CUSTOMER ORIENTATION AND CUSTOMER SELECTION Andre ...

CUSTOMER ORIENTATION AND CUSTOMER SELECTION Andre Beaujanot Q, Larry Lockshin and Gus Geursen University of South Australia Track: Market Orientation and Relationship Marketing Abstract The high level of customer concentration that suppliers normally face in competitive domestic and international business markets makes selecting customers a critical issue. The authors develop a framework and empirically examine the relationship between the supplier’s customer orientation, buyer-seller relationship and firm’s requirement about the foreign distributor characteristics. The results of our exploratory study of more than 80 Australian wine export oriented firms suggest that high customer oriented and long term buyer-seller relationship oriented firms are more likely to select overseas distributors who 1) have good knowledge about the supplier/product industry, 2) have a good capacity to invest in promotion and marketing and 3) have a management culture and capabilities similar to the producer firm. Introduction The concept of customer orientation in business markets has attracted attention from both academics and managers and it has been widely used in the marketing discipline (Deshpande, Farley and Webster 1993, Jaworski and Kohli 1993, Kohli and Jaworski 1990, Steinman, Deshpande and Farley 2000). The term customer oriented firms is frequently used to describe how knowledgeable the firm is about the costumer needs and how responsive the firm is to them in terms of the continuous value creation and delivery (Narver and Slater 1990, Narver, Slater and Tietje 1998, Webster 1993). Moreover, it has been argued that the essence of market orientation, as well as customer orientation as a dimension of the market orientation construct (Narver and Slater 1990), is the successful management of a relationship between supplier and customer (Steinman et al. 2000). Also, the literature has stated that strong business relationships must be developed with those customers that are able to assess the value created and delivered by the firm (Webster 1994). However, despite the increasing attention being focused on customer orientation and business relationships, there is a lack of literature explaining the link between these constructs and customer selection. This paper proposes a framework that covers part of this gap. The article begins with a brief discussion and definitions of the two constructs involved in our study: customer orientation and business relationship. Then we present the framework and the hypothesized relationships between the constructs and customer selection. We used supplier’s (wineries’) perception as input data for our analysis. The data was collected from 81 Australian wine export firms. We used export companies, as international operations are increasingly important for business survival (Cadogan, Diamantopoulos and de Mortanges 1999) and because the distributor selection is one of the most important choices a manufacturer will make in exporting (Cavusgil, Yeoh and Mitri 1995). The results of our exploratory study suggest that high and low customer oriented firms differ in terms of the importance given to specific overseas’ distributor characteristics when they select them as their business partner. High customer oriented firms are more likely to select overseas distributors who have good knowledge about the supplier/product industry and who share key managerial characteristics. The paper concludes with a discussion of the

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findings in terms of the implications for both theory and practice, and an indication of opportunities for further research. Background and definitions Before we present the conceptual framework and the corresponding research propositions, we need to clarify and define each construct involved in our study. In conceptualising customer orientation, we follow the perspective offered by Narver and Slater 1990 p. 21 “customer orientation is the sufficient understanding of one’s target buyers to be able to create superior value for them continuously”. The second construct is business relationship. In this paper we are interested in the relationship developed between the members of the dyad: buyer (foreign distributor) and seller (winery). The literature in buyer-seller relationships suggests that one critical dimension that determines the type of interaction in which business engages is the temporal perspective associated with that interaction (Anderson and Narus 1990, Dabholkar and Neeley 1998). In our study we understand business relationship as a long-term oriented relationship between the buyer and seller. Moreover, we agree with previous authors (Dabholkar and Johnston 1994, Dabholkar and Neeley 1998, Haugland 1999) in terms that long-term dyad relationships are promoted if buyer and seller are willing to invest time and money, as well as to adapt their business activities and to solve problems in a non confrontational way. The ideas describing our understanding of business relationship have been borrowed from the last authors. A short description of these concepts is necessary. First, by relational investment we understand those activities undertaken over time by both parties in the relationship, buyer and seller, and where the value of their investment (e.g: common assets, co-financed activities and field visits, among others) is capitalised in building strong relationships over the time. Second, relational adaptation describes the fact that both parts in the relationship are willing to adapt their businesses activities in order to better satisfy the requirements arising from both each. Finally, conflict resolution shows the capacity of the members involved in the relationship to solve problems in a friendly and non-structured way. Again, all these concepts promote long-term buyer and seller relationships. Having defined these constructs, it is now necessary to state the theoretical bases for the proposed link between those constructs and customer selection. It has been suggested before (Slater and Narver 1994) that customer orientation is the heart of market orientation and that the essence of market orientation is the successful management of a relationship between supplier and customers (Steinman et al. 2000). Thus, the essence of customer oriented firm is to deliver superior value to their customers from which a better relationship can be developed. Customer value is the customers’ subjective opinion of the firm’s activities (Ravald and Gronroos 1996, Wimmer and Mandjak 2002). Therefore customer selection remains critical for firms to deliver superior customer value and develop long-term a buyer-seller relationship. Conceptual Framework The ideas and directionality of our conceptual framework are presented in Figure 1. Stage 1 attempts to capture the relevance that customer oriented firms select their customers from a pool of potential customers. This selection should provide potential partners with specific characteristics as determined by the customer-oriented firm. The second part, Stage 2, presents the idea that customer oriented firms develop long-term business relationships with the selected customers.

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Figure 1 Stage 1

Stage 1

Selected customers

Potential customers

Buyer-seller relationship

Customer selection

Customer oriented Firm

Research Propositions Customer Orientation and Customer Selection The ability of a firm to select the right customers seems to be a prerequisite to the delivery of customer value (Steinman et al. 2000, Svensson 2001, Tuominen, Rajala and Möller 2002, Webster 1993, 1994). It has been argued early in this paper that superior customer value is part of customer orientation, thus we can expect that customer orientation and customer selection are linked. Customer value is the customers’ subjective opinion of the firm’s activities (Ravald and Gronroos 1996, Wimmer and Mandjak 2002). Consequently, as customers will assess the value delivered by the firm from their own point of view, carefully selecting the right customers has great importance. Now we can state our first hypothesis: H1: Customer oriented firms select those customers that are more able to understand and agree with the value created and delivered by the firm. Although it is important to select the right customers when the firm is customer oriented, and therefore interested in delivering customer value, this condition is not enough to be successful in the process of delivering such value. It is only when the customer’s and the firm’s characteristics match, and an underlying condition of business relationship exists between the members of the dyad, that customer oriented firms are more likely to deliver superior value to their customers (Ravald and Gronroos 1996, Webster 1994). This is mainly important in business markets, where achieving loyal customers is the expected outcome of every activity undertaken by the firm to develop relationships (Egan 2001, Webster 1993). Our second hypothesis is stated: H2: Customer oriented firms who are also long-term buyer and seller relationship oriented select those customers that are more able to understand and agree with the value created and delivered by the firm.


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Methodology and Data Collection Six personal interviews were conducted with export managers, marketing managers, or CEOs in different wineries located in South Australia. The information obtained in this stage was used to develop a draft of a questionnaire. The questionnaire was designed to be selfadministered by the CEO or the marketing manager of the sampled wineries. The questionnaire was pre-tested, and some questions were reworded. The final questionnaire was mailed to 522 Australian wineries. The wineries included in the sample processed an average of 50-1000 tonnes of grapes, so this was really a population sample based on the Australian and New Zealand Wine Industry Directory (Winetitles 2001). A total of 107 complete questionnaires were sent back. The final response rate obtained was 21%. For the statistical analysis only companies in the sample already exporting were included, providing a final useable sample of 81 companies. The Questionnaire Likert scales were developed to measure customer orientation, buyer-seller relationship, and a set of relevant customer attributes. The measurement scale for buyer-seller relationship was adapted from different authors (Dabholkar and Neeley 1998, Ganesan 1994, Haugland 1999). The measurement of customer orientation was adapted from Narver’s and Slater (1990) market orientation scale. The Likert scale developed to measure relevant customer’s attributes was developed by the first author after conducting in-depth interviews with several wineries and different meetings with wine marketing experts. The full set of items for these scales is available from the first author. Respondents were asked to consider their most important distributor or agent in one of their overseas markets. Thus, the different items in the questionnaire were filled out in regards to this specific overseas customer. The Analysis and Results Factor analysis was used to determine which items of the customer orientation scale best measured the concept as well as which items could be deleted. We performed reliability analysis on the remaining items, obtaining a Cronbach alpha of 0.75. Then we created factor scores for the factor describing the customer orientation of the firms. After sorting the factor scores in an ascending way, we split the sample at the median score into two groups, high and low customer orientation. Each group was labelled as cohigh and colow respectively. There were 41 wineries in the first group and 40 in the second. Through one-way ANOVA analysis, we tested if any difference existed between the groups and the multiple set of customer characteristics. The results are presented in Table 1. Those firms presenting a high level of customer orientation were more likely to select potential customers who have a better knowledge about the supplier/product industry and who have a management culture and capability similar to their own firm.


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Table 1 One-way ANOVA Group means Customer characteristics (of the distributor) cohigh colow F Sig. He must have a good knowledge about the Australian wine industry 1.73 2.37 2.89 0.093 He must have a management culture and capability similar to the winery 2.39 3.05 11.94 0.001 Liker scale where 1= strongly agree and 7 = strongly disagree Then we performed a second factor analysis to find out which items of the buyer-seller relationship scales best measured the three hypothesised concepts describing long-term relationship: relational investment, relational adaptation and conflict resolution. Three factors were obtained. In order to develop an overall single measure of long-term buyer seller relationship, we conducted a second factor analysis. Now we forced all the different items in each original factor to score in one single factor. Then we created factor scores for the factor describing the overall long-term buyer-seller relationship of the firms. After sorting the factor scores in an ascending way, we split the factor at the median score into two groups, high and low long-term buyer seller relationship oriented. Finally, four different groups were created. Each group had a different level of customer orientation and buyer-seller relationship (see Table 2). Table 2 Groups of firms having different level of customer orientation and long-term buyerseller relationship orientation Label High customer orientation and high level of buyer-seller relationship COBR High customer orientation and low level of buyer-seller relationship CObr Low customer orientation and low level of buyer-seller relationship cobr Low customer orientation and high level of buyer-seller relationship coBR As before, we performed one-way ANOVA analysis to tested if any differences existed between groups, COBR, CObr, cobr and coBR, and the multiple set of customer characteristics. The results suggested that differences between the four groups exist for the same two customer characteristics than before plus a new one. In order to identify differences between individual groups, difference tests using Tukey’s-b method were applied (see Table 3). Table 3 One-way ANOVA and Tukey’s test


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Group means Customer characteristics (of the distributor)

COBR

cobr

The distributor must have a good knowledge about the Australian wine industry

1.6

2.52

The distributor must have a management culture and capability similar to the winery

2.24

The distributor must have a good capacity to invest in promotional and marketing support

2.08

coBR

3.28 2.73

F

Sig.

4.95

0.003

3.55

0.018

2.820

0.044

Liker scale where 1= strongly agree and 7 = strongly disagree Note: Only means which are different are presented

Those firms classified as having high level of costumer orientation and having a long term buyer and seller relationship orientation are consistently more interested in doing business with customers who score high in all three customer characteristics stated in Table 3. Discussion and Implications Our findings provide evidence to support our ideas stated in both hypothesises. First, the fact that customer oriented firms select customer having a better knowledge about the supplier/product industry means that customers are in a better position to compare the different value propositions available from the supplier industry. Therefore, if the firm’s selected customers positively assess the value delivered by the firms, then the firm is more likely to develop customer loyalty with the selected customers. Second, it has been argued that market orientation, and therefore customer orientation, is “the organizational culture that most effectively and efficiently creates the necessary behaviour for the creation of superior value for buyers” (Narver and Slater 1990). Thus, if suppliers that are customer oriented select their customers having similar management culture and capabilities to them, we can expect that customer oriented suppliers are more likely to do business with customer oriented buyers. Therefore, members of the dyad are more able to understand and agree with the value creation process. Third, those firms classified as high customer oriented and highly willing in developing long-term buyer seller relationships (COBR) use the same cues to select their customer than those firms classified only as high customer oriented (cohigh). This finding, beside the fact of confirming that high customer oriented firms are also long term oriented in their buyer-seller relationship, confirms that those two cues are critical for COBR firms to select the correct customers. Moreover, COBR firms use a third cue related to customer’s marketing skills and capacities to decide with which customer they want to do business with. As overseas distributors are responsible for conducting marketing activities in the overseas markets, this last cue seems critical to select the correct overseas customers. Limitations and Future Directions Our sample was relatively small and focused on one industry in one country. The usual limitations for making conclusions from this small sample apply. Certainly the findings open up interesting areas to clarify and confirm them. We have demonstrated, in a very preliminary way, that a certain level of customer orientation coherence or consistency exists between the buyer (selected customer) and the seller (firm). However we believe that a better understanding of the consistency between the customer’s and seller’s concept of value will drive better customer selection. Further research in this specific area is urged.


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Tuominen, M., Rajala, A. and Möller, K. (2002) Market orientation:a promising metaphore for culture and collaboration in industrial networks. 18th IMP conference, Perth, Australia. Webster, F. E. J. (1993) Defining the new marketing concept. Marketing management 2, 22 31. Webster, F. E. J. (1994) Executing the new marketing concept. Marketing management 3, 916. Wimmer, A. and Mandjak, T. (2002) Business relationships as value drivers? 18th annual IMP conference, Dijon - France. (Dijon - Burgundy Graduate School of Management) Winetitles (2001) Fran Clancy.


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