THE EFFECT OF MARKET ORIENTATION ON MARKET
for customer value creation (Chuang, 2018; Nasution et al., 2011b). In other service industries such as hotels, these three dimensions have a positive and significant effect on innovation (Nasution et al., 2011a), both product innovation, administrative innovation, and process innovation (Han et al., 1998; Nasution et al., 2011b). Small Medium Enterprise (SMEs) especially the street food stall entrepreneurs are a very simple form of business that needs product innovations practically comparing with innovation in the bigger business sector. The innovativeness of the company will increase the company’s performance (Han et al., 1998; Widodo, T., 2015), for example in the form of increased marketing performance.
2.1 COMPETITION ORIENTATION TOWARDS PRODUCT INNOVATION.
Market-based view of the firm theorized that the profit above the average sustained an enterprise can be achieved when a company can use the environment externally to develop the company’s strategy. Company oriented on a competition should understand the strengths and weaknesses of competitor as a consideration for managers in making decisions. The existence of competitors motivates employers do differentiation through the product innovation in accordance with market needs (Jorge Francisco Lengler., 2013). Innovation programs can also direct to increasing company efficiency, improving quality, and speeding up the product delivery process time. For companies operating in a dynamic competitive situation then product innovation can encourage the success of the long-term performance (Hans Lofsen., 2014).
Companies oriented on competition will be encouraged to create an organizational environment that facilitates innovation (Aiqi Wu et al., 2014). A competition-oriented company will always search for information about its competitors and formulate it into the company’s knowledge of competitors. Information on competitors is a source for creating product innovation accordance with the wishes and needs of customers who can generate an increase in marketing performance. The presumption of a positive influence of competitive orientation on product innovation needs to be tested empirically and put forward in the following hypothesis statement:
H1: Competitor Orientation has a positive effect on Product Innovation.
2.2 CUSTOMER ORIENTATION TOWARDS PRODUCT INNOVATION
The intention of the company to innovate products is to create excellence through a value proposition for customers (Gruber Mueckedan and Hofer., 2015 in Bereket Mama Pangsit., 2017). Customer orientation is the company’s progress in understanding its target customers to create and provide the best value for its customers.
The company’s actions that generate customer value will lead the company to generate long-term profitability (Jorge Francisco Lengler et al., 2013). Customer-oriented companies are generally able to achieve a higher level of performance than those that are not; Such companies generally understand customer needs, offer and innovate the right products and services for their customers (Deshpande’ et al., 2014).
Product innovation is also a major source of future revenue for the company. Product innovation needs to be done not only to improve obsolete product life cycles but also to maintain a competitive advantage; the higher the level of competition, the higher the need to innovate in an effort to maintain marketing performance. Managers are expected to be able to manage the complexity of product innovation and ensure the role of product innovation in improving marketing performance. The essence of the analysis above shows that there is a positive relationship between customer orientation and product innovation. Companies that have a strong customer orientation will be more likely to innovate products to meet dynamic customer needs, customer satisfaction, build customer relationships, and customer retention.
H2: Customer orientation has a positive effect on Product Innovation.
2.3 INTER-FUNCTIONAL COORDINATION TOWARDS PRODUCT INNOVATION
Coordination between functions within the company will facilitate the running of business processes and the distribution of company resources to existing business units. Companies need to be proactive in exploring customer information to improve marketing performance. Customer information must be distributed immediately to related units so that each of them can contribute to product innovation to follow up on customer expectations (Amani et al., 2017). Many studies have reported on the importance of product innovation in improving the marketing performance of MSM Es (Hermert et al., 2013). Inter-function coordination affects Product Innovation which will improve quality products. The ability to produce quality products in turn can increase product innovation hastily (Raquel Machado et al., 2017).
H3: Inter-functional coordination has a positive effect on product innovation.
2.4 COMPETITOR ORIENTATION TOWARDS MARKETING PERFORMANCE
The company’s success, which is reflected in the marketing performance achievements, is the implementation
of the strategy (Johanna Frosen., 2013). Companies that are oriented towards competition are accustomed to making strategic formulations before developing strategic initiatives and actions to secure company goals. The results of the analysis of strategic environmental conditions are used as input for developing plans and executing the company’s strategic actions to maintain the company’s competitive position.
A competition-oriented company always pays attention to the strategies and activities of its competitors.
Information obtained from monitoring is used as a source to maintain customer satisfaction and loyalty by creating products that are expected to prevent customers from moving to competing products. Information about competitors’ actions becomes material for marketing decision makers, for example in determining the time frame for new product launches, how to manage relationships with customers, improvements in handling customer complaints, how to manage the distribution and supply chain sides (Johanna Frosen., 2013).
H4: Competitor orientation has a positive relationship with marketing performance.
2.5 CUSTOMER ORIENTATION TOWARDS MARKETING PERFORMANCE.
Like food stalls scattered in various places in Indonesia, food stalls operating around the campus have more or less the same characteristics, namely that the manager who is concurrently the owner and employees interacts directly with visitors who come to eat their meals. Managers get direct information from their customers, both information conveyed in the form of feedback verbally and from direct observation of the manager and employees of each customer. Managers can immediately respond to visitor complaints by adjusting their products and services according to customer desires. Customer information can also be used as planning for future product and service development. Previous researchers have reported that the effect of customer orientation has a positive effect on company performance, unfortunately no one has examined this relationship in the SME sector (Colwell et al., 2009; Koshy, 2012; Li Sa et al., 2019).
Companies that are customer-oriented in relation to marketing performance need to be investigated further to see the differences between SMEs engaged in food stalls and other business fields. It is estimated that SMEs in the food sector have a much higher customer orientation because between customers and managers and their employees have a short value chain. The relationship between the manager and his employees to the customer is very close so that any complaints can be immediately handled, and a disappointed attitude can be immediately observed. Changes in products and services in response to dissatisfaction and complaints can be felt directly by customers. If the manager and its employees are able to respond well, it is believed that they will be able to retain existing customers and through the word-of-mouth process will attract new customers to come (Li et al., 2013).
H5: Customer Orientation has a positive effect on Marketing Performance.
2.6 INTER FUNCTIONAL COORDINATION TOWARDS MARKETING PERFORMANCE.
Inter-function coordination is the dissemination of information between internal functions of the company so that all individuals in the department have the same perspective on the market and customers and in organizing the company’s strategic resources to increase value for customers. Inter functional Coordination encourages cross-departmental business processes effectively and increases resource utilization efficiently through resource sharing (Kahn, 2010 in Tun-Chih Kou, Bruce CY Lee., 2015). This effective and efficient internal coordination allows the company to be responsive to market changes and customer preferences so that it has a direct impact on marketing performance. Thus, the internal organizational routines that are interrelated with the process of product development, pricing, channel management, marketing communications, marketing planning, and marketing implementation are also effective and efficient (Mahmoud Abdulai Mahmoud., 2016).
Marketing performance is a concept for measuring the marketing achievement of a company. Every company has an interest in knowing its achievements as a reflection of the success of its business in market competition.
The role of marketing is important for business organizations, it can be shown by performance that reflects the achievement of the company’s profit level in a period. However, marketing activities have consequences for the allocation of several costs that should be responsible for increasing the level of company profits (Francesca Magno., 2017).
H6: Inter functional Coordination has a positive relationship to Marketing Performance.
2.7 PRODUCT INNOVATION TOWARDS MARKETING PERFORMANCE.
Product innovation is a change related to efforts to increase the use of existing resources, modify resources to create value and novelty, turn a material into a resource and combine each resource into a new, more productive configuration in an effort to achieve excellence in marketing performance (Juho-Petteri Huhtala, 2014). Innovation has been conceptualized in various ways (Damanpour and Gopalakrishnan., 2014), it is considered as a process, a result, or both, and different types of innovation. Product innovation refers to the development and introduction
of new, better products and or services.
Innovation driven by demands to stay ahead in a competitive market environment and demands to meet customer expectations will in turn result in product innovations that are valuable and different from competitors’ products and services. The ability to produce valuable product innovations and create differentiation is believed to be a company capability that leads to increased competitive advantage which ultimately increases the company’s marketing performance. This understanding inspires policymakers to make product innovation in order to improve marketing performance (Anabel Fernandez et al., 2013). The relationship between product innovation and marketing performance is hypothesized through the following statements:
H7: Product Innovation has a positive effect on Marketing Performance.
Practitioners and academics have not always succeeded in proving that there is a positive and significant influence of the variables in the market orientation variable group on product innovation and on marketing performance.
This phenomenon is very likely to occur because there are variables outside the system that are very likely to influence the effectiveness of this influence. Practitioners and academics both believe that the level of education plays a role in moderating the effectiveness of the effect of a cause-and-effect relationship between variables.
The education level of the management combined with years of daily experience produces competency at a certain level. With the level of experience that is evenly distributed among the sellers, the level of one’s education will determine the level of competence. In various research fields, it seems that it is agreed that a person’s competence will strengthen the causal effect of one variable on other variables, including the influence of a variable that leads to work performance (Kanibir et al., 2014; Pitafi et al., 2018; Swanson et al., 2020).
The education and experience level variables are expected to strengthen the influence of the variables in the market orientation group (competition orientation, customer orientation, and coordination between functions) both on product innovation and on marketing performance, and product innovation on marketing performance.
Figure 2: Research model and hypothesis
The construction of market orientation includes three dimensions, namely competition orientation, customer service orientation and coordination between functions within the organization. Product innovation is hypothesized to mediate the effect of these three dimensions on marketing performance. So, in addition to having a direct effect on product innovation, the three dimensions of market orientation are also hypothesized to have an indirect effect on marketing performance. The level of education of SME managers is hypothesized to play a role in increasing the influence of these three dimensions on product innovation and marketing performance. The level of education is also hypothesized to increase the effect of product innovation on marketing performance.
3. METHODOLOGY AND DATA ANALYSIS.
This quantitative research takes the object of small and medium entrepreneurs (SMEs) engaged in the street culinary business on the streets around the Telkom University campus. Guided directly by survey officers, 200 business owners were asked to fill out a questionnaire containing five items of respondent profile questions and
26 main question items (Lengler, JF, 2013; Chun, CY, 2013; Fernandez, A., 2013; Frosen, J. et al., 2013). There are six question items issued because they have a loading factor smaller than 0.5.
Respondents were asked to provide their perceptions by giving a value on the five Likert scale of each statement item. All statements represent indicators of the five variables developed in the research model. Information on education level is taken from the profile of respondents and used as a control variable to moderate the effect of three exogenous variables on both endogenous variables and between product innovation indogenous variables on indogeneous variables of marketing performance.
The indicator of a variable is not merely the final result of a series of work processes of a variable (lagging indicators) but can also be a series of processes or efforts that have the consequence of generating sales (leading indicator). All variables in this study use leading indicators. Marketing performance, for example, is not indicated by the number of sales or the satisfaction and loyalty index (lagging indicators) but rather from a series of efforts made by a company in order to acquire new customers or retain existing customers.
The WrapPLS_6 application is used to process excel survey data and to perform various model tests. The loading factor of each indicator in a variable is used to test the validity and reliability of the measurement model; the estimated adequacy level (p-value) of each regression coefficient of the causal variable pair was used to test the hypothesis; The determined value (R-squared) is used to measure the ability of the independent variable, the mediating variable and the moderating variable to explain the dependent variable in all structural equation models. The hypothesis about the role of the Level of Education (LED) and Level of Experience (LEX) variables in moderating the influence of the Product Innovation (PIN) variable on Market Performance (MKP) was tested simultaneously using the same application.
Table 1: Questioaire Items
Latent Variables /
Authors Indicators Questionnaire Items
COR1 The number of street vendors selling around us affects our business COR2 We respond to new traders by offering the same but more diverse products COR3 The leadership discusses competition between similar traders
COR4 We coordinate with the company's internal functions to serve the needs of target markets CSO1 We always take measurements regarding the level of customer satisfaction.
CSO2 Our leaders meet with customers regularly.
CSO3 Our competitive advantage depends on understanding customer needs.
ICO1 We include an integrated marketing function in the product development process.
ICO2 We expand our target market for opportunities for excellence.
ICO3 Cooperation and coordination of managers in integrating and using market information.
PIN1 We innovate old products to produce new products that are more varied and of higher quality.
PIN2 We use technology to generate innovation
PIN3 We get people who have ideas and the ability to innovate products from packaging to appearance and product types.
PIN4 We change the traditional way by utilizing modern technology to create product innovations.
PIN5 I came up with new design ideas, not imitations.
MKP1 We determine the time frame for the launch of a new product.
MKP2 I pay attention to satisfaction and success in managing customer relationships.
MKP3 We have been successful in dealing with customer complaints.
MKP4 We are successful in managing the distribution side and supply chain of the raw materials we need.
MKP5 Participating in direct sales through a bazaar or event can increase our sales volume.
Competition Orientation (COR) / (Jorge Francisco
Lengler et al., 2013).
Customer Service Orientation (CSO) / (Jorge Francisco Lengler
et al., 2013) Internal Coordination (ICO) / (Chen Yen-Chun
et al., 2013)
Product Innovation (PIN) / (Anabel Fernandez et al.,
2013)
Marketing Performance (MKP) / (Johanna Frosen
et al., 2013).
3.1 VALIDITY AND RELIABILITY TESTS
The combined loadings and cross-loadings values generated by the software are used to calculate Average Variance Extracted (AVE) and Construct Reliability (CR). AVE and CR calculations yield the same values that are generated by the software. A set of indicators is declared valid indicating a variable if the AVE value > 0.5 and is declared reliable when the CR > 0.6 (Hair, 2010).
Table 2: Validity and Reliability Tests
Variables Observed
Variables
Combine X-