Market orientation is a topic which has been discussed for over fifty years and still it remains a business strategy that is largely overlooked in many organisations. Within South Africa, SME’s account for 34 percent of GDP and 91 percent of the formalised business community. This positions SA SMEs as a critical segment in the economy and a key area of focus for the Government to grow the economy, create sustainable jobs and to improve standards by increasing responsible Government spending.
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Dissertation: “Does a market orientation guarantee success in the SME segment of South African companies?”
1. Salford Business School
Does a market orientation guarantee success in the
SME segment of South African companies?
By Marc Fletcher
Student Number: 00377204
A dissertation submitted in partial fulfilment of the requirements of The University of
Salford for the degree of MSc Marketing
Supervisor: Dr. Vesna Sedoglavich
15th November 2014
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Marc Fletcher, November 2014 i
Declaration
I hereby declare that this dissertation is submitted for the MSc Marketing
degree at The University of Salford and is my own work and has not been previously
submitted to any other institution of higher education. I further declare that all
sources cited or quoted are indicated and acknowledged by means of a
comprehensive list of references.
Word Count: 15,686
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Abstract
Market orientation is a topic which has been discussed at large for over fifty
years and still it remains a business strategy that is largely overlooked in many
organisations. Within South Africa, SME’s account for 34 percent of the country’s
GDP and 91 percent of the country’s formalised business community. This positions
South African SMEs as a critical segment in the country’s economy and a key area
of focus for the South African Government as they seek ways to grow South Africa’s
economy, create sustainable jobs and to improve standards by increasing
responsible Government spending.
This research study seeks to understand the level of market orientation within
South African SMEs, the relationship between market orientation and company
performance and strives to identify key determinants of market orientation within
SMEs in order to provide actionable areas of focus for those wishing to improve their
market orientation.
This research was conducted using a survey strategy targeting SME
managers within the Western Cape of South Africa. The survey instrument was
created through a combination of adopting and adapting existing question constructs
from previous research on market orientation and where required, development of
new constructs to meet the needs and objectives of the research questions.
The results indicate an overall modest level of market orientation, which
however also indicates a strong presence of a sales orientation. The relationship
between market orientation and performance is inconclusive, which is concluded to
be due to the combination of the inherent modest market orientation and the
struggling South African economy. Culture emerges as having an effect on market
orientation, however this is identified as being specifically contrary to the existing
research on the matter, which is attributed to the specific SME segment which this
research addresses.
In conclusion the results of this dissertation provides for an actionable set of
focus areas for the South African Small Business Council or even individual SMEs
and business incubators to consider. Market orientation in the SME segment has a
baseline which exists from inherent customer orientated activities but lacks the
education and mentoring to develop strategic plans and execute on the resultant
plans to help drive market orientation to its full potential.
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Marc Fletcher, November 2014 iii
Acknowledgements
I take this opportunity to thank those that participated in my survey, who were drawn
from a large network of business acquaintances, colleagues and partners from
across the breadth of the thriving SME segment of business in South Africa. Without
their help and response this project would not have been possible.
I would like to acknowledge the support and guidance afforded to me by Professor
Gabriel Jacobs with his invaluable contributions and ideas that helped form my
research topic, and to my supervisor Dr Vesna Sedoglavich for her guidance
throughout the process and the speed at which she responded to my requests.
My appreciation goes to my colleagues at Intervate who through their thoughtful
support provided me the time and space to complete this project and in particular to
Wilhelm van Rensburg, who was most supportive of my efforts.
Lastly, but not least, I am ever grateful to my parents Adrian and Sylvia Fletcher for
their continued encouragement and support, and to my wife Juleiga Moosa-Fletcher,
without whom this task would have been unfathomable, providing me with the
mental, physical and emotional support with which to complete this epic task whilst
working full time.
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Contents
1. Chapter 1: Introduction........................................................................................... 1
1.1. Chapter Overview............................................................................................ 1
1.2. Background...................................................................................................... 1
1.3. Motivation ........................................................................................................ 2
1.4. Aims and Objectives........................................................................................ 3
1.5. Research Questions Overview ........................................................................ 3
1.5.1. Central Question ....................................................................................... 3
1.5.2. Research Questions.................................................................................. 4
1.6. Research Methodology.................................................................................... 5
1.7. Limitations of the Study ................................................................................... 5
1.8. Ethical Considerations of the Study................................................................. 6
1.9. Organisation of the Dissertation....................................................................... 6
1.10. Chapter Summary.......................................................................................... 7
2. Chapter 2: Literature Review.................................................................................. 8
2.1. Chapter Overview............................................................................................ 8
2.2. The Origins of a Market Orientation................................................................. 8
2.3. Defining a SME in the Context of South Africa ................................................ 9
2.4. Defining Marketing Orientation ...................................................................... 10
2.5. Market Intelligence’s Exogenous Factors ...................................................... 13
2.6. Market Intelligence Generation, Dissemination and Responsiveness ........... 14
2.7. Market Orientation and Culture...................................................................... 17
2.8. Market Orientation and Innovation................................................................. 21
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2.9. Market Orientation and Competition .............................................................. 22
2.10. Relationship between Market Orientation and Organisation Performance .. 24
2.11. Measuring Market Orientation...................................................................... 25
2.12. Conceptual Framework................................................................................ 26
2.13. A Summary Market Orientation Definition.................................................... 27
2.14. Chapter Summary........................................................................................ 28
3. Chapter 3: Research Methodology....................................................................... 29
3.1. Chapter Overview.......................................................................................... 29
3.2. Research Design ........................................................................................... 29
3.3. Population and Sample.................................................................................. 29
3.4. Operationalization.......................................................................................... 30
3.5. Questionnaire Design .................................................................................... 30
3.6. Data Analysis................................................................................................. 34
3.7. Reliability and Validity.................................................................................... 34
3.8. Ethics............................................................................................................. 36
3.9. Chapter Summary.......................................................................................... 37
4. Chapter 4: Results and Discussion ...................................................................... 38
4.1. Chapter Overview.......................................................................................... 38
4.2. Data Demographics Results and Discussion................................................. 39
4.3. Research Question 2 – Level of Market Orientation - Results....................... 46
4.3.1. RQ2- Level of Market Orientation - Reliability ......................................... 46
4.3.2. RQ2 - Level of Market Orientation - Market Orientation Scale ................ 50
4.4. Research Question 2 – Level of Market Orientation – Discussion................. 54
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4.5. Research Question 2 – Level of Market Orientation – Summary................... 59
4.6. Research Question 3 – Determinants of Market Orientation - Results .......... 61
4.6.1. RQ3 - Determinants of Market Orientation - Reliability ........................... 61
4.6.2. RQ3 - Determinants of Market Orientation – Culture .............................. 65
4.6.1. RQ3 – Determinants of Market Orientation – Competitiveness............... 66
4.6.2. RQ3 - Determinants of Market Orientation – Management Investment... 67
4.7. Research Question 3 – Determinants of a Market Orientation – Discussion . 68
4.8. Research Question 3 – Determinants of a Market Orientation – Summary ... 73
4.9. Research Question 1 – Company Performance and Market Orientation –
Results.................................................................................................................. 74
4.9.1. RQ1 – Company Performance and Market Orientation – Reliability ....... 74
4.9.2. RQ1 – Company Performance and Market Orientation – Performance .. 75
4.10. Research Question 1 – Company Performance and Market Orientation –
Discussion ............................................................................................................ 80
4.11. Research Question 1 – Company Performance and Market Orientation –
Summary .............................................................................................................. 81
4.12. Chapter Summary........................................................................................ 82
5. Chapter 5: Conclusions and Recommendations .................................................. 84
5.1. Chapter Overview.......................................................................................... 84
5.2. Problem Statement and Methodology............................................................ 84
5.3. Conclusions ................................................................................................... 85
5.4. Limitations ..................................................................................................... 89
5.5. Recommendations and Scope for Future Research...................................... 90
5.6. Chapter Summary.......................................................................................... 90
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6. References........................................................................................................... 91
7. Appendix A – Email Note to Respondents ........................................................... 99
8. Appendix B – First Question of Questionnaire ................................................... 100
9. Appendix C – Complete Questionnaire .............................................................. 101
List of Tables
Table 1 - Research Questions.................................................................................... 4
Table 2 - Company Category in South Africa according to the National Small Business
Amendment Act, 2003 - (The Presidency, Republic of South Africa, 2003) ............. 10
Table 3 - Reliabilities of the Market Orientation Scales - Intelligence Generation and
Dissemination........................................................................................................... 47
Table 4 - Reliabilities of the Market Orientation Scales - Development of a Market
Orientated Strategy .................................................................................................. 48
Table 5 - Reliabilities of the Market Orientation Scales - Implementation of a Market
Orientation Strategy / Responsiveness .................................................................... 49
Table 6 - Percentages of both favourable and non-favourable responses to the market
orientation scales ..................................................................................................... 51
Table 7 - Second Market Orientation Construct ....................................................... 53
Table 8 - Reliabilities of the Determinants of Market Orientation Scales -
Innovation................................................................................................................. 62
Table 9 - Reliabilities of the Determinants of Market Orientation Scales -
Competition.............................................................................................................. 62
Table 10 - Reliabilities of the Determinants of Market Orientation Scales - Culture. 63
Table 11 - Reliabilities of the Performance Scale..................................................... 74
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List of Figures
Figure 1 - A Model of Organizational Culture Types - (Deshpande, Farley, & Webster,
Jr, 1993, p. 25) ......................................................................................................... 20
Figure 2 - Conceptual Framework of Antecedents to and Consequences of a Market
Orientation................................................................................................................ 27
Figure 3 - Job Roles of Respondents....................................................................... 40
Figure 4 - Highest Level of Qualification Obtained ................................................... 41
Figure 5 - Subject of Highest Qualification (if not Matric) ......................................... 41
Figure 6 - Percentage of Respondents by Industry Sector....................................... 43
Figure 7 - Company Category (SME Size) by Employees........................................ 44
Figure 8 - Job Role Allocation .................................................................................. 45
Figure 9 - Market Orientation Measures - Percentage Favourable/Non Favourable
Response................................................................................................................. 55
Figure 10 - Implementation of a market orientated strategy / responsiveness ......... 56
Figure 11 - Development of a Market Orientated Strategy....................................... 58
Figure 12 - Intelligence Generation and Dissemination............................................ 59
Figure 13 - Organisational Culture Types................................................................. 65
Figure 14 - Organisation Culture Types by SME Segment....................................... 66
Figure 15 - Determinants of Market Orientation – Competitiveness......................... 67
Figure 16 - Percentage Shareholding of those Respondents who are Shareholders68
Figure 17 - SME Size and Shareholding Percentage............................................... 70
Figure 18 - Competition and Market Orientation Scales Combined ......................... 72
Figure 19 - Profit relative to our businesses' largest competitor............................... 75
Figure 20 - Size relative to our businesses' largest competitor ................................ 76
Figure 21 - Market share relative to our businesses' largest competitor .................. 77
Figure 22 - Growth relative to our businesses' largest competitor............................ 78
Figure 23 - Correlation between Profitability and Market Orientation - Intelligence
Generation and Dissemination ................................................................................. 79
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Figure 24 - Correlation between Profitability and Development of a Market Orientated
Strategy.................................................................................................................... 79
Figure 25 - Correlation between Profitability and Implementation of a Market
Orientated Strategy .................................................................................................. 80
Figure 26 - Conceptual Framework of Antecedents to and Consequences of a Market
Orientation - Summary ............................................................................................. 88
List of Acronyms
SME / SMEs Small and Medium sized Enterprises
GDP Gross Domestic Profit
SBU Strategic Business Unit
POPI Protection of Personal Information Act
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1. Chapter 1: Introduction
1.1. Chapter Overview
This chapter provides an overview of the research study completed. The
chapter will provide a background to the study and will also explore the motivation of
the author to conduct the study as well as the aims and objectives. The research
questions and an overview of the methodology are also be presented.
1.2. Background
SME companies in South Africa are believed to make up 91% of formalized
businesses in South Africa, accounting for approximately 60% of the labour force
and accounting for approximately 34% of GDP (The Banking Association of South
Africa, 2013). The South African government has identified a number of challenges
in this most significant sector or business, which includes a lack of management
skills (The Banking Association of South Africa, 2013).
Many organisation’s management teams, not just in South Africa, but globally,
make the mistake of focusing on the selling concept (also known as the selling
philosophy) opposed to the marketing concept (also known as the marketing
philosophy (Levitt, 1960). The selling concept is the focus of ‘selling’ ones products
or services without really understanding the customer’s needs and wants (Kotler,
Keller, Brady, Goodman, & Hansen, 2012). Conversely, the marketing concept takes
a different view. Theodore Levitt (1960) of Harvard Business School defined this
succinctly in his article in the Harvard Business Review:
Selling focuses on the needs of the seller; marketing on the needs of the
buyer. Selling is preoccupied with the seller’s need to convert his product into
cash; marketing with the idea of satisfying the needs of the customer by
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means of the product or service and the whole cluster of things associated
with creating, delivering and finally consuming it (Levitt, 1960, p. 50).
The risks associated with a selling concept include customer dissatisfaction
resulting from purchasing a product or service that the customer really did not want
or which did not meet their needs nor desires.
Market orientation is the name used to refer to the implementation of the
marketing concept or philosophy, therefore a market-orientated organisation is one
that is striving to implement aspects of the marketing concept in order to fulfil the
goals of its organisation (Webster Jr, 1988).
1.3. Motivation
As an entrepreneur in South Africa over the last 12 years I have owned one,
and co-owned one SME company and I envisage that I will continue to be involved in
the SME segment in South Africa for some years to come. Many entrepreneurs and
SME company managers and owners in South Africa have little or no formal
business education or training, and tend to make strategic decisions through the
instinct of survival with short term objectives and gains top of mind. My own
experience has led me to postulate that with guidance and mentorship in areas such
as market orientation, the SME segment could grow and strengthen, ultimately
improving the South African economy and helping South Africans help themselves to
become better employers and run more successful and sustainable businesses.
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1.4. Aims and Objectives
This aspiration, and my experience directly in being one of these business
owners has led me to the proposed dissertation title which will seek to investigate the
following:
To understand what is the general level of market orientation in South African
SME companies.
To understand if there is a relationship between companies performance
within the SME segment of companies in South Africa and their adoption of
market orientation.
To understand what are the key influencing determinants of market orientation
in companies in the SME segment in South Africa.
The research will aim to provide a useful insight to what guidance the South
African government could and should focus on providing, through the National Small
Business Council, which was created as a result of the National Small Business Act
of 1996, to small businesses within South Africa to help them succeed and grow. I
postulate that the research will also be relevant to small business and to business
incubators as it may provide some guidance on the topic of market orientation and its
relevance in business mentorship.
1.5. Research Questions Overview
1.5.1. Central Question
The central research question of this dissertation is:
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”Is there a relationship between market orientation and company performance in the
SME segment of companies in South Africa?”
1.5.2. Research Questions
This central question and other research questions are defined in detail in
Table 1 below:
Table 1 - Research Questions
RQ # Research Question Description Method
RQ1 Is there a relationship between
market orientation and company
performance in the SME
segment of companies in South
Africa?”
The study explored facets of
performance and market
orientation.
Literature Review and
questionnaire.
RQ2 What is the general level of
market orientation in South
African SME companies
compared to Western European
/ North American companies?
This question seeks to
position South Africa’s SME
segment with other research
undertaken in the developed
world.
Literature Review and
questionnaire.
RQ3 What are the key influencing
determinants of market
orientation in companies in the
SME Segment in South Africa?
Research shows that there a
number of determinants for
market orientation – the
study sought to explore
which of these were
prevalent in the South
African SME context.
Literature Review and
questionnaire.
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1.6. Research Methodology
The study reflects a philosophy of positivism, in that data was collected about
observable realities and regularities and causal relationships were sought to create
law-like generalisations (Gill & Johnson, 2010).
The study adopted an abductive approach – data was collected to ultimately
concur with or modify the existing theory that market orientation has a relationship
with company performance, within the specific context of my study. The study used
quantitative methods in its methodology.
A survey strategy was adopted to establish a data set from respondents. The
survey was conducted online and contact was initiated via email and telephone to
invite the respondents to participate. Respondents were encouraged to share the
survey link with any contacts who they felt may be appropriate. The intended
participants were drawn from the author’s pool of acquaintances and contacts in
South Africa who are either founders/owners or managers in SME firms. It was
envisaged that the sample size would be 150 participants. A return rate of between
35% to 40% of respondents was anticipated and was considered to be an
acceptable response rate (Baruch & Holton, 2008). Finally data from the collated
data set was analysed to arrive at conclusions and to identify recommendations for
future research.
1.7. Limitations of the Study
Given the limitation of time, a cross-section study was undertaken.
Furthermore, the study was undertaken in English. While some respondents did not
have English as their ‘mother-tongue’ (there are 11 official languages in South
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Africa), business is predominantly undertaken in English and it was not expected to
have an adverse effect on the outcomes.
1.8. Ethical Considerations of the Study
Anonymity and confidentiality of all respondents to this study were ensured.
The data contained within the survey was coded to ensure that this confidentiality
was retained. Further ethical considerations are discussed in detail in the
methodology chapter.
1.9. Organisation of the Dissertation
This research study has been divided into six chapters, as follows:
Chapter 1: Introduction. This chapter provides a background to the study, which has
led to the formulation of the research questions. It also includes the motivation of the
author and provides an ideal on how this research may be used in South Africa.
Chapter 2: Literature Review. This chapter provides a synthesis of the published
work on the topic of ‘Market Orientation’ and has sought to underpin the aims and
objectives of this study as well as to provide a wholesome overview of the seminal
studies that have been completed to date.
Chapter 3: Research Methodology. This chapter defines the data collection methods
and research design chosen for this research study and provides a reasoned
argument for the choice, and reviews the reliability and validity issues of the
methodology.
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Chapter 4: Results and Discussion. This chapter will present the results captured
using the methodology adopted and will discuss the analysed results that have been
found.
Chapter 5: Conclusions and Recommendations. This chapter will present the
conclusions and recommendations resulting from the study. This chapter will also
provide a final reflection on the research study, highlighting the successes and
failures and also provide details of opportunities for further research on this topic as
identified through this study.
At the end of the study, a comprehensive list of references is provided.
1.10. Chapter Summary
This chapter presented an overview of the research study conducted,
including the aims, objective and motivation and outlining the methodology. Finally
the chapter concluded with an outline of the dissertation structure.
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2. Chapter 2: Literature Review
2.1. Chapter Overview
The purpose of the literature review and therefore this chapter is to
understand the seminal theory and empirical studies that have been undertaken on
the topic of market orientation and its evolution over time. The chapter commences
with a broad view of some of the origins of market orientation, followed by a
discussion on the topic of the definition of a SME, a key and critical concept that
pertains to the target frame of this study. This is followed by a review and discussion
of the concept of market orientation, which is a widely interpreted phenomenon
resulting in a variety of definitions and implications. The chapter reviews the
determinants of market orientation as considered key to the author in this study and
states five hypotheses of market orientation within the SME segment of South Africa
to be tested as a result.
2.2. The Origins of a Market Orientation
The realm of market orientation provides for a considerable and broad body of
literature, and for that reason I am not attempting to provide an exhaustive account
of all literature pertaining to market orientation. However I proffer a small sampling
that provides theoretical grounding and empirical evidence which pertains to the
focus of this dissertation.
Market orientation was born from the marketing concept which essentially is a
business philosophy or policy statement which suggests that the ultimate goal of an
organisation is to fulfil the needs of customers in order to maximise business profits
(Webster Jr, 1988). During these early days it was not just scholars but business
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leaders alike who were developing the marketing concept. John McKitterick of
General Electric stated that:
[It] is not so much to be skilful in making the customer do what suits the
interests of the business as to be skilful in conceiving and then making the business
do what suits the interests of the customer (McKitterick, 1957, pp. 71-82).
As explored in the introduction chapter, Levitt (1960) was an early proponent
of the differentiation between selling and marketing, by focusing on the customer’s
needs and not just the organisation’s products. Many of the studies in the 1990’s
and beyond used the seminal research of Narver and Slater (1990) or Kohli and
Jaworski (1990) or both as the basis of their research. The 2000’s and beyond also
saw a steady rise in the number of studies using this seminal research of the 1990’s
as a base, whilst adapting these theories, practices and frameworks to an ever
increasing myriad of permeations and variations to explore the various antecedents
and factors which have emerged around the topic.
2.3. Defining a SME in the Context of South Africa
This study concerns itself with the SME market, and therefore as a departure
point it is worth clarifying the context of a SME, specifically in the South African
context. Small and Medium sized Enterprises or SMEs have a variety of definitions
which vary between and within countries. Within South Africa this definition is
defined in Table 2 below (The Presidency, Republic of South Africa, 2003).
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Table 2 - Company Category in South Africa according to the National Small Business Amendment Act, 2003 -
(The Presidency, Republic of South Africa, 2003)
Company Category Employees Turnover
Medium Sized <= 200 < ZAR 51m
Small <= 50 < ZAR 13m
Very Small <=20 < ZAR 5m
Micro <= 5 < ZAR 0.2m
Within South Africa, due to large discrepancies of revenue within the size
bands between businesses, the measure of the number of employees is used more
regularly to classify company sizes. Therefore, within South Africa the size band,
based on the number of employees, for a SME is between 1 to 200 employees.
Given that this study is to focus on South African SMEs this will be the target
population for this study.
2.4. Defining Marketing Orientation
Definitions of the marketing concept, marketing orientation, market orientation
or customer orientation, as some scholars refer and use synonymously, differ in
many forms. Kohli and Jaworski (1990) note the term ‘market orientation’ is
preferred in many recent studies, allied with the idea that ‘market’ refers to the
broader context including customers, competitors and other exogenous forces. So
whilst I may refer to marketing orientation and marketing concept within this
dissertation – this will be for completeness and accuracy of citation whilst
recognising that the recommended term is ‘market orientation’.
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Narver and Slater (1990, p. 21) define market orientation as “the
organisational culture that most effectively and efficiently creates the necessary
behaviours for the creation of superior value for buyers, thus continuous superior
performance for the business.” A market orientated business therefore continuously
seeks to identify its sustainable competitive advantage, by understanding how it can
maintain and create superior value for customers, whilst considering customer’s
needs to reduce a buyer’s total acquisition and use costs (Narver & Slater, 1990).
Narver and Slater (1990) claim that market orientation comprises of three
behaviours: customer orientation, competitor orientation and inter-functional
coordination, and two decision criteria: long term focus and profitability. Narver and
Slater’s (1990) empirical research is one of a number of seminal studies limited to
large commercial (North American) organisations, which as a result introduces a
bias. This bias, in my opinion may exist in the third behaviour: inter-functional
coordination, which in an SME could prove to be negated due to its operational size
and therefore could be argued to be an invalid measure of market orientation in the
SME context.
Kohli and Jaworski (1990) define market orientation as the collection and
dissemination of market intelligence, which is a broad context of a number of
exogenous sources (not just customers), including both current and future needs of
customers, and importantly, taking actions as a result of that intelligence. Therefore,
Kohli and Jaworski (1990) consider customer orientation and competitor orientation
under the classification of market intelligence. Accordingly, I concur with Kohli and
Jaworski’s broader definition, which includes a breadth of actors and factors, whilst
recognising that Narver and Slater’s (1990) focus is explicitly on ‘behaviours’, which
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they postulate are the key instruments in a market orientation. I would argue that
developing these definitions to combine the breadth and the detail of both to ensure
an all-encompassing definition, could lead to a more complete definition which could
allow for a more refined test within the SME context.
Ruekert (1992, p. 228) defines market orientation as the “degree to which the
business unit obtains and uses information from customers, develops a strategy
which will meet customer needs, [and] implements that strategy by being responsive
to customers’ needs and wants”.
Deshpande et al (1993, p. 27) define customer orientation as “the set of
beliefs that puts the customer’s interest first, while not excluding those of all other
stakeholders such as owners, managers, and employees, in order to develop a long-
term profitable enterprise”.
All these definitions serve the purpose of further elaborating on the concept of
market orientation - whilst Narver and Slater’s (1990) definition could be argued to
provide a more theorised context ideal for large enterprise, Kohli and Jaworski’s
(1990) provide for a more practical implementation which has elements which may
provide for more definitive constructs with which to base a specific SME focused
study upon. Finally, Ruerkert’s (1992) theory of the development and implementation
of a market orientation strategy further provides a very practical approach which
could be very relevant for SMEs, where practicality tends to outweigh process, and
also where multiple departments may not exist, countering Narver and Slater’s
(1990) inter-departmental interaction as a key measure of market orientation.
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An important and more recent study by Hult et al (2005) attempts to reconcile
the disparate definitions and postulates that market orientation includes all of the
seminal theories from the likes of Narver and Slater (1990), Kohli and Jaworski
(1990) and others previously mentioned. The most important conclusion that they
state is that customer orientation is not the only decisive factor of a market
orientation – a conclusion that I concur with and seek to explore further through this
study.
2.5. Market Intelligence’s Exogenous Factors
As already alluded to, market intelligence, the term proposed by Kohli and
Jaworski (1990), extends beyond the realms of just the ‘customer’ and the
‘competitor’ as posited by Narver and Slater (1990). These exogenous factors could
include government regulation, market forces as a result of new technology, trends,
changes in political climate, and environmental factors (Kohli & Jaworski, 1990). I
further posit that South Africa, as an emerging economy, is conceivably more likely
to be exposed to some of these forces than other markets, due to its relative
volatility, and specifically more so than those markets where most of the seminal
studies have been conducted within, which are largely the North American and
Northern European regions. Furthermore, with consideration of my focus on SMEs
within South Africa and my belief of the nation’s relative volatility, the aforementioned
exogenous factors may well have been experienced less by firms in developed
nations as a result of it being somewhat predictable in its effects or stable in its
factors.
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2.6. Market Intelligence Generation, Dissemination and Responsiveness
A key construct of market intelligence is the method by which such
intelligence is gathered. Collection or generation could occur through such diverse
methods including lunch appointments, formal meetings, seminars and conferences,
trade press and other publications, surveys and polls, to name just a few (Kohli &
Jaworski, 1990). I posit that these behaviours, whilst largely social in their construct,
could also be influenced by cultural norms of a country, and in the context of South
Africa, with its ethnically diverse cultures within, even further influenced by these
sub-cultures that exist. South Africa, specifically in the less formal SME segment,
has a large component of social behaviour woven into its business community which
can help drive relationships and intelligence gathering in a different way to both other
national samples and larger organisations.
Intelligence gathering is only one half of the equation however. Once the
intelligence is gathered, and importantly gathered by all departments, not just
marketing, the job of dissemination is key. Kohli and Jaworski (1990) argue that
dissemination should importantly follow a structured process but this should not
preclude informal channels of communication, for example conversations at the
proverbial water cooler or coffee machine. They also posit that organisation wide
lateral communication is also key in order to ensure that the intelligence gathered
permeates divisions at the right levels and avoids the hierarchical effects of a ‘chain
of command’. In the context of South African SMEs, I consider that this may be less
of a challenge due to the size (rather than cultural aspects) of the firms considered
within this study. Despite its informal and formal diversification in terms of
generation and dissemination, I also believe that there may need to be a core
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Marc Fletcher, November 2014 15
element of information that is captured using some method or tool which can ensure
that the information can be accessed easily by all those that require it. This theory is
supported by Taylor et al (2008) who postulate that key information must be
gathered and that education of the workforce in this capture is critical to the success
of the process. They further conclude that through educating their workforce to
collect this information - they are in essence helping them to evolve their customer
orientation. Inoguchi (2011) noted that SMEs are likely to conduct intelligence
gathering informally, and also likely not to capture this and therefore use the
information ineffectively, which through education, as cited by Taylor et al (2008)
could be remedied.
In summary, which has been evidenced in the literature, I believe that the
process should not be too rigid so as to limit the activity and the creativity of sharing.
It is also clear that education is required on how to collect intelligence and there
needs to be an element of control and accountability for the actions that need to take
place.
Paradoxically, Anderson (1982) posits that marketing’s most important role
may be ‘selling’ within the firm. This is in the context of leveraging the intelligence
collated and facilitating the dissemination, and obtaining acknowledgement of the
importance of the intelligence at the executive level, in order to exhibit how this can
help meet the strategic objectives of the firm. This implies that such intelligence is
key to the firm achieving its strategic objectives and that whilst it’s not the sole
responsibility of marketing to disseminate, the literature would lead me to venture
that it is marketing’s responsibility to ensure that dissemination occurs. Furthermore,
it would follow that the overall responsibility, and accountability, could rest with an
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Marc Fletcher, November 2014 16
executive who has a responsibility and accountability for marketing within the
organisation, and the coordination of marketing activities organisation wide. I would
further postulate as a result of the literature reviewed, that should there not be a
founder or owner, or executive manager responsible for marketing, this could have a
negative impact on an organisations ability to be effective in its market orientation.
This is further discussed in the section on market orientation and culture.
Responsiveness refers to the action, or non-action of an organisation as a
result of market intelligence collated and disseminated within an organisation (Kohli
& Jaworski, 1990). In a market orientated company all departments, once again not
just the marketing department, actively participate in responding to the market forces
that the marketing intelligence brings to the fore. However the original definition of
‘responsiveness’ defined by Kohli and Jaworski (1990) should include ‘pre-empting’
changes in the market or proactively responding to customer’s latent needs. This
proactivity is described by Narver et al (2004) as a proactive market orientation.
Therefore, responsiveness may refer to actively responding to the market
intelligence gathered or pre-empting changes in the market’s future needs through
activities including: reviewing prices based on market changes, identifying new
market segments, reacting to customer opinion, sentiment or complaints, periodically
or reactively reviewing or adapting product or service offerings to meet changing
needs, and adaption of promotions. This list is by no means exhaustive, yet provides
for a sample of activities that can be construed as being responsive (Kohli &
Jaworski, 1990).
Responsiveness and proactivity therefore seems highly achievable, and I am
confident that most managers questioned using a broad construct would with
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Marc Fletcher, November 2014 17
conscience respond that they are indeed highly responsive. However,
responsiveness and proactivity should be defined as being concerned with the
development of a plan of action or a strategy (Ruekert, 1992). Such a plan should
consider the objectives and the resources available to achieve the objectives, allied
with an allocation of a responsible person to ensure that the plan is executed upon.
As evidenced by the literature I venture that it is this practical implementation of
responsiveness and a market orientation as a whole which differentiates truly those
that believe they are market orientated and those that actually are.
So far only a few empirical studies have used the Narver et al (2004) dual
model of market orientation (responsive and proactive), including Voola and O’Cass
(2010), and these limited results have indicated that a proactive market orientation
has a strong influence on performance.
2.7. Market Orientation and Culture
A broad array of research exists which concludes that there is a relationship
between organisational culture and market orientation (Deshpande & Webster Jr.,
1989); (Denison, Corporate Cutlure and Organizational Effectiveness, 1990); (Kotter
& Heskett, 1992); (Sorensen, 2002); (Denison, Haaland, & Goelzer, 2004); (Gainer &
Padanyi, 2005); (Laforet, 2008). Narver and Slater (1990, p. 21) refer to market
orientation as being “the organizational culture that most effectively and efficiently
creates the necessary behaviours for the superior creation of value for buyers”. Both
Narver and Slater (1990) and Lichtenthal and Wilson (1992) suggest that culture is a
key element of market orientation. They agree that market orientation is a set of
behaviours that to be successful needs to be embedded within the organisational
culture, which comprises of an organisation’s values and mission, and must be both
28. Does a market orientation guarantee success in the SME segment of South African companies?
Marc Fletcher, November 2014 18
embraced and led by the organisations leadership. Leadership, or management as
Rapp et al (2008) refer to it as, is considered a key influence of market orientation.
This aspect is an area which I consider to be a key determinant of market orientation
within SMEs. Laforet (2008) posits however that all SMEs are not equal in this
scenario, and this could be true in the South African context. Laforet (2008) argues
that the divergent size of a SME can have an effect on its culture which is driven by
the leadership. I posit however that many SMEs, unlike larger corporate firms tend to
be entirely owner-managed, or at least have a management who hold a majority
investment in the business. This investment model, which has coined the phrase
“skin in the game”, first used by Warren Buffett, tends to direct a set of behaviours
which is a focused belief that the customer is the most important facet of the
business, ultimately because it’s the customer that is providing the financial
resources and enabling the firm to remain viable on a long term basis. This
behaviour in turn drives a positive culture of customer orientation, which as a result
of being a smaller firm, is somewhat easier to create, maintain and keep alive.
Therefore, it is my opinion that the customer orientated culture of an SME may be
enriched by a limited and shallow hierarchy and is assisted by the fact that many
managers and even executives within an SME are both invested, and tend to be
client focused and client facing on a regular basis.
Management literature reflects a swathe of research related to the reward
systems of employees and the effect on the attitudes and behaviour of the
employees (Anderson, 1982), (Chambers, 1985). Webster (1988, p. 38) even goes
as far as arguing that “the key to developing a market-driven, customer orientated
business lies in how managers are evaluated and rewarded”. However there is no
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such research to review the relationship between the invested management of an
SME and a SMEs market orientation. I therefore postulate that:
H1: The greater the investment the management team hold within an SME the
greater the overall market orientation.
This hypothesis builds upon the work of Ndubisi and Agarwal (2014) who
conclude that a relationship between entrepreneurial innovation (a facet of a market
orientation) and organisational performance exists.
Deshpande et al (1993) responded to a call from the Marketing Science
Institute to undertake a study which looked at these previously distinct determinants
of market orientation and its impact on business performance which included:
culture, customer orientation and innovativeness. Deshpande and Webster (1989, p.
4), in their earlier research, defined culture as “the pattern of shared values and
beliefs that help individuals understand organizational functioning and thus provide
them with the norms for behaviour in the organization”. Subsequently, Deshpande et
al (1993, p. 25) adapted a model of ’organizational culture types’ as shown in figure
1 below, from Cameron and Freeman (1991, p. 29). This model seeks to define an
organisations cultural model based upon its values, assumptions and staff member’s
interpretation of these factors (Cameron & Freeman, 1991). It is a further adaptation
of this model which facilitates this study’s measure of culture which can then be used
to test the relationship between this and other key determinants.
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Organic Processes (flexibility, spontaneity)
Mechanistic Processes (control, order, stability)
External Positioning (competition,
differentiation)
Internal Maintenance (smoothing
activities, integration)
Type: Clan
DOMINANT ATTRIBUTES:
Cohesiveness, participation,
Teamwork, sense of family
LEADER STYLE:
Mentor, facilitator, parent figure
BONDING:
Loyalty, tradition, interpersonal cohesion
STRATEGIC EMPHASES:
Developing human resources, commitment, morale
Type: Adhocracy
DOMINANT ATTRIBUTES:
Entrepreneurship, creativity, adaptability
LEADER STYLE:
Entrepreneur, innovator, risk taker
BONDING:
Entrepreneurship, flexibility, risk
STRATEGIC EMPHASES:
Toward innovation, growth, new resources
Type: Hierarchy
DOMINANT ATTRIBUTES:
Order, rules and regulations, uniformity
LEADER STYLE:
Coordinator, administrator
BONDING:
Rules, policies and procedures
STRATEGIC EMPHASES:
Toward stability, predictability, smooth operations
Type: Market
DOMINANT ATTRIBUTES:
Competitiveness, goal achievement
LEADER STYLE:
Decisive, achievement orientated
BONDING:
Goal orientation, production, competition
STRATEGIC EMPHASES:
Toward competitive advantage and market
superiority
Figure 1 - A Model of Organizational Culture Types - (Deshpande, Farley, & Webster, Jr, 1993, p. 25)
The y axis on figure 1 above defines the continuum from organic to
mechanistic in terms of processes of control. This construct is defining the
organisations flexibility and agility versus control and order. The x axis defines the
organisation’s outlook in terms of being inwardly or outwardly focused. Deshpande
et al (1993) are quick to point out however that this model represents a modal set of
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Marc Fletcher, November 2014 21
cultural types which are therefore not mutually exclusive, which further implies that a
firm may have traits of more than one type. However, one culture will ultimately
emerge as the strongest. It is important to note that within a larger organisation with
multiple divisions and/or Strategic Business Units (SBUs), these individual units
could have a differing culture and sub-culture within them. Within this study, focused
on SMEs, this point is largely moot due to the difference in size of the organisations
and the difference of the methodology adopted.
H2: SMEs with a stronger culture towards ‘market’ will have a stronger market
orientation.
2.8. Market Orientation and Innovation
Innovation and adaptability are two key behaviours that also lead towards an
increased propensity towards a market orientation and therefore business
performance (Deshpande, Farley, & Webster, Jr, 1993); (Deshpande & Farley,
2004); (Menguc & Auh, 2006); (Sandvik & Sandvik, 2003); (Kirca, Jayachandran, &
Bearden, 2005), and I would further postulate this is ever present within an SME.
These two behaviours are factors in what Narver et al (2004) refer to as the
responsiveness and proactivity pillars and are arguably also a part of an
organisations culture. Due to their size, many SMEs tend to have less restrictive and
more innovative process and organisational structure which whilst are not pure
antecedents to innovation and adaptability, most definitely provide for an
environment where innovation and adaptability can be more easily achieved (Ndubisi
& Agarwal, 2014). As Sandvik and Sandvik (2003) conclude, an organisation that
facilitates and promotes innovation, which in turn introduces a level of risk, do so
with the added potential benefit of meeting a customer’s unique and changing needs
32. Does a market orientation guarantee success in the SME segment of South African companies?
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– conversely the failure of such an innovation can be supported by the culture of the
organisation to not be considered an institutional failure but a learning experience –
thus promoting innovation. This is a conclusion that Ndubisi and Agarwal (2014)
largely concur with.
Menguc and Auh (2006) even take this point further to suggest that an
entrepreneurial spirit is key to the essence of market orientation, a view which was
first asserted by Drucker (1954, p. 37) almost 50 years prior interpreted from his
statement that “any business enterprise has two – and only these two – basic
functions: marketing and innovation”. This is a view which I also maintain and aim to
substantiate through this study. Sandvik and Sandvik (2003) further conclude that
providing the market with new products that have unique benefits will ultimately
assist the firm to achieve a superior performance, an activity that results from a focus
on innovation. I further postulate, in line with this conclusion, that the size, structure
and culture of an SME, which inevitably is smaller than the larger organisations used
within the aforementioned studies, will provide for an environment which is more
agile and therefore more fertile for innovation, notwithstanding a culture to support
this. This is a view supported by O’Regan et al (2006) in a similar study of this
hypothesis in the United Kingdom.
H3: The more highly innovative and adaptable SMEs are the greater the
organisation’s market orientation.
2.9. Market Orientation and Competition
Competition is cited by Kohli and Jaworski (1990) as being a significant factor
in market orientation. Strong competition will create a buyers’ market, which in turn
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will drive sellers to work harder – however I would question Kohli and Jaworski
(1990) in their implied statement that this would necessarily drive market orientation
because this could possibly on the contrary drive a selling orientation as a result. To
this point however, I would venture that those businesses that have commenced a
journey of implementing a market orientation are more likely to continue that journey.
Contrariwise, within a SME, it could be argued that there is never a good time to
consider starting that journey. Covin and Slevin (1989) concluded that a strong
competitive market actually drives SMEs towards a market orientation in that they
seek new products and services for survival. Conversely Kohli and Jaworski (1990)
claim that in markets where demand exceeds supply, firms are less likely to rely on a
market orientation, or even the competitive environment, to sustain their position due
to the markets munificence. I posit therefore that there is likely a strong relationship
between competition and responsiveness and market orientation on the whole. This
postulation pertaining to the competitive environment and market orientation is
considered however with cognisance of the study by Jaiyeoba and Amanze (2014).
In their study of Botswanan SMEs Jaiyeoba and Amanze (2014) concluded that the
market orientation was contingent on the environmental conditions pertaining to
determinant factors and should not be considered equal in all scenarios. These
determinant factors as explored earlier, include culture and innovation. Appiah-Adu
and Singh (1998) concluded within their empirical evidence that an
overcompensated focus on the competitor environment could be detrimental to the
customer environment, and therefore market orientation in general. I believe that this
conclusion substantiates a claim that the elements of market orientation are both
34. Does a market orientation guarantee success in the SME segment of South African companies?
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symbiotic and effected by environmental nuances as cited by Jaiyeoba and Amanze
(2014).
H4: The greater the competition, the greater the responsiveness within the
organisation, leading to a stronger market orientation.
2.10. Relationship between Market Orientation and Organisation Performance
In the same way that multiple authors have created multiple definitions and
frameworks for market orientation, these same authors have also arrived at varying
degrees of organisational performance being related to market orientation. In the last
20 years a considerable number of independent studies have identified a positive or
strongly positive relationship to organisation performance (Narver & Slater, 1990);
(Appiah-Adu & Singh, 1998); (Baker & Sinkula, 1999); (Menguc & Auh, 2006);
(Wong & Ellis, 2007); (Zahra, 2008); (Tsai, Chou, & Kou, 2008); (Jaiyeoba &
Amanze, 2014). Similarly, there are a handful that have concluded no significant
relationship between market orientation and performance (Caruna, Pitt, & Berthon,
1999); (Lonial, Tarim, Tatoglu, Zaim, & Zaim, 2008). From the literature reviewed, I
posit that context, environment, leadership, culture and innovation, and adoption are
all significant determinants that form a symbiotic environment that results in a
successful implementation of market orientation and therefore it is not surprising to
learn that there is an array of results across these diverse and unique studies.
H5: An organisations performance, measured in financial terms, is positively
related to its market orientation.
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2.11. Measuring Market Orientation
As Kholi and Jaworski (1990) note, market orientation is not a binary status.
They postulate that it is not a case of an organisation being market orientated or not,
but rather, that an organisation’s market orientation is measured on a scale and is
interpreted as a result of analysis of an organisations response to the three pillars:
market intelligence generation, dissemination and responsiveness.
As a result, Kohli et al (1993) developed a measure of market orientation,
called MARKOR, with the intention of aligning research on the topic to deliver
comparable results. Primarily Kohli et al (1993) devised this measure to be used by
SBUs of large organisations. Given the focus of this research it is therefore
necessary to be cognisant of the nuances that a focus on SBUs in a large
organisation will have, and to adapt this to be applicable to the SME market focus.
One such nuance was that Kohli et al (1993) provisioned the survey to a sample of
both market and non-marketing executives within the same SBU. The sample, as
already mentioned, will comprise of SME’s in South Africa, where there may not be a
specific executive responsible for marketing, and therefore would preclude this
approach. Given the objectives of this study, the provision of a survey to one or more
founders, owners or executives (who may be SBU executives) within an organisation
will suffice the research.
The MARKOR scale provides for a perfectly adequate base method through
which to measure a generalised market orientation with some changes required to
acknowledge an SME and South African context. This is modified using Ruekert’s
(1992) study as an indicator of enquiry that is more relevant for SMEs. However
neither the MARKOR scale nor Ruekert’s (1992) models in their current form
36. Does a market orientation guarantee success in the SME segment of South African companies?
Marc Fletcher, November 2014 26
facilitate the analysis of market orientation’s relationship with performance or the key
determinants of market orientation that have been discussed. Therefore an
instrument providing for the measurement of innovation and culture is adapted from
Deshpande et al (1993) and Narver et al (2004) which will facilitate these additional
constructs required.
2.12. Conceptual Framework
In summary the following hypotheses are derived following a focused search
and scrutiny of both theoretical and seminal literature on market orientation, which
the study will seek to test:
H1: The greater the investment the management team hold within an SME the
greater the overall market orientation.
H2: SMEs with a stronger culture towards ‘market’ will have a stronger market
orientation.
H3: The more highly innovative and adaptable SMEs are the greater the
organisation’s market orientation.
H4: The greater the competition, the greater the responsiveness within the
organisation, leading to a stronger market orientation.
H5: An organisations performance, measured in financial terms, is positively
related to its market orientation.
These hypotheses are shown in Figure 2 below, which presents a conceptual
framework of antecedents to and consequences of a market orientation.
37. Does a market orientation guarantee success in the SME segment of South African companies?
Marc Fletcher, November 2014 27
Market
Orientation
Perfomance
Management
Investment
Market Culture
ResponsivenessCompetition
Innovation
H4
H3
H2
H1
H5
Figure 2 - Conceptual Framework of Antecedents to and Consequences of a Market Orientation
2.13. A Summary Market Orientation Definition
As a result of the literature review a concluding definition for the phenomenon
which we call ‘market orientation’ is a combination of those provided by Kohli and
Jaworski (1990), Reukert (1992) and Narver (2004) – Market orientation is the
organisation wide generation of market intelligence pertaining to current and future
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customer needs, dissemination of the intelligence within the company to all staff, the
development and execution of a market orientated strategy and the responsiveness
and proactivity to customers which is influenced by an organisations culture.
It is this definition that is used as the focus of this study on both measuring
South African SMEs market orientation and providing a context to the research
question involving the relationship between market orientation and performance and
its determinants.
2.14. Chapter Summary
In this chapter the literature reviewed covered the origins and the seminal
works of market orientation which has a strong focus on the North American and
North European markets and within large enterprises. As a result, the literature
reveals significant gaps in the hypotheses and empirical research relating to SMEs
and emerging market economies such as South Africa and the nuances to the
findings already presented. With a focus on South African SMEs, this study
highlights the cultural and environmental differences and extends the limited
research on SMEs which will build on the existing theory and research.
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3. Chapter 3: Research Methodology
3.1. Chapter Overview
This chapter describes the methodology of the research used within this
study. This includes the population and sample size, the instrument designed to
collect the primary data and specifically how the constructs were decided upon. This
chapter also considers the reliability and validity measures and ethics.
3.2. Research Design
A mono method research design was chosen for this study. The strategy was
to use a survey to collect primary quantitative data from the sample frame. A survey
strategy was chosen to facilitate a relatively large sample within a reasonably short
timescale and to enable the statistical analysis of the resultant data. Specifically the
survey was considered a suitable instrument following the research design on the
question constructs, which if answered in entirety would provide the necessary data
with which to derive conclusions to the research questions. The research instrument
chosen for the survey was an internet based questionnaire which was coded to
provide statistical and numerical quantitative data which facilitated the analysis of
trends and relationships between variables of each of the questions contained within.
Due to the time constraints on the research study, a cross-sectional study was
chosen.
3.3. Population and Sample
Due to time limitations and resources the population from which the sampling
frame was selected was all SMEs within Cape Town, South Africa, with which the
researcher had acquaintance with over the last 12 years. Becker (1998) states that a
40. Does a market orientation guarantee success in the SME segment of South African companies?
Marc Fletcher, November 2014 30
sample should represent the full set of cases in a way that can be justified and is
meaningful. As stated the enlisted SME managers for the sample frame was
obtained from the researchers own vast network of contacts gathered from living for
over 12 years in the region and networking in SME circles across industries. This
sample was considered representative of the population of SMEs in Cape Town
based on the researchers experience and knowledge of the region. The sample
frame for this study consisted of 123 SME Managers of which 71 responded
representing a response rate of 58%. This was considered satisfactory by standards
which state that response rates from organisation’s representatives of between 35%
and 40% are reasonable (Baruch & Holton, 2008).
3.4. Operationalization
The goals of the study were to provide further understanding of the level of
market orientation in South African SMEs, the relationship between market
orientation and performance and also to consider the determinants of market
orientation. To achieve this, constructs from previous works on the identified
pertinent variables were adopted and adapted from various authors. These are
discussed in the following section.
3.5. Questionnaire Design
The questionnaire used in this study is provided in Appendix C. Babbie (2005)
states that the layout and flow of a questionnaire is just as important as the
questions themselves. Questionnaires which are poorly laid out, enforce questions
to be answered, or are misleading or confusing are likely not to be completed in their
entirety leading to mortality (which is a threat to internal validity) or simply a poorly
41. Does a market orientation guarantee success in the SME segment of South African companies?
Marc Fletcher, November 2014 31
responded to survey. As a result, significant effort was taken to research the most
appropriate online survey questionnaire tool. eSurveyCreator was chosen based on
its simple layout, inclusion of mandatory and non-mandatory questions, its ability to
allow respondents to part-complete and return to a questionnaire, and the facility to
provide conditional routing within the tool.
The questionnaire was constructed of ten parts. The first part was an
introduction to provide the respondent context to the study and to request their
assistance through participation. Importantly the opening statement also made it very
clear that the information provided would be anonymous and all information provided
would be kept confidential. In order to provide reciprocation, and in the spirit of the
research undertaken, an offer to receive a summary of the research once complete
was made to all respondents. The first part included a yes/no question construct in
order to gain explicit acceptance of the information provided and the respondent’s
agreement to continue. The first question was mandatory in order to achieve an
explicit acceptance or a non-acceptance which then exited the participant gracefully
from the questionnaire and thanked them for their time thus far.
The second section requested some personal framing information including
job title, academic qualifications, and industry and company size. This was
requested to both qualify the respondents and to provide some simple questions with
which to initially engage the respondents. The last question of the second section
requested the respondent to disclose if they were a shareholder or not which based
upon them answering positively would then lead to a question requesting the
percentage held and the number of shareholders. This was requested specifically to
inform a hypothesis relating to invested managers.
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The third section asked the respondents to provide information about their
marketing role responsibility – this was to qualify those that were coming from a
marketing background and those that were not. Up to this point all the question
constructs had been developed specifically for the purposes of this study.
The fourth section comprised of three parts, which asked the respondents to
respond to a set of statements using a 5-part Likert scale. A ‘Don’t Know’ option was
added coded with a zero in order to provide a complete response when a respondent
simply did not know the answer, omitting the ambiguity of a non-response to a
statement or even a random selection. This section was largely concerned with
market orientation and these constructs were adapted from the scales of both
Ruekert (1992) and Kohli et al (1993).
The fifth section included a question which respondents were asked to
associate with through the allocation of a maximum number of 100 points to one of
two statements. This section was intended to be used as a check against the
reliability of the market orientation constructs in the previous section, which
essentially provided a concise, yet different approach to the same question theory.
This construct was adopted from the MARKOR scale presented by Kohli et al (1993).
The sixth and seventh sections provided a focus on innovation and
competitive intensity – concepts believed to be determinants of market orientation.
The innovation constructs were adapted from Hurley and Hult (1998) with a view to
measuring a SMEs innovation. The competitive intensity constructs were adopted
from Pelham and Wilson (1996). The scale measured threats within a business
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Marc Fletcher, November 2014 33
environment and the ability and behaviour of competitive firms to be distinct in the
market.
The eighth section was an enquiry around company performance. The
constructs were adopted from Deshpande et al (1993) and used a three-point scale
of profitability, size, market share and growth rate relative to the respondent’s largest
competitor. This construct could be considered subjective, however considering that
performance is essentially a lagging indicator, this approach was deemed
appropriate given that it was a cross-sectional study.
The ninth section was related to company culture which was also believed to
be a determinant of market orientation. The operationalization of the culture
construct was adopted from Deshpande et al (1993), who in turn adapted the
construct from Cameron and Freeman (1991). Culture was measured in the context
of four organisation types which Deshpande et al (1993) concluded were relative to
performance through market orientation and hence was used to determine a cultures
propensity to performance and market orientation.
The final section was a ‘thank you’ page which reminded respondents that
their responses were confidential and anonymous and encouraged any respondents
to email the researcher at the provided Salford University address should they wish
to receive the conclusions and recommendations of the study.
Prior to the questionnaire being published, a pilot group of 5 colleagues were
asked to pre-test the questionnaire to determine a number of critical success factors.
These factors included the time taken to complete the questionnaire, the clarity of
the questions and the language used within the questions. The purpose of the pilot
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group was to collate qualitative feedback on these critical success factors to indicate
a generally acceptable instrument which would aid the capture of the information
from the sample frame, and to also highlight any weaknesses in both the academic
design and experience design using the online tool. The feedback received
indicated an average completion time of 15 minutes and minimal changes to
question wording.
3.6. Data Analysis
The data collected from the questionnaire was coded, collated and then
recorded in Microsoft Excel to enable manipulation for quantitative analysis.
3.7. Reliability and Validity
The research design was formulated after careful consideration and research
with a view to be logical and to stand up to careful scrutiny through rigor and
transparency (Raimond, 1993).
The research instrument employed for the quantitative research was an
internet based questionnaire which was distributed via email to the target frame
using a tracking URL from bit.ly to track the clicks versus the questionnaire
completion metrics. This enabled a simple method of correlating the completion rate
to the activity on the URL itself which proved to be consistent within a reasonable
margin.
As previously stated in the section on ‘Questionnaire Design’, the research
design of the data collection techniques and specifically the questionnaire’s
constructs were based upon a number of previous studies. A combination of
adopting, adapting and developing new questions was chosen (Bourqe & Clark,
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Marc Fletcher, November 2014 35
1994), with an emphasis on adopting to enable a comparison to preceding studies of
market orientation. Where adopting was not appropriate, adaptation of existing
constructs was chosen and where neither of these two methods were appropriate or
applicable, new constructs were developed. This was intended to improve reliability
and consistency aligning with the existing body of research and as a result extending
the research on this topic.
Mitchell (1996) provides three approaches to assessing reliability, which were
considered in the research design. These are: test re-test, internal consistency and
alternative form. Test re-test was deemed not an appropriate approach for the
questionnaire in this study. Internal consistency for the multi-dimensional constructs
of market orientation, innovation, competitive intensity and performance were
conducted by using Cronbach’s coefficient alpha (Churchill, 1979), with special
attention to reverse those where inverse scales were used to detect if respondents
were automatically selecting scale responses. A scale of 0.7 (Nunnally, 1978) or
above using Cronbach’s alpha was considered to provide a measure of reliability.
An alternative form question, also known as a check question, was used in the
questionnaire (question 16) to provide a measure of reliability against the market
orientation questions (questions 13-15).
Validity has been referred to in the context of content validity, criterion-related
validity and construct validity (Bloomberg, Cooper, & Schindler, 2008). Content
validity of the questionnaire was self-assessed and peer reviewed through
discussion and the questionnaire resulted in retaining all ‘essential’ questions and
two ‘useful’ questions (questions 1 and 5). Criterion related validity was ensured
through the adoption and adaptation of questions used in other questionnaires
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discovered through the literature review and specifically the results and
recommendation sections of other studies. Similarly, construct validity was ensured
through this same method.
3.8. Ethics
Ethics in a research context refer to the standards of behaviour that are
applied to ones conduct when obtaining information from a subject (Saunders,
Lewis, & Thornhill, 2012). A number of ethical principles were adhered to for this
research, which will be discussed as follows.
Confidentiality and anonymity was asserted as a key ethical principle to all
respondents both in the invite email (see appendix A) and in the introductory section
of the questionnaire. This was effected in practice by having an anonymous
questionnaire, in that respondents were not requested for their name, company or
any other personally identifying information.
The questionnaire’s first question (see appendix B) provided an overview of
the study and also provided the respondent with an option to select “yes” in
acknowledgement of the information provided related to their participation and “no”
to acknowledge that they did not want to take part which would exit the questionnaire
with no further information captured.
None of the questions within the questionnaire were mandatory, with the
exception of Question 1 to ensure compliance to the informed consent of the
respondent. This was designed to enable respondents the right to not answer any
question that they felt they were unable to for whatever reason.
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In accordance with the South African Protection of Personal Information
(POPI) Act of 2013 which has been recently promulgated, the research data will be
retained only for the period required by this program, after which it will be destroyed.
The information captured is unidentifiable to a natural person by nature of the
questionnaire design and therefore is also noted to be within the bounds of the act in
terms of having to provide personal access.
3.9. Chapter Summary
This chapter provided a discussion around the research methodology. The
key points of this was the use of a survey strategy which used a questionnaire as a
measuring instrument, the questionnaire design and the reliability and validity of the
study data.
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4. Chapter 4: Results and Discussion
4.1. Chapter Overview
This study’s primary objective was to understand what the general level of
market orientation was in South African SMEs and to identify any key determinants
of market orientation and to determine if a relationship between market orientation
and performance exists. The intention is that this information can be used by small
business, business incubators, and government institutions charged with improving
employment through building sustainable businesses.
This chapter presents the results of the study and provides an evaluation of
the resultant data through the research questions which are repeated here for clarity:
RQ1: Is there a relationship between market orientation and company
performance in the SME segment of companies in South Africa?
RQ2: What is the general level of market orientation in South African SME
companies compared to Western European / North American companies?
RQ3: What are the key influencing determinants of market orientation in
companies in the SME segment of South Africa?
This chapter also presents the results pertaining to the hypotheses stated in
Chapter 2: Literature Review.
H1: The greater the investment the management team hold within an SME the
greater the overall market orientation.
H2: SMEs with a stronger culture towards ‘market’ will have a stronger market
orientation.
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H3: The more highly innovative and adaptable SMEs are the greater the
organisation’s market orientation.
H4: The greater the competition, the greater the responsiveness within the
organisation, leading to a stronger market orientation.
H5: An organisations performance, measured in financial terms, is positively
related to its market orientation.
The chapter addresses each of the Research Questions and Hypotheses in
turn, but not in the order shown in the introduction, but in an order which will provide
a logical flow of information.
4.2. Data Demographics Results and Discussion
Of the final 71 respondents, 64 respondents answered all questions. However
the American Association for Public Opinion Research (2008) defines four levels of
non-response which this study has taken into account. The four levels include:
Complete refusal – none of the questions are answered.
Break-off – less than 50% of all questions answered.
Partial response – 50% to 80% of all questions answered.
Complete response – over 80% of all questions answered.
The completeness of response to the survey’s questions represents a 90%
completion and therefore the data from all 71 respondents has been used in the data
set for analysis.
All of the respondents were owners and/or senior managers of a company
with less than 200 employed staff – qualifying them as an SME in South Africa. Job
50. Does a market orientation guarantee success in the SME segment of South African companies?
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role or job title was captured on the questionnaire in free-form text to provide the
researcher with the opportunity through review to ensure that the respondents were
indeed within the target roles intended. Figure 3 below shows the job roles of the
respondents which completed the questionnaire for this study. All but the ‘Chef’
which represents 1% of the respondents are easily identifiable as being aligned with
the target sample and this is not to say that the Chef was not an SME owner or
manager.
Figure 3 - Job Roles of Respondents
Figure 4 shows the highest level of academic qualification held by the
respondents. This data shows that just over half of the sample (54%) has graduate
degrees or post-graduate degrees.
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Marc Fletcher, November 2014 41
Figure 4 - Highest Level of Qualification Obtained
Figure 5 represents the subjects that the respondents took through their
highest qualification post matriculation. Where the highest qualification was
matriculation / A-Levels, these are shown as ‘Matric’.
Figure 5 - Subject of Highest Qualification (if not Matric)
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An assertion made in the introduction of this dissertation was that many of the
South African SME managers possessed little or no formal business education or
training and this could be construed to be validated through this result. Whilst 54%
of respondents have an under-graduate or post-graduate degree, it could be argued
that with just over 24% of those under-graduate or post-graduate qualifications
focused on general business skills or subjects which include ‘Business
Administration’, ‘Finance and Accounting’ and ‘Entrepreneurship’, the level of formal
business management education and training is low. This however does not take
into account any supplemental education programmes that managers may have
taken that are not represented as a result of not being a qualification that is their
highest ranking, which is what the question construct asked for. Therefore this
consideration could be a point for future research.
Figure 6 shows the industry sectors from which the respondents came from. A
significant 51% are within the Information Technology industry, followed by
Consulting at 20% and Media and Marketing at 11%.
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Figure 6 - Percentage of Respondents by Industry Sector
Arguably a bias of information technology focused businesses is represented
in this sample. However, based upon the Annual Review of Small Business (2008)
conducted by the South African Government’s Department of Trade and Industry in
2008, a comparable spread of sectors in the SME landscape can be identified
through a statement that 44% of SMEs in South Africa operate within the Financial
and Insurance, Real Estate and Business Services sector. ‘Business Services’ in the
context of the dataset captured within this study includes: ‘Information Technology’,
‘Consulting’ and ‘Media and Marketing’ and therefore can be considered somewhat
representative of the population, albeit still somewhat bias to these industries.
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Figure 7 shows the split of respondents across the company categories as
defined by the South African Government. The pie chart clearly shows a very equal
and balanced sample across the categories from micro to medium.
Figure 7 - Company Category (SME Size) by Employees
Figure 8 shows the job role allocation between the roles of: marketing, sales,
general management, finance, operations, production/delivery and administration.
Respondents were asked to allocate 100 points to denote the amount of time they
spent on each job role within their organisation.
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Figure 8 - Job Role Allocation
On average, marketing tied with production / delivery with 18% of the
respondents time spent equally on both roles. However it is worthy to note that only
26% of the respondents spent 25% or more of their available time on marketing, with
91% spending at least some time on marketing and 3% spending all of their time on
marketing. Considering that 50% of the sample has more than 21 staff members, the
amount of time spent on marketing activities, or with individuals with a unique
marketing focus is considered to be low.
This would indicate an inherent low level of market orientation within the
sample frame if market orientation was considered a consequence of mainly
marketing-function orientated activities. However, this could be proven otherwise if
marketing was led by an executive whose main role was not marketing. The results
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Marc Fletcher, November 2014 46
infer that this could be the case based upon 91% of the respondents spending
‘some’ time on marketing. At the extreme, the remaining 6% that spend no time on
marketing could be accounted for by the fact that this survey did reach the person
responsible for marketing within their organisation or that they simply do not
undertake any marketing.
Overall the results suggest that the sample frame includes a proportional
cross section of roles that exist within a business and are representative of an SME.
4.3. Research Question 2 – Level of Market Orientation - Results
RQ2: What is the general level of market orientation in South African SME
companies compared to Western European / North American companies?
Two question constructs were chosen to collect data and to test this research
question. The first was a question construct adapted from the scales of both Ruekert
(1992) and Kohli et al (1993). The second question construct was adopted from the
MARKOR scale presented by Kohli et al (1993).
4.3.1. RQ2- Level of Market Orientation - Reliability
The first question construct’s reliability was the first test conducted on the
dataset and examined the reliability of the multi-item scales for market orientation.
Table 3 represents the results of the analysis of the intelligence generation and
dissemination scale and yielded a coefficient alpha of 0.74. Table 4 represents the
results of the analysis for the development of a market orientation strategy scale and
yielded a coefficient alpha of 0.66. Table 5 represents the results of the analysis for
the implementation of a market orientated strategy / responsiveness and yielded a
coefficient alpha of 0.64. Across the 27-item scale a coefficient alpha of 0.66 was
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yielded. It is acknowledged that the overall coefficient alpha is marginally below the
minimum level of 0.7 suggested by Nunnally (1978), however it has been presented
that Cronbach’s alpha estimation of reliability increases with scale length and is
particularly noticeable with scales with less than 7 items (Voss, Stem Jr., &
Fotopoulos, 2000) (Swailes & McIntyre-Bhatty, 2002). The scales lengths were 10, 8
and 8 respectively. Given this assertion the alphas produced have been deemed
within an acceptable tolerance of Nunally’s (1978) levels.
Table 3 - Reliabilities of the Market Orientation Scales - Intelligence Generation and Dissemination
Scale and Item Alpha if item
deleted
Coefficient
alpha
Arithmetic
Average
Standard
Deviation
Intelligence Generation and Dissemination 0.74
We do a lot of (in-house) market research into
our area of products and services.
0.74 3.88 1.05
We have structured programs to obtain
customer feedback to improve quality of our
products and/or services
0.68 3.43 1.22
We frequently measure customer satisfaction 0.68 3.52 1.08
Data on customer satisfaction is disseminated
at all levels of the organisation
0.71 3.21 1.16
We collect industry information by informal
means (e.g.: lunch with industry friends, social
events with industry friends, talks with trade
partners)
0.72 4.25 0.70
We are slow to detect fundamental shifts in
our industry (e.g.: competition, technology,
regulation) (R)
0.72 2 0.90
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Scale and Item Alpha if item
deleted
Coefficient
alpha
Arithmetic
Average
Standard
Deviation
We periodically review the likely effect of
changes in our business environment (e.g.:
regulation such as POPI Act) on customers
0.72 3.89 0.91
Marketing personnel in our business spend
time internally discussing customers’ future
needs
0.74 3.62 1.01
When something happens to a major customer
the whole business knows about it within a
short period
0.73 4.22 1.05
We never discuss our competitors’ strategies
(R)
0.71 2.23 1.02
(R) denotes reverse coded item
Table 4 - Reliabilities of the Market Orientation Scales - Development of a Market Orientated Strategy
Scale and Item Alpha if item
deleted
Coefficient
alpha
Arithmetic
Average
Standard
Deviation
Development of a Market Orientated
Strategy
0.66
Our market strategy is informed by market
research
0.61 3.34 1.05
We develop specific plans for market
segments
0.60 3.63 0.97
Marketing has resources (people and money)
to improve the company’s market position (i.e.:
to get to be number 1)
0.59 3.29 1.22
Our company values financial performance
more than market position (R)
0.67 3.34 1.02
We determine price by market value 0.63 3.60 0.79
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Scale and Item Alpha if item
deleted
Coefficient
alpha
Arithmetic
Average
Standard
Deviation
Our focus is on markets where we have
competitive strength
0.64 4.25 0.71
Our planning is organised by markets rather
than products
0.58 3.22 1.09
Our market strategy is presented to all staff for
input
0.67 3.40 1.12
(R) denotes reverse coded item
Table 5 - Reliabilities of the Market Orientation Scales - Implementation of a Market Orientation Strategy /
Responsiveness
Scale and Item Alpha if item
deleted
Coefficient
alpha
Arithmetic
Average
Standard
Deviation
Implementation of a market orientated
strategy / responsiveness
0.64
Our business exists primarily to serve the
needs of our customers
0.61 4.27 0.78
Our company keeps its promises it makes to
our customers
0.58 4.48 0.50
We pay close attention to after-sale service 0.59 4.21 0.67
If a major competitor were to launch an
intensive campaign targeted at our customers,
we would implement a response immediately
0.60 3.52 1.09
Customer complaints fall on deaf ears within
our business (R)
0.57 1.64 0.97
Even if we came up with a great marketing
plan, we would not have the resources or time
to implement it (R)
0.63 2.77 1.21
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Scale and Item Alpha if item
deleted
Coefficient
alpha
Arithmetic
Average
Standard
Deviation
When we find out that customers are unhappy
with the quality of our service, we take
corrective action immediately
0.59 4.65 0.48
For one reason or another, we tend to ignore
the changes in our customer’s needs (R)
0.58 1.85 0.73
Our managers regularly visit customers 0.63 4.08 0.95
(R) denotes reverse coded item
4.3.2. RQ2 - Level of Market Orientation - Market Orientation Scale
For each of the market orientation constructs’ 27 items, the responses were
coded to represent the respondent’s level of agreement or disagreement to the
questions. A five-point Likert scale was used ranging from ‘Strongly Agree’ to
‘Strongly Disagree’ providing two scales for ‘agreement’ and two scales for
‘disagreement’ and a scale for ‘Neither Agree nor Disagree’. The ‘Strongly Agree’
and ‘Agree’ scales were combined to determine the level of positive agreement and
the ‘Strongly Disagree’, ‘Disagree’, and ‘Neither Agree nor Disagree’ were combined
to provide a negative scale. Those questions that were reverse coded have been
reversed to provide a result representative of market orientation being an ‘agree’ or
‘disagree’ construct’ thereby simplifying the analysis. The reverse coded questions in
Table 6 have also been re-written to show the reverse of the original question to
represent a reversed positive construct to enable a review of the positive constructs
to determine a level of market orientation using this scale. Table 6 presents the data
is this format described using percentage values between the two scales.
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Table 6 - Percentages of both favourable and non-favourable responses to the market orientation scales
Item Percentage of
combined
Strongly Agree &
Agree
Percentage of
combined Disagree
& Strongly Disagree
& Neither Agree nor
Disagree
Intelligence Generation and Dissemination 68 34
We do a lot of (in-house) market research into our area of
products and services.
75 25
We have structured programs to obtain customer feedback
to improve quality of our products and/or services
57 43
We frequently measure customer satisfaction 58 42
Data on customer satisfaction is disseminated at all levels
of the organisation
48 52
We collect industry information by informal means (e.g.:
lunch with industry friends, social events with industry
friends, talks with trade partners)
88 12
We are proactive to detect fundamental shifts in our
industry. / We are slow to detect fundamental shifts in our
industry (e.g.: competition, technology, regulation) (R)
79 21
We periodically review the likely effect of changes in our
business environment (e.g.: regulation such as POPI Act)
on customers
71 29
Marketing personnel in our business spend time internally
discussing customers’ future needs
56 44
When something happens to a major customer the whole
business knows about it within a short period
76 24
We regularly discuss our competitor’s strategies /
We never discuss our competitors’ strategies (R)
71 29
Development of a Market Orientated Strategy 56 44
Our market strategy is informed by market research 54 46
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Item Percentage of
combined
Strongly Agree &
Agree
Percentage of
combined Disagree
& Strongly Disagree
& Neither Agree nor
Disagree
We develop specific plans for market segments 68 32
Marketing has resources (people and money) to improve
the company’s market position (i.e.: to get to be number 1)
49 51
Our company values market position more than financial
performance / Our company values financial performance
more than market position (R)
28 72
We determine price by market value 58 38
Our focus is on markets where we have competitive
strength
87 13
Our planning is organised by markets rather than products 45 55
Our market strategy is presented to all staff for input 54 46
Implementation of a market orientated strategy /
responsiveness
82 18
Our business exists primarily to serve the needs of our
customers
89 11
Our company keeps its promises it makes to our customers 100 0
We pay close attention to after-sale service 89 11
If a major competitor were to launch an intensive campaign
targeted at our customers, we would implement a response
immediately
52 48
Customer complaints are dealt with within our business /
Customer complaints fall on deaf ears within our business
(R)
91 9
We have the resources to implement great marketing plans
/ Even if we came up with a great marketing plan, we would
not have the resources or time to implement it (R)
50 50