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Entrepreneurship and Marketing

Abstract and Keywords

Entrepreneurship and marketing are intimately related. This article examines their relationship from three perspectives, the market process perspective, the marketing perspective, and the perspective of the entrepreneurial firm. These provide complementary insights into the connections between the two concepts. The article briefly considers definitions of entrepreneurship and marketing. It then discusses the three complementary perspectives in turn. The final section provides a summary and identifies areas for further research.

Keywords: market process perspective, marketing perspective, entrepreneurship, entrepreneurial firm perspective, entrepreneurship and marketing

‘In the real and living economy every actor is always an entrepreneur.’

(Mises, 1949)

5.1 Introduction

Entrepreneurship and marketing are intimately related. This chapter examines their relationship from three perspectives, the market process perspective, the marketing perspective, and the perspective of the entrepreneurial firm. These provide complementary insights into the connections between the two concepts. This section briefly considers definitions of entrepreneurship and marketing. The following (p. 115) three sections discuss the three complementary perspectives in turn. The final section provides a summary and identifies areas for further research.

Neither concept has a single, universally agreed definition. Theories of the entrepreneur and entrepreneurship are discussed elsewhere in this book, especially in Chapters 1 and 2. The discussion here draws particularly on aspects of entrepreneurship concerned with the discovery of new opportunities for resource allocation (Kirzner, 1997), with innovation (Schumpeter, 1934), with making markets (Casson, 2003) and with the creation of entrepreneurial firms (Gartner, 1990; Casson, 2003). The chapter explores the role of marketing in each of these.

Marketing has been given many definitions. Crosier (1988) reviews more than 50. The main definition adopted here is a functional one, and conceives marketing as the set of activities undertaken by firms for aiding and organizing market exchange. To the extent that entrepreneurs are concerned with organizing market exchange they are carrying out marketing activities, whether or not they describe them as such. The chapter examines the significance of these activities in entrepreneurship.

Marketing is, however, not merely a set of activities. It is also a particular approach to business which determines a firm's priorities. The ‘marketing concept’ (Kotler, 2000: 19–25) refers to market orientation in the conduct of business which is a focus on satisfying the needs and wants of customers. This approach is based on the premise that greater customer satisfaction enhances the profits of the firm. The chapter will also consider the significance of market orientation in entrepreneurship.

5.2 The market process perspective

Economists have increasingly analysed the processes which take place in markets and not just their equilibrium outcomes (Nelson and Winter, 1982; Langlois, 1986; Krafft, 2000). The strongest contributions to this field have come from the Austrian school of economics, which places entrepreneurship and the discovery and exploitation of new opportunities at the centre of the market process (Kirzner, 1973, 1979, 1997; Boettke and Prychitko, 1994). But aspects of the market process have also been examined in the marketing literature, in Casson's study of the entrepreneur and the market-making firm, and by Loasby (1986, 1999) who suggested an alternative (Marshallian) process of competition. This section considers these four strands in turn.

(p. 116)

5.2.1 The Austrian market process framework

In Austrian models of the market process the entrepreneur, usually considered as an individual, initiates change in the market by identifying and introducing new trading opportunities. Possible opportunities are arbitrage between agents who are unaware of each other, improved versions of established commodities or new concepts for products or services. Change depends on the drive and ability of entrepreneurs to discover and to exploit opportunities which are unknown to other agents until they are initiated by the entrepreneur. Hayek (1945, 1948) and Mises (1949) both saw the process as one of dynamic competition between agents in contrast to the neoclassical model of competition as a static equilibrium. Hayek emphasized the need to explain how knowledge is disseminated amongst market participants; Mises stressed the role of profit seeking by entrepreneurs in driving the process.

As Martin Ricketts discusses in Chapter 2 of this Handbook, Austrian theory has proposed several distinct types of market process. Schumpeter (1934) described the entrepreneur as a radical innovator, a disruptor of an existing equilibrium and the instigator of a process of ‘creative destruction’. Conversely, Kirzner (1973, 1979, 1997) envisaged a market temporarily stuck in a disequilibrium, with unexploited opportunities for more efficient use of resources. Entrepreneurs are distinguished by alertness to opportunities for change and they ‘grasp opportunities for pure entrepreneurial profit created by temporary absence of full adjustment between input and output markets’ (1997: 69). Notwithstanding occasional mistakes, their activities move the market towards a potential equilibrium. Shane and Venkataraman (2000) (see also Shane, 2003: 19–22) argue that the Schumpeter's and Kirzner's theories reflect different types of opportunity. Kirznerian opportunities arise from entrepreneurs discovering possibilities inherent in existing information to which entrepreneurs are more alert than others, whereas Schumpeterian opportunities are the result of creation of new information (particularly technology). Kirzner's entrepreneurs move the market towards the equilibrium inherent in current conditions while Schumpeter's creates the prospect of different, more valuable, equilibrium outcomes.

Another distinct type of market process is described in what Littlechild (1986) has called the ‘radical subjectivist’ approach, drawing on the subjectivist economics of Shackle (1969, 1979) and represented by the work of Lachman (1976, 1977, 1986). In Kirzner's theory, entrepreneurs discover changing opportunities that arise, independently of the entrepreneurs, in an objective world. In the radical subjectivist world, there is no separate reality independent of the actors within the market. Important aspects of the world, which yield opportunities for entrepreneurial activity, depend entirely of the imagination of the entrepreneurs and their ability to create alternatives that do not yet exist. A consequence is that no equilibrium can exist, since the direction taken by the market process depends at least partly on the imaginations of the market participants.

(p. 117) 5.2.2 Marketing and the market process

The Austrian view of the market process was motivated by political economy rather than business strategy. Its primary purpose was to explain why the market process could be more effective than socialist planning (Kirzner 1997: 74–8). The means by which entrepreneurs discover and exploit market opportunities do not form a central part of the theory, but the marketing literature is concerned precisely with these questions. Several strands connect directly with the Austrian market process framework.

An author who wrote at length about marketing as a competitive process was Wroe Alderson (1957, 1965). He recognized markets as arenas of dynamic, rivalrous competition in which firms are engaged in a constant struggle to establish and maintain an advantage over competitors.

Each firm competes by making the most of its individuality and its special character. It is constantly seeking to establish some competitive advantage. … It is the unending search for differential advantage which keeps competition advancing. A firm which has been bested by competitors according to certain dimensions of value in products or services always has before it the possibility of turning the tables by developing something new in other directions. The company that is in the lead is vulnerable to attack at numerous points. Therein is a strong incentive for technical innovation and other forms of economic progress, both for the leader who is trying to stay out in front and for others who are trying to seize the initiative. (Alderson 1957: 101–2)

Competitive advantage is achieved by engaging in an unending search to differentiate products from those of competitors. Alderson analysed the ‘domain of marketing’ as a process of sorting heterogeneous supply to meet heterogeneous demand and leading to exchange (1957: 195–228). Unlike economic analysis, which has emphasized the breaking down of supply into homogeneous commodities, marketing theory emphasizes the building up of heterogeneous collections of products—which Alderson called ‘assortments’—designed to serve the demands of consumers. Reekie and Savitt (1982) discuss the Austrian character of this process. Information mismatch is a state of ignorance in the sense of Loasby (1976). Managers do not know all the possible outcomes and cannot make decisions by calculation (Alderson, 1965: 60–4). A product is only ‘adequately identified’ for a consumer if ‘the supplier has guessed right’ (Alderson, 1965: 61), where ‘guessing’ stands for entrepreneurial intuition. Heterogeneous markets are not mediated by price, but by continual and unending entrepreneurial innovation.

A homogeneous market can be cleared by adjustments of price and quantity. A heterogeneous market can only be cleared by information matching two sets, one ranging over heterogeneous demand the other ranging over heterogeneous supply. A discrepant market is only cleared by innovation. … If strongly motivated problem solvers face each other … it can never be cleared but only moves in the direction of that equilibrium state. Another state, representing new requirements and new opportunities, has arisen before the last is satisfied. (Alderson, 1965: 207)

(p. 118)

Dickson (1992) proposed a synthesis of marketing planning with the Austrian market process. He depicts innovation and entrepreneurial change in the market as the outcome of a continuous two-phase process of ‘imperfect procedural rationality’, based in firms, but influenced by, and influencing, the market environment. In the external (macro-market) phase, heterogeneous supply and heterogeneous demand are in constant change and constant disequilibrium. In the internal (micro-procedural rationality) phase, sellers conduct market experiments, learn both directly and vicariously from the market and imitate and improve successful innovations. The most competitive firms are those with an insatiable self-improvement drive (experimenting), with acute and less biased perceptions (learning) and who can implement change fastest (imitating/improving). In contrast both with economists' optimization and with Simon's notion of ‘satisficing’ (Simon, 1978), the drive for experimenting is both the result and the cause of dynamic competition.

Dickson argues that the competitive process forces firms to adopt a customer-oriented approach corresponding to the ‘marketing concept’.

Our theory is that oligopolistic rivalry forces a seller to serve the interests of their customers noticeably better than its competitors. Such customer service improvement is a very conscious, deliberate, relentless process with a clear intended end; it is not incidental, coincidental, accidental, or unintended. In the marketing management literature that idea has been called the ‘marketing concept’. (Dickson, 1992: 77)

The ‘marketing concept’ originated in the 1950s (McKitterick, 1957; Keith, 1960) and has a central place in the marketing management literature (see below; also Kotler, 2000: 19–25; and Baker, 2000: 7–12). A definition offered by Houston indicates how it illuminates the entrepreneurial process:

The marketing concept states that an entity achieves its own exchange determined goals most efficiently through a thorough understanding of the potential exchange partners and their needs and wants, through a thorough understanding of the costs associated with satisfying those needs and wants, and then designing, producing, and offering products in the light of this understanding. (Houston, 1986: 85)

The marketer understands potential exchange possibilities and the marketing concept incorporates alertness to as-yet-unrealized possibilities that is the hallmark of the Misesian and Kirznerian entrepreneur.

Theodore Levitt (1960) used the term ‘marketing myopia’ for a lack of such alertness, making recommendations to managers which were consciously Schumpeterian:

For their own good … firms will have to destroy their own highly profitable assets. No amount of wishful thinking can save them from the necessity of engaging in this form of ‘creative destruction’. I phrase the need as strongly as this because I think management must make quite an effort to break itself loose from conventional ways. (Levitt, 1960: 53)

Levitt also described how successful firms imagine the requirements of their potential customers, often imagining needs that customers have not yet conceived and persuading customers to change as well: (p. 119)

Nothing drives progress like imagination. The idea precedes the deed. … The marketing imagination is the starting point of success in marketing. It is distinguished from other forms of imagination by the unique insights it brings to understanding customers, their problems and the means to capture their attention and their custom. … To attract a customer, you are asking him to do something different from what he would have done in the absence of the programs you direct at him. He has to change his mind and his actions. Hence the seller must distinguish himself and his offering from those of others so that people will want, or at least prefer, to do business with him. The search for meaningful distinction is a central part of the marketing effort. If marketing is seminally about anything, it is about achieving customer-getting distinction by differentiating what you do and how you operate. All else is derivative of that and that only. (Levitt, 1983: 127–128)

The nexus between marketing and entrepreneurship is clear. Firms which successfully identify entrepreneurial opportunities depend on marketing skills to help them understand, influence and, above all, attract customers. Robertson and Yu (2001) examine the problem of attracting customers from a market process perspective. Advertising is, of course, an important tool, which does more than inform. Entrepreneurial firms are more alert than potential consumers and use strongly emphasized messages, such as large billboard campaigns, repeated TV commercials and celebrity endorsement, in order to gain consumers' attention (Kirzner, 1973). Persuasive advertising sets out to change the tastes of consumers.

Very often, consumers' perceptions of the external world are ‘locked in’ by their past experience and, therefore, consumers show no interest in new consumption opportunities, even though they may know of their existence. Advertising helps consumers unlock their prior knowledge and perceptions. (Robertson and Yu, 2001: 189)

(See Littlechild (1982) for a deeper analysis of the role of advertising in unlocking customers' perceptions.) Robertson and Yu suggest a dynamic framework for Aldersonian matching of heterogeneous supply with heterogeneous demand in a multi-dimensional attribute space (Lancaster, 1971). A supplier might meet some buyer needs by matching up with those demand space attributes in which it has expertise. Alternatively a firm may use persuasion to move consumer preferences towards the attributes it is able to offer. A richer possibility is that firms actively seek a match by mutual discovery (consumer focus groups for example) to strike a balance between customer needs and technical feasibility.

5.2.3 The market-making firm

A study which links Austrian theory directly with marketing is Casson (2003; first published 1982), whose aim was to construct a theory of the entrepreneur which takes into account ‘the difficulties that are inherent in organizing a market’ (p. 120) (Casson, 2003: 14). Casson considered obstacles to trade which the entrepreneur must overcome and the market-making services required to overcome them. Transaction cost arguments imply that some market-making services (although not all) are supplied most efficiently if they are internalized, under the control of the entrepreneur, through the creation of a market-making firm.

Casson's analysis was intended primarily to explain the establishment of new firms as the solution to the market organizing problems of individual entrepreneurs. But all businesses face the problem of market organization, whether they are newly founded by entrepreneurs or long-established joint stock companies. Obstacles to trade exist for all firms, new and old, and these must be dealt with by one or more of the parties to any trade. Many of the Casson's conclusions about market making by the entrepreneurial firm extend to other types of firm and this suggests a promising way of looking at the nature of marketing itself as a business function. Marketing can be identified precisely as that set of activities concerned with overcoming obstacles to trade or with making the market. The mature marketing organization appears to be a natural development of Casson's entrepreneurial market-making firm.

It is thus possible to see Casson's study as the foundation for a general theory of marketing. Although this was not its purpose—for example the list of market-making activities which he discusses (see Casson, 2003: 84 and 148) does not, except in a general sense, include all the tasks and concerns that are found in modern marketing textbooks—it nevertheless provides an explanation, grounded in economics, of why marketing plays such an important role in business. Casson observes that the greatest risks faced by a firm come from market-making (2003: 161). By providing market-making services, a firm effectively insures its potential exchange partners against the risks of entering the market, but the costs of these services are recovered only if, and when, exchange is successfully completed. The focus of marketing on managing the demand side of the market is thus readily understood.

Casson's description of the growth and dynamics of the entrepreneurial firm (2003: ch. 11) captures many aspects of marketing firms in general. Having incurred the set-up costs of a purpose-built, market-making organization it is then in the interests of the business to secure the stability of the organization as far as possible into the future. Firms benefit from information gained by experience, both from the practice of production and other processes and from information about reactions of buyers—and of non-buyers—in the market. Such information helps the firm to maintain its lead over potential imitators and provides both an incentive and a means to enhance demand. Information from the market can reveal further opportunities for entrepreneurial diversification although constrained, eventually, once the firm's indivisible resources are fully utilized. Competitive entry leads, of course, to dynamic competition of the kind already discussed.

(p. 121) 5.2.4 Marshallian competition

Loasby (1986, 1999) has explored market competition focusing on the market processes described by Marshall (1919, 1920). Marshall considered that ‘the marketing side of the work of a business is an integral process, and not a series of independent transactions’ (1919: 270) and provided an elaborate discussion of market-making by merchants and manufacturers (1919: 271–8). A firm's ‘external organization’—its involvement with trading partners and competitors in the market—was both a source of knowledge of new opportunities and a place to experiment.

Each firm's investment in the organization of its particular market was both a source of information which could be used as the basis for new ideas and also an environment in which these ideas could be tested, and discussed and improved before testing; and the intersection of the external organizations of rival firms helped to distribute knowledge within the larger market. Essential to this process, as Marshall observed, were the differences among the market participants in their capabilities, experience, and perception, which together generated the variations from which new combinations of ideas could be formed. (Loasby, 1999: 123)

Innovations are therefore not solely due to discontinuous entrepreneurial discovery but can also result from a continuous process involving established firms enduringly engaged—along with others—in the market. This suggests two types of discovery process, which Loasby called Schumpeterian and Marshallian competition respectively (1986). The gradual Marshallian process resembles Kirzner's equilibrium process in a number of respects, not least in its contrast with the disruptiveness of Schumpeterian change, although while Loasby emphasizes a particular process of learning by established firms within the market, Kirzner leaves the source of entrepreneurial discovery more open. Loasby interpreted these types of competition in the light of contrasting models of scientific discovery. Kuhn (1962) claimed that science advances by means of revolutions in which an accepted framework of ideas (a ‘paradigm’) is found wanting and displaced by a new paradigm. However, according to Lakatos (1970), progress in science also takes place in scientific research programmes, where core concepts (the ‘hard core’) do not change, but a ‘protective belt’ of supporting ideas may be changed and adjusted in the light of experience. Loasby suggested that stable, hard core concepts allow an organization (or a group of organizations linked in the market) to maintain organizational coherence while engaging in a Marshallian research programme of continual discovery. (A similar proposition has been made by Foss and Christensen, 2001). But from time-to-time, a Schumpeterian paradigm-shift takes over, when a rival research programme, perhaps conducted by a different organization, can offer better solutions. Learning in the competitive market depends on both types of process coexisting:

Somehow or other, we need to maintain both the structured competition between organizations operating within imperfectly specified research programmes, and also the (p. 122) more fundamental competition between rival programmes. We need both Marshall and Schumpeter. (Loasby, 1986: 56)

The market process perspective emphasizes several themes linking entrepreneurship and marketing. Markets are dynamic and firms' success depends on never-ending alertness to opportunities and competition. Competition is a complex process requiring an intimate understanding and an intricate interchange of information between the supply-side and the demand-side of a market. Suppliers must focus on the wants of buyers, and often imagine them before the buyers do themselves. Exploiting opportunities depends on organizing the market-making services that allow demand to be fulfilled and on influencing demand enough to recover the costs. Two kinds of process, one continuous and gradual, the other discontinuous and disruptive, are both important.

5.3 The marketing perspective

Marketing activities, designed to overcome obstacles to trade, have a long pedigree. Fullerton (1988) places the origins of ‘modern marketing’ (‘pervasive attention to stimulating and meeting demand among nearly all of society’) at 1759 in Britain and around 1830 in Germany and USA (Fullerton, 1988: 122). We have seen that Marshall described marketing activities in 1919, but an established literature on marketing, and particularly the identification of marketing as a distinct business function, is much more recent. The ‘marketing management school’ was initiated in the 1950s and 1960s with the aim of promoting a more entrepreneurial approach to business management, especially through being more deliberately market oriented. It was applied most widely in large firms, and what developed was a framework of rational market planning which was well adapted to conditions of market stability but which, in the view of some, failed when markets were turbulent, the very conditions in which entrepreneurship is needed. A subsequent approach, therefore, has proposed an entrepreneurial mode of marketing. This section first examines the origins and character of marketing management and then the entrepreneurial approach that has grown out of it.

5.3.1 Marketing management

The starting point of the marketing management school was the thesis that the decline of once successful businesses was most often due to a failure of (p. 123) management. The failure was to be too concerned with their products and with selling them in the face of competition and not concerned enough with changing requirements of their markets which would in time make these products obsolete (Levitt, 1960). The answer for firms was to adopt a new business philosophy, in the marketing concept, and a business function, in marketing management (Baker, 2000).

Several authors helped to build the new school of thought, including Drucker (1954), Levitt (1960), McCarthy (1960), Borden (1964) and Kotler (1967). The view of marketing that these and others created was that it was the leading function of business which, applied effectively, would enable any firm to meet the requirements of customers and meet its own goals. Note, for example, the definite article in the American Marketing Association definition:

Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, services to create exchanges that satisfy individual and organizational goals. (Bennett, 1995, emphasis added)

Marketing management developed as an intellectual discipline which was systematic, analytical and comprehensive. Optimal performance in a given market could be achieved by managing the marketing mix (product, price, promotion, distribution); the needs of different customers could be analysed by identifying market segments; products could be differentiated by positioning; customer tastes could be understood through marketing research; competition could be understood by competitor analysis; economic, technical, social and political trends could be tracked by analysing the marketing environment. Innovation, for Levitt the raison d'être of the new ideas, could also be systematized: idea screening, concept testing, product development, test marketing, national launch.

In a review of the development of marketing management Webster (1992) observed how the new approach drew enthusiastically on economics, behavioural science and quantitative methods, in line with the demand from policy analysts of the day for rigorous analysis in business education. The new ideas for professional marketing were adopted most quickly and most extensively by large, hierarchical, integrated corporations, for whom ‘responsible marketing management called for careful problem definition, evaluation of multiple alternatives from which a course of action would be chosen that had the highest probability, based on the analysis, of maximizing profit’ (Webster, 1992: 3–4). The original advocates of managerial marketing had wanted established firms to anticipate and be the leaders of change (Levitt, 1960, 1983). But it became, in the way it was taught, an ‘optimizing paradigm’ and was formalized into a set of models and routines.

Did this framework improve the market-making process in the way it was hoped by its authors? Or did it replace one managerial failure, product focus, with another: centralized, bureaucratic marketing which would hold back entrepreneurship? The answer is, cautiously, yes to both. The growth of managerial marketing (p. 124) was well aligned with the relatively stable market conditions of the time in which it developed. Mass consumer markets grew, corporations expanded. The deliberative, formalized approach of marketing management gave firms a sophisticated method for developing their ‘external organization’ which may have helped to bring about (but at least coincided with) a period of fruitful Marshallian competition and high optimism. But stability and growth did not last. The 1970s were less certain and more turbulent, and the optimizing model of managerial marketing became the subject of critical discussion, some of which sought explicitly to address the role of the entrepreneurial spirit.

5.3.2 The entrepreneurial mode of marketing

In a significant paper Murray (1981) drew on the idea of Ansoff et al. (1976) that firms' behaviour reflected the changing business environment. In a stable environment firms are able to maximize the efficiency of systems which they know and understand, within accepted, unchanging strategic parameters. They can, and do, engage in innovation, but in these conditions they do so continuously (in the sense of incrementally). This environment and this behaviour are what Ansoff et al. and Murray call ‘competitive’. ‘Competitive’ behaviour in this sense corresponds to managerial optimization. An unstable environment however does not permit ‘continuous’ optimizing behaviour of this kind. When the environment is turbulent, then only discontinuous strategic change will do. This environment and this behaviour are both called ‘entrepreneurial’. We therefore have two possible modes of behaviour, and adaptive firms must be able to encompass both if they are to remain competitive in competitive markets and to weather the turbulence of entrepreneurial ones.

Murray's strongest claim, however, is to place marketing at the heart of the entrepreneurial mode, just as the optimizing marketing view sees marketing as the focus of the competitive mode.

Of all the areas of specialist technical and professional expertise, marketing is uniquely equipped, and indeed should feel uniquely responsible, for analyzing environmental evolution and translating its observations into recommendations for redesign of the corporate resource base and its product-market portfolio. (Murray, 1981: 96)

One requirement is that the marketing manager become something of a professional administrative entrepreneur. … There is a need therefore for managers who are creative, innovative, skilled in initiating and managing organizational change, and open to radical reconceptualizations of their market and their consumer environment. (Murray, 1981: 97)

The first part of Murray's proposition, that management can adopt different modes with different entrepreneurial character, has been widely explored. (p. 125) Mintzberg (1973) discussed characteristics of entrepreneurial, adaptive and planning modes, together with the environments and the stages of development of firms in which they are likely to be found. He thought that large firm planning required a relatively stable environment, but acknowledged the possibility of mixed modes, such as entrepreneurial planning. Miller and Friesen studied entrepreneurial behaviour in several types of firms (Miller and Friesen, 1982; Miller, 1983) and the impact of the business environment on entrepreneurial strategy-making (Miller and Friesen, 1983; see also Covin and Slevin, 1989). It has become widely accepted that established, mature corporations and not just new ventures can be entrepreneurial (Stevenson and Jarillo, 1990). Covin and Slevin (1991) proposed a conceptual model of entrepreneurial behaviour in large established firms: entrepreneurial firms are risk-taking, innovative and proactive, and the choice of posture may be influenced by environmental factors and strategic position as well as organization culture, resources and structure.

The second part of Murray's (1981) proposition was that marketing itself is inherently entrepreneurial and should play a central role in the entrepreneurial firm. Several subsequent authors of that period reflected on the same idea. Jain (1983) discussed the evolution of strategic marketing as a stage which can anticipate change and alter the strategic parameters, prior to the optimizing activities of marketing management. More radically, Zeithaml and Zeithaml (1984) suggested that the marketing discipline should be reformulated. Whereas it had traditionally been reactive, in effect a constrained optimization, subject to ‘uncontrollable’ environmental factors it should develop strategies for proactive, entrepreneurial management of the external environment. Simmonds argued that marketing can be viewed as ‘organized rational innovation–a function concerned with identifying the opportunity for change, introducing the action required and monitoring the change once introduced’ (1986: 479). Citing Alderson (1965), he saw marketing as ‘fundamentally about change’ (p. 494) and the problem to be addressed was how to establish and maintain an innovative marketing function within an organizational environment which would resist.

These ideas have been followed by a stream of empirical research examining the relationships between marketing, entrepreneurship, innovation and performance. Morris and Paul (1987) reported a positive association between entrepreneurial orientation (measured by attitudes and behaviour reflecting company management's approach to risk, to innovation and demonstrating proactiveness, after Miller and Friesen, 1983) and marketing orientation (measured by organization structure, sources of customer feedback and managerial attitudes). Morris et al. (1988) found that marketing managers perceived that entrepreneurial characteristics of firms and individuals are important for the success of a firm and that the marketing department was the strongest source of such expertise. Support for the suggestion that entrepreneurship and innovation matter comes from research into the marketing concept itself. Researchers seeking to establish a simple relationship (p. 126) between market orientation and firm performance have found that increased market orientation alone does appear to be positively related to performance (Kohli and Jaworski, 1990; Kohli, Jaworski, and Kumar, 1993; Narver and Slater, 1990), but that it is not sufficient. Barrett and Weinstein (1998) tested a model in which corporate entrepreneurship, market orientation and flexibility are all connected with performance; Han, Kim, and Srivastava (1998) found evidence that innovation was an important mediating factor; Hult and Ketchen (2001) reported significant contributions from entrepreneurship, innovativeness and organizational learning together with market orientation; Matsuno, Mentzer, and Özsomer (2002) found that entrepreneurial proclivity affected market orientation and the effect of entrepreneurial proclivity on performance was positive only when mediated by market orientation; Weerawarden and O'Cass (2004) found that both entrepreneurial intensity and market focused learning capability are important factors in sustained competitive advantage from innovation.

The close relationship between marketing and entrepreneurship suggested by this research prompted Miles and Arnold (1991) to ask whether marketing orientation and entrepreneurial orientation were the same or whether they were distinct ‘business philosophies’. Factor analysis of the responses of a sample of senior managers to multi-item scales for each construct implied that the constructs were positively correlated but measurably different. Atuahene-Gima and Ko (2001) clarify the difference between the two:

[M]arketing orientation is an adaptive capability by which firms react or respond to conditions in the market environment. … Entrepreneurial orientation, in contrast, is an environmental management capability by which firms embark on proactive and aggressive initiatives to alter the competitive landscape to their advantage. (Atuahene-Gima and Ko, 2001: 57)

The importance of the distinction is the basis of a recent highly specific claim by Bhuian, Menguc, and Bell (2005) that the relationship between market orientation and business performance is convex with respect to entrepreneurial orientation. When entrepreneurial orientation is too low, firms are risk averse and do not exploit the insights that market intelligence reveals. Innovation is cautious and incremental and the relation between market orientation and performance is weak. When entrepreneurial orientation is too high, then firms use market intelligence only selectively. Innovation is R&D driven and may not be well aligned to market conditions. Again the relation between market orientation and performance is weak. When entrepreneurial orientation is ‘just right’, firms use the right amount of market intelligence to evaluate their entrepreneurial initiatives and the relation between market intelligence and performance is strong.

While the market process perspective considers market competition as a system, the marketing perspective examines implications for management within the firm. Just as marketing and entrepreneurship are linked in the market, they appear as distinct but complementary components of the management process. Markets (p. 127) exist because market-making is undertaken by firms and market orientation aligns management with the market process. It is therefore not surprizing to find that the mode of marketing management can reflect the type of market process. In stable ‘Marshallian’ conditions, continuously incremental (‘competitive’) marketing may yield the best results. But in other conditions, or when an opportunity is identified, discontinuous, Schumpeterian innovation is better. To echo Loasby, there are two types of marketing process and for any firm, over time, there will almost certainly be a need for both.

5.4 The entrepreneurial firm perspective

In much of the entrepreneurship literature the entrepreneur is, by definition, the creator of a new firm (Gartner, 1988, 1990). As discussed above, Casson's (2003) view of the newly created firm is an organization through which the entrepreneur facilitates market exchange. In this respect entrepreneurial firm creation is market-making at its most direct and, although entrepreneurs may not always describe it as such, it is a form of marketing.

The term entrepreneurial firm will largely be used in this section to denote a newly founded entrepreneurial business. In part this is because the predominant focus of the entrepreneurship literature is the new firm and the aim of this section is to examine what this literature has to say on the subject of marketing. It is also intended to reflect the idea that firm creation is itself an act of entrepreneurial marketing which is central to the theme of this chapter. However, well-established entrepreneurially oriented firms of the kind discussed in the previous section can also be described as entrepreneurial firms and some ideas discussed here apply to these cases equally well.

Two characteristics of the new entrepreneurial firm have implications for its approach to marketing. One is the novelty and the innovative character of its activities, so that expertise is usually concentrated in a small group or on a single individual. The other is its relatively small size and the consequent limited availability of resources. Tyebjee et al. (1983) proposed that marketing in such firms passes through four definable stages from birth to maturity. The new firm is in the ‘entrepreneurial marketing’ stage, the least structured and most informal of the four. Entrepreneurial marketing is identified with the person of the founding entrepreneur. Market contacts depend on the entrepreneur's personal network, customers rely on attention of top management and low volumes (p. 128) preclude expenditure on promotion and sales staff. Only as the firm progresses through the subsequent stages, comprising ‘gradual delegation’, ‘specialization’ and finally ‘professionalization’, does the marketing function conform to the managerial model.

Research on marketing in the entrepreneurial firm is comparatively recent and no strong consensus has yet emerged. The remainder of this section examines two strands in which some foundations have been laid. The first is a specific programme of research at the ‘marketing/entrepreneurship interface’. The second is of more general work on marketing in small firms.

5.4.1 The marketing/entrepreneurship interface

The most sustained exploration of marketing in the entrepreneurial firm is in the Research at the Marketing/Entrepreneurship Interface Symposia, published to date in fifteen volumes of Proceedings of the UIC Symposium on Marketing and Entrepreneurship (Hills, 1987; Hills et al., 19892002). Research in this programme examines entrepreneurial activity in fine detail and a review is beyond the scope of this chapter. A common research agenda between marketing and entrepreneurship was described by Hills and LaForge (1992) and Hills (1994) collected together preliminary findings. An early framework was provided by Gardner (1994) who defined the interface between marketing and entrepreneurial behaviour as ‘that area where innovation is brought to market’ (1994: 38). He identified information as the ‘key and principal variable to understand the marketing/entrepreneurship interface’ (p. 45), noting Alderson's (1965) emphasis on information flows and Casson's (1982, 1st edn) view (cited in Gardner, 1994) of the entrepreneur as the critical seeker and synthesizer of this information. He pictured the marketing/entrepreneurship interface as a gap between the entrepreneur (including the ‘intrapreneur’ or the large entrepreneurially oriented firm) on one side and the market on the other. The gap is surrounded by information, but it is to be filled with concepts. He listed what he saw as the major concepts (marketing concept; market segmentation; time, place and possession utility; product life cycle; strategic planning) but concluded that the gap remained to be filled: ‘Marketing's role in innovation, then, is to provide the concepts, tools, and infrastructure to close the “gap” between innovation and market positioning to achieve sustainable competitive advantage’ (Gardner, 1994: 49).

In a summary of recent conceptual developments at the marketing/entrepreneurship interface Morris et al. (2002) offered some concepts which could fill the gap. They define entrepreneurial marketing as ‘a proactive, innovative, risk-taking approach to the identification and exploitation of opportunities for attracting and (p. 129) retaining profitable customers’ (2002: 22), not merely a stage of marketing but applicable to the new entrepreneurial firm and to the entrepreneurial corporation alike. Drawing on six ‘perspectives on the emerging nature of marketing’ (Table 5.1) they propose six elements around which marketing's role is to be designed (Table 5.2).

Table 5.1 Emerging concepts in marketing

Concept

Origin

Characteristics

Guerrilla marketing

Levinson, 1998

Doing more with less, low cost innovative promotion, networking, use time rather than money

Expeditionary marketing

Hamel and Prahalad, 1992

Lead the market rather than follow, continuous search for innovation, tolerate failure

Environmental marketing management

Zeithaml and Zeithaml, 1984

Reduce dependency on external factors, remove constraints, proactive not reactive

Radical marketing

Hill and Rifkin, 1999

Visceral ties with customers, passion drives marketing, CEO ‘owns’ marketing function

Subversive marketing

Bonoma, 1986

Undermine formal structures, entrepreneurial role models, aggressive, action oriented informal networks

Proactive marketing

Davis et al., 1991

Marketing role to effect and manage change, redefine product and market context, find novel sources of customer value

Source: Morris et al. (2002).

Entrepreneurial marketing, say the authors, represents a ‘different approach’ from the managerial model of marketing in that ‘the firm seeks to lead customers as opposed to reacting to or following them, and attention is devoted to the creation of new markets rather than better serving existing markets’ (2002: 22). Here is a clear reflection of the Schumpeterian role for marketing advocated by Levitt, Murray and others. The elements in Table 5.2 capture a number of important entrepreneurial characteristics, and are likely to be found to some degree in most entrepreneurial firms. They do not yet constitute a fully integrated theory of entrepreneurship and marketing, but the ideas reviewed by these authors demonstrate that a relationship can be forged between them. (p. 130)

Table 5.2 Elements of entrepreneurial marketing (Morris, Schindehutte, and LaForge, 2002)

Element

Detail

Customer intensity

‘… used to capture a sense of conviction, passion, zeal, enthusiasm and belief in where marketing is attempting to take the firm and the way in which it plans to get there.’ (p. 23)

Sustainable innovation

‘… involves the ability at an organizational level to maintain a flow of internally and externally motivated ideas, where these ideas are translatable into new products, services, processes, technology applications, and/or markets.’ (p. 23)

Strategic flexibility

‘… a willingness to continuously rethink and make adjustments to the firm's strategies, action plans, and resource allocations, as well as to company structure, culture and managerial systems.’ (p. 23)

Calculated risk-taking

‘… reasonable awareness of the risks involved … and an attempt to manage such risk factors.' (p. 24)

Environmental pro-activeness

Draws on Zeithaml and Zeithaml (1984), discussed earlier

Resource leverage

‘… entrepreneurial marketers are not constrained by the resources they currently control’ (p. 25). The idea is that entrepreneurs can either stretch resources further than others, or can make use of resources owned by others to pursue their own purpose.

5.4.2 Small firm marketing

Outside the marketing/entrepreneurship interface school, research relevant to marketing in the entrepreneurial firm is to be found mainly in work on marketing in small firms. Not all work in this area addresses the entrepreneurial character of the firm. Recent surveys of marketing theory (Siu and Kirby, 1998) and marketing practices (Coviello et al., 2000) in small firms concluded that, while theory was underdeveloped, ‘small firm marketing, although unique in certain aspects, is not fundamentally different from large firm marketing’ (Coviello et al., 2000: 541).

Two studies which have considered entrepreneurial marketing in small innovating firms are Carson et al. (1995) and Bjerke and Hultman (2002). The approach by Carson et al. adapts conventional marketing for the constraints and circumstances of the small entrepreneurial firm, proposing additional concepts which should be incorporated in the analysis (Figure 5.1). These are specialized entrepreneurial competencies (such as judgement, knowledge and communication) and entrepreneurial networks (both personal and inter-organizational).

(p. 131)


Entrepreneurship and MarketingClick to view larger

Figure 5.1 Entrepreneurial marketing (Carson et al., 1995)

* Entrepreneurial marketing competencies:

Judgement competency, experience competency, knowledge competency, communication competency

** Entrepreneurial marketing networks:

Personal contact network, inter-organizational relationships: mediated by information, supply and communicate ideas, access resources and skills, fill gaps in the entrepreneurs own competencies.


Entrepreneurship and MarketingClick to view larger

Figure 5.2 Entrepreneurial marketing (Bjerke and Hultman, 2002)

* Focal growing firm = owned resources and internal collaborators in value creation

** Value constellation = network of external collaborators in value creation

(p. 132)

Bjerke and Hultman's study sets out a richer and more complex thesis. Entrepreneurial marketing is conceived as the route to ‘co-creation’ of value with customers in a new, dynamic economic era. In contrast with ‘managerial growth’ in structured ‘focal organizations’ of the old era, the new era will be characterized by ‘entrepreneurial growth’ in ‘virtual organizations’. At the centre is entrepreneurial marketing, whose structural components are an entrepreneur, the entrepreneur's market-making firm (the ‘focal growing firm’) and a network of collaborators (the ‘value constellation’) (Figure 5.2).

These studies share some of their conclusions, yet they also convey different messages. Both emphasize that entrepreneurial capabilities are distinct and central to the firm and that entrepreneurial organization is likely to be an informal, extended network at personal, and at inter-organizational, levels. However, while the adaptive framework of Carson et al. suggests that the management processes of entrepreneurial marketing are fundamentally similar to those in the managerial firm, Bjerke and Hultman sought to show that the two are fundamentally different.

5.5 Summary and further research

Entrepreneurship and marketing are connected in a number of ways. Entrepreneurs reconfigure market exchange and marketing is the functional manifestation of this process. Entrepreneurs are alert to the potential wants of customers and the customer-oriented marketing concept is the managerial expression of this mindset. Entrepreneurs are specialists in judgemental decision-making and marketing provides the framework for applying intuition to heterogeneous markets.

A theme that has run through this chapter is that there are different kinds of process both at the level of the market and at the level of the firm. A Marshallian market process of continuous learning and gradual innovation corresponds approximately with ‘competitive’ managerial marketing. A Schumpeterian process of discontinuous innovation corresponds approximately with entrepreneurial marketing. Both are needed at different times and in different degrees.

It is evident that a good deal of common ground in the analysis of entrepreneurship and marketing already exists among the approaches explored in this chapter. But there is potential for more work in a number of areas. The market process approach, and in particular the theory of the market-making firm, provides a natural foundation for a general theory of marketing. Consequently the transaction cost approach has a good deal more to contribute to the analysis of entrepreneurial marketing. On the other hand, the marketing perspective also (p. 133) suggests a richer and more detailed view of market processes. Marketing implies that firms seek to survive by continual change and consequently Schumpeterian entrepreneurship commonly takes place within entrepreneurially managed firms. The market process is underpinned by a management process which should be analysed in institutional detail. As yet, models of the entrepreneurial firm are diverse and under-developed and more work is needed to understand the entrepreneurial processes within firms both conceptually and empirically. What marketing practices, for example, are most effective in mediating between the market and the internal entrepreneurial process? Are there limits to the forms and degree of innovation that an organization can achieve, due for example to the need for organizational coherence within the firm?

The interface between marketing and entrepreneurship is a promising field of active research. It is hoped that some of the ideas reviewed here will contribute to its future development.

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                                                                                                                                                                                                Notes:

                                                                                                                                                                                                (1) I am grateful for the helpful comments of Mathew Hughes, two anonymous referees, participants at the authors' conference and, of course, the editors. The remaining deficiencies are mine.