BUS602: Marketing Management

The resource based view (RBV) of the firm highlights the importance of both tangible and intangible capabilities as the source of competitive advantage. Hamel and Prahalad introduced the concept of core competencies to enhance competitiveness and firm performance. The resource based view posits that the "firms are heterogeneous and use the resources and assets in an idiosyncratic way to conceive and create value". However the RBV has the limitation for its inability to elaborate on how the resources are developed and organized. The dynamic capability theory addresses these limitations by positing that the performance variation between firms is not by simple heterogeneity but it is due to the different capabilities firm possess. These capabilities are a mixture of the skills and knowledge of the employees that over time embeds in the organizational routines and can be distinguished to be better than other business processes in the organization.

The capabilities consist of a "complex combination of skills and knowledge embedded in organizational routines". Dynamic capabilities are those capabilities that "enable the firm to implement strategies using new and different combinations and transformation of resources" to match the changing market conditions. It becomes important for the firm to develop capabilities that are inimitable, add value are rare and support the organization's business strategy.

The marketing capabilities of the firm are influenced by internal and external factors. The internal factors are represented by market orientation and entrepreneurial orientation of the firm. The external factors are represented by technological change and market turbulence in this research. Prahalad Hamel and Day posit that the firms use various capabilities to gain a competitive advantage. Capabilities are developed when tangible and non-tangible knowledge based resources combine through integrative processes to create value for the firm.. These capabilities are developed by a combination of "knowledge and skills of employees". When the employees repeatedly carry out these "tasks, complex patterns of coordination between people, and resources emerge". These "coordinated patterns are consistent, yet remain dynamic and keep on changing as the firm's needs change". A salient feature of capabilities development is learning through repetition. Based on these frequent applications of skills and efforts, the firms are able to gradually develop capabilities.

Morgan and Vorhies, Vorhies and Harker and Day have identified the development of marketing capabilities as a way to achieve competitive advantage. The entrepreneurial firms need processes to recognize, refine, and evaluate opportunities and in turn to develop goods and services to fulfill the needs of customers in selected markets, price these products accordingly, communicate product attributes and to distribute products to customers. According to Day, marketing capabilities are those capabilities that consist of a combination of knowledge, skills and resources enabling the firm to add value to its products and services to be competitive. The repetitive application of marketing knowledge and skills, develops and polishes the marketing capabilities of the firm. Study results show that marketing capabilities play a prominent role in the performance of a firm.

Marketing research, pricing, product development, channel management, promotion and market management are investigated as marketing capabilities in this study. These six marketing capabilities considered in this study capture both the importance and the effectiveness aspect, because a capability that is important and effective can serve as a basis for competitive advantage. The marketing activity in entrepreneurial companies is influenced by the circumstances, and can demonstrate opportunism, innovativeness and proactiveness. The marketing efforts of a firm can be described by less or more entrepreneurial on a continuum depending on the environmental conditions the company is operating in.

Previous research has demonstrated the impact of external environment on the behavior of the firms. The external environment is found to impact the structure of the organization and it increases the uncertainty of managerial tasks. The variations in the external environment impact a variety of functions of the firm, such as the strategy of the firm and marketing. Entrepreneurship stimulates marketers to be more accepting of dynamism and unpredictable and uncontrollable change in markets. Hence, the market turbulence is defined as the rate of change in customer composition and the change in customer preferences. Technological turbulence is defined as "the rate of technological change". As the environment becomes turbulent, managers are in need of market information to make decisions. Firms consider market intelligence gathering as a key function. However, the collected information must be relevant and be disseminated to the right individuals at the right time so that they can act on it. Over a period of time, these processes turn into business routines as the employees apply their knowledge and skills to face the opportunities presented by the environment. "These repeated applications of knowledge and skills" to manage the business and pursue new opportunities result in capabilities.

Entrepreneurial orientation measures the level of innovativeness, risk taking tendency and proactiveness in the firm. Miles and Arnold propose that entrepreneurial orientation helps companies to strategically respond to turbulence in the environment. Also, prior research shows that there is a strong relationship between entrepreneurial orientation and firm performance. The entrepreneurial firms are known by their ability to innovate, initiate change, and to rapidly react in a flexible way. Naman and Slevin define entrepreneurship as "a firm behavior in which the firm demonstrates innovativeness, proactiveness and risk-taking propensity in their decision making". Innovativeness in a firm is defined to create an environment that encourages experimentation, new and different ideas, and creativity that can result in new products, services, processes or technology applications. Prior research shows that innovativeness has a direct positive impact on financial performance. Risk taking is defined as the proclivity to divert resources to those ventures and ideas that can fail but have a possibility of high rates of return. Proactiveness is defined to aggressively pursue opportunities and to remain at the vanguard of efforts. Also, it is shown that entrepreneurship directly affects marketing capability, innovativeness, and sustained competitive advantage, therefore, it is essential to develop entrepreneurial culture, marketing and innovative capabilities within companies in order to enhance their competitive advantage.

Market orientation is a firm's cultural phenomenon that enables the firm to concentrate efforts as per market needs. Moreover, it "represents the implementation of the marketing concept". Market oriented firms "possess the ability to generate, disseminate, and respond" to market information in a better way. The firms with a high market orientation build a sustainable competitive advantage by refining the opportunity by understanding their customers, and then arranging the resources to deliver the desired value. Firms having a strong market orientation are proactive and look into the future customer needs to develop products to strengthen their market position. Bulut et al. investigated effects of market orientation on Turkish companies' performance. The findings indicate a strong relationship between market orientation and firm performance. Also, empirical studies have confirmed that market orientation contributed to the success of a new product. Therefore, firms which look for enhancing market oriented behaviors should see the most instant results in the developing of more effective new products, improving their quality, and advancing customer retention.

The Market orientation measures the firm's capability of information collection, dissemination, and response at the firm level. The marketing capability on the other hand measures the capabilities of various marketing processes i.e. ability to develop new products, price them, promote and place them, ability to conduct marketing research, and manage the marketing function. The firm performance construct is a second order construct measuring profitability and growth. Firm growth measures increase in sales in terms of market share gains. Sales growth and market share indicate long term and sustainable firm performance.

Figure 1 depicts the proposed entrepreneurial marketing framework consisting of various antecedents and outcomes. An increase in the environmental turbulence requires managers to be more adaptable and flexible in dealing with customers and competitors and with a focus on innovation and entrepreneurship.

Conservative, risk averse and reactive management practices become a liability in a turbulent environment. Firms having strong entrepreneurial and market orientation conduct marketing activities in a different way. In terms of the resource based view of the firm, entrepreneurial and market orientation are organizational capabilities that create a unique resource leading to better performance.

During stable environmental conditions, an incremental improvement in marketing related business practices is considered sufficient. However in a turbulent environment dynamic marketing activities become critical. The marketing team has to focus their attention on anticipating the needs of the customers and quickly responding to the moves of the competitors. Turbulence encourages firms to look for new opportunities, be quicker in decision making to find new and alternative products and market opportunities. To be successful, the firms have to deliver customized and unique solutions for various segments of the target market.

The firm's marketing capabilities are influenced by various internal organizational factors i.e. entrepreneurial orientation and market orientation. Weerawardena has reported the positive influence of entrepreneurial orientation on marketing capabilities. Entrepreneurship provides a filter that directs the market intelligence processes of the firm impacting its marketing processes. This point of view is very similar to the dynamic capabilities perspective stating that "learning, coordination, and reconfiguration of key organizational competencies leads to competitive advantage". The entrepreneurial orientation also has a direct impact on firm performance. A similar study in the context of small Turkish companies also shows that entrepreneurial orientation is positively related to the firm's growth.

Market orientation is an antecedent to the marketing capabilities of the firm. The RBV literature states that superior market orientation leads to superior performance as the firm gains a better understanding of the customers, competitors, distribution channels, and the market environment. Market orientation is considered a firm's resource that impacts the development of its marketing capabilities and in turn leads to better performance. Market orientation in an entrepreneurial setting impacts financial and non-financial outcomes. In this context the focus is to create new demand for an innovation; to focus their marketing on promotion and selling, to be flexible using past experience and intuition. Due to their strategic importance, the marketing capabilities of the firm are predicted to positively impact firm performance.

The following hypotheses are posited from the above discussion.

H1: A higher level of environmental turbulence leads to a higher level of entrepreneurial orientation.

H2: A higher level of environmental turbulence leads to a higher level of market orientation.

H3: A higher level of entrepreneurial orientation leads to a higher level of market orientation.

H4: A higher level of entrepreneurial orientation leads to a higher level of marketing capabilities.

H5: A higher level of entrepreneurial orientation leads to a higher level of firm performance.

H6: A higher level of market orientation leads to a higher level of marketing capabilities.

H7: A higher level of marketing capability leads to a higher level of firm performance.