The market orientation process in two Swedish insurance companies

Article author: Jan-Erik Jaensson
3, 1998
Language: English

209 NFT 3/1998 Background Over time the competition has increased in the markets e.g. through deregulation’s and internationalization. With increased compe- tition the companies will have difficulties to sell their products or services. One phrase that often is used the latest years is to keep the ”customer in the focus” of all business activ- ities. This symbolizes a change in the way business leaders think about the companies relations to the market. We could say that it represents a change from a product oriented way of thinking to a market oriented way of thinking. Another way of characterizing this is to say that the thinking has changed from an internal perspective to an external perspective. One interesting issue about the research in market orientation is that almost all studies was done in manufacturing companies. The development of the concept therefore had a bias concerning the empirical field of study. In this study the empirical field is insurance companies. It was chosen because of the possibilities to give a contribution to the marketing concept. To make a contribution to the theoretical field the theories about service marketing and the theories about market orientation had to be examined and the relevant factors had to be focused to construct a model for describing The market orientation process in two Swedish insurance companies by Fil. Dr. Jan-Erik Jaensson, Umeå School of Business and Economics1 Jan-Erik Jaensson The background to this study is found in the interest of market orientation. The concept has been used in arti- cles frequently the last years, in spite of lack of consen- sus about what it is [6], [9], [12]. However, one mutual standpoint is that market orientation is beneficial for the company, but what the advantages consists of is more unclear. 1 This article is based on a paper presented at the Western Decision Sciences Institute’s conference in Reno, April 1998 and is based on research finansed by Trygg-Hansas Forskningsfond, Svenska Försäkringsföreningen and Tore Browaldhs fond för vetenskaplig forskning och undervisning. 210 market orientation in service companies. The theoretical examination resulted in three com- ponents that together constitutes the founda- tion of the marketing concept in service com- panies. The three components are: market information, the support system and the cus- tomer meeting. Those three components are supposed to interact in the company so that a high degree of market orientation is achieved. Market information is essential to collect data about the customers needs and wants. The support system should help the marketing function to behave in a market oriented way. The customer meeting is central for a service company and the front personnel’s interactions with the customers are essential as a competitive ad- vantage. The three components consisted of a number of factors within each component. Market information included e.g. the collection and dissemination of data about both customers and competitors. The support system included e.g. segmentation of personnel, market ori- ented culture and decentralization. Finally, the customer meeting included e.g. buyer- seller relations, interaction and service quality. The main purpose of this research was to study the process towards market orientation in insurance companies. Research Strategy The selection of insurance companies as cases in this study was motivated in different ways. Some of the motives to use insurance compa- nies was as follows. One motive was that they are large companies. The size was considered of importance because earlier studies of the marketing concept was done in large compa- nies. The size also guaranteed that there were employees working within the area of the three components, i.e. different employees mainly working with issues related to one of the components. One other motive was that earlier studies had been done in companies selling consumer goods. To be able to use results from them, the area of consumer goods seemed important. Because of that the organizational interest was focused on the part of the insurance companies that dealt with consumer insur- ance’s. Another motive was that the insurance in- dustry in Sweden worked with changes in their organizations that were in line with the marketing concept. A deregulation of the insurance industry had taken place which made the competitive climate to increase and that was also of interest. Within the companies, the access to the employees was considered as good because one person of the top management team in each company was appointed as my contact person. These persons legitimated this study by informing about it internally in each com- pany and there were also a possibility to mention their names when booking inter- views with employees. The component model was used to collect data about the marketing concept in two service companies – the insurance companies. The data collection method is a qualitative case study. The interview guide was structured from the three components that constituted the marketing concept, and the factors included in each component was the specific subjects of interest when talking to the employees. The interviews was conducted as a conversa- tion with the respondents to try to avoid leading questions and other types of inter- viewer biases. The case descriptions was made up by conversations with a total of 43 employees in two insurance companies in Sweden. Their perception of the marketing concept was the focus for this study. The employees had different hierarchical positions, and were sta- tioned in four different cities. The insurance 211 companies in this study are anonymous on their request. The names in the case descrip- tions are therefore fictive. Case Description Insurance companies is a part of the financial sector. Their role in this financial sector is to handle and even out risks. For the customer, the insurance company takes over the risk against a premium. The insurance company Sture had not been active to collect market information about the customers needs and wants. However, their collection of information about their compet- itors was better. The company decided to do use their cus- tomer database to investigate their customers. They found out that about 20 % of their customers accounted for 80 % of their turn- over. The conclusion drawn from this was that this group was the most profitable cus- tomer group. That information made the man- agement to rethink their way of handling their customers. Up until then almost all customers were treated in the same way. This resulted in an organizational change. They divided their customers in different seg- ments and created one organization for the profitable group. The front personnel was expected to make personal contact with all of these customers, to go through their total insurance needs and wants. The aim of this was to give the customers attention in other situations then when the premium should be paid. Every customer in this segment got a personal insurance employee to interact with. The management thought it was of impor- tance for the customers to be in contact with the same employee every time. The insurance company Sture focused on the customer meeting to try to create a good interaction with the customers to ensure that the customers would be pleased with the service provided by the company. The front personnel got very much internal attention from the management, since they were con- sidered to be of critical importance for the customers fulfilment of expectations. The support systems had partly got attention and partly been forgotten by the management. One example was the computer system that got lots of resources for development. How- ever, the management forgot to change in the accounting system so that it would be possible to measure profitability from the customer segments instead from the products, as before. The responsible managers were therefore unable to know if they were profitable or not at first. The other insurance company – Nisse, had not either used market information actively. The primary area of interest when it came to collection of information was, as in the other insurance company, information about their competitors. Through that they were going to copy the concept of personal insurance em- ployee from the insurance company Sture. They had problems with the way they used to handle their customers. Focus had been to attract new customers instead of give attention to existing customers to keep them satisfied. They had done some changes in the organiza- tion to get a better interaction with their customers. For example they had experiment- ed with physical locations. At one time their strategy were to be located in the ground floor in the centre of the towns to increase the availability. That strategy had to be abandoned because of economical reasons, the premises were to expensive. One other planned change in the organiza- tion concerned the front personnel. They needed more education because their future role would be to have knowledge about most insurance services instead of being specialists in one area. The support system in the insurance com- pany Nisse had gone through some changes. The organization had been flattened and the 212 new idea was to create profit centres. The profit centre should consist of a small number of employees which prime assignment was to please the customers. One idea the manage- ment had with these centres was to increase the profit thinking within each profit centre. One obstacle for this team idea was the sellers individual commission based salaries. The original incentive for the seller was to act individually and not to cooperate with the team members in the profit centre. In common for both companies was that their computer systems was designed to be an administrative instrument and not to be an active help for the marketing function. For example, if they were going to select a cus- tomer group from their customer database for a mailing offer they had to do this through the central computer, and it had to be done at the headquarters in Stockholm. Influence on the Market Orientation Process The cases differed from the theoretical frame of reference, as expected. However, the dif- ferences was impossible to explain with the three components. New analyses of the em- pirical data showed other factors that had influenced the market orientation process in the companies. The new factors could be divided into four groups depending on if they were considered as internal or external factors and if they were driving forces or obstacles for the process. Figure 1. The typologies The conserving internal environment con- sisted of factors as the fragmented customer perspective and the inward-out thinking in the organization. The environmental restric- tions consisted of the factors law and re- gulations who held back changes and the low activities among the customers to convey demands to the insurance companies. These two groups of factors were obstacles to the market orientation process. The reforming internal environment con- sisted of factors as segmentation of customers and the creation of sales teams. The environ- mental potential consisted of factors as de- gree of competition and internationalization. These two groups of factors worked as driv- ing forces for the market orientation process. We could think of this situation as a tug-of- war between obstacles and driving forces, since all types of factors exists simultaneously in the organization. After this we have an understanding of why the insurance com- panies were not more market oriented. Without any doubts the insurance companies had changed from a production oriented thinking to a more marked oriented thinking. The Cycle Model One original component that proved to be of great importance in the market orientation process was market information. Neither of the insurance companies had worked with that in a systematic way to find out for example the customers needs and wants. The impor- tance of market information is also to be found in the literature. There were need for a more dynamic model of the market orientation process that puts the components in relation to each other. So far we only have mentioned the components as equal to the marketing concept. The cycle model visualize the relation between the com- ponents and it also adds on a time perspective Obstacles Driving forces Internal Conserving Reforming factors internal internal environment environment External Environmental Environmental factors restrictions potential 213 to market orientation, since it is supposed to continue over time. Market information will work as input to the strategy development. The strategies will in turn affect the organization concerning for example changes in the customer meeting and in the support system. If this process works it would result in a market oriented service offering to the customers on the market. Figure 2. The cycle model prerequisite for market orientation. The in- formation collected has an onward perspective in that it is supposed to be used for future decisions about for example the company strategy. The study has shown that it is important to disseminate information in the organization to keep the employees well informed about the customers changed needs, the competitors strategies, the customers opinion about the companies service offerings, etc. The strategies should be formed with respect to the market information and the company resources. In the literature we could find some links between the environment and strat- egies [3], [5], [12]. One normative advice is that the management should increase the com- pany’s market orientation as soon as possible because the markets in the world is heading towards increased diversification and in- creased turbulence [1]. The technological development makes it possible with “mass customization”. This could be a strategic com- petitive advantage because it makes it possible to specially design products and services to individual needs and wants in another way than it is done today. To add on two other factors of importance for future competitive advantage we have complexity and economy of scope. This is in deep contrast to old strategies as standardiza- tion, simplification and economy of scale [2]. These new strategies are especially well suited for service companies as they often could change their services much simpler to satisfy the customers needs, then a product producing company could do. Segmentation is another issue of strategic importance [13], [17]. The study showed the segmentation process of the insurance com- pany Sture as a strategic change. From the point of the marketing concept it seems very important to segment the market to be able to attract the “right” customers, and to serve them in the best way possible. For a service Environment Market information Strategies Organizational changes in e.g. the support system and the customer meeting Market oriented service offering ? ? The model also consists of the environ- ment. In the analyses it was possible to estab- lish that the environment had an impact on the market orientation process. One example is the deregulation of the insurance market and another example is the internationalization of the insurance market. From the beginning the component model was built up by more or less internal factors. To understand the development of the market orientation process we had to add on factors in the environment that had an impact on the process. This means that the environment are of importance for the implementation of the marketing concept. To have a well functioning market informa- tion system is with this discussion in mind a ? ? ? 214 company the satisfaction of the customer de- pends for example on the customers expecta- tions and the service delivery system. If the market is segmented it is much easier to handle the marketing situation. Organizational changes is a result of chosen or modified strategies. The study showed different types of internal driving forces and internal obstacles affecting the market orien- tation process. We also had the original con- ceptual factors and the behavioural factors. For the management the challenge is to make changes in and/or influence these dif- ferent factors to promote the implementation of the marketing concept. One area of interest in this context is the learning of the or- ganization. Since the implementation of the marketing concept is a process influenced of the environmental changes it is important to create an organizational culture that maxi- mizes organizational learning [4], [16]. The ability to learn faster then the competitors would be a possible strategic competitive advantage in the future. Organizational learning could be connected to the reforming internal environment be- cause the information from the environment plays a great role for the market orientation process. The gaps There are four possible problem areas in the marketing orientation process that could be identified as gaps between the factors in the above discussed cycle model. First, we could argue that lack of market information will reduce the possibilities to create service of- ferings that the customers will be satisfied with. We call this the market information gap. Secondly, this lack of information will give negative impact on the strategic decisions. This could lead to serious problems which, in fact, could have serious effects to the company and to the service offerings. If the information is insufficient the strategic decisions may be wrong. The management may make changes in the internal factors that will lead the company on to the wrong way to satisfy the customers in the future. This is the strategy gap. The third gap is the implementation gap. This means that there are problems between the strategic direction and the organizational changes. The implementation process is about how the management handle the organization- al changes. In this context the reward system is of great importance to make the personnel do the new things in the right way. Earlier we established that the marketing concept was built up by conceptual factors and behavioural factors. The links between them constituted the implementation of the concept. Therefore it must be important for the management to consider these links when implementing the marketing concept. Of cause they also have to pay attention to the environ- mental changes. We could see in the cases that external factors affected the market ori- entation process which is important to re- member. The fourth gap is the relation gap. It means that there are problems between the company and its customers. Relationship marketing is a theoretical field of importance to deal with this gap. There we can find that customer reward systems, database marketing etc. will enhance customer loyalty. A relation is a personal process which should be treated with care and it should be considered to be of great importance to the company. If we consider the above discussions we could note that it to a great extent concerns resources. Information could be seen as an intangible resource. The strategy formulation and competence is another resource. The or- ganization is a resource that the management will have to invest in, and learning as men- tioned earlier could be a strategic competitive resource. The resource discussion implicate 215 that the market orientation process also could be seen in the light of resources. At last a late study of the new research gave the following results. The theoretical field of service marketing have the latest years been fragmented, and the only major area of it that still remains is the area of quality in services. The other areas have more or less been incor- porated in the theoretical field of relationship marketing [8]. This development could be explained through a life cycle discussion. The service marketing had gone into the maturity stage and something new was called for. The theoretical field of market orientation is still developing. One area of research interest is the link between market orientation and profitability. 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