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Market Orientation and the New Product Paradox

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Abstract:

The extant literature shows that the strength of the market orientation–performance relationship decays as the terminal measure of performance shifts from new product success to profitability to market share. As Day (1999) concluded, a broader nomological inquiry is needed to more fully understand the nature and limits of market orientation's effects. This suggests that a broader nomological inquiry is needed to fully understand the nature and limits of market orientation's effects.

Utilizing a national sample of marketing executives, the present study's purpose is to build a fuller understanding of the effects of market orientation on firm performance. Its structural equations model includes measures of new product success, profitability, and market share.

The research reinforces a strong positive relationship between market orientation and new product success. The expanded nomological network under study, however, implies barriers to market orientation's effectiveness. First, market-orientation-inspired increases in the priority firms place on “breakthrough” learning without commensurate increases in the priority placed on “breakthrough” innovation capabilities can boomerang and negatively impact new product success. Second, market-orientation-inspired new product development programs that are unable to increase market share can negatively impact profitability. These gatekeepers to the success of market orientation underscore the need for firms to coordinate a strong market orientation with resources and capabilities that increase the effectiveness of the marketing function. Without such coordination, the positive effect of market orientation on new product success may be limited to incremental innovations, and the overall effect of successful new products on profitability may be limited.

Document Type: Research Article

DOI: http://dx.doi.org/10.1111/j.1540-5885.2005.00145.x

Publication date: November 1, 2005

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