A Comprehensive Approach
Total Quality Management (TQM) is a well-known philosophy for coordinating all of a company’s production processes, which mandates cooperation by all affected departments. Its three basic principles are employee involvement, continuous improvement, and customer satisfaction.
Customers often use the term “quality” to refer to their level of satisfaction with a company’s products.”[1] Companies that incorporate customer satisfaction considerations into production processes are usually referred to as having a market orientation. High-performance companies generally use a market orientation to guide development of products and services to satisfy customers better than competitors[2]—that is, they offer something important to customers that competitors do not offer.
Implementing this strategy requires a comprehensive application of market orientation within the firm, as indicated by the recent success of Coach, which is best known for its high-quality, fashionable handbags for women.
In the early 2000s, Coach’s rapid sales growth stemmed from a decision by its chief executive, Lew Frankfort, to make its leather handbags more fashionable. Frankfort sought to develop “mixed material bags, a more-fun image and a wider array of styles and products.”[3] To implement this strategy, Coach used extensive marketing research, including test marketing and consumer surveys, to ascertain which styles and functions women preferred in their handbags. This strategy has led Coach to outsource manufacturing to factories that can work in materials other than leather and that can react quickly to changing fashions.
Recognizing that the recession has affected consumers’ incomes and expectations, Coach is reducing its average handbag price to less than $300. Keeping its focus on customer needs, Coach seeks to maintain profitability by selling greater volumes at lower prices.[4] But, according to market research, consumers are still interested in buying inspired fashion, says Reed Krakoff, Coach’s executive creative director. Currently, Coach’s senior managers peruse sales numbers, customers, and even floor plans for merchandise displays to gather such data. This insight is reflected in Coach’s new, lower-priced “Poppy” collection, whose development involved market testing in 9 Coach stores and 23 department stores.
Coach’s approach to strategic management is comprehensive in nature; its strategy involves all of its operations, including the outsourcing of production to use attractive materials and to manufacture popular styles quickly. Such a comprehensive approach is inherent in TQM and recent research indicates its positive effects on company market orientation, as well as market performance.[5] This research, however, has also indicated that total quality management had no significant effects on marketing capability or on market-focused learning capability.
This lack of positive effects is unexpected because of TQM’s basic principle of customer satisfaction, which is a primary concern of marketing. An improved focus on customer satisfaction should be expected to improve a marketing department’s performance. Nevertheless, it may be explained by an underperforming marketing department or a marketing department whose expertise is challenged by other departments in the company.
The Marketing Concept
Marketers generally recommend adherence to the “marketing concept,” which involves studying customers’ needs and satisfying them better than competitors; as such, marketers can help companies develop products that are better tailored to customer needs. The marketing concept should automatically be included when anyone considers use of market orientation, and marketers should encourage implementation throughout the firm.[6] Coach, for example, exhibits a comprehensive application that uses research on consumers to guide product design and production processes.
Often, however, marketers do not have the authority to mandate activities in other departments—departments that may decide to reject customer information and to not use it as a guide for their operations.[7] Organizational acceptance of the marketing concept requires senior managers who have interdepartmental authority and subscribe to a comprehensive approach to management. However, even when this occurs, marketing insight and performance can still be remiss in certain aspects. Research indicates that marketers in many companies misunderstand the images that customers have of competing brands as well as their own.[8]
Hewlett Packard
In the mid 2000s, Hewlett-Packard (H-P) rose to sales leadership in personal computers, largely due to Todd Bradley who joined H-P as executive vice president in 2005 and was given authority over its PC business.[9] Bradley realized that marketers were not utilizing H-P’s strength in retail stores. A possible cause of this failure was that H-P’s printer division was marketing its computers, so Bradley shifted the company’s sales strategy to retail stores and developed his own marketers. To reduce manufacturing costs and to improve poor delivery performance with retailers, he closed seven plants and changed logistics.
As H-P’s strategy was changing, PC sales growth was moving from desktops to personal laptops, which many consumers see as reflecting their self-images.[10] H-P’s marketing research indicated that 58 percent of PC buyers were indifferent to whether they purchased online or in stores. But a laptop’s appearance is an important aspect of its design and many consumers like to view and evaluate laptops in stores before deciding on purchases.
As a result, advertising started to feature emotional appeals and celebrities; online advertising encouraged visits to stores. Computers were designed and manufactured with features such as touch screens that would be attractive in store displays. Unique versions were manufactured to give certain retail chains their own exclusive designs.
Bradley’s authority as a senior manager enabled him to deal with resistance from employees who felt that the focus on consumers could hurt H-P’s corporate business or brand image. If these critics had been heeded, H-P may not have succeeded in replacing Dell as the leader in PC market share.
Strategic Management
If senior executives seek interdepartmental acceptance of a market orientation, they can succeed against entrenched competitors. In the case of H-P, Bradley used customer needs and customer satisfaction to guide operational changes in many departments that led to their rise in market share over Dell.
Such a comprehensive market orientation should be considered in all company processes, including strategic planning. In fact, Hambrick and Fredrickson identify five key elements necessary for a company to have a viable strategy,[11] three of which directly relate to having a market orientation:
- Arenas where the firm will compete;
- Differentiators for uniqueness in market offerings; and
- Stagings that involve product quality, service, prices, and costs.
Zara
Spain’s Inditex SA, which is second only to the Gap in world clothing sales, provides another example of comprehensive application that involves every aspect of an organization. Its Zara stores feature an integrated manufacturing and logistic capability that embodies a market orientation.
Instead of outsourcing to Asian manufacturers, half of Zara’s clothes are manufactured in Spain or neighboring countries to facilitate rapid production—from sketch to store rack in as little as two weeks. Only a few dresses of each design are sold from each store’s small inventory and new designs quickly appear. Store managers relay information on customer purchases and preferences back to headquarters in Spain, thus guiding designers in creating more “fast fashion.” The short production runs and fast changes in design induce consumers into believing that Zara’s clothes embody the latest in fashion.
Inditex’s senior managers recognize the need for a comprehensive application of market orientation at Zara. According to analyst Luca Solca of Sanford C. Bernstein, “The Inditex way is an all-or-nothing proposition that has to be fully embraced to yield results.”[12]
Ford Motor Company
Brazil’s unit of Ford Motor Company provides another example of a comprehensive application by one unit in a large corporation. This unit was able to dominate Brazil’s sports utility vehicle (SUV) market and attain 12 percent of Brazil’s total automobile market in 2006.
Starting in 1998, Ford’s senior Brazilian engineer, Luc de Ferran, led the design team that worked on a car fully developed in Brazil. A cross section of Brazil’s consumers were interviewed at locations, such as trendy nightclubs and churches in low-income communities, and the market research collected resulted in the development of the Ecosport—smaller than American SUVs, able to handle poor roads, and priced below expensive imports. To keep prices competitive, a special “flexible” plant was built for low-cost production. Today, the Ecosport not only commands 80 percent of Brazil’s SUV market, it is also exported to other South American countries with similar driving needs.[13]
Conclusion
These success stories reflect a comprehensive application of market orientation that integrates a company’s functional aspects, including marketing, manufacturing, and distribution. A common thread through all four is the involvement of focused senior managers who have the authority to assure appropriate participation by all departments. To satisfy customers better than competitors over the long term, all departments should consider how to benefit from the advantages of understanding and satisfying customer needs.
[1] Lee J. Krajewski, Larry P. Ritzman, Manoj K. Malhotra, Operations Management: Process and Value Chains, 8th. ed., (New Jersey: Prentice Hall, 2007): 208.
[2] Michael Beer, High Commitment High Performance: How to Build a Resilient Organization for Sustained Advantage, (San Francisco: Jossey-Bass, 2009): 57.
[3] Erin White, “How Stodgy Turned Stylish,” The Wall Street Journal, May, 3, 2002, at B1, B3.
[4] Susan Berfield, “Coach’s New Bag,” Business Week, June 29, 2009, 41–43.
[5]M.L. Santos-Vijande, L.I. Alvarez-Gonzalez, “TQM’s Contributions to Marketing Implementation and the Firm’s Competitiveness,” Total Quality Management & Business Excellence, 20, no.2 (2009/2): 171–196.
[6] J. Paul Peter and James H. Donnelly, Jr., Marketing Management: Knowledge and Skills, 9th ed., (New York: McGraw-Hill/Irwin, 2009): 5.
[7] Philip Kotler and Kevin Lane Keller, Marketing Management, 12th. ed., (New Jersey: Prentice Hall, 2006): 16.
[8] John A. Weber, “Illusions of Marketing Planners,” Psychology & Marketing, 18, no. 6 (2001): 527–563.
[9] Christopher Lawton, “How H-P Reclaimed Its PC Lead Over Dell,” The Wall Street Journal, June, 4, 2007, at A1, A10. (hyperlink no longer accessible).
[10] Ibid.
[11] D.C. Hambrick, J.W. Fredrickson, “Are You Sure That You Have a Strategy?” Academy of Management Executive, 15, no. 4 (2001): 48–59.
[12] Kerry Capell, “Zara Thrives by Breaking All the Rules,” Business Week, October 20, 2008, 66.
[13] Geraldo Samor, “In Brazil, Ford Has Discovered ‘Way Forward,'” The Wall Street Journal, July, 10, 2006, at B1, B2.
