Does customer orientation always lead to greater market and financial performance? : a study of the moderating effects of internal and external environmental conditions.

The effect of customer orientation on firm performance has been a subject of controversy within the marketing and strategy literature. While the traditional normative literature argues that a devotion to serving customers’ interests will help firms to effectively satisfy customers, thus leading to superior performance, a number of recent studies suggest that firms could lose leadership positions if they listen too closely to customers. A closer inspection of the literature, however, reveals that most studies of the performance effects of customer orientation do not clearly distinguish the different dimensions of firm performance. The lack of clarity in the definition and measurement of firm performance could have given rise to the controversy about the effects of customer orientation. We therefore set out to examine specifically whether customer orientation positively influences market performance or financial performance (or both). As environmental conditions have significant influences on the relationship between customer orientation and performance, we also take into account the moderating effects of certain internal and external environmental conditions (namely, innovation orientation, environmental dynamism and hostility). We tested our hypotheses using data from the Markstrat simulation. Results indicate that, on the whole, customer orientation generates significant effect on financial but not market performance. However, when the firm has a low level of innovation orientation, having a strong customer orientation produces greater market performance but not financial performance. In less dynamic environments, firms with lower customer orientation tend to deliver stronger financial performance.BUSINES