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Journal of Nonprofit &

Public Sector Marketing
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Market Orientation and

Nonprofit Organizations
a b
Van R. Wood & Shahid N. Bhuian
a
Associate Professor of Marketing, Texas
Tech University
b
doctoral candidate, Department of
Marketing, Texas Tech University
Published online: 26 Oct 2008.

To cite this article: Van R. Wood & Shahid N. Bhuian (1993) Market
Orientation and Nonprofit Organizations, Journal of Nonprofit & Public Sector
Marketing, 1:1, 7-32, DOI: 10.1300/J054v01n01_03

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 --
Market Orientation
and Nonprofit Organizations:
Performance Associations
and Research Propositions
Van R. Wood
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Shahid N. Bhuian

ABSTRACT. This paper discusses the concept of market orienta-

tion within Ule context of nonprofit organizations. Three elements
of market orientation-market intelligence, intelligence dissemination,
and responsiveness-are examined for their association with perfor-
mance in nonprofit organizations. A conceptual framework is devel-
oped which identifies select senior management characteristics,
organizational characteristics, and external factors as key determi-
nants of market orientation and subsequent performance of nonprofit
organizations. In all, fourteen propositions are advanced for future
research. This conceptual work posits that nonprofit decision makers
can create a market orientation by focusing on specific organization-
al and senior management characteristics, and adapting to certain
external factors. The ultimate objective is to achieve and sustain
organizational performance.

Van R. Wood is Associate Professor of Marketing at Texas Tech University.

He received his PhD from the University of Oregon. Published articles of his
appear in a variety of journals including the Journal of Marketing, Journal of
Marketing Research, Journal of Internatio~lBusiness Studies, and the Joural
of the Academy of Marketing Science. He has taught and presented seminars in
Western and Eastern Europe, the USSR, the Middle East, Latin America, Canada,
and the Pacific Rim.
Shahid N. Bhuian is a doctoral candidate in the Department of Marketing at
Texas Tech University. His research interests include nonprofit marketing, market-
ing strategy, consumer behavior, and international marketing.
Journal of Nonprofit & Public Sector Marketing, Vol. l(1) 1993
O 1993 by The Haworth Press, Inc. All rights reserved. 7
 8 JOURNAL OF NONPROFIT & PUBLIC SECTOR MARKETING

The nonprofit sectors of society typically engage in social, cultur-

al, and economic activities. Often individuals rely on nonprofit
organizations (NP)' to bring them into the world, to educate and
entertain them and even to bury them. NP organizations comprise
tens of thousands of private and public endeavors, that in general,
specialize in delivering services that axe not provided by private
businesses or government entities.
The NP sector of the economy has its problems. Today, many
colleges, hospitals, churches, and other social agencies are experi-
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encing rising costs and stable or declining revenues (Kotler &

Andreasen 1991). Organizational resources have been eroded by
inflation and rising demands of clients. The "for-profit" sector sees
the tax exempt status of many NP organizations as an unfair advan-
tage that should not be allowed (Hodgkinson 1989). Another highly
significant problem is that many NP managers know little about
business administration, having come to their first NP job without
any significant marketing or management training (Wolf 1984). All
in all, the NP environment is both challenging and threatening and
many NP organizations are asking-what is it that we need to do in
order to survive?
The NP sector is one of the least studied and consequently one
of the least understood areas of the economy. And while research
is needed on many aspects of NP organizations, it is in marketing
that calls for research are most apparent (Shasho 1983, Hansler
1986, Narver and Slater 1990). Marketing issues of particular inter-
est include: (a) the nature and degree to which NP organizations
exhibit a market orientation, (b) the degree (if any) to which certain
management characteristics, organizational characteristics, and ex-
ternal factors influence the market orientation of NP organizations,
and (c) whether or not a market orientation relates to enhanced
performance in NP organizations. This paper addresses these issues
by presenting a descriptive model that relates the concept of market
orientation to NP organizations. The model identifies the dirnen-
- - - -

1. In this paper, for brevity purposes, the term nonprofit is considered to be

synonymous with "not-for-profit," "tax free," "charity," and other typically
named organizations, and is herein abbreviated to NP.
 Van R. Wood and Slwhid N. Bhuian 9

sions of market orientation and poses a set of propositions designed

to guide future research on NP performance.

THE THEORETICAL DIMENSIONS

OF A MARKET ORIENTATION
IN NONPROFIT ORGANIZATIONS
Among all the classic business functions, marketing was one of
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the last to be embraced by NP organizations. Indeed, it was not

until such organizations confronted the problems and challenges
noted previously, that they began to discover marketing (Nichols
1989). And with that discovery, they began to realize that their
ultimate success and failures originate in the exchange relationships
they have with their multiple publics (Lovelock and Weinberg
1984). Indeed, a general understanding of marketing as an orienta-
tion applicable to NP organizations began to evolve.
The concept of "orientation" relates to one's adaptation to a
specific situation. It reflects the degree to which one accommodates
the surrounding environment in order to achieve objectives. In
business and commerce, numerous orientations have evolved as the
environment surrounding organizations evolved. The fust orienta-
tion, the product or production orientation, typically exists in peri-
ods of low competition or when demand is greater than supply.
Here, what an organization makes, it can sell. Therefore it is ratio-
nal to focus on the "producing" of goods. The second orientation,
the sales/promotion orientation, exists when customers demand
information about products before they buy. Therefore promoting
what has been produced is considered to be the key element to
success. The third orientation, the marketing or market orientation,
is prevalent when customers have numerous alternatives, and when
information concerning customers guides product development and
marketing efforts. While each orientation is manifest in modem
organizations, it is a "market orientation" that is most often recom-
mended for enhancing long-term success (for a more complete
discussions on "orientation" see Troye and Wood 1989).
In order for any organization to have a market orientation, it
must implement the marketing concept. From the traditional-theoret-
 10 JOURNAL OF NONPROFrT & PUBLIC SECTOR MARKETIh'G

ical perspective, the marketing concept entails: (1) a customer or

target market focus, (2) a coordinated marketing effort with re-
spect to price, product, promotion and channel of distribution, and
(3) profitability (McNamara 1972, Kotler 1991). From apractitioner
perspective, a recent field study posits that a market orientation
entails:
(a) one or more departments engaging in activities geared
toward developing an understanding of customers' current and
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future needs and the factors affecting them, (b) sharing of this
understanding across departments, and (c) various departments
engaging in activities designed to meet select customer needs.
(Kohli and Jaworski 1990, p. 3)
_-
A common denominator in both the theoretical and practitioner
perspectives is the notion of "market intelligence." More specifi-
cally, the concept of market orientation refers to the organization-
wide generation, dissemination, and responsiveness to market in-
telligence. Recently, Narver and Slater (1990) have linked these
dimensions of market orientation to performance in their studies of
for-profit organizational success. 1n-the present paper, we propose
that market intelligence generation (to understand customers), dis-
semination (to sh&e understanding of customers), and responsive-
ness (to meet customer needs) also form the core of a market orien-
tation in NP organizations. Likewise, having a market orientation
leads to high performance in NP organizations.
Based on these notions, an NP version of market orientation has
been developed as shown in Figure 1. As discussed below, this NP
conceptualization of "market orientation" is offered as an explor-
atory attempt to articulate the specific nature of market intelligence
in NP organizations.

NONPROFIT MARKET ORIENTATION

As diagrammed in Figure 1, market intelligence is the central
element of market orientation and includes intelligence generation,
intelligence dissemination, and intelligence responsiveness.
 FIGURE 1
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1 NONPROFIT ORGANIZATIONS'
MARKET ORIENTATION I
MARKET INTELLIGENCE
I
I J I
INTELLIGENCE GENERATION INTELLIGENCE DISSENINATION INTELLIGENCE RESPONSIVENES
I I
I
I
,,
I I
a. Gathering, monitoring,
and analysis of information
I.Sharing of information . Developing, designing,
mncerning: mplementing, and
concerning: Itering:
-donors and clients
-donors and clients -programs, products
-external forces and sewices
-exogenous factors
outside the industry -systems to promote,
price and distribute
-competition I. Ensuring: programs, products,
and services
b. Generating information -horizontal and vertica.
using: information flows b. Utilizing:
-formal means -participation of all
departments and
-informal means personnel -product/service
differentiation
-other marketing
tools

Adapted from: Andreasen 1982, Unterman h Davis 1984, Hansler 1986, Kotler 6 Andreasen 1991,
Hansler 1988, Schwartz 1989, ~ o h l i5 Jaworski 1990. Narver & Slater 1990.
..
 12 JOURNAL OF NONPROFlT & PUBLIC SECTOR MARKETING

Intelligence Generation entails four distinct points, including:

1. Gathering and analyzing information pertaining to donor and

client current and future needs.

Modem marketing requires a "customer-focus," with a system-

atic study of customer needs using appropriate data gathering and
data analysis techniques. Effective market intelligence requires a
focus on both current and future needs, and a market oriented orga-
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nization is characterized by proactive responses based on anticipated

changes in customer needs (Deshpande and Webster 1989). Like
for-profit organizations, NP organizations have exchange relation-
ships with numerous "publics," that have an actual or potential
interest in their organization. Two classes of publics, input publics
(donors) and consuming publics (clients) constitute the major ex-
change groups of NP organizations. In order to understand NP
exchange relationships, both the donors' and clients' perspectives
must be considered and NP organizations must continuously keep
up-to-date with the needs of both groups. They must gather and
analyze relevant donor and client information.

2. Monitoring and analyzing exogenous factors outside the in-

dustry itself (e.g., government regulations, technology, the
general economy, and other environmental forces), that influ-
ence donor and client current and future needs.

Market intelligence is also needed on exogenous factors and

environmental forces that influence customer needs. As before,
external forces can affect for-profit and NP organizations. Their
impact on the behavior of donors and clients is said to be particu-
larly significant (Young 1984,Nichols 1989). Hence, market intelli-
gence generation in the form of environmental scanning activities
requires continuous monitoring and evaluation of changes in gov-
ernment regulations, technology, the general economy, and so on.

3. Monitoring and analyzing competitive actions (both primary

and secondary) that influence donor and client current and
future needs.
 Van R. Wood and Shahid N. Bhuian 13

While competition can be considered an exogenous factor, its

immediate and often sigruficant effect on an organization's perfor-
mance dictates that it be considered separately. Competitors influ-
ence customers by catering to their unmet needs or offering new,
innovated solutions to their current or future needs. Competitors can
position products more effectively, offer superior products, promote
them better or offer them in more convenient locations. The exis-
tence of competitors in the marketplace, clamoring for attention, not
only stimulates clients to seek other alternatives but also sharpens
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donors' awareness of alternative outlets for their donations. Conse-

quently, all NP organizations should make the monitoring and eval-
uation of competition a priority. Because their source of funds and
the markets they serve can be taken by both primary competitors
that satisfy identical needs, or secondary competitors that satisfy
generic needs, both should be carefully scrutinized.
4. Gathering and monitoring of market intelligence through for-
mal and informal means.
Useful intelligence generation can vary from extremely informal
contacts to highly structured methodologies. A random sharing of
a cup of coffee with relevant groups or an elaborate marketing
research undertaking such as a sophisticated customer attitude sur-
vey can both be effective. Intelligence generation is also possible
through "non-marketing" departments of an organization such as
research and development, personnel, or accounting. In general,
effective market intelligence generation in NP organizations utilizes
all possible means, both informal and formal, when gathering and
monitoring information on donors, clients, external forces, andfor
competition.
Intelligence Dissemination entails two distinct points, including:
1. Sharing throughout the organization both existing and antici-
pated information concerning (a) donor and client current and
future needs (b) exogenous factors, and (c) competition. Here
the goal is to ensure vertical and horizontal flows of informa-
tion within and between departments.

To effectively reach objectives, all parts of an organization need

 14 JOURNAL OF NONPROFIT & PUBLIC SECTOR MARKETING

to act in a coordinated fashion. For organizations to respond to

market needs, market intelligence must be communicated and dis-
seminated. Various means can be used to disseminate intelligence
within organizations including periodic newsletters, formal meet-
ings, and informal "story telling" (Kohli and Jaworski 1990). To
facilitate this, the role of both the more traditional "vertical com-
munication" system and the newer, more recently studied "hori-
zontal communication" system, need to be taken into consideration
(see Zeithaml, Berry, and Parasuraman 1988). Given the relatively
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flat organizational structure of many NP organizations, Unterman

and Davis (1984) recommend a horizontal communication system
be used to disseminate information. In such systems, information is
shared through monthly director reports to the board of trustees,
weekly informal meetings between the board and the executive
director, weekly staff and volunteer meetings, and informal recep-
tions with trustees, staff, and community groups.
2. Ensuring effective use of disseminated information by encour-
aging participation of a l l departments and personnel in sharing
information concerning donor and client current and future
needs, exogenous factors and competition.

The dissemination of market intelligence can originate from any

department or any individual in the organization. Having informa-
tion and sharing its meaning is critical to NP organizational success
and all employees and volunteers should be attuned to this fact.

Intelligence Responsiveness entails three distinct points, includ-

ing:

1. Developing, designing, implementing, and altering products

and services (tangibles and intangibles) in response to donor
and client current and future needs.
In the final analysis having a market orientation entails meeting
the needs of the market. After generating and disseminating market
intelligence the next logical step is to take actions in lieu of the
information obtained. At this stage more "formal" actions based on
 Van R. Wood and Shahid N. Bhuian 15

product or service planning are taken. Market responsiveness re-

quires the intelligent development, implementatio< and modifica-
tion of products and/or services and by definition "intelligent"
implies an accurate information base.

2. Developing, designing, implementing, and altering systems to

promote, distribute, and price products and services that re-
spond to donor and client current and future needs.
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In this step, organizations are required to develop, design, imple-

ment, and modify plans for the mnaining controllable variables in
marketing, namely pricing, distribution, and promotion. The NP
sector is somewhat unique here because these products can be zero
priced, positive priced, or negative priced (Hansler 1988). Likewise,
promotional themes of NP organizations may be unique in that they
often emphasize the altruism of donors. As such, they may require
somewhat more subtle, yet sophisticated appeals than is common in
other promotions (see Nichols 1989, Schwartz 1989). Again, to be
effective, these plans must be based on accurate market intelligence.

3. Utilization of market segmentation, productlservice differen-

tiation and other marketing tools in the development, design,
implementation, and alteration of products and services, and
their corresponding systems of promotion, distribution, and
pricing.

Meaningful market responsiveness often requires the utilization

of marketing tools such as segmentation and productfservice differ-
entiation. For example, in NP organizations segmentation helps
categorize both donors and clients into meaningful groups based on
unique patterns of behavior. This in turn,guides appropriate prod-
uct, pricing, promotion, and distribution strategies.
Individually and collectively, intelligence generation, dissemina-
tion, and responsiveness determine the nature and extent of market
orientation in any NP organization. Utilizing these factors we next
present a conceptual model describing the variables that lead to and
result from a market orientation in NP organizations.
 16 JOURNAL OF NONPROFIT & PUBLIC SECTOR MARKETING

FACTORS INFLUENCING NP MARKET

ORIENTATION AND PERFORMANCE

A fuller understanding of market orientation and its role in NP

organizations can be gained within the context of a model. Figure
2 displays the descriptive model for NP organizations that guided
the development of propositions offered in this paper. As shown,
the model has at its core market intelligence generation, dissemina-
tion, and responsiveness. A central of the model is that the
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more an NP organization displays these dimensions, the more it is

attuned to the market.
Figure 2 posits that the degree of market orientation in any given
NP organization depends on the presence or absence of specific
senior management characteristics, organizational characteristics,
and extemalfactors. In turn the degree of market orientation dis-
played directly influences organizational performance. These ante-
cedents and outcomes, and their proposed relationships with market
orientation were gleaned from a large body of for-profit and NP
literatme and were adapted to the model based on their particular
relevance to NP organizations. Each of the major antecedents and
outcomes are reviewed.

ANTECEDENTS TO A MARKET ORIENTATION

IN NP ORGANIZATIONS' SENIOR MANAGEMENT
CHARACTERISTICS

The critical role of senior management in fostering a market

orientation is reflected in numerous studies (see for example Levitt
1969, Hambrick and Mason 1984, Unterman and Davis 1984, Epsy
1986, Webster 1988). In general, these studies view senior manage-
ment as highly influential on the value organizations place on intel-
ligence generation, dissemination, and responsiveness. In NP orga-
nizations, senior management is typically made up of an executive
director and senior level staff. Several characteristics of senior
management may be particularly pertinent to the formation of a
market orientation including risk aversion, management training,
professionalism, and attitude towards marketing.
 I"""
I
FIGURE 2
A M A R W ORIENTATION MODEL FOR NP ORGANIZATIONS
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ANTECEDENTS OUTCOMES

SENIOR MANAGEMENT
CHARACTERISTICS
Risk Aversion
I
Management
Training
Professionalism
Attitude Towards
t MARKET ORIENTATION
Generation
PERFORMANCE
r--l
ORGANIZATIONAL
CHARACTERISTICS Intelligence Qualitative
oissemination h puantitative

t
Entrepreneurship
Measures
Organizational
Structure
Intelligence
Ingratiation
Acceptance
Market-Based

EXTERNAL FACTORS
Competition

I
Macro Environmental
Changes
Market Environment
t-
 -
18 JOURNAL O F NONPROFlT & PUBLIC SECTOR MARKETING

Risk Aversion

Risk aversion is considered to be negatively related to a market

orientation of both for-profit and NP organizations (Ansoff 1984,
O'Neill 1989). Risk averse managers tend to disassociate them-
selves from information that might bode poorly on their organi-
zation's future. Likewise, complex or voluminous information con-
cerning markets, competitors, or the environment tend to be viewed
as "seeds of confusion" rather than items to clanfy a situation. As
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such, risk averse managers tend to give information generation and

dissemination low priority, have moderate track records in regard
to market responsiveness, and do not encourage a market orienta-
tion.

Manugement Training

Management training has been shown to be positively related to

a market orientation (Young 1981, Wolf 1984). Management train-
ing can develop a clear, deeply ingrained appreciation of what mar-
keting is and what it can do. There is evidence that some NP man-
agers view marketing as primarily sales promotion, advertising, or
public relation. In such cases, customer satisfaction is typically not
a priority (Fine 1983). At its best, management training is said to
orient one towards strategic thinking and the mission, goals, and
objectives of the firm. It forces managers to look at the "big pic-
ture" and visualize how to realize it. Senior management with high
levels of management training tend to pay more attention to market
evolution, environmental changes, and how a firm's resources can
be utilized to take advantage of each (Levinson 1987).

Professionalism
During the past three decades a considerable amount of research
has focused on professionalism in organizations. Different views
exist in which professionalism is seen as both a global, uni-
dimensional concept (see Sorenson and Sorenson 1974), and a
multidimensional construct (see Bart01 1979). Most observers agree
that professionalism is an attitude containing five components,
 Van R. Wood and Shahid N. Bhuian 19

including: (a) autonomy, or the perceived right to make decisions

about both the means and goals associated with one's work, (b) com-
mitment, or the degree of dedication exhibited toward one's work,
and one's long-term career aspirations in the profession, (c) identiji-
cation with the profession and fellow professionals, or the tendency
to use the profession and fellow professionals as major reference
points, (d) ethics, or the degree of felt responsibility to avoid self-
interest in the course of rendering services, as well as the dedication
to high quality service to the client, and (e) collegial maintenance
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of standards, or the belief that standards should be enforced by

fellow professionals who are properly equipped to evaluate work
adequately in the field.
When carefully scrutinized, high concern for each of the five
attitudinal components of professionalism can be associated with a
high drive to create and maintain a market orientation within an
organization. The essence of each of the five components including
the right to make decisions, dedication to the long term, utilization
of other professionals, dedication to properly serve the client, and
being equipped to maintain standards requires a penchant for infor-
mation-the core of a market orientation.

Attitude Towards Marketing

A positive attitude towards marketing is theorized to foster a
market orientation in NP organizations. On the other hand, manag-
ers who view marketing as undesirable are less likely to embrace
the marketing concept (see Lovelock and Weinberg 1984).
Based on the preceding discussion the following four proposi-
tions are advanced.

Proposition 1: Higher risk aversion in senior NP management

leads to a lower market orientation in NP orga-
nizations.
Proposition 2: The more management training experienced by
senior NP management, the higher the market
orientation in NP organizations.
Proposition 3: The higher the level of professionalism exhibit-
ed by senior NP 'management, the greater the
 20 JOURNAL OF NONPROFlT & PUBLlC SECTOR MARKEjrlNG

tendency for NP organizations to be market

oriented.
Proposition 4: The greater the positive attitude of senior NP
management towads marketing, the greater the
market orientation in NP organizations.

ORGANIZATIONAL CHARACTERISTICS
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Like senior management characteristics, organizationalcharacter-

istics can be utilized as predictors of a market orientation. In regard
to NP organizational characteristics, several factors appear to be
particularly relevant to a market orientation. They include entrepre-
neurship, organizational structure, ingratiation acceptance, and mar-
ket-based reward system.

Entrepreneurship
Traditionally, entrepreneurship has been identified with a domi-
nant organizational personality, generally an independent minded
owner-manager who typically makes critical decisions (Leibenstein
1968). However, entrepreneurship has also been conceptualized at
the fm level (Miller 1983, Moms and Paul 1987). Entrepreneur-
ship as a fm phenomenon is defined as an organization's willing-
ness to encourage and support creativity, flexibility, and risk taking,
and to strive for organizational renewal through the pursuit of new
ventures and opportunities (Stevenson, Roberts, and Grousbeck
1985). Entrepreneurial organizations typically are more aggressive
in dealing with competitors, emphasis research and development,
value rapid or steady growth over stability and actively seek unusu-
al or novel solutions to problems (Ginsberg 1985).
High levels of organizational entrepreneurship and high levels of
market orientation have been said to represent responses to an in-
cmsingly complex and turbulent environment (Drucker 1974,1980,
1985). In the context of NP organizations, an association between
entrepreneurship and market orientation has been demonstrated in
a number of situationally specific studies. For example, Hansler
(1986) noted organizations with entrepreneurial orientation tend to
 Van R. Wood and Shahid N . Bhuian 21

value information and tend to view information evaluation as part

of the larger process of meeting the needs of their donors.

Organizational Structure

Two sbuctural properties of organizations-centralization and

formalization-have been investigated in conjunction with market-
orientation in both the for-profit and NP context. Formalization
refers to the degree to which mles define organizational roles, au-
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thority relationships, communication channels, cultural norms, ac-

cepted sanctions, and hierarchical procedures (Zeffane 1989, Smith
et al. 1989). Centralization is defined as the nature and degree of
delegation of decision making (Zeffane 1989, Martin and Glisson
1989).
In the for-profit context, past research had shown a positive rela-
tionship between formalization as well as centralization, and the
market "responsiveness" dimension of market orientation. Also,
formalization and centralization have both been found to be nega-
tively related to intelligence generation and intelligence dissemina-
tion (Zaltman, Duncan, and Holbek 1973, Kohli and Jaworski
1990). Apparently formalization and centralization inhibit intelli-
gence generation and dissemination but enhance market responsive-
ness. Similar patterns of associations have been observed in the NP
context. Both formalization and centralization were found to be
negatively related with market intelligence generation and dissemi-
nation activities through the creation of work alienation in welfare
organizations (Aiken and Hage 1966). On the other hand, Glisson
and Martin (1980) found a positive relationship between both cen-
tralization and formalization, and market responsiveness.

Ingratiation Acceptance

Ingratiation is the political behavior of seeking one's own self-

interest and in theory may be detrimental to an organization if it
becomes excessive (Ralston 1985). However, in practice, organiza-
tions differ in the extent to which their members view ingratiation
as being acceptable or not. Some see a self-serving, yet motivated
individual as a positive influence in an organization (see Hodgkin-
 22 JOURNAL OF NONPROFIT & PUBLIC SECTOR MARKETmG

son, Lyman, and Associates 1989). On the other hand, having a

market orientation calls for a concerted response by all to generate,
share, and collectively use market intelligence and as such, a high
ingratiation "acceptance system" may lead to interdepartmental
conflict and ultimately inhibit a market orientation (Kohli and
Jaworski 1990).
In NP organizations the power to make things happen basically
lies with four groups, namely a board of trustees, management,
staff, and volunteers. Management and staff personnel typically
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work on a paid basis, while the board of trustees and volunteers

typically serve for some nonrnonetary interests. As such, the moti-
vation behind the efforts of these groups may differ substantially.
Board members and volunteers are typically driven by the desires
(1) to promote the mission of the organization, (2) to fulfill social
responsibilities, or (3) for professional advancement, career explora-
tion, work experience, class credit, or leadership opportunity. Man-
agement and staff, while possibly having similar motives, may also
be more overtly motivated to realize immediate monetary rewards
(O'Neill 1989). Needless to say, power, motivation and politics are
complicated in NP organizations, and the effect of ingratiation ac-
ceptance is theoretically mixed. In general however, a tendency
toward high ingratiation acceptance could hamper the concerted
efforts required for intelligence generation, dissemination, and mar-
ket responsiveness.

Market-Based Reward System

A considerable amount of research has been conducted on the

relationship between organizational reward systems and subsequent
attitudes and behavior of em~lovees(see Anderson and Chambers
1985). The way employees &e rewarded and what they are reward-
ed for is theorized to directly influence their productivity. An asso-
ciation between reward systems and the various components of
market orientation has also been documented by Webster (1988)
and Kohli and Jaworski (1990).
One specific type of reward system, a market-based reward sys-
tem, appears to be particularly appealing in NP organizations. A
market-based reward system focuses on consumer feed-back as a
 Van R . Wood and Shahid N. Bhuian 23

key measure of organizational performance. In such a system, cus-

tomer beliefs, attitudes, and satisfaction levels are considered impor-
tant indicants of organizational success or failure. Organizations
employing this philosophy, tend to reward employees based on
positive consumer responses to their marketing efforts as opposed
to basing rewards strictly on shoa term profitability. NP organiza-
tions, by their very nature tend to look for other measures of suc-
cess besides profitability. If customer satisfaction is to be rewarded,
then information on the customers must be gathered and analyzed.
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Intuitively, a market-based reward system employed by an NP orga-

nization would tend to facilitate a market orientation.
Based on the preceding discussion, the following five proposi-
tions are advanced.

Proposition 5: NP organizations which exhibit greater entrepre-

neurship will also be more market oriented.
Proposition 6: The greater the structural formalization of NP
organizations (1) the lower the market intelli-
gence generation and dissemination and (2) the
greater the market responsiveness.
Proposition 7: The greater the structural centralization of NP
organizations (1) the lower the market intelli-
gence generation and dissemination and (2) the
greater the market responsiveness.
Proposition 8: The greater the reliance on market-based factors
to evaluate and reward senior management,
staff, and volunteers of NP organizations, the
greater the market orientation of such organiza-
tions.
Proposition 9: The greater the tolerance of ingratiation in NP
organizations, the lower the market orientation.

EXTERNAL FACTORS

The external environment in which NP organizations operate is

highly complex and is to a large extent unique from the for-profit
environment in that it tends to be more volatile (Faherty 1985).
Hence, environmental factors are perhaps even more influential in
 24 JOURNAL OF NONPROFlT & PUBLlC SECTOR MARKETING

the NP arena. Three broad types of influential environmental forces

have been identified as being particularly relevant to the formation
of a market orientation. They include competitive factors, macro
factors, and market factors.
Competitive Environment

The competitive environment refers to any group or organization

that competes for the attention, resources, or loyalty of an audience.
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As outlined by Kotler and Andreasen (1991) marketers can face as

many as four major types of competitors in trying to serve a target-
ed market. They are: (1) "desire" competitors, or those that cater
to the immediate desires that consumers might want to satisfy
(e.g., on any particular evening one can have several de-
sires-finishing a project at work, getting some exercise, or being
entertained), (2) "generic" competitors, or those that offer other
basic ways by which consumers can satisfy a particular desire (e.g.,
the desire to be entertained could include-TV at home, a movie, or
a live performance), (3) "service form" competitors, or those that
offer other service forms that can satisfy a consumer's particular
desire (e.g., if one chooses to be entertained by a live performance,
one could consider-a symphony, a nightclub performance, or a
play), and (4) "enterprise" competitors, or those whose other enter-
prises can satisfy a consumer's particular desire.
Although many NP organizations still ignore the existence of
such competition, more astute managers are h o w n to evaluate their
market position vis-his the four types of competitors identified
above. Organizations that recognize competition and perceive it to
be more threatening have a greater tendency to evaluate it (Schwartz
1989). Therefore, the greater the perceived competition the greater
the tendency to adopt a market orientation.
Macro Environment
The macro environment refers to the large scale fundamental
forces (other than competition and the market itself), that shape
opportunities and pose threats to organizations. These broad forces
can be divided into demographic,economic, technological, political-
 Van R. Wood and Slrahid N.Bhuian 25

legal, and social-cultural categories. The nature and relative impact

of these forces is thought to vary significantly across NP organiza-
tions. Anecdotal evidence suggests that for social service agencies,
demographic and political-legal trends are influential, for charities,
economic trends are influential; technological trends are influential
for hospitals and libraries; and for recreation services and the per-
forming arts, social-cultural trends are influential (Kotler and
Andreasen 1991).
There does exist some empirical evidence relating the macro
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environment and the concept of market orientation in NP organiza-

tions. Political-legal factors such as eliminating property tax ex-
emptions, limiting the advocacy rights of organizations receiving
government funds, and cutbacks in federal funding can drive NP
organizations to embrace marketing (Scanlon 1983, Nielsen 1984).
Market Environment
/
As used in this model, the term "market environment" reflects
the individuals, groups, and institutions that all organizations direct-
ly work with to accomplish their objectives. In the NP sector, these
include clients, marketing intermediaries, suppliers, supporters, and
donors. The issue here is the nature and extent to which such
groups both individually and collectively influence the development
of a market orientation in NP ormnizations.
There is evidence suggesting ;hat as the behavior of supporters
and donors becomes more volatile or less dependable, NP organiza-
tions become more market oriented (Hansler 1986, Nichols 1989).
The more individuals, corporations, foundations, and governments
decrease or vary the amount they give (giving less one year, and
more the next, and less the next), the more NP organizations tend
to seek out, disseminate, and utilize information. Such efforts typi-
cally lead to new programs aimed at first stabilizing and then in-
creasing donations. Likewise, as client needs become more com-
plex, NP organizations tend to more aggressively seek information
necessary to develop programs to meet such needs (Johnson 1986,
Schwartz 1989). In general, it is theorized that the more an NP
organization perceives changes in its resource base(s) or its clients'
needs, the more market oriented it is and will become.
 26 JOURNAL OF NONPROFlT & PUBLIC SECTOR MARkETING

Based on the preceding discussion dealing with external factors

the following four propositions are advanced.
Proposition 10: The greater the recognition of competition (and
its subgroups or types), the greater the market
orientation in NP organizations.
Proposition 11: The greater the macro environmental changes
(e.g., demographic changes, economic changes,
technological changes, political-legal changes,
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and social-cultural changes), facing NP organi-

zations, the greater will be their market orien-
tation.
Proposition 12: The greater the perceived changes in donors'
behavior, the greater the market orientation of
NP organizations.
Proposition 13: The greater the perceived changes in client
needs, the greater the market orientation of NP
organizations.

MARKET ORIENTATION
AND PERFORMANCE ASSOCIATIONS
IN NP ORGANIZATIONS
Performance measurements used in NP organizations vary wide-
ly. Many are qualitative and tend to be highly organizational specif-
ic, for example "benefits," "mission accomplishment," "critical
response by media," and "improved administrative practices" (see
Gruber and Mohr 1982, and Wolf 1984). Quantitative performance
measures are by far more numerous and have included "number of
clients." "financial returns,' ' "donation increases," and a series of
ratios such as "administrative cost ratio," "fund-raising cost ra-
tio," and "programs funding ratio" (see Feigenbaum 1987, Kumer
and Pereira 1988). While several attempts have been made to devel-
op a common means to evaluate performance across NP organiza-
tions, few have been truly successful or widely accepted (Smith
1988).
In general a consensus exists that any comprehensive perfor-
mance measure should reflect both quantitative and qualitative
 Von R. Wood and Shahid N. Bhuian 27

outcomes of NP organizations and should have the characteristics

of simplicity, economy, and utility. Perhaps the best known taxono-
my to follow these criteria was developed by Unterman and Davis
(1984). In it they identified both quantitative and qualitative mea-
sures and recommended that each be discretely considered accord-
ing to the unique circumstance facing a specific NP organization.
Their quantitative measures are all time period specific and include:
1. Increases (or decreases) in the number of beneficiaries or
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members gained.
2. Percentage increase (or decrease) in the number of grants or
revenues received.
3. Increases (or decreases) in the cost effectiveness for each
individual beneficiary.
4. Decreases (or increases) in the fixed cost requirements to ac-
complish the organization's mission.
5. Total increase (or decrease) in the number of hours given by
volunteers.
6. The percentage increase (or decrease) in the number of volun-
teers.
7. The increase (or decrease) in time spent by board members.
8. Percent over (or under) set expenditure budgets.
9. Increase (or decrease) in the number of favorable (or unfavor-
able) articles in newspapers, and other public relations media
(related to the organization).

Their qualitative measures are also time period specific and in-
clude:
1. Improvement (or not) in the relationships among board mem-
bers.
2. Improvement (or not) in relationships between board members
and the executive director of the organization.
3. Improvement (or not) in the relationships of staff to the exec-
utive director.
4. Improvement (or not) in the quality of the relationships be-
tween volunteers and the executive director as well as the
board members.
 28 JOURNAL OF NONPROFIT & PUBWC SECTOR MARKETING

5. Improvement (or not) in the ease of attracting board members

and volunteers.
6. Improvement (or not) in the general attitude of the community
toward the organization.
7. Improvement (or not) in the positive intentions of the commu-
nity toward the organization.
8. Improvement (or not) in the ease of fund raising in general.
9. Improvement (or not) in the ease of attracting foundation
funds, and other specific sources of funds.
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In the final analysis, the adoption of a market orientation by any

organization should be based solely on enhanced performance.
Numerous reports and studies have testified that the adaptation of
marketing principles can greatly enhance organizational operations
(see Narver and Slater 1990). As such, the following, final proposi-
tion is advanced.

Proposition 14: The greater the market orientation exhibited by

NP organizations, the greater will be both their
qualitative and quantitative performance.

CONCLUSIONS
In their study of for-profit organizations, Narver and Slater
(1990) "hold that market orientation is relevant in every market
environment" (p. 33). This paper explores market orientation in a
unique market environment, namely NP, and elaborates on its na-
t&and dimensions (Figure 1). model is developed to explain
both the determinants (antecedents) and outcomes (~erformance)of
market orientation ( ~ i & 2). In &, fourteen proiositions
the various aspects of the model are posed in an attempt to concep-
tualize the dynamics of the market orientation development process
in NP organizations.
Three fundamental questions are addressed in this paper.
First-what is the essence of a market orientation in NP organiza-
tions? Second-how do NP organizations acquire a market orienta-
tion? And third-does the presence of a market orientation influence
NP performance? Grappling with the first question led to the details
 Van R. Wood and Shahid N. Bhuian 29

presented in Figure 1. Market intelligence is the key ingredient of

a market orientation. Market intelligencerequires information gener-
ation, dissemination, and responsiveness. This is true for both for-
profit and NP concerns. However, NP organizations must cater to
two distinct groups-clients and donors, and therefore the essence of
their market orientation is distinct from for-profit organizations.
Likewise, as indicated earlier, the extreme volatility of the NP envi-
ronment makes the development of a market orientation even more
critical to organizations operating in this sector of society.
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The notion that a market orientation is critical in the NP setting

leads logically to the second and third questions addressed in this
paper. As graphically depicted in Figure 2, the key to achieving a
market orientation in NP organizations lies in the mix of senior
management characteristics, organizational characteristics, and ex-
ternal factors that form the milieu of NP operations. The greater the
presence of these characteristics, as detailed in the paper and stated
in propositions one through thirteen, the more apparent will be the
presence of a market orientation in an NP organization. And the
more apparent is the market orientation of an NP organization, the
higher will be its performance (proposition fourteen).
To date, a comprehensive model of this type has been lacking in
the literature. Having synthesized theoretical, empirical and anecdot-
al works from marketing, management, economics, health care,
public administration, sociology, strategic planning and other fields,
it is our desire that the proposed model be utilized to guide future
research and managerial efforts in the area of NP marketing. Empir-
ical verification of the proposed linkages in the model is called for.
To what degree do the fourteen propositions posed in this study
hold true? How does market orientation vary across different types
of NP organizations, and how does this effect the ultimate perfor-
mance of such organizations?
The model (Figure 2) implies that the NP decision makers can
influence specific senior management and organizational character-
istics, and can adapt to certain external factors for purposes of
enhancing the market orientation of the organization. The ultimate
objective is to achieve and sustain high performance. If the veracity
of this model's implications is borne out, perhaps the multiple prob-
lems, challenges and opportunities facing NP organizations can be
logically and effectively met.
 30 JOURNAL O F NONPROFIT & PUBLIC SECTOR MARKETING

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