Relationship orientationor service quality?

What is the trigger of performance in financialand insurance services?

Carmen CamareroDepartment of Business and Marketing, University of Valladolid,

Valladolid, Spain

Abstract

Purpose – The current work aims to analyze the complementary effects of relationship andservice-quality orientations on market and economic performance and their mediating role in therelationship between market orientation and performance.

Design/methodology/approach – In order to test the hypotheses proposed, an empirical analysisfor financial and insurance companies was conducted.

Findings – The study reveals that market performance relates highly to relationship orientation andservice quality as two alternative but complementary strategies, whereas the effect on economicperformance is basically indirect through the market performance.

Practical implications – Results suggest that applying relational policies such as preferentialtreatment, communication and adaptation to customers’ needs is critical for customer retention,reducing complaints and conflicts or improving the positioning. Moreover, the firms need to focus onquality service, as a consequence of relationship orientation and another requisite for marketperformance and, subsequently, economic performance.

Originality/value – This work integrates market orientation philosophy with relationshipmarketing and service quality as related drivers of the firm’s performance. Few empirical workshad related these concepts until now in this way.

Keywords Market orientation, Relationship marketing, Service levels, Financial services

Paper type Research paper

IntroductionThe study of the market orientation-performance relationship is an on-going researchfield (Deshpande and Farley, 2004). One branch of this work involves the existence ofmediating variables between these two concepts, although until now few studies haveemerged in this topic (Kirca et al., 2005). Previous attention has focused on the role ofinnovativeness, customer loyalty, customer satisfaction or quality as the routesthrough which market orientation affects performance (Han et al., 1998; Noble et al.,2002). From this approach, the current work examines in a more comprehensive modelthe complementary effects of relationship orientation and service quality as anoteworthy “missing link” (Han et al., 1998) in the market orientation-performancerelationship for the case of financial and insurance services.

The development of customer value through relationship marketing strategies is aprevailing theme in the marketing literature. Reichheld (1996) suggests that companiesshould listen to their customers and try to build lasting relationships with their most

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Received January 2007Revised May 2007Accepted June 2007

The International Journal of BankMarketingVol. 25 No. 6, 2007pp. 406-426q Emerald Group Publishing

Limited0265-2323DOI 10.1108/02652320710820354

profitable customers instead of focusing on acquiring new customers. Interactivity,integration, customization, and co-production are currently the hallmarks of aservice-centered view and its inherent focus on the customer and the relationship(Vargo and Lusch, 2004). In the specific case of banking and insurance industries,relationship marketing is becoming increasingly important. Competition is drivingbanks to look at forms of defensive marketing rather than offensive marketing. In thisidea, banks and insurance companies are looking to create more effective and efficientrelationships with their customers. Although the relationship between a financialcompany and its customers was historically contractual and continuous (Adamsonet al., 2003), creating value through relationships has become a way of developing andmaintaining business in the last years. Walsh et al. (2004) state:

. . .contemporary retail-bank marketing activity can involve a mix of both transaction- andrelationship-marketing objectives with organizations having to balance both approaches inan effort to achieve diverse objectives.

On the other hand, efforts to quantify the impact of customer-perceived quality onperformance have proliferated in recent years (Heskett et al., 1997; Rust et al., 2002).The improvement of customer-perceived quality usually increases profits throughrevenue expansion, whereas the improvement of the efficiency of internal processestends to increase profits through cost reduction (Rust et al., 2002). In the context offinancial services, several works have emphasized the relevance of service quality(Newman, 2001; Sureshchandar et al., 2003; Akamavi, 2005). Some of them haveadvanced the relationship between the perception of service quality and relationshipmarketing. For instance, Ndubisi and Wah (2005) indicate that customers’ perception ofthe quality of the relationship between them and their bank depends on the bank’scompetence, commitment, communication, conflict handling and trust. Similarly,Gounaris et al. (2003) indicate that personal relationships have a direct influence oncustomers’ perceptions regarding the bank’s reliability.

Hence, this paper draws on the literature in market orientation, relationshipmarketing and service marketing to suggest performance implications for serviceproviders who adopt a market orientation. The paper tries to show not only how thepathway between a market orientation philosophy and the firm’s results happens, butalso to indicate what strategy is the real trigger of performance. In doing so, this workextends current thinking by integrating market orientation, relationship orientationand service quality within the service marketing arena. We offer a theoretical model ofthe direct and indirect effects or relationship marketing orientation and service qualityorientation on two types of performance. The empirical test of the proposed hypothesesin the context of financial and insurance services provides evidence of how relationshipactivities such as customization, personalization, communication and personalrelationships are the real driving strategies that lead to the firm’s performancedirectly or throughout service quality practices, which also affect the main indicatorsof market and economic performance.

Market orientation, relationship orientation and service-quality orientationMarket orientationMarketing literature has largely focused on the definition, measurement,impact, and organizational drivers of market orientation and its enhancements

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(Jaworski and Kohli, 1996). Narver and Slater’s (1990) seminal definition of marketorientation states that market orientation consists of three behavioral components:

(1) customer orientation;

(2) competitor orientation, and

(3) inter-functional coordination.

According to Jaworski and Kohli (1993), market orientation is the organization widegeneration of market intelligence pertaining to current and future needs of the customers,dissemination of intelligence horizontally and vertically within the organization, andorganization wide action of responsiveness to it. Several authors have criticised Narverand Slater’s and Kohli and Jaworski’s scales (Esteban et al., 2002). Touminen and Moller’s(1996) suggest the integration of the cognitive and the behavioural perspectives of marketorientation. Therefore, we find support on this work to measure market orientation as athree-dimensional construct comprising:

(1) customer orientation;

(2) competitor orientation; and

(3) intelligence generation.

Our intention is to measure market orientation both from the cognitive perspective, inline with Narver and Slater’s proposal, and from a behavioural perspective, in line withKohli and Jaworski’s proposal.

Customer orientation holds that success will come to the organization that bestdetermines the perceptions, needs, and wants of target markets, and satisfies themthrough the design, communication, pricing and delivery of appropriate andcompetitively viable offerings. Customer orientation represents the organizationalculture according to which managers collect and use customer information (Kohli andJaworski, 1990; Ruekert, 1992; Shapiro, 1988). Competitor orientation means that aservice provider understands the short-term strengths and weaknesses and long-termcapabilities and strategies of key current and potential competitors (Narver and Slater,1990). As for intelligence generation, Slater and Narver (2000) indicate that intelligence(or knowledge) is generated when data are collected and given meaning with respect tochanging the potential range of organization behavior. This intelligence provides afocus for the business’s product development and sales growth efforts by enabling thebusiness to develop strong relationships with key customers and insights intoopportunities for marketing development.

Market orientation’s positive association with market performance provides the criticalfoundation (Narver and Slater, 1990). A body of research has investigated the relationshipbetween market orientation and performance (Deshpande et al., 1993; Ruekert, 1992; Slaterand Narver, 2000). While some studies found significant relationships, others did not,suggesting that perhaps some mediating factor may be involved. Consequently,explicating the mediators of the market orientation-performance relationship has emergedas a topic of interest in the marketing literature (Han et al., 1998; Noble et al., 2002;Kirca et al., 2005).

In this line, we propose relationship marketing and service-quality orientations as tworelevant and related mediators. According to Baron and Kenny (1986), a variable has amediating function in a particular process if it explains the relation between the

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antecedents and the results, therefore relationship marketing and service qualityorientations are both the result of market orientation and the antecedents of performance.On the one hand, market orientation proposes to enhance customer-perceived quality ofthe organization’s products and services by helping create and maintain superiorcustomer value (Brady and Cronin, 2001; Kirca et al., 2005). Therefore, customerconsequences of market orientation include the firm’s bet on service quality,consumer relationships and customer satisfaction (Jaworski and Kohli, 1993, 1996).On the other hand, consumer relationship activities should have positive associations withorganizational performance because, if effective, they increase repeat purchase behaviorsand are associated with lower levels of customer complaints and negative word of mouth(Szymanski and Henard, 2001). Similarly, quality can influence performance throughhigher prices, higher market share, and/or lower costs (Fornell, 1992; Slater and Narver,1994; Kirca et al., 2005).

Relationship marketing orientationRelationship marketing concept is viewed as a philosophy of doing businesssuccessfully or as a distinct organizational culture/value that puts the buyer-sellerrelationship at the centre of the firm’s strategic or operational thinking (Sin et al., 2002).In the context of consumer relationships, relationship orientation could be defined asan organization engaged in proactively creating, developing and maintainingcommitted, interactive and profitable exchanges with selected customers over time.Jayachandran et al. (2005) affirm that customer-relationship orientation establishes a“collective mind” or a belief system for the organization that considers customerrelationship an asset and drives the choice of mean (processes) to accomplish thisoutcome. A relationship orientation pervades all parts of the organization’s mind-set,values, and norms and thus influences all interaction with the customer – before,during, and after the sale (Day, 2000).

Relationship orientation implies relationship investments. De Wulf et al. (2001)define relationship investments as resources, efforts, and attention aimed atmaintaining or enhancing relationships with regular customers that do not haveoutside value and cannot be recovered if these relationships are terminated. In thisidea, we conceptualize relationship orientation as a higher-order construct indicated byfour types of relationship marketing investments: communication, customization,personalization (preferential treatment) and personal relationships.

Communication is defined as the formal and informal exchanging and sharing ofmeaningful and timely information. Literature in relationship marketing has largelyhighlighted the relevance of information and communication (Mohr and Nevin, 1990;Anderson and Narus, 1990; Morgan and Hunt, 1994). Claycomb and Martin (2002)identified several practices used by firms to establish and nurture relationships withcustomers. Continuity of communications was one of the most mentioned practices.Company newsletters to keep customers informed about updated capabilities, newproducts, regularly scheduled personal letters, telephone calls were some examples.

Customisation refers to the adaptation of some aspect of the service or its delivery,treating each customer as a unique individual with a unique set of service requirements(Claycomb and Martin, 2002). It means using information from customers to createproduct or services for individual customers.

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Zahay and Griffin (2003) define personalization as the ability to address anindividual in such a way that takes into account, his or her unique response andconsidering a customer’s individual response to prior communication. In manycompanies, employees are empowered to deviate from rigid procedures whenserving customers who have special needs or unique requests (Claycomb and Martin,2002). De Wulf et al. (2001) define preferential treatment as consumer’s perception ofthe extent to which a retailer treats and serves its regular customers better than itsnon-regular customers. What is the difference between personalization andcustomization? Zahay and Griffin (2003) argue that while personalization capabilityinvolves individualized marketing communications, customization is developingproducts and services tailored to a particular customer.

About personal relationships, Claycomb and Martin (2002) refer to employee relationsas relationship-building practices designed to support the frontline employees who servecustomers and the vital role that employees play in the service delivery andrelationship-building process. Research suggests that customers’ emotional attachmentto the service provider is positively related to their willingness to remain in a relationshipwith this provider (Shemwell et al., 1994). Nicholson et al. (2001) indicate that liking isbelieved to be a powerful human motivator for relationship development andmaintenance. They demonstrate that liking influences the development of buyer trust.

As Caruana et al. (1999) remind us, market orientation has been expressed in suchterms as “close to the customer” (Webster, 1988; Shapiro, 1988). In fact, nurturingcustomer relationships is a paramount consideration of the market-oriented service firm.Research on market orientation has supports the assertion that customer consequencesof market orientation include customer loyalty, and customer satisfaction with theorganization’s products and services (Jaworski and Kohli, 1993, 1996). For this tohappen, the firm’s commitment to the customer is needed. Hence, we propose that:

H1. Market orientation has a positive influence on relationship orientation.

Service quality orientationIn Gronroos’ (1993) definition of service quality, two dimensions are identified:functional service quality and technical service quality. Functional service qualityrelates to the nature of the interaction between the service provider and the customerand the process by which the core service is delivered. Technical service quality refersto the quality of the service output (Sharma and Patterson, 1999).

According to Caruana et al. (1999), the constructs of market orientation and servicequality are related. They argue that when seeking to establish, strengthen, and developa customer orientation, the service firm must acknowledge the salient role of quality,specifically service quality. Also, Gounaris et al. (2003) indicate that once marketorientation has been developed, the company’s ability to derive superior performance isattributed to the subsequent skills it builds which allow for a better understanding ofthe needs of its target market. Understanding the target customers’ needs permits thecompany to coordinate all its assets in a manner which allows it to increase the valuefor the customer, hence to increase the level of output quality received by the customer.The effect of market orientation on perceived quality has been evidenced by Gounariset al. (2003), Webb et al. (2000) and Chang and Chen (1998). We focus on the previousactions in order to achieve the customer’s perception of service quality, thus, wepropose:

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H2. Market orientation has a positive influence on service-quality orientation.

The link between relationship marketing and service quality has been analyzed in theliterature from the customer’s point of view. Perceived service quality has beenconsidered a determinant of loyalty and commitment (Gounaris et al., 2003). Accordingto Berry (1995) when relationship marketers can offer target customers value-addingbenefits that are difficult or expensive for customers to get and that are not readilyavailable elsewhere, they create a strong foundation for maintaining and enhancingrelationships. Following this reasoning, we maintain that if the firms want to developlasting relationships with customers and to build a relationship-marketing orientation,they will need to invest in service quality. As businesses pursue long-termrelationships with customers to maximize their lifetime value, they need to beparticularly concerned with how the customers’ view of the service offering changesover time (Bell et al., 2005):

H3. Relationship orientation has a positive influence on service quality orientation.

Market and economic performanceIt is acknowledged that performance is a multidimensional construct, consisting of twobroad measures: judgmental performance (e.g. customer service loyalty) and objectiveperformance (e.g. ROA) (Agarwal et al., 2003). Therefore, we distinguish betweenmarket performance as the judgmental measure of performance and economicperformance as the objective measure of performance.

Market profitability is driven by variables such as customer retention, customersatisfaction and image and positioning on the market (Rajshekhar et al., 2005).Concretely, market performance refers to:

. the improvement of the firm’s market positioning (Srivastava et al., 1999);

. shaping customers’ satisfaction with the organization and their products(Rajshekhar et al., 2005); and

. the rise in customer loyalty and retention (Evans and Laskin, 1994).

Market positioning should be the first consequence of programs and activities addressedto retain customers (relationship orientation) and to satisfy customers (service-qualityorientation); it could be considered as consumers’ affective answer to the signals that thefirm sends to the market. Relationship orientation, loyalty programs and service qualitycan shape customers’ perceptions about the firm or the service it provides. If thecustomer has an image of friendly relationships, personalized treatment or servicequality, we could say these activities have been successfully applied.

Satisfaction is achieved when the consumer’s expectations about the performance ofthe product or service being consumed are met or exceeded. It is a sensation or feelinggenerated both by cognitive and emotional aspects of the product or service and it is acumulative evaluation of the sum of diverse aspects of the product or service (Oliver,1997; Vanhamme, 2000). Customer satisfaction with a service is influencedsignificantly by the customer’s evaluation of service features (Oliver, 1997) and bycustomer’s perceptions of equity and emotional responses (Zeithaml and Bitner, 2003;Rajshekhar et al., 2005). In other words, service quality and relationship orientationshould have a direct impact on customer’s satisfaction.

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Finally, loyalty is the result of activities that look for interaction and customers’repeat-purchase. Expectations of positive reinforcements induce relational behaviors.Relationship quality has been found to affect both behavioral intentions (Crosby et al.,1990) and behavioral outcomes (De Wulf et al., 2001). It is expected that buyerspurchase a greater proportion of goods and services from suppliers with whom theyhave high-quality relationships (Berry, 1995). However, there is no unanimity about theeffect of relationship programs on loyalty. According to Verhoef (2003), loyaltyprograms that provide economic rewards are useful both to lengthen customerrelationships and to enhance customer share, however Szmigin and Bourne (1998)suggest that customers are, in the main, promiscuous when it comes to relationshipswith firms. Many customers do not really want a long-term approach and act out ofself-interest. As for service quality, since services are intangible and heterogeneous,most consumers perceive a higher risk in consuming services than in goods. Thedifficulty of evaluating the quality of services makes switching service brands lesslikely as customers become familiar with a particular service (Javalgi and Moberg,1997). Thus, consumers who have experienced an excellent service quality with aprovider will have decreased probability of switching (Cronin et al., 2000; Rajshekharet al., 2005). Bell et al. (2005) find empirical support for this assertion. Thus:

H4a. Relationship orientation has a positive influence on the firm’s marketperformance.

H4b. Service-quality orientation has a positive influence on the firm’s marketperformance.

Economic performance alludes to the firm’s benefit, incomes, cost reduction andprofitability that are related, directly and indirectly, to the firm’s relational strategy.Relationship orientation should have direct effects on economic performance. It hasbeen demonstrated that it is far less expensive to retain a customer than to acquirea new one (Reichheld and Sasser, 1990) and that the longer the customer stays with afirm, the more profitable the relationship is to the firm. In fact, a close and long-lastingrelationship with customers usually implies a reduction in service costs (the firmbecomes more knowledgeable about its clients’ needs and thus able to provide betterservice at a lower cost) and marketing costs (in that the firm needs to spend less onconvincing customers to repeat buying) and, in consequence, an improvement inprofitability (Reinartz and Kumar, 2000; Sharp and Sharp, 1997, Sharma et al., 1999;Sin et al., 2002; Gummesson, 2004; Rust et al., 2004; Reinartz et al., 2005). Sharp andSharp (1997) add that loyalty gives something of a guarantee of future earnings. If aloyalty program increases the certainty of future income flows, through decreasing therisk of losing customers, then it may have a real, and perhaps substantial, impact onshareholder value without affecting current revenue or market share levels.

As for service quality, Bell et al. (2005) state that the contribution that a high level ofservice quality can make to business performance is unquestioned. Heskett et al. (1994)designate service quality as the mainstay around which internal organization andbusiness performance revolves. Service quality has been linked to varied businessperformance metrics such as sales growth and market share (Rust et al., 1995). Also,Rust et al. (2002) demonstrate that financial benefits from quality may be derived fromrevenue expansion and cost reduction, thus:

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H5a. Relationship orientation has a positive influence on the firm’s economicperformance.

H5b. Service-quality orientation has a positive influence on the firm’s economicperformance.

Finally, we hypothesize the direct effect of market performance on economic results(Camarero et al., 2005). As we have argued market and economic performance are tworelated dimensions. Although understanding whether market performance affect thecompany’s financial performance is difficult for marketing professionals (Srivastavaet al., 1998), some empirical results indicate that improved non-financial performanceleads to raised financial performance (Homburg et al., 2002a, b; Rust et al., 1995). Hence,we propose a positive relation between social and economic effectiveness.

H6. Market performance has a positive influence on economic performance.

In Figure 1, we show the proposed hypotheses.

MethodSample and data collectionAs Berry (1995) stated, services are particularly well suited for relationship-buildingand so we test our proposed model for firms that belong to the financial and insuranceindustries: banks, saving banks, credit institutions, SGR and insurance firms in Spain.These sectors are particularly suited for our requirements. The evolution ofthese industries has, after all, led financial and insurance institutions to promote thedevelopment of stable relationships with their customers. Of all the sectors whererelationship marketing has achieved popularity, it is perhaps in the financial sectorthat managers put most emphasis on relational and quality service strategies.As Akamavi (2005) affirms, retail banks and insurance companies are especiallyinterested on the benefits of relationship marketing because they are under pressure ofcompetition from other financial institutions and non financial firms.

Information was collected using a questionnaire addressed to financial andinsurance institutions located in Spain. The directory of financial institutions wasobtained from the information provided by the Bank of Spain, and the directory ofinsurance companies from the information provided by the Ministry of Economy(General Direction of Insurances and Pensions). We designed a questionnaire to beplaced on a web site. All the financial and insurance companies in the directories werecontacted by telephone in order to identify a contact person who was best placed to

Figure 1.Conceptual model

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answer the questionnaire (we asked for CEOs of marketing and commercialdepartments). Once the contact person was identified, we sent them all an e-mailexplaining the objective of the research and directing them to the web site with thequestionnaire they had to answer. After three weeks we had received only 45questionnaires. New phone calls were made to remind CEOs the research and to askagain for collaboration. After persisting during three more weeks we obtained 93responses from a population of 450 firms (Table I). We compared the first and secondwaves of respondents along all the response items for each of the scales and nosignificant difference between the two groups was found.

Table I shows the distribution of the population and the respondent companies.As for their clients of these companies, in the 50.0 percent of cases individuals were themain clients, in the 18.3 percent of cases firms were the main clients, and in the31.7 percent of cases both of them.

Scale developmentThe following step was to develop scales and variables to measure the conceptsproposed. The Appendix records the variables used in our study. All of the scalesconsisted of five-point Likert questions (ranging from 1 ¼ “completely disagree withthe item” to 5 ¼ “completely agree with the item”).

The measurement of market orientation reflects the three dimensions previouslyreferred. The scales for customer orientation and competitor orientation consisted offour and two items, respectively, based on the market-orientation scales proposed inthe work of Narver and Slater (1990), Deng and Dart (1994), Deshpande and Farley(1996), and Kennedy, Goolsby, and Arnauld (2003). The scale of intelligence generationderives from Kohli and Jaworski’s (1990) definition of a market orientation and thescale proposed by Matzuno et al. (2000).

Service-quality orientation was measured by a five-item scale that reflects Gronroos(1993)’s dimensions: functional service quality (trained employees, efficient service)and technical service quality (technologies, professionalism).

As activities referring to relationship orientation, we measured customization bythree items that allude to the company’s flexibility to adapt the offer to the needs andrequests of each customer and to renegotiate the terms of a contract. Communicationwas measured by a four-item scale that comprises the practice of fluid, frequent andbi-directional communication with customers, based on Anderson and Narus (1990),Morgan and Hunt (1994) and Sin et al. (2002). In order to measure personalization orpreferential treatment we use a formative scale based on De Wulf et al. (2001) scale that

PopulationPercentage of

population ResponsesPercentage of

responses

Save banks 47 10.44 22 23.66Banks 83 18.44 14 15.05Credit institutions 83 18.44 18 19.35Reciprocal warranty society 22 4.89 8 8.60Insurance companies 215 47.78 31 33.33

Note: Data from 2003Table I.Population distribution

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includes activities referring to making greater investment and to offering economicbenefits and better service to regular customers, to customers with greater volume oftrade. Finally, we followed Claycomb and Martin’s (2002) work to measure personalrelationships by a two-item scale that reflects the initiative to foster personal and closerelationships with customers.

Market and economic performance were measured by two subjective and formativescales based on the works of Srivastava et al. (1999), Siguaw et al. (1998), Sheth andSisodia (2002) and Homburg et al. (2002a, b). Market performance was measured as acomposite index that gathers the extent to which the firm has reduced the number ofcomplaints, has improved its positioning, has increased the number of loyal andsatisfied customers and has developed a competitive advantage over the competitorsbased on its relationships with customers. On the other hand, economic performancewas measured as the extent to which the relationship marketing activities impact onmarket share, competitive position, incomes, costs, and benefits. We used a subjectiveconcept of business performance because respondents may be reluctant to providehard economic data.

We subjected each scale to a validation process. For this, we performed aconfirmatory factor analysis (Lisrel 8.7), following the procedure recommended byAnderson and Gerbing (1988). To test the validity of the measurement scales of themarket and relationship orientations we estimated two second-order confirmatoryfactor models. The results are shown in Appendix. Although the x 2 statistic wassignificant, the remaining goodness-of-fit indicators show adequate values, whichallow us to confirm the multi-dimensionality of market and relationship orientations.The service-quality orientation scale was subjected to a confirmatory analysis. Again,the l values (10 to 2 times as large as the standard errors) and the goodness-of-fitvalues allow us to accept the convergent validity of this scale. For each level ofrelationship and market orientations, the items measuring each of the first-orderfactors were averaged, generating a single value for customization, communication,personalization and personal relationships. These items were modeled as indicators ofrelationship and market orientations in the structural model. The items with thepreliminary tests are presented in Appendix.

After validating the convergence of the scales, we calculated the correlation matrixof the factors resulting from each scale. Table II shows the correlation matrix of all thevariables, as well as the reliability values – Cronbach a and variance extracted – ineach case. As we can see, in almost all cases the variance extracted of each variableexceeds the value of its squared correlation with the other variables, which allows us tojustify the discriminant validity of the scales (Anderson and Gerbing, 1988).

ResultsIn order to verify the mediating effect of relationship and service-quality orientations anumber of conditions must hold (Baron and Kenny, 1986):

. market orientation should have a significant effect on relationship andservice-quality orientations;

. relationship and service-quality orientations should have a significant effect onperformance;

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. market orientation should have a significant direct effect on performance(model 2); and

. the previously significant effects of market orientation on performance shouldbecome non-significant when the path between mediating variables andperformance is opened (model 3).

Therefore, we estimated three rival models: model 1, which includes the direct effect ofmarket orientation on the mediating variables and the direct effect of the mediatingvariables on performance, and which allows us to examine the conditions (1) and (2);model 2, which includes the direct effect of market orientation on performance and thedirect effect of mediating variables on performance, and which allows us to examinethe condition (3); and model 3, which includes the direct effects of market orientationand the mediating variables on performance plus the direct effect of market orientationon the mediating variables, and which allows us to examine the condition (4).

Figures 2-4 show, for the three models, that although the x 2 statistic is significant –probably a consequence of the sample size – the values of other indicators – GFI, AGFI,CFI and RMSEA – are within recommended limits, indicating a good fit. But it is model2, the direct-effects model, which presents the worst goodness-of-fit indicators. Thedifferences between models 1 and 3 are minimal, and the x 2 difference test isnon-significant. In spite of this, there is sufficient evidence to say that the conditions are

1 2 3 4 5 6 7 8 9Cronbach

a AVE

1. Consumer orient. 1.000 0.727 0.4902. Competitor orient. 0.432 1.000 0.832 0.8003. Intelligence gener. 0.776 0.482 1.000 0.717 0.4704. Customization 0.319 0.431 0.340 1.000 0.637 0.4765. Communication 0.534 0.371 0.480 0.736 1.000 0.774 0.5086. Personalization 0.241 0.491 0.302 0.641 0.569 1.000 0.899 0.950a

7. Personal relations 0.330 0.175 0.266 0.479 0.540 0.564 1.000 0.854 0.7748. Service quality 0.614 0.315 0.543 0.425 0.513 0.351 0.356 1.000 0.796 0.5659. Market perf. 0.496 0.435 0.435 0.505 0.511 0.495 0.523 0.661 1.000 0.795 0.950a

10. Economic perf. 0.127 0.138 0.145 0.104 0.141 0.203 0.142 0.205 0.477 0.863 0.950a

Note: aFormative scalesTable II.Correlation matrix

Figure 2.Model 1 estimation

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present for the existence of a clear mediating effect of satisfaction in the case of thevariables that predispose to dissolution (Baron and Kenny, 1986). According to model 1,the effects of relationship and service-quality orientations on performance aresignificant, as are the effects of market orientation on relationship and qualityorientation too. The direct effect of market orientation on market performance issignificant in model 2, while it is no longer so in model 3, where the paths betweenrelationship orientation and quality orientation on performance are admitted. Table IIIshows the total effects of market orientation on market and economic performance.

According to model 1, in examining H1 and H2, which explicate the associationbetween market orientation and relationship orientation and service-qualityorientation, respectively, we can see, that data confirm our hypotheses (b ¼ 0.495,p , 0.01; b ¼ 0.466, p , 0.01). With regards to H3, we also support that relationshiporientation has a positive and significant effect on service-quality orientation(b ¼ 0.321, p , 0.01).

Figure 4.Model 3 estimation

Figure 3.Model 2 estimation

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However, the data provide mixed evidence about performance. As for H4, theresults confirm the positive effect of both relationship orientation (b ¼ 0.382, p , 0.01)and service-quality orientation (b ¼ 0.486, p , 0.01). Observing global effects we canaffirm that the impact of relationship orientation on market performance is higher as itincludes both a direct and an indirect effect. On the contrary, H5, which proposes theinfluence of relationship and service-quality orientations on economic performance, isrejected. These orientations seem to have neither direct nor indirect effect on economicperformance.

Finally, we find support toH6, that is, the positive and significant influence of marketperformance on economic performance (b ¼ 0.718, p , 0.01). This result explains theindirect but significant effect of market orientation on economic performance.

ConclusionsAlthough the relationship between market orientation, service quality and relationshipmarketing appears to be evident; few studies have linked these concepts and exploredthe path that connects them with firm performance. In the current work, we put forwardrelationship marketing and service-quality orientations as two direct results of a widerand global philosophy, the market orientation. The connection between marketorientation and performance through two intermediate strategies allows us to offer agreater explanation of both market and economic results. This study has been conductedin financial and insurance services, and although it does not pretend to be representativeof other services, it does contribute to both theoretical and practical knowledge and todiscussions about the paths that link market orientation with performance.

The first implication of this study is that market orientation, considered as customerorientation, competitor orientation and intelligence generation, has a direct impact onrelationship marketing and relational investments such as the customization and theadaptation of the offer, the improvement of communication, the personalization of theservices or the development of friendly and personal relationships. In the same way,when a firm puts into practice a market orientation, its commitment with servicequality in technical and functional aspects is also greater. These two strategies areassociated. As it could be thought, the firms focused on creating close and lastingrelationships with their customers, have to choose the service quality path as thenecessary way or inevitable consequence in order to sustain relationships.

The second implication is that the progress from relationship marketing and servicequality towards performance does not follow two independent trails, but, as we havesaid, two related paths. A common assumption is that an improvement in customerperceived quality will increase customer satisfaction, loyalty, and profitability, whilethe profitability of loyalty programs is not so obvious. Even if our results confirm thatservice quality has a stronger direct effect on market results (market positioning,satisfaction, loyalty) than relationship marketing, we have observed that relationship

Market performance Economic performanceLoading t-value Loading t-value

Market orientation 0.492 5.905 0.143 1.958Relationship orientation 0.538 5.318 0.095 0.769Service quality orientation 0.486 5.102 20.149 21.040

Table III.Total effects

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investments not only act in a direct way on the performance, but also in an indirectway, as the trigger of service quality. Therefore, its global effect on performance isgreater. As regards economic performance, although the link between objective andsubjective performance is once again evidenced, in our study we have found thetraditional difficulties that relate to market orientation and its outcomes (relationshipand service quality orientations) to firm performance. From a customer’s perception,we find, as did Gounaris et al. (2003), support for the positive influence of marketorientation on service quality. Market orientation influences positively the customer’sexperience during the encounter with contact personnel and impacts on the customers’perceptions regarding the physical evidence of the bank. In the same way, Ndubisi andWah (2005) relate service quality with managers and staff acting trustworthily,showing strong commitment to service, showing signs of competence, communicatingefficiently and reliably and handling conflicts satisfactorily.

Implications for practitionersAs regards managerial implications, the findings demonstrate, even if the real trigger isthe market orientation philosophy, the strategies and the investments towards thecustomers, the firm’s commitment in the relationship are the foundations for a greatereffort in service quality. We underline the profitability of improving meaningfulcommunication with clients, offering a customized product, personalizing services andcreating personal links. The results suggest that applying relational policies such aspreferential treatment, communication and adaptation to customer needs is critical forretaining customers, reducing complaints and conflicts or improving positioning.However, Leverin and Liljander (2006) do not confirm that the implementation of arelationship marketing strategy in a bank results in relationship satisfaction andcustomer-perceived improvements. In effect, relationship orientation will have greatereffect on performance if it culminates in service-quality orientation. The quality of theservice is a pre-requisite for financial institutions’ market performance and, subsequently,economic performance. The companies that offer the best technologies and great qualityin every service and that have trained and motivated its employees in order to provide anefficient service are creating the adequate framework for the success of a relationshipmarketing orientation. In that sense, as Colgate and Lang (2005) point out, internalmarketing is essential; if relationship quality is to be improved, necessary resourcesand motivation from the bank’s part are crucial to ensure successful execution of arelationship strategy.

Limitations of the studyLimitations to the study relate to data collection. It seems evident that the firm’sperspective is needed to evaluate the strategic orientations and the performance;however the work could be substantially improved with customer’s perspective aboutthe success or the failure in the application of service quality andrelationship-marketing orientation. It would be also fruitful to compare resultsbetween the two industries here considered, as well as to other sectors in order toobtain evidence to generalize the findings obtained here. Moreover, althoughcross-sectional studies are common in the market orientation literature, the findingswould improve if we collected longitudinal data. Finally, the generalization of these

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findings is limited because of the small sample size and the fact that the data have beencollected only in Spain.

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Reinartz, W.J. and Kumar, V. (2003), “The impact of customer relationship characteristics onprofitable lifetime duration”, Journal of Marketing, Vol. 67, pp. 77-99.

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Appendix

Variables Mean SD l t

Market orientation (x 2 (34) ¼ 58.652 ( p ¼ 0.005); GFI ¼ 0.887;AGFI ¼ 0.817; CFI ¼ 0.948; RMSEA ¼ 0.088)Consumer orientation 0.810 4.584We analyze in detail the evolution of customers (transactions,satisfaction) in order to plan future actions 4.13 0.89 0.538 –All the areas of the company consider that attending theinterests of customers is more important than attending theown interests 3.53 0.88 0.481 3.700We try to integrate and coordinate all the functions of the firmin order to achieve the customer’s satisfaction 4.13 0.73 0.835 5.148We pay attention to the after-sales service in order to achieve astandard of zero defects or faults 4.02 0.87 0.863 5.194Competitor orientation 0.564 5.139In our company, we detect and analyze any change in thecompetitors’ activities 3.74 0.93 0.975 –In our company they are disseminated periodical reports whichprovide information about our competitors 3.56 1.16 0.807 12.148Generation of information 0.949 –We analyze the factors that influence on the customer’sdecisions 3.70 0.88 0.762 7.947We encourage our employees to collect information aboutcustomers 3.83 0.92 0.685 6.905We own complete and updated information of our customersand we make use of it to our activities 3.79 0.92 0.518 4.906We consult our sales people about the current and futureproducts commercialized 3.80 1.06 0.750 7.778Relationship Orientation (x 2 (32) ¼ 49.080 ( p ¼ 0.027);GFI ¼ 0.904; AGFI ¼ 0.834; CFI ¼ 0.957; RMSEA ¼ 0.076)Customisation 0.878 4.918The company has flexibility to adapt the offer to the needs andrequests of each customer 3.79 0.80 0.611 –The terms of a contract or repetitive transactions could berenegotiate in case an unexpected situation occurred 3.58 1.05 0.916 5.552We have make important investments in the development ofproducts adapted to each customer 3.24 1.14 0.466 3.884Communication 0.824 6.225We maintain fluid and frequent communication with ourcustomers 3.73 0.99 0.773 –The communication with customers is valued by them 3.83 0.88 0.792 7.153The communication is bi-directional 3.20 1.09 0.656 5.968We send regularly mails to our customers with personalizedinformation which has interest to them 3.65 1.20 0.617 5.599Preferential treatment – personalization (formative scale) 0.519 4.656We make greater investments (time, human resources and otheractives) to regular customers than to non regular customers 3.35 1.18We make greater investments (time, human resources and otheractives) to customers with greater volume of trade than tocustomers less important 3.23 1.18

(continued )Table AI.

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About the authorCarmen Camarero is an Associate Professor at the University of Valladolid, Spain. Her research,which focuses on business relationships and consumer relationship marketing, has beenpublished in several national and international journals. At present, her main research interestsare related to relationship marketing and consumer behavior. She has written two books andseveral book chapters. Carmen Camarero can be contacted at: camarero@eco.uva.es

Variables Mean SD l t

We offer a better service to regular customers and with greatervolume of trade 2.90 1.23The company offers economic benefits to customers morefrequent and with greater volume of trade 3.05 1.31We offer more information to regular customers and withgreater volume of trade than to others 2.65 1.12We contact more frequently with regular customers and withgreater volume of trade than with others 3.23 1.22.Personal relationships 0.650 5.223We foster the development of personal relationships with ourcustomers 3.68 1.08 0.864 –Our employees maintain close relationships with our customers 3.76 1.15 0.896 7.200Service quality (x 2 (5) ¼ 6.075 ( p ¼ 0.299); GFI ¼ 0.974;AGFI ¼ 0.923; CFI ¼ 0.996; RMSEA ¼ 0.004)The company offers the best technologies as material supportto the services 4.01 0.92 0.434 4.175Branch offices have an image of professionalism 4.08 0.90 0.830 9.429The company offers the greatest quality in every service 4.00 0.72 0.890 40.500The employees are trained to provide correctly the services tocustomers 4.00 0.76 0.833 9.495The customers receive an efficient service by our employees 4.01 0.78 0.681 7.147Performance In the last years . . .Economic performance (formative scale)The company has increased its market share 4.24 0.93The company has increased the volume of trade with somecustomers 4.21 1.00The company has increased its global benefits 4.34 0.91The company has improved its competitive position 4.19 0.87The company has reduced costs 3.81 1.02Market performance (formative scale)We have reduced the number of complaints and conflicts 3.59 0.88The company has improved its image on the market 4.02 0.97The company has increased the percentage of retainedcustomers 3.88 0.90The company has customers committed that do not act in anopportunist way 3.78 0.90The company is satisfied with the relationship with customers 3.77 0.83The company own a competitive advantage over thecompetitors based on its relationships with customers 3.94 0.93Table AI.

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