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MARKET ORIENTATION AND CUSTOMER SATISFACTION: AN EMPIRICAL INVESTIGATION
by Chiquanpuq, Bachelor of Science Master of Business Administration University o f Wisconsin-Oshkosh, 1996
A Dissertation Submitted in Partial Fulfillment of the Requirements for the Doctor of Philosophy Degree
Department of Marketing in the Graduate School Southern Illinois University at Carbondale December 2001
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Dissertation Approval
The Graduate School Southern Illinois University
November 26 . 2001
I hereby recommend that the dissertation prepared under my superv ision by
________________________________Chiquan Guo______________
Entitled
__________________ Market Orientation and Customer Satisfaction: __________________________ An Empirical Investigation_________
Be accepted in partial fulfillment o f the requirements for the DOCTOR OF PHILOSOPHY dearee.
In Charge o f Dissertation
H ead o f Department
i c i i u a u u u concurred i u i h u i i c u in Recommendation
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Committee for the Final Examination
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AN ABSTRACT OF THE DISSERTATION OF CHIQUAN GUO, for the Doctor of Philosophy degree in Marketing, presented on November 26, 2001, at Southern Illinois University at Carbondale. TITLE: Market Orientation and Customer Satisfaction: An Empirical Investigation. MAJOR PROFESSOR: Dr. Maryon F. King Two o f the major research streams developed in strategic marketing in the past ten years are relationship marketing and market orientation (Steinman et al. 2000). This dissertation attempts to bridge research in these two areas by probing how market orientation is related to relationship building. The study examines the role of customer satisfaction and customer loyalty, key constructs in relationship marketing, in mediating the relationship between market orientation and performance. Furthermore, this research hypothesizes that the relationship between each o f the three behavioral components (customer orientation, competitor orientation, and interfunctional coordination; of market orientation (Narver and Slater 1990) and customer satisfaction need not be the same. This dissertation is one of the first studies to explore the market orientationcustomer satisfaction link, the relationship between satisfaction and performance (Leuthesser and Kohli 1995), and the loyalty-performance chain (Morris and Holman 1988) in a business-to-business environment. The results showed that the positive relationship between market orientation and customer satisfaction, the major thesis of this inquiry, was strongly supported. This relationship was so robust that it was not moderated by competitive intensity, a contingency variable. While customer orientation and competitor orientation were both positively related to customer satisfaction and performance, interfunctional coordination was not related to either
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customer satisfaction or performance. However, interfunctional coordination had a moderating effect on the customer orientation-performance chain and the competitor orientation-performance linkage. Neither customer satisfaction nor loyalty was related to performance. Managerial implications and future research opportunity were also discussed.
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TABLE OF CONTENTS ABSTRACT 1. CHATPER 1 INTRODUCTION Purpose of this Study Justification of the Study Outline o f the Study 2. CHAPTER 2 LITERATURE REVIEW Market Orientation MARKOR by Kohli et al. (1993) Market Orientation Scale by Matsuno and Mentzer (2000) MKTOR by Narver and Slater (1990) Market Orientation Scale by Deshpande et al. (1993) Extension of Market Orientation Research Market Orientation and Innovation Market Orientation and Organizational Learning Market Orientation and Typology o f Strategies Component-Wise Approach o f Market Orientation Research Market Orientation and Channel Issues Research Finding Relating to Market Orientation Market Orientation and Its Antecedents Market Orientation and Its Consequences Environmental Variables Influencing the Relationship between Market Orientation and Performance Market Orientation and Innovation Market Orientation and Organizational Learning Market Orientation and Typology o f Strategies Component-Wise Approach of Market Orientation Research Market Orientation and Channel Issues Customer Satisfaction Expectations-Disconfirmation Model of Satisfaction Desires-Disconfirmation Model of Satisfaction Equity-Disconfirmation Model of Satisfaction Experience-Based Expectations-Disconfirmation Model of Satisfaction Research Findings Relating to Customer Satisfaction Expectations-Disconfirmation Model of Satisfaction Desires-Disconfirmation Model of Satisfaction Equity-Disconfirmation Model o f Satisfaction Experience-Based Expectations-Disconfirmation Model of Satisfaction Customer Satisfaction in Business Marketing Research Findings Relating to Satisfaction in Business Marketing Customer Loyalty i I 3 8 9 11 11 12 15 16 20 22 23 24 24 25 25 26 26 27 30 31 31 32 33 34 35 36 36 37 38 38 38 39 40 40 42 43 45
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TABLE OF CONTENTS (CONTINUED) 3. CHAPTER 3 THE MODEL Market Orientation and Customer Satisfaction Conceptual Framework and Theoretical Model Market Orientation: The Combined Approach Customer Orientation Competitor Orientation Interfunctional Coordination Customer Satisfaction and Customer Loyalty Performance and Its Antecedents Market Orientation and Performance Customer Satisfaction and Performance Customer Loyalty and Performance Environmental Moderators Customer Satisfaction and Customer Loyalty Market Orientation and Performance 4. CHAPTER 4 METHODOLOGY Data Needed for the Model Testing Instruments Used in the Study Data Collection Data Analysis Technique 5. CHAPTER 5 RESULTS Data Analysis Results for the Combined Approach Results for the Component-Wise Approach 6. CHAPTER 6 DISCUSSION AND CONCLUSION Market Orientation and Customer Satisfaction Three Components of Market Orientation and Customer Satisfaction Moderating Effects o f Interfunctional Coordination on the Behavioral Components of Market Orientation-Customer Satisfaction Linkage Market Orientation, Customer Satisfaction, Customer Loyalty, and Performance The Moderating Effect of Competitive Intensity on the Market Orientation-Performance Relationship Three Components o f Market Orientation and Performance Moderating Effects o f Interfunctional Coordination on the Components of Market Orientation-Performance Relationships Managerial Implications Limitations of the Study Future Research 7. REFERENCES 51 51 52 53 56 57 58 60 60 60 64 65 65 65 66 68 69 70 71 72 73 74 79 81 84 84 84 86 87 89 89 90 91 93 93 95
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TABLE OF CONTENTS (CONTINUED) 8. APPENDICES Appendix A Hypotheses Proposed in the Study Appendix B Instruments Used in the Study Appendix C Human Subjects Committee Approval 9. VITA 110 112 115 118
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I CHAPTER 1 INTRODUCTION Market orientation is one of the major research streams developed in strategic marketing during the past ten years (Steinman et al. 2000). Since market orientation is considered as the implementation of the marketing concept (Kohli and Jaworski 1990), which is the foundation o f market orientation, the introduction on market orientation can begin with a brief overview on the marketing concept. As the guiding philosophy of modem marketing competition, the marketing concept had been examined by a number o f scholars (e.g., Lavidge 1966; Bell and Emory 1971). For example, McNamara (1972, p. 51) defined the marketing concept as a philosophy o f business management, based upon a company-wide acceptance o f the need for customer orientation, profit orientation, and recognition of the important role of marketing in communicating the needs of the market to all major corporate departments. Although the market concept had been in existence for some time, its practical value was very limited because its philosophical statement was hardly useful to management, which needs specific actionable statements (Barksdale and Darden 1971). This dilemma continued until the proposal of market orientation. Market orientation focuses on specific actionable guidelines, which can be used by managers to improve business performance. The guidance provided through market orientation is easily understood and can be implemented without ambiguity. For instance, according to Narver and Slater (1990), market orientation consists o f three behavioral components: customer orientation (identify and satisfy customers needs), competitor orientation (monitor major competitors movements), and interfunctional coordination (different departments share
2 information and act accordingly in a synergistic manner). Being customer- oriented enables firms not only to discover and meet customers current needs, but to anticipate and satisfy their latent and future needs as well. Competitor orientation helps firms beat the competition by providing superior value to customers at low costs. Interfunctional coordination facilitates the execution and implementation of strategic and tactic programs. Thus, theory suggests that a market-oriented firm is more likely to produce superior performance than its less market-oriented counterparts. Hence, striving to be market-oriented could be a viable strategy to improve business performance. Investigations into market orientation have provided productive research stream since its inception in the early 1990s. The early work mainly dealt with some fundamental definitional and measurement issues. The three major definitions of market orientation and corresponding scales for measuring market orientation proposed by Kohli and Jaworski (1990), Narver and Slater (1990), and Deshpande et al. (1993) are credited as the seminal work pioneering the research stream. The basic research focus has been on the relationship between market orientation and organizational performance, such as return on assets, ROA (e.g., Narver and Slater 1990; Jaworski and Kohli 1993). Given the very purpose o f market orientation, which is to improve performance, the amount o f attention on the market orientation-performance linkage is paramount and justifiably so. However, the findings are mixed. While some studies have found a positive relationship between market orientation and performance (e.g., Narver and Slater 1990; Kumar et al. 1998), others found no relationship between the two (e.g., Han et al. 1998). While much of the early work mainly investigated the relationship between market orientation and performance, recent research on market orientation has been
3 extended in a number of directions, such as applying the market orientation framework to other managerial issues. For example, some scholars have studied how market orientation affects sales force management (Siguaw et al. 1994) and distributors performance in the channels of distribution (Siguaw et al. 1998). Some work has introduced innovation as a mediating variable connecting market orientation and performance (Han et al. 1998), and others have examined how a firms strategy type (e.g., prospector, analyzer) affects the market orientation and performance relationship (Matsuno and Mentzer 2000).
Purpose o f This Study Although the direct relationship between market orientation and performance has been extensively examined, the relationship between the two is not unequivocally clear due to the mixed results as mentioned earlier. The recent studies indicate that the direct association between the two may not be as strong as we previously believed, or may not be there at all. In fact, the research trend shows that it may be more productive to introduce mediating variables that may connect market orientation and performance. For example, Han et al. (1998) did not find any direct relationship between market orientation and performance, but they found that market orientation was related to innovation, which in turn was related to performance. Innovation includes administrative and technical inventions and improvements. Similarly, in a business-to-business study, Siguaw et al. (1998) did not find any significant direct association between the distributors market orientation and their performance. Instead, they found that the distributors market orientation was positively related to mediating variables, such as commitment, which were in turn positively related to the distributors satisfaction with their performance.
4 Commitment is the distributor's intention to build and maintain a stable and mutually beneficial relationship with its supplier. Thus, examining the role mediating variables play in connecting market orientation and performance is very fruitful in revitalizing the market orientation research stream. On the other hand, as Matsuno and Mentzer (2000) point out, strategy type moderates the market orientation-performance relationship. The reason is that the effect of market orientation on performance may not be uniform across firms implementing different strategies. Thus, discovery of the moderating variables is also helpful to the understanding of the relationship between market orientation and performance. The purpose of this study is to investigate the role customer satisfaction and loyalty play in connecting market orientation and performance. As market orientation is positively related to performance, the key issue is how market orientation is related to performance. That is, the mechanisms through which market orientation and performance may be related are important. The marketing concept, the foundation of market orientation, places a top priority on satisfying customer needs. Thus, it is natural to examine how customer satisfaction plays a role in connecting market orientation and performance. According to Babin and Griffin (1998, p. 127), satisfaction is one o f only a few key building blocks in marketing philosophy, theory, and practice." Thus, including customer satisfaction as a mediating variable in studying the relationship between market orientation and performance is warranted. In fact, Matsuno and Mentzer (2000) call for research on the relationships between market orientation and non-economic performance measures such as customer satisfaction and retention. Also, this study intends to focus on business-to-business marketing. Although
5 market orientation has attracted much research in the consumer marketing arena, studies investigating its application to business-to-business marketing are sparse. There are only a few studies that used the market orientation framework to examine issues relevant to business marketing. One example is the work of Baker et al. (1999) who found that the suppliers perceived relationships with it distributors were positively related to the suppliers perceptions of it distributors market orientation. Similarly, Steinman et al. (2000) found that the gap between the suppliers own evaluative market orientation and its market orientation perceived by its customers were negatively related to the length and importance of the business relationship between the supplier and its customers. The relationship between market orientation and performance in business marketing has mixed results. Deshpande et al. (1993) found a positive relationship between customer orientation, a simplified version o f market orientation and performance. However, Siguaw et al. (1998) did not find any significant correlation between the two as earlier mentioned. Thus, more work needs to be done to examine the market orientation-performance relationship. Furthermore, the mechanisms through which market orientation and performance may be related must be explored. To this end, customer satisfaction and loyalty, two long-celebrated concepts in marketing, may be introduced as mediating constructs which intervene the relationship between market orientation and business performance. That is, a firms market orientation improves its performance through customer satisfaction and loyalty. While customer satisfaction is a positive affective state resulting from the appraisal o f all aspects o f a firms working relationship with another firm (Anderson and Narus 1984, p. 66), loyalty is the buyers tendency to repurchase from the familiar supplier (Morris and Holman 1988).
6 As customer satisfaction has been extensively studied in consumer marketing, research on market orientation also attempts to incorporate customer satisfaction. A market oriented firm understands its customers' needs better than its less market oriented counterparts. Hence, Kohli and Jaworski (1990) posit a positive relationship between market orientation and customer satisfaction, although no study has ever empirically tested this relationship. Subsequently, highly satisfied customers are likely to become loyal (e.g., Fomell 1992; Bitner 1990). Then, loyal customers will enhance the firms profitability simply because loyal customers are less price sensitive and thus generate high margins (Garvin 1988). They also purchase the product more frequently and in larger volume than non-loyal customers, and are likely to purchase other products offered by the firm (Reichheld and Sasser 1990). The above relationships have yet to be established in business marketing. For example, loyal customers in industrial marketing may still be price sensitive (e.g., Wind 1970) simply because organizational buyers tend to be more rational than individual consumers. Thus, whether or not loyal customers are more profitable than less loyal customers has yet to be determined. The aforementioned relationship chain goes as follows: market orientation may be related to customer satisfaction, which in turn may be related to customer loyalty, which in turn may be related to performance. Such being the case, the issue arises whether the direct relationship between performance and market orientation still holds true in the presence o f an indirect relationship through satisfaction and loyalty. If the answer is no, more evidence in addition to the study by Siguaw et al. (1998) (the only study indicating no relationship between market orientation and performance in business marketing) points out the possibility that the commonly assumed relationship between market
7 orientation and performance could be spurious. Although a number o f studies in consumer marketing bear out a positive relationship between market orientation and performance (e.g., Narver and Slater 1990; Jaworski and Kohli 1993; Slater and Narver 1994a), the direct association between the two is not unquestionable. The problem with those studies is that no mediating variable was included to study the market orientationperformance relationship. When innovation was added as a mediating construct. Han et al. (1998) did not find any connection between market orientation and performance. Furthermore, as performance is indirectly related to satisfaction through loyalty, could performance also be directly related to satisfaction? If the answer is negative, the widely believed association between performance and satisfaction could be spurious as well. Although studies in consumer marketing (e.g., Anderson et al. 1994) found a positive relationship between performance and satisfaction, the degree to which the association was due to loyalty is unknown since loyalty was not included in most of those studies. In business marketing, few studies investigated the relationship between performance and satisfaction (Leuthesser and Kohli 1995). As loyalty received scant attention (Morris and Holman 1988), few studies examined the relationship between performance and loyalty. This research is one of the first studies to simultaneously investigate the relative contributions o f satisfaction and loyalty to performance. Based on Narver and Slater ( 1990)s framework, Han et al. (1998) used the overall measure of market orientation, which is the combined approach, and separate measures for the three behavioral components, which is the component-wise approach, for examining their hypotheses. This research also takes both approaches in model testing. While the combined approach reveals the relationship between market orientation
8 and satisfaction, the component-wise approach can point out the relative contributions each component ascribes in relation to satisfaction. In other words, the relationship between each component and satisfaction need not be the same. If satisfaction is found to have different relationships (e.g., positive, negative) with the three components of market orientation, this information will contribute to the formulation of more effective marketing strategies. For example, different relationships of customer satisfaction with the three components could be an explanation why two firms with similar levels of market orientation may experience different levels of customer satisfaction and performance. Also, the study examines some contingency variables that may have a moderating effect on the relationship chain earlier described. Some studies have found that loyalty is positively related to satisfaction (e.g., Bitner 1990), while others have found no relationship between the two (e.g., Mittal et al. 1999). Market turbulence, the degree of changes in terms o f customer preferences, may be used as a moderator to explain the mixed results in the connection between loyalty and satisfaction.
Justification of the Study This study is likely to make significant contributions. As mentioned earlier, Matsuno and Mentzer (2000) call for research on the relationships between market orientation and customer satisfaction and retention. Although theory suggests a positive relationship between market orientation and customer satisfaction, the empirical relationship between the two has yet to be established. Furthermore, using the component-wise approach, the relationship between each behavioral component of
9 market orientation (e.g., customer orientation, competitor orientation, interfunctional coordination) and customer satisfaction can be examined. If these three components of market orientation turn out to have different relationships (i.e., positive, negative) with customer satisfaction, it raises a serious question about the usefulness o f the combined approach for market orientation research because the combined approach suppresses information. This study may produce evidence to challenge two well-entrenched beliefs. That is, the direct relationship between market orientation and performance may disappear in the presence of an indirect relationship through satisfaction and loyalty. Also, the direct association between customer satisfaction and performance may dilute in the presence of an indirect connection through loyalty. Inclusion o f these mediating variables in a single model can overcome misspecification problems which may incriminate previous research. This research also may produce evidence which has enormous managerial implications. If the three components of market orientation exhibit different relationships with satisfaction, this information will help firms formulate more effective marketing strategies, particularly when a firms resources confine obtainment of all three components. If one component is more important than another, firms can be more selective when allocating their resources.
Outline of the Study The organization of this dissertation is as follows: Chapter 1 begins with a brief introduction of the topic under investigation, then
10 discusses the purpose o f this research, and concludes with contributions this study is likely to make. Chapter 2 conducts an extensive literature review on relevant topics such as market orientation to discover a potentially fruitful investigative opportunity to further the knowledge base on the subject. Chapter 3 comprehensively discusses the conceptual framework and formally proposes the model and hypotheses for later empirical testing. Chapter 4 covers methodology, instruments for measuring the constructs, and data collection procedure that will be used in the study. Chapter 5 focuses on data analysis and results presentation. Chapter 6 discusses the empirical results and concludes this study.
11 CHAPTER 2 LITERATURE REVIEW In this chapter, an extensive literature review is conducted on relevant topics under study. It commences with a comprehensive survey on market orientation, covering fundamental aspects of market orientation, such as definitional and conceptual issues as well as empirical findings relating to market orientation. Then, the same treatment is extended to customer satisfaction and loyalty. The purpose o f this chapter is to provide background information for a possible integration of market orientation and customer satisfaction, which is essential for later model building.
Market Orientation The marketing concept with numerous definitional variations (e.g., McNamara 1972; Felton 1959; Bell and Emory 1971; Lavidge 1966; Levitt 1969; King 1965), dating back to the 1950s, places high priority on satisfying customers needs by a concerted effort among all the functional departments o f a firm with long term profitability as the objective. In this context, profitability is typically viewed in such terms as return on assets (ROA), and return on equity (ROE). For example, King (1965, p. 85) defined the marketing concept as a managerial philosophy concerned with mobilization, utilization, and control of total corporate effort for the purpose of helping consumers solve selected problems in ways compatible with planned enhancement o f the profit position o f the firm. An early criticism of the marketing concept from a managerial perspective has lingered over the years. According to this criticism, the marketing concept was mainly a
philosophical statement that was often difficult for firms to implement (Barksdale and Darden 1971, p. 36) because it failed to offer specific guidance for the formulation and implementation of marketing programs, strategies, and tactics. A few years ago, the concept o f market orientation was advanced to address the above shortcoming of the marketing concept. To date, several major definitional variations of the market orientation concept have been put forward and studied, which will be discussed in turn.
MARKOR bv Kohli et al. 119931 Kohli and Jaworski (1990, p. 6) defined market orientation as the organizationwide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organizationwide responsiveness to it. Based on their definition, they further described the market orientation construct consisting o f three elements, intelligence generation, intelligence dissemination, and responsiveness. Intelligence generation is the process o f continuous monitoring and gathering information on customer current and future needs and analyzing exogenous factors that may alter those needs. Intelligence dissemination is the vertical and horizontal flow and sharing o f information gathered at the early stage within the firm. Responsiveness is the action taken by the firm based on market intelligence gathered and shared within the firm. To develop the scale for market orientation, Jaworski and Kohli (1993) used the 4-phase iterative procedure. First, a large pool of items was generated. Then, pretests with managers were conducted to examine the items for clarity. Next, another phase o f
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pretests with academic experts was conducted. Lastly, the remaining items were further tested through personal interviews with managers. They finally constructed a 32-item scale for market orientation to tap the three elements earlier described. Data were collected from two independent samples. One o f them consisted o f randomly chosen business people on the American Marketing Association membership roster, while the other was composed o f the marketing and nonmarketing executives from each firm drawn from the member companies of the Marketing Science Institute and top companies in the Dun and Bradstreet Million Dollar Directory. Although each of these sub scales had a reasonable coefficient alpha, whether or not the market orientation scale is unidimensional is unknown because neither exploratory nor confirmatory factor analysis was conducted. Kohli et al. (1993) refined the original 32-item market orientation scale. Using the same data used by Jaworski and Kohli (1993), through pretests, on the basis o f item-total correlations, Kohli et al. shortened the market orientation scale to 20 items, 6 for intelligence generation, S for dissemination, and 9 for responsiveness, which is known as MARKOR. Based on results from confirmatory factor analysis, they concluded that MARKOR contained four factors, one general factor and three correlated and yet distinct market orientation component factors. The basic proposition o f the above research is to establish a positive relationship between market orientation and performance. However, the positive association between the two may not be robust across different market conditions. According to Houston (1986), environmental variables may have an impact on a firms market orientation simply because the rewards from being market orientated may depend on the specific
context in which an organization operates. Thus, Jaworski and Kohli (1993) introduced market turbulence, competitive intensity, and technological turbulence as contingency variables that may influence the relationship between market orientation and performance. While market turbulence is the rate of change in the composition of customers and their preferences, technological turbulence is the rate o f technological change (Jaworski and Kohli 1993, p. 57). Competitive intensity refers to the intensity of competition among firms in a given product-market. According to Jaworski and Kohli, market turbulence and competitive intensity strengthen, and technological turbulence lessens the connection between market orientation and performance because the first two variables would reward market orientation and the last one would not as much. For example, when a market is turbulent and competition is intense, being market oriented will bring a higher payoff than in a stable and less competitive environment. Jaworski and Kohli also expected that a firms leadership and organizational structure would affect a films market orientation. For instance, top management emphasis on market orientation may greatly facilitate the firms market orientation, and so do the reward systems implemented in the firm. If the reward system is based on the objectives market orientation sets to achieve, it helps attainment of market orientation especially when those objectives are shared across different departments. The above articles laid a foundation for research on market orientation and they provide one of the three major conceptualizations of market orientation. As the purpose is to make the marketing concept user-friendly to managers, researchers identified key elements o f market orientation and developed scales to measure them. They believed that those elements should be instrumental to performance. Thus, performance should be
15 positively related to market orientation. Also, the connection between the two may be contingent on environmental variables, such as stability of the market structure. Furthermore, firms will differ in terms o f their market orientation because different styles o f top managers and organizational structures influence market orientation.
Market Orientation Scale bv Matsuno and Mentzer (20001 As Matsuno and Mentzer (2000) point out, Jaworskis and Kohlis (1993) market orientation scale has a narrow item-sampling domain. They felt that a broader conceptualization of market orientation is helpful to truly reflect all aspects of intelligence-related activities. Thus, macroeconomic information such as interest rate and other environmental scanning such as regulatory change should be included in the measure of market orientation. As such, Matsuno and Mentzer (p. 5) defined market orientation as a set of intelligence generation and dissemination activities and responses pertaining to the relevant industry market participants (i.e., competitors, suppliers, and buyers) and influencing factors (i.e., social, cultural, regulatory, and macroeconomic factors). Matsuno and Mentzer (2000) used multiple iterations o f test and purification of items. They selected a random sample o f 300 marketing executives of manufacturing firms in the US for their scale development and improvement. Starting with a large pool o f newly-developed and existing items from Jaworki and Kohlis scale (1993), they finally retained 22 items including both new and existing items for the market orientation scale: 8 items for intelligence generation. 6 for intelligence dissemination, and 8 for responses. Although each component had a reasonable reliability alpha, no exploratory
16 factor was conducted. Thus, it is not clear whether each component is unidimentional. Matsuno and Mentzer (2000) expect that a firms strategy type should moderate the relationship between market orientation and performance. The classic typology of strategies consists of four types. While prospectors tend to be innovative leaders not only in their core markets, but in related markets as well, analyzers strive to be new product leaders only in their core markets, and have a conservative outlook in related markets. Defenders are normally competing on price by focusing on improving production efficiency, while reactors are reactive to environmental changes without any clearly defined strategy. Since firms pursuing different strategies may stress different objectives, the relationship between market orientation and a given performance measure may differ across firms as a result of their varying strategies. For instance, defenders may exhibit a stronger relationship between market orientation and profitability than prospectors or analyzers simply because defenders emphasize efficiency more than prospectors and analyzers even when they all have a similar level of market orientation.
MKTOR bv Narver and Slater (1990) Another variation of market orientation was defined by Narver and Slater (1990, p. 21) as the organization culture that most effectively and efficiently creates the necessary behaviors for the creation of superior value for buyers and, thus, continuous superior performance for the business. While value is the difference between benefits and total costs (Zeithaml 1988), superior performance is above-normal market performance (Narver & Slater 1990, p. 20), such as return on investment (ROA) relative to the ROAs o f all other competitors. They proposed that market orientation consists of
17 three behavioral components: customer orientation, competitor orientation, and interfunctional coordination. While customer orientation requires satisfying customers current needs and anticipating their future needs by providing superior value, competitor orientation demands analyzing and monitoring major competitors strengths and weaknesses and their product offerings. Interfunctional coordination is the utilization of the whole firms resources to provide superior customer value by being customer and competitor-oriented. Narver and Slater (1990) used a similar procedure for instrument development as did Jaworski and Kohli (1993). Narver and Slater went through several phases o f pretests with academia as well as managers. Although they believed that market orientation was a one-dimensional construct, different subscales were developed to tap the three components. Data was collected from 140 strategic business units (SBUs) of a major western company through questionnaires sent to the managers. There was a strong correlation among the three behavioral components, which supports convergent validity o f the components. Discriminant validity of the components was claimed to be established by observing a lower correlation between interfunctional coordination and human resource management than the correlations between interfunctional coordination and either customer orientation or competitor orientation. The rationale was that since both interfunctional coordination and human resource management deal with people management, a small correlation affirms the former measures market orientation other than general management. It must be acknowledged that this evidence is not sufficient to establish discriminant validity for the components. Their scale is known as MKTOR. Since neither exploratory nor confirmatory factor analysis was conducted, the
18 dimensionality o f MKTOR is not completely clear. A brief comparison between the above two definitions is in order. Both MARJCOR and MKTOR scales exhibit some similarities. It seems that MARKOR focuses on the process of competitive marketing, which consists of information generation, dissemination, and responsiveness to market intelligence. In the process, the subject matter at which those intelligence-related activities are directed includes customers and major competitors. That is, the purpose of those activities in MARKOR is to understand customers and competitors and act accordingly. On the other hand, to be customer and competitor oriented as required by MKTOR, firms must adopt a systematic procedure to achieve this, and the process laid out in MARKOR may be one way to do so. That is, firms must gather intelligence about customers and competitors and disseminate the information and respond to it effectively. Thus, the two scales may be viewed as discussing the same thing from two different perspectives. Although both definitions consist of actionable statements, there is a difference between the two. Narver and Slater (1990) consider market orientation as a manifestation o f organizational culture. It is the culture that promotes actions in pursuit o f performance excellence. Since Narver and Slater did not specify what culture and actions are. it seems that different actions may be permissible to be called market orientation as long as they lead to superior performance. However, on the other hand, Jaworksi and Kohli (1993) explicitly point out what actions constitute market orientation. Thus, Narver and Slater provide a broader definition of market orientation than that o f Jaworski and Kohli. According to Narver and Slater, superior value is the key for long term success, which is not explicitly discussed by Kohli and Jaworski. In Narver and Slaters formulation, the
19 coordinated effort to be customer and competitor oriented is aimed at providing superior value, which will result in superior performance for the firm. On the other hand, MARKOR puts too much emphasis on information gathering and dissemination and inadequate attention to customer value, which is more fully captured by MKTOR (Oczkowski and Farrell 1998). Using non-nested and two-stage least squares (2SLS) techniques, Oczkowski and Farrell (1998) compared the scale by Kohli et al. (1993), MARKOR, with the scale by Narver and Slater (1990), MKTOR, in terms of explaining variations in measures of business performance. A mail survey method was used to collect self-reported responses from the managing directors/CEOs of the organizations from two sampling frames, the Dun and Bradsteet top 861 publicly listed and top 1164 privately held firms in Australia. They measured business performance relative to competitors over the past year on the following dimensions: customer retention, new product success, sales growth, return on investment, and overall performance. Based on the F-tests for comparing the overall significance o f the models using the summated overall measures of market orientation, MARKOR and MKTOR with respect to a given performance, they concluded that MKTOR is generally superior to MARKOR in explaining the performance measures. The possible reason could be that while MARKOR (20 items) has more measured items than MKTOR (14 items), the former has a slightly lower reliability than the latter. The scaling variable for MKTOR has a higher correlation with the overall scale, MKTOR, than the scaling variable for MARKOR. Thus, in the second stage, when it was used to explain the performance measures, the scaling variable for MKTOR was better than the one for MARKOR.
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The basic purpose of Narver and Slaters work was to develop a scale to measure market orientation and examine the relationship between business performance and market orientation. They expected that performance should be positively related to market orientation, after accounting for the effects of some controlling variables, such as industry growth rate on performance. Furthermore, Slater and Narver (1995) suggested that market orientation has a far-reaching impact on performance and can overcome the short-term moderating effects of environmental turbulence. In other words, the connection between market orientation and performance should be robust across diverse market conditions. As they explain, market orientation is part of organizational culture, which has a long-lasting influence on the way in which the business is run.
Market Orientation Scale bv Deshpande et al. (1993) Another definition of market orientation was provided by Deshpande et al. (1993). They (p. 27) defined customer orientation, which in their view is equivalent to market orientation, as the set o f beliefs that puts the customers interest first, while not excluding those o f all other stakeholders such as owners, managers, and employees, in order to develop a long-term profitability enterprise. Their definition bears a resemblance to Narver and Slaters (1990) explication in that both recognize the importance of achieving long-term profitability by satisfying customers needs. However, one point of difference is that Narver and Slater did not explicitly acknowledge other stakeholders interests as in Deshpande et als articulation. Deshpande et al. (1993) used a much shorter scale to measure customer orientation with only 9 items. The scale was developed based on personal interview,
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literature review, including the work by Kohli and Jaworski (1990) and Narver and Slater (1990), and a pretest with a small sample of firms. Thus, Deshpande et al. believe that their scale is very comparable with the existing scales, namely MARKOR and MKTOR. They also used construct validation procedure whereby items with low item-to-total correlations were deleted, and the remaining items exhibited sufficient reliability. However, by examining the face validity of those 9 statements, their customer orientation measure mostly covers customer orientation and competitor orientation in Narver and Slaters measure (1990). Furthermore, no factor analysis was conducted to verify the dimensionality of the scale. Thus, the equivalence of the scale by Deshpande et al. relative to the other two scales remains to be seen. Deshpande and Farley (1996) conducted a comparative study o f the above three market orientation scales. They collected data on the three scales from 82 market executives from 27 companies that were members of the Marketing Science Institute in 1995. They examined how the relationships between each scale and various measures, such as reliability and validity, and predictive validity of each scale respective to performance. The three market orientation scales exhibited similar relationships with those measures. They subjected the data to an exploratory factor analysis,which indicates that 10 items emerged as the first factor explaining over 40% of the cumulative variance. Thus, they took those 10 items as a compact scale for market orientation. Tests show that the 10-item scale had high reliability and validity. By examining those items, which are mainly related to customer focus, they redefined market orientation as the set of cross functional process and activities directed at creating and satisfying customers through continuous needs-assessment (p. 14).
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Deshpande et al. emphasize cross-functional process and activities, which may well coincide with information generation, dissemination, and responsiveness. Thus, Deshpande et al.'s conceptualization may be overlapping with that o f Jaworski and Kohli. On the other hand, Narver and Slater believe that customer and competitor orientation are necessary to deliver super value for buyers. A firm must engage in cross-functional activities to be customer and competitor-oriented. Thus, Deshpande et al.s definition is also in line with that o f Narver and Slater. Hence, in spite of superficial differences, one can find commonality across the three major definitions adopted in many studies in the literature. However, the loosely worded definitions make it necessary for one to examine the definitions very carefully to identify the commonality. Deshpande et al. (1993) expected a positive relationship between performance and customer orientation. More importantly, using business-to-business data, the correlation between a firms performance and its own evaluation of customer orientation should be weaker than the correlation between the firms performance and the firms customer orientation evaluated by its business buyer.
Extension of Market Orientation Research Scholars have extended research in the market orientation area by examining the relationships between market orientation and other key variables that are known to influence business performance. Some of these variables that were added to the study of market orientation include innovation, organizational learning, and strategy type. The theoretical rationale for adding these variables to the models of market orientation is discussed first, and then the empirical findings are briefly reviewed subsequently.
23 Market Orientation and Innovation Hurley and Hult (1998) pointed out the inadequacy o f market orientation research in that the framework failed to incorporate important constructs such as innovation. They believe that innovation is a critical aspect of business operations that leads to high performance. Thus, it should be included in market orientation models. According to Thompson (1965, p. 36), innovation is the generation, acceptance and implementation of new ideas, processes, products or services. Drawing from the literature. Hurley and Hult (1998) identified two elements of innovation: innovativeness and the capacity to innovate. While innovativeness is the firms openess to new ideas, the capacity to innovate is the firms ability to implement new ideas successfully. Based on a survey o f 56 organizations in a large federal agency, the two elements of innovation were highly correlated. Although their study did not include market orientation, they suggest that innovation must be added to market orientation research. To address the drawback, Han et al. (1998) formerly introduced innovation into the market orientation model. They categorized innovation into two types, technical and administrative innovations. While "technical innovations pertain to products, services, and production process technology; they are related to basic work activities and can concern either product or process; administrative innovations involve organizational structure and administrative process; they are indirectly related to the basic work activities o f an organization" (Damanpour 1991, p. 560). They believe that a firm's market orientation fosters technical and administrative innovations, and these innovations help the firm achieve superior performance. Similarly, Lukas and Ferrell (2000) specifically proposed that market orientation fosters product innovation.
Market Orientation and Organizational Learning As innovation was incorporated into the models o f market orientation, some researchers went one step further. As Baker and Sinkula (1999) pointed out, a firms learning orientation is more fundamental than innovation. Learning orientation is the firm's ability to unlearn outdated knowledge and the firm's ability to learn and create new knowledge and norms. If the organizational learning leads to proactive behavior that goes beyond a mere response to external changes, generative learning occurs. On the other hand, adaptive learning creates actions in direct response to environmental changes. Thus, the distinction is important in that while generative learning is proactive, adaptive learning is reactive in nature. According to Baker and Sinkula (1999), performance should be positively related to learning orientation. Also, learning orientation moderates the connection between market orientation and performance.
Market Orientation and Typology of Strategies Research has also attempted to build connection between market orientation and the strategic literature. Using the classic typology of strategies, Lukas (1999) proposed that prospectors, analyzers, defenders, and reactors may have a different degree of market orientation. The reason is that market orientation may not be cost-effective to all firms as they have different strategic emphases. For example, analyzers monitor their competitors closely for new ideas, so they should have a stronger competitor orientation than prospectors and reactors. However, Matsuno and Mentzer (2000) suggest no relationship between market orientation and strategy type. Instead, they suggest that the strength of the relationships between market orientation and certain performance measures differ
25 across firms adopting different strategies.
Component-Wise Approach of Market Orientation Research While most studies used the overall measure of market orientation in their hypothesis testing, which is the combined approach, Han et al. (1998) advocated that the relationship between each component of market orientation and performance should be examined, which is the component-wise approach. Using the framework o f Narver and Slater (1990), they expected a positive relationship between customer orientation and technical and administrative innovations. However, competitor orientation may be only related to technical innovation, but not administrative innovation. The reason is that competitor orientation may only pick up information of hard evidence, such as marketing attributes, so "soft information" such as the competitors' latest administrative trend, is likely to be ignored. Thus, competitor orientation's impact on administrative innovation could be minimal. The component-wise approach has gained support in market orientation research (e.g., Gatignon and Xuereb 1997; Voss and Voss 2000; Lukas and Ferrell 2000). When the individual components have a different relationship with performance (i.e., positive, negative), the component-wise approach can shed more insight than the combined approach.
Market Orientation and Channel Issues As much work has mainly focused on the relationship between market orientation and performance, few articles have enriched the domain by applying the market orientation framework to distribution channels issues (Siguaw et al. 1998; Baker et al.
26 1999). These studies attempted to establish a connection between market orientation and channel relationships. The researchers expected that either the supplier or the distributor's market orientation is helpful to build a mutually beneficial relationship with its partner. As a result, high performance is likely to occur.
Research Findings Relating to Market Orientation Market Orientation and Its Antecedents In anticipation o f a positive relationship between market orientation and performance, one interesting question lies in the discovery of antecedents o f market orientation. Jaworski and Kohli (1993) proposed that top leadership quality, consisting of emphasis on market orientation and risk aversion, affects market orientation. They found that a firms market orientation was positively related to top management emphasis on market orientation. Interestingly, as the overall measure o f market orientation was not related to top management risk aversion, one sub-scale of market orientation, responsiveness was negatively related to top management risk aversion. This indicates that the top managers unwillingness to take risk may not affect the firms intelligence generation and dissemination, but deters the firm from taking actions in response to market intelligence. Market orientation was also related to organizational dynamics and structure. Organizational dynamics consists o f interdepartmental conflict, which refers to the strain among departments as a result o f incongruous goals, and interdepartmental connectedness, which refers to the level o f communications among departments. Organizational structure comprises centralization, the degree of power concentration
27 throughout the organization, and a reward system, such as using customer focused factors for evaluating managers, like satisfying customer needs. While market orientation was positively related to interdepartmental connectedness and customer focused reward system, market orientation was negatively related to interdepartmental conflict. Thus, top management' emphasis on market orientation and their willingness to take calculated risk are instrumental in fostering market orientation. In addition, an open communication system and shared value across functional departments are also important to the implementation o f market orientation. Since few studies examined market orientation from the implementation perspective, Hartline et al. (2000) filled this void by investigating how customer-oriented strategy was disseminated to and carried out by service employees in a hotel setting. Using customer orientation scale from Deshpande et al. (1993), they found that work group socialization and organizational commitment were important in disseminating shared values in terms of customer orientation mentality to service personnel. While group socialization refers to the process o f gaining skills to work effectively in the organization, organizational commitment is the degree of involvement in fulfilling duties while working in the organization. In the context of higher education, Wasmer (1994) and Wasmer and Bruner (1999) found that institution size (student enrollment), source o f funding (public/private), and institutional innovativeness had a significant effect on the adoption of market orientation.
Market Orientation and Its Consequences As mentioned earlier, the relationship between market orientation and
28 performance is the basic investigative question in market orientation research. Although a positive relationship was expected between the two, Jaworski and Kohli (1993) did not find any positive relationship between market orientation and objective measure o f business performance, such as market share. However, a positive relationship was found between market orientation and subjective measure of performance, such as self-reported performance. Also, employees commitment to the organization and esprit de corps were positively related to market orientation. Although in Kohli and Jaworskis (1990) article, they formally proposed a positive relationship between customer satisfaction and market orientation, Jaworski and Kohli (1993) did not empirically test the relationship. Similarly, Narver and Slater (1990) found that the firms self-reported return on assets (ROA) relative to those of competitors was positively related to market orientation. Using the market orientation scale from Narver and Slater (1990), Kumar et al. (1998) surveyed 159 hospitals in the health care industry, and employed five self-reported measures to tap performance, growth in revenue, return on capital, success o f new services/facilities, success in retaining patients, and success in controlling expenses. They found that these five measures were positively related to market orientation. Pelham (1999, 2000) felt that both MARKOR and MTKOR have something to offer to measure market orientation. He also realized that the existing scales, especially the former, were quite long. To simplify the scale, he created his own questionnaire with 12 questions drawn from the two measures. The criterion for selecting those questions was that they must be closely related to customer value. Using the exploratory factor analysis, the following factors emerged: fast response to negative customer satisfaction information, strategies based on creating value for customers, immediate response to
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competitive challenges, and fast detection of changes in customer product preferences. He used self-reported satisfaction with the firm's performance on marketing/sales effectiveness (relative product quality, new product success, and customer retention rate), growth/share (sales levels, sales growth rate, and share of target market), and profitability (return on equity, gross profit margin, and return on investment). Strategy selection includes growth strategy, which focus on differentiating the firms products from those of competitors along meaningful dimensions other than price, and low cost strategy, which relies on beating the competition based on price. Using the data on small manufacturing firms, he found that performance was positively related to market orientation (composite average of those factors), and the relationship was stronger when the firm had a growth strategy relative to a low cost strategy. Deshpande et al. (1993) randomly selected 50 Japanese firms on the Nikkei stock exchange in Tokyo for personal interviewing with two marketing executives in a given firm. Each firm provided up to three important business customers, out o f which one was randomly chosen for interviewing with two purchasing executives. Thus, data were collected from 50 quadrads, i.e., 50 sets of matched firms. They found that the firms' performance (relative profitability, relative size, relative growth rate, and relative share of market compared with the largest competitor) was positively related to their customer orientation evaluated by their business customers, but not related to their own evaluative customer orientation. Using the same scale and data collection method as Deshpande et al.. Steinman et al. (2000) surveyed randomly chosen firms on the New York Stock Exchange and the Nikkei Stock Exchange in Tokyo. The matched supplier-customer data formed the unit of
30 the analysis. They found that the gap between a firms own evaluative customer orientation and its customer orientation perceived by its business customers was negatively related to the length and importance o f the business relationship between the firm and its customer.
Environmental Variables Influencing the Relationship between Market Orientation and Performance Although environmental variables were hypothesized to moderate the connection between market orientation and performance, market turbulence, competitive intensity, and technological turbulence were not found to moderate the relationship between market orientation and subjective measure of business performance (Jaworksi and Kohli 1993). However, Jaworski and Kohli cautioned that the effects may not be detected due to the small sample size or the relative low reliabilities of the contingency variables. Slater and Narver (1994a) studied moderator effects using the data on 81 SBUs in a forest products company and 36 SBUs in a diversified manufacturing firm. Both firms are from the Fortune 500 list. They dismissed their findings that market turbulence lessened the market orientation-ROA chain, technological turbulence abated the market orientation-new product success chain from the splitting sample method after the interaction terms were not significant. They further proposed that the moderating effects o f these contingency variables were a short term phenomenon, which should not attenuate the long term correlation between market orientation and performance. However, Kumar et al. (1998) found significant interaction terms in support of moderating effects. While market turbulence and competitive hostility positively
31 moderated the relationships between market orientation and return on capital, success of new services, and success in controlling expenses, supplier power negatively moderated these relationships. While competitive hostility is the same as competitive intensity, supplier power in Kumar et al.s (1998) study is the influence physicians, nurses, and suppliers of goods and capital equipment have over hospitals.
Market Orientation and Innovation Using responses from 134 banks out of 225 banks randomly drawn from the banking association list of a midwestem state, Han et al. (1998) empirically tested market orientation - innovation - performance chain. Using the scale from Narver and Slater (1990) for market orientation, they found that performance was positively related to technical and administrative innovations, which in turn were positively related to market orientation. But market orientation itself had no direct relationship with performance. The findings were similar from using objective and self-reported measures o f net income growth and return on assets.
Market Orientation and Organizational Learning Using the market orientation scale from Kohli et al. (1993), Baker and Sinkula (1999) surveyed 2000 marketing and nonmarketing executives from a broad cross section of industries. Using the returned 411 questionnaires, they found that learning orientation was not only positively related to change in relative market share, new product success, and overall performance, but also moderated the relationship between market orientation and those performance measures. Thus, higher order learning capabilities are crucial for
32 the firms success.
Market Orientation and Typology of Strategies Lukas (1999) hypothesized that market orientation was systematically related to a firms strategic intent. Based on a survey of 194 SBUs from all manufacturing categories classified in the SIC system, using Narver and Slater (1990)s scale, he found that prospectors, analyzers, defenders, and reactors had a different degree of market orientation on a descending order. While prospectors had the strongest interfimctional emphasis among all, analyzers had the strongest competitor emphasis among all, and both o f them exhibited stronger customer emphases than defenders. In Matsuno and Mentzers (2000) study, they did not find any relationship between market orientation and strategy type. Using their revised market orientation scale which has a broader item-sampling domain than MARKOR, they received 364 usable responses from a random sample of 1000 manufacturing firms. They purchased the sampling frame from a commercial vendor, and the firms on the list were from a variety o f industries. They found that the relationship between market orientation and profitability (ROI) was stronger for defenders than for both prospectors and analyzers. The relationships between market orientation and market share growth, relative sales growth, and new product sales as a percentage o f total sales were stronger for prospectors than for both analyzers and defenders. The mixed results on the relationship between market orientation and strategy type may be due to the difference in the choice of market orientation scales.
33 Component-Wise Approach of Market Orientation Research In order to use the component-wise approach, Han et al. (1998) subjected the data on Narver and Slater (1990)s market orientation scale to an exploratory factor analysis with varimax rotation. Three factors emerged as behavioral components. All but one measured item loaded on the correct factor' as theory predicts, and that item was deleted from further analysis. They found that innovations were only positively related to customer orientation, not competitor orientation and interfunctional coordination, and none of these elements was related to performance. Using Narver and Slaters scale for market orientation, Voss and Voss (2000) did a study with the component-wise approach on theaters with play productions. The exploratory factor analysis indicates that all but one item loaded on the correct factor as theory predicts, and that item was dropped from further analysis. All the factors had good reliability and validity measures. They found that while competitor orientation was positively, customer orientation was negatively related to the professional theaters business performance. Interfunctional coordination was positively related to performance, and it also moderated the relationship between the other two components and performance. The performance measures include subscriber attendance, single-ticket attendance, total income, and net surplus/deficit. In the theater industry, customers cannot always articulate what kinds o f shows they want to watch. Thus, a close customer orientation may hinder the firms ability to produce higly innovative shows to satisfy customers, resulting in mediocre performance. Lukas and Ferrell (2000) collected data from 194 SBUs out o f randomly chosen eight hundred U.S. manufacturing firms listed in Duns Market Identifiers File. Using the
34 market orientation scale from Narver and Slater (1990), all the three elements of market orientation showed high reliability. They found that performance on new-to-the-worldproducts (radically innovative new product) was positively related to customer orientation, while performance on me-too products (new products similar to competitors product) was negatively related to customer orientation. Conversely, new-to-the-worldproducts were negatively related to competitor orientation, and me-too-products were positively related to competitor orientation. The reason is that close monitoring of competitors facilitates imitative strategies, and a focus on customer needs encourages radical innovation.
Market Orientation and Channel Issues Siguaw et al. (1998) investigated how market orientation interacts with relationship marketing. They collected data from distributors on the membership rosters of associations affiliated the National Association o f Wholesalers. They found that the distributors satisfaction with their performance was positively related to the quality of the relationship with their suppliers such as commitment. The quality of the relationship was positively related to both suppliers and distributors market orientation. The distributors satisfaction with performance was not directly related to their own market orientation. They borrowed the 20-item market orientation scale from Kohli et al. (1993), and used self-reported satisfaction scores on the following 7 performance measures, cash flow, return on shareholder equity, gross profit margin, net profit from operations, profit to sales ratio, return on investment, and ability to fund business growth from profits. In a similar study. Baker et al. (1999) surveyed suppliers from the National
35 Association of Wholesalers. They used the market orientation scale from Deshpande et al. (1993) and based on factor analysis dropped one item that loaded on a second factor. They found that the suppliers perceived relationship with the distributor was positively related to the suppliers perception of its distributors market orientation. From the above, what remains to be done is the close scrutiny o f the relationship between market orientation and customer satisfaction. Although researchers hypothesized a positive correlation between market orientation and customer satisfaction (e.g., Slater and Narver 1999; Jaworski et al. 2000), the empirical relationship between the two has yet to be established. The linkage is of importance simply because customer satisfaction is one of only a few key building blocks in marketing philosophy, theory, and practice (Babin and Griffin 1998, p. 127). Furthermore, if the relationship between each component o f market orientation (e.g., customer orientation, competitor orientation) and performance is found to be different (e.g., positive, negative), this information will help firms formulate more effective marketing strategies. Different relationships o f customer satisfaction with the three components could be an explanation of why two firms with similar levels of market orientation may experience different levels o f customer satisfaction and different performance. To fully explore these dynamic relationships, a review on customer satisfaction is in order.
Customer Satisfaction As one o f the fundamental concepts in marketing, customer satisfaction has been defined in many forms. Although the dominant paradigm for studying satisfaction is the confirmation/disconfirmation of comparison standards, there are mainly four kinds of
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comparison standards adopted in diverse studies. The discussion on satisfaction will be organized along these comparison standards.
Expectations-Disconfirmation Model of Satisfaction Tse and Wilton (1983, p. 204) defined customer satisfaction as "the consumers response to the evaluation of the perceived discrepancy between prior expectations and the actual performance of the product as perceived after its consumption." In this definition, three determinants of satisfaction can be identified. First, customer expectations, or expected performance are the products likelihood performance customers derived based on whatever source, such as the average product performance (Miller 1977) or advertising (Olson and Dover 1979). Second, actual performance, or perceived performance is the customers evaluation o f the product performance. Third, the discrepancy, or confirmation/disconfirmation is the gap between the expected performance and perceived performance. If a customers positive expectations about a product or service are met, it results in moderate satisfaction. If those expectations are exceeded, it brings high satisfaction to the consumer. On the other hand, if a customers negative expectations about a product or service are not met, it results in moderate levels o f satisfaction as well. The former is derived from positive confirmation, and the latter is resulted from negative confirmation, or disconfirmation. Expectations are the most dominant comparison standard adopted in satisfaction research.
Desires-Disconfirmation Model o f Satisfaction Another comparison standard is ideal performance a product or service should
37 have in a consumers mind (Westbrook and Reilly 1983). Using this standard, the consumer compares the actual attributes the product has with the ideal attributes the consumer wants the product to have. The distance between the two determines the level o f customer satisfaction. Spreng et al. (1996, p. 17) used ideal performance in their satisfaction model. They defined satisfaction as an affective state that is the emotional reaction to a product or service experience. Compared with the one by Tse and Wilton (1988), this definition is broader in that it does not specify the determinants of satisfaction. In addition to the three elements earlier described, perceived performance, expectations, and expectations congruency (discrepancy in Tse and Wiltons term), desires and desires congruency, were added as additional determinants of satisfaction. Spreng et al. (1996, p. 17) defined desires as the level of attributes and benefits that a consumer believes will lead to or are associated with high-level values, which is equivalent to ideal performance. They further made a distinction between expectations and desires. While the former is beliefs about the likelihood that a product is associated with certain attributes, benefits, or outcomes, whereas desires are evaluations of the extent to which those attributes, benefits, or outcomes lead to the attainment of a persons values (p. 17). Desires congruency is the difference between perceived performance and desires. They believe that satisfaction should be positively related to desires congruency and expectations congruency.
Equitv-Disconfirmation Model of Satisfaction The third comparison standard used in satisfaction study is equity expectations,
38 which is related to perceived fairness for a specific transaction. As a given marketing transaction may be involved with interpersonal interactions between the buyer and the seller, fairness or equity should be part o f satisfaction formation. Oliver and Swan (1989, p. 25) defined fairness or equity as a form of distributive justice whereby individuals get what is right or what they deserve. They adopted a traditional conceptuali2ation of satisfaction, which is the overall evaluative judgement of a purchase. If a consumer perceives a transaction as fair and equitable, it leads to satisfaction, vice versa. The fairness is based on an overall assessment of the buyers time and money as well as the sellers time and effort spent on the transaction and the outcomes of the transaction.
Experience-based Expectations-Disconfirmation Model of Satisfaction The fourth comparison standard in satisfaction study is experience-based norms. According to Cadotte et al. (1987), these norms are the possible performance o f known brands consumers derive based on their concrete experiences with various real brands. They defined satisfaction as the overall affective evaluation of product/service consumption. If a product performance exceeds the expectations derived from past experience the consumer had with the product, it leads to satisfaction. Otherwise, it results in dissatisfaction. This comparison standard differs from the first kind in that customer expectation can arise without prior experience with the product or service.
Research Findings Relating to Customer Satisfaction Expectations-Disconfirmation Model of Satisfaction Using a laboratory study, Tse and Wilton (1988) collected data from 62 marketing
39 students in a western university, which acted as a potential buyer of a new electronic, hand-held, miniature record player. They used a 2 (high vs. low' expected product performance) by 2 (high vs. low perceived performance) experiment design, where students were randomly assigned to one o f the four cells. They employed a 5-point bipolar scale ranging from very dissatisfied' to very satisfied to measure satisfaction. They found that satisfaction was positively related to all the three variables, expected and perceived performance, and disconfrrmation between expected and perceived performance. Other studies found similar results in support of expectations in formation of satisfaction (Oliver 1977, 1980; Parasuraman et al. 1985).
Desires-Disconfirmation Model of Satisfaction Spreng et al. (1996) recruited 207 subjects from a local church for their 2 (desires) by 2 (expectations) by 2 (performance) experimental study. The subjects ranged in age from 18 to more than 65 and 56% were female. The product used in the laboratory setting was camera. The scale for satisfaction consists of four seven-point items, anchored as very satisfied/very dissatisfied, very pleased/very displeased, contented/frustrated, and delighted/terrible. A confirmatory factor analysis was conducted to assess the measurement model, which had an acceptable fit. The average variance extracted for satisfaction was high, 0.85. They found that satisfaction was positively related to both desires and expectations congruencies. Westbrook and Reilly (1983) also found support for the use o f ideal performance in the formation of satisfaction.
40 Equitv-Disconfirmation Model of Satisfaction Oliver and Swan (1989) collected data from 415 new automobile buyers who were randomly chosen. 63% o f the respondents were male, 30% of them were college educated, and they averaged 41 years old. They used the following six items in bipolar format to measure satisfaction: pleased-displeased, contented-disgusted, satisfieddissatisfied, did a good job-poor job, wise choice-poor choice of the salesperson, and happy-unhappy. All measures had a high reliability index. They found that satisfaction was positively related to fairness when expectations were also included in the model. The equity model may be more relevant to a transaction that is heavily involved with interactions with salespeople such as automobile. Tse and Wilton (1988) did not find support for equity models in their record players study.
Experience-based Expectations-Disconfirmation Model o f Satisfaction Cadotte et al. (1987) studied peoples dining experience with three types of restaurants, fast-food. family, and atmosphere/specialty. They randomly selected 120 persons, and 87 of them completed the study. They used 12 bipolar 5-point scales to measure satisfaction, and two of them were dropped out because they loaded on a second factor based on a factor analysis. The remaining items included feelings attributes such as happy/unhappy, warm glow/cold feeling and good/bad. They found that experience-based norms could be an alternative comparison standard in satisfaction formation. Satisfaction was related to disconfirmation, which is a single item measure to tap the difference between the overall performance of the focal restaurant and experience-based norms. Although there are some differences, a basic definition of satisfaction can be
41 considered as a general evaluative judgement of a consumption experience following a purchase or a series o f usage of a particular product (Yi 1990). Most studies used one o f the above four comparison standards for satisfaction research. Critiques argued that perhaps more than one comparison standard is employed by consumers in making their evaluative judgement about consumption experience. In fact, some studies tested more than one comparison standard in their research (e.g., Spreng et al. 1996; Cadotte et al. 1987). Using a phenomenological and longitudinal study of satisfaction, Fournier and Mick (1999) found that competing models of customer satisfaction worked distinctively in different circumstances, but none was universally applicable. Thus, they suggested a multi-model and multi-modal approach to move forward this well-established research stream. There generally are two kinds of conceptual explications of customer satisfaction: transaction-specific and cumulative satisfaction (Boulding et al. 1993). While the former limits satisfaction to a specific purchase occasion (Oliver 1980), the latter covers the overall evaluation o f product purchase and consumption experience over an extended period o f time (Fomell 1992). As Anderson and Fomell (1994) observed, most satisfaction research used the transaction-specific view. The reason is that most work focused on investigating the mechanisms underlying satisfaction based on one or a few transactions within a given period time. Thus, most findings discussed above and in the literature relating to customer satisfaction are based on the transaction-specific view. Thus far, the discussion is limited to the underlying processes of how satisfaction occurs. The next question is what elements affect satisfaction. Satisfaction is found to be related to quality (e.g., Fomell 1992; Churchill & Suprenant 1982), price (e.g., Voss et al.
1998; Bolton & Lemon 1999), and value (e.g., Howard & Sheth 1969; Lapierre et al. 1999). Value is the overall benefits received from the consumption experience divided by total costs incurred for acquiring the product or service (Zeithaml 1988). Customer satisfaction has also been examined in various industries, such as health care markets (e.g., Kolodinsky 1999; Dube & Morgan 1998), airline services in a controlled experiment (e.g., Dube & Maute 1998), banking industry (e.g., Athanassopoulos 2000), restaurant business (e.g., Bernhardt et al. 2000), retailing industry (Reynolds & Beatty 1999), and classroom teaching (Guolla 1999). The important point is that since customer satisfaction is a context-specific phenomenon, marketers must pay attention to the attributes particularly germane to their business. For instance, in the retail banking industry in Greece, service quality, price, convenience, and innovation are the determinants of customer satisfaction (Athanassopoulos 2000).
Customer Satisfaction in Business Marketing Since the model will be tested in a business-to-business environment, a review of customer satisfaction in the context of business marketing is in order. Drawing from the satisfaction definition in consumer marketing by Howard and Sheth (1969), Frazier (1983, p. 74) defined satisfaction with an exchange relationship as a partys cognitive state o f feeling adequately or inadequately rewarded for the sacrifice undergone in facilitating that relationship. In a parallel to the comparison standard used in consumer satisfaction research. Frazier believed that if achieved awards exceed expected rewards from a given working relationship, satisfaction occurs. Anderson and Narus (1984, p. 66) defined satisfaction as a positive affective state resulting from the appraisal of all
43 aspects of a firm's working relationship with another firm. Thus, channel satisfaction is defined as either affective or cognitive evaluation of channel relationship. Believing satisfaction is a key aspect o f working relationship among channel members, Anderson and Narus (1984) investigated the comparison standards in the formation o f satisfaction from the distributors perspective. Drawing from social exchange theory (Kelly and Thibaut 1978), they discussed two constructs specifically for exchanges taking place at the group or organization level, the comparison level and the comparison level for alternatives. The comparison level is the distributors (manufacturers) expectations of the working relationship with manufacturer (distributor) based on the distributors (manufacturer) present and past experience and other distributors experience with similar relationships. This comparison standard is similar to the experience-based norms in consumer satisfaction research. On the other hand, the comparison level for alternatives is the channel members expectations derived from the best alternative relationship, which is in line with desires or ideal performance comparison standard in consumer research. In discussing Just in Time (JIT) exchange relationships in industrial markets, Frazier et al. (1988) expressed a similar point of view, hypothesizing that the comparison level and the comparison level for alternatives are positively related to satisfaction of the firm with the relationship.
Research Findings Relating to Satisfaction in Business Marketing Anderson and Narus (1984) received 153 questionnaires out o f the 437 questionnaires sent out to the electronics distributors, who constituted the total membership o f the national Electronics Distributors Association. They found that the
44 distributors satisfaction with the working relationship with the manufacturer was negatively related to manufacturer control (the leverage the manufacturer had over the distributor), which in turn was negatively related to the comparison level for alternatives. Furthermore, the distributors satisfaction was positively related to the comparison level. In other words, both kinds of expectations, either based on past experience with similar relationships or derived from the best alternative relationship, were helpful to the distributors satisfaction in maintaining the relationship with the manufacturer. More evidence in support o f these relationships was found in Anderson and Narus (1990). The above discussion indicates that a number o f studies examined the comparison standards in the formation of satisfaction in business marketing. However, few investigated the consequences of satisfaction. Frazier (1983) and Frazier et al. (1988) hypothesized positive effects channel member satisfaction may have on the future continuation of the relationships. They posited that high levels o f satisfaction will increase and reinforce channel members attraction to and future expectations of the relationship. Naturally, a happy relationship will likely continue. The relationship between satisfaction and business performance in business marketing received meager treatment (Leuthesser and Kohli 1995). Among the studies reviewed by Gaski (1984), none o f them examined the relationship between channel member satisfaction and business performance. In examining personal selling in the insurance industry (not a business market context), Crosby et al. (1990) did not find a significant relationship between relationship quality (trust and satisfaction) and sales effectiveness, although a positive correlation was found between relationship quality and future sales opportunities. Using data from industrial marketing, Leuthesser and Kohli
45 (1995) found that buyer satisfaction was positively related to the share o f business the buyer gave to the supplier. The linkage between satisfaction and business performance in consumer markets has been widely investigated. While many studies (e.g., Anderson et al. 1994; Anderson and Rust 1997) found a positive relationship between satisfaction and profitability, Bernhardt et al. (2000) is one o f the few exceptions, who did not find any relationship between the two. Besides the association between satisfaction and performance, another consequence of satisfaction is customer loyalty (e.g., Fomell et al. 1996), which is discussed below.
Customer Lovaltv There are many definitional variations of customer loyalty. Guest (1944) proposed that loyalty is a constancy of preference over a period of time. Kuehn (1962) believed that brand loyalty is related to a consumers history with a product. Massy et al. (1970) examined brand loyalty in terms of conditional probabilities. On a given purchase occasion, a loyal customer will be more likely to purchase the brand he/she is loyal to than a non-loyal customer. After reviewing the loyalty literature, Jacoby and Chestnut (1978, p. 31-32) defined brand loyalty as the biased (i.e., nonrandom) behavioral response (i.e., purchase) expressed over time by some decision-making unit with respect to one or more alternative brands out of a set o f such brands and is a function o f psychological (decision-making evaluative) processes. More recently, Oliver defined loyalty (1999, p. 34) as a deeply held commitment to rebuy or repatronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or same
46 brand-set purchasing, despite situational influences and marketing efforts having the potential to cause switching behavior. In examining various definitions, two points can be made. First, since repetition is inherently involved with the conception o f loyalty, a reasonable time period is necessary to make a meaningful observation about the phenomenon. Second, the number o f brands involved with loyalty need not be one. From a stochastic perspective, customer loyalty can be viewed as consumer's likelihood to repurchase the product/service. That is, a loyal consumer will repurchase the brand with a certain probability. Even though that probability is high, it is not necessarily the case that the consumer will definitely purchase the same brand next time. However, in the long run, the consumer will choose the brand he/she is most loyal to more frequently than its competing brands (Uncles and Laurent 1997). Thus, loyalty is consumers propensity to purchase a given brand of product (Dowling and Uncles 1997). If the consumer repurchases only the same brand over and over, it is called hard core loyalty (Yim and Kannan 1999). If the consumer purchases a range o f competing brands in the same product category, but in an extended time period, the loyal brand is chosen more frequently than any other brands, it is called self-reinforcing loyalty (Yim and Kannan 1999). The number o f brand that one is loyal to in a product category can exceed one, in which case it is also called brand-set, or multibrand loyalty. In many customer satisfaction studies, repurchase intention is often included as a consequence of satisfaction (e.g., Boulding et al. 1993; Bitner 1990). As mentioned earlier, most studies used the transaction specific view o f satisfaction. Thus, repurchase intention is the conditional probability a consumer may purchase the same product next
47 time, given his/her current experience with the product. Hence, repurchase intention should be related to loyalty in that repurchase intention is a necessary condition for loyalty development. A repurchase intent may transfer to an actual purchase, but without such an intent a repurchase will not occur under normal circumstances. A satisfied customer is likely to repurchase the product/service simply because it minimizes risks associated with an unknown product offering and reduces information search cost on the shopping effort. The evidence in support o f the relationship between satisfaction and repurchase intention exists in the literature (e.g., Boulding et al. 1993; Bitner 1990; Parasuraman et al. 1991). One o f the measures for loyalty is share of the market. Cunningham (1956, p. 118) operationized loyalty by examining the distribution o f a familys purchases among the different brands in a product groupthe proportion going to the largest single brand, and two largest brands, and so on. He used the Chicago Tribune panel in his study which consisted of over 600 families in the period of 1950 to 1952. He found that single brand and dual-brand loyalty did exist across 7 product categories. For instance, some families bought only one brand of headache tablets during the period. However, some studies did not have panel data, which are normally expensive, so they did not incorporate the extended time period into the loyalty measure. Instead, they used price tolerance in addition to repurchase intention to measure loyalty (e.g, Fomell 1992). Price tolerance measures the range of the price in which customers remain loyal. Fomell (1992) found that satisfaction and loyalty was positively related. Although developing customer loyalty is viewed as a defensive strategy as compared with an offensive strategy, such as pursuing new customers, customer loyalty
48 is extremely important to the firms bottom line. First of all, it is widely held that it costs much less to keep an existing customer than to attract a new one. Second, a loyal customer is more resistant to competitors offerings than other customers. Thus, a wide loyal customer base will constitute a huge obstacle for competitors to compete especially in a stable market. Third, the firm will enjoy greater sales and profit stemmed from consistent purchases from loyal customers (Jarvis and Wilcox 1977). Examining the loyalty definitions provided by Oliver (1999) and by Jacob and Chestnut (1978), it appears that loyalty is more than simple repeat purchase in that psychological attachment in purchasing decision is also an important aspect o f loyalty. That is, whether a psychological bond exists distinguishes repeat purchase and brand loyalty even though both exhibit the same behavior (Jacoby and Kyner 1973). However, researchers in marketing strategy have mainly focused on the action aspect o f loyalty in their studies. For example, Tellis (1988) scrutinized how advertising influences repeat purchase. In business marketing, loyalty received sparse attention in spite o f the fact that loyalty is considered important. Specifically for industrial marketing, the term source loyalty is used instead o f customer loyalty. According to Morris and Holman (1988, p. 117), industrial source loyalty is defined as the behavioral predisposition that tends to favor previous suppliers with whom the buyer is familiar. Just like customer loyalty in consumer marketing, the definition of source loyalty stirred quite a controversy. Jarvis and Wilcox (1977) distinguished true source loyalty from simple repeat purchase behavior, or spurious loyalty. In both cases repeat purchase occurs, but the difference is whether a psychological bond exists between the buyer and the seller. They believe that
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the distinction between the two concepts is meaningful. For example, in a market characterized by repeat purchase, if spurious loyalty reflects the market condition because the seller has a monopolistic position, the market is much more penetrable than otherwise would be the case, which may be an important point o f consideration when a new entrant is making its strategic decisions. However, in an empirical study setting, the difference between spurious and true loyalty is difficult if not impossible to detect. In a landmark study, Wind (1970) proposed a model o f industrial source loyalty. The four categories of antecedents of source loyalty are: suppliers offerings, such as quality, service, and price; the buyers past experience with suppliers; work simplification mles, such as seeking suppliers geographically closely located to the buyer to simply communication; and the buyers organizational variables such as pressure for cost savings. Using percentage o f purchases from favorite source as opposed to all sources as the dependent variable, and testing the model on the purchase data of industrial components from an electronic firm, Wind found that while current price relative to previous price was negatively related to source loyalty, cost savings and purchase history from the favorite source were positively related to source loyalty. Also, attitude toward the favorite source compared with the ideal source relative to other sources compared with the ideal source, was positively related to source loyalty. Interestingly, attitude toward the favorite source compared with the ideal source without reference to other sources was not related to source loyalty. While attitude toward the favorite source relative to other sources can be viewed as the buyers relative dissatisfaction gap, attitude toward the favorite source without reference to other sources is the buyers dissatisfaction gap. Although the study was significant in examining the
50 antecedents o f source loyalty from the buyers point o f view, the consequences o f source loyalty on the buyer were not explored. In fact, the relationship between loyalty and performance from either the buyer or the seller perspective has yet to be established.
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CHAPTER 3 THE MODEL Building upon the extensive literature review conducted previously, this chapter identifies a unique opportunity to further advance our knowledge on the subject under investigation. Specifically, this chapter discusses the conceptual framework in which market orientation and customer satisfaction can be integrated, and formally proposes the model and hypotheses for later empirical testing.
Market Orientation and Customer Satisfaction Considering the extant literature on market orientation, there is a conspicuous absence o f elaborate discourse on the role customer satisfaction plays in mediating the relationship between market orientation and performance. This phenomenon must be changed in that customer satisfaction is one o f the most talked about concepts in modem commercial operations. Furthermore, the essence o f market orientation is satisfying customer needs as a top priority. The very purpose of any business is to discover customer needs and serve those needs, i.e., to create a customer (Drucker 1954). Thus, the conceptual and empirical linkage between market orientation and customer satisfaction has yet to be established rigorously. The purpose o f this study is to fill the void by concentrating efforts on the relationship between market orientation and customer satisfaction. The incorporation of customer satisfaction in models o f market orientation will enormously increase our understanding and appreciation of modem marketing competition, and shed further light on the market orientation literature. Deshpande and Farleys recent (1996) redefinition o f market orientation heavily
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focuses on customer satisfaction. In the wake of this new definition, the level o f the research treatment on the relationship between market orientation and satisfaction is meager at best, which needs to be corrected swiftly. The focus is on how market orientation is related to customer satisfaction, which is in turn related to customer loyalty, which is in turn related to business performance. At the same time, the contingencies moderating the relationships among market orientation, satisfaction, loyalty, and performance will be explored.
Conceptual Framework and Theoretical Model As mentioned earlier, the market orientation scale, MKTOR, by Narver and Slater (1990) has been found to be superior to MARKOR, by Kohli et al. (1993) in predicting a firms performance. Thus, we will adopt MKTOR in our study. Although MKTOR has three elements, most empirical work combined the average scores for the three components with few exceptions. By using both combined and component-wise approaches, Han et al. (1998) gained more insights than they would have obtained by simply employing the combined approach. For example, while market orientation as a whole was positively related to innovation, the more detailed component-wise study indicated that only customer orientation, not competitor orientation and interfunctional coordination, was positively related to organizational innovativeness. In the same spirit, we will utilize the combined and the component-wise approach in our investigation. Since market orientation is treated as an exogenous variable in the model, firms may locate anywhere along the market orientation continuum from very market oriented to not market oriented. Though antecedents o f market orientation are an issue
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o f interest, it is not the focus of this research. Rather, the focus is on how market orientation is related to performance directly and/or indirectly through mediating variables such as satisfaction and loyalty. The model is discussed in the following order: the relationships between market orientation including its three components and customer satisfaction, the relationship between satisfaction and loyalty, the relationships market orientation, satisfaction, and loyalty may have with performance, and the variables that may moderate the satisfaction-loyalty relationship. The model is presented in Figure 1 on next two pages.
Market Orientation: The Combined Approach Customer satisfaction. Kohli and Jaworski (1990) defined market orientation as the organization's concerted effort o f gathering, disseminating, and responding to market information pertaining to current and future customer needs. Evidently, customers are the primary focus of market orientation. As this definition dictates, market oriented firms not only discover current customer needs but anticipate future needs as well, and more importantly, they involve individual departments across the firm to act on meeting those needs. Thus, an implicit outcome of the definition is that market orientation is likely to be positively related to customer satisfaction. As Kotler (1988) posits, market orientation is positively related to customer satisfaction. In fact, Kohli and Jaworski (1990) formally advanced this proposition. Heretofore, no study has empirically examined this relationship. Using Narver and Slaters conceptualization (1990), market orientation fosters behaviors for delivering superior value for customers. Thus, by definition, market
Com petitive Intensity
M arket Orientation
C ustom er Satisfaction
C ustom er Loyalty
Perform ance
Fiuure I. The Combined Approach.

U i
C ustom er Orientation C om petitor Orientation Interfunctional Coordinatior
Custom er Satisfaction
C ustom er Loyalty
Perform ance
Fipurc I (Continued). The Component-Wise Approach.
U \
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orientation is positively related to superior customer value. Value has long been believed instrumental to customer satisfaction (e.g., Kotler and Levy 1969; Howard and Sheth 1969). Recent empirical evidence (e.g., Bolton and Lemon 1999; Lapierre et al. 1999) lends further support to the value-satisfaction link. Hence, our first hypothesis is:
H 1: Market orientation is positively related to customer satisfaction.
Customer Orientation Customer orientation has a prominent stature in the literature. The reason for this may be related to the marketing concept, which places a top priority on satisfying customer needs, and the marketing concept is the foundation of market orientation (Kohli and Jaworski 1990). Customer orientation dictates that firms must be centered around consumers. Thus, marketed-oriented firms must go beyond merely discovering and meeting customers expectations. Consumer orientation requires that market oriented companies have an extraordinary caliber to glean new insights into consumers evolving needs and satisfy their current and latent needs. More importantly, a customer oriented firm is likely to develop sustainable competitive advantage (SCA) from an in-depth understanding o f the key elements along the buyers value chain and their dynamics over time (Day and Wensley 1988), which enables the firm to create and deliver superior customer value (Slater and Narver 1994b; Aaker 1989). As mentioned earlier, value is positively related to customer satisfaction, and hence, our second hypothesis is:
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H2a: Customer orientation is positively related to customer satisfaction.
Competitor Orientation As Day and Wensley (1983) pointed out, the explications o f the marketing concept have a major drawback. That is, they did not do enough justice to competitor orientation. To remedy the problem, Narver and Slater (1990) added competitor orientation as a behavioral component o f market orientation. According to Porter (1980), jockeying for position among competitors in a given industry is a major factor in assessing the attractiveness of the industry. Competitor orientation requires that the firm closely analyze and monitor the major competitors strategic intents and tactical moves associated with their strengths and weaknesses (Aaker 1988). In studying the classifications of different firms with diverse strategic orientations, Day and Nedungadi (1994) found that competitor-centered businesses tended to draw a direct comparison with their close competitors on some salient factors, such as cost and price, which is in line with the observation made by Porter (1985). Competitor-centered firms focus on beating the competitors by responding quickly to competitors move. Thus, they have to change their strategic and tactical maneuvers as soon as the major competitors act out a new scheme (Oxenfeldt and Moore 1978). Consequently, competitor-oriented firms tend to have unstable strategies, resulting in low satisfaction with their performance (Day and Nedungadi 1994). As Kotler (1994) posits, an over emphasis on competitor orientation dictates the firm to take actions in response to competitors move which may not be in the best interest of consumers. Thus, an increasing level of competitor orientation is likely to have a negative impact on
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customer satisfaction.
H2b: Competitor orientation is negatively related to customer satisfaction.
Interfunctional Coordination The only purpose o f any business is to create a customer (Drucker 1954), but the job o f creating customers is not limited to the marketing department. The strengths o f a single department are limited, but an integration of diverse departments can achieve much more than the summation o f single units working alone. This is known as synergistic effect (Ruekert and Walker 1987a, b). The marketing concept explicitly requires a concerted and coordinated effort with an organization to pursue common goals (e.g., Webster 1988). In fact, the lack of systematic planning and cooperation among different functional departments is one of the widespread flaws with strategic marketing decision making (Wind and Robertson 1983). As several researchers have noted (e.g., Narayanan and Fahey 1982), strategic formulation process in a business can be involved with heavy politics. Each department has its own turf and territory and wants to protect itself for political gains or other purposes (Frankwick et al. 1994). As a result, a functional department may block a strategic action if it is deemed to damage the units stature, even though the action may be helpful to the organizations long term position in the market place. Clearly, the absence o f interfunctional coordination will be detrimental to achieving organizations objectives, no matter what they are. On the other hand, when consensus is built among departments, a concerted effort
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will greatly increase the effectiveness and efficiency of obtaining goals simply because energy and time spent on internal struggling for power and position among departments will be saved and used more productively (e.g., Webster 1988). The consensus can be achieved by using common reward systems for all the departments (Ruekert and Walker 1987a, b). Thus, the direct relationship between interfunctional coordination and organization's goal is established (Atuahene-Gima 1996). Regardless of whatever actions may be, a firm with a high level o f interfunctional coordination will be better able to execute those actions than a firm with a low level of interfunctional coordination. In this sense, some scholars argued that interfunctional coordination also has a moderating effect on the relationship between organizations orientation and performance (Gatignon and Xuereb 1997). Since market orientation places satisfying customer needs as a central tenet, a high level o f interfunctional coordination will facilitate the process o f fulfilling that goal. Also, from the previous discussion, actions taken required by competitor orientation (i.e., respond rapidly to competitors' action) may negatively affect customer satisfaction. A firm with a high level of interfunctional coordination is likely to better execute those actions than its counterparts with a low level of interfunctional coordination. Thus, the negative relationship between competitor orientation and customer satisfaction will be strengthened by a high level of interfunctional coordination. Taken altogether, the following hypotheses are proposed:
H2c: Interfunctional coordination is positively related to customer satisfaction. H2d: Interfunctional coordination has a moderating effect on the association between customer orientation and customer satisfaction.
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H2e: Interfunctional coordination has a moderating effect on the association between competitor orientation and customer satisfaction.
Customer Satisfaction and Customer Lovaltv Fomell (1992) identified several immediate outcomes for consuming a good/service: satisfaction, voice, which is complaint, and exit without voice, although only the first two scenarios were included in his study. He explicitly modeled loyalty as a function o f satisfaction and voice for simple reasons. A satisfied customer is likely to repurchase the product/service to minimize his/her perceived risk associated with purchasing other unknown brands. As with voice, a complaining customer might still become loyal if his/her complains are handled well (e.g., Bitner et al. 1990), suggesting that a dissatisfied customer is turned into a satisfied one before turning into a loyal one. The evidence in support of the linkage between customer satisfaction and loyalty is numerous (e.g., Reichheld and Sasser 1990; Bitner 1990; Fomell 1992; Fomell et al. 1996). Thus, the following hypothesis is offered:
H3: Customer satisfaction is positively related to customer loyalty.
Performance and its Antecedents Market orientation and performance. The main thrust of market orientation research has been examining the relationship between market orientation and business performance. While numerous studies have found a positive relationship between market orientation and self-evaluative measures o f performance (e.g., Narver and Slater 1990;
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Jaworski and Kohli 1993), Han et al. (1998) did not find any relationship between market orientation and objective as well as subjective measures o f performance. The mixed results could be confusing and need to be explicated further. The positive relationship between market orientation and performance could be fragile simply because, as Han et al. (1998) argued, mediating variables such as innovation have been missing in the market orientation-performance study. However, since Han et al. (1998) used data only from the banking industry, their results may not necessarily hold across industries. Plus, they used the 3 stage least squares (3SLS) method for their model estimation, which may be questionable in that if there is no simultaneity problem among variables in the model, 3SLS estimators are not even consistent. Thus, the following hypothesis is proposed:
H4: Market orientation is positively related to performance. Although Han et al. (1998) tested the relationship between each component of market orientation and performance one at a time, it would be more efficient to include the three components together in a single model. Since the exploratory factor analysis pinpointed that each component was unidimensional, omission of any one would suffer misspecification error. As Narver and Slater (1990) suggest, although overall measure of market orientation is related to performance, an interesting issue would be investigating the relative importance o f each component o f market orientation with respect to performance. As such, this study includes all three components in a single model for analysis. Since most firms seldom take a balanced view on customer and competitor orientation (Day and Nedungadi 1994), the finding would indeed be valuable.
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As Fomell and Wemerfelt (1987, 1988) discussed, business strategy consists of offensive and defensive strategy. While the former is concerned with customer acquisition, the latter is related to customer retention. Since the basic purpose o f customer orientation is to satisfy and anticipate current as well as future customer needs, customer orientation is crucial for both customer acquisition and retention. As discussed subsequently, customer orientation is related to performance through mediating variables, customer satisfaction and loyalty, essence of defensive strategy. Although in this study, the main focus is on retention, by no means, offensive strategy is excluded by the doctrine of customer orientation. In other words, customer orientation may be related to performance through offensive mechanisms such as increasing market share by capturing new customers other than retaining customers through satisfaction and loyalty. Thus, it is posited:
H5a: Customer orientation is positively related to performance. Gatignon and Xuereb (1997) found that in a high growth market, competitor orientation helps firms achieve innovation success because it draws managers attention to costs. Day and Nedungadi (1994) expressed a similar view, indicating that competitorcentered businesses tended to use a low-cost strategy with a priority on fighting for market share. Gatignon and Xuereb (1997) also found that in a stable market, competitor orientation enables firms to differentiate its products from competing alternatives. According to Lukas and Ferrell (2000), me-too-products were positively related to competitor orientation. In a stable market, me-too-products may be sufficient to achieve success. According to Pelham (2000), response to competitive challenges was positively
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related to performance. Thus, it is proposed:
H5b: Competitor orientation is positively related to performance. A well-orchestrated effort will achieve goals more effectively and efficiently than an ill-coordinated campaign. Empirical evidence supports the positive association between interfunctional coordination and performance (Atuahene-Gima 1996). Also, interfunctional coordination facilitates the process to accomplish goals, and thus moderates the relationship between strategic orientation and performance (Gatignon and Xuereb 1997). As such, Voss and Voss (2000) proposed that interfunctional coordination is a quasi moderator that has a direct relationship with performance and a moderating effect on the association between other components of market orientation and performance. The reason is simple. Actions taken by the firm required by customer orientation and/or competitor orientation are helpful to achieve success as suggested earlier. A high level of interfunctional coordination will better execute those actions than a low level of coordination. That is, although two firms may be doing the same thing, the difference in the level o f interfunctional coordination will have an impact on the quality o f the implementation o f those programs. Consequently, interfunctional coordination moderates the relationships between customer orientation, competitor orientation and performance. Thus, the hypotheses are proffered as follows:
H5c: Interfunctional coordination is positively related to performance. H5d: Interfunctional coordination has a moderating effect on the association between customer orientation and performance.
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HSe: Interfunctional coordination has a moderating effect on the association between competitor orientation and performance. Customer satisfaction and performance. Anderson et al. (1994) described why customer satisfaction is positively related to performance. Much o f their argument for the relationship relates to another construct, customer loyalty. Since this study has separate measures for customer satisfaction and customer loyalty, special care is taken in examining how customer satisfaction is related to business performance. For example, one o f the discussed benefits from customer satisfaction for increasing a firms performance is repeat purchase from loyal customers (Anderson et al. 1994; Fomell 1992). However, strictly speaking, this benefit stems from customer loyalty, not customer satisfaction in that some satisfied customers still defect (Jone and Sasser 1995), in which case repeat purchase does not occur. Thus, the specific benefits from satisfaction or loyalty must be clearly specified. There are some benefits that can be credited to customer satisfaction, such as reduced rework and warranty costs (Fomell 1992). Most companies have liberal return policy so that consumers can return the product if they were dissatisfied. Also, dissatisfied customers are given the option o f making phone calls to get answers from service personnel. However, all of these options are costly. Simply satisfying the customer will automatically reduce these costs and bolster the companys bottom line. The real issue is how much must be spent on customer satisfaction in order to make a marked impact on performance. Although Anderson et al. (1994) showed that satisfaction was positively related to performance, the degree to which the association was due to loyalty is unknown as loyalty was not included in their study. Nonetheless, as commonly
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believed, the following hypothesis is provided, but it must be tested in the presence of customer loyalty.
H6: Customer satisfaction is positively related to performance. Customer lovaltv and performance. As mentioned above, much o f the argument for customer satisfaction affecting performance is applicable to loyalty. A satisfied customer may decide not to do anything for the firm, but as soon as he/she becomes a loyal customer, things change dramatically. Loyal customers are less price sensitive, which results in higher margins (Garvin 1988). Loyal customers purchase the product more frequently and in larger volume than non-loyal customers, and they are likely to purchase other products offered by the firm (Reichheld and Sasser 1990). Moreover, loyal customers will provide positive word-of-mouth, which enhances firm reputation. A heightened reputation will facilitate the firms ability to introduce new products and services (Robertson and Gatignon 1986), establish relationships with business partners (Anderson and Weitz 1989), and build brand equity (Keller 1993). Thus, the following hypothesis is offered:
H7: Customer loyalty is positively related to performance.
Environmental Moderators Customer Satisfaction and Customer Lovaltv. As the positive relationship between customer satisfaction and loyalty generally holds, some environmental variables may affect the relationship one way or another. Competitive intensity, referred to as the
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intensity of competition among firms in a given product-market, will alter the link between satisfaction and loyalty. As an extreme case, in a monopoly industry, such as local telephone services, unsatisfied customers still remain doing business with the company simply because they have no alternative firms available to them (Jones and Sasser 199S). On the other hand, in a market full o f choices, a highly satisfied customer may not be loyal. In fact, the majority of the customers who switched their business partners were satisfied with their former suppliers (Reichheld 1993). Thus, the following hypothesis is projected:
H8: Competitive intensity has a moderating effect on the relationship between customer satisfaction and loyalty. Market Orientation and Performance. The findings on the moderating effects o f the environmental variable on the relationship between market orientation and performance are mixed. Jaworski and Kohli (1993) proposed that competitive intensity strengthens the relationship between market orientation and performance. The reason is that in a highly competitive environment, being market-oriented will be rewarded more fully than in a less competitive market. However, they did not find any moderating effects, but they cautioned that the effects may not be detected due to the small sample size or the relative low reliabilities of the measures. According to Pelham (1999, 2000), two factors, fast detection of changes in customer product preferences and immediate response to competitive challenges, are positively related to performance. In a turbulent and highly competitive market, these two factors should be more relevant, not less. Thus, we need to re-examine the following
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hypothesis:
H9: Competitive intensity has a moderating effect on the relationship between market orientation and performance. As the market orientation and customer satisfaction model is developed, the methodology used for testing the model is discussed in the following chapter.
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CHAPTER 4 METHODOLOGY This chapter focuses on the research method that was used in the study. Instruments for measuring the constructs and data collection procedure are also discussed. However, a brief reiteration o f what has been done thus far is in order. Since the model was described fully in the previous chapter, only the essence of the model is recapped here. The central purpose o f the study was to examine the relationship between market orientation and customer satisfaction using two approaches: a combined approach and a component-wise approach. With the combined approach, a composite scale consisting of three behavioral components was used for measuring the overall performance of market orientation. With the component-wise approach, the relationship between each component o f market orientation and customer satisfaction was hypothesized. The importance of the second approach lies in the fact that the three components may not have an identical relationship with customer satisfaction. As the model points out, while customer orientation is positively related to customer satisfaction, competitor orientation is negatively related to satisfaction. Such being the case, the combined approach suppresses valuable information which can be useful to managers for making strategic decisions. This study introduces customer satisfaction and loyalty as mediating variables which connect market orientation and performance. Whether or not the commonly believed relationship between market orientation and performance still holds in the presence o f the indirect relationships o f satisfaction and loyalty is extremely interesting. The observed association between market orientation and performance in the absence of mediating variables is not convincing evidence for
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supporting a genuine relationship between these two variables. If a relationship is found between market orientation and performance in our model, it will be stronger evidence for an authentic relationship between the two. However, it is not conclusive because other possible relevant mediating variables.are not included, such as offensive strategy mechanisms like new customer acquisition. Nevertheless, our model is a meaningful effort which may point out the direction for future research in this area. The hypotheses proposed in the model are reiterated in Appendix A.
Data Needed for the Model Testing The model was tested using business-to-business data. A survey was conducted to solicit responses from those firms which were engaged in business-to-business marketing. Thus, the population o f the topic under investigation consisted o f all industrial supplier firms whose primary customers were business buyers. One key informant, e.g., the CEO or a marketing executive from each firm, was contacted to provide information on key constructs such as market orientation and performance. Also, a list of up to three major business customers from each o f these firms was solicited. These three business customers were to be contacted to provide their assessment of their satisfaction level with the supplier. Had the firms provided their three major accounts, a dyadic data from both the suppler and the buyer would have been used for testing the model. By doing so, the possibility of common method bias from one source data could be eliminated. Unfortunately, the large majority of the contacted firms did not want to cooperate. The dyadic design did not play out in this study. However, tests indicate that common method bias is not a problem o f concern. Further details are discussed in the next chapter.
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Instruments Used in the Study The market orientation scale was borrowed from Narver and Slater (1990) and Han et al. (1998) (See Appendix B for a summary of scale measures). In both studies, the scale consisted of 6 items for customer orientation, 4 for competitor orientation, and 5 for interfunctional coordination. Each sub-scale for the components had a high level of reliability. For example, In the Han et al. study, while customer orientation had a reliability of 0.83, both competitor orientation and interfunctional coordination had a reliability of 0.79. The composite scale, combining these three components, also had a high level of reliability. The scale for the environmental moderator, competitive intensity was from Jaworski and Kohli (1993), which showed an acceptable level o f reliability, 0.81. The satisfaction scale was borrowed from Ganesan (1994). Since business-tobusiness data is required, the scale must be suitable to business marketing. Ganesan (1994) used the scale to examine the relationship between the supplier and the retailer. He asked both the vendor and the retailer to provide the satisfaction assessment with respect to the outcomes o f the relationship in the past year. The data collected from either party on the scale showed a very high level of reliability (0.94 in both cases). The measure for customer loyalty was borrowed from Maignan et al. (1999). They created this scale to measure the importance of customer loyalty to the firm and the firms performance in customer retention. This scale was designed to measure how well the firm retains its customers. Thus, a relationship should be observed between customer satisfaction and customer loyalty in that if the firm has a satisfied clientele, it should have repeated sales.
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The performance measure was from Samiee and Roth (1992), which tapped the manager's self-evaluative performance of the firm. The reason for using subjective measures is that many firms were reluctant to give out objective performance information (Siguaw et al. 1998). Thus, although we tried to collect data on objective performance measures, a few missing values forced us to focus on subjective measures. In summary, all the measures used in this study were existing scales in a Likert format with a range from I (strongly disagree) to 5 (strongly agree). They were proven to have a high reliability and good validity.
Data Collection Upon request of the author, the Envelope Manufacturers Association (EMA) provided assistance in using its mailing list for data collection. The EMA is a trade association that consists o f envelope manufacturers and some of their suppliers around the world. While the majority of the member firms are in the US and Canada, a few are in Europe, Australia, and Asia. One hundred seventy-four questionnaires were sent to the member firms in North America and overseas, along with a cover letter from the president of EMA. Thirty-seven responses all from North America were collected. Although the response rate, approximately 26%, was fairly good, the total number of cases was small. As a result, additional data was collected. A list o f 1300 firms was purchased from a professional market research firm. These firms had a range o f Standard Industrial Classification codes from 2100 to 3999 (cf. Matsuno and Mentzer 2000), were from the six Midwest states: Illinois, Indiana, Ohio, Missouri, Kentucky, and Tennessee, and had at least S10 million in annual sales.
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Two waves of mailings were sent to the contact people, who in most cases were CEOs. After bad addresses were identified and excluded, the first mailing went to 1217 firms, of which 40 were returned due to change of address or expired forwarding service. Thirtysix responses were collected from the first mailing. One month later, a reminder letter was sent out to those who did not respond the first time. A total of 42 responses and 12 additional bad addresses were returned. Thus, the total number of returning questionnaires from the two mailings was 78, which constituted approximately a 6.7% response rate out o f 1165 deliverable addresses.
Data Analysis Technique A series of regression analyses were conducted to test the proposed hypotheses. The reason for the use o f regression, in lieu of the structural equation modeling technique, is that a number of moderating effects can be easily tested. Also, it is very unwieldy to use structural modeling to detect interaction effects.
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CHAPTER 5 RESULTS In this chapter, the results of the data analysis are presented. As mentioned earlier, the data were collected from two samples. Tests were conducted to compare the means among the two waves o f responses from the purchased mailing list (waves 2 and 3) and the responses from the EMA (wave 1) on major constructs such as market orientation and performance. No significant differences were detected between them on any construct. The results are presented in Table 1. The data were pooled together to make a total o f 115 cases for the final analysis, which was about an 8.6% response rate from all contacted firms with deliverable addresses.
Table 1 T-Test Results for Comparing the Means o f the Three Waves o f Responses Variables Market Orientation Waves T-Test for Equality of Means .956 1.281 .422 -.090 -.598 -.573 .389 .165 -.239 1.525 1.295 .000 -.631 .000 .665 P-value .342 .204 .674 .929 .552 .569 .698 .870 .812 .131 .199 1.00 .530 1.000 .508
1& 2 1& 3 2& 3 Competitive Intensity 1 & 2 1& 3 2& 3 Customer Satisfaction 1 & 2 1& 3 2& 3 Customer Loyalty 1&2 1&3 2&3 Performance 1&2 1& 3 2&3
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Data Analysis First, all IS measured items for market orientation were subjected to an exploratory factor analysis. Five factors emerged using the criterion of an eigenvalue larger than 1. The rotated factor loadings (a varimax rotation) are reported in Table 2A. Coefficient alpha was calculated for each factor, which consisted o f measured items whose factor loadings are underlined. For example, Items 4,6 , 7, 8, and 9 formed factor 1 with an alpha o f .78.
Table 2A Factor Loadings of Market Orientation Items U 5 items) Items vl v2 v3 v4 v5 v6 v7 v8 v9 vlO v ll vl2 vl3 vl4 vl5 Eigenvalue Variance Explained Reliability Factor 1 0 .350 0 .598 0 .756 .622 .754 .761 .276 0 0 .308 0 .368 4.155 19.43% .78 Factor 2 0 .529 .254 .491 0 0 .246 0 .232 .654 .766 .124 .599 0 -.134 1.557 14.16% .68 Factor 3 0 0 .404 0 0 0 .127 .262 0 0 0 .514 .330 .860 .492 1.406 10.93% .39 Factor 4 0 .374 .553 .135 .873 0 .103 0 .107 .128 0 .219 -.132 0 0 1.119 8.90% .31 Factor 5 .867 -.103 .138 -.106 0 .303 -.101 0 0 .113 .139 .578 . 0 -.105 0 1.074 8.65% .47
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Test results showed that the emerging factors bore little resemblance to theory, which dictates there should be only three factors. Upon close examination, item 1 had a unique loading on factor 5, and item 5 had a unique loading on factor 4 (no cross loadings on other factors). Although items 3 and 12 also had a loading on factors 4 and 5, they had high cross loadings on other factors. It seems that items 1 and 5 were responsible for the emergence o f two additional factors. As a result, items 1 and 5 were deleted from a second round o f an exploratory factor test, which resulted in a three-factor structure with clear loading patterns after a varimax rotation. The factor loadings are in Table 2B.
Table 2B Factor Loadings of Market Orientation Items (no items 1 and 5) Items Factor 1 Interfunctional Coordination .368 0 .597 .652 .614 .791 .776 .268 0 0 .391 0 .448 4.111 22.77% .71 Factor 2 Customer Orientation .580 .296 .507 .135 .268 0 .241 .674 .748 .156 .446 0 -.261 1.478 16.52% .73 Factor 3 Competitor Orientation .105 .620 .107 0 .144 .155 0 0 .100 .704 .240 .782 .348 1.268 13.45% .57
v2 v3 v4 v6 v7 v8 v9 vlO v 11 vl2 vl3 vl4 vl5 Eigenvalue Variance Explained Reliability
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Items 6, 7, 8, 9, and 15 formed the basis for factor 1, which is interfunctional coordination; items 2,4, 10, 11, and 13 converged as factor 2, which is customer orientation. Factor 3, competitor orientation, consisted o f items 3, 12, and 14. According to theory, items 4, 7 and 9 were designed to measure customer orientation. However, items 7 and 9 had a high loading on interfunctional coordination. Thus, they were classified as elements o f interfunctional coordination. Reliability tests indicated that factor 1, interfunctional coordination, would be more reliable when item 15 was dropped. Item-total statistics show that coefficient alpha for factor 1 would increase to .75 without item 15, from .71 with the item. Thus, item 15 was excluded from further tests. The descriptive statistics and reliability for the constructs needed for model testing are in Table 3.
Table 3 Descriptive Statistics and Reliability for the Key Constructs Variable Mean Std Dev Min 2.25 1.60 1.67 2.25 3.00 2.00 1.40 1.25 Max 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Reliability
Market Orientation 3.83 Customer 3.74 Orientation Competitor Orientation 3.92 Interfunctional Coordination 3.87 Customer Satisfaction 4.08 Customer Loyalty 4.02 Competitive Intensity 3.28 Performance 3.22
.50 .65 .68 .65 .53 .55 .77 .80
.80 .73 .57 .75 .80 .65 .71 .83
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Items 37 to 40 in the questionnaire measured customer satisfaction (CS), while items 32 to 36 tapped customer loyalty (CL). Competitive intensity (Cl) was measured by items 21 to 26, whereas performance (PERF) was gauged by items 41 to 44. All items for the different constructs are summarized in Appendix B. Since the measured items 1, 5, and 15 in the market orientation scale were excluded from measuring customer orientation (CSO), competitor orientation (CMO), and interfunctional coordination (IC), respectively, they were not included in the overall construct, market orientation (MK). A second order factor analysis using the Maximum Likelihood method was conducted, which showed that MK as a higher order factor consisted of CSO, CMO, and IC (see Table 4).
Table 4 Second Order Factor Analysis for Market Orientation Constraint Solution with Equal Coefficient IC .515 * M K+ 1.00 D1 (Residual) CSO = .515 * M K+ 1.00 D2 CMO = .515 * MK + 1.00 D3 Standardized Solution IC R-squared: .645 .803 * MK + .596 D1 CSO = .850 * MK + .526 D2 R-squared: .723 CMO = .619 * MK + .785 D3 R-squared: .383 Fit Indices P-value for the Chi-square Statistics: .016 Bentler-Bonett Normed fit index: .783 Bentler-Bonett Nonnormed fit index: .895 Comparative Fit Index (CFI): .916 Bollen (IFI) Fit Index: .919 McDonald (MFI) Fit Index: .899 LISREL GFI Fit Index: .907 LISREL AGFI Fit Index: .862 Root Mean Squared Residual (RMR): .086
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In Table 3, all constructs but two had a reliability above .70. Competitor orientation had a reliability o f .57, which may be due to the small number o f items (3). If item 1 was added to measure competitor orientation, as the original scale intended, the composite would have an even lower reliability, which supports dropping item 1. Two negatively worded items could be a possible reason for the low reliability of customer loyalty (.65). It is commonly believed that negatively worded items often have a negative impact on the constructs reliability because they tend to form a separate factor (Herche and Engelland 1996). The descriptive statistics indicated that all variables had a wide variance. Performance had the largest standard deviation, with 1.25 minimum and 5.0 maximum values. Customer satisfaction had the largest minimum value, 3, which is not unusual in that most customers tend to be satisfied in general (Churchill and Suprenant 1982). The large variance for competitive intensity showed that the firms from which the data were collected were competing in a variety of industries. The fact that the performance variable had the largest variance with the lowest minimum score among all the constructs suggests that social desirability bias was not an issue of concern. The correlations among the above variables are presented in Table 5. As mentioned earlier, both the combined approach and component-wise approach were used for model testing. While the former examines the relationship between market orientation and other variables, the latter explores how the behavioral components of market orientation influence performance measures. For some dependent variables, two models were tested - an augmented model that included the interaction effects and a main effect model that excluded the interaction effects. The regression results for the combined
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Table 5 Correlation Matrix for the Variables 1 .80 .85** .80** .57** -.02 .23* .34** .37** 2 .73 .53** .23* .02 .14 .29** .33** 3 4 5 6 7
1 MK 2 CSO 3 IC 4 CMO 5 Cl 6 CL 7 CS 8PERF
.75 .26** -.18* .20* .21* .22*
.57 .15 .20* .27** .32**
.71 -.07 -.11 -.19*
.65 .37** .80 .09 .11
** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed). Reliabilities of the constructs are on the diagonal.
approach are reported in Table 6, whereas the results for the component-wise approach are presented in Table 7.
Results for the Combined Approach The main hypothesis (H 1) was supported. That is, market orientation was positively related to customer satisfaction (p < .01). Although customer satisfaction was positively related to customer loyalty (p < .01), supporting H3, the moderating effect of competitive intensity on the satisfaction-loyalty chain was not bome out, offering no evidence for H8. As mentioned in an earlier chapter, a composite of subjective measures for performance was used for this analysis, since firms were not willing to fully provide objective performance measures. Although an effort was made to collect responses on objective measures, since there were quite a few missing values, the data analysis focused
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Table 6 Regression Results for the Combined Approach Customer Satisfaction .34***(3.85) .37***(4.17) .36***(4.07) -.04(-.39) -,09(-.98) .14*** Customer Loyalty Customer Loyalty
Independent Variables MK CS Cl Cl x CS Adjusted R square Independent Variables MK CS CL Cl Cl x MK Adjusted R square
.12*** Performance .38***(3.93) -.02(-.17) .01 (.08)
.13*** Performance .38***(3.98) -,04(-.37) .00(.03) -,18**(-2.05) -.01 (-.07) .17***
.14***
Significant at p < .01 (one-tailed test). Significant at p < .05 (one-tailed test). While the standardized coefficients are presented in the table, the numbers in the parentheses are t-statistics.
on the subjective measures. Thus, discussion relating to performance is about subjective measures unless specified otherwise. While market orientation was positively related to performance (p < .01), neither customer satisfaction nor customer loyalty was related to performance. Thus, H4 was supported, whereas H6 and H7 were not. While competitive intensity was negatively related to performance (p < .05), the interaction between competitive intensity and market orientation was not significant. Thus, competitive intensity showed no moderating effect on the market orientation-performance chain, providing no support for H9. Using the objective performance measures, the above findings replicated only with respect to
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market share, not with sales growth rate, return on assets, or percentage o f earnings from new products.
Results for the Components-Wise Approach Since the three components of market orientation are correlated, the mean centered values of those measures were used for the analysis to ensure that multicollinearity does not affect the outcome o f the data analysis. Hierarchical moderator regression technique was used, whereby the main effects were entered into the regression model first, followed by the interaction terms (Cohen and Cohen 1983). Customer orientation was positively related to customer satisfaction in the main and augmented models. In the main model, there was a significant positive relationship (p < .05), while there was a marginally significant relationship in the augmented mode (p < .10). Thus, H2a was supported. In both models, while competitor orientation was positively related to customer satisfaction (p < .05), interfunctional coordination was not related to satisfaction. As such, H2b and H2c were not supported. The interaction o f interfunctional coordination and customer orientation ( IC x CSO) was marginally significant (p < .10), supporting H2d, while the interaction of interfunctional coordination and competitive orientation (1C x CMO) was not significant, offering no support to H2e. Customer orientation was positively related to performance in the main and augmented models. There as a significant positive relationship in the main model (p < .01), as well as in the augmented model (p < .05), which supported H5a. In both models, competitor orientation was positively related to performance (p < .01), but interfunctional coordination was not related to performance. Thus, H5b was supported, while H5c was
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Table 7 Regression Results for the Component-Wise Approach Independent Variables CSO IC CMO IC x CSO IC x CMO Adjusted R Square Independent Variables CSO IC CMO CL CS IC x CSO IC x CMO Adjusted R Square Customer Satisfaction .23**(2.17) .04(.33) .21 **(2.31) Customer Satisfaction .19*(1.80) .02(.20) .21 **(2.30) -.20*(-1.93) .08(.76) .12*** Performance .26**(2.41) -.03(-.30) .32***(3.14) -,01(-.13) -.06(-.63) -. 19*(-1.71) .19*(1.78) .15***
.11*** Performance .28***(2.61) -.02(-.19) .27***(2.76) .00(.04) -,04(-.40)
.13***
Significant at p < .01 (one-tailed test). Significant at p < .05 (one-tailed test). Significant at p < .10 (one-tailed test). . While the standardized coefficients are presented in the table, the numbers in the parentheses are t-statistics. Although the intercept was included in all the models, it is omitted here. Measures for customer orientation (CSO), competitor orientation (CMO), and interfunctional coordination (IC) were mean centered to reduce multicollinearity (Aiken and West 1991). As a result, all variance inflation factors had a value of less than 2, indicating multicollinearity was not an issue o f concern.
not. The interaction of interfunctional coordination and customer orientation (IC x CSO) was marginally significant (p < .10), which offered moderate support for H5d. Similarly, the interaction o f interfunctional coordination and competitive orientation (IC x CSO) was also partially significant (p < . 10), offering weak support for H5e (See Table 8).
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Table 8 Results Summary Hypothesis P-value Support/Not Support S (support) WS (weakly support) S NS (not supported) WS
.000 H 1: Market orientation is positively related to customer satisfaction. .074 H2a: Customer orientation is positively positively related to customer satisfaction. .024 H2b: Competitor orientation is positively related to customer satisfaction. H2c: Interfunctional coordination is .843 positively related to customer satisfaction. .057 H2d: Interfunctional coordination has a moderating effect on the association between customer orientation and customer satisfaction. H2e: Interfunctional coordination has a .452 moderating effect on the association between competitor orientation and customer satisfaction. H3: Customer satisfaction is positively .000 related to customer loyalty. H4: Market orientation is positively .000 related to performance. H5a: Customer orientation is positively .018 related to performance. H5b: Competitor orientation is positively .002 related to performance. H5c: Interfunctional coordination is .764 positively related to performance. HSd: Interfunctional coordination has a .090 moderating effect on the association between customer orientation and performance. HSe: Interfunctional coordination has a .078 moderating effect on the association between competitor orientation and performance. H6: Customer satisfaction is positively .530 related to performance. H7: Customer loyalty is positively .897 related to performance. .629 H8: Competitive intensity has a moderating effect on the relationship between customer orientation and loyalty. H9: Competitive intensity has a .945 moderating effect on the relationship between market orientation and performance.
NS
s s s
NS WS WS
NS NS NS
NS
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CHAPTER 6 DISCUSSION AND CONCLUSION This chapter provides a detailed discussion o f the empirical results presented in the earlier chapter. Also, it offers managerial implications for practitioners, and concludes with research implications for future inquiry.
Market Orientation and Customer Satisfaction As previously mentioned, the main thesis o f this research was to investigate how market orientation influences relationship building in the business-to-business context. Although market orientation is thought to have a positive relationship with customer satisfaction (Kotler 1988; Kohli and Jaworski 1990), this is one o f the very first papers that empirically examined the linkage. Webb et al. (2000) found a positive relationship between market orientation and customer satisfaction. In their study, however, the firms market orientation scores were computed from their customer responses, not based on responses from the firms managers. They shortened the market orientation scale developed by Narver and Slater (1990), as they felt that some questions in the original scale could not be answered by customers. Hence, this research is the first study to examine the market orientation-customer satisfaction linkage using the original market orientation scale by Narver and Slater. This study provided unequivocal support to this relationship.
Three Components o f Market Orientation and Customer Satisfaction As the second order factor analysis indicated, market orientation indeed consists
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of three components. Thus, the relationship between the three behavioral components of market orientation and customer satisfaction were explored in detail. As theorized, if the relationship between each component and customer satisfaction is not uniform and identical, the contribution of the component-wise approach is magnified, in that those components that contribute to creating satisfied customers can be identified and emphasized. Although Han et al. (1998) were the first to utilize the component approach in market orientation research, they tested one component at a time. Thus, the relative importance o f the three components on the dependent variable could not be assessed and compared. In this study, customer orientation, competitor orientation, and interfunctional coordination were included in one model to correct the aforementioned limitation. The results showed that both customer orientation and competitor orientation were positively related to customer satisfaction, while interfunctional coordination was not related to satisfaction. Since customer orientation principles suggest that firms should center around, not only customers expressed needs, but their latent wants as well, by delivering superior customer value (Slater and Narver 1994b), it is natural that customer orientation is related to satisfaction. However, a negative relationship between competitor orientation and customer satisfaction was hypothesized, because competitor-oriented firms tend to respond to other firms moves, resulting in unstable strategies and attention diverted from customers (Kotler 1994; Oxenfeldt and Moore 1978). The possible reason for the opposite finding could be that customer orientation correlates positively with competitor orientation (see Table 5). Thus, abundant resources made both orientations possible, making diverted attention a non-issue. In fact, competitor-oriented firms can learn a thing or two from competitors to meet customers needs.
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Early research established a direct relationship between interfunctional coordination and an organizations goal (Atuahene-Gima 1996). However, this study indicated that interfunctional coordination had no direct effect on customer satisfaction. O f course, if firms have goals other than customer satisfaction, the results are not contrary to Atuahene-Gimas findings. However, this is unlikely, since many firms realize the importance o f satisfying customers. Thus, the evidence indicates that a coordinated effort alone is not enough to necessarily bring good results.
Moderating Effects of Interfunctional Coordination on the Behavioral Components of Market Orientation-Customer Satisfaction Linkage Gatignon and Xuereb (1997) argued that interfunctional coordination has a moderating effect on the relationship between organizations orientation and performance (Gatignon and Xuereb 1997). Our results tend to support this view that interfunctional coordination is only a moderating variable, not an independent variable relative to performance, provided that customer satisfaction is primary. The findings revealed that interfunctional coordination had a negative moderating effect on the customer orientation-customer satisfaction relationship, which is counter-intuitive. This discovery shows that if all functional departments in the organization are highly involved and coordinated for customer orientation, the level of customer satisfaction actually goes down. According to Ruekert and Walker (1987a, b), a high level o f coordination (i.e., consensus), can be achieved by using common measures in reward systems across diverse departments, such as using the achieved level o f customer satisfaction as the yardstick for rewards. Put together, it says that if everyone in the organization is single-
or narrow-minded, with their only intention to serve customers short term needs in order to reap quick rewards, the results could be adverse. As a matter o f fact, in high tech industries, customers are not a good source for generating new product ideas or developing services (Kohli and Jaworski 1990). In the theater production industry, Voss and Voss (2000) found that customer orientation was negatively related to performance. It seems that for most industries, a reasonable level of customer orientation is healthy, but going overboard on customer orientation may actually turn customers off. It must be noted that customers were generally satisfied with the range from 3 (neutral) to 5 (very satisfied) (see Table 3). Thus, any change in satisfaction may be subtle.
Market Orientation. Customer Satisfaction. Customer Lovaltv. and Performance It was hypothesized that market orientation affects performance directly, and indirectly through the mediating constructs, customer satisfaction and loyalty. Thus, all three variables were included to explain performance. Consistent with existent research (Jaworski and Kohli 1993; Kumar et al. 1998; Narver and Slater 1990; Pelham 1999, 2000), market orientation was positively related to performance. Surprisingly, customer satisfaction had a negative coefficient, and customer loyalty had a positive coefficient, with performance, though both coefficients were not significant (see Table 5). Given that multicollinearity did not affect the results, the negative coefficient of customer satisfaction points out that satisfaction and loyalty, closely related but distinctive constructs, must be included simultaneously to measure their relative contribution to performance. Although a number o f studies (e.g., Anderson et al. 1994; Anderson and Rust 1997) found a positive relationship between customer
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satisfaction and profitability in consumer markets, many of those did not include customer loyalty. Thus, the possibility that customer satisfaction takes credit from loyalty is very real. In fact, Bernhardt et al. (2000) did not find any relationship between satisfaction and performance. According to Leuthesser and Kohli (1995), the relationship between customer satisfaction and business performance in business marketing is under researched. They found that buyer satisfaction was positively related to the share of business the organizational buyer gave to the supplier. Our effort is one of the first studies to examine the direct relationship between customer satisfaction and organizational performance in the business-to-business context. In the literature, much attention has been devoted to customer satisfaction, while customer loyalty has received relatively less. As mentioned earlier, most studies have examined how satisfaction relates to performance, without the inclusion of loyalty, resulting in undue credit for good performance accruing to customer satisfaction. Few studies (Fomell 1992) explored how loyalty contributes to performance. In business marketing, the relationship between loyalty and performance has yet to be established (Morris and Holman 1988). Once again, our endeavor is one of the first studies to investigate how loyalty contributes to performance in the business-to-business environment. Put together, this is the first to study the relative contributions o f market orientation, customer satisfaction, and loyalty, to performance. Despite the finding that neither customer satisfaction nor loyalty was related to performance, one cannot be too hasty in writing off the importance of satisfaction and loyalty. It is easy to reconcile the fact that satisfaction, an attitude-like measure, is not related to performance, but it is harder to explain why loyalty, measured as repeated
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purchase, a behavioral variable, does not make a difference in performance. Perhaps, both of them are a necessary but not sufficient condition for superior performance, as most firms beef up their effort on satisfying and retaining customers. In other words, there may not be much difference in customer satisfaction and loyalty among firms as they all realize the importance o f satisfying and retaining their customers.
The Moderating Effect of Competitive Intensity on the Market Orientation-Performance Relationship The results showed that competitive intensity had no moderating effect on the market orientation-performance relationship. Kohli and Jaworski (1990) proposed that competition will strengthen the relationship between market orientation and performance in that the benefits are greater to a firm operating in a competitive environment than in a benign condition, such as monopoly. However, Jaworski and Kohli (1993) could not substantiate their claim empirically. Slater and Narver (1994a) failed to discover the moderating effect after using both multiplication term and split-half techniques, concluding that the relationship between market orientation and performance is robust. Our result was in agreement with theirs.
Three Components o f Market Orientation and Performance While both customer orientation and competitor orientation were positively related to performance, interfunctional coordination was not related to performance. Studying the theater production industry, Voss and Voss (2000) found that competitor orientation is positively related to performance, while customer orientation is negatively
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related to performance. As they pointed out, their findings may be industry specific. Our results complement their research. Since the sample used in this study includes a wide range o f industries, the results apply to a much broad spectrum o f firms. Thus, it may be said that for most industries, being customer-oriented and competitor-oriented are beneficial to the bottom line. Once again, our results differ with those o f Voss and Voss (2000) in that interfunctional coordination has no direct relationship with performance, which is in agreement with Gatignon and Xuereb (1997).
Moderating Effects of Interfunctional Coordination on the Components o f Market Orientation-Performance Relationships While interfunctional coordination lessened the relationship between customer orientation and performance, it strengthened the competitor orientation-performance chain. The first part echoes the earlier finding that interfunctional coordination lessens the relationship between customer orientation and customer satisfaction. It seems that an organization-wide effort on customer orientation has an adverse effort on performance. The possible reason could be that too much energy and resources spent on customer orientation may not be cost-effective simply because various expensive programs do not bring in sufficient income to offset the expenditures. Furthermore, customers should not be considered as the sole source of marketing strategy, such as for new product development and customer service. This is particularly so for true high tech or other highly innovative industries (Voss and Voss 2000). An organization-wide customer orientation may actually inhibit the firms innovativeness in servicing customer needs in the long term, resulting in debilitating performance.
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The second part of the above finding is a little harder to justify. As Day and Nedungadi (1994) pointed out, firms that are aggressive in beating their competitors tend to have unstable strategies because they must respond to competitors moves, which lead to reduced satisfaction with their performance. Voss and Voss (2000) support this view, and they found that a well-coordinated competitor-orientation worsens the negative impact of competitor orientation on a theaters net surplus/deficit. Their supposition is that a well-orchestrated competitor orientation increases expenses more than sales. However, other studies (Gatignon and Xuereb 1997; Lukas and Ferrell 2000) indicate that competitor orientation helps firms achieve innovation success by keeping costs under control. According to Pelham (2000), a quick response to competitive challenge is positively related to performance. Our results show that a consensus on competitor orientation is beneficial to the bottom line.
Managerial Implications This research offers some useful insights into marketing decision making. As this study provided further evidence that market orientation is positively related to performance, firms should seriously think about the adoption o f market orientation. Since our findings showed that competitive intensity did not moderate the relationship between market orientation and performance, it indicates that firms can achieve superior performance by being market oriented under a variety of competitive conditions. In a fiercely competitive environment, market orientation is a viable strategy because competitive intensity will not negatively influence the effect o f market orientation on performance, although it will negatively impact performance. On the other hand, it may
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not be imperative for those firms to adopt market orientation if they compete in a benign environment. Under these conditions, however, being market oriented does bring in great rewards when nobody else pays attention to market orientation. In any event, firms should be market-oriented to achieve good performance. The importance o f market orientation is further amplified by the fact that neither customer satisfaction nor loyalty was related to performance. This defies conventional wisdom that satisfaction and loyalty are a critical path to superior performance. It is not intended to undermine the lofty status of satisfaction and loyalty, in both practice and research, since they can be necessary, but not sufficient, conditions for good performance. However, the evidence points out that it may be more fundamental and productive for firms to begin with a market orientation, instead of tinkering with short term fix to boost satisfaction and loyalty measures. Thus, a firms market orientation prescribes their strategic decisions; customer satisfaction and loyalty goals should not dictate the firms strategic orientation. Also, firms should be aware that interfunctional coordination, a moderator, may work both ways to affect the relationship of other components with respect to performance. A well-coordinated effort amplifies the influence of competitor orientation on performance, but it weakens the impact of customer orientation on performance. As such, firms may want to achieve a varying degree o f consensus in the organization on customer orientation and competitor orientation. For example, the organization-wide reward systems based solely on customer feedback suggested by Ruekert and Walker (1987a, b) may not be wise.
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Limitations o f the Study Although an effort was made to collect dyadic data to test the model, this was not successful, as indicated earlier. Firms were reluctant to provide their three most important accounts. The plan to do a follow-up survey o f those important accounts, to gather their perceptions o f satisfaction with respect to their suppliers, could not be implemented. As a consequence, the data collected was from single source. Although common method bias can only be eliminated by collecting information from multiple sources, the discussion presented in an earlier chapter indicated that it was not a major problem in this study. All scales used in this research were existing ones, but some o f them still showed a relatively poor reliability. Fifteen measured items for market orientation did not show a clear factor loading pattern, and some items did not load on the factors where they were predicted to be loaded. As such, more replication is needed before any firm conclusion can be drawn.
Future Research Although market orientation is strongly related to customer satisfaction, it is left unexplored as to what mechanisms connect the two. It is proposed that market orientation is related to superior value (Narver and Slater 1990), which in turn is related to customer satisfaction (Bolton and Lemon 1999; Howard and Sheth 1969; Kotler and Levy 1969; Lepierre et al. 1999). The question o f how market oriented firms deliver superior value needs to be answered. Is it through high quality, competitive price, excellent service, or all o f the above? According to Fomell and Wemerfelt (1987, 1988), customer satisfaction and
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loyalty belong to the domain o f the defensive strategy. New customer acquisition would be an example of the offensive strategy. We must acknowledge that offensive strategies were omitted in the model, which is an avenue for future investigation. Our results showed that the defensive strategy did not contribute to performance. Will the offensive strategy fare better in shaping performance? It is noted that interfunctional coordination has different moderating effects (i.e., to strengthen or weaken) on the relationships between customer orientation, competitor orientation and performance. That is, interfunctional coordination is a double-edged sword, since it itself is not related to performance. The mechanisms by which interfunctional coordination exerts differential moderating effects are not entirely clear. Further exploration could shed light on this dilemma, which could be helpful for managers making tough decisions. A clear understanding of what level of coordination would maximize the impact of organizational strategic orientation on the bottom line is very crucial. Perhaps, the level o f coordination could be manipulated for handling different tasks. As one o f the major research streams developed in strategic marketing during the past ten years (Steinman et al. 2000), market orientation inquiry has exhibited enormous vitality, influence, and relevance in the academia and the business community alike. However, its full potential has yet to be realized. There is no doubt that market orientation research will remain dynamic and effervescent for many years to come.
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APPENDICES
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APPENDIX A HYPOTHESES PROPOSED IN THE STUDY
Ill
H 1: Market orientation is positively related to customer satisfaction. H2a: Customer orientation is positively related to customer satisfaction. H2b: Competitor orientation is negatively related to customer satisfaction. H2c: Interfunctional coordination is positively related to customer satisfaction. H2d: Interfunctional coordination has a moderating effect on the association between customer orientation and customer satisfaction. H2e: Interfunctional coordination has a moderating effect on the association between competitor orientation and customer satisfaction. H3: Customer satisfaction is positively related to customer loyalty. H4: Market orientation is positively related to performance. HSa: Customer orientation is positively related to performance. H5b: Competitor orientation is positively related to performance. H5c: Interfunctional coordination is positively related to performance. H5d: Interfunctional coordination has a moderating effect on the association between customer orientation and performance. HSe: Interfunctional coordination has a moderating effect on the association between competitor orientation and performance. H6: Customer satisfaction is positively related to performance. H7: Customer loyalty is positively related to performance. H8: Competitive intensity has a moderating effect on the relationship between customer satisfaction and loyalty. H9: Competitive intensity has a moderating effect on the relationship between market orientation and performance.
APPENDIX B INSTRUMENTS USED IN THE STUDY
113
Market Orientation (Han et al. 1998) For each of the following questions, please indicate the response that most closely describes your organization. Responses are anchored by strongly disagree (1) and strongly agree (5). 1. In our organization, our salespeople share information about competitor information. 2. Our business objectives are driven by customer satisfaction. 3. We respond rapidly to competitive actions. 4. We closely monitor and assess our level of commitment in serving customers needs. 5. Our top managers from each business function regularly visit customers. 6. Information about customers is freely communicated throughout our organization. 7. Our competitive advantage is based on understanding customers needs. 8. Business functions within are integrated to serve the target market needs. 9. Business strategies are driven by the goal of increasing customer value. 10. We frequently measure customer satisfaction. 11. We pay close attention to after-sales service. 12. Top management regularly discuss competitors strength and weaknesses. 13. Our managers understand how employees can contribute to value of customers. 14. Customers are targeted when we have an opportunity for competitive advantage. 15. We share resources with other business units. Competitive Intensity (Jaworksi and Kohli 1993) 1. Competition is our industry is cutthroat. 2. There are many promotion wars in our industry. 3. Anything that one competitor can offer, others can match readily. 4. Price competition is a hallmark o f our industry. 5. One hears of a new competitive move almost every day. 6. Our competitors are relatively weak. Customer Satisfaction (Ganesan 1994) Describe your feelings with respect to the outcomes with this retailer (resource) in the past one year: 1. Pleased-Displeased (R) 2. Sad-Happy 3. Contented-Disgusted (R) 4. Dissatisfied-Satisfied These items are semantic differential items anchored by 1 to 7. R indicates reverse worded. Customer Loyalty (Maignan et al. 1999) 1. Many of our customers would not buy the products offered by our competitors.* (eliminated later based on the refinement procedure). 2. The large majority of our sales are made up o f repeat purchases. 3. We have trouble keeping our existing customers. 4. Customers often switch from our products to our competitors products. 5. Most o f our customers have used our products more than once. 6. Customer loyalty is a major strength o f our business.
Responses are anchored by strongly disagree (1) to strongly agree (5). Performance (Samiee and Roth 1992) Relative to our competitors, over the past three years, 1. Our return on investment has been . 2. Our return on assets has been 3. Our sales growth has been__ 4. Our profit growth has been__ Responses are anchored by much worse (1) to much better (5).
APPENDIX C HUMAN SUBJECTS COMMITTEE APPROVAL
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S : .
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e
February 12. 2001
Mr Chiquan Guo Department o f Nlarketmg SIUC 4629
Re
M a rk e t O rien ta tio n e n d C u sto m e r S a tisfa ctio n An E m p irica l In ve stig a tio n
Dear Mr Guo The referenced studv has been reviewed and approved by the SIUC Human Subjects Committee (HSC) This approval is valid for one 1 1) year from the approval date, you must request an extension to continue the research after that date Also note that any future modifications to your protocol must be submitted to the Committee for review and approval prior to their implementation Your Form A approval is enclosed Best wishes tor a successful study
Sm cereh.
Lynn Winston. Secretary Human Subjects Committee Enclosure c Dr Mary on King
SIUC H u rru r. S u b jects C o m m itte e
r. D ev elo p m en t
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A dm inistration C ^ rn o n J u ii. Illinois 6 2 9 0 1-4^0'^ t.>1 & 45 3*4533
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SIUC HSC FORM A

REQUEST FOR APPROVAL TO CONDUCT RESEARCH ACTIVITIES INVOLVING HUMAN SUBJECTS CERTIFICATION STATEMENT
By making this application, I certify that I have read and understand the Universit> s policies and procedures governing research activities involving human subjects. I agree to comply with the letter and spint o f those policies I acknowledge my obligation to: 1 2 Accept responsibility for the research described, including work by students under my direction. Obtain wntten approval from the Human Subjects Committee o f any changes from the originally approved protocol BEFORE implementing those changes Retain signed consent forms in a secure location separate from the data for at least th r e e years after the completion of the research. Immediately report any adverse effects o f the study on the subjects to the Chairperson o f the Human Subjects Committee, SIUC, Carbondale, Illinois - 618-453-4533 and to the Director o f the Office o f Research Development and Administration, SIUC - 618-453-4531.
Project Title
C ; h vi c* (S\^z Researcher(^) or Project D irectors) Please pnnt or type name below signature ----- -7 " J ? Y. fW /C f / '
J C 'a
?v f Date
CD |
.o
Researchers Advisor (required for all student projects) Please pnnt or type name below signature
Date
The request submitted by the above-named researcher(s) was approved by the SIUC Human Subjects Committee.
This approval is valid for one year from the approval date. R esearchers m ust request an extension to continue the research a fter that date. This approval form must be included in all M asters theses/research papers and Doctoral dissertations involving human subjects that are subm itted to the G raduate School.
Chairperson, Southern Illmois university Human Subjects Committee
Date
118
VITA Graduate School Southern Illinois University Chiquan Guo 516 South Hays Street. Carbondale, Illinois 62901 Date of Birth: May 2, 1969
University o f Wisconsin at Green Bay Bachelor of Science, Economics, May 1994
University of Wisconsin at Oshkosh Master of Business Administration, May 1996
Special Honors and Awards: University Housing Academic Excellence Award, Southern Illinois University at Carbondale (April 1999, 2000, 2001) Member, Phi Kappa Phi Honor Society, Southern Illinois University at Carbondale (April 1998) The Graduate School Honors Award, University of Wisconsin at Oshkosh (April 1996) The College of Business Administration Recognition Award, University of Wisconsin at Oshkosh (April 1996) Member, Beta Gamma Sigma (April 1996) Graduated Cum Laude, University of Wisconsin at Green Bay (May 1994)
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Dissertation Title: Market Orientation and Customer Satisfaction: An Empirical Investigation
Major Professor: Maryon F. King
Publications: Chiquan Guo (2001), A Review on Consumer External Search: Amount and Determinants, Journal o f Business and Psychology, 15 (Spring), 505-519. Chiquan Guo (1998), Price Cutting Policy for Mature Products: A Critical Review, Midwestern Business and Economic Review, 25 (Spring), 19-26.

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INFORMATION TO USERS

MARKET ORIENTATION AND CUSTOMER SATISFACTION: AN EMPIRICAL INVESTIGATION

by Chiquanpuq, Bachelor of Science Master of Business Administration University o f Wisconsin-Oshkosh, 1996

UMI Number 3065357

I hereby recommend that the dissertation prepared under my superv ision by

__________________ Market Orientation and Customer Satisfaction: __________________________ An Empirical Investigation_________

Committee for the Final Examination

25 across firms adopting different strategies.

32 the firms success.

Com petitive Intensity

Com petitive Intensity

Fiuure I. The Combined Approach.

Com petitive Intensity

C ustom er Orientation C om petitor Orientation Interfunctional Coordinatior

Com petitive Intensity

Fipurc I (Continued). The Component-Wise Approach.

H 1: Market orientation is positively related to customer satisfaction.

H2a: Customer orientation is positively related to customer satisfaction.

H2b: Competitor orientation is negatively related to customer satisfaction.

H3: Customer satisfaction is positively related to customer loyalty.

related to performance. Thus, it is proposed:

H7: Customer loyalty is positively related to performance.

v2 v3 v4 v6 v7 v8 v9 vlO v 11 vl2 vl3 vl4 vl5 Eigenvalue Variance Explained Reliability

.50 .65 .68 .65 .53 .55 .77 .80

.80 .73 .57 .75 .80 .65 .71 .83

1 MK 2 CSO 3 IC 4 CMO 5 Cl 6 CL 7 CS 8PERF

.75 .26** -.18* .20* .21* .22*

.57 .15 .20* .27** .32**

.71 -.07 -.11 -.19*

.65 .37** .80 .09 .11

Independent Variables MK CS Cl Cl x CS Adjusted R square Independent Variables MK CS CL Cl Cl x MK Adjusted R square

.12*** Performance .38***(3.93) -.02(-.17) .01 (.08)

.13*** Performance .38***(3.98) -,04(-.37) .00(.03) -,18**(-2.05) -.01 (-.07) .17***

.11*** Performance .28***(2.61) -.02(-.19) .27***(2.76) .00(.04) -,04(-.40)

APPENDIX A HYPOTHESES PROPOSED IN THE STUDY

APPENDIX B INSTRUMENTS USED IN THE STUDY

APPENDIX C HUMAN SUBJECTS COMMITTEE APPROVAL

February 12. 2001

Mr Chiquan Guo Department o f Nlarketmg SIUC 4629

M a rk e t O rien ta tio n e n d C u sto m e r S a tisfa ctio n An E m p irica l In ve stig a tio n

Lynn Winston. Secretary Human Subjects Committee Enclosure c Dr Mary on King

SIUC H u rru r. S u b jects C o m m itte e

A dm inistration C ^ rn o n J u ii. Illinois 6 2 9 0 1-4^0'^ t.>1 & 45 3*4533

SIUC HSC FORM A

Chairperson, Southern Illmois university Human Subjects Committee

University o f Wisconsin at Green Bay Bachelor of Science, Economics, May 1994

University of Wisconsin at Oshkosh Master of Business Administration, May 1996

Dissertation Title: Market Orientation and Customer Satisfaction: An Empirical Investigation

Major Professor: Maryon F. King

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Market Orientation and Customer Satisfaction: An Empirical Investigation_

.57 .15 .20* .27 .32

.12* Performance .38*(3.93) -.02(-.17) .01 (.08)

.13* Performance .38(3.98) -,04(-.37) .00(.03) -,18(-2.05) -.01 (-.07) .17

.11* Performance .28*(2.61) -.02(-.19) .27***(2.76) .00(.04) -,04(-.40)