Tradeoffs in marketing exploitation and exploration strategies: The overlooked role of market orientation

Marketing strategy can improve a firm's current expertise (marketing exploitation strategy) and/or require the development of new knowledge and skills (marketing exploration strategy). Research in strategy and organizational learning suggests that utilizing both approaches may compromise firm effectiveness in each individual area and reduce firm financial performance. We argue that a firm's market orientation allows it to combine marketing exploitation and exploration strategies effectively by providing a unifying frame of reference focused on customer goals, facilitating market information flows between the two strategy processes, and integrating the two activities by serving as a dynamic market linking capability. A study of Dutch firms in the packaged food industry indicates that a firm's strong market orientation facilitates a complementarity of high levels of marketing exploration and marketing exploitation project-level strategies which results in improved new product financial performance measured at two distinct points of time. However, as predicted by the tradeoff, firms with a weak market orientation engaging in high levels of both strategies display a significant reduction in new product financial performance. (C) 2004 Elsevier B.V. All rights reserved.