The effect of market orientation on positional advantage and organizational performance

Abstract

To inform the evolving debate on the relationship between market orientation and strategy, our study investigates: (1) how the components of market orientation (i.e., customer orientation, competitor orientation and interfunctional coordination) affect the positional advantage of a firm in terms of differentiation or low cost advantage vis-à-vis competitors; and (2) how the firm's differentiation or low cost advantage influences the firm's organizational performance. The results from a sample of 122 manufacturing firms in The Netherlands reveal that both customer orientation and competitor orientation have a positive effect on differentiation advantage, while interfunctional coordination has a positive effect on low cost advantage. The findings also show that differentiation advantage has a positive effect on organizational performance. A low cost position has, however, no effect on organizational performance. Another interesting finding is that the linkages between the components of market orientation and positional advantage are moderated by strategy type, but not by the characteristics of the market environment.