Customer Orientation of Firms: What Does This Mean, Why Does It Matter, And How Does It Affect Firm Performance?
Customer orientation is one of the key factors which the company uses for its relationship with the market. As one of the important parts of the customer orientation, it acts as a driver for organizational performance. The Customer orientation is defined as one constituent of the market orientation, which emphasizes making the customers as a strategic focus for the company. Hunt and Lambe, (2000) have shown the importance of business to go from analyzing the needs of the customers to strategizing the individual offers, messages, and services for individual customers. Companies are required to collect information on the past transactions of the customer, their demographics, their media and distribution preference, their psychographics, etc. The management would hope to increase the profits by building value for their customers. The ability of companies to individually deal with their customers has long become practical because of the advancement in factory customization, internet, use of computers, and database marketing software.
Customer Orientation is the management approach in which the customers are at the center of the strategy and the departments of the business need to work around the demands and needs of the customers. The decisions and actions of the business at every important step have to keep in mind the needs of consumers. The aim is to retain the current customers as the price of keeping the customers is less than the price of gaining new customers. The process of customer orientation involves customer targeting, customer information gathering, managing the profitability of the customers, and the orientation towards customer retention (Hunt & Lambe, 2000).
Customer orientation is based on outside-in marketing management. This type of marketing focuses on the customer and its competition. The market orientation is based on customer segmentation and customer satisfaction. The business objective is to set a premium price while the competitive advantage is based on customer knowledge and quality of service. The profitability of this approach is based on customer loyalty and cross-selling. The customer orientation is the identification and delivery of the customer value as dependent on the understanding of the requirements and wants of the customers. The approach requires the company to understand the desires of the consumers and develop its products accordingly to satisfy these demands (Han et al., 1998).
This approach focuses on making the customer the king. As per this approach, no customers mean no business and the perception is considered as reality. The approach is based on the following mentality which follows its customers. As per the expectancy disconfirmation theory, the comparison of the expectations and experiences result in emotions of satisfaction or dissatisfaction. It implies that customers are aware of their desires and the company can work on capturing it.
There have been several studies which have worked on evaluating the association between customer orientation and the company performance of the ones using it. The empirical study conducted on Japanese and Sri Lankan companies for the evaluation of this relationship shows the positive association between the two variables. The findings of the research suggested that for a better level of market orientation, the companies can work on paying more attention to the emphasis on upper management on customer orientation and interdepartmental connections.
Traditionally, the business performance is calculated as the company efficiency, which can either be enhanced by increasing the amount produced by the company by using the same input or by declining the input that is required for the same output. Other than this, the organizational performance measures are evaluated regarding the profitability, profit margin, market share, product success, return on investments or assets and financial performance of the company (Theodosiou & Leonidou, 2003).
Based on the definition of the market orientation (of which customer orientation is one component), there are three determinants of the market orientation which leads to business performance. The upper management, its stress on market orientation, and its risk-taking ability for marketing orientation are one factor. Secondly, the interdepartmental dynamics which include connectedness and their conflicts is another factor. The organizational system involving their reward systems, their centralization, and their formalization is another factor. The Generation of intelligence, the Dissemination of intelligence and the response implementation are the three determinants of company performance by following market orientations (Hunt & Lambe, 2000).
The Resource-based view of the company looks inside the company for evaluating and identifying which of the firm’s ability is the competitive strength of the company that can aid in the encapsulation of the aspirations and desires of its customers and provides the ability to follow the instructions of the market. Dynamic capability is the ability which is reflected in customer orientation in the organization. It shows the capability of the company to innovate within the organization and to renew the competencies for the changing environment and market conditions. Furthermore, it is not a routine for changing environments; firms also renew their competencies in a stable environment to comply with the changing customer needs. The dynamic capability is the systematic, learned activity which the company uses for the generation of its operating routines and modifies it systems to improve the effectiveness of the operations for increased customer satisfaction (Kohli & Jaworski, 1990).
The dynamic capability is also reflected in the ability of the firm to innovate and generate profits from it. It implies that the customers are increasingly satisfied by the company even with all of their changing preferences. As customer orientation is thought to enhance the firm performance through increased customer satisfaction, several studies conducted for this purpose show the positive relationship among these variables even in all sizes of organizations. The logic of finding the link between these two variables is based on the sustainable competitive advantage (Slater & Narver, 1999). Traditionally, the literature on customer orientation has assumed that increased customer orientation would lead to the superior performance of the organization. It has shown that customer orientation helps in enabling companies to develop and understand capabilities to understand the dynamics of the market and develop accordingly to meet the demands of the customers. The successful match of the organizational capabilities and the customer value opportunities is considered an important marketing strategy. The UK based research has been unsuccessful in providing evidence for customer orientation and performance relationship (Patricio et al., 2008).
It is important to understand that resource-based performance needs an examination of the complementarities of the capabilities and resources. The fundamental elements which enable the firm to deploy and acquire the assets in ways which mirror the company environment are important to be considered. The configuration of the customer orientation underlying capabilities influences the performance of the firm (Lovelock & Gummesson, 2004). Although the profits of continuing strategic orientations like customer orientation have been discussed in the literature, it is limited when concerning the strategic orientations and their interrelation. A study examining the dynamic capability theory has looked into the interrelations of the strategic orientations by deploying their underlying capabilities and found it to be a driver for firm performance (Theodosiou & Leonidou, 2003). As depending on the cross-industry sample, the study indicates that customer orientation is a strategic asset which contributes to the increased performance of the firm (Vargo & Lusch, 2004).
The effectiveness of customer orientation depends on the environmental conditions. For instance, in markets with low uncertainty of demand, customer orientation fails to improve innovation performance. The firm as a whole is a combination of the interdependent characteristics and decision alternatives in which the competitive advantage does not precisely depend on one factor, but instead resides on the complementarities and relationship between several attributes (Van & Wierenga, 2010). Thus, a sound understanding of the drivers of the company’s performance needs understanding and acknowledgment of the complexity of the firms and their respective environments. The idea of the organizational configurations expresses the concept of suggesting that management systems and organizational structures are understood best when considered in overall patterns as compared to narrow down a set of organizational properties (Whitelock, 2002).
Market orientations have been fundamentally used in the establishment of the tenets of the organizational behavior regarding the business constituent of the firm (competitors, customers, internal functions) which all influence the organizational performance. Researchers have worked on understanding the underlying link between market orientation and performance. The interest has been always there for this assumed relationship between these variables for its evident strategic significance. Innovation is the function of an organization which is connected to the firm’s performance (Vorhies et al., 2009). It has been shown in several studies. The findings of these studies show that affirmative and direct association exists between these variables of firm performance and innovation. Reports on the revenue on innovation have shown that innovation accounts for about 50% or more for the revenue. Innovation has become increasingly important for the survival of the company and not only for the growth of the company. The increased competition and high uncertainty of the environment cause the company to innovate for its survival. However, the companies need to know how customer orientation and innovation combined to influence the firm’s performance in a causative or facilitative nature. The popular notion about this concept is that the company needs to properly execute the market orientation to bring firm performance. However, this assumption is often criticized. It has been suggested that the significant function of market orientation can be seen in the form of innovations leading to the achievement of the business. The notion is however not addressed regarding the notion that customer orientation facilitates the innovativeness of the firm. Even though the significance of market orientation is seen in its understood link with the firm’s achievement, it has been a cause for the limited strategic value for the managers. The addition of the innovative builds can add to the identification of the reconciling irregularities and empirical regularities in the market orientation and performance association would further increase the trust in the market orientation from a strategic point (Hult, 2011).
The market orientation characterizes as a business culture the organization’s character to bring value to the clientele constantly. The formation of the buyer value shows the business-wide dedication to constant synchronization of customer wants, information gathering, competitor capabilities and other provisions for the important authorities and market agents. The conclusion is an integrated effort for the superior performance given by the employees across their departments in the company. The detailed look at the customer orientation shows two widespread fundamentals for the release of better customer performance. Firstly, the information organization protocol, including the creation, responsiveness, and dissemination of the customer intelligence shows the profits that are consequences of the data for the enhancement of organizational functions. Furthermore, the definition of the market orientation consists of a competitor, customer orientation, and their inter-functional synchronization. These are all engaged in the dissemination, responsiveness, and intelligence generation for the collection of the information. Scholars posed the three foundational behavioral parts as similarly significant in the informational value. The market orientation scholars assign the business culture as a significant aspect of better business performance (Han et al., 1998).
However, many studies have raised concerns over the universally affirmative impact of customer orientation on corporate performance. It has been shown in studies that too much customer orientation can cause the firm to focus too much on their customers making them overlook the emerging customer needs, declining the novelty of their products, reducing their ability to innovate for market development and for declining the overall firm performance. Furthermore, the conceptualization of the customer-oriented approach is limited in covering the value to the company or the seller.
In the end, it can be concluded in such words that the customer orientation is the approach which should be adopted by companies to bring innovation in their companies and work on superior work performance. However, this cannot be overemphasized as it can get too misleading if focused aggressively. A moderate approach towards customer orientation would be beneficial for companies so that they can better satisfy their customers’ needs and retain their existing customers while making new ones as well.
References:
Han, J.K., Kim, N. & Srivastav, R.K., 1998. Market orientation and organizational performance: is innovation a missing link? Journal of Marketing, 62(4), pp.30-45.
Hult, G.T.M., 2011. Toward a theory of the boundary-spanning marketing organization and insights from 31 organization theories. Journal of the Academy of Marketing Science, 39(4), pp.509-36.
Hunt, S.D. & Lambe, C.J., 2000. Marketing’s contribution to business strategy: market orientation, relationship marketing and resource‐advantage theory. International Journal of Management Reviews, 2(1), pp.17-43.
Kohli, A.K. & Jaworski, B.J., 1990. Market orientation: the construct, research propositions, and managerial implications. Journal of Marketing, 54(2), pp.1-18.
Lovelock, C. & Gummesson, E., 2004. Whither services marketing? In search of a new paradigm and fresh perspectives. Journal of Service Research, 7(1), pp.20-41.
Patricio, L., Fisk, R.P. & eCunha, F., 2008. Designing multi- interface service experiences: the service experience blueprint. Journal of Service Research, 10(4), pp.318-34.
Slater, S.F. & Narver, J.C., 1999. Market-oriented is more than being customer-led. Strategic Management Journal, 20(12), pp.1165-68.
Theodosiou, M. & Leonidou, L.C., 2003. Standardization versus adaptation of international marketing strategy: An integrative assessment of the empirical research. International Business Review, 12(2), pp.141-71.
Van, B.G.H. & Wierenga, B., 2010. Marketing decision making and decision support: Challenges and perspectives for successful marketing management support systems. Foundations and Trends in Marketing, 4(4), pp.209-332.
Vargo, S.L. & Lusch, R.F., 2004. The four service marketing myths: remnants of a goods-based, manufacturing model. Journal of Service Research, 6(4), pp.324-35.
Vorhies, D.W., Morgan, R.E. & Autry, C.W., 2009. Product‐market strategy and the marketing capabilities of the firm: Impact on market effectiveness and cash flow performance. Startegic Management Journal, 30(12), pp.1310-34.
Whitelock, J., 2002. Theories of internationalisation and their impact on market entry. International Marketing Review, 19(4), pp.342-47.
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