[Based on Responsive and Proactive Market Orientation and New-Product Success by John C. Narver, Stanley F. Slater, Douglas L. MacLachlan; The Contingent Value of Responsive and Proactive Market Orientations for New Product Program Performance by Kwaku Atuahene-Gima, Stanley F. Slater, Eric M. Olson; The Role of Market Information in New Product Success/Failure by Brian D. Ottum, William L. Mooree]
Market orientation is about identifying, meeting and responding to customer needs in a market. With market orientation, an organization builds products/services based on customer needs and/or wants, as opposed to other orientations like product orientation which is based on what the organization is good at making. For example, with market orientation, if car buyers grew interested in electric cars, car company X would start making electric cars rather than continue to only make gasoline cars.
There are two distinct but not mutually exclusive types of market orientation: responsive market orientation and proactive market orientation. With responsive market orientation an organization responds to expressed customer needs; these needs the customer is aware. With proactive market orientation an organization responds to unexpressed (or latent) customer needs; these needs the customer is unaware. For our car example, responsive market orientation means company X would build electric cars when customers ask for it whereas with proactive orientation company X would build electric cars before customers ask for it.
Being market oriented means building successful products/services because you are constantly building toward market demands. Building the right products/services allows an organization to thrive. As such, market orientation can be a competitive advantage for an organization.
Responsive orientation is most common because this information about customers is easier to access. But organizations focused strictly on being responsive may miss future market opportunities. “for any business to create and to maintain sustainable competitive advantage continually, it must increase its proactive market orientation continually” (Narver et. al) It is thus vital that organizations have both and avoid getting stuck in responsive mode. To have a competitive advantage, car company X needs to respond to what customers want with gasoline cars and start making electric cars before customers know they want them.
The positive effect of proactive market orientation is higher in organizations that have low strategic mission rigidity, high learning orientation and marketing’s power within the organization is high. (The positive effects of reactive is higher for the reverse.) Additionally, the positive effects of proactive market orientation is bell-shaped, meaning that an organization can be too proactive and decrease performance. The positive effects of reactive market orientation is u-shaped, meaning that it only becomes valuable at a certain level or at a very low level.
What is important here is that for market orientation to be successful, the organization must not only gather and share market information but also use it. Market information is for the entire organization, not just the marketing department. Car company X needs to fully integrate the marketing department in other parts of the organization so market information is not seen as separate, privileged or inaccessible.
Successful market orientation for car company X means a sustainable competitive advantage through making the right products for their market. Car company X must be either highly reactive or lowly reactive (depending on organizational structure) while maintaining a medium level of proactive orientation. This must not just live in the marketing department but be integrated in every part of the organization – market information must be used.