Marketing's contribution

to business strategy:
March 2000
market orientation,
relationship marketing
and resource-advantage
theory
Shelby D. Hunt and C. Jay Lambe

Although overlooked to some degree by non-marketing disciplines, the discipline of

marketing has contributed significantly to the body of knowledge on business strategy over
the last two decades. This paper evaluates these contributions, examines how they
complement dominant non-marketing theories of business strategy, and shows how
marketing offers a generalized theory of competition that integrates the concepts of both
marketing and non-marketing theories of business strategy.

Shelby D. Hunt and C. Jay
Lambe are from the
Department of Marketing,
Texas Tech University,
Lubbock, TX 79409, USA.
ß Blackwell Publishers Ltd 2000,
108 Cowley Road, Oxford OX4
1JF, UK and 350 Main Street,
Malden, MA 02148, USA
Modern business strategy traces to the works
of Kenneth Andrews and his colleagues at
Harvard on administrative policy (Andrews
1971, 1980, 1987; Christensen et al. 1982;
Learned et al. 1965). Viewing business
strategy as the match a business makes
between its internal resources and skills and
the opportunities and risks created by its
external environment, they developed the
SWOT framework: strengths, weakness,
opportunities, threats. In this framework, the
chief executive officer is in charge of the
process of strategy formation and the main
task of corporate-level strategy is identifying
businesses in which the firm will compete
(Andrews 1971).
Since the development of the SWOT model
of business strategy, an enormous literature on
strategy and strategic planning has developed,
much of which has appeared in Strategic
Management Journal, Journal of Business
Strategy, Long Range Planning, and Journal
of Strategic Marketing, among others. Modern
business strategy maintains that the strategic

International Journal of Management Reviews Volume 2 Issue 1 pp. 17–43 17

Marketing's imperative of a firm should be sustained,
contribution to superior financial performance and the belief
business strategy that this goal can be achieved through a
sustainable competitive advantage in the
marketplace (Aaker 1997; Barney 1991;
Bharadwaj et al. 1993; Cecil and Goldstein
1990; Coyne 1985; Day 1984; Day and
Nedungadi 1994; Day and Wensley 1988;
Ghemawat 1986; Lado et al. 1992; Porter
1985; Reed and DeFillippi 1990). Superior
profitability is based on achieving competitive
advantage in the form of unique skills and
resources that allow a firm to implement busi-
ness strategies superior to those of their
competitors (Barney 1991). When these
advantages are resistant to erosion by
competitors’ efforts, firms achieve sustainable
competitive advantage (Porter 1980).
Contributions to modern business strategy
have come from a broad range of disciplines,
including economics, strategic management,
organizational behavior and operations
management (Lewis and Gregory 1996). The
field of marketing has also contributed to
modern business strategy, but many argue that
its influence here has been marginalized
(Homburg et al. 1999). This is surprising
since marketing would seem to be a discipline
that would have much to offer because it ‘‘is
uniquely able to assess customer needs and the
firm’s potential for gaining competitive
advantage’’ (Wind and Robertson 1983, 12),
and in the business world marketing wields
considerable influence in the development
and implementation of business strategy
(Homburg et al. 1999). Varadarajan and
Jayachandran (1999, 121) note, ‘‘The market-
ing function in organizations, besides being
responsible for the content, process and
implementation of marketing strategy at the
product-market level, plays an important role
in the strategy formulation process and the
determination of strategy content at the
business and corporate levels.’’
Since marketing practice strongly influ-
ences business strategy, why has marketing
academe contributed so little to the study of
ß Blackwell Publishers Ltd 2000 business strategy? Perhaps it is a matter of
18
perspective. Some argue that the non-
marketing literature on business strategy has
simply failed to incorporate research that has
appeared in marketing journals (Day et al.
1990). In contrast, others argue that marketing
itself is to blame. Hunt (1994, 15) maintains
that marketing academics have contributed to
the ‘‘tactical’’ emphasis of marketing inquiry
by defining marketing as an ‘‘applied’’
discipline:
the notion that marketing is an applied discipline
implies for many journal reviewers that
marketing’s ‘‘job’’ is to take concepts, frameworks
and theories from other ‘‘more basic’’ disciplines
and then apply them to marketing. Stated
succinctly, the norm is ‘‘new to marketing, but
not new elsewhere.’’ With such a norm, the
absence of original contributions to the strategy
dialogue (or any other dialogue) is unsurprising.
Regardless, the functional silos that appear
to exist with respect to the study of business
strategy decrease the efficiency with which
the body of knowledge grows. Day et al.
(1990, xxi) note that there should be a
better dialog between those interested in strategic
management issues and those interested in
marketing. Strategic management and marketing
researchers need to have more opportunity to
consider how methodologies and substantive
research developed and applied in the marketing
domain can be used to investigate strategic issues.
Thus, this article begins to close the dis-
ciplinary gap by examining some of market-
ing’s complementary and unique contributions
to the study of business strategy. We begin by
reviewing the three dominant theoretical
approaches to modern business strategy: (1)
industry-based theory, (2) resource-based
theory, and (3) competence-based theory.
Next, we briefly discuss the evolution of
research on marketing strategy. Then, we
review three research streams in marketing
and show how they offer complementary, and
in some cases unique, contributions to
industry-based, resource-based and com-
petence-based theories. The three marketing
research streams that we examine are market
orientation, relationship marketing and
resource-advantage theory.
Industry-based, Resource-based and
Competence-based Business Strategy
Theories
To provide a background against which
marketing’s contribution to modern business
strategy may be explored, we overview the
three theories of modern business strategy that
appear to dominate current thinking. Since the
purpose of reviewing these theories is to
provide a platform to examine marketing’s
contribution to modern business strategy, our
review is brief, not exhaustive.
Industry-based Theory
Bain’s (1954, 1968) books, when joined with
the works of Mason (1939), form the basis of
industrial-organization economics (IO) and its
SCP model, which maintains that industry
Structure determines Conduct, which
determines Performance. Because barriers to
entry enable firms in concentrated industries
to collude, superior financial performance
results from collusion and the exercise of
monopoly power in such industries. For IO
theory, public policy should be aimed at
decreasing the monopoly element in
concentrated industries by restricting mergers,
breaking-up large corporations, and reducing
barriers to entry.
The industry-based (I-B) theory of strategy,
as exemplified by Porter (1980, 1985), turns
IO economics ‘‘upside down’’ (Barney and
Ouchi 1986, 374). If superior financial per-
formance results primarily from industry
factors, choosing the industries in which to
compete and/or altering the structure of
chosen industries to increase monopoly power
should be the focus of strategy:
Present research [i.e. Schmalensee (1985)]
continues to affirm the important role industry
conditions play in the performance of individual
firms. Seeking to explain performance differences
across firms, recent studies have repeatedly
shown that average industry profitability is, by
far, the most significant predictor of firm
performance . . . In short, it is now uncontestable
that industry analysis should play a vital role in
strategy formation. (Montgomery and Porter
1991, xiv–xv)
Porter’s (1980) ‘‘five forces’’ framework March 2000
maintains that the profitability of a firm in an
industry is determined by (1) the threat of new
entrants to the industry, (2) the threat of
substitute products or services, (3) the
bargaining power of its suppliers, (4) the
bargaining power of its customers, and (5) the
intensity of rivalry among its existing
competitors. These forces constitute industry
competition, which ‘‘continually works to
drive down the rate of return on invested
capital toward the competitive floor rate of
return, or the return that would be earned by
the economist’s ‘perfectly competitive’
industry’’ (Porter 1980, 5). Because, however,
‘‘a firm is not a prisoner of its industry’s
structure’’ (Porter 1985, 7), strategy should
aim at altering industry structure by raising
barriers to entry and increasing one’s
bargaining power over suppliers and
customers.
After choosing industries and/or altering
their structure, Porter (1980) advocates
choosing one of three ‘‘generic’’ strategies:
(1) cost leadership, (2) differentiation or (3)
focus. That is, superior performance can result
from a competitive advantage brought about
by a firm, relative to others in its industry,
having a lower cost position, having its
offering being perceived industry-wide as
being unique, or having a focus on one
particular market segment and developing a
market offering specifically tailored to it.
Although it is possible to pursue successfully
more than one strategy at a time, ‘‘usually a
firm must make a choice among them, or it
will become stuck in the middle’’ (Porter
1985, 17). ß Blackwell Publishers Ltd 2000
19
Marketing's Internal factors come into play, argues Resource-based Theory
contribution to Porter (1985), only after the firm chooses
Contrasted with the external focus of I-B
business strategy one of the three generic strategies.
theory, resource-based (R-B) theory focuses
Specifically, he argues that the firm should
on internal factors to explain business
implement its strategy by managing well the
strategy. Resources are ‘‘any tangible or
activities in its ‘‘value chain’’. Indeed, ‘‘[t]he
intangible entity available to the firm that
basic unit of competitive advantage . . . is the
enables it to produce efficiently and/or
discrete activity’’ (Porter 1991, 102). If value
effectively a market offering that has value
is defined as ‘‘what buyers are willing to
for some market segment(s)’’ (Hunt and
pay’’, then ‘‘superior value stems from
Morgan 1995, 11). Examples of resources
offering lower prices than competitors for
include distribution networks, manufacturing
equivalent benefits or providing unique
capabilities, research and development
benefits that more than offset a higher price’’
capabilities, and employees with special skills.
(Porter 1985, 4).
The fundamental thesis of R-B theory is that
Activities in the firm’s value chain are
resources (to varying degrees) are both
categorized as either primary or support.
significantly heterogeneous across firms and
Primary activities include inbound logistics,
imperfectly mobile. Resource heterogeneity
operations, outbound logistics, marketing and
means that each and every firm has an
sales, and service. Support activities include
assortment of resources that is at least in
procurement, technology development
some ways unique. Imperfectly mobile
(improvement of product and process), human
implies that firm resources, to varying
resource management, and firm infrastructure
degrees, are not commonly, easily, or readily
(e.g. general management, planning, finance).
bought and sold in the marketplace (the
Doing these activities well improves gross
neoclassical factor markets). Because of
margin, promotes competitive advantage, and
resource immobility, resource heterogeneity
thereby produces superior financial perform-
can persist through time, despite attempts by
ance.
firms to acquire the same resources of
Being masterfully crafted, filled with pre-
particularly successful competitors.
scriptions for strategists, and based on a theory
As does the evolutionary theory of the firm
of competition that has guided public policy
(Foss 1993), R-B theory in business strategy
for decades, the I-B theory advocated by
traces to the long-neglected work of Penrose
Porter’s (1980, 1985) works has been very
(1959). Consciously avoiding the term ‘‘factor
influential on business strategy. However,
of production’’ because of its ambiguity, she
because (1) empirical studies show that highly
viewed the firm as a ‘‘collection of productive
concentrated industries are no more profitable
resources’’ and pointed out that ‘‘it is never
than their less concentrated counterparts
resources themselves that are the ‘inputs’ to
(Buzzell et al. 1975; Gale and Branch 1982;
the production process, but only the services
Ravenscraft 1983) and (2) similar studies
that the resources can render’’ (pp. 24–25;
show that the industry market share-
italics in original). Viewing resources as
profitability relationship is spurious (Jacobson
bundles of possible services that an entity
1988; Jacobson and Aaker 1985), many
can provide, ‘‘It is the heterogeneity . . . of the
business strategy theorists have questioned
productive services available or potentially
the external-only focus of I-B theory. In
available from its resources that gives each
particular, those arguing for resource-based
firm its unique character’’ (pp. 75, 77).
theory focus on the primacy of firms’
Therefore, contrasted with the neoclassical
heterogeneous and imperfectly mobile
notion of an optimum size of firm, ‘‘the
resources.
expansion of firms is largely based on
ß Blackwell Publishers Ltd 2000

20
opportunities to use their existing productive
resources more efficiently than they are being
used’’ (p. 88).
Works drawing on Penrose (1959) to
explicate R-B theory include the seminal
articles of Lippman and Rumelt (1982),
Rumelt (1984) and Wernerfelt (1984) in the
early 1980s. They were followed by the efforts
of Barney (1991, 1992), Conner (1991) and
Dierickx and Cool (1989) to articulate further
the nature and foundations of the theory. Since
then, tests, applications and implications of R-
B theory have been developed by Barney and
Hansen (1994), Black and Boal (1994),
Brumagim (1994), Collis (1991, 1994), Collis
and Montgomery (1995), Conner and Prahalad
(1996), Grant (1991), Lado and Wilson
(1994), Madhok (1997), Mahoney and
Pandian (1992), Miller and Shamsie (1996),
Montgomery (1995), Peteraf (1993), Pringle
and Kroll (1997), Schendel (1994),
Schoemaker and Amit (1994) and Schulze
(1994).
Barney (1991, 1992) develops R-B concepts
and their interrelationships in greater detail
than had hitherto been done. First, he defines
firm resources to ‘‘include all assets,
capabilities, organizational processes, firm
attributes, information, knowledge, etc.,
controlled by a firm that enable the firm to
conceive of and implement strategies that
improve its efficiency and effectiveness’’
(Barney 1991, 101). (Note that his definition
is very broad and focuses on an entity’s ability
to efficiently and/or effectively create value.)
He points out that if all firms in an industry
have homogeneous, perfectly mobile
resources, then all firms will implement the
same strategies equally well and no firm can
have a competitive advantage. Therefore, only
resources that are heterogeneous, imperfectly
mobile and asymmetrically distributed
amongst rivals, i.e. are rare, can generate
competitive advantage and superior financial
performance.
Second, Barney (1991) points out that
heterogeneity and immobility alone do not
guarantee it sustained competitive advantage.
Sustainability occurs only when rivals find it
difficult both to imitate the competitive
advantage-producing resource and develop or
acquire strategic substitutes for it. Imperfect
imitability results from (1) unique historical
circumstances (e.g. buying a piece of property
that later provides a locational advantage), (2)
causally ambiguous resources, and (3) socially
complex resources.
Third, Barney (1992, 45) describes socially
complex resources as those ‘‘that enable an March 2000
organization to conceive, choose, and
implement strategies because of the values,
beliefs, symbols, and interpersonal relation-
ships possessed by individuals or groups in a
firm’’. Examples include organizational
culture, trust, reputation among customers
and managerial teamwork. As to physical
technology, it is customarily imitable. How-
ever, the ability to exploit physical technology
often involves socially complex phenomena,
e.g. social relations and/or a culture, that is
imperfectly imitable. Hence, the exploitation
of physical technology can often sustain a
competitive advantage. Barney (1991)
concludes by introducing a social welfare
issue:
The resource-based model developed here
suggests that, in fact, strategic management
research can be perfectly consistent with
traditional social welfare concerns of economists.
Beginning with the assumptions that firm
resources are heterogeneous and immobile, it
follows that a firm that exploits its resource
advantages is simply behaving in an efficient and
effective manner . . . To fail to exploit these
resource advantages is inefficient and does not
maximize social welfare. (p. 116)
Conner (1991) reviews R-B theory and
concludes that it is similar to I-B theory in
that both view persistent, above-normal
returns to be possible. R-B theory differs,
however, in that (1) restraints on output
through monopolistic or collusive action or
artificial entry barriers are not primary sources
of superior performance, (2) the firm (not the ß Blackwell Publishers Ltd 2000
21
Marketing's industry) is the appropriate unit of analysis for
contribution to understanding superior performance, and (3)
business strategy industry structure does not determine firm
behavior. Compared with Schumpeter (1950),
similarities are that (1) superior performance
can result from new ways of competing, (2)
entrepreneurship is important, and (3)
potential imitators always exist. R-B theory
differs from Schumpeter, however, in that (1)
imitators are constrained by difficult-to-copy
resources and (2) superior performance can
result from less than ‘‘revolutionary’’
innovations.
Perhaps the greatest limitation of R-B
theory is that it only partially accounts for
how firms can develop strategies that allow
them to exploit their individual resources
(Lewis and Gregory 1996). The lack of a
‘‘bridge between resources (defined very
broadly) and strategy’’ leaves an incomplete
model for ‘‘explaining firm success, growth,
failure’’ (Lewis and Gregory 1996, 146).
Therefore, a holistic internal explanation of
business strategy requires a complementary,
dynamic, internal theory of business strategy.
Such a theory, many argue, is competence-
based strategy.
Competence-based Theory
A second ‘‘internal factors’’ theory of
business strategy is competence-based (C-B)
theory, which complements R-B theory
because it explains how firms develop
‘‘strategies to exploit these . . . [resources
and], consideration has been given to their
idiosyncratic nature, the links between them
and the activities that utilize them’’ (Rumelt
1984). The term ‘‘distinctive competence’’
traces to Selznick (1957) and was used by
Andrews (1971) and his colleagues in the
SWOT model to refer to what an organization
could do particularly well, relative to its
competitors. However, with the emphasis on
formal strategic planning and portfolio
analysis in the 1960s and 1970s, and on
external (industry) factors in the 1980s,
ß Blackwell Publishers Ltd 2000 attention to what individual firms could do
22
particularly well – or even acceptably –
languished. (Notable exceptions include Hofer
and Schendel’s (1978) discussion of com-
petences as patterns of resource and skill
deployment and the empirical works of Snow
and Hrebriniak (1980) and Hitt and Ireland
(1985, 1986) on activities within functional
areas as sources of competence.)
Stimulating the development of C-B theory
in the early 1990s were the works of Chandler
(1990), Hamel and Prahalad (1989, 1994a,b),
Lado et al. (1992), Prahalad and Hamel (1990,
1993), Reed and De Fillippi (1990) and Teece
and Pisano (1994). Numerous theoretical and
empirical articles have been developing C-B
theory (Aaker 1997; Bharadwaj et al. 1993;
Day and Nedungadi 1994; Hamel and Heene
1994; Heene and Sanchez 1996; Sanchez and
Heene 1997; Sanchez et al. 1996). For
example, Prahalad and Hamel (1990, 81)
argue that ‘‘the firm’’ should be viewed as
both a collection of products or SBUs and a
collection of competences because ‘‘in the
long run, competitiveness derives from an
ability to build, at lower cost and more
speedily than competitors, the core competen-
cies that spawn unanticipated products’’. Core
competences (1) provide access to a wide
variety of markets, (2) make a significant
contribution to customers’ perceptions of
benefits, and (3) are difficult for rivals to
imitate. It is from core competences that both
core products and ultimate, end products
emerge. Because core competences, unlike
physical assets, do not deteriorate with use but
are enhanced as they are applied and shared,
top management should foster strategic
innovations and growth by sending a message
to middle managers: ‘‘the people critical to
core competencies are corporate assets to be
deployed by corporate management’’
(Prahalad and Hamel 1990, 90).
C-B theorists argue that their theory is a
logical extension of R-B theory. Lado et al.
(1992), building on Reed and De Phillippi
(1990), suggest that it is managerial
competences and strategic focus that lead to
the development of R-B, output-based and
transformation-based competences. These
competences ‘‘do not merely ‘accrue’ to the
firm (from a good ‘fit’ with industry/
environmental requirements), but may
consciously and systematically be developed
by the willful choices and actions of the firm’s
strategic leaders’’ (p. 78). Therefore,
‘‘achieving and sustaining a competitive
advantage position requires that managers
focus on developing and nurturing their firms’
idiosyncratic competencies that inhibit
imitability’’ (p. 88). By the early 1990s, most
theorists in business strategy acknowledged
that R-B theory and C-B theory were
complementary. Indeed, as one of their
‘‘starting premises’’, Hamel and Prahalad
(1994a, 157) state:
The first premise is that the firm can be conceived
of as a portfolio of resources (technical, financial,
human, and so forth), as well as a portfolio of
products or market-focused business units. A
growing body of academic research and writing
takes such a ‘‘resource-based view of the firm.’’
For Hamel and Prahalad (1994a), business
strategy is not about finding a good fit
between existing resources (competences)
and existing opportunities, it is a focus on
industry foresight and competence leveraging.
Foresight involves anticipating the future by
asking what new types of benefits firms
should provide their customers in the next 5–
15 years and what new competences should be
acquired or built to offer such benefits.
Resource-leveraging focuses on the numerator
in the productivity equation. Specifically, they
argue that too much attention in analyses of
firm productivity has been devoted to resource
efficiency – the denominator – and too little
on resource effectiveness the numerator. For
them, productivity gains and competitive
advantage come through the resource-
leveraging that results from ‘‘more effectively
concentrating resources on key strategic goals,
. . . more efficiently accumulating resources,
. . . complementing resources of one type with
those of another to create higher-order value,
. . . conserving resources wherever possible,
and . . . rapidly recovering resources by
minimizing the time between expenditure
and payback’’ (Hamel and Prahalad 1994a,
160).
The works of Hamel and Heene (1994),
Heene and Sanchez (1996) and Sanchez et al.
(1996) further develop the formal require-
ments of C-B theory by explicating (1)
terminological issues, (2) firms as goal-
seeking, open systems, and (3) competitive March 2000
dynamics. As to terminology, C-B theory has
begun the important task of developing a
conceptually adequate, internally consistent
language for discussing strategy, the firm and
competition. For example, Sanchez et al.
(1996, 7–8) define: (1) assets as anything
tangible or intangible the firm can use in its
processes for creating, producing, and/or
offering its products (goods or services) to a
market; (2) capabilities as repeatable patterns
of action in the use of assets to create, produce
and/or offer products to a market; (3)
resources as assets that are available and
useful in detecting and responding to market
opportunities or threats; and (4) a competence
as an ability to sustain the coordinated
deployment of assets in a way that helps a
firm achieve its goals; (5) competence build-
ing as any process by which a firm achieves
qualitative changes to its existing stocks of
assets and capabilities, including new abilities
to coordinate and deploy new or existing
assets and capabilities in ways that help the
firm achieve its goals; and (6) competence
leveraging as a firm applying its existing
competences to current or new market oppor-
tunities in ways that do not require qualitative
changes in the firm’s assets or capabilities.
Heene and Sanchez (1996, 11) caution that
‘‘a firm must manage its competence(s) as a
system and avoid excessive focusing of
managerial attention on developing and
managing a ‘single competence’ judged by
some criteria to be ‘core’’’. Furthermore, even
though competence-based theory recognizes
that ‘‘strictly speaking, capabilities are
included in the term assets, it speaks of ‘assets ß Blackwell Publishers Ltd 2000
23
Marketing's and capabilities’ because capabilities are such
contribution to an important category of assets’’ (Sanchez et
business strategy al. 1996, 7).
As to the firm’s goals, C-B theory views
firms as having complex sets of strategic goals
that must be managed holistically (Heene and
Sanchez 1996). As such, the firm is a goal-
seeking, open system of interrelated tangible
and intangible assets guided by a strategic
logic. A firm’s strategic logic refers to the
rationale(s) employed (explicitly or implicitly)
by decision makers in the firm as to how
specific deployments of resources are ex-
pected to result in an acceptable level of
attainment of the firm’s goals. Management
processes, therefore, include all the activities
designed to carry out the strategic logic. For
C-B theory, a key management task is
‘‘maintaining the effectiveness of the firm’s
competence building and leveraging processes
by achieving consistency of strategic logic
throughout the firm’’ (Sanchez et al. 1996,
10).
With respect to competitive dynamics, C-B
theory acknowledges that firms may at times
find themselves in a steady-state environment.
More typical, however, is the dynamic state
where ‘‘managers in at least one firm change
their assessments of the gap between the
perceived and desired states of one or more
system elements, modify the firm’s goals, and
begin to take gap-closing actions’’ (Sanchez et
al. 1996, 13). At such times of dynamic
competition, ‘‘the interactions of firms that
create dynamic competitive environments as
they seek goal attainment through leveraging
and building competences may therefore be
likened to a state of perpetual corporate
entrepreneurialism in which continuous
learning about how to build new competences
and leverage existing competences more
effectively becomes a new dominant logic’’
(Sanchez et al. 1996, 14).
C-B theory is still very much a work in
progress. Although advances have been made
with respect to developing nomenclature,
inconsistent terminology still prevails (Lewis
ß Blackwell Publishers Ltd 2000 and Gregory 1996). A major contributor to
24
terminological inconsistency is the lack of
integration that exists among the various
disciplines that have contributed to research
on C-B theory. As noted by Lewis and
Gregory (1996, 146), ‘‘[t]he diverse sources
of the literature has meant that the field lacks
cumulative theory building’’. Other limita-
tions are that it, like R-B theory, has yet to
incorporate systematically the external-to-the-
firm factors that affect the success of business
strategy, and ‘‘there is a lack of practical
application and empirical evidence to support
theorizing’’ (Lewis and Gregory 1996, 146).
Marketing Strategy
Marketing strategy prior to the 1980s had little
to do with strategy in today’s use of the word
(Day and Wensley 1983; Wind and Robertson
1983). Although marketing was based on the
premise of the marketing concept, which is
highly strategic in nature, research in the
1960s and 1970s focused on micro-marketing
management concerns. Marketing manage-
ment research focused on developing the
marketing program, often referred to as the
marketing mix, or ‘‘the four Ps’’, in order to
achieve micro-goals for certain products or
product lines or brands. There was little
consideration of the effect of marketing
programs across product lines or on the
general effectiveness of an organization (Day
and Wensley 1983; Wind and Robertson
1983). In short, the study of marketing was
tactical, not strategic, in nature.
The shortcomings of marketing manage-
ment research in the 1960s and 1970s
provided four broad research imperatives: (1)
add a competitor orientation, (2) view the firm
holistically, (3) expand the view of the firm to
incorporate exchange relationships, and (4)
develop an integrative paradigm that pulls
these strategic considerations together (Day
and Wensley 1983; Wind and Robertson
1983). Since these calls to increase the
strategic orientation of marketing were made,
marketing scholars have made substantial
progress in all four suggested areas. Three
streams, in particular, have elevated the state-
of-the-art of research by marketing scholars
on business strategy: market orientation,
relationship marketing and resource-
advantage theory. These marketing streams,
we argue, also contribute to industry-based,
resource-based and competence-based
business strategy theory. In the following
review of these three marketing streams, we
discuss (1) the nature of each stream, (2) show
how it contributes to I-B, R-B, and/or C-B
business strategy theory, and (3) examine the
limitations of each stream.
Market Orientation and Business
Strategy
If there were any contribution that marketing
could make to business strategy that might be
considered universally to be uniquely market-
ing, it would be that of market orientation
(MO). MO traces to the marketing concept
that was developed in the 1950s and 1960s.
MO is considered by many as a measure of the
behaviors and activities that reflect the
marketing concept (Barksdale and Darden
1971; Kohli and Jaworski 1990; Kotler 1984;
Kotler and Andreasen 1987; Levitt 1960;
McNamara 1972; Webster 1988). Note Hunt
and Morgan (1995, 11):
The marketing concept maintains that (1) all areas
of the firm should be customer-oriented, (2) all
marketing activities should be integrated, and (3)
profits, not just sales, should be the objective. As
conventionally interpreted, the concept’s
customer-orientation component, that is, knowing
one’s customers and developing products to satisfy
their needs, wants, and desires, has been
considered paramount.
However, the marketing concept is not a
strategy, but a philosophy that is theorized to
be a key element of successful firms’ cultures
(Baker et al. 1994; Houston 1986; Wong and
Saunders 1993). Deshpande and Webster
(1989, 3) point out that ‘‘the marketing
concept defines a distinct organizational
culture . . . that put[s] the customer in the
center of the firm’s thinking about strategy
and operations’’. Thus, the marketing concept
is a business culture that can guide the
formulation and implementation of business
strategy.
For almost 40 years, the marketing concept
has been considered the cornerstone of
marketing (Kotler 1984; Kotler and
Andreason 1987; Levitt 1960; Webster
1988). It was assumed that firms that March 2000
embraced the marketing concept had
organizational cultures that would facilitate
the development of strategy that would lead to
sustainable competitive advantage because
such firms would better understand and meet
customer needs (Aaker 1988; Kotler 1984;
Kotler and Andreasen 1987; Narver and Slater
1990; Shapiro 1988; Webster 1988). However,
as noted by Jaworski and Kohli as late as
1993, even though the marketing concept was
presumed to be an important antecedent of
business’ strategic success, ‘‘remarkably, this
fundamental issue (had) not been addressed in
empirical study’’ (Jaworski and Kohli 1993,
53). This lack of empirical research on the
effect of the marketing concept on business
strategy and business success gave rise to
research on MO.
Although MO was developed as a way to
measure the extent to which a firm
implements the marketing concept, it has
evolved into more than simply a reflection
of the marketing concept. In contrast to the
marketing concept’s single-minded focus on
customers, MO has a dual focus on both
customers and competitors. As such, MO
supplements the marketing concept. Drawing
on Kohli and Jaworski (1990) and Narver and
Slater (1990), Hunt and Morgan (1995, 11)
propose that MO is:
(1) the systematic gathering of information on
customers and competitors, both present and
potential, (2) the systematic analysis of the
information for the purpose of developing market
knowledge, and (3) the systematic use of such
knowledge to guide strategy recognition, ß Blackwell Publishers Ltd 2000
25
Marketing's understanding, creation, selection, implementation,
and modification. We include potential customers
contribution to
to guard against the hazards of firms being
business strategy ‘‘customer-led’’ (Hamel and Prahalad 1994), that
is focusing only on the articulated needs, wants, and
desires of present customers. We include potential
competitors to guard against the hazards of
changing technology resulting in new competitors.
Utilizing Hunt and Morgan’s (1995) view of
MO, the distinction between MO and the
marketing concept becomes more clear. Here
MO can be seen as a ‘‘bridge’’ between the
business strategy that may be selected and the
organization’s culture/business philosophy.
MO would guide strategy selection, while
the marketing concept would guide ‘‘the use
of the components of marketing orientation by
reminding managers to keep customers, as
Webster (1992) puts it, ‘on a pedestal,’
because they always have the ‘final say’’’
(Hunt and Morgan 1995, 11).
A recent area of inquiry is the effect of MO
on organizational learning. Indeed, Slater and
Narver (1995, 63) suggest that MO ‘‘provides
the cultural foundation for organizational
learning’’. Organizational learning is the
process of gaining knowledge or insights that
can potentially influence the behavior of an
organization (Fiol and Lyles 1985; Huber
1991; Simon 1959; Sinkula 1994). The
process of organizational learning involves
elements that are very similar to those of MO:
information acquisition, dissemination and
shared interpretation (Sinkula 1994). In
addition, organizational learning, like MO, is
used to provide superior value to customers
(Day 1994; Dickson 1992; Fiol and Lyles
1985; Garvin 1993; Senge 1990; Sinkula
1994). Thus, Slater and Narver (1995, 63)
argue that MO is an inherent part of the
organizational learning process:
the critical challenge for any business is to create
the combination of culture and climate that
maximizes organizational learning on how to
create superior customer value . . . We argue that
(MO) provides strong norms for learning from
ß Blackwell Publishers Ltd 2000 customers and competitors, it must be comple-
26
mented by entrepreneurship and appropriate
organizational structures and processes for
higher-order learning . . . In summary, the cultural
values of a (MO) are necessary, but not sufficient,
for the creation of a learning organization.
On the whole, empirical research on MO
indicates that it contributes to competitive
advantage (Jaworski and Kohli 1993; Narver
and Slater 1990). Narver and Slater (1990)
find empirical support for MO’s having a
significant linear positive effect on profit-
ability for non-commodity businesses. They
also find a significant, non-linear, positive
relationship between MO and profitability for
commodity businesses: commodity firms with
moderate MO had lower profitability than
those with low MO, but those with high MO
had the highest profitability of all. Based on
these findings, Narver and Slater (1990)
suggest that the MO/profitability relationship
for commodity businesses is U-shaped.
Jaworski and Kohli (1993) examine
empirically (1) the posited antecedents and
MO, (2) MO’s effect on employees, and (3)
the moderating effect of selected environ-
mental variables (market turbulence, competi-
tive intensity and technological turbulence) on
business performance. With respect to
antecedents of MO, they find that top manage-
ment acceptance and encouragement of MO
has a positive effect on MO, centralization of
organizational decision-making inhibits MO,
and close and harmonious interdepartmental
relationships foster MO. With respect to
outcomes, they find that MO increases the
business performance of an organization, the
esprit de corps of e mp loye es, a nd
commitment to the organization.
In summary, empirical research on MO
since 1990 has provided support for the
previously assumed marketing strategy tenet
that firms that adopt an overarching strategic
stance of MO will outperform firms who do
not. Also, this research indicates that,
regardless of industry conditions, the positive
relationship between MO and business
performance remains. In addition, this body
of research suggests that MO leads to
additional outcomes that also positively effect
business performance namely, employee
commitment to an organization and the ability
of an organization to learn.
Market Orientation and Industry-based
Theory
Environmental variables proposed to moderate
the effect of MO come from I-B theory, which
suggests that an industry’s environmental
characteristics affect firm performance (Day
and Wensley 1988; Porter 1985). For example,
Slater and Narver (1994, 46, 47) draw on I-B
theory to hypothesize that ‘‘being market
oriented does not have as strong an influence
on performance under high demand conditions
as when demand is weak’’. However, empirical
research finds little support for the notion that
industry conditions moderate the effectiveness
of MO. Indeed, Jaworski and Kohli (1993) find
no empirical support for the hypothesized
moderating effects of market turbulence,
competitive intensity and technological
turbulence on the relationship between MO
and performance. The finding of no relation-
ship between competitive environment and the
relationship between MO and performance is
supported by later research conducted by Slater
and Narver (1994). As they explain:
Why should a market-orientation business
necessarily be influenced by ‘‘environmental
moderators’’? With its external focus and
commitment to innovations, a market-oriented
business should be prepared to achieve and sustain
competitive advantage in any environmental
situation. Indeed, a substantially market-oriented
business should find more opportunity in any
environment than its less market-oriented
competitors. (p. 53)
Market Orientation and Resource-based
Theory
A resource is defined as ‘‘any tangible or
intangible entity available to the firm that
enables it to produce efficiently and/or
effectively a market offering that has value
for some market segment(s)’’ (Hunt and
Morgan 1995, 11). The term ‘‘entity’’ is a
more appropriate label for MO than either
‘‘asset’’ or ‘‘skill’’, because the concept of
MO is neither. That is:
Although [MO’s] successful implementation
requires skills, a market orientation is itself not a
skill, nor is it more tangible than a skill . . . March 2000
[However], a market orientation would be an
intangible entity that would be a resource if it
provided information that enabled a firm to
produce, for example, an offering well tailored to
a market segment’s specific tastes and preferences.
(Hunt and Morgan 1995, 11)
Thus, given that MO is a resource, is it a
resource that leads to competitive advantage?
Firms that have an MO understand the
importance of utilizing information about both
customers and competitors when developing
strategy. These firms can utilize knowledge
about their competitors (e.g. product, prices
and strategies) and knowledge about a
customer segment to produce a market
offering for a certain segment more efficiently
and effectively than their competition (Glazer
1991). The factor that determines the degree
to which an MO allows a firm to develop
competitive advantage is the degree to which
having an MO is unique, or rare, among
competitors. Studies suggest that, indeed, an
MO is rare (Jaworski and Kohli 1993; Narver
and Slater 1990). In addition, research
suggests that MO contributes not only to
competitive advantage, but also sustainable
competitive advantage (Hunt and Morgan
1995).
Market Orientation and Competence-
based Theory
MO is both a resource and a competence. As
discussed earlier, C-B theory has begun the
process of developing a conceptually
adequate, internally consistent nomenclature ß Blackwell Publishers Ltd 2000
27
Marketing's for examining competition. Within this
contribution to framework, ‘‘a competence is an ability to
business strategy sustain the coordinated deployment of assets
in a way that helps a firm achieve its goals’’
(Sanchez et al. 1997, 7–8). A competence is a
form of resource, because the way it is defined
(the ‘‘deployment of assets in a way that helps
a firm achieve its goals’’) makes it an
‘‘intangible entity’’ (in the definition of a
resource) that allows a firm to compete more
effectively.
Using C-B theory’s nomenclature, one may
view a competence as being a higher-order
resource that is a distinct combination of more
basic resources (Hunt and Morgan 1995). For
example, Sony’s ‘‘miniaturization’’ com-
petence is a synergistic combination of
tangible basic resources (e.g. specific
machinery) and intangible basic resources
(e.g. know-how) that allow Sony to compete
more efficiently and effectively. Similarly,
MO is a competence because it comprises a
combination of more basic resources. To
implement MO, firms deploy tangible
resources, such as information systems to
store, analyze and disseminate information
about competitors and competition. In
addition, firms use intangible resources to
implement MO: organizational policies must
be in-place to encourage MO action, and
managers must have the knowledge and
experience required to utilize customer and
competitor information effectively.
Limitations of Market Orientation
Although there has been a substantial amount
of research on MO, questions about MO
remain. The validity of the measures of MO
for both domestic and international business
situations has been challenged (Cadogan and
Diamantopoulus 1995; Siguaw and
Diamantopoulus 1995). Also, MO lacks an
underlying theory that could provide an
explanatory mechanism for the positive rela-
tionship between MO and business perform-
ance. In addition, research on MO to date
ß Blackwell Publishers Ltd 2000 takes a single-firm perspective. A key
28
orientation that is missing in the present
conceptualization of MO is a firm’s partnering
orientation. Because firms often create
superior value for customers by collaborating
with other organizations, firms that partner
with other firms to compete must develop a
strategy of MO that is inter-firm rather than
intra-firm in nature. The antecedents, con-
sequences, and measures of a business
strategy of inter-firm MO are still lacking.
Works on relationship marketing make a step
in this direction.
Relationship Marketing and Business
Strategy
A critical issue in marketing today is how do
firms relate to their markets? As noted by
industry observers, the business landscape is
becoming more complicated because firms are
increasingly taking on the simultaneous (and
sometimes conflicting) roles of customer,
competitor and collaborator. This problem
has become particularly acute in instances
where firms no longer compete head-to-head
as individual entities. Instead, one often finds
that a firm’s relationship with its market is
defined by the constellation of firms of which
it is a part and with which it competes against
other constellations to achieve competitive
advantage. These constellations or ‘‘net-
works’’ (Thorelli 1986) are built on a series
of collaborative relationships, which fall under
the rubric of relationship marketing (RM), and
which have become a focal point for deter-
mining a firm’s interaction with its market.
Definitions of RM abound. For example,
Berry (1983, 25) defines RM as ‘‘attracting,
maintaining, and – in multi-service organiza-
tions – enhancing customer relationships’’.
Berry and Parasuraman (1991) propose that
‘‘relationship marketing . . . concerns
attracting, developing, and retaining customer
relationships’’. Gummesson (1994, 2)
proposes that ‘‘relationship marketing . . . is
marketing seen as relationships, networks, and
interaction’’. Gronroos (1996, 11) states that
‘‘relationship marketing is to identify and
establish, maintain and enhance relationships
with customers and other stakeholders, at a
profit, so that the objectives of all parties
involved are met; and that this is done by a
mutual exchange and fulfillment of
promises’’. Sheth and Parvatiyar (1994) define
RM as ‘‘the understanding, explanation, and
management or the ongoing collaborative
business relationship between suppliers and
customers’’. Sheth and Parvatiyar (1995a)
view RM as ‘‘attempts to involve and inte-
grate customers, suppliers, and other infra-
structural partners into a firm’s developmental
and marketing activities’’, and Morgan and
Hunt (1994) propose that ‘‘relationship
marketing refers to all marketing activities
directed towards establishing, developing, and
maintaining successful relational exchanges’’.
Although the various perspectives on RM
differ, common to all is the view that,
increasingly, firms are competing through
developing relatively long-term relationships
with such stakeholders as customers, sup-
pliers, employees and competitors. Consistent
with the Nordic School (Gronroos 1990;
Gronroos and Gummesson 1985) and the
IMP Group (Axelsson and Easton 1992; Ford
1990; Hakansson 1982), the emerging thesis
seems to be: ‘‘To be an effective competitor
(in the global economy) requires one to be an
effective cooperator (in some network)’’
(Morgan and Hunt 1994). Indeed, for Sheth
and Parvatiyar (1995a), the ‘‘purpose of
relationship marketing is, therefore, to
enhance marketing productivity by achieving
efficiency and effectiveness’’.
The study of RM as a strategic option to
achieve competitive advantage in marketing
arose from research on ‘‘relational’’ (Macneil
1980) business-to-business exchange during
the 1980s. Although relational exchange has
been a topic of expanding interest in many
disciplines (e.g. Gomes-Casseres 1987, 1989;
Hamel and Prahalad 1994; Harrigan 1985a,b,
1988; Kanter 1994; Larson 1992; Moore
1993; Ouchi 1980; Ring and Van de Ven
1992, 1994), it is a topic that has a special
appeal to researchers in the area of market-
ing. At least since the works of Bagozzi
(1975), Hunt (1976) and Kotler (1972),
definitions of the process of marketing have
focused on exchange, which requires the
establishment of some form of an exchange
relationship between parties (Dwyer et al.
1987; Varadarajan and Cunningham 1995).
As exchange in general (and especially
business-to-business exchange) has become
increasingly relational, some marketing
scholars argue that a paradigm shift from March 2000
transactional to relational exchange is
occurring (Day 1995; Kotler 1991; Parvatiyar
et al. 1992; Varadarajan and Rajaratnam
1986; Webster 1992), which is reflected in a
growing body of marketing research that
focuses on relational, business-to-business
exchange relationships (e.g. Dwyer et al.
1987; Gundlach and Murphy 1993; Morgan
and Hunt 1994).
When firms adopt relationship marketing,
they rely heavily on ‘‘relational contracts’’ to
govern the exchange process (Macneil 1980).
Such relational contracts are used when it
becomes difficult for the involved parties to
spell out the critical terms of a formal written
contract (Goetz and Scott 1981). Indeed, the
contract to the exchange becomes more
relational-based as exchange contingencies
and duties become less codifiable (Gundlach
and Murphy 1993; Nevin 1995). To achieve
the flexibility required in complex exchange
where there are unforeseen circumstances,
relational exchange is marked by high levels
of cooperation, joint planning, and mutual
adaptation to exchange partner needs
(Gundlach and Murphy 1993; Hallen et al.
1991; Nevin 1995).
Relationship marketing is motivated by the
parties’ mutual recognition that the outcomes
of relational exchange exceed those that could
be gained from either another form of
exchange or exchange with a different partner
(e.g. Anderson and Narus 1984, 1990; Dwyer
et al. 1987; Nevin 1995). The critical
governance mechanism in relational exchange
and, therefore, a key determinant of relational
exchange success is the relationship. Simply ß Blackwell Publishers Ltd 2000
29
Marketing's put, functional relational exchange requires a
contribution to functional relationship between the exchange
business strategy parties (Anderson and Narus 1984, 1990; Day
1995; Dwyer et al. 1987; Heide and John
1992; Morgan and Hunt 1994; Wilson 1995).
Recognizing the centrality of the relation-
ship, researchers have attempted to pinpoint
relationship attributes that facilitate relational
exchange (Varadarajan and Cunningham
1995; Wilson 1995). These attributes include
commitment (Anderson and Weitz 1992;
Ganesan 1994; Morgan and Hunt 1994), trust
(Moorman et al. 1992, 1993; Morgan and
Hunt 1994), communication (Anderson and
Narus 1990; Mohr and Nevin 1990), co-
operation (Anderson and Narus 1990; Morgan
and Hunt 1994; Stern and El-Ansary 1992),
mutual goals (Heide and John 1992; Morgan
and Hunt 1994), norms (Heide and John
1992), interdependence (Anderson et al.
1987; Anderson and Narus 1984, 1990; Hallen
et al. 1991), social bonds (Han et al. 1993;
Wilson 1995), adaptation (Hakansson 1982;
Hallen et al. 1991), and performance
satisfaction (Dwyer et al. 1987; Mohr and
Spekman 1994; Wilson 1995).
Research on RM has utilized social
exchange theory to examine the variables that
make for a successful relationship. These
‘‘success models’’ (Wilson 1995) have been
used to determine the degree to which
relational exchange variables, such as trust,
are achieved and/or the degree to which
elements of relational exchange lead to
enhanced exchange performance. Thus, the
dependent variable in these models is the
degree to which the relationship that governs
the exchange interactions between the partners
is indeed relational, and the independent
variables in these models are the antecedents
of these relational variables. Much research on
success models focuses on trust and
commitment.
Trust has been described as the most
important or ‘‘key’’ variable in relational
exchange by social exchange theorists (Blau
1964; Homans 1958) and researchers of
ß Blackwell Publishers Ltd 2000 business-to-business marketing (Dwyer et al.
30
1987; Morgan and Hunt 1994; Smith and
Barclay 1997; Weitz and Bradford 1999;
Wilson 1995). Trust has been defined as the
belief in an exchange partner’s: reliability and
integrity (Morgan and Hunt 1994), credibility
and benevolence (Ganeson 1994; Geyskens et
al. 1999), and word that an obligation will be
fulfilled (Blau 1964; Moorman et al. 1993;
Schurr and Ozanne 1985). Trust develops
through social exchange in which relation-
ships develop through interactions over time
(Hakansson and Wootz 1979; Nevin 1995). As
firms fulfill promises to exchange partners,
trust increases and allows firms to engage in
larger, often riskier transactions (Dwyer et al.
1987).
Numerous authors have empirically tested
trust as a relational variable. They find it
positively related to commitment (Geyskens et
al. 1999; Morgan and Hunt 1994), cooperation
(Anderson and Narus 1990; Morgan and Hunt
1994), functional conflict (Morgan and Hunt
1994), communication (Anderson and Narus
1990; Morgan and Hunt 1994), shared values
(Morgan and Hunt 1994), and satisfaction
(Anderson and Narus 1990; Geyskens et al.
1999) and negatively related to conflict
(Anderson and Narus 1990; Geyskens et al.
1999), opportunistic behavior (Morgan and
Hunt 1994), and uncertainty (Morgan and
Hunt 1994).
Commitment plays a key role in RM
research in differentiating relational from
non-relational economic exchange, and has
been defined as ‘‘an exchange partner
believing that an ongoing relationship with
another is so important as to warrant
maximum efforts at maintaining it; that is,
the committed party believes the relationship
is worth working on to ensure that it endures
indefinitely’’ (Morgan and Hunt 1994, 23). It
is an implicit or explicit pledge of relational
continuity (Dwyer et al. 1987; Gundlach and
Murphy 1993) that distinguishes the ‘‘stayers
from leavers’’ (Wilson 1995). Committed
firms are more likely to take risks with their
exchange partners (Gundlach et al. 1995) and
make short-term sacrifices for the long-term
benefit of the relationship (Geyskens et al.
1999). Commitment allows firms to develop
relational norms and seek long-term benefits
while enduring short-term sacrifices. Morgan
and Hunt’s (1994) empirical study finds that
commitment (1) positively influences acquie-
scence and cooperation and (2) negatively
influences propensity to leave. They also find
that trust, shared values and relationship
termination costs are positively related ante-
cedents of commitment. The trustcommitment
relationship is also supported in a recent meta-
analysis by Geyskens et al. (1999).
Relationship Marketing and Industry-
based Theory
To a large degree, RM is a strategic response
to industry conditions. As noted earlier, as
competitive advantage is increasingly being
seen as resulting from a collaborative effort
between two or more firms, competition
becomes less firm versus firm and more
groups of firms versus other groups of firms
(Achrol 1997; Day 1995; Webster 1992).
Thus, RM has become a mechanism that
firms use to alter the structure of industries to
increase their ability to compete – or to
increase their market power (Day 1995;
Varadarajan and Cunningham 1995; Webster
1992).
For example, firms have used a form of
relationship marketing known as ‘‘alliances’’
in an effort to become more efficient and/or
effective (Bucklin and Sengupta 1993; Day
1995; Heide and John 1990; Varadarajan and
Cunningham 1995). Alliances have been
defined as ‘‘the pooling of skills and resources
by the alliance partners, in order to achieve
one or more goals linked to the strategic
objectives of the cooperating firms’’
(Varadarajan and Cunningham 1995, 283).
The key with these relationships is to partner
with firms that provide complementary
resources or competences that result in cost
and/or differentiation advantages that increase
firm efficiency or effectiveness (Day 1995;
Varadarajan and Cunningham 1995).
The growing popularity of RM is changing
the way firms develop and sustain competitive
advantage in response to external industry
conditions. As a result, RM has added another
dimension to the calculus that must be applied
to I-B theory when it is used to explain
competitive advantage: the strategic
relationships between firms. The ability of
firms to partner affects their ability to respond
to external factors. No longer is it sufficient to
analyze an industry based on firms acting March 2000
alone. A consideration of inter-firm
cooperation must exist.
Relationship Marketing and Resource-
based Theory
RM expands the view of resources to entities
that are available outside the firm that enable
the firm to produce efficiently and/or
effectively a market offering that has value
for some market segment(s). This expanded
view emphasizes that resources need not be
owned by a firm, just available to it. RM can
assist firms in gaining access to basic and
higher-order resources possessed by other
firms. As discussed earlier, these resources
lead to competitive advantage when they are
rare and cannot be duplicated by com-
petition. Strategic alliances illustrate how
these resources may be heterogeneous in
nature. For example, the alliance between
Ford and Mazda provides both companies
with resources that differ significantly from
that of General Motors and its partner
Toyota.
Relationship Marketing and
Competence-based Theory
RM is also a competence because it is a
higher-order resource that is a distinct
combination of more basic resources. That
is, some firms are simply better at – have a
competence for – developing relationships
with others (Hunt and Morgan 1995).
Having a RM competence allows firms to
compete more efficiently and effectively by ß Blackwell Publishers Ltd 2000
31
Marketing's allowing such firms to work with other firms
contribution to in such a fashion as to be able to take ad-
business strategy vantage of their resources and competences.
Recent research in marketing has begun to
explore RM competence (Day 1995; Hunt
1997; Varadarajan and Cunningham 1995).
This competence allows firms to evaluate
which relationships to enter into by allowing
them to determine which potential partners
have the complementary resources or com-
petences that are needed (Hunt 1997). In
addition, a RM competence helps firms that
possess it to develop a relationship that will
maximize the competitive advantage potential
of the entities shared between the firms. The
relationship has a greater chance of being
productive because firms that have such a
competence will not only be more likely to
choose partners that will exhibit relational
norms, but also these firms understand the
value of exhibiting relational norms themselves
(Weitz and Jap 1995). As described by Day
(1995, 299), firms that have a RM competence
have a deep base of experience that is woven into a
core competency that enables them to outperform
rivals in many aspects of . . . [relational exchange]
management. They have well-honed abilities in
selecting and negotiating with potential partners,
carefully planning the mechanics of the
[relationship] so roles and responsibilities are
clear-cut, and continually reviewing the fit of the
. . . [relationship] to the changing environment.
Throughout the life of the . . . [relationship], their
commitment is never in doubt.
Limitations of Relationship Marketing
Two observations on RM and its ‘‘cooperate-
to-compete’’ thesis should be made. First,
theoretically grounding the thesis requires a
theory of competition that is radically
different from neoclassical theory. This is
because neoclassical theory customarily views
firms’ cooperating as constituting anti-
competitive collusion. Second, none of the
previously cited authors naı̈vely maintains that
ß Blackwell Publishers Ltd 2000 a firm’s efficiency and effectiveness are
32
always enhanced by establishing relationships
with all potential stakeholders. Clearly,
advocates of RM recognize that firms should
at times avoid developing certain relation-
ships. As Gummesson (1994, 15) observes,
‘‘Not all relationships are important to all
companies all the time . . . some marketing is
best handled as transaction marketing’’.
Indeed, he counsels: ‘‘Establish which
relationship portfolio is essential to your
specific business and make sure it is handled
skillfully’’ (p. 15). As to how to determine the
composition of the portfolio, he urges firms to
‘‘calculate the cost and revenue of the
relationships and ultimately the contribution
to profits from the portfolio’’ (p. 17).
However, as Gummesson (1994) points out,
determining which relationships should go
into the relationship portfolio by explicitly
calculating the profitability of each
prospective relationship is extraordinarily
difficult – if not, at least sometimes,
impossible. Therefore, addressing the
conundrum of establishing an optimum
relationship portfolio requires examination of
why some relationship portfolios, some
relationship ‘‘mixes’’, are in general, more
profitable than others. More specifically,
under what circumstances will firms’ develop-
ing relationships with such entities as
suppliers, competitors, employees and
customers likely lead to enhanced financial
performance?
A major limitation of RM is the same as
for business strategy: neither is integrated
within a general theory of competition.
Indeed, I-B strategy is presumptively anti-
competitive and anti-social (Hunt 1999a).
The ‘‘resource-advantage theory of com-
petition’’, as developed in Hunt (1995,
1997a,b,c,d, 1999, 2000a,b,c), Hunt and
Duhan (2000) and Hunt and Morgan (1995,
1996, 1997) appears to provide a theoretical
foundation for both RM and business
strategy. Specifically, resource advantage
(R-A) theory offers a unifying theory of
competition that incorporates the various
theories of business strategy.

Resource-advantage Theory and
Business Strategy
R-A theory (1) is an evolutionary, dynamic,
process theory (Hunt 1997a; Hunt and Morgan
1996), (2) contributes to explaining observed
differences in productivity between market-
based and command economies (Hunt 1995;
Hunt and Morgan 1995, 1997), (3) accom-
modates path dependencies (Hunt and Morgan
1996), (4) provides a theoretical foundation
for endogenous growth models (Hunt 1997c),
and (5) contributes to explaining how societal
institutions, such as those that promote trust,
can be productivity enhancing (Hunt 1997b).
Figures 1 and 2 provide a schematic
depiction of R-A theory’s key constructs,
and Table 1 shows its foundations. Because
R-A theory draws heavily on Austrian
economics and the Schumpeterian tradition
in evolutionary economics, (1) innovation
and organizational learning are endogenous
to R-A competition, (2) firms and consumers
have imperfect information, and (3) entre-
preneurial competence and institutions affect
economic performance. Because R-A theory
incorporates marketing’s heterogeneous
demand theory, intra-industry demand is
viewed as significantly heterogeneous as to
consumers’ tastes and preferences. There-
fore, different market offerings are required
for different market segments in the same
industry. Because it adopts a resource-based
view of the firm, firms are theorized to be
combiners of heterogeneous, imperfectly
mobile resources. Combining the resource-
based view of the firm with heterogeneous
demand and imperfect information results in
diversity in the sizes, scopes and levels to
profitability of firms. This diversity exists
not only across industries but for firms
within the same industry.
R-A theory stresses the importance of
market segments, a comparative advantage
(disadvantage) in resources, and marketplace
positions of competitive advantage (disadvan-
tage). Market segments are intra-industry
groups of consumers whose tastes and prefer-
ences for an industry’s output are relatively
homogeneous. (The ultimate segment is, of
course, a segment of one.) Resources are the
tangible and intangible entities available to the
firm that enable it to produce efficiently and/or
effectively a market offering that has value for
some market segment(s). Because many of the
resources of firms within an industry are
significantly heterogeneous and relatively
immobile, some firms will have a comparative
advantage and others a comparative disadvan- March 2000
tage in efficiently and/or effectively producing
market offerings that have value for particular
market segments. Specifically, when firms
have a comparative advantage (disadvantage)
in resources, they will occupy marketplace
positions of competitive advantage (disadvan-
tage), as shown in Figure 1 and further
explicated in the nine marketplace positions
in Figure 2. Marketplace positions of competit-
ive advantage (disadvantage) then result in
superior (inferior) financial performance.
Firms occupying positions of competitive
advantage (cells 2, 3, and 6 in Figure 2) can
continue to do so if (1) they engage in
proactive innovation, (2) they continually
reinvest in the resources that produced the
competitive advantage, and/or (3) rivals’
acquisition and reactive innovation efforts
fail. Rivals will fail (or take a long time to
succeed) when an advantage-producing
resource is either protected by such societal
institutions as patent or it is causally ambig-
uous, socially complex, highly inter-
connected, tacit, or has time compression
diseconomies or mass efficiencies.
R-A theory defines competition as the
disequilibrating process that consists of the
constant struggle among firms for com-
parative advantages in resources that will
yield marketplace positions of competitive
advantage for some market segment (s) and,
thereby, superior financial performance. The
nature of competitive processes and how
well they work (e.g. how effectively
competition produces economic growth) are
significantly influenced by five environ-
mental factors: the societal resources on ß Blackwell Publishers Ltd 2000
33
Marketing's
contribution to
business strategy

Figure 1. A Schematic of the Resource-Advantage Theory of Competition. Read: Competition is the

disequilibrating, ongoing process that consists of the constant struggle among firms for a comparative
advantage in resources that will yield a marketplace position of competitive advantage and, thereby,
superior financial perfomance. Firms learn through competition as a result of feedback from relative
financial performance ``signaling'' relative market position, which in turn signals relative resources.
Source: Hunt and Morgan (1997).

ß Blackwell Publishers Ltd 2000
Figure 2. Competitive Position Matrix. Read: The marketplace position of competitive advantage
identified as cell 3 results from the firm's, relative to its competitors, having a resource assortment that
enables it to produce an offering for some market segment(s) that (a) is perceived to be of superior
value and (b) is produced at lower costs.
Source: Hunt and Morgan (1997).

34
Table 1. Foundational premises of perfect competition and resource-advantage theory

Perfect competition theory Resource-advantage theory

P1. Demand is: heterogeneous across industries, heterogeneous across industries,

homogeneous within industries,
and static.
P2. Consumer information is: perfect and costless.
P3. Human motivation is: self-interest maximization.
P4. The firm's objective is: profit maximization.
P5. The firm's information is: perfect and costless.
P6. The firm's resources are: capital, labor, and land.
P7. Resource characteristics are: homogeneous and perfectly mobile. heterogeneous and imperfectly mobile.
P8. The role of management is: to determine quantity and
implement production function.
P9. Competitive dynamics are: equilibrium-seeking, with
innovation exogenous.
heterogeneous within industries,
and dynamic.
imperfect and costly.
constrained self-interest seeking.
superior financial performance.
imperfect and costly.
financial, physical, legal, human,
March 2000
organizational, informational, and relational.
to recognize, understand, create, select,
implement, and modify strategies.
disequilibrium-provoking, with
innovation endogenous.

Note: The foundational premises of R-A theory are to be interpreted as descriptively realistic of the general case.
Specifically, P1, P2, P5 and P7 for R-A theory are not viewed as idealized states that anchor end-points of continua.
For example, P1 posits that intra-industry demand in most industries (i.e. the general case) is substantially
heterogeneous, not perfectly heterogeneous. In contrast, P1 for perfect competition assumes the idealized state of
perfect homogeneity.
Source: Hunt and Morgan (1997).

which firms draw, the societal institutions
that form the ‘‘rules of the game’’ (North
1990), the actions of competitors and
suppliers, the behaviors of consumers, and
public policy decisions.
Resource-advantage and Industry-based,
Resource-based, and Competence-based
Theories
R-A can be thought of as an integrative theory
of business strategy – bringing together I-B,
R-B and C-B theories – because it draws
extensively on, and shares many affinities
with, the business strategy literature. As will
be shown, it incorporates (1) the external-to-
the-firm view provided by the I-B theory of
business strategy, (2) the internal-to-the-firm
view provided by the R-B and C-B theories of
business strategy, and (3) marketing’s
contributions (in the form of MO and RM)
to business strategy.
First, R-A theory shares with industry-based
theory the view that the firm’s objective is
superior financial performance and that the
proximate cause of superior financial
performance is marketplace position. For R-
A theory (see Figures 1 and 2), superior
(parity, inferior) financial performance results
from marketplace positions of competitive
advantage (parity, disadvantage).
Secondly, R-A theory agrees that a ‘‘stress
on resources must complement, not substitute
for, stress on market positions’’ (Porter 1991,
108). Indeed, R-A theory integrates the
marketplace position view with the resource
view by positing that it is a comparative
advantage (disadvantage) in resources that
results in marketplace positions of competitive
advantage (disadvantage) and superior
(inferior) financial performance. Therefore,
R-A theory provides an explanation for
Porter’s (1991) claim that some firms are
superior to others in performing value-chain
activities: such superior-performing firms
have a comparative advantage in resources,
e.g. specific competences related to specific
value-producing activities. ß Blackwell Publishers Ltd 2000

35
Marketing's Third, R-A theory agrees that competitors,
contribution to suppliers and customers influence the process
business strategy of competition and firm performance (see
Figure 1). However, it disagrees with ‘‘Bain-
type’’ IO that industry structure entirely
determines performance. Furthermore, it
disagrees with industry-based strategy that
‘‘industry’’ is the major determinant of
performance. Empirical research indicates that
it is idiosyncratic firm factors, not industry
factors, that explain most of the variance in
firm performance. Industry is the ‘‘tail’’ of
competition; the firm is the ‘‘dog’’ (Hunt and
Duhan 2000).
Fourth, as to resource-based theory, R-A
theory specifically adopts a resource-based
view of the firm. Defining resources as the
tangible and intangible entities available to the
firm that enable it to produce efficiently and/
or effectively a market offering that has value
for some market segment(s), R-A theory
views firms as combiners of heterogeneous,
imperfectly mobile resources that are
historically situated in space and time. The
premise that firms combine heterogeneous
resources contributes to R-A theory’s ability
to explain firm diversity in size, scope, and
financial performance. The premise that many
firm resources are imperfectly mobile (i.e. not
readily available for acquisition in the factor
markets) contributes to R-A theory’s ability to
explain how some firms can have sustained,
superior financial performance despite the
efforts of rivals. Specifically, rivals will fail
(or take a long time to succeed) to acquire,
imitate or find substitutes for a competitor’s
advantage-producing resource when it is
either protected by such societal institutions
as patents or it is causally ambiguous, socially
complex, highly interconnected, tacit or has
time compression diseconomies or mass
efficiencies.
Fifth, both resource-based theory and R-A
theory draw on the historical tradition
(Chandler 1990) and view firms and their
resources as historically situated entities.
Indeed, historical ‘‘accidents’’ and luck can
ß Blackwell Publishers Ltd 2000 contribute to explaining firm performance. For
36
example, a retailer’s location may become
valuable because, long after the site is chosen,
a freeway is built adjacent to it. Therefore,
‘‘the firm’’ in R-A theory is not a mathe-
matical abstraction to which the mathematics
of calculus can be applied. Nonetheless, R-A
theory is argued to be a general theory of
competition that incorporates the production
function, mathematical abstraction of the firm
in neoclassical theory as a special case (Hunt
2000). Therefore, R-A theory shows when the
production-function view of the firm will
predict well.
Sixth, R-A theory agrees with competence-
based theory that competition is funda-
mentally dynamic, i.e. disequilibrium provok-
ing. For R-A theory, the quest for superior
financial performance (i.e. more than, better
than) is the major driver of dynamism in R-A
competition. Because all rivals cannot be
simultaneously superior, competition stimu-
lates the proactive and reactive innovations
that ensure dynamism. Proactive innovation is
innovation by firms that, though motivated by
the expectation of superior financial
performance, is not prompted by specific
pressures from specific competitors. As such,
it is genuinely entrepreneurial in the classic
sense of entrepreneur, i.e. in the sense of
spotting new opportunities and subsequently
developing market offerings (Kirzner 1979).
Contrasted with proactive innovation,
reactive innovation is directly prompted by
the learning process of firms’ competing for
the patronage of specific market segment(s).
Firms learn through competing as a result of
the feedback from relative financial perform-
ance signaling relative marketplace position,
which in turn signals relative resources (see
Figure 1). When firms competing for a market
segment learn from their inferior financial
performance that they occupy positions of
competitive disadvantage (cells 4, 7, and 8 in
Figure 2), the goal of superior performance
motivates them to attempt to neutralize and/or
leapfrog the advantaged firm (or firms) by
acquiring the resource and/or reactive
innovation.
 Se ve n t h , R -A t he o r y a gr e e s wi t h
competence-based theory that firms learn.
For competence-based theory, because
organizational knowledge is fundamental to
organizational competence, a key question is
how organizations learn. Defining organiza-
tional knowledge as ‘‘the shared set of beliefs
about causal relationships held by individuals
within a group’’, competence-based theory
views organizational learning as the ‘‘flows
that lead to a change in the stocks of beliefs
within the organization’’ (Sanchez and Heene
1997, 6). Therefore, ‘‘strategically important
organizational learning consists both of the
process for creating new knowledge within
individuals and groups within a firm . . . and
processes to leverage knowledge effectively
within and across organizations’’ (Sanchez
and Heene 1997, 8).
Similarly, R-A theory recognizes that firms
learn in many ways, e.g. by conducting formal
marketing research, dissecting competitors’
products, ‘benchmarking’, competitive
intelligence, and test marketing. What R-A
theory emphasizes is how the process of
competition itself contributes to organiza-
tional learning: firms learn by competing as
a result of feedback from relative financial
performance signaling relative marketplace
position, which in turn signals relative
resources (see Figure 1). Through competi-
tion, firms come to know (or believe that they
know) their relative resources and market-
place positions.
To summarize, R-A theory can provide a
theory of competition within which business
strategy can be integrated because it (1) agrees
that a firm’s objective is superior financial
performance, (2) integrates I-B and R-B
views, (3) agrees that industry structure influ-
ences competition, (4) specifically adopts a
resource-based view of the firm, (5) draws on
historical tradition, (6) agrees that competition
is dynamic and disequilibrium provoking, and
(7) accounts for learning through competition.
Conclusion
Although overlooked to some degree by non-
marketing disciplines, the discipline of
marketing has contributed significantly to the
body of knowledge on business strategy over
the last two decades. This paper evaluates
these contributions, examines how they com-
plement dominant non-marketing theories of
business strategy, and shows how marketing
offers a generalized theory of competition that March 2000
integrates the concepts of both marketing and
non-marketing theories of business strategy.
The key research streams in marketing that
have made the greatest contribution to
business strategy are MO, RM and R-A
theory. MO has operationalized and extended
the concept of marketing concept – the
cornerstone theory of marketing as a dis-
cipline. RM extends research on the
development of competitive advantage from
an intra-firm to an inter-firm process through
the acknowledgement of the independence of
firms in exchange relationships. Also, much of
research on MO, RM and R-A theory
complements and extends the business
strategy research on I-B theory, R-B theory
and C-B theory. In addition, marketing’s R-A
theory offers a theory of competition that
integrates the I-B, R-B and C-B theories,
along with research on the marketing streams
of MO and RM.
For both the marketing and non-marketing
audience, it is hoped that this article has shed
light on marketing’s contribution and potential
future contribution to the study of business
strategy. An improved dialogue between mar-
keting and other disciplines will enhance the
efficiency and effectiveness with which the
body of knowledge on business strategy grows.
Note
1 Please refer all correspondence to Shelby D.
Hunt, The J.B. Hoskins and P.W. Horn Professor
of Marketing, Texas Tech University, Lubbock
TX 79409, USA. Phone: 806-742-3436; Fax:
806-742-2199.
ß Blackwell Publishers Ltd 2000
37
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