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From market orientation to brand orientation – back tracking and mapping routes forward Carsten Baumgarth Bill Merrilees Mats Urde
Conference: 6th Thought Leaders International Conference on Brand Management
Prof. Carsten Baumgarth, PhD HWR Berlin - School of Economics and Law Marketing Division E-Mail:
[email protected] Website: www.cbaumgarth.net Prof. Bill Merrilees Griffith University Griffith Business School Department of Marketing Tel: 61 7 5552 7176 E-mail:
[email protected] Assoc.-Prof. Mats Urde, PhD; Docent Lund University School of Economics and Management, Lund University Tel: +46 42 343444 (direct) E-Mail:
[email protected] Website: www.ehl.lu.se
2 Abstract: In this article we trace the roots and map possible future routes for the concept ‘brand orientation’. This is an approach with brands as a strategic hub for the organization. The processes of the brand oriented organization revolve around the creation, development, and protection of brand identity in an ongoing interaction with target customers, and with the aim of achieving lasting competitive advantages in the form of brands. Our point of departure is a literature review comparing the philosophies of brand orientation with those of market orientation. We compare both on different perspectives such as theoretical foundation, corporate culture, behavior, and performance outcomes. Furthermore, we link the two strategic orientations to classical topics of marketing. Moreover, we suggest four possible ways to understand the relationship between brand and market orientation: A) Two different strategic options, B) An natural evolution, C) An option for some, D) Different, but synergetic. Our purpose is to develop ideas and an agenda for further research, with the aim to better understand, operationalize and evaluate brand orientation. Keywords: Alternative paradigms, brand orientation, market orientation, strategic orientations.
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From market orientation to brand orientation – back tracking and mapping routes forward 1. Introduction In 1989 Nestlé acquired the British confectionary company Rowntree for 4.5 billion USD, which was six times the book value, 26 times the annual profit. The fixed assets amounted to 600 million USD, and Nestlé paid 3.9 billion USD for “other values”. Camillo Pagano, Head of Marketing Department at Nestlé, commented: “How much are brands such as Kit Kat, After Eight, Lion, Polo, and Smarties etc. worth? Brands, brand management, sectors, segments are equities valued differently from one firm to another. If I am trying to buy a business the value for me, and the value for him, will vary. The value becomes a strategic value” (Urde, 1997, p. 12). This is one example, now often referred to in the literature, as a milestone in the way we view, think of, and work with brands as strategic resources. This is now 2O years ago. Have our understanding of brands, the role of brands, and the management of brands fundamentally changed, or are these examples just anomalies, i.e. rare exceptions from the rule that can be disregarded? When Thomas Kuhn (1962; 1977) speaks about paradigm shifts he describes a change of practice, theoretical applications, set of fundamental rules that define an area or discipline. Identifying a shift of paradigm is in a narrow sense, what is thought in textbooks, and in a broader sense, what is seen as the theoretical foundation for the area. We are now in the position where we need to back-track and reflect on the development within our area of strategic managing of brands. If we, let’s say, compare a Kotler Marketing text book with a Kapferer reader on Strategic Brand Management, what conclusions can we draw? If we think of “new” concepts such as identity, brand equity, core values, corporate branding, internal branding, brand leadership, and reputation – how has theory evolved? And, how are brands used and managed in practice? Brand orientation was originally described as a new approach to brands; a mindset that focuses on brands as resources and a strategic hub. The objectives of this conceptual article are to review the literature about the two concepts (market orientation and brand orientation), to identify the main differences, to link both concepts with classical concepts of marketing and to develop an agenda for further research. In this paper, we propose a range of possible approaches in terms of the relationship between market orientation and brand orientation. The two strategic orientations can interact in an exclusionary, facilitative or synergetic fashion. The purpose of the paper is to clarify the brand orientation concept and to open up the debate about how to conceptualize brand orientation, partly by back-tracking what is known and partly by mapping out possible future directions. A deep understanding of the brand orientation concept and a clear distinction to the classical market orientation concept is for practical management important. Without a clear picture of brand orientation, an implementation of this strategic orientation is difficult. For example, the management has to understand the philosophy of brand orientation, the “best fitting” marketing instruments and marketing metrics. Moreover, a lot of empirical studies have shown the positive influence of brand orientation on different categories of company performance outcome. In order to improve the brand orientation of a company, the manager has to understand the development from a market to a brand oriented company. Our four frameworks discuss the possible developments form a market or customer oriented company to a brand oriented company or organization. Further research has to analyze which of the four frameworks is the best model of the reality for the individual company in different contexts. Therefore, our four frameworks are a starting point for future research studies.
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2. Literature review 2.1 Definitions The concept of brand orientation is in comparison to market orientation a recent framework. The papers of Mats Urde (1994; 1999) are pioneer works in this research area. Similar to market orientation research, the literature has addressed the construct’s definition and theoretical foundation, the scale development, and the link of brand orientation with the antecedents as well as with performance outcomes. Not so clear but similar it is possible to differentiate between a cultural and a behavioral definition (Bridson and Evans, 2004). The cultural perspective underpins the internal anchorage of the brand and the management of brands inside the whole organization and in the corporate culture. On the contrary, the behavioral definition of brand orientation enumerates concrete instruments like brand communication or brand controlling. In summary, the common characteristic of all brand orientation definitions is the focus on the internal anchorage of the brand and brand management inside the company. The formulation, the “living” and the communication of a brand statement is the heart of this orientation. As a consequence, brand orientation can result in purposely “not satisfying the needs and wants” of some customer groups and the exclusion of customer segments. It is possible to say “yes” but also “no”, referring to the brand’s values and vision. The concept of market orientation (sometimes synonymous with customer orientation, see Deshpandé, Farley, and Webster, 1993) is a classical concept of marketing. Seminal articles on this topic are the papers of Kohli/Jaworksi (1990), Narver/Slater (1990) and Shapiro (1988). Research in this area has addressed the construct’s definition and theoretical foundation, the development of a measurement instrument, and the empirical analysis of determinants and performance effects of market orientation. Basically, two perspectives on market orientation can be distinguished (Homburg and Pflesser, 2000; Meehan, 1996): a cultural and a behavioral perspective. The cultural perspective defines market orientation as a special kind of corporate culture or as a mindset of a company (Deshpandé et al., 1993; Homburg et al., 2000; Narver et al., 1990). In contrast, the behavioral perspective describes market orientation in terms of concrete instruments, tools or behaviors (Kohli et al., 1990; Shapiro, 1988). Briefly, market orientation is the mindset of the company or concrete instruments, which considers the actual and latent needs, and wants of individual customers. The satisfaction of each customer is the core of this orientation. Table 1 compares the two constructs and the two perspectives. ---------------------------------------- Insert Table 1 about here ---------------------------------------2.2 Concept of strategic orientation First, market and brand orientation are two different types or specifications of corporate culture and corporate behavior. A research stream which considers different types of corporate culture and behavior is the concept of strategic orientations, which has been defined as “…the guiding principles that influence a firm’s marketing and strategy-making activities” (Noble, Sinha, and Kumar, 2002, p. 25). By the integration of the idea that a strategy is not always the explicit choice of the management, but also the pattern of decisions or the results of organizational learning (Mintzberg, 1989), the framework of strategic orientation is useful for the application in the brand and market orientation context. Previous research addresses
5 the conjunction of market orientation with other strategic orientations: (1) innovation or technology orientation (Berthon, Hulbert, and Pitt, 1999; Gatignon and Xuereb, 1997; Olson, Slater, and Hult, 2005; Zhou, Yim, and Tse, 2005), (2) learning orientation (Baker and Sinkula, 1999), (3) entrepreneurial orientation (Miles and Arnold, 1991; Zhou et al., 2005), and (4) production and cost orientation (Noble et al., 2002; Olson et al., 2005). In addition to that, some researchers have differentiated between different types of market orientation (Noble et al., 2002). Very little research applies to the relationship between brand orientation and market orientation. In summary, brand and market orientation are two possible strategic orientations of a company. However, the previous research has compared market orientation with other strategic orientations, but the research on the comparison between market and brand orientation is scarce. In this article, we seek to extend our knowledge about the two central marketing concepts. Our discussion investigates the similarities and differences between the two concepts on four levels: (1) theoretical foundation, (2) corporate culture, (3) behavior, and (4) performance outcomes. 3. Comparison of brand and market orientation 3.1. Theoretical foundation Brand orientation is primarily an inside-out oriented strategic orientation. The literature characterized brand orientation often as a mindset and a resource of the company (Urde, 1999; Yakimova and Beverland, 2005). A basic theory to analyze resources of a company is the resourced-based view (Barney, 1991; Prahalad and Hamel, 1990). This theoretical approach can explain the character of brand orientation as a resource, the internal development of this resource (Urde, 2003) as well as the relationship between brand orientation and performance outcomes. Moreover, the brand theory brand identity can help our understanding of brand orientation (Burmann, Jost-Benz, and Riley, 2009). Similar to the brand orientation concept, the brand identity model addressed an internal view of brands. In the basic model, a strong brand is based on a strong brand identity and in the long run, a high fit between internal brand identity and external brand image. In addition, the brand identity concept explains the brand management as the management of the internal brand identity. This approach neglects the possibility of a direct creation of a brand image by the brand owner. In contrast to the brand identity, the brand orientation complements the internal perspective of brand management by the consideration of the internal importance of the brand concept on the top management level as well as the internal anchorage of the brand concept in the whole company. In contrast to the brand orientation, the market orientation is primarily an outside-in concept. Therefore, theories that explain the customer behavior are the main theoretical pillars of market orientation. In general, all partial theories of customer behavior are relevant for the market orientation construct. In detail, the theory of customer satisfaction (Szymanski and Henard, 2001) is the theoretical pillar of market orientation. 3.2 Corporate culture Brand and market orientation can be interpreted as two distinct types of corporate culture. The literature offers a wide range of conceptualizations of corporate culture (Cameron and Quinn, 2006; Deshpandé and Webster, 1989). A seminal model is the corporate culture model of Edgar Schein (1984; 2004). This model distinguishes between three different, but interrelated layers of corporate culture: underlying assumptions, espoused beliefs and values, and artifacts. This general corporate culture framework has adapted to the market orientation
6 (Homburg et al., 2000) as well as to the brand orientation domain (Baumgarth, 2009; Urde, 2009). Both research streams changed a little bit the characterization and wording of the three layers: (1) values, (2) norms, and (3) artifacts or symbols. Table 2 enumerates examples of the brand and the market oriented corporate culture layers. ---------------------------------------- Insert Table 2 about here ---------------------------------------3.3 Behavior The focus of this level is the link of market and brand orientation with concrete tools and instruments. An exhaustive collection is beyond the scope of this article, but the short discussion of some selected instruments (information and action instruments) should clarify the argumentation. The brand orientation is characterized by the internal anchorage of the brand inside the whole company and the “translation” of this internal brand identity through congruent brand messages (e.g., values, communication, and product). Classical instruments of marketing with a strong link to the brand orientation concept include internal branding (de Chernatony, Drury, and Segal-Horn, 2003; Mitchell, 2002; Punjaisri and Wilson, 2007), corporate identity and corporate design (Birkigt and Stadler, 2002;Olins, 1878; van Riel and Balmer, 1997), integrated marketing communication (Cornelissen, 2000; Schultz, Tannenbaum, and Lauterborn, 1995) and measurement of brand equity (Ailawadi, Lehmann, and Neslin, 2003; Kapferer, 2008 Keller, 1993; Yoo and Donthu, 2001). In contrast, market orientation focuses on the satisfaction of individual and changing customer needs and wants. Behaviors with a high link to the market orientation are market segmentation (Beane and Ennis, 1987; Wedel and Kamakura, 2002), customization (Franke, Keinz, and Steger, 2009), adaptive selling (Spiro and Weitz, 1990), customer relations management (Reinartz, Krafft, and Hoyer, 2004), customer satisfaction surveys and calculation of customer lifetime value or customer equity (Rust, Lemon, and Zeithaml, 2004; Venkatesan and Kumar, 2004). 3.4 Performance Outcomes and marketing metrics One of the central ideas of the strategic orientation concept is the analysis of the influence of different strategic orientations on the (corporate) performance. Moreover, the literature on marketing accountability and marketing controlling discussed the influence of strategic orientation on the selection of marketing metrics (Ambler, Kokkinaki, and Puntoni, 2004). Therefore, in the distinction between brand and market orientation, the link to the performance outcome and the marketing metrics is also an important step for a deeper understanding of these concepts. On a conceptual level, a distinction between market- or nonfinancial and financial outcomes is possible (Venkatraman and Ramanujam, 1996). Based on market outcomes, the brand and market orientation pursue different goals. Typical market goals of brand orientation are brand awareness, brand attitudes, brand loyalty and brand equity. Market orientation has goals like customer satisfaction, customer loyalty and customer equity. At the end of the market or brand orientation chain, however, both strategic orientations have the same financial goals: turnovers or profits, market share and corporate or shareholder value.
7 3.5 Interim conclusion In the previous sections, we compared brand and market orientation on different perspectives: theoretical foundation, corporate culture, concrete behaviors, as well as performance outcomes and marketing metrics. Furthermore, we linked market and brand orientation with classical topics of the management and marketing science. The discussion clarifies that brand and market orientation are clear different concepts. Figure 1 summarizes the main differences. ---------------------------------------- Insert Figure 1 about here ---------------------------------------4. Alternative configurations: Relationship between brand and market orientation Brand orientation and market orientation are distinct strategic orientations. However, the question is what is the relationship between these two concepts is? For future academic discussion, we offer four possible configurations. In order to communicate our idea, we use metaphors for the four categories. 4.1 Framework I: Option model (“Apples-and-oranges”) The first configuration assumes that brand and market orientation are two real options or alternatives. The management has to select between the two options. This framework interprets the two options similar to two strategic options. For example, Porter recommends in his famous framework of competitive strategies the choice of quality or cost leadership (Porter, 1980). A combination of both options is not possible or not effective. The metaphor of apples-and-oranges symbolizes the idea of two really different and contradictory alternatives. 4.2 Framework II: Evolution model (“Man evolution”) Rather than competing paradigms, an alternative conceptualization is to reconcile the two orientations in a linked manner. Few studies attempt to do this. Perhaps the most overt attempt is Reid et al. (2005) which discuss at a conceptual level the relationship of market and brand orientation in the context of integrated marketing communication. Market orientation is conceived to be foundational to brand orientation, though this is a peripheral aspect of their paper which is more about how each of the orientations are related to integrated marketing communications. Reid et al. (2005) consider the consumer as the common thread between market orientation and brand orientation since brand orientation provides a means of translating the long-term objectives of market orientation into an actionable set of activities. Urde (1999) compares the market and brand orientation on a conceptual and theoretical level. In his interpretation, the focus of market orientation is mainly the satisfaction of customer’s needs and wants. In contrast to that, brand orientation is more an internal, resource concept. Although some of the cases examined by Urde see brand orientation as building on market orientation (hence more sophisticated), there is also a natural tension between the two concepts. Having the brand as a strategic platform means that the firm cannot respond to every change in consumer needs. The case studies investigated by Urde (1997; 1999) are relatively sophisticated companies with long brand building experience and long brand track records. The implication is that not all companies are able acquire or build the resources needed, adopt and integrate the mindset, and develop the skill to manage brands this way.
8 Also Harter et al. (2005) describe a development from a brand-agnostic over a emerging brand to a brand guided company (similar Wong and Merrilees, 2005). Framework II interprets brand orientation as the natural development, the logical next level of market orientation. The metaphor man evolution communicates this idea. 4.3 Framework III: Sequel model (“Ladder”) Framework II suggests a more or less automatic progression from market orientation to brand orientation. In contrast, Framework III proposes that some firms may never take the journey to brand orientation. Some firms might not see the benefits in brand orientation (Wong et al., 2005) and therefore not be motivated to do so. Similarly, some firms are blissfully unaware that there is such a thing as brand orientation, given that this is relatively new concept, less than twenty years old (Urde, 1994). Other firms may lack the capabilities (including leadership) to develop a strong brand orientation (Wong and Merrilees, 2008). The advancement from market orientation to brand orientation is also contingent on industry and market situations. For example, highly interactive, personalized services such as barbershops may never evolve to a brand orientation. The barber is a classic market-orientated service company who knows the different needs of his customers, fulfills these needs, adapting his behavior to match the needs of each customer. In structural model terms, situation variables would moderate the market to brand orientation path. In this framework, the management decides on the basis of the internal resources and the external situation about the advancement of the market orientation to a brand orientation. The metaphor of a ladder characterizes this framework. It is not always the longest ladder that is the best one. The quality of the ladder is a function of internal resources and external conditions. The fireman or the manager has to select the best-fitting ladder. 4.4 Framework IV: Pluralistic model (“Ying-Yang”) An alternative interpretation of Urde (1999) is that there is a natural dialectic between market orientation and brand orientation, which could be resolved not in a sequential or evolutionary manner, but morph into a hybrid concept. This possibility is consistent with the early quote by the Nestle senior vice president in Urde (1999) who finds it difficult to think of the two concepts separately. Notwithstanding, no one has systematically formulated such a pluralistic market and brand orientation construct. Future research could revisit old case studies or embark on new case studies to see if there is any merit in creating a pluralistic market orientation combined with brand orientation concept. The Chinese symbol Ying-Yang can symbolizes this framework. Both concepts are different, but closely related and the market orientation facilitates the brand orientation and vice versa. Figure 2 summarizes the four frameworks of the relationship between brand and market orientation. ---------------------------------------- Insert Figure 2 about here ---------------------------------------5. Summary and agenda for further research The appropriateness of which of the above four frameworks or paradigms is contestable. Two types of empirical investigation are possible. Firstly, Frameworks III and IV require greater
9 conceptual understanding of the relevant constructs. Therefore, they would benefit from case research studies, along the lines of Urde (1999). Secondly, Frameworks I and II could progress into quantitative testing. In simple terms, Framework I implies that either market orientation or brand orientation is dominant and a well-designed empirical study could address this proposition. Framework II (and maybe III) could be tested in a simple sequential way, as path from market orientation to brand orientation. However, as discussed, the path to brand orientation may be more complex, with additional mediation from say brand-orientation norms (Baumgarth, 2009). Additionally, the path from market orientation to brand orientation may be moderated by situational factors, such as the market or industry conditions. For example, high-touch, customized industries like barber shops may not progress from market orientation to brand orientation. If the quantitative route is pursued, the development of a scale (the different levels of our framework in Fig. 1 can support this process) is an important further step. A fundamental condition of the scale development is the high discriminant validity, especially in comparison to market orientation (quantitative approach, procedure for the development of scales; MTMM-approach, expert validation etc.). On this basis, empirical large-scale studies can compare the influence of market and brand orientation on performance outcomes. An integration of additional orientations like innovation orientation, cost orientation etc. (quantitative studies; similar to studies about strategic orientation) can broaden this research stream. References Ailawadi, K., Lehmann, D. R., and Neslin, S. A. Revenue Premium as an Outcome Measure of Brand Equity. Journal of Marketing 2003; 67(October): 1-17. Ambler, T., Kokkinaki, F., and Puntoni, S. Assessing Marketing Performance: Reasons for Metric Selections. Journal of Marketing Management 2004; 20(3/4): 475-498. Baker, W. E. and Sinkula, J. M. The Synergistic Effect of Market Orientation and Learning Orientation on Organizational Performance. Journal of the Academy of Marketing Science 1999; 27(4): 411-427. Barney, J. Firm Resources and Sustained Competitive Advantage. Journal of Management 1991; 17(1): 99-120. Baumgarth, C. Brand Orientation of Museums: Model and Empirical Results. International Journal of Arts Management 2009; 11(3): 30-45. Beane, T. P. and Ennis, D. M. Market Segmentation: A Review. European Journal of Marketing 1987; 21(5): 20-42. Berthon, P., Hulbert, J. M., and Pitt, L. F. To Serve or Create? Strategic Orientations Towards Customers and Innovation. California Management Review 1999; 42(1): 36-58. Birkigt, K. and Stadler, M. M. Corporate Identity-Grundlagen. In: Birkigt, K. , Stadler, M. M. and Funck, H. J., editors. Corporate Identity, 11 ed, München: Moderne Industrie, 2002. pp. 13-23. Bridson, K. and Evans, J. The secret of a fashion advantage is brand orientation. International Journal of Retail & Distribution Management 2004; 32(8): 403-411. Burmann, C., Jost-Benz, M., and Riley, N. Towards an identity-based brand equity model. Journal of Business Research 2009; 62(3): 390-397.
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12 van Riel, C. B. M. and Balmer, J. M. T. Corporate identity: the concept, its measurement and management. European Journal of Marketing 1997; 31(5/6): 340-355. Venkatesan, R. and Kumar, V. A Customer Lifetime Value Framework for Customer Selection and Resource Allocation Strategy. Journal of Marketing 2004; 2004(October): 106-125. Venkatraman, N. and Ramanujam, V. Measurement of Business Performance in Strategy Research: A Comparison of Approaches. Academy of Management Review 1996; 11(4): 801-814. Wedel, M. and Kamakura, W. A. Market Segmentation: Conceptual and Methodological Foundations (2 ed.). Norwell: Kluwer Academic Publishers, 2002. Wong, H. Y. and Merrilees, B. A brand orientation typology for SMEs: a case research approach. Journal of Product & Brand Management 2005; 14(3): 155-162. Wong, H. Y. and Merrilees, B. The performance benefits of being brand-oriented. Journal of Product & Brand Management 2008; 17(6): 372-383. Yakimova, R. and Beverland, M. The brand-supportive firm: An exploration of organisational drivers of brand updating. Journal of Brand Management 2005; 12(6): 445-460. Yoo, B. and Donthu, N. Developing and validating a multidimensional consumer-based brand equity scale. Journal of Business Research 2001; 52(1): 1-14. Zhou, K. Z., Yim, C. K., and Tse, D. K. The Effects of Strategic Orientations on Technologyand Market-Based Breakthrough Innovations. Journal of Marketing 2005; 69(2): 4260.
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Cultural perspective
Brand orientation
Market orientation
“… the extent to which the organization regards itself as a brand” (Hankinson, 2001, p. 232)
“… is the business culture that most effectively and efficiently creates superior value for customers.” (Narver et al., 1990, p. 20) “…is the organizationwide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organiaztionwide responsiveness to it. (Kohli et al., 1990, p. 6)
“…creating a unique brand identity, structuring brand portfolios, managing brand communications and monitoring brand values” (Ewing and Napoli, 2005, p. 843)
Behavioral perspective
Table 1: Definition of market and brand orientation
Brand orientation
Values
Norms
Artifacts
brand values and positioning is the main orientation for all management decisions brand value and brand identification continuity uniqueness Inside-out perspective The brand in centre Commitment to what the brand strand for powerful brand manager stories about the “living” of the brand promise brand oriented architecture of the buildings and trade stands
Market orientation
satisfaction of customer needs customer value and customer loyalty low level of time stability, because customer needs are changing customer satisfaction outside-in perspective The customer in centre satisfy the customer needs powerful key-account manager stories about especially effort in order to satisfy customer needs open and for customer understandable architecture of buildings and trade stands
Table 2: Comparison of a market and a brand oriented corporate culture
14 cultural perspective (corporate culture/ strategic orientation)
behavioral perspective (concrete instruments) internal
Brand orientation
dominant theoretical perspectives
Market orientation
brand is a central orientation of the top management consistent and congruent brand promise inside-outapproach
performance outcomes/ marketing metrics market financial outcomes/metrics outcomes/metrics
external
integrated corporate communidesign cation internal image branding analysis
brand attitudes brand loyalty brand equity
Ressource-based view Brand identity approach Consumer behavior theories Confirmation-disconfirmation paradigm customer is a central orientation of the top management fulfilling of customer needs outside-inapproach
sales training CRM systems
adaptive selling market segmentation customization satisfaction surveys
turnover or profit market share corporate or shareholder value
customer satisfaction customer loyalty customer lifetime value
Figure 1: Differences between brand and market orientation
Option model (“Apples-and-oranges“)
Evolution model (“Man evolution“)
Brand and market orientation are different strategic options
Brand orientation is the next natural level of the market orientation development
Sequel model (“Ladder“)
Pluralistic model (“Ying-Yang”)
Brand orientation is an enhancement of market orientation, but not always an effective choice”
Brand and market orientation are different, but synergetic strategic orientations.
Figure 2: Metaphors for the configuration of brand and market orientation
