Market Orientation And Business Profitability example essay topic

MKT 501 MARKETING MANAGEMENT ASSIGNMENT # 1 1.0 Introduction The role of Market orientation as a part of marketing has always been a topic of discussion among various academicians and researchers. But in the recent years its significance has increased. Its contribution to the general marketing concept has become very important and has been a point of analysis, discussion and debate among various researchers. Currently, with the repeated emphasis on the importance of the customers a market-based organization must be sensitive to its customers needs. For this an organization needs to know and adapt to the market. Market orientation is a key issue for any organization who wants to prosper and survive in the short as well as long run, in the presence or absence of competitors.

Consequently, companies have geared up and are becoming more market oriented and have adopted various programs to analyze market performance by improving the services offered to the customers which are in sync with the changing market conditions. 1.1 Research Problem To find the market orientation of a given company in this case "NIRMA LIMITED". 1.2 Research Object To enable a better understanding of market orientation and its effect on a business organization regarding certain aspects like profitability. 1.3 Research Questions Is there a link between profitability and being market oriented? 2.0 Research Methodology For the purpose of this research, secondary data was used derived from different chronicles and books on marketing.

3.0 Findings: Definitions: Kholi and Jaworski (1999) Market orientation is the organization wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organisation wide responsiveness to it. Robert Ruekert (1992) He defines the level of market orientation in a business unit as the degree to which the business unit: 1. Obtain and uses information from customers 2. Develops a strategy which will meet customer needs; and 3.

Implements that strategy by being responsive to customer needs and wants. John C. Narver and Stanley F. Slater (1990) They state that the market orientation consists of 3 behavioral components: Customer orientation, competitor orientation, inter functional coordination and two-decision criteria-long term focus and profitability. 1. Customer Orientation - is the sufficient understanding of the target buyers to be able to create superior value for them continuously. 2.

Competitor Orientation means that the seller understands the short-term strengths and weakness, capabilities and strategies of competitors. 3. Interfuncational Coordination is the coordinated utilization of company resources in creating superior value for target customers. Similarities: The similarities of these definitions are: 1.

All 3 definitions speak about the customer and about fulfilling their present and future needs. 2. They (Narver and Slater) also speak about gathering information from customers and developing strategies and implementing them to create superior value for the customers whereas Shapiro emphasizes on the decision making process. 3.

Acquiring information from the market regarding competitors (Narver and Slater). They speak of internal coordination within the organization eliminating various boundaries existing within an organization. The definitions of Kholi and Jaworski have been accepted as a base definition for market orientation by a majority of researchers. Differences: Kholi and Jawaroski view profitability as a consequence of marketing rather than a part of it, they state, "the idea that profitability is a component of market orientation is conspicuously absent in the field findings" Narver and Slater hold a compromise position regarding profitability as the objective of market orientation. They consider profitability though conceptually closely related to market orientation, it is suitably perceived as a business objective. Relation of market orientation and profitability: Narver and Slater carried out a study to develop a valid measure of market orientation and business profitability.

Their hypothesis was "the greater a business's is market orientation, the greater the business's profitability other things being equal". They did not accept the same form of relationship of various types of businesses i.e. commodity, non-commodity. The results: Their findings supported their hypothesis's that in commodities and non-commodities businesses, market orientation is an important determinant of profitability. Among non-commodity businesses, the positive relationship between market orientation and a business's profitability seems to be monotonic. In commodity businesses, a positive market orientation / profitability relationship was found among businesses that were above the median in market orientation. The relative cost for both businesses appeared an important determinant of profitability.

According to them the market growth was an important determinant of profitability for both types of businesses, but the relationships differ. In non-commodity businesses, short term market growth presented an opportunity to make profits, however commodities businesses, which are less adaptable in the short term, thus market growth, appears to reduce their profitability. But commodity businesses that had a high market orientation were able to create superior customer value with powerful wires which to effect a mutually profitably outcome. 4.0 Analysis The Nirma story began in 1969 when Mr. K.K. Patel manufactured a phosphate free synthetic detergent powder, which he made available in less than 1/4 the price of the available products.

His product grew in strength and became the largest selling detergent powder in the late 1980's. Nirma now offers quality products at low price. It has diversified into a number of fields like education, chemicals, and consumer care along with widening its base in the soaps and toiletries section. Nirma has helped to expand the entire soap and detergent market to the level of Rs. 82 billion.

Today Nirma is over a Re. 17 billion brand, with a leadership presence in detergents, soaps and personal care items. Nirma detergent was based on a fundamentally different business model. The business model that Nirma created had different characteristics. It had: 1. Different product formulation 2.

Different price performance relationship 3. Strong impressionable products and 4. Packaging Using primary research it was found out that there was an opportunity to create a low priced but reasonable quality washing detergent for low-income housing. In a slow growth industry and in the presence of intense competition from large as well as small-scale organization, Nirma launched its brand of detergent positioned in the low price segment. Since then it has been able to fight out competition and establish itself in rural areas and small towns. With an aggressive pricing strategy, its success continues even as it launches new and diverse products.

Nirma follows 'the value for money strategy', where its emphasizes on the need to give customers their value for money. Its marketing strategy is aimed with the motive to become the lowest cost detergent manufacturer in the world and hence it has undertaken backward integration projects in order to be self-sufficient in its key raw material, which will give it protection against commodity cycles besides yielding substantial savings in raw material costs. (The company estimates a total cost savings of 25% in material and handing costs due to backward integration). By using innovative production formulation, contemporary packaging, using a single layer distribution structure along with umbrella branding strategy has enable the company to minimize handling cost leading to cost savings which are ultimately passed on to the customers.

This is consistent with the need to create superior customer value by gathering information and developing strategies that Narver and Slater talk about indicating that Nirma is a highly customer oriented industry. The Indian soap and detergent industry consists of a number of small-scale manufacturers on one hand and MNCs on the other hand. This soap and detergent market has seen a surge in growth with the increasing purchasing power changing lifestyles and hygiene factors, the consumers are more aware of the various brands present in the market. 'The Indian Soap and Toiletries Makers Association' Mumbai (ISTMA) have estimated that the detergent industry consisting of laundry soaps, detergent cakes and powders performance was around 2.2 million tones, in which Nirma is the leader which sells over 800000 tones of detergent products annually, giving it a 35% volume based share of the market. Chart: Volume base share of the market in Detergent Industry Source - Indian Soap and Toiletries Association, Mumbai (ISTMA) The two major players in this market are HLL and Nirma. The war of supremacy between both these brands have been ongoing for decades.

With Nirma's entry into the market, HLL (Hindustan Lever Ltd) first reacted like a typical MNC and did nothing. However, Nirma captured a large part of the market, which forced HLL into rethink its strategy. HLL counter reacted by creating a new brand 'Wheel' which was meant to be a pure challenger of Nirma. Nirma however, due to its low price and marketing strategy has continued to remain successful and has a stronghold in rural Indian market, that is because 2/3rd of middle-income houses are in villages and therefore almost half of the buying potential lies in these rural areas. The rural household expense on consumer goods is approximately 44% on food articles, 20% on toiletries and 13% on washing detergents.

Therefore, it is evident here that low priced brands are widely accepted. Table: Brands with High Penetration CATEGORY CATEGORY PENETRATION BRAND WITH HIGHER PENETRATION Toilet Soap 91% Lifebuoy (HLL) Washing Cakes / Bar 88% Wheel (HLL) Edible Oil 84% Double Iran Mustard Tea 77% Lipton Tata Washing Powder 70% Nirma (Nirma Ltd) Salt 64% Tata Salt Biscuits 61% Parle Glucose Source: A peek into the rural market by Samp a Chakrabarti Lahiri Therefore with regard to competitor orientation (Narver and Slater), Nirma has been able to be successful only in certain aspects. It still holds a large share of the rural detergent market as compared to HLL. Therefore Nirma has a high rural market penetration in which HLL 'Wheel' is the only competitor in the 'soaps' category. In Nirma, delegations are not only confined to higher authorities, there is decentralization in the departmental level in all types of decision-making. The organization encourages and promotes integrity and honesty in all dealings between the staff and the organization.

There are clear work norms and expected standard of performance from the employees. Employees are given equal opportunities to avail of training programmes, on-the-job orientations, in-house computer education and personality development sessions are held in order to provide an all around development and growth of employees. The company emphasizes on action goal orientation - its employees are trained to have a sense of their future goals. All this has led to a highly productive work culture and focus management to interact with employees of lower level and is aware of their situation employees are kept informed about their departments and related work.

This is consistent with Kholi and Jowarski with regard to intelligence dissemination within the organization where they have stated "Effective dissemination of market intelligence is important because it provides a shared basis for concerted actions by different departments". Nirma strong hold of its market share is however restricted only to the rural detergent market however the premium detergent segment is dominated by its rivals Surf Excel (HLL), Henko (Henkel Spic) and Ariel. Nirma's Super Nirma has not been able to make a dent in this segment after it's launch in 1996 even though it cost less than 40% of the price stated by the other leading brands. The Soap Industry: Chart - Volume based share in Soap Industry Source - Indian Soap and Toiletries Markers Associations, Mumbai (ISTMA) In the toilet soaps industry under Personal Care products is segmented into economy, popular and premium segments. The market is witness to fierce competition from MNC's and requires substantial efforts for market penetration and brand development, reflected by the fact that only 5% of total production comes from the small scale sector. As per ISTMA figures, total toilet soap production in 1996 was 520,000 tones.

Nirma entered this market in late as 1990 with Nirma Bath, as of now it has a 18% share in volumes, HLL being the leader in this segment with a staggering 65%. This shows that even with increasing profit margins Nirma still highly depends on its LPC washing detergent for increasing revenues considering that most of its ventures into new product categories has not been as successful as its detergent brand. Nirma's financial results in the year-end march 2003: NIRMA reported a profit after tax but before exceptional item of Rs 229.23 crore for the year ended March 31, 2003, against Rs 184.71 crore in the corresponding period in the previous year. With exceptional item, the net profit was Rs 215.25 crore in the financial year 2003. Net sales in the financial year 2003 increased to Rs 2050.55 crore (Rs 1930.20 crore). Other income was Rs 23.96 crore (Rs 18.39 crore).

Limitations: Nirma however at present is facing substantial problem in certain areas due to: The recent economic slowdown. Nirma has been losing market to its rivals due to better products, HLL One of its closest rural has registered a growth rate of around 8% in the soap and detergent business and a small company Henkel Spic (Henko detergent) has seen a 15% growth in its operational income. This growth has been at the cost of Nirma's market share. Nirma faces competition from the small industries who inspired by Nirma's success have made Ahmedabad the detergent capital of the country; here transport cost is a very crucial part of costing in a low priced detergent, by these competitors locating their factories closest possible to their ultimate sales points in order to economize on transport cost, Nirma is in the risk of losing its best price USP - price.

Nirma's venture into new product (brand expansion) categories has not been able to create much of an impact in its market for salt. Its 'value for money belief' has turned out to be a major obstruction, preventing it from venturing successfully outside the detergent and soap segment. Nirma 'sudh's alt (also the name of a detergent by Tata) has not been able to live up to the Nirma brand image in the consumers mind "a detergent brand" can never stand for a food brand and vice versa. The turnover of 'Shud' was around 16 crores in 2001 and 'D andi Salt' a close competitor and new entrant to the market had a turnover of around 100 crores in 2001. o Even in the premium detergent category, Nirma introduced a brand Super Nirma for the upper middle class segment but could not influence the market as it was perceived as a mere brand extension of Nirma. 5.0 Conclusion Nirma's growth in the last few years has been highly unstable, partly due to the changing market conditions and partly because it has not been able to maintain and achieve previous success with its newly introduced products. The detergent sector was under stress with nearly with the market size shrinking by 9% in volume terms, in 2001-02 the toilet soap segments recorded a de growth of 12% with a 2% drop in realization.

Nirma's success is mainly attributed to its LPC washing detergent as it continues to bring profits for the company, yet despite Nirma strong market orientation in the rural areas, it has not been able to repeat the same success in the urban areas. However on the whole it is strongly market oriented and owes its increasing profits to this factor. 6.0 Recommendations Most of Nirma's newly introduced products have not been able to enjoy a stand-alone status as an individual brand. It is usually viewed as a brand extension or sub-brand. Nirma should look at a different brand and not just a brand extension if it wants to get up market in its offerings.

Nirma is recognized as a brand and this as been due to the extensive advertisement campaign carried out at the initial launch of its detergent. It depends on the strong brand name it has created. However, it has not carried out the same extensive advertisement campaigns with regard to many of its new products and thus it needs to read think on its advertising strategy. It should carry out extensive advertisements for its middle-income detergent Nirma Popular that has a potential to compete with brands like surf.

The same is the case with Nirma Soap Cakes (around 5 at present). It has still not been able to capture market like HLL Wheel Bar or the popular Rin Bar. Nirma inspite of having a wide variety has not been able to create an impact. Therefore it has to rethink its strategy on the Soap Bar segment. 7.0 Limitations While conducting the research, there were problems encountered problems in accessing specific information about certain categories of the brand.

Information available was not updated and the collection of primary data was not possible due to geographical constraints. References:

Bibliography

Content: 1.1. 0 Introduction Page # 1 2.1. 1 Research Problem Page # 1 3.1. 2 Research Object Page # 1 4.1. 3 Research Question Page # 2 5.2. 0 Research Methodology Page # 2 6.3. 0 Findings Page # 2 7.4. 0 Analysis Page # 5 8.5. 0 Conclusion Page # 11 9.6. 0 Recommendation Page # 11 10.7. 0 Limitations Page # 12 11. References Page # 13 12. Bibliography Page # 14.