Counter-revolutionary forces in the information revolution. (entrepreneurial actions)

Entrepreneurial action, information intensity and market transformation

Introduction

"Organizations of the world unite!" proclaim the theorists of the long-awaited, yet much anticipated information revolution and its comrade-in-arms, the global business network. Its slogans may have already begun to replace independent thought, analysis and action for some organizations. The ministry of market information has declared the decade of database marketing and information intensive enterprise. But lest it forget the freedom of strategic choice, marketing analysis must speak out against this drumbeat of information fundamentalism.

Thesis

Given suitable definitions, this paper will argue that entrepreneurial action rather than information management will remain the source of revolutionary as well as counter-revolutionary market transformation. In contrast, the contemporary marketing literature often gives this change agent role to "information intensity", a concept that refers to the relative importance of information assets to a firm as well as to the relative contribution of information exchange to value added in a vertical marketing system (Glazer, 1991). This literature suggests that information assets and information exchange are becoming pre-eminently important factors in product development and market transformation. Although increases in information intensity may remain important and difficult to manage for many organizational actors, information intensity should become an increasingly manageable consequence of market transformation in many industries. This paper will claim that information intensity is better depicted as a residual outcome rather than as a major determinant of market transformation. This claim contrasts with theoretical and managerial views such as those of Glazer (1991) and Blattberg et al. (1993) and, to some extent prescriptions and forecasts such as those of Day (1994) and Rayport and Sviokla (1994). In making this claim, this paper will argue that efforts at information management are usually quite distinct from entrepreneurial actions in marketing. It will invoke a dynamic definition of entrepreneurial action as one explicitly focused on actions rather than on actors and, in particular, the actions of introducing and deleting products and services and selecting and deselecting target markets to serve. Such entrepreneurial actions can create substantial shifts in arrangements of products across arrays of customers and customers' uses. This being so, entrepreneurial actions transform markets.

Entrepreneurial actions and market structure

One tradition in marketing thought characterizes the conduct of competitors in terms of functionally entrepreneurial actions (Alderson, 1957, 1965; Dickson, 1992; Reekie and Savitt, 1982; Savitt, 1987). In particular, this tradition emphasizes the selection of products and assortments of products and the matching of such assortments with target market uses. Such actions constitute strategic choices capable of transforming markets. This depiction of a competitive matching process that is strategic and entrepreneurial contrasts somewhat with neoclassical views in industrial organization economics that depict competition as a social welfare enhancing state resulting from rather than determining market structure (such as, for example, Scherer 1980). O'Driscoll (1986), an economist critical of the neoclassical approach to industrial organization, endorses an alternative, entrepreneurial tradition, one which, in effect, "characterises competition as a process in time rather than a timeless state of affairs. The process consists in entrepreneurial agents discovering the very data (e.g. costs) that are assumed given to them in the theory of perfect competition" (p. 154). This dynamic tradition essentially reverses the determinism in the market structure and conduct relationship in that it treats market structure as the outcome of a process in time rather than as a static predictor of prices and output levels in an industry. Furthermore, the entrepreneurial tradition in marketing thought treats the industry itself as continually subject to redefinition. As will be discussed in this paper, not only do boundaries between industries tend to blur, but, within even well bounded industries, when entrepreneurs shift the nature of their product and service offerings, market structures can shift between such ephemeral "states" as say, undifferentiated oligopoly and monopolistic competition.

The arguments presented in this paper rest on such a functional view of entrepreneurial action in marketing. Entrepreneurial actions in marketing can transform markets of products, customers and uses. Given a customer-oriented model of the product market (following Day et al., 1979), such actions include product and service introductions and deletions as well as target market selections and deselections. In this context "target markets" can be well defined as those groups of customers and customer uses to whom and for which an actor offers a set of products and services. This definition is closely related to but distinct from a definition of "product market" which can be defined as those customers, uses, and the competing products (offered by all actors or marketers) viewed as substitutes in serving such uses for such customers (following Day et al., 1979). Illustrated in an idealized manner in Figure 1, "product markets" and "target markets" can be depicted as "mapped" sets although they need not be the perfectly contiguous ones shown. The "structure" of product markets may vary along the classic categories of competitive, monopolistically competitive, undifferentiated oligopolistic, and so on according to the numbers of customers, numbers of products and the degree of substitution in use for the products offered. In Figure 1, two products would be highly substitutable if, for any given use, they could both be "mapped" to a large number of different customers. Thus, in Figure 1, products [p.sub.i] and [p.sub.j] would be substitutes for use [u.sub.k] for all customers from [c.sub.n] to [c.sub.m]. If two independent firms sell [p.sub.i] and [p.sub.j], then they compete in that they both serve the same target market heuristically represented by the "mapping" of use [u.sub.k] onto customers [c.sub.n] through [c.sub.m].

Although product and target market actions are especially able to transform markets, many, if not most marketing mix actions in the effort areas of promotion, distribution, and pricing are not construed here as inherently entrepreneurial. This assertion should hold unless such actions clearly substitute for or constitute, in themselves, product introduction (or deletion) or target market selection actions, and they often do. For example, a distribution action of opening branch outlets in a new country usually involves the selection of a new (additional) target market and is therefore an entrepreneurial action; whereas a distribution action of increasing stock (not assortment) levels in all current branch outlets is a marketing effort input aimed at generating increased sales but, in itself, not an entrepreneurial action. Perhaps these definitions and restrictions appear overly narrow. Nevertheless, they are no more nor less arbitrary than broader definitions and rest on a tradition that implicitly sanctifies the introduction and withdrawal of product and service offerings and target market selection as the uniquely "entrepreneurial" aspects of marketing.

Given a market of products, customers, and uses, it is possible to conduct a static analysis of its structure. In a conventional static analysis, market structure might affect the conduct of actors in an industry by, for example, creating incentives for members of a cartel to …