When expanding abroad, are retailers market driving or market-driven? Are there advantages or disadvantages to the two strategies? Discuss and illustrate with an example of a market-driving retailer and an example of a market-driven retailer.
There are two complimentary approaches to market orientation known as market-driven and market-driving approach. Market driven is defined as 'a business orientation that is based on understanding and reacting to the preferences and behaviours of players within a given market structure' (Jaworski et al, 2000), it refers to learning, understanding, and responding to stakeholder perceptions and behaviors within a given market structure. A market-driven organisation has a deep commitment to a set of processes, beliefs, and values that permeate all aspects and activities which are guided by a deep and shared understanding of the priority of customer satisfaction, and competitors' capabilities and intentions, for the purpose of achieving superior performance by satisfying customers better than the competitors (Day, 1990). In contrast, market driving is viewed as 'influencing the structure of the market and/or behaviour of market players in a direction that enhances the competitive position of the firm' (Jaworski, 2000). This essay would elaborate these two approaches respectively and demonstrate how they are reflected in real business.
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The issue of transferability and 'fit' of a domestic retail offer into a local retail environment has drawn attention when academics are seeking to explain the internationalisation process. Specifically, with the origins in the concept of cultural or psychic distance, the degree to which retailers are accepted 'as is' or have to adapt to the local environment has gradually become a research focus. (Burt et al, 2005) It has been argued that the retail internationalisation does not necessarily follow the carefully scripted path but is typically a disjointed and fragmented process with periods of expansion and success, interspersed with disruptions and discontinuity, often the products of opportunistic incidents and serendipity. (Dawson, 2001) This again embodying the concept of adaptation and the process of learning about the alien environment is crucial, which, neatly link to integration-responsiveness framework. In contrast to being global integration where firms coordinate value-chain activities across countries to achieve worldwide efficiency and synergy in order to maximise advantage of similarities between countries, the flexibility objective, or local responsiveness, refers to meeting the specific needs of buyers in individual countries. (Burt et al, 2005)
To illustrate, the case of Boots the Chemist's internationalisation process is explored. Boots, as an iconic British retailer, possesses a strong consumer franchise based on its long-held reputation for quality products, including its retailer brand, and high levels of advice from its staff. Over time, its international retail strategy has evolved from a traditional store format based approach to one now based upon the internationalisation of private brand product range, through continuous readjustment, revaluation and realignment to a wide range of external and internal interaction and pressures. (Dawson, 2003; Coe, 2004) Boots' retail format, which widely accepted by home market, does not 'translate' into international context. Over the years, the net effect of the store-based development has been proved to be costly, providing an inadequate customer offer and developing no intra- or inter-country critical mass, resulted in some substantial losses and withdrawals (Burt et al, 2005).
According to Day, the most distinctive features of market-driven organizations are their mastery of the market sensing and customer linking capabilities. (1994) The rationale or benefits of being 'local responsive' and market-driven include such as the access to unique natural endowments to the firm, more responsive to the diversity of local customer needs in order to achieve maximised sales, which is especially true in retail businesses, such as clothing and food, require significant adaptation to local customer needs; in addition, cultural differences across borders requires continuous and in-depth learning as firms can easily fall into traps of being ethnocentric in decision-making process. In the case of Boots, in recognition of previous failures, there has been a gradual shift to the 'implant' strategy, which was seen as a way of getting Boots' brands in front of the increasingly dominant superstore-focused shopper. The 'implant' strategy as an experiment has been proved to be viable especially in Asian market, e.g. after the success in implants operation in Waston's stores in Taiwan, operations in the counterparts in Hong Kong were followed. (Burt et al, 2005)
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On the other hand, drawbacks of being market-driven still remain. According to Tarnovskaya, Elg and Burt, 'The traditional "market driven" interpretation of market orientation has been criticized for being associated with adaptive learning and thus neglecting the role of innovation in market change.' Resource-Advantage Theory suggests that it is not enough for firms to passively respond to changing environments by looking for the best fit between the existing resources and market niches (Hunt, 2002).
Turning to the market-driving approach, there involves three generic ways of changing the structure of market: a) eliminating players in a market (deconstruction approach); b) creating a new or modified set of players (construction approach); and c) changing players' functions (functional modification approach). On the other hand, market behaviour can be modified directly by either introducing or eliminating constraints on the players, or by altering the mind-set of market players (Jaworski, 2000).
In contrast to strength on incremental innovation of market driven organizations, market-driving companies have remarkable performance in radical innovation. Implementation of a unique business system and a discontinuous leap in the value proposition are the key to successful market driving. (Kumar, Scheer and Kotler 2000). IKEA is a typical example of redirecting consumer behaviour and disrupting the traditional business system of the furniture market (Kumar, Scheer, and Kotler 2000): it offers modern design product, low price furniture and enjoyable shopping atmosphere, most importantly, IKEA creates unified store layouts across nations that forces customers to follow a particular path in the store and maximizes the time they spend in the aisles thus maximizes purchase. 'One must pass the entire set of displays before passing through the central exit, which is never visible until one is upon it' (Jaworski, 2000). IKEA's unique business system featured as cost-conscious in-house design, interchangeable parts and high volume manufacturing, enabled the company to create a new market where a leap in customer value can be delivered, and created market barriers that competitors found hard to penetrate.
Dell computer is another well-known example of shaping market structure. Dell has built a business model by eliminating the retail channel through delivering the finished merchandise from manufactures directly to customers. This strategy achieved huge success by making use of international labour division as well as modern transportation and information technology. 'Arguably, this led to reduced business for many retailers and their eventual elimination' (Jaworski, 2000).
Advantages of market driving companies include: firstly, it is more likely to gain a sustainable competitive advantage (Jaworski, Kohli, and Sahay 2000). For example, IKEA uses deconstruction approach to eliminate middleman, such as wholesalers and distributors in the value chain to achieve cost reduction and better control in order to achieve a unified and unique store atmosphere. Secondly, it is likely to provide products or services experience that overwhelms customer expectations and existing alternatives. Moreover, driving markets allows organizations to exploit opportunities that competitors cannot (Hamel and Prahalad 1994). Furthermore, market-driving organizations may achieve greater performance than market-driven organizations by reshaping the structure of the market according to their own competencies and by exploiting the competitors' weaknesses. Such as pressure the competitor with low price, according to Buzz ell and Gale (1987). In order to achieve a superior business performance, firms need to actively influence the market rather than being only reactive to it.
However, limitations of market driving orientation are also apparent: firstly, since market-driving ideas are maverick in nature, it is difficult to be accepted by established companies. Moreover, ideas are often rejected when new product puts existing product in danger, along with the substantial investment in R&D. In addition, a market driving strategy entails high financial risk and has no opportunity to lessons drawn from others' mistakes.
In evaluation, 'The traditional "market driven" interpretation of market orientation has been criticized for being associated with adaptive learning and thus neglecting the role of innovation in market change', according to Tarnovskaya, Elg and Burt. Resource-Advantage Theory also suggests that it is not enough for firms to passively respond to changing environments by looking for the best fit between the existing resources and market niches (Hunt 2002).
Another argument could be made that 'large, incumbent firms with deep pockets and a strong brand name are in the best position to drive markets' (Jaworski, 2000). Moreover, it could also be claimed that start-up companies with no industry constraints are in a good position to drive a market since 'they do not have the burden of existing investments in a particular technology'.
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In conclusion, market driven and market driving approaches are two complementary approaches. Once the radical innovation phase is over, incremental innovation to improve the existing offering and business system become the primary, immediate challenge. Organization can therefore be both market driven and market driving and successfully operate both approaches, and it is also said that these two approaches might be sequential: a successful market driving strategy requires a firm to subsequently become more market driven (Harris and Cai, 2002).
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