PR – Market Orientation, Social Embeddedness And Firm Profitability: An Empirical Exploration Of The US Beef Industry
The U.S. beef industry is currently in a transition phase. As with most agricultural commodity sectors, beef producers generally perceive themselves as anonymous price takers in the market. As a result, most producers view increased operational efficiency as their only viable strategy available for improving farm profitability, as the socially embedded structure of the current marketing system coupled with the currently high cyclical prices provide insufficient incentives for producers to change their marketing orientation. Consequently industry consolidation continues as producers resist responding to consumers’ non-price market signals instead preferring to pursue operational efficiencies and scale economies. This has resulted over time in a growing divergence between the consumer and marketing channels’ (feedlot, packer, and end-user) expressed needs and the beef producers’ product offering. There is however a growing interest by beef producers towards adopting a more market orientated strategic direction as demonstrated by trade magazines now regularly discussing and providing real-world examples of various farmer -owned consumer-driven ‘value-chain’ initiatives (Tatum, 2005). This stronger market orientation and focus on consumer needs should allow firms to better identify consumer needs, implement production practices to meet those needs and more appropriately tailoring their offering to meet the consumers’ expressed and latent needs (food safety, traceability, and quality) and thereby increase firm profitability. Several studies have examined relationship between market orientation and firm performance and found there to be a significant positive effect (Narver & Slater, 1990; Slater & Narver, 2000; Olson, Slater & Hult, 2005). Market orientation is defined as the process of acquiring knowledge about customers expressed as well as latent needs and diffusing this knowledge throughout the company and channel partners (Jaworksi & Kohli, 1993). The knowledge generated during this process allows the firm to become aware of the specific characteristics and attributes customers are seeking in products or services. The goal is to meet both the customers expressed as well as latent needs while possibly augmenting the product or service with additional yet to be appreciated attributes so its perceived value is higher. In this study we examine the effect of market orientation on farm income and economic performance within the US beef industry. The beef industry was chosen as it offers different production alternatives (organic, natural, grass-fed, and grain-fed) and various alternative marketing arrangements (auction, schedule sales, contract production/marketing, specialty marketing and direct sales) coupled with various expressed and latent consumer identified product and market needs including leanness, traceability, animal identification, and certification. We believe a market oriented firm will be better able to meet the customers’ needs regarding preferences as well as their needs involving trust. Based upon a survey of 200 beef producers we empirically determine their level of market orientation and test if there are significant differences in profitability due to this increased customer focus. If so, these findings would build off previous studies which examined the market orientation effect in more traditional industries, while also encouraging agricultural producers to take advantage of this information.
Keywords: beef industry, transition phase, market orientation.
Organizations(s): ACE, University of Illinois, Urbana-Champaign