A Firm Would Benefit From Production Orientation When _____.
Production Orientation
Production orientation follows the premise that any product of high quality can be readily sold.
Learning Objectives
Demonstrate the characteristics of production orientation from an economic and marketing perspective
Key Takeaways
Key Points
- Prior to the 1950s, the production orientation generally held true due to the growing numbers of affluent and middle class people that capitalism had created.
- Say's Law states that the "production of commodities creates, and is the one and universal cause which creates, a market for the commodities produced".
- The emphasis of firms adopting a production orientation of marketing would have been based on the theory of economies of scale, which are the cost advantages that an enterprise obtains due to expansion.
Key Terms
- minimum efficient scale: The smallest output that a plant (or firm) can produce such that its long run average costs are minimized.
Production Orientation
The evolution from production-oriented organizations to marketing-oriented organizations was driven by a shift toward a marketplace that catered to meeting customer wants and needs rather than strictly delivering product features and functionality. In today's business world, it can be argued that customer desires, concerns, and opinions, rather than industry profits, are the driving force behind many strategic business decisions.
However, until the 1950s, organizations relied on the assumption that their businesses would be profitable so long as they produced high quality products that were durable and worked well. This business model — also known as production orientation — soon became outdated as the marketplace turned into an increasingly crowded and global one. In the decades since its introduction, marketing orientation has been the model of choice for brands looking to sell products that compete effectively for consumer attention and brand loyalty.
Jean-Baptiste Say: Jean-Baptiste Say made Say's Law, an economic theory, popular even though he wasn't the originator.
Economies of Scale in Production-Oriented Organizations
During the Industrial Age of the 18th and 19th centuries, production-oriented companies thrived due to both the scarcity and high demand for mass-produced, high quality goods and services. Industrial firms focused on production orientation models that exploited economies of scale to reach maximum efficiency at the lowest cost. This business practice can also be explained by Say's Law, which states that "products are paid for with products" and that "production of commodities creates, and is the one and universal cause which creates a market for the commodities produced."
Economies of scale posits that by driving efficiency, companies (particularly production-oriented organizations) will realize significant cost advantages as they expand operations. For example, companies that focus on increasing economies of scale will see reductions in unit cost as the size of facilities and the usage levels of other inputs increase. In theory, such organizations can ramp up production until the minimum efficient scale is reached. Some common sources of economies of scale include:
Economies of Scale: The graph plots long-run average costs according to a firm's level of production.
- Purchasing -bulk buying of materials through long-term contracts
- Managerial – increasing the specialization of managers
- Financial – obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments
- Marketing – spreading the cost of advertising over a greater range of output in media markets
- Technological – taking advantage of returns to scale in the production function
Product Orientation
A firm employing a product orientation is chiefly concerned with the quality of its product.
Learning Objectives
Describe the basis for a company using product orientation as its marketing premise
Key Takeaways
Key Points
- A firm employing a product orientation would assume that as long as its product was of a high standard, people would buy and consume the product.
- Under the product orientation, management focuses on developing high quality products which can be sold at the right price, but with insufficient attention to what it is that customers really need and want.
- Product orientation assumes a developing or closed economy where few, if any, choices are available.
Key Terms
- Market Share: The percentage of some market held by a company.
Product Orientation
Similar to production orientation, the product orientation of marketing focuses solely on the product a company intends to sell. This orientation was popular during the 1950s and into the 1960s. A firm employing a product orientation is chiefly concerned with the quality of its product. A firm such as this would assume that as long as its product was of a high standard, people would buy and consume the product. This approach stresses the research and development of products and the continuous evolution during their life cycles, in order to maintain the attention of potential customers. Under the product orientation, management focuses on developing high quality products which can be sold at the right price, but with insufficient attention to what it is that customers really need and want. The premises implicit in this orientation include:
Cycle of Research and Development: Companies adopting a product orientation of marketing focus on product quality and therefore emphasize research and development.
- Consumers buy products more than solutions.
- Consumers are interested in product quality.
- Consumers recognize product quality and differences in the performance of alternative products.
- Consumers choose between different products based on getting the best quality for the price paid.
The main task of an organization utilizing the product orientation approach is to continue improving quality and reducing costs as key factors in the fight to maintain and attract customers.
Adopting the product orientation can be advantageous to a company, due to the fact that the cost of determining consumer preferences and the development of new products and services are minimized or eliminated because consumers are in some way captive. Product orientation assumes a developing or closed economy where few, if any, choices are available. There are disadvantages to the product model, however. As soon as a competing company can offer a product more oriented to the satisfaction of customers' needs and desires, the companies undertaking product orientation will lose most if not all of its market share.
Selling Orientation
As opposed to production or product orientation, a sales orientation focuses primarily on the selling and promotion of a particular product.
Learning Objectives
Outline the methodology and importance of selling orientation as it relates to product inventory
Key Takeaways
Key Points
- A sales orientation entails simply selling an already existing product and using promotion techniques to attain the highest sales possible.
- Such a modern day orientation may suit scenarios in which a firm holds dead stock, or otherwise sells a product that is in high demand, with little likelihood of changes in consumer tastes that would diminish demand.
- Selling orientations of marketing became popular after the untapped demand following World War II was saturated in the 1950s, when products were not selling as easily as they had been.
Key Terms
- dead stock: Merchandize that had been removed from sale, now offered for sale at a later date.
Selling Orientation
As opposed to production orientation or product orientation, a firm using a sales orientation focuses primarily on the selling and promotion of a particular product. The successful management of the relationship between the company and its customers defines the act of sales or selling. It creates value for customers. Emphasis is not placed on determining new consumer desires, as such. Consequently, this entails simply selling an already existing product and using promotion techniques to attain the highest sales possible. Such a modern day orientation may suit scenarios in which a firm holds dead stock, or otherwise sells a product that is in high demand, with little likelihood of changes in consumer tastes that would diminish demand.
Approaching marketing with a selling orientation was popular for companies in the 1950s and 1960s. Up to this point, a growing population and lack of significant competition combined to create an environment in which production and product orientations could lead to success. However, after the untapped demand caused by the second World War was saturated in the 1950s, it became obvious that products were not selling as easily as they had been. The answer was to concentrate on selling. The 1950s and 1960s are known as the sales era, as the guiding philosophy of business at the time was the sales orientation.
A marketing orientation centered around sales represented a major milestone in modern business. The amount of competition being realized at that point was unprecedented, and the scale of consumerism was rising. For the first time, a more significant effort had to be made to understand the desires of potential customers. In today's realm of marketing, selling has developed into a holistic business system required to effectively develop, manage, enable, and execute a mutually beneficial, interpersonal exchange of goods and services for equitable value. In other words, the importance of selling makes it indispensable to modern business, and it has subsequently evolved into a complex system. Effective selling requires a systems approach, at minimum involving roles that sell, enable selling, and develop sales capabilities.
Modern Sales Development: Today, selling has become indispensable for companies. Marketing orientation revolves around selling.
Marketing Orientation
A marketing-oriented business starts with the customer, finds out what they want, and then produces it for them.
Learning Objectives
Define the characteristics of marketing orientation from a consumer perspective
Key Takeaways
Key Points
- The marketing orientation is perhaps the most common orientation used in contemporary marketing.
- Market orientation also involves monitoring competitors ' actions and their effect on customer preferences, as well as analyzing the effect of other exogenous factors.
- Companies must understand that to find success using a marketing orientation, it is very important that all the firm's resources reach for common goals.
Key Terms
- exogenous: Produced or originating outside of an organization.
Marketing Orientation
Marketing orientation is a business model that focuses on delivering products designed according to customer desires, needs, and requirements, in addition to product functionality and production efficiency (i.e., production orientation). As stated by Bernard J. Jaworski and Ajay K. Kohli in the "Journal of Marketing", marketing orientation is "The organization-wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments and organization wide responsiveness to it."
From the beginning of the Industrial Revolution until the 1950s, companies focused on maximizing economies of scale and minimizing production costs. Since high quality products were scarce during this period, brands could make products on a massive scale that were functional and durable, but ignore marketing elements such as add-on features and design. This was largely due to the growing numbers of affluent and middle class people that the rise of capitalism had created.
Following the second world war, it soon became obvious that products were not selling as easily as during the Industrial era due to a saturated market. Throughout the 1950s and 1960s, companies responded by adopting a sales orientation model that concentrated first on making products, then selling them to customers. Despite organizations' move from product-oriented to sales-oriented strategies, customers were still excluded from the product development process.
The Shift Toward Marketing Orientation
Beginning in the 1970s, Harvard Professor Theodore Levitt and other academics argued that the sales orientation model was ill-equipped to deliver products tailored to customer wants and needs. Instead of manufacturing products for the sole purpose of generating profit, they argued for businesses to shift their strategy toward developing products based on customers' desires, insights, and opinions. Using this customer intelligence, companies could produce products that supported their overall business strategy, competed effectively in an increasingly global and competitive market, and delivered solutions for current and future customer needs.
With the widespread adoption of Internet technology, e-commerce, and social media technologies, the customer has clearly become the driving force behind contemporary business strategies. Marketing-oriented companies revolve around internal business processes that gather, synthesize, and package market intelligence into integrated marketing communications programs (i.e., advertising campaign, new product launch, promotional offer, etc.). Furthermore, it involves a brand planning its marketing activities around a singular concept — the customer — and supplying products to suit diverse tastes.
Competitive analysis is also a significant component of market orientation. Generally, companies gather this information using market research, consumer surveys, and focus groups with prospective customers to identify needs, preferences, as well as competitor strengths and weaknesses. Since its introduction, marketing orientation has been reformulated and repackaged under numerous names including customer orientation, marketing philosophy, and customer intimacy.
Focus on the Customer: One way for a company to focus on customers' desires is to have a database of all its customers.
Marketing Orientation Components
Components which define a marketing orientated organization include:
- Customer orientation
- Competition orientation
- Interfunctional coordination
As stated, the most important focus in a market-orientated business is the customer. Similar to a production-oriented company, one of the primary goals of marketing-oriented or customer-oriented businesses is long-term profitability. Nevertheless, organizations that follow a marketing orientation model realize that delivering superior customer value through product innovation, as well as products and services tailored to customer needs, directly correlates with generating revenue.
Holistic Marketing
Holistic marketing incorporates integrated marketing, relationship management, internal marketing, and social responsibility to build a unified and shared brand.
Learning Objectives
Differentiate between holistic marketing and the traditional methods that came before it
Key Takeaways
Key Points
- Traditionally, marketing mostly related to personal selling. The idea of marketing was largely one of managing key relationships.
- As marketing evolved alongside technology, the scope, scale, and the availability of data has changed significantly. Today, marketing is largely about careful research, targeted market selection, and segmentation.
- However, segmentation may not be the ideal form of utilizing technology and data for marketing strategy. Holistic marketing is the idea that unifying a market based on shared goals is better.
- Holistic marketing is often considered to include four components: relationship marketing, integrated marketing, internal marketing, and socially responsible marketing.
- Through combining these four components of marketing, a holistic marketing strategy will focus on putting forward a vision and brand that is meaningful to consumers across the entire market.
Key Terms
- segmentation: The act or an instance of dividing into segments.
Marketing Trends
The history of marketing has seen a fair amount of evolution over time, particularly with the integration of technology and big data. The origins of marketing are much simpler than modern marketing, revolving primarily around managing relationships and personal selling. Marketing tactics and methods have changed over time, spanning from simple personal selling to advertising, promotions, affiliate advertising, social media, PR, branding, and market research to support each of these investments and initiatives.
Holistic Marketing: Holistic marketing is the latest phase in the evolution of marketing.
As globalization, mass production, and big data became prevalent across industries, marketing evolved to be more targeted and specific across many different potential channels. This resulted in marketing segmentation, or the strategic decisions to pursue specific groupings within the broader population of the market. Segmentation through target markets has been (and currently is) a powerful trend in marketing strategy and tactics.
Holistic Marketing
This targeting and segmentation through broader market opportunities has substantial advantages, and is a useful perspective for marketing managers to consider. However, holistic marketing assumes that segmentation is as much a threat as it is an opportunity. The prospect of 'divide and conquer' is potentially more expensive than uniting the market based on shared initiatives and needs. Holistic marketing unites the market on shared ideals and vision, creating an inclusive, relationship-oriented and socially responsible strategy. This typically includes four perspectives:
- Relationship Marketing – A large field (often referred to as retention), relationship marketing is the simple idea that retaining a customer is significantly cheaper than getting new ones. Relationship is about building a meaningful engagement with current customers, not so much to make a sale but simply to ensure a continued relationship with the organization.
- Integrated Marketing – Another substantial branch of marketing is referred to as integrated marketing communications. Integrated marketing focuses on aligning the messaging, communication, and brand image across a variety of channels, customer groups, stakeholders, and other communications. By having a consistent brand across the board, companies can build a sense of trust, reliability, and shared expectations when dealing with the firm.
- Internal Marketing – Potentially viewed as a facet of integrated marketing, it's important to keep in mind that internal stakeholders such as employees require careful organizational brand management as well. Employees impact what the organization stands for (brand), and play an integral role in driving the organization towards its objectives, mission, and vision. Internal consistency of intention and vision is therefore a critical part of external consistency.
- Socially Responsible Marketing – Finally, the modern holistic view of marketing takes into account some of the ethical criticisms of the past advertising eras (and with good reason). Organizations should stand for things that society values. Let's take an example. An organization sells carpets and furniture. They realize the negative impact of their operations on the environment. This company decides to define their brand on perfect efficiency in terms of shipping, complete utilization of recycled goods, large donations to environmental research, and local sourcing. As a result, they build meaningful relationships with their consumers based on shared values, while cutting operating costs and capturing subsidies. This is a great utilization of holistic marketing.
While holistic marketing is an evolving field, the general concept is simple. Markets are full of people, and these people are often united on certain initiatives. By aligning the organization with the people who work there and the people it serves, the organization's brand will evolve holistically across various channels, supported by operations that align with the vision of the customers.
A Firm Would Benefit From Production Orientation When _____.
Source: https://courses.lumenlearning.com/boundless-marketing/chapter/evolution-of-the-marketing-orientation/
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