances made in its measurement, few attempts have been made to tailor the constructs to a particular sector. In this particular study, an attempt is made to reconcile the three dominant market orientation constructs (Deng & Dart, 1994; Jaworski & Kohli, 1993; Narver & Slater, 1990) in order to redevelop an industry-specific market orientation domain. In this context, Jaworski and Kohli (1993) suggest that such integration would be beneficial for the purpose of future empirical research. Applying the construct within the machine tool industry and investigating the operational modifications were regarded as a means of taking the research forward. The British research studies were cross sectional in nature (Diamantopoulos & Hart, 1993; Greenley, 1995; Pitt, Caruna, & Berthon, 1996). The samples were drawn from all sectors of the UK industry, e.g., consumer products, consumer services, industrial products, and industrial services. These undifferentiated sectarian studies create their own problems of the difficulty surrounding the understanding of the effects of environmental variables, such as technology change, market growth, etc. Therefore, by carrying out this research within the machine tool industry, some of the environmental variables, such as market growth, buyer power, seller concentration, competitive

intensity, and technology, among others, have the same control effects for all the players in the sector. This is particularly true in the machine tool industry, as this is characterized by a large number of small- and medium-sized enterprises (SMEs) making a wide variety of types and sizes of products (Thorn, 1996). This industry is divided into two subsectors: the computer numerical control (CNC) machine tools and non-CNC machine tools manufacturers.

3. Market orientation definition and the research instrument Different authors have developed different market orientation scales. Some market orientation scales are based on a set of marketing activities (Deng & Dart, 1994; Jaworski & Kohli, 1993; Narver & Slater, 1990), whereas others are based on organisational strategy (Ruekert, 1992). Kohli and Jaworski (1990) have conceptualized the market orientation scale as a combination of three components, i.e., information generation, information dissemination, and responsiveness. They have further bifurcated responsiveness into two sets of activities: response design and response implementation. On the other hand, Narver and Slater (1990) have hypothesized market orientation as one dimension construct consisting of three behavioral components—customer orientation, competitor orientation, and interfunctional coordination—and two decision criteria—a long-term focus and a profit objective. Finally, Deng and Dart (1994) have conceptualized the market orientation construct as a combination of four factors that are very similar to Narver and Slater’s construct. These components are customer orientation, competitor orientation, interfunctional coordination, and profit organisation. Although these three market orientation constructs are different in terms of the selection of items representing the construct, there is clearly an overlap on a conceptual and operational basis. Cadogan and Diamantopoulos (1995) have performed a comparative analysis between the components of Kohli and Jaworski (1993) and Narver and Slater (1990) and have shown the conceptual and operational overlap between these two constructs. The domain specification in the context of market orientation seems to be complex, as there is no single definition of the philosophy of market orientation. The literature reveals that there are a number of meanings ascribed to market orientation. For example, Konopa and Calabro (1971) place greater emphasis on customer than production- and cost-related activities. Whereas according to Felton (1959) and McNamara (1972), involvement of marketing executives in the strategic decision making process and integrating activities within marketing function is regarded as being crucial to companies wanting to be market oriented. Although, these authors differ in their preferred conceptualizations, it is evident that there are three main underling dimensions: customer orientation—information

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generation pertaining to customers; competitor focus— information generation pertaining to competitors; and responsiveness—dissemination of information obtained pertaining to customers across the functional departments with a view to meeting customer needs as quickly as possible by having good interfunctional coordination within the departments. In the study, we believe (after interviewing 24 marketing directors of machine tool companies and an extensive literature search) that emphasis on customer satisfaction in order to deliver a high-quality product has increased over the last decades in industrial marketing. This reflects the need for retaining customers and the development of longterm relationships with them. For some companies, loyal customers are paramount for existence (Davis, Sharp, & Schlack, 1993). Retaining customers can have a significant positive impact on the profitability of companies. Studies have shown that retaining an additional 2 – 5% customers can improve profits significantly in the same manner as cutting costs by 10% (Power, Driscoll, & Bohn, 1992; Reichheld & Sasser, 1990). Most researchers and practitioners agree that satisfaction occurs when purchase expectations are met, i.e., attributes associated with products are the ones desired by customers (Oliver & Swan, 1989; Wilkie, 1990). This implies that companies should be, in addition to being customer and competitor oriented, satisfaction oriented as well in order to meet purchase expectations. Dissatisfaction is the result of unconfirmed expectations. Marketers who understand the impact of customer satisfaction on business performance will want to secure future sales orders on the basis of the recommendations of currently satisfied end users of the products because what happens in the current buying decision will affect future purchase decisions. Therefore, in the context of machine tool industry, we define market orientation as the set of activities coordinated in such a way that derives customer satisfaction through superior performance of products (machines) and related services (training, maintenance, etc.) while still being competitive (price, responsiveness, delivery, etc.) in the market place. This study intends to combine the components of market orientation definitions (Deng & Dart, 1994; Jaworski & Kohli, 1993; Narver & Slater, 1990) in order to specify a new domain of market orientation, excepting profit emphasis. This is because we believe that profit is the outcome of adoption of the market orientation concept, and therefore it should be treated as the behavioral component of market orientation (Levitt, 1960; Narver & Slater, 1990). In this study, a comparative analysis was performed among the three previously mentioned market orientation constructs (Deng & Dart, 1994; Jaworski & Kohli, 1993; Narver & Slater, 1990). The aim was to detect any overlap among these constructs so duplication of items could be deleted and new items tapping the market orientation domain could be added. Hence, for this study, a pool of

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items was generated after conducting a comparative analysis among the three different market orientation scales. Care was taken to examine the domain of each construct as closely as possible while choosing the items for the new scale. Criteria of uniqueness and ability to convey different shades of meaning to informants were also used (Churchill, 1979). Several items were reverse coded in order to minimize the response set bias.

4. Research methodology Initially, 45 items were generated as a result of the comparison made among these scales (Deng & Dart, 1994; Jaworski & Kohli, 1993; Narver & Slater, 1990). It was a huge scale to start with. Since these market orientation scales of Narver and Slater (1990) and Jaworski and Kohli (1993) are American and Deng and Dart’s (1994) scale is Canadian, it was important to make these items compatible with the UK business culture. Because of the centrality of market orientation, each item was critically tested for clarity and appropriateness in personally administered pretests with a panel of five professors and lecturers in England. These professors and lecturers were asked to critique the questionnaire. They were also asked to indicate the items that were ambiguous in nature or difficult to understand as well as offer any suggestions for change that they deemed appropriate. A seven-point Likert-type scale was used (1 = strongly disagree and 7 = strongly agree) to enable respondents to indicate the degree to which their company had adopted the practices described in each of the 45 items. Based on the feedback received from them, it was discovered that some of the items needed rephrasing. Two items were eliminated, as they did not seem to be related to the machine tool industry. Following these pretest interviews, 43 items2 were retained in the final questionnaire pertaining to market orientation. This was followed by a second phase of pretests by administering postal questionnaires to 30 machine tool manufacturers in the UK. Five completed questionnaires were returned with suggestions for only minor refinements.

5. Sample and data The populations were drawn from the British machine tools and equipment directory, which consisted of 105 companies, and from the FAME-CD-ROM3 database listed

2 The complete comparative analysis and the development of the industry-specific market orientation scale can be obtained from the author upon request. 3 FAME is a financial database on CD-ROM containing information on 270,000 major public and private British companies from the Jordan Watch and Jordan survey database. Up to 5 years of detailed financial information and some descriptive details are also available on the database.

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in the Standard Industrial Classification (SIC) code 3541 (252 companies) and SIC code 3542 (201 companies). After comparing these two directories, 82 companies were deleted as they were found in more than one of the databases. Furthermore, 42 companies were removed from the database as a result of these companies being in a state of liquidation, leaving a net effective database of 434 companies. A questionnaire and a personal letter were mailed to the managing director/CEO of each of the 434 manufacturers of machine tools located in the UK. Participants were assured of their confidentiality. They also had the default option of returning the survey anonymously, or if they wished could participate further in the research project (they could do so by placing a tick in the box provided at the end of the questionnaire). A second wave of mailing was carried out after 6 weeks. A total of 93 usable questionnaires (73 from first mailing and 20 from second mailing) and 27 unusable responses (e.g., we do not manufacture machine tool, addressees gone away, company in receivership) were received at the end of 9 weeks. The overall usable response rate from first mailing was 18% (73/407) and from second mailing was 6% (20/334) leading to a total response rate of 24%. To assess nonresponse bias, the last wave method was used (Filion, 1975, 1976). The method projects the trend in responses across the first two waves; the last respondent method assumes that the nonrespondents are like the projected last respondent in the second wave. The nonrespondents were assumed to respond as those in the second wave. A series of chi-square tests indicated no significant differences between first wave respondents and the second wave respondents on any of the measures analyzed (e.g., type of industry, i.e., CNC, non-CNC, or both, 2 = 0.79, P>.05; British or non-British firms, 2 = 0.46, P>.05; firm size, i.e., number of employees, 2 = 1.07, P>.05). These suggest that the sample did not suffer from any unduly nonresponse bias. Pitt et al. (1996) found a response rate of 18% when they conducted a similar survey to measure market orientation in the UK. Variance inflation factor (VIF) analysis indicated

Table 1 Characteristics of the sample

Type of business Category of machines

Turnover in British sterling Employees

Respondents

Characteristics

Percentage of the sample

British Joint venture CNC machines Non-CNC machines CNC and non-CNC machines Less than 10 million Between 10 and 25 million More than 25 million Less than 99 Between 100 and 200 More than 200 CEOs Board level directors Senior managers

70 30 40 30 30 65 13 22 62 23 15 57 26 17

that there were no significant parameter distortions due to multicollinearity (Neter, Wasserman, & Kunter, 1985). In fact, the VIF score was below three (The characteristics of the sample are presented in Table 1).

6. Characteristics of the sample frame 6.1. Market orientation measure The data obtained through the postal questionnaire were subjected to a factor analysis in order to discover the underlying dimensions of market orientation. It was also intended to check if there were distinct factors that were consistent with the components of market orientation theory. For the purpose of the study, items having a mean score of more than 4.9 on a seven-point Likert-type scale were retained for the calculation of composite score for the market orientation scale. Addition of items with less than mean score of 4.9 did not contribute to enhancing the variance significantly in the factor analysis. These items are listed in Appendix 1. As expected, two distinct factors were related to customers and competitors; hence, the name given to the first factor was customer orientation (F1) and to the second factor was competitor orientation (F2). The third distinct factor correlated to a set of items pertaining to responsiveness, which is quite consistent with the theory. Hence, the name given to the factor was responsiveness (F3). The fourth factor is related to customer satisfaction orientation (F4). The set of data produced a four-factor solution, which accounted for nearly 67% of the variance. The descriptive statistics and reliability of these factors are reported in Appendix 2. 6.2. Firm performance measure Five performance indicators were considered to measure business performance. This is a multifaceted construct represented by customer retention (P_CUSRET), market share (P_MKTSHR), new product success (P_NPS), return on investment (P_ROI), and sales growth (P_SG). These five items were measured on a seven-point Likert-type scale with 1 = strongly disagree and 7 = strongly agree (Likert, 1967). However, performance can be measured in a number of ways, such as short- or long-term financial or organisational benefits. As the questionnaire to replicate the questions on performance as used by other authors (Appiah-Adu & Singh, 1988; Deng & Dart, 1994; Jaworski & Kohli, 1993), questions on the sustainability of profits for the future were not asked. However, respondents were asked to score on performance-related items relative to their own expectations over the last 3 years. This was undertaken because it has been shown that respondents were more likely to provide accurate estimates of profitability over a 3-year time frame than a 1-year time frame (Cadogan & Diamantopoulos, 1995). Further, a 3-year time frame provides an indication of stability of companies in term of

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profitability (a source of future income), as there has been a recent tendency by companies to finance expensive machines through the sales force of financing institutions after a deal has been struck. With respect to the measurement of customer retention, which serves as a surrogate indicator for customer satisfaction, respondents were asked to indicate their level of satisfaction with the machine in the last 3 years. For this variable, the 3-year time frame was chosen for two reasons: firstly, given the cost of machines, it was reasonable to measure their cumulative performance (in terms of the benefits) of the machine over a longer period of time; and secondly, a 3-year period avoids the recency effect, as respondents could be influenced more by the superior performance of a new machine (1-year old) than old machine (3-year old). In this study, a subjective approach was employed due to difficulty in obtaining objective data from documentary sources. An objective approach could not be employed because of the reluctance of firms to divulge information, which was classified as confidential. Researchers, who adopted both concepts, reported a strong association between objective measures and subjective responses (Robinson & Pearce, 1988; Venkatraman & Ramanujam, 1986). Jaworski and Kohli (1993) utilized both methods and obtained reliable responses for their subjective dimensions. Principal component analysis was used to extract a single factor solution (eigenvalue more than one was the criterion used). Results of the analysis are presented in Table 2. The measure, consisted of five items, has Cronbach’s Alpha value equal to .88 and standardized Cronbach’s Alpha value equal to .87. The scores for the scale were within the acceptable range and greater than the suggested cutoff level of .70 (Cronbach, 1975; Nunnally, 1978). It can also be seen that there is a little difference between alpha and standardized alpha (this compensates for the effects of the number of items in the scale), thus lending credence to the reliability of the measure. The mean raw score of these five items was used to represent the business performance factor. 6.3. Analysis of data In order to test for the relationship between each factor representing market orientation and business performance, a multiple regression analysis was performed. The main

Table 2 Business performance (BP) reliability analysis Performance indicators

Item-to-item correlation

P_CUSTREN P_MKTSHR P_NPS P_ROI P_SG Cronbach =.88 Eigenvalue = 3.86 Factor mean (BP) = 5.47

.49 .89 .76 .85 .50 .89 .75 .86 .77 .85 Standardised Cronbach =.87 Variance explained (factor analysis) = 64.5% BP factor standard deviation  = 1.19

 if item deleted

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Table 3 Business performance = f (factors underlying market orientation) Factors



S.E. (2 )

t value

P value

F1 (customer orientation) F2 (competitor orientation) F3 (responsiveness) F4 (customer satisfaction) R2=.39 Adjusted R2=.37

.29 .21 .04 .24 F = 9.17  = 93

.08 .12 .07 .09

2.71 2.42 0.17 2.53

.03 .05 .79 .04

purpose of the analysis was to detect the significant factors that accounted for the explanation of variance in the business performance variable. The results of the analysis suggested that the regression model accounted for 37% of variance in the business performance variable (Table 3). Although multiple regression analysis is a suitable technique for examining the relationship between a dependent variable and several independent variables, it seemed appropriate to use subgroup analysis to test for the equality of means across groups. In order to do this, each factor was split into three mutually exclusive low (LO), medium (MI), and high (HI) subgroups. Cutoff values on each factor were selected in such a way that each group had almost the same number of respondents. Table 4 reports the results of the one-way ANOVA. For easy visual inspection, subgroup sample means are presented in Fig. 1. 6.4. Validity of the measure Criterion-related validity is concerned with the extent to which the score on the measuring instrument is related to an independent measure of the relative criteria. Criterionrelated validity was evaluated by examining multiple regression correlation coefficients between the scores on the market orientation scale and a measure of the extent to which a company was market oriented. Respondents were asked to indicate the extent to which they thought their companies were market oriented on a seven-point Likerttype scale (1 = not at all and 7 = very much). The significant positive correlation (.71, P < .00) between the market orientation scale and the perceived market orientation of companies suggests that the market orientation scale has a high degree of criterion-related validity. Furthermore, in order for the scale to meet convergent and discriminant validity, we would expect, in the factor analysis, that all the items representing a concept should load strongly on one factor to satisfy the requirement of the Table 4 ANOVA analysis, mean of market orientation underlying factors Factors

F1 (customer orientation)

F2 (competitor orientation)

F4 (customer satisfaction)

LO MI HI

4.49 * 5.38 * 6.02 *

5.58 5.11 5.71

4.78 * 5.24 * 6.11 *

* Significant at P < .05 level.

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Fig. 1. Relationship between level of orientations and business performance.

convergent validity and weakly on all other factors to satisfy the requirements of the discriminant validity (Balkrishnan, 1996). By using this approach, the scale was refined by eliminating items that either did not load strongly on any factor or loaded on more than one factor.

7. Results and discussion Table 3 suggests that customer orientation factor (F1) has a significant ( P < .05) and positive (.29) effect on business performance. More specifically, Table 4 suggests that medium and high customer focus activities lead to more profitable business than a low customer focus. The machine tool industry usually has a set of three customers: basic machine tool users (non-CNC machine tools); sophisticated machine tool users (hand-held machine tools); and very sophisticated machine tool users (CNC machine tools). Therefore, machine tool manufacturers usually have different customer orientation strategies for different sets of machine tool users. For example, companies manufacturing highly technologically advanced machines will devote more attention to customer focus than companies which manufacturer basic machine tools. This implies that companies that are successful in creating a niche market perform relatively better as a result of being more customer oriented. Therefore, it is vital for a company to cultivate a culture required to achieve and maintain superior performance of machines by developing high-quality machines that are specific to client needs. Certainly, knowledge of customers’ needs is of paramount importance to the survival and growth of companies, particularly SMEs (Berkowitz, Crane, Kerin, Hartley, & Rudelius, 2003). It also makes sense for SMEs to develop good segmentation strategies by becoming specialist niche players. By doing this, they can develop closer customer relationships, and as a consequence is likely to score well customer orientation scores. The customer relationships built can extend to joint product testing, production of ‘‘tailored’’ machines, as well as speed of communications. Competitor orientation (F2) has a significant ( P < .05) and positive (.21) effect on business performance. Our findings show that both customer and competitor orientations are positively related to business performance, which is contrary to the rationale that the companies that spend too much of

their resources focusing on competitors have insufficient resources for attention to customers. However, our results contribute to our understanding of the circumstances under which companies would like to pursue both of these orientations. Because machine tool companies are typically small to medium size, with limited financial resources specializing in a narrow area of production, they tend to focus on functions that are seen to be necessary for immediate survival; therefore, one of the strategies often adopted by small companies is to become a subcontractor or original equipment manufacturer (OEM) to a large firm. This relationship is only possible when the small company is very customer oriented, i.e., it must take into account of all the needs and requirements set by the large firm in question. However, due to the high competitive intensity in the market, the subcontractor agreements are short term. Thus, periodically large firms organize a competition between the small companies; consequently, the company with the best performance with respect to the customer’s (large firm’s) needs gets the business. The results therefore indicate that companies that are both customer and competitor oriented do perform well. It is important, therefore, for companies to take a balanced strategy; and that for smaller companies, it is important not only to be customer oriented but also competitor oriented. A lack in one of these areas may be detrimental to successfully winning competitive tenders from larger companies. Certainly, when companies are successful in winning a contract, they turn their attention to being customer oriented because of the nature of the oneto-one subcontract arrangement. A telephone interview with one of the respondents confirmed that this kind of strategy is gaining popularity is Europe. Further, one of the ways of being competitor oriented while being customer oriented is the practice adopted by some companies that encourage their customers to shop around for a better price with the promise that if they find a better price, the company will not only match the price but also give x percent rebate on the purchase. In essence, companies pay their customers to do research for their competitors’ products, which is much cheaper than hiring a full-time research staff to perform the same function, therefore leading to a better company performance. Table 3 and Fig. 1 indicate more compelling findings that low and high competitor focus activities contribute more to business performance than medium competitor focus activities. Although these differences are not significant but marginal in that the costs of becoming competitor oriented outweigh the benefits when the level of competitors’ orientation is medium. These findings offer support for the view that companies become progressively less competitor oriented following the receipt of an order. This is because there is now more need to be customer oriented (to execute the order) than to be competitor oriented, as there are no further competitive activities till next competition for submission of tenders. The reduction in competitive activities is shown by the graph with negative gradient while the customer orientation gradient is positive. As companies make progress through the execution of the orders, they

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tend to step up their competitive activities while still maintaining full focus on customer orientation in order to have positive impact on performance. This trend is demonstrated by positive gradients for both customer and competitor orientations. It appears that companies do not lose focus of their customers at any time, but do adjust their level of competition-oriented activities given the resources they have to compete in the marketplace. One plausible reason could be that machine tool companies take a longer period of time to develop customer orientation than companies in other industry sectors (cf. service industry). Therefore, by the time a firm is equipped to derive benefits from becoming competitor oriented, the nature of the competition may have changed drastically. Hence, it is important to assess the external environmental variables (e.g., technology change, market growth) before a company attempts to commit resources to become or sustain such orientation. Another possible reason could be that companies are not able to gain a competitive advantage quickly enough due to the need to invest heavily in capital items. This can have an adversarial effect on the performance of a company. The significance of the effect of competitor orientation upon performance calls for a better appreciation of the variables that influence the relationship. For example, while some businesses may adopt a more competitor-oriented strategy, others may pursue cost- or price-cutting measures in order to neutralize environmental pressures, such as market dynamism, or differing levels of strength in the economy. Such benefits are expected to be short term; however, in the long term, this approach has no effect on profitability (Appiah-Adu & Singh, 1988). This external emphasis may enable companies to find more opportunities in the environment compared to their relatively less marketoriented competitors. Responsiveness among departments (F3) has a nonsignificant effect on business performance. It appears that these companies in the sample did not place too much importance on being responsive within their functional departments. This fact is supported by the findings of the study by Robinson and Pearce (1984), which suggest that often various functions in small companies are carried out, if not by a single person, at most by very few people who have limited time and whose focus is more operational than strategic. Because the study tends to include small- and medium-sized companies, which are less likely to need formal coordination between activities, responsiveness was taken as read. Further in most cases, where companies have limited financial and human resources and have inability to compete on a broad front or in a market where no substantial economies of scale exist, they resort to a focus strategy (Porter, 1985) and provide a better service in limited segments. Certainly, a focus strategy will require less interfunctional department coordination than a strategy that caters broad range of customers’ needs from different segments. It is particularly true for companies operating in a very

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specialized area, such as machine tool where there are relatively few customers or where companies are subcontractors to larger companies whose needs’ are well identified by the small companies. Therefore, it appears that SMEs depend heavily on either their own sales force or on their principal companies’ sales force for the generation of information pertaining to customer’s need, which may compensate for the lack of coordination among various departments, and therefore saving of resources as a result of less formal coordinated activities. Further, from R&D point of view, since most of the machine tool manufactures are OEMs, subcontractors, or suppliers to value-added resellers, they are often highly directed by their principals as to the incorporation of new innovations (results of the principals’ R&D project) to their manufacturing technology, leaving a little room for getting involved with other departments or administrative procedures, as they might indirectly related to execution of the contracts. Customer satisfaction orientation (F4) has a significant ( P < .05) and positive (.24) effect on business performance. From Table 4, it appears that medium and high customer satisfaction-oriented companies tend to perform better than low customer satisfaction-oriented companies. This finding is consistent with the conventional wisdom that customer orientation is likely to lead customer satisfaction, a factor that has an influence on repeat purchase (Heskett & Jones, 1994). In the machine tool industry, it is common that most of the sales volume is determined by repeat orders, and that these repeat orders are generated through satisfied customers. Companies cannot expect to obtain a good customer satisfaction rating by merely selling machines. In some instances, satisfaction can also be obtained through providing extra functional capability by selling attachments to the existing machines. This is often done to increase operational efficiency. Further, customer satisfaction can be derived through the superior performance of machines and through the services a company can offer to its clients after sale (Singh & Ranchhod, 1988). Service after sales is an important source of revenue. Therefore, it is important that a machine has a good life span of operational capabilities coupled with quality service after sales, and that companies build customer loyalty as customers might be looking for service, upgrade, or replacement for machine tools. This kind of relationship, which leads to customer loyalty, is particularly important for companies as customers can give a natural feedback to their manufacturers who should strive to provide robust products that are able to perform under a variety of conditions. Research has shown that even if loyal customers buy competitor’s product to take advantage of a special deal, they generally return to their original company for their next purchase (Deighton & Henderson, 1994). Also, loyal customers are more receptive to line extensions and other new products offered by the same company, and they are more likely to forgive an occasional product or service failure (Bejou & Palmer, 1998). However, what gives more cause

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for concern is that the majority of dissatisfied customers do not express their dissatisfaction with the performance of products or the delivery of services, they just move their custom elsewhere, destroying all the effort and investment put into improving customer satisfaction. On the other hand, customers who complain and receive a satisfactory response become more loyal to the company than those who have never complained because they now feel confident that the company will take extra care to resolve the problem. This implies that feedback from customers is vital, and that companies should use all their available tools, such as forms of feedbacks, reports of complains, findings of market research, among others. The premise is that customers should be encouraged to give feedback via any employee or free phone number that can be passed on to concerned authority for corrective action as necessary. Thus, as companies become increasingly customer- and competitor-focused and driven by customer demands, the need to meet the customers’ expectations and retain their loyalty while maintaining long-term relationship becomes more critical. The results of the study suggest that low customer satisfaction leads to a poor business performance, i.e., satisfied customers are much more profitable to companies than occasional buyers.

about major customers; products lines that are driven by market research; quick to modify products as per customers’ needs; identify the needs of end users; and interact frequently with other departments) before they endeavor to become competitor oriented. Competitor orientation should only be a part of the general activity without recourse to extra expenditure. If companies are prepared to be fully competitor oriented, then they should be ready to endure initial revenue losses. The findings indicate the benefits for companies that have a medium to high competitor orientation. Clearly, there is a need for cost-benefit analysis to be undertaken by managers before a competitor orientation strategy is pursued (e.g., assess the quality of existing products and services; collect industry information through informal means; seek opportunities to gain competitive advantages; and getting marketing people involved with product development teams) as these bring profit only in the long term. With regard to customer satisfaction, it is vital that a medium to high level of customer satisfaction is obtained by providing customers with custom-made machines and high-quality service after sales. This highlights the fact that companies may be better in investing in relationships with customers rather than being overtly focused on competitors. This can be implemented by assessing the customers’ product preferences and by talking to end users, agents, and distributors.

8. Conclusions and implications The aims of the research were to redevelop a concise industry-specific market orientation scale and to investigate underlying dimensions that represented the market orientation concept. From this sample, the findings suggest that there are four underlying dimensions, out of which three are significant. These dimensions were labeled as customer orientation, competitor orientation, responsiveness, and customer satisfaction orientation. Regression analysis was employed to analyze the effect of each individual orientation on business performance. The findings are consistent with our expectations that customer orientation, competitor orientation, responsiveness, and customer satisfaction orientation are significant factors, and that they are positively related to business performance. However, the factor, responsiveness within department, was not found to be significantly and positively related to the business performance. This is rather a strange result, as one would have expected responsiveness to be a critical element in customer satisfaction. It may be that departmental responsiveness has been taken for granted by companies that are content with the general customer orientation strategies. ANOVA revealed that business performance is better when companies are more customer, competitor, and customer satisfactionoriented by coordinating activities effectively within a company across various departments. The implications for managers are that it pays to be customer oriented. They should develop a customer-oriented culture (e.g., keeping the whole business informed

9. Study limitations and future research As with most research efforts, this study has limitations too. One of the limitations of the research is that respondents were asked to score subjectively on a seven-point Likerttype scale. These evaluations are subject to personal bias and judgmental errors. However, financial constraint necessitated us to use this methodology. Future research could include a multiple respondent methodology and use objective data from company reports to ascertain financial performance. It would also have been useful to measure the extent to which market orientation strategies contributed to repeat purchases. Further, customer satisfaction could be measured as the percentage sales from repeat buying. It is important to mention that the study provides only a snapshot picture at a single point in time, which means that the recommendations are valid only if external environmental variables are unaffected, e.g., government regulations, foreign exchange, economic cycle, competitiveness of the developing nations to produce these machines at a lower cost. It will be interesting to see if these variables moderate the relationship between the various dimensions of market orientation and business performance. It is also desirable to develop a model using LISREL to detect the causal effect of these dimensions on performance. The modest sample size places limitations on the confidence in our findings. Repetition of the study with a bigger sample would help validate the findings, as we have not found responsiveness to be

S. Singh, A. Ranchhod / Industrial Marketing Management 33 (2004) 135–144

significantly related to the business performance. Nonetheless, the findings of the consequences of market orientation on performance do shed some light on the understanding of the impact of market-oriented activities. We do hope that our study gives food for thought to practicing managers about how customer, competitor, and customer satisfaction focus can contribute to enhancing performance of their companies in the short and long term in the light of external environmental variables. Finally, the findings offer an insight into the machine tool industry but fall somewhat short of full generalizations. However, the industry-specific construct could be used as a test bed for further research into other manufacturing industry sectors in other countries.

Appendix A (continued)

Acknowledgements

19.

The authors gratefully acknowledge the helpful comments from the editor and the reviewers. We would like to thank Professor Erkki Laitinen, University of Wasa, Finland, and Professor Angela Davis, University of Winnipeg, Canada, for bringing their insights into the paper.

No.

Items

Mean

S.D.

13.

We are generally quick to respond to competitor campaigns targeted at our customer base (W/JK). The activities of the different departments in this business unit are well coordinated (JK). Customers’ complaints fall on deaf ears in this business unit (R/JK). Even if we came up with a great marketing plan, we probably would not be able to implement it in a timely fashion (R/JK). When we find out that customers are unhappy with the quality of services, we take corrective action immediately (JK). When we find that customers would like us to modify a product or service, the departments involved make concerted efforts to do so (JK). In our company, there is little distinction between ‘‘sales’’ and ‘‘marketing’’ (W/DD). In our company, marketing’s most important job is to promote our product and services to our customers (DD). In our company, marketing’s most important job is to identify and help meet the needs of our customers (DD). The company targets specific opportunities in order to gain competitive advantage (W/NS). In our organisation, all departments contribute to create customer value (W/NS). The marketing people in our organisation interact frequently with other departments such as manufacturing, finance, distribution, etc. (DD). In our organisation, the marketing people have a strong input into the development of new products (W/DD).

4.91

1.32

5.03

1.14

5.85

1.61

5.10

1.52

5.88

1.26

5.94

1.15

5.16

1.58

5.22

1.34

5.44

1.19

5.41

1.22

5.63

1.17

5.39

1.41

5.04

1.52

14. 15. 16.

17.

18.

20.

21.

22. 23.

Appendix A 24. No.

Items

Mean

S.D.

1.

We meet customers at least once a year to find out what product or services they will need in the future (W/JK). Individuals from our manufacturing department interact directly with customers to learn how to serve them better (JK). We are slow to detect changes in our customers’ product preferences (R/JK). We collect industry information through informal means, e.g., lunch with industry friends, talks with trade partners, etc. (JK). We are slow to detect fundamental shifts in our industry, e.g., competition, technology regulation (R/JK). Marketing personnel in our business unit spend time discussing customers’ future needs with other functional departments (JK). When something important happens to a major customer or market, the whole business unit knows about it in a short period (JK). There is a minimal communication between the marketing and manufacturing departments concerning market development (R/JK). Departments are slow to disseminate competitor information among each other (W/R/JK). For one reason or another, we tend to ignore changes in our customers’ product or service needs (R/JK). We periodically review our product development efforts to ensure that they are in line with what customers want (JK). The product lines we sell depend more on internal politics than real market needs (R/JK).

5.57

1.60

5.15

1.54

4.99

1.49

5.05

1.23

4.97

1.74

5.01

1.29

2.

3. 4.

5.

6.

7.

8.

9. 10.

11.

12.

5.61

1.14

5.15

1.55

4.96

1.29

4.98

1.61

5.52

1.20

5.87

1.23

143

25.

W = reworded, R = reverse coded, JK = item from Jaworski and Kohli (1993) scale, DD = item from Deng and Dart (1994) scale, and NS = item from Narver and Slater (1990) scale.

Appendix B. Factor matrix and varimax rotation (correlation coefficients less than .40 have been suppressed) Item no. 18 17 12 21 24 9 7 11 23 2 14 10 4 16 22 25 15

F1

F2

F3

F4

.78 .76 .70 .65 .64 .62 .58 .57 .56 .52 .51 .50 .65 .65 .63 .52 .51 (continued on next page)

144

S. Singh, A. Ranchhod / Industrial Marketing Management 33 (2004) 135–144

Appendix B (continued) Item no.

F1

F2

1 8 19 6 13 3 5 20 Eigenvalue Variance (%) Factor mean S.D. Cronbach’s  Standardized  n

F3

F4

.81 .78 .66 .75 .74 .67 .66 .63 7.91 31.67 5.45 1.27 .81 .80 12

4.12 16.54 5.29 1.42 .76 .76 5

2.46 9.86 5.28 1.55 .71 .70 3

2.21 8.81 5.02 1.38 .74 .74 5

F1 = customer orientation; F2 = competitor orientation; F3 = responsiveness; F4 = satisfaction orientation.

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