J. of the Acad. Mark. Sci.

(2007) 35:517
DOI 10.1007/s11747-006-0002-4

ORIGINAL EMPIRICAL RESEARCH

On the importance of matching strategic behavior and target

market selection to business strategy in high-tech markets
Stanley F. Slater & G. Tomas M. Hult & Eric M. Olson

Received: 15 August 2006 / Accepted: 17 August 2006 / Published online: 3 February 2007
# Academy of Marketing Science 2007

Abstract Business strategy is fundamentally concerned

with the actions required to create superior customer value
in the firms target markets with the ultimate goal of
achieving superior performance. Marketing theory suggests
that two critical marketing activities required to achieve this
end are: (1) the adoption of appropriate strategic behaviors
(i.e., customer-oriented, competitor-oriented, technologyoriented) and (2) targeting of the appropriate market segments
(i.e., innovators, early adopters, early majority, late majority,
laggards). This study builds on prior research which demonstrates that the strategic behaviorfirm performance relationship is contingent on the firms strategy by examining this
relationship in high tech markets and by considering the
incremental contribution of appropriate target market selection. Responses from 160 senior marketing managers in hightech firms reveal strong support for our framework. Thus, this
study provides useful guidance to executives and managers in
high-tech firms regarding the steps that they should take to
increase their probability of success.

S. F. Slater (*)
College of Business, Colorado State University,
Fort Collins, CO 80523-1278, USA
e-mail: stanley.slater@colostate.edu
G. T. M. Hult
Center for International Business Education and Research,
Marketing & Supply Management, Eli Broad Graduate School
Management, Michigan State University,
East Lansing, MI 48824-1121, USA
e-mail: hult@msu.edu
E. M. Olson
Marketing and Strategic Management, College of Business
and Administration, University of ColoradoColorado Springs,
Colorado Springs, CO 80918, USA
e-mail: eolson@uccs.edu

Keywords High-tech . Customer orientation .

Competitor orientation . Technology orientation .
Market segments . Business strategy . Performance

Strategic market management requires understanding emergent market patterns and making decisions that lead to the
creation of economic value (Dickson, Farris, &Verbeke,
2001). In this paper we present a study, conducted in hightech markets, that examines the performance implications
of matching strategic behavior, target market selection, and
business strategy.
The theoretical foundation for this study lies in evolutionary economics. Schumpeter (1934) proposed that
macroeconomic equilibrium is perpetually destroyed by
entrepreneurs innovations. A successful introduction of an
innovation disturbs the normal flow of economic life
because it forces some of the already existing technologies
and means of production to lose their positions within the
economy. Nelson and Winter (1982) focused on the issue of
changes in technology and routines. They proposed that if
the change occurs constantly in the economy, then some
kind of evolutionary process must be in play.
A consensus is emerging that the evolution of productmarkets is the result of a confluence of a variety of market,
technological, and competitive forces (Lambkin & Day,
1989). The strategy story here is exploration (technological
innovation) followed by imitative market making followed
by exploitation (cost or differentiation-based) (c.f., Dickson
et al., 2001). Thus, the evolution that we envision is that
Prospectors introduce new technologies into high-tech
markets while Analyzers seek to understand the reasons
for Prospectors successes and failures, and improve on the
Prospectors offerings (Dickson, 1992; Lambkin & Day,
1989). Defenders, both Low Cost and Differentiated, are

defending a consumer franchise and are hence more risk

averse and are late followers who take advantage of
respectively fixed-cost structure and employee service
motivation feedback effects (Dickson et al., 2001).
We first describe three strategic learning behaviors that
high-tech firms engage in to generate knowledge about
their market environment. We then move to the market
targeting decision as it represents the foundation for the
firms marketing strategy (e.g., Dickson & Ginter, 1987). We
describe four generic business strategies (i.e., Prospectors,
Analyzers, Low Cost Defenders, and Differentiated
Defenders) that effectively summarize the strategic decisions that managers make in the pursuit of competitive
advantage, and offer hypotheses for the strategic behaviors
that managers of those strategies should engage in and the
segments of innovation adopters they should target. We
then describe the research design and discuss the results.
We conclude with suggestions for future research and
implications for managers.

Strategic learning behavior

To make sense of complex environments, managers focus
their learning efforts on the market forces that are most
salient to the achievement of competitive advantage (Day &
Nedungadi, 1994). This is critical in high-tech markets due
to the turbulence and dynamism that characterizes them.
Without the ability to simplify, structure, and focus their
learning efforts, managers would suffer from paralysis by
analysis. Gatignon and Xuereb (1997; see also Zhou, Yim,
& Tse, 2005) argued that the three most important sets of
strategic learning behaviors in high-tech markets are
subsumed under customer orientation, competitor orientation and technological orientation.
Customer orientation
Customer needs often change rapidly and unpredictably in
high-tech markets. As such, no information is more
important to firms competing in high-tech markets than
customer information as this information shapes science
into commercial product or service (Leonard-Barton, 1995).
Customer-oriented businesses engage in the organizationwide development of and responsiveness to information
about the expressed and latent needs of current and
potential customers (Kohli & Jaworski, 1990; Slater &
Narver, 1998). Due to its market-sensing and customerrelating capabilities, the customer-oriented business should
be well positioned to anticipate customer need evolution
and to respond through the development of new customer
value-focused capabilities and the addition of valuable
products and services (Day, 1994).

J. of the Acad. Mark. Sci. (2007) 35:517

Competitor orientation
A second characteristic of high-tech markets is competitive
dynamism. Competitive dynamism refers to changes in the
competitive landscape: who are your competitors now and
tomorrow, what are their product offerings, and how are
their strategies changing? A competitor orientation is
revealed through the priority placed on in-depth assessment
of a set of existing and potential competitors. As such, the
competitor assessment focuses on understanding targeted
competitors goals, strategies, offerings, resources, and
capabilities (Porter, 1980) and the organization-wide dissemination of the information generated from this assessment (Kohli & Jaworski, 1990). The goal for the business is
to match, if not exceed, competitors strengths.
Technological orientation
Technological uncertainty is the third primary characteristic
and is concerned with the lack of clear standards for new
innovations in a market (Shapiro & Varian, 1999) and with
the speed with which the technology is adopted in a
product-market (Glazer & Weiss, 1993). It is based on not
knowing whether the technologyor the company providing itcan deliver on its promise to meet specific needs
(Moriarty, 1989). Gatignon and Xuereb (1997, p. 78) define
technological orientation as the ability and the will to
acquire a substantial technological background. Technological background refers to the firms technical knowledge. Technology orientation also means that the company
is able to use its technical knowledge to create a new
technical solution in order to address the needs of its
customers. Technology orientation includes behaviors such
as substantial investment in R&D, use of sophisticated
technologies in new product development, rapid integration
of new technologies, and pro-active acquisition of new
technologies and generation of new product ideas.

Market segmentation
Market segmentation is a state of demand heterogeneity
such that the total market demand can be disaggregated into
segments with distinct demand functions. Each firms
definition, framing, and characterization of this demand
heterogeneity will likely be unique and form the basis for the
firms marketing strategy, (Dickson & Ginter, 1987, p. 5).
One approach to segmenting markets for high-tech products is based on the categories of innovation adopters. The
two dominant typologies of innovation adopters are based on
the work of Bass (1969) and Rogers (1995). The major
difference between the two models is that Rogers assumes
that the percentage of adopters in each category is constant

J. of the Acad. Mark. Sci. (2007) 35:517

across innovations while the Bass model is innovation

specific (Mahajan, Muller, & Bass, 1990). This difference
is not germane to our study. Both models (see also Moore,
1991) break adopters into five categories (i.e., innovators,
early adopters, early majority, late majority, and laggards).
The early market for innovative products is comprised of
both innovators and early adopters. Innovators are buyers
who appreciate innovation for its own sake and are
motivated by the idea of being a change agent in their
reference group. They are willing to tolerate initial glitches
and problems that may accompany any innovation just
coming to market and are willing to develop makeshift
solutions to such problems.
Early adopters look to use innovation to achieve a
revolutionary improvement. These buyers are attracted by
high-risk, high-reward projects, and because they envision
great gains from adopting innovation, they are not very
price sensitive. Customers in the early market typically
demand personalized solutions and quick-response, highly
qualified sales and support.
Rather than looking for revolutionary changes, the early
majority is motivated by evolutionary changes to gain
productivity enhancements. They are averse to disruptive
change and, as such, want proven applications, reliable
service, and results. They are the bulwark of the mainstream market.
The late majority are risk averse and technology shy;
they are price sensitive and need completely preassembled,
bulletproof solutions. They adopt innovation just to stay
even and often rely on trusted advisers to help them make
sense of technology.
Finally, laggards prefer only to maintain the status quo.
They tend not to believe that innovation can enhance
productivity and resist new technology purchases. The only
way they might buy is if they believe that all their other
alternatives are worse and that the cost justification is
absolutely solid.
Among the virtues of this model of innovation adoption
is that it enables marketers to think dynamically about
configurations of strategy and behavior, and their influence
on performance (Lambkin & Day, 1989) as we describe in
the next section.

The performance impact of strategic behavior

and market targeting in the context of business strategy
Business strategy is concerned with how businesses pursue
competitive advantage. The two dominant frameworks of
business strategy (Walker & Ruekert, 1987) are the Miles
and Snow typology and the Porter typology. Miles and
Snow (1978) developed a comprehensive framework that
addresses how organizations define and approach their

product-market domains and construct structures and

processes to achieve competitive advantage in those
domains. They identified four archetypes of how firms
address these issues. Prospectors seek to locate and exploit
new product and market opportunities while Defenders
attempt to seal off a portion of the total market to create a
stable set of products and customers. Analyzers occupy an
intermediate position by following Prospectors into new
product-market domains while simultaneously protecting a
stable set of products and customers. A fourth type, the
Reactor, does not have a consistent response to the
entrepreneurial problem. Porter (1980) proposed that
strategy is a product of how the firm creates customer
value (differentiation or low cost) and how it defines scope
of market coverage (focused or market-wide).
Walker and Ruekert (1987) synthesized these frameworks in a typology consisting of Prospectors, Low Cost
Defenders, and Differentiated Defenders. Slater and Olson
(2000, 2001) utilized and found support for the distinction
between Low Cost Defenders and Differentiated Defenders.
However, they also retained the Analyzer strategy type as
numerous studies have demonstrated the validity of this
strategy. Thus, this study utilizes the Slater and Olson
typology. Due to the low proportion of self-reported
Reactors in this study and their lack of a consistent strategy,
we do not consider Reactors in this study (e.g., Miles &
Snow, 1978).
Prospectors
Prospectors are the most proactive and innovative of the
strategy types. Exploration for new opportunities is a
central theme in the literature on innovation (March,
1991). Exploration may take the form of outside-in
processes, that is customer-oriented behaviors, or of
inside-out processes, purely R&D driven innovation.
Merely listening to customers or using traditional research
techniques such as surveys and focus groups can inhibit
innovation, constraining it to ideas that customers can
envision and articulatewhich may lead to safe, but bland,
offerings. Customers are not always able to articulate their
needs. Customers have needs of which they are not aware.
They are real, but not yet in the customers awareness
(Slater & Narver, 1998). Thus, to develop new products,
Prospectors may closely observe customers use of products
or services in normal routines (Leonard & Rayport, 1997).
They also may work closely with lead users who recognize
a need in advance of the majority of the market (Herstatt &
von Hippel, 1992).
An assumption generally subscribed to in evolutionary
economics is that innovations arise from developments in
technological knowledge (Nelson & Winter, 1982). These
technological innovations create new market opportunities

while simultaneously transforming demand in many existing product markets. From this perspective, the market
primarily influences selection among competing technologies and the course of the technology after its inception.
Thus, a technological orientation should be positively
related to success for Prospectors (Miles & Snow, 1978)
since R&D frequently drives development of these radical
innovations (Olson, Walker, & Ruekert, 1995; Walker &
Ruekert, 1987).
Marketers in Prospector firms should be aware of the
technological capabilities of the firm when communicating
with the market while R&D should be customer-oriented
when creating new products as well as developing core
technologies. In addition, when attempting to transform
cutting edge technologies into products or services, Prospectors may not even recognize who their competitors or
potential competitors are. Thus, Prospectors should demonstrate more concern with customers and with technology
that continuously pushes product and market boundaries
than with competitors (Walker & Ruekert, 1987).
As the strategic orientation of Prospectors is to pursue
new product and market opportunities, it follows that they
should target the innovator and early adopter segments.
Buyers in these segments do not require a total solution to
their problems. Prospectors are neither totally effective nor
efficient at developing total customer solutions (Walker &
Ruekert, 1987). Thus, we predict that in Prospector
organizations:
HP A positive relationship exists between (a) customer
orientation and performance, (b) technological orientation
and performance, (c) targeting innovators and performance,
and (d) targeting early adopters and performance.

Analyzers
The key to success for Analyzers is to simultaneously bring
out either improved or less expensive versions of products
introduced by Prospectors while defending core markets
and products. Analyzers (followers) can be as successful as
Prospectors (early entrants) if they learn about customers
preferences from Prospectors successful and unsuccessful
efforts (e.g., Golder & Tellis, 1993) and limit their new
product introductions to categories that have already shown
promise in the market place. Thus, Analyzers should
closely monitor customer reactions to Prospectors offerings as well as competitors activities, successes, and
failures. In other words, while customers are certainly
important to Analyzers, monitoring competitors actions is
also important to the success of Analyzers. Furthermore,
market success for Analyzers is based on imitation rather
than on technological innovation (Miles & Snow, 1978).

J. of the Acad. Mark. Sci. (2007) 35:517

As imitators, Analyzers may observe buyer behavior in

the innovator segment but will not target their offerings to
this segment. However, the knowledge gained by observing
buyer behavior in the innovator segment may inform
product development and marketing efforts in the early
adopter segment. The early adopter segment is where
Prospectors and Analyzers are most likely to compete
head-to-head. Analyzers are also interested in the mainstream market, as represented by the early majority
segment, and have the capability to compete successfully
there (Slater & Olson, 2001). Thus we predict that in
Analyzer organizations:
HA A positive relationship exists between (a) customer
orientation and performance, (b) competitor orientation and
performance, (c) targeting early adopters and performance,
and (d) targeting the early majority and performance.

Low cost defenders

The key to success for Low Cost Defenders is to provide
quality products or services at the lowest overall cost.
While Low Cost Defenders will have less technologically
sophisticated product lines than firms pursuing other
business strategies, technological advances that result in
process innovations are critical to their overall success
(Walker & Ruekert, 1987).
Consistent with their objective of achieving a low cost
position, the external focus of Low Cost Defenders
emphasize is a competitor orientation. Competitors serve
as a benchmark against which prices, costs, and performance can be compared. Low Cost Defenders do not
require a sophisticated customer learning or customer
linking capability because their target market is comprised
of price-sensitive buyers.
Two drivers of low cost are experience effects and
economies of scale. Cost reductions through cumulative
experience are most likely to be achieved by taking
advantage of the experiences of competitors and a high
growth rate. Low Cost Defenders are best able to take
advantage of the experience of Prospectors and Analyzers
after the product technology has matured and standards
have emerged that reduce customer risk. This is most likely
to occur when targeting the early majority segment.
Economies of scale will be achieved through successful
penetration of the mass market, with the early and late
majority segments being the mass market. Thus, we predict
that in Low Cost Defender organizations:
HLCD A positive relationship exists between (a) competitor orientation and performance, (b) technological orientation and performance, (c) targeting the early majority and

J. of the Acad. Mark. Sci. (2007) 35:517

performance, and (d) targeting the late majority and

performance.

Differentiated defenders
The key to success for Differentiated Defenders is to
provide premium service and/or the highest quality
products to market segments that value and are willing
to pay for them. The Differentiated Defenders focus is on
maintaining its position in established (early and late
majority) markets (Walker & Ruekert, 1987). The Differentiated Defenders value proposition is based on a nuanced
understanding of its customers. Differentiated Defenders
are skilled at segmenting the early and late majority
markets to identify those segments that value superior
quality and service (Slater & Olson, 2001). Consequently,
the most successful Differentiated Defenders will emphasize customer-oriented behaviors. While this does not
mean that they ignore competitors or do not engage in
product or service innovation, these are not primary
activities. Thus we predict that in Differentiated Defender
organizations:
HDD A positive relationship exists between (a) customer
orientation and performance, (b) targeting the early majority and performance, and (c) targeting the late majority and
performance.

Research design
Data collection process and the study sample
We focused this study on high-technology manufacturing
and service firms operating in 20 different R&D-intensive
industries as defined by the U.S. Bureau of Labor Statistics,
in SIC categories 20 and 30, to provide a reasonably similar
context for respondents but also to be broad enough for the
results to be generalizable. We purchased a commercial
mailing list of 1,450 senior marketing managers in
businesses with 500 or more employees operating in these
industries. In collecting the data, we followed the guidelines by Huber and Power (1985) on how to obtain high
quality data from key informants. A key informant design is
common in studies of marketing strategy (e.g., Slater &
Olson, 2001; Vorhies & Morgan, 2005) and studies of
strategic behavior (e.g., Day & Nedungadi, 1994; Gatignon
& Xuereb, 1997). Senior marketing managers were selected
as key informants because they should be knowledgeable
about strategic behavior, target markets, business strategy,
and overall firm performance.

Questionnaires were sent to the 1,450 senior marketing

managers along with a personal letter that provided a brief
introduction and a general explanation of the intent of the
study, a questionnaire, and a postage-paid return envelope.
The questionnaire defined the meaning of business unit and
asked each respondent to refer to either the largest SBU in
the organization or the one they were most familiar with
when answering the questions. Four weeks after the initial
mailing, a follow-up mailing was sent out with a duplicate
copy of the questionnaire and a return envelope. We
received 160 usable responses (Prospectors: 55, Analyzers:
45, Low Cost Defenders: 23, Differentiated Defenders: 30,
Reactors: 7) that, after accounting for undeliverables,
constituted a 12% response rate. Approximately two-thirds
of responses were received after the first mailing with the
remaining responses arriving after the second mailing.
Although non-response bias is always a concern in
survey research, this response rate is within the range of
typical response rates for strategic marketing studies (e.g.,
Gatignon & Xuereb, 1997; Homburg & Pflesser, 2000).
Furthermore, significant differences between late responders and early responders would indicate the presence of
non-response bias. We found no significant differences
between early and late responders at the 0.05 level on
fifteen key measures.
As a group, the respondents averaged 22 years working
in their respective industries and 16 years within their
current organizations. In addition, the respondents indicated
an average of 4.68 (on a scale from 1=low to 5=high)
when asked about the extent of their involvement in the
process of formulating marketing strategies; 4.56 when
asked about their knowledge of marketing issues within
their SBU; and 4.33 when asked about their knowledge of
marketing issues within their industry. Thus, the key
informants sampled appear to be knowledgeable regarding
the issues studied in our research.
Description of the measures
All constructs with the exception of strategy type are
measured with multi-item scales (contact the first author for
the measures). The items were placed randomly in the final
instrument to avoid order bias. We employed the Likert
method of summated ratings in scale construction. The
three strategic behavior scales were adapted from established scales, including: customer orientation (Narver,
Slater, & MacLachlan, 2004), competitor orientation
(Narver & Slater, 1990), and technological orientation
(Gatignon & Xuereb, 1997).
Market targeting was measured with five new scales
representing emphasis placed on targeting innovators, early
adopters, early majority, late majority, and laggards.
Following Churchill (1979), we first specified the domain

10

J. of the Acad. Mark. Sci. (2007) 35:517

of the constructs from Rogers (1995) and Moore (1991).

Based on a thorough review of Moore (1991, 1995), Rogers
(1995), and Wiefels (2002), we generated a pool of 54
items that capture the domains of the five constructs. Each
statement was reviewed to insure that its meaning was clear.
We adapted Jaworski and Kohlis (1993) measures of
market turbulence (customer product preference change),
competitive hostility (price competition), and technological
turbulence to control for the effect of industry structure on
performance. Those constructs are measured with three,
two, and five indicators respectively.
We assessed strategy type using the self-typing paragraph approach that is commonly used in strategic
marketing research (e.g., Matsuno & Mentzer, 2000;
Vorhies & Morgan, 2003). Several studies (e.g., Conant,
Mokwa, & Varadarajan 1990; James & Hatten, 1995) have
demonstrated that this is a valid measurement approach. We
use the descriptions from Slater and Olson (2000) to
discriminate between the Low Cost and Differentiated
Defender types. As a check on the validity of the selftyping classification scheme, we analyzed differences in
revenues, customer product preference change and technological turbulence across the strategy types. We expected a
Defender > Prospector ordering for revenues and a
Prospector > Analyzer > Defender ordering for the
environmental variables. We found that Defenders had
greater revenues than Prospectors, a Prospector > Analyzer >
Defender ordering for technological turbulence, and that

customer product preference change was greater for

Prospectors and Analyzers than for Defenders, providing
support for the self-typing approach.
We followed the lead of other marketing strategy
researchers (e.g., Jaworski & Kohli, 1993; Olson et a1.,
1995) and utilized a global measure of firm performance
because of its relevance regardless of the nature of the
contextual influences. As Ittner and Larcker (1997, p.17)
note, overall perceived performance should encompass not
only the organizations performance on the preceding
dimensions (return on assets, return on sales, and sales
growth), but also any other financial and non-financial
goals that may be important to the organization. In a recent
study, Morgan, Kaleka, and Katsikeas (2004) found a
strong correlation between objective performance data and
subjective assessments of performance by key informants,
which supports the validity of perceptual data.
Measurement purification
Tables 1 and 2 report the results of the measurement
analyses. Table 1 summarizes the constructs means,
standard deviations, variances extracted, composite reliabilities, factor loadings as well as the overall CFA models
fit indices. Table 2 reports the correlations and shared
variances among the constructs. Overall, the 12 reflective
scales and their purified 55 items were found to be reliable
and valid in the context of this study.

Table 1 Summary statistics of the measurement analyses (n=160)

Constructs

No. of items
in scale

Mean

Standard deviation

Variance extracted

Composite reliability

Factor loadingsa

Innovators
Early adopters
Early majority
Late majority
Laggards
Customer orientation
Competitor orientation
Technological orientation
Customer product preference
change
Price competition
Technological turbulence
Performance

5
7
9
4
4
3
4
5
3

3.01
3.16
3.64
3.40
3.02
3.59
3.65
3.39
3.24

0.52
0.57
0.57
0.63
0.70
0.62
0.71
0.61
0.67

0.40
0.51
0.60
0.52
0.50
0.46
0.53
0.51
0.35

0.76
0.88
0.90
0.81
0.80
0.72
0.81
0.84
0.61

0.570.77
0.610.78
0.740.86
0.670.76
0.610.88
0.630.74
0.570.88
0.630.82
0.520.70

2
5
4

3.82
3.49
3.49

0.79
0.72
0.84

0.50
0.53
0.63

0.66
0.85
0.87

0.690.72
0.640.85
0.690.88

Fit Statistics:
2 =2,450.06
df=1,364
Delta2=0.91
RNI=0.91
CFI=0.91
TLI=0.91
RMSEA=0.06
a
All factor loadings are significant at the p<0.01 level.

J. of the Acad. Mark. Sci. (2007) 35:517

11

Table 2 Correlations and shared variances (n=160)

I
EA
EM
LM
L
CO
COM
TO
MKT
CH
TECH
PERF

EA

EM

LM

CO

COM

TO

MKT

CH

TECH

PERF

0.42
0.11
0.19
0.32
0.10
0.06
0.33
0.29
0.03
0.10
0.13

0.18

0.20
0.15
0.41
0.27
0.07
0.49
0.26
0.08
0.37
0.46

0.01
0.04

0.21
0.01
0.40
0.41
0.11
0.17
0.03
0.31
0.46

0.04
0.02
0.04

0.45
0.13
0.12
0.06
0.15
0.05
0.04
0.19

0.10
0.17
0.00
0.20

0.10
0.03
0.16
0.21
0.09
0.20
0.01

0.01
0.07
0.16
0.02
0.01

0.47
0.32
0.28
0.02
0.46
0.35

0.00
0.00
0.17
0.01
0.00
0.22

0.20
0.13
0.11
0.31
0.25

0.11
0.24
0.01
0.00
0.03
0.10
0.04

0.35
0.01
0.51
0.29

0.08
0.07
0.03
0.02
0.04
0.08
0.02
0.12

0.34
0.58
0.06

0.00
0.01
0.00
0.00
0.01
0.00
0.01
0.00
0.12

0.28
0.12

0.01
0.14
0.10
0.00
0.04
0.21
0.10
0.26
0.34
0.08

0.11

0.02
0.21
0.21
0.04
0.00
0.12
0.06
0.08
0.00
0.01
0.01

Correlations are included below the diagonal and shared variances are included above the diagonal. All correlations above 0.16 are significant at
p<0.05.

Following the data collection, we tested the dimensionality, reliability, and validity of the scales. Given the
relatively small sample size (n=160) and the battery of
items used to measure the various constructs, we factor
analyzed each construct separately to remove problematic
items and followed with an assessment of the remaining
items in one confirmatory factor analysis using LISREL 8.72
(Jreskog, S. Du Toit, & M. Du Toit, 2000). In removing
items from a scale, we followed suggestions by Anderson
and Gerbing (1988) regarding maintaining conceptual
integrity and explanatory power while also incorporating
statistical considerations associated with reliability and
validity. For the overall CFA we used the DELTA2 (Bollen,
1989), RNI (McDonald & Marsh, 1990), CFI (Bentler,
1990), TLI (Tucker & Lewis, 1973), and RMSEA (Steiger
& Lind, 1980) fit indices to evaluate the measurement
model. This measurement process resulted in us keeping 55
of the 100 original items included in the survey. The refined
set of 55 items resulted in acceptable fit statistics (2 =
2,450.06, df=1,364, DELTA2=0.91, RNI=0.91, CFI=0.91,
TLI=0.91, and RMSEA=0.06; See Table 1 for complete
results). In addition, the 55 items were found to be reliable
and valid when evaluated based on each items error
variance, modification index, and residual covariation (e.g.,
Fornell & Larcker, 1981; Jreskog et al., 2000).
Next, we calculated composite reliability for each scale
using the procedures outlined by Fornell and Larcker (1981).
The composite reliabilities for the 12 scales ranged from 0.61
to 0.90, with factor loadings ranging from 0.52 to 0.88 (p<
0.01) (See Table 1 for complete results). The technological
orientation and customer product preference change scales fell
below the commonly used threshold of 0.70, the innovator and
customer orientation scales fell between 0.70 and 0.80, and the
remaining eight scales were equal to or exceeded 0.80.
We assessed discriminant validity using two different
methods. First, we assessed the average variance extracted

(AVE) for each construct, and verified that the AVE was
higher than the corresponding shared variance for all possible
pairs of constructs (Anderson & Gerbing, 1988). The average
variances extracted ranged from 0.35 to 0.63, and the shared
variances ranged from 0.00 to 0.34 (Tables 1 and 2). Second,
we tested discriminant validity via the test advocated by
Anderson (1987) and Bagozzi and Phillips (1982). In this
test, all pairs of constructs were analyzed in a series of twofactor CFA models. Each model was run twice once
constraining the coefficient to 1.0 and once allowing to
vary freely. Using a 2-difference test on the paired nested
models (Anderson & Gerbing, 1988), we found that the
critical value (2df 1 >3:84) was exceeded in all cases
(the lowest 2df 1 9:38 was found between customer
product preference change and price competition).
We employed a confirmatory factor-analytic approach to
Harmons one-factor test (e.g., Sanchez & Brock, 1996) to
assess whether common method bias (CMB) would
constitute a problem in the testing and interpretation of
the results. The rationale for this test is that if CMB poses a
serious threat, a single latent factor would account for all
manifest variables (Podsakoff & Organ, 1986) as opposed
to the a priori specified measurement model. As such, a
worse fit for the one-factor model means that CMB is not
significant enough to warrant concern (Sanchez, Korbin, &
Viscarra, 1995). In our case, the one-factor model yielded a
2 =4,841.58 with 1,430 degrees of freedom (compared
with the 2 =2,450.06 and df=1,364 for the measurement
model). Thus, CMB is not a serious threat in the context of
this studys use of the measures.

Results
We tested the hypotheses using OLS regression within each
of the four strategy subgroups. This is the preferred

12

J. of the Acad. Mark. Sci. (2007) 35:517

Table 3 Standardized regression results with performance as the criterion variable for the four viable strategy types
Predictor variables

Prospectors
(n=55)

Analyzers
(n=45)

Low cost defenders

(n=23)

Differentiated
defenders (n=30)

Revenues (log)
Customer product preference change
Price competition
Technological turbulence
Customer orientation
Competitor orientation
Technological orientation
Innovators
Early adopters
Early majority
Late majority
Laggards
R2
Adjusted R2
F-value
Effect size

0.06
0.06
0.17
0.05
0.09
0.09
0.25**
0.33**
0.28**
0.21**
0.05
0.03
0.80
0.73
11.76**
>0.99**

0.01
0.11
0.08
0.22
0.01
0.12*,a
0.15
0.16
0.46**
0.40**
0.13
0.19
0.75
0.64
6.40**
>0.99**

0.29
0.47*
1.03**
0.30*
0.03
0.52**
1.17**
0.18*
0.23*
0.48**
0.39*,b
0.91**
0.96
0.89
13.16**
>0.99**

0.20
0.03
0.20*
0.02
0.55**
0.00
0.10
0.00
0.28*
0.43**
0.20*,a
0.27*
0.90
0.82
10.70**
>0.99**

**

p<0.01, * p<0.05. Reactors (n=7) were excluded from the overall analysis. One-tailed tests were used for directional relationships and twotailed tests were used for all others relationships. The effect size (i.e., power of each subgroup model) was determined using the procedures by
Cohen et al. (2003, p. 92); for each subgroup, we find adequate statistical power in the samples to conduct the analysis of the included variables.
a
redundancy effect
b
net suppressor effect

technique when the moderator variable is categorical

(Sharma, Durand, & Gur-Arie, 1981). One-tailed tests were
used for the directional hypotheses and two-tailed tests
were used for all other relationships.
Given that each subgroup has a relatively small sample
size, we conducted a power analysis, as suggested by J.
Cohen, P. Cohen, West, and Aiken (2003), to determine the
probability of finding the sample R2 to be greater than zero
with =0.01 for each strategy type. We achieved excellent
statistical power (>0.99, p<0.01) in each subgroup as
well as in the overall sample (R2-range: 0.750.96;
Adjusted R2-range: 0.640.89; see Table 3). However, the
power to detect a significant relationship at the variable
level is considerably lower due to the small subgroup
samples. Thus, we use p0.10 as our Type I error rate
instead of the more conservative p0.05 Type I error rate.
We believe this strikes a reasonable balance between
committing a Type I error and a Type II error (Sawyer &
Ball, 1981).
Additionally, for all models, the Variance Inflation
Factors (VIF) were lower than 10.0 except for the price
competition variable (VIF=10.70) and the technological
orientation variable (VIF=12.49) in the low-cost defender
model. Thus, multicollinearity does not appear to systematically affect variables in the models.
Prospectors In the analysis of the Prospector model, we
found positive effects of technological orientation (=0.25,

t=2.22, p<0.05), targeting innovators (=0.33, t=2.63, p<

0.05), and targeting early adopters (=0.28, t=2.27, p<
0.05) on performance. We also found a negative effect of
targeting the early majority (=0.21, t=3.49, p<0.05) on
performance, a relationship that was not hypothesized.
Overall, the model had an adjusted R2 =0.73. Thus, HPb,
HPc, and HPd could not be rejected in the analysis.
Analyzers In the analysis of the Analyzer model, we found
positive effects of targeting early adopters (=0.46, t=3.08,
p<0.01) and targeting the early majority (=0.40, t=2.51,
p<0.01). Although the regression results for Analyzers
indicate that competitor orientation is not a significant
predictor of performance, this is actually a classic case of
redundancy. Each semi-partial correlation, and the
corresponding is less than the simple correlation between
competitor orientation and performance. This is because
competitor orientation and targeting the early majority share
variance and influence. Cohen et al.s (2003) recommended
solution to the problem of describing an IVs participation
in determining R is given by the partial correlation
coefficient and its square. In this case, the squared partial
correlation between competitor orientation and performance
after controlling for the influence of all IVs with the
exception of targeting the early majority is 0.15 which is
statistically significant (p<0.05). Overall, the model had an
adjusted R2 =0.64. Based on the analysis, we cannot reject
HAb, HAc, or HAd.

J. of the Acad. Mark. Sci. (2007) 35:517

Low Cost Defenders In the analysis of the Low CostDefender model, we found negative relationships between
customer product preference change (=0.47, t=2.36, p<
0.05) and performance, and between price competition (=
1.03, t=4.06, p<0.01) and performance, and a positive
relationship between technological turbulence (=0.30, t=
2.24, p<0.05) and performance. The signs of the coefficients for competitor orientation (=0.52, t=3.74, p<
0.01) and technological orientation (=1.17, t=4.05, p<
0.01) were positive and significant. We found positive and
significant relationships between targeting the early majority ( = 0.48, t = 4.02, p < 0.01) and performance, and
between targeting laggards (=0.91, t=4.62, p<0.01) and
performance. The coefficient for targeting the late majority
was negative and significant (=0.39, t=1.60, p<0.10).
However, this seems to be a classic example of net
suppression where targeting the late majority is positively
correlated with performance (r=0.81, p<0.01), but has a
negative regression coefficient. In this case, the squared
partial correlation between targeting the late majority and
performance after controlling for the influence of all IVs
with the exception of targeting the early majority and
targeting laggards is 0.33 which is statistically significant
(p<0.05). Overall, the model had an adjusted R2 =0.89.
Given these results, HLCDa, HLCDb, and HLCDc could
not be rejected in the analysis, and we do not reject HLCDd
given the results of the partial correlation analysis.

Differentiated defenders In the analysis of the DifferentiatedDefender model, we found a negative relationship between
price competition (=0.20, t=1.82, p<0.10), and positive
relationships between customer orientation (=0.55, t=
3.84, p<0.01) and performance, and between targeting the
early majority (=0.43, t=2.46, p<0.05) and performance.
We found no relationship between targeting the late
majority and performance. However, as was the situation
with Analyzers, this too seems to be a case of redundancy.
When we computed the squared partial correlation between
targeting the late majority and performance after controlling
for the influence of all IVs with the exception of targeting
the early majority, we found a value of 0.36 which is
significant (p<0.05). We also found a negative effect of
targeting laggards (=0.27, t=2.11, p<0.05). Overall, the
model had an adjusted R2 =0.82. Thus, HDDa, HDDb, and
HDDc could not be rejected in the analysis.
Before discussing the findings, we address some caveats
regarding this study. First, the study utilizes a crosssectional design; thus, inferences about causality should
not be drawn. Second, we utilize a single respondentkey
informantdesign. Ideally, we would obtain responses
from multiple informants in each SBU. However, based
on our analysis, common method variance does not seem to

13

be a threat to the internal validity of the study. Third, while

the response rate is within the typical range for studies such
as this and non-response bias does not seem to be a
problem, we clearly would have preferred a higher response
rate. Despite these limitations, this study provides useful
guidance to scholars and managers regarding appropriate
strategic behavior and target market selection in the high
tech sector.

Discussion and implications

The results of this study are quite intriguing for several
reasons. First, we find support for 13 out of our 15
hypotheses. Second, the explanatory power of the models
is quite high with the adjusted R2 for each subgroup at or
above 0.60. Third, market targeting which, to the best of
our knowledge, has not been studied empirically, adds
significantly to the explanatory of the models. Finally, the
pattern of results for each strategy type holds some
surprises which we discuss now.
The most interesting results from the Prospector analysis
were the findings of no relationship between customer
orientation and performance and a negative relationship
between targeting the early majority and performance.
Previous research has found a significant and positive
relationship between customer orientation and performance
for Prospectors (Olson, Slater, & Hult, 2005). Why is it that
we find no such relationship in this study of firms
competing in high-tech markets?
One possibility is that a customer orientation improves
performance only in markets where demand uncertainty is
high but detracts from performance when demand uncertainty is low as found by Gatignon and Xuereb (1997). To
determine whether uncertainty moderates the customer
orientationperformance relationship for Prospectors, we
conducted a post hoc analysis. After mean centering the
variables, we computed a multiplicative interaction term for
customer orientation and customer product preference
change. We then regressed performance on the original set
of independent variables plus the interaction term. We
found a positive relationship between the interaction term
(=0.21, t=2.18, p<0.05) and performance. R2 increased
by 2.4%, significant at p<0.05 (F change=4.74). Thus, a
customer orientation appears to be positively related to
performance for Prospectors when uncertainty is high.
The finding of a negative relationship between targeting
the early majority and performance is consistent with
Moores (1991) proposition that innovative firms (i.e.,
Prospectors) have difficulty crossing the chasm between
the early adopter and early majority market segments. The
chasm exists because critical differences between the early

14

adopter and early majority segments cause them to adopt at

different rates, make cross-market segment communication
extremely difficult regarding technological innovations,
and, more critically, the marketing strategies firms use to
effectively reach the early market for technology innovations do not address the very different needs of the mainstream market. Thus, Prospectors who excel at exploiting
new product and market opportunities, have a difficult time
reaching out to more mainstream customers to successfully
commercialize their technological innovations.
What then are the implications for managers of Prospector businesses? First, they should place a high priority
on developing customer sensing and relating capabilities,
staying ahead or abreast of technological developments and
using these to supply new technology based solutions for
their customers expressed and latent needs. While our
results indicate that customer orientation is related to
performance only in markets characterized by a high degree
of market preference change, this makes perfect sense from
a positive feedback perspective.
When there is high rate of change in customer preferences, customer orientation involving willingness to experiment, market sensing capabilities and fast implementation
skills increase and as they increase they drive even more
changes in customer preferences (Dickson, 1992). But even
in times of relative market calm it is in the Prospectors best
interests to prepare for market change by developing and
maintaining customer sensing and relating capabilities (e.g.,
DAveni, 1994). Dickson et al., (2001) precisely describe
such a major prospecting dynamic, how a within firm market
surveillance feedback effect can lead to increasing returns on
investment in market sensing rather than decreasing returns.
Good Prospectors get ever better at prospecting. But the
momentum of the customer sensing capability needs to be
maintained because if it starts to slip the feedback effect will
drive it down (see Dickson et al., 2001, Figure 3).
Second, managers of Prospector companies might draw
on the lessons of the evolutionary economics simulation
literature (Nelson & Winter, 1982). Nelson and Winter
found that most of the time, imitators with major collateral
distribution assets and brand reputation come to dominate
their more innovative rivals. The imitator analyzes the
innovators success and the more quickly the innovators
advantage can be imitated (and appropriated) by the larger
firm that can rapidly diffuse their imitation across the
market at low cost, the faster the larger analyzer with
marketing collateral assets in place wins out (see Nelson &
Winter, 1982). The Analyzer and Prospector in our study
are equivalent to Nelson and Winters Imitator and
Innovator companies in their simulations. If the Analyzer
almost always beat the Prospector because of competitive
dynamic advantages then it makes sense for a Prospector to
combat the Analyzers collateral asset advantages through a

J. of the Acad. Mark. Sci. (2007) 35:517

business alliance of some form, but most particularly one

that reaches and penetrates the early majority and late
majority market.
The most surprising result for Analyzers is that customer
orientation is not significantly related to performance.
Again, previous research has found a significant and
positive relationship between customer orientation and
performance for Analyzers (Olson et al., 2005). Why is it
that we find no such relationship in this study of firms
competing in high-tech markets? It may be that Analyzers
do not benefit from a customer orientation because they
derive sufficient benefit from copying the successful efforts
of Prospectors.
Aside from developing strong competitor analysis capabilities, what should managers in Analyzer firms do to enhance
their chances for success? First, they should recognize that the
early majority is comprised of many segments and identify the
best beachhead (Moore, 1995), the target market from
which to pursue the mainstream market. A good beachhead
requires that customers have a single, compelling, must
have reason to buy that can be addressed by the capabilities
of the firm. Marketing capabilities of successful Analyzers
relative to Prospectors include (Slater & Olson, 2001) ability
to offer lower prices, intensive distribution, and a lesser
emphasis on product innovation.
Low Cost Defenders are successful in the early majority,
late majority, and laggard markets that are characterized by
increasing emphasis on price competition. They are able to
offer lower prices than businesses employing other strategies (Slater & Olson, 2001) because of their internal/cost
orientation (Olson et al., 2005), their competitor orientation
that allows them to benchmark their value chains, and their
technology orientation that leads to process improvement.
Moreover, the most successful Low Cost Defenders have
the lowest marketing expenses due to placing the lowest
emphasis on marketing research, product innovation,
promotion, and distribution management of all of the
strategy types (Slater & Olson, 2001).
As we hypothesized, success for Differentiated Defenders is associated with a customer orientation, and with
targeting the early and late majority markets. The most
successful Differentiated Defenders conduct extensive
marketing research to identify the market segments that
value innovative products and services and that are willing
to pay premium prices for them. They promote their
products/services extensively and use an internal sales
force to control their message (Slater & Olson, 2001). Not
surprising is the finding of a negative relationship between
targeting laggards and performance. Laggards are technology skeptics who prefer to maintain the status quo and
purchase only when they believe that the cost justification
is absolutely solid. Thus, they would be unlikely to pay the
premium prices that Differentiated Defenders require.

J. of the Acad. Mark. Sci. (2007) 35:517

Suggestions for future research

It is difficult to study market dynamics in a cross-sectional
study. Our research design, data, and analytical approach
could be interpreted as our suggesting that all of the categories
of innovation adopters and strategy types will exist simultaneously in a market. However, the evolutionary perspective to
which we subscribe argues that by the time Defenders enter a
market, Prospectors will either have morphed into a different
strategy type or will have moved into adjacent markets or
developed new products that make new markets. In that case,
there exist two technology standards that compete against
each other. In this case, Prospectors who represent the new
technology will be competing against Defenders who represent the old technology. However, our objective is not to
predict the path of market evolution but to provide insight into
the predictors of success for the different strategy types. The
next phase in this research stream would utilize archival data
to study these phenomena as a market develops and matures
(e.g., Christensen, 1997).
Another issue is whether the Miles and Snow typology is
a valid vehicle for studying these types of phenomena. On
the one hand, several studies (e.g., James & Hatten, 1995;
Slater & Olson, 2001) have provided evidence of the validity of this classification scheme. A refinement that might
increase the validity of the typology would be to view the
response to the entrepreneurial problem in two dimensional
space instead the Prospector, Analyzer, Defender continuum of adjustment strategies (Miles & Snow, 1978, p. 68).
The second dimension would closely parallel learning strategies. The first learning strategy emphasizes learning through
exploration and experimentation. The second strategy emphasizes vicarious learning, learning by observing and analyzing
rivals and their successes and failures. The third strategy
emphasizes learning through exploitation manifested as
continuous improvement based a succession of incremental
improvements (e.g., March, 1991). While all three of these
learning strategies are essential for organizations, they
compete for scarce resources. Consequently, managers make
explicit and implicit choices among them based on their
perceived value to the organization. Thus, a revised typology
would be based on the interaction between adjustment
strategy and learning strategy. Testing the validity of this
approach to organizational classification would represent the
first substantial refinement to the typology since Walker and
Ruekert (1987).1

15

situations (e.g., success with early market customers). For

example, Prospectors are the most likely to possess the
resources and capabilities to develop the radical innovations
that address needs in the innovator and early adopter
segments. Conversely, Analyzers and Defenders are more
likely to develop incremental and process innovations that
enable them to address mainstream market needs.
However, to be successful across a range of innovations
(both radical and incremental, and product and process),
firms must diversify their skill sets. In essence, the
capability to develop contradictory skill sets is what will
allow Prospectors to successfully cross the chasm and allow
Analyzers and Defenders to overcome the innovators
dilemma (Christensen, 1997). Specifically, for Prospectors
to cross the chasm and move into mainstream markets, they
must develop Analyzer-like marketing capabilities and
strive for cost reductions, or partner with firms that already
possess those capabilities. And for Analyzers and Defenders
to successfully develop and commercialize radical innovations, they must develop some of the marketing and
technological resources and capabilities of Prospectors, and
be willing to cannibalize sales from existing product lines.
At first glance this recommendation might be construed
as simply a call for the elimination of a unique strategy.
After all, if all groups share the same skill sets what is there
to differentiate their approach to achieving sustainable
competitive advantage? But this interpretation would be
incorrect. Rather, this recommendation focuses on the
evolution of strategy. Just as todays high technology
offerings spawn tomorrows mass-marketed generics,
todays skills in bringing innovative ideas to the market
must give way to tomorrows need to generate cost
efficiencies and expand distribution and customer appeal.
While, it is beyond the scope of this study to determine
how that process is best pursued, the strength of the
findings in this study serve to suggest that future research
into the relationship between innovation adoption and
strategy evolution is warranted.
Acknowledgement The authors gratefully acknowledge the support
of the Center for International Business Education and Research at
Michigan State University (MSU-CIBER) and the College of Business
Administration at University of ColoradoColorado Springs for
financial assistance. We also acknowledge the many helpful comments
and suggestions of two anonymous reviewers.

Conclusion

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We are grateful to a reviewer for suggesting this refinement.

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