Customer orientation or competitor orientation: which marketing strategy has a higher payoff for hotel brands.

This study of hotels representing thirty-seven brands from fifty-six countries uncovers the market conditions under which investing resources in specific market strategies leads to higher performance. Specifically, the authors identified, for the first time in an international context, the circumstances under which customer orientation (acquisition, satisfaction, and retention of customers) alone has a higher payoff or when simply investing resources on competitor orientation (monitoring, managing, and outflanking competitors) alone is the better strategy. An additional interesting twist, not shown before to the authors' knowledge, is that in the cases where a customer-based strategy has a higher payoff, focusing on competitors diminishes performance. Similarly, in a market where competitor-based strategy has a higher payoff, a customer focus lowers performance.

International hotel chains that are entering a new market have a choice of competitive strategy. They may operate with a customer orientation or a competitor orientation. In a customer orientation, the hotel focuses on acquisition, satisfaction, and retention of customers. In contrast, the competitor orientation focuses on monitoring, managing, and outflanking competitors. This study of hotels from fifty-six countries compared these two approaches to uncover the specific market conditions under which investing resources in one or the other market strategy led to higher performance. The circumstances under which a customer orientation has a higher payoff are found in resource-rich, developed economies. On the other hand, a competitor orientation is a better strategy in less developed economies, where resources are relatively scarce. An important factor to consider is known as customer demandingness, which also is best met with a customer orientation. Oddly, a competitor orientation did not have a negative effect when customer demandingness was high.

Keywords: market orientation; customer orientation; competitor orientation; marketing strategy; performance; global; hotel; brand

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By adopting a market orientation, a firm commits itself to satisfying its customers' needs over the long run. Although profitability, market share, return on investment, and other performance benchmarks ultimately determine the success of any strategy, a market orientation is meant to achieve such goals by providing customers with superior value on a sustained basis. Those familiar with the concept understand that adopting a market orientation is not merely undertaking a marketing department initiative but, instead, means instituting an organization-wide culture that, when properly established, provides a firm with norms and beliefs that shape an integrated organizational strategy for sensing changing customer demand and competitive challenges as well as anticipating future market conditions.

Business scholars established the theoretical usefulness of the market orientation concept in seminal articles published more than fifteen years ago, but much work remains to refine the concept so as to render empirical results achieved with its application useful to corporate executive and management teams (see, in particular, Kohli and Jaworski 1990; Narver and Slater 1990). We found in this study an opportunity not only to contribute some important results to the theoretical literature but also to provide some practical information to global hotel managers looking to implement the most advantageous strategy in overseas markets.

John Narver and Stanley Slater (1990, 21-22) laid down the canonical view of the market orientation as comprising three main components: a customer orientation, through which a firm strives to understand its target customers; a competitor orientation, through which a firm strives to understand what its competitors are doing; and interfunctional coordination, the organizational culture that orients employees in all departments of a business unit toward understanding the firm's market in terms of both customers and competitors. There is widespread consensus that such a strategic orientation can create "superior value" for customers and thereby generate "continuous superior performance" for a firm (p. 21).

In spite of the general acceptance of the efficacy of a market orientation, however, several theoretical issues remain alive, and in this study we addressed primarily three of these issues--namely, the extent to which the efficacy of a market orientation depends on environmental factors; whether, within a market orientation, a firm should concentrate more of its resources on being customer oriented or on being competitor oriented; and how being in a global market plays into the effectiveness of a market orientation. To test the effects of environmental factors on the market orientation, we developed hypotheses that assume what is known as the contingency approach; that is, we designed our study to test whether the results of a market orientation depend on environmental conditions. (2) We also tested to compare the effects of being customer oriented versus those of being competitor oriented under a range of market conditions. In this case, we discovered that resolving these theoretical issues yields several important implications that bear directly on marketing strategy in the global hotel market. (3)

To test the contingency aspect, that is, the degree to which a market orientation is affected by environmental factors, we followed the lead of a recent study by testing the effectiveness of both a customer orientation and a competitor orientation for various market conditions at various levels of economic activity (see Fahy et al. 2000). Thus, we tested our hypotheses at the country level to reflect stages of economic development; we tested at the local market level to reflect local business conditions and resource availability; and we tested at the consumer level to reflect vagaries of customer demand. By conducting our study in this way, we were able to address all three research areas that we targeted: the effectiveness of a market orientation in various market conditions; the comparative effectiveness of a customer and a competitor orientation within a market orientation; and the effectiveness of a market orientation in a global marketplace (in our case, that of the hotel industry). The global hotel market is particularly advantageous to our research goals because of its diversity of economic, cultural, and other environmental conditions. Note that we also tested the effectiveness of interfunctional coordination, but only as a control variable. We focused primarily on customer and competitor orientation.

The Study

We developed four sets of hypotheses to test the contingency view of market orientation. If this view is correct, no single corporate strategy for achieving a firm's benchmark performance goals or competitive advantage is universally effective under all market conditions (see, for example, Lawrence and Lorsch 1967; Ginsberg and Venkatraman 1985; Donaldson 2000). Instead, a firm should gain competitive advantage by matching its strategy to both external and internal environmental conditions. In our study we concentrated on external conditions (as reflected in our treatment of interfunctional coordination as a control variable). George S. Day and Robin Wensley (1988), for example, argued that when market demand is predictable and the competitive environment is stable and concentrated, firms should channel their resources more toward a competitor orientation. In contrast, in a dynamic market with many competitors, highly segmented customers, and shifting entry barriers, firms should orient their strategy more in the direction of understanding their customer base.

We can make the logic of the contingency approach a little clearer by considering what is typically involved in creating a customer or competitor orientation within a firm. A customer orientation tends to facilitate differentiation in a market. The strategy is to gather information from and about a firm's customers, which is then disseminated throughout the firm to enable it to appeal to as many customer segments in its market as possible. A competitor orientation tends to achieve cost advantages for a firm as it gathers information on its competitors' business practices, enabling it to reduce costs through adjustments to its value chain. The contingency view is that environmental conditions that characterize a firm's market--especially pertaining to its customer base and competitive set--inevitably determine whether customer intelligence or competitor intelligence has a greater influence on the firm's ability to achieve a competitive advantage. As we have noted, we therefore formulated our hypotheses to reflect two sets of environmental differences, by looking at the market's stage of economic development, resource availability, and how demanding customers are; and then considering these factors at three levels of economic activity, namely, at the country, local, and consumer levels. Our hypotheses therefore test the effects of economic development, business conditions, resource availability, and customer demandingness.

We relied on standard United Nations classification of a country's stage of economic development, which turns on industrialization. The more industrialized a country is, the higher its level of economic development. The UN classifies countries like the United States, Japan, and the United Kingdom as developed or industrialized economies. Examples of industrializing or developing countries are Brazil, China, and Indonesia. The UN's distinctions match the division of countries into those that belong to the Organization for Economic Cooperation and Development (OECD)--the developed nations--and those that do not--the developing nations.

Firms are challenged in developing economies to offer their products at the lowest possible cost to customers, who typically have lower earning and buying power than their counterparts in developed economies. This would seem to recommend a competitor orientation so as to achieve a cost advantage in developing countries. By contrast, developed countries typically feature highly segmented customers with differentiated needs and satisfactions and considerable buying power, as well as a greater number and variety of competitors. This recommends a customer orientation both because meeting customer needs under such conditions means targeting products to narrower segments and also because in an environment with more competitors, it is more costly to allocate a firm's resources to gathering information about those competitors. We therefore hypothesized that the more developed an economy is, the stronger should be the effect of a customer orientation on a firm's performance. By contrast, the less developed an economy is, the stronger should be the effect of a competitor orientation on a firm's performance.

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