market-orientation

What is Market Orientation? Product Orientation vs. Market Orientation

Market orientation is an approach to business where the company focuses more on the behaviors, wants, and needs of customers in its market. A company will first target a niche market to prove a commercial use case. And from there, it will create options to scale.

Understanding product orientation

product-orientation
Businesses that favor the product orientation philosophy assume that product quality is a determinant of demand in the market. In other words, they believe customers will purchase a product based on superior quality, performance, or features – regardless of whether the product suits their individual preferences. Therefore, Product orientation is a marketing management philosophy where the promotion of high-quality products is used to generate sales. 

Product orientation is an approach to business where the company is focused on developing products and services of the best or highest quality.

This focus is supported by other activities such as research and development or the determination of optimal price points.

Ford’s Model T is an early example of product orientation.

Founder Henry Ford wanted to create a car that was easier to manufacture, inexpensive to repair, and simple to drive for customers who were unaccustomed to cars as a form of transportation.

The Model T also only came in black since it was the quickest drying color.

What is market orientation?

This approach requires the company to constantly evaluate what customers want with the intention to develop long-term relationships with them.

Companies like McDonald’s, Nike, Coca-Cola, and other multinational brands use market orientation to adjust their marketing mix in response to different audiences around the world.

While the product itself is important, these brands also understand that customer purchases are also driven by intangibles such as emotion.

Key differences between product and market orientation

Some of the more obvious differences between product and market orientation are explained in the following sections.

Timeline 

Note that most companies before the 1960s used the product orientation approach. During this time, products were relatively scarce and companies found success by manufacturing as many units as possible.

The Ford Motor Company we mentioned above is a classic example of this. With production the more successful strategy, investment in advertising and marketing was considered unnecessary.

Once products started to flood the market, however, customers had more choices and companies were forced to spend money on finding ways to differentiate their products via marketing, advertising, and innovation.

Modern examples of the product orientation approach are rare. Only companies who manufacture premium products with high brand equity or a culture of consistent innovation can pull it off.

Strategy vs. culture

Product orientation tends to be a strategy that companies use to increase the quality of their products and services. This quality is then reiterated to customers and used as a point of market differentiation.

In general, market orientation is a component of a company’s culture. In other words, the company’s customer-centrism extends beyond product development and is embodied by all employees, leaders, and operations.

Focus

Companies that utilize product orientation develop products based on the particular skills or abilities in which they excel.

While product orientation does not ignore the needs of customers per se, those that employ this approach believe that if they make the best product they can, customers will come to them.

Again, market orientation companies develop products based on customer wants and needs.

They actively try to understand the customer and ensure there is demand for the product or service before committing to taking the idea forward.

Developing a market from scratch

Developing a whole new market is one of the most sought-after endeavors for tech business leaders with the ambition to set trends.

Theories like the Blue Ocean Strategy are part of this trend.

blue-ocean-strategy
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

However, opening up a whole new market requires considerable effort, as there is not yet a well-defined set of customers.

Thus, building distribution, fast execution, and iteration are the key.

Being a first-mover

Being a first-mover in a market can be a good advantage.

first-mover-advantage
In the business world, it is usually believed that the first to market will retain a long-term advantage due to branding recognition, economies of scale, and switching costs. However, business history shows examples of tech companies that took over markets even though they were not first-mover, but the latecomers (see Google and Facebook as reference).

However, being first is not the key in a tech-driven business world.

Indeed, as the market develops and technology starts to get commoditized, it’s critical to be able to dominate a market in order to really take advantage of being a first-mover.

This requires scale.

Being a first-scaler

One thing is to be a first-mover; another is to be a first-scaler.

A first-scaler is a tech player who has not only opened up and developed a market from scratch but also has dominated that market.

This is a core difference to understand.

In fact, later entrants will have valuable lessons learned at the expense of the first mover, which they can take advantage of to build scale quickly.

Thus, to take advantage of the first-mover, a company must also be able to gain a first-scaler advantage.

When to develop a new market vs. taking advantage of an existing market?

Sometimes it makes sense to launch a business in an existing market; other times, when windows of opportunities develop, it’s possible to develop a new market.

Those are two completely different endeavors.

Going after an existing market can be much easier, as a set of defined customers understands what you’re selling.

On the contrary, going after a new market means you’ll have to educate customers first about the product before you can make the first sale.

Of course, there are also advantages of developing a new market; that is, there is no competition.

Whereas in an existing market, you will find yourself competing against many other players.

For that matter, it’s critical to understand the landscape around to build a viable business from the nose.

market-types-why-it-matters

The type of market will completely change the company’s structure.

Below are some examples of the type of startup you can build depending on the market type.

market-types

Key takeaways:

  • Product orientation is an approach to business where the company is focused on developing products and services of the best or highest quality. Market-oriented companies are more focused on the wants and needs of customers in their market.
  • Companies like McDonald’s, Nike and Coca-Cola employ market orientation to adjust their marketing mix in response to different customers around the world. They understand that purchase decisions are influenced by more than the product itself.
  • Modern examples of the product orientation approach are rare. They tend to be concentrated in companies that manufacture premium products with high brand equity.

Read Next: Product Orientation.

Connected Product Development Frameworks

New Product Development

product-development
Product development, known as the new product development process comprises a set of steps that go from idea generation to post-launch review, which help companies analyze the various aspects of launching new products and bringing them to market. It comprises idea generation, screening, testing; business case analysis, product development, test marketing, commercialization, and post-launch review.

BCG Matrix

bcg-matrix
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Ansoff Matrix

ansoff-matrix
You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived by whether the market is new or existing, and the product is new or existing.

User Experience Design

user-experience-design
The term “user experience” was coined by researcher Dr. Donald Norman who said that “no product is an island. A product is more than the product. It is a cohesive, integrated set of experiences. Think through all of the stages of a product or service – from initial intentions through final reflections, from first usage to help, service, and maintenance. Make them all work together seamlessly.” User experience design is a process that design teams use to create products that are useful and relevant to consumers.

Cost-Benefit Analysis

cost-benefit-analysis
A cost-benefit analysis is a process a business can use to analyze decisions according to the costs associated with making that decision. For a cost analysis to be effective it’s important to articulate the project in the simplest terms possible, identify the costs, determine the benefits of project implementation, assess the alternatives.

Empathy Mapping

empathy-mapping
Empathy mapping is a visual representation of knowledge regarding user behavior and attitudes. An empathy map can be built by defining the scope, purpose to gain user insights, and for each action, add a sticky note, summarize the findings. Expand the plan and revise.

Perceptual Mapping

perceptual-mapping
Perceptual mapping is the visual representation of consumer perceptions of brands, products, services, and organizations as a whole. Indeed, perceptual mapping asks consumers to place competing products relative to one another on a graph to assess how they perform with respect to each other in terms of perception.

Value Stream Mapping

value-stream-mapping
Value stream mapping uses flowcharts to analyze and then improve on the delivery of products and services. Value stream mapping (VSM) is based on the concept of value streams – which are a series of sequential steps that explain how a product or service is delivered to consumers.

Read the remaining product development frameworks here.

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