The Development and Use of the Six Markets Model Essay Example for Free

The Development and Use of the Six Markets Model Essay Introduction The idea that business organisations have a range of stakeholders other than shareholders is obvious. Yet stakeholder theory has not guided mainstream marketing practice to any great extent (Polonsky, 1995). To use the theory/practice distinction provided by Argyris and Schon (1978), it is a theory espoused rather more than a theory practiced in action. Research by Freeman and Reed (1983) traced the origins of the stakeholder concept to the Stanford Research Institute. They suggest a SRI internal document of 1963 is the earliest example of the term’s usage. This document included customers, shareowners, employees, suppliers, lenders and society in its list of stakeholders. The stakeholder concept has attracted considerable interest in the strategic management literature, especially since the publication of an influential text (Freeman, 1984) that contained a deceptively simple but broad definition of stakeholders (p. 46), namely: â€Å". . . all of those groups and individuals that can affect, or are affected by, the accomplishment of organizational purpose†. An important dialogue on stakeholder theory has emerged over the past decade, especially in articles and contributions to the Academy of Management Review, starting with a critique from Donaldson and Preston (1995) that argued that three associated strands of theory might converge within a justifiable stakeholder theory, namely descriptive accuracy, instrumental power and normative validity. Stakeholder theory is clearly an important issue in strategy (e.g. Carroll, 1989; Donaldson and Preston, 1995; Harrison and St John, 1996; Useem, 1996; Campbell, 1997; Harrison and Freeman, 1999). However, within the strategy field there is not a great deal of agreement on the scope of stakeholder theory (Harrison and Freeman, 1999). In particular, there is still a debate regarding which constituent groups an organisation should consider as stakeholders. For example, Argenti (1997) suggested an infinite number of potential groups while Freeman (1984) has argued that there is excessive breadth in identification of stakeholders. Recently Polonsky et al. (2003) concluded that there are â€Å"no universally accepted definitions of stakeholder theory or even what constitutes a  stakeholder† (p. 351). However, they see two rival perspectives: one where stakeholder intent means â€Å"improving corporate performance†, and another where it means â€Å"maximising social welfare and minimising the level of harm produced within the exchange process† (p. 351). While these aims may never be entirely reconciled in practice (Gioia, 1999), the dominant assumption that the pursuit of â€Å"profit† is for the shareholders effectively denies legitimacy to other claims to the meaning of profit as a â€Å"shared benefit†, or as aâ€Å"shared good† (Smithee and Lee, 2004). Relationship-based approaches to marketing offer a reformist stakeholder agenda with an emphasis on stakeholder collaboration beyond the immediacy of market transactions. According to different authors, this involves creating exchanges of mutually beneficial value (Christopher et al., 2002), interactions within networks of relationships (Gummesson, 1999), or mutual commitment and trust that may or may not be achievable (Morgan and Hunt, 1994). Relating is connecting, and at its simplest level, a relationship is a state of being connected. A critical question arises: â€Å"With whom are you connected, and why?†. These questions require judgments about particular relationships – and strategic value choices. This article explores the development, extension and use of the â€Å"six markets† stakeholder model (Christopher et al., 1991) and proposes a framework for analyzing stakeholder relationships and planning stakeholder strategy. The article is structured as follows. First, we review the role of stakeholders in relationship marketing. Second, we discuss the development and refinement of the six markets model, and describe how the model has been operationalised and refined as a result of testing and experience in use with managers. Next, we discuss the development of a stakeholder relationship planning model that enables strategies to be developed for each stakeholder group. Finally, we discuss the managerial and research issues associated with stakeholder theory in marketing and review some future research opportunities. Our objective is to explain how a conceptual stakeholder model has practical application in marketing management and in this way make a contribution  towards eliminating the current gap between stakeholder theories and marketing practice. Relationship marketing and the role of stakeholders Marketing interest in relationship based strategic approaches has increased strongly over the last decade in line with expanding global markets, the ongoing deregulation of many industries and the application of new information and communication technologies. Notwithstanding, practitioners and academics alike can overlook the fact that business and industrial relationships are of many kinds (Wilkinson and Young, 1994), and that an understanding of the value generating processes is required (Anderson and Narus, 1999; Donaldson and O’Toole, 2002; Gro ¨nroos, 1997; Payne and Holt, 1999; Ravald and Gro ¨nroos, 1996; Tzokas and Saren, 1999; Wilson and Jantrania, 1994). Understanding the role of long-term relationships with both customer and other stakeholder groups has been largely neglected in the mainstream marketing literature but is acknowledged in the relationship marketing literature (e.g. Gro ¨nroos, 1994; Gummesson, 1995; Hennig-Thurau and Hansen, 2000; Ha °kansson, 1982; Mo ¨ller, 1992, 1994; Parvatiyar and Sheth, 1997; Sheth and Parvatiyar, 1995). Kotler (1992) has on occasion called for a broadening of marketing interests to take into account the relationships between an organisation and its publics. However, it is the relationship marketing literature in particular that has stressed the importance of stakeholder relationships (e.g. Christopher et al., 1991; Morgan and Hunt, 1994; Doyle, 1995; Gummesson, 1995; Buttle, 1999). Gummesson (2002b) has provided a comparison of four of the better known approaches to classifying multiple stakeholders, including Christopher et al. (1991), Kotler (1992),Morgan and Hunt (1994), and also Gummesson (1994). While the first three of these models are concerned with the relationships that an organisation has with its more traditional stakeholders, the approach of Gummesson (1994) goes beyond the focus of this article in that it includes criminal network relationships, para-social relationships and supranational mega-alliances. The Christopher et al. (1991) framework has six stakeholder market domains, each of which comprises a number of  Ã¢â‚¬Å"sub-markets†, while that of Kotler (1992) identifies ten specific constituents. Morgan and Hunt (1994) suggest ten relationship exchanges with four partnership groups. Other models include the SCOPE model (Buttle, 1999) and a framework by Doyle (1995). The conceptual model and the related planning framework described in this article are the result of recursive research and development over a number of years. Our initial conceptual work on the model was later supplemented with learning from field-based interactions with marketing managers and other executives in order to further refine it and to develop the conceptual planning framework reported here. This follows what Gummesson (2002a) terms â€Å"interactive research†. This research approach emphasizes that interaction and communication play a crucial part in research and that testing concepts, ideas and results through interaction with different target groups is an integral part of the theory development and indeed the whole research process (Gummesson, 2002a, pp. 344-6). Managers’ observations and suggestions were found to be invaluable in developing and refining the model, supporting Gioia and Pitre’s (1990) proposals that multiple perspectives yield a more comprehensive view of organizational phenomena and where assumptions about the processes under enquiry can be modified by further consultation with informants. Research objectives and approach The objective of the research was to develop and refine the six markets model through testing its applicability in a wide range of organisational contexts. More specifically, we wished to develop a categorization scheme that enabled key constituent stakeholder groups within each market domain to be identified and classified and to develop a stakeholder planning framework. This was motivated, in part, by managers in these companies who expressed the need for both a classification scheme and a planning framework. We have utilized a range of approaches over a number of years in our research to test and refine the six markets model and the planning framework and to  gain field-based insights, including: 1) Piloting and testing the six markets model with an initial group of 15 UKorganisations. The organisations in this sample were drawn from a range of sectors including manufacturing (two), financial services including banking and insurance (six), other services including retailing (six), professional services (two) and one not-for-profit industry association (the Royal Aeronautical Society). All were very large firms within their sector with the exception of the two professional services firms and the not-for-profit organization. 2) Using the model in substantive case studies on UK organisations in the following sectors: retailing (two), manufacturing (two), a global airline and a major conservation charity. 3) Using the framework as a planning tool in a two major international banks (one a l arge British commercial and retail bank, the other a large French investment bank), chosen as they had challenging and complex stakeholder issues across many countries. A total of eight workshops was used to analyse stakeholder markets in four countries for the first bank and six workshops in three countries for the second bank. 4) Working on projects with over 80 further organisations to evolve and test the planning framework. This involved working with groups of mid-career managers in the UK and Australia. Given the predominantly service-based economies of the developed countries in which this research was undertaken, those organisations that were selected included a high proportion from the services sector. While the earlier research primarily included large organizations in their sectors, this work also included a selection of medium-sized and smaller organisations. Overall, 65 per cent of the organisations were from the services sector, 20 per cent from manufacturing and 15 per cent from the not-for-profit sector. A wide diversity of organisations was used, including financial services companies, retailing and other services, manufacturing companies, a mobile telephony company, a major hotel chain, an insurance broker, a consulting firm, an airport authority, a university, a conference centre, a holiday company, a foreign languages teaching institute and a hospice. Our shared learning approach also draws on action research concepts suggested by Rapoport (1970) which aim at contributing to the practical concerns of people in a challenging situation – such as stakeholder management – and to  the goals of research by collaboration within a mutually acceptable framework. The revised six markets model (Christopher et al., 2002) is shown in Figure 1. The intent behind the model is to emphasise relationships between the organisation and all its stakeholder constituents in each of six â€Å"markets†. The key assumption is that organisations can only optimise relationships with customers if they understand and manage relationships with other relevant stakeholders. This model addresses the concern raised by Dill (1975) that some groups or parties may be involved in multiple role relationships. Any one constituent group, firm or individual may be classified within one or more of these market domains. For example, customers may play a role within the customer market (where the interaction is between a firm and its customers) and in the referral market (where the interaction is between an existing customer and a prospective customer). The six markets model provides a structure for managers in organisations to undertake a diagnostic review of the key market domains and stakeholders that may be important to them. As a result of this diagnosis, they will be able to identify a number of key constituents within the market domains that are strategically critical, or where unexpected opportunities emerge. Using and testing the model These six key market domains represent groups that can have a significant impact on an organisation’s marketplace effectiveness. Each â€Å"market† is made up of a number key groups, segments, or participants. To test the applicability of the model we followed four steps: (1) identify key participants, or segments, within each of the market domains; (2) review expectations and needs of key participants; (3) review current and proposed level of emphasis in each market; and (4) formulate an appropriate relationship strategy. In this section we consider the first two steps. We worked with groups of  managers to address these steps. Typically, the group comprised three to six mid-career managers from a range of functional backgrounds. The process started with the examination and analysis of each market domain to identify the key groups of participants or market segments within each of them. We explored the expectations and needs of each of the identified stakeholder groups through a combination of approaches, including interviews and questionnaires and a review of key issues with senior management. In applying the revised six markets model above we found all stakeholders we identified could be conveniently categorised into one of the six market domains. Initially the identification of the constituent groups within each market domain, for a given organization, was approached on a case-by-case basis. However, as our experience in using the model grew, the need for a more specific categorisation became apparent. This was prompted, in part, by research such as Lovelock’s (1995) work on classifying supplementary services. Developing and refining categorisation schemes for stakeholders was important because, as Emshoff and Freeman (1979) have noted, functionally based organizations typically place too much resource emphasis on highly visible stakeholders such as their customers, and too little emphasis on other special interest groups whose management falls outside specific functional boundaries. Identification of all relevant stakeholder groups should enhance their visibility and lead to their greater prominence within the organization – thus the company is more likely address them as part of an integrated stakeholder strat egy. Through the work in the companies referred to above, a categorisation scheme was developed and refined over time that assisted the identification of typical groups within each market domain. In summary, this categorisation of market domains identified the following constituents: 1) Customer markets are made up of buyers (e.g. a wholesaler), intermediaries and final consumers. Each intermediary or member of the supply chain can then be further sub-divided according to the most relevant segmentation approach. 2) Referral markets comprise two main categories – customer and non-customer referral sources. The customer category includes advocacy referrals (or  advocate-initiated customer referrals) and customer-base development (or company-initiated customer referrals). The wide range of non-customer referrals are divided into general referrals, reciprocal referrals, incentive-based referrals and staff referrals. 3) Supplier and alliance markets – suppliers provide physical resources to the business and can be classified into strategic suppliers, key suppliers, approved suppliers and nominated suppliers. Alliance partners supply competencies and capabilities that are typically knowledge-based rather than product-based, and Sheth’s (1994) classification of alliance, partnering transaction and co-operative relationships is especially useful here. 4) Influence markets have the most diverse range of constituent groups, including financial and investor groups, unions, industry bodies, regulatory bodies, business press and media, user and evaluator groups, environmental groups, political and government agencies, and competitors. 5) Recruitment markets comprise all potential employees together with the third parties that serve as access channels. They can be segmented by function, job role, geography and level of seniority. Channels include executive search companies, employment agencies, job centres, off-line and on-line advertising, and using an organisation’s own staff to suggest potential applicants. 6) Internal markets follow the segmentation used for potential employees in the recruitment market, i.e. by function, job role, geography and level of seniority. Special emphasis needs to be placed on behavioural characteristics for customer-facing employees. From this testing of the six market categories, we concluded that they are a workable reference frame to consider a broader range of constituent stakeholders, whether individuals, groups, or others whose interests have relevance to the enterprise. Further development of the model Having identified relevant stakeholders, the third step outlined above involved a review of the current and proposed level of emphasis on each market domain. Not all stakeholder markets require the same degree of attention and emphasis, and Gummesson (1994) has argued that managers need  to prioritise and establish the appropriate mix of relationships needed for the company’s success. To identify the present level of emphasis and the future desired emphasis on each of the market domains and their constituent parts, we developed a stakeholder network map (Payne, 1995). This was used to identify an organisation’s present emphasis on each market, the desired emphasis at a future point in time, and the gap between these two positions. This network map configures each of the major market domains, including customer markets (which are sub-divided into existing and new customers), on a series of axes and enables a group of managers within a firm to make an assessment as to the current and desired levels of emphasis on each market domain by means of a jury of executive opinion – usually developed from inputs from one or more groups of senior managers within the organisation being examined. Although this work resulted in some initial variation of views amongst managers regarding present and desired emphasis, as a result of more detailed discussion the outcome was generally a strong degree of consensus amongst these managers. The stakeholder network map has seven axes – two for customers (existing and new) and one for each of the other five relationship markets discussed earlier. The scale of 1 (low) to 10 (high) reflects the degree of emphasis (costs and effects) placed on each relationship market. The division of customers into â€Å"new† and â€Å"existing† reflects the two critical tasks within the customer domain, those of customer attraction and customer retention. Figure 2 shows a network map for the Royal Society for the Protection of Birds (RSPB), a major British conservation charity. It shows the current emphasis (at the time of analysis) and the proposed new emphasis. At this point in time the RSPB might have considered a number of issues, such as: 1) placing greater attention on retaining existing members; 2) a reinforcement of customer care and service quality issues with internal staff; and 3) a stronger focus on influence markets (Payne, 2000). The analysis shown in Figure 2 represents the first level of diagnostic  review of the overall emphasis at the market domain level, in order to make an initial judgement as to the existing and desired relevant emphasis. A second level of analysis explores each market domain in much greater detail and enables analysis at the sub-segment or group level within the domains. For example, in the analysis of the referral market for a major international accounting firm we identified present and future desired emphasis on a number of groups within the referral market domain, including their clients, banks, joint venture candidates, their international practice and their audit practice. We have used the stakeholder network mapping technique in our research with many organisations. Although simple in concept, it has proved a robust means of considering the network of stakeholder relationships that organisations need to address. The diagrammatic representation has been especially useful in helping executives visualise the importance of various stakeholders. Further, the time dimension for the proposed relationship strategy, usually within a two- to three-year planning horizon, has been useful in determining the changes required in stakeholder emphasis. This addresses the concern of Dill (1975) regarding the need to take the time dimension into account.