Internal marketing, external marketing, organizational competencies, and business performance.
This paper proposes a systematic explanation for the relationship among external marketing, external marketing, business performance and the mediating role of organizational competencies through marketing-link and philosophy, marketing-link tools as the moderator. The conceptual framework that examines of the relationship among these factors suggests that hotel business can be successful in business performance if they manage their factors that influence well. Contributions and suggestions for future research are also presented.

Business performance management (Methods)
Ooncharoen, Nantana
Ussahawanitchakit, Phapruke
Pub Date:
Name: International Journal of Business Research Publisher: International Academy of Business and Economics Audience: Academic Format: Magazine/Journal Subject: Business, international Copyright: COPYRIGHT 2010 International Academy of Business and Economics ISSN: 1555-1296
Date: Jan, 2010 Source Volume: 10 Source Issue: 1
Event Code: 010 Forecasts, trends, outlooks Computer Subject: Market trend/market analysis
Geographic Scope: United States Geographic Code: 1USA United States
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The concept of international marketing (IM) employed in service sector is crucial to excellent service provision and successful external marketing which calls for an exploration in details. The IM concepts has evolved from the original conceptualization of employee satisfaction/motivation by treating employees as customer and jobs as products to improve service quality (Berry, 1981), to customers orientation/market orientation and to use marketing-link approach and marketing-link tolls internally to motivate employees (Gronross, 1985). Moreover, IM was use for the implementation of external marketing programs (Piercy and Morgan, 1991), and extension to implementation of any functional strategy (Rafiq and Ahmed, 1993).

The importance of service both to national economies and to individual customers has given rise to considerable effort on the part of both industry and academy to improve service quality (Lings, 1999). The academics and practitioners in field of marketing have been strong advocates of having a market orientation as a strategic advantage in achieving the objective of customer satisfaction and loyalty for more than four decades (e.g Naver & Slater, 1990; Slater & Never, 1994; Kohli & Jaworski, 1990). During the last 20 years, there are many works to study in filed internal marketing, as a result of increasing internal competition and globalization, which requires improved service quality and greater responsiveness to customer need and want (Parker, Wall, & Jackson, 1997.) In previous research, Green et al., (1994) point out that internal marketing is the key to excellence service and to successful external marketing. Further, Tansuhaj, Randall, & Jim McCullough, (1988) explain that the marketing concept sets as the goal of a firm the satisfaction of consumer needs. These two views justify the exploration of marketing concept, i.e, internal marketing, within a business organization in the service sector. More recently, there has been also little clear empirical evidence of positive relationship between internal marketing and organizational effectiveness and business performance. There is even less research examining the mechanics of this linkage, Hence, it is difficult to generalize about the extent to which the implementation of marketing along with relate business strategies actually effects business performance. To bridge these gap, this study, unlike previous research on internal marketing, not only proposes, but also improves and evaluates empirically the proposed internal implementation framework in the hotel business in Thailand context. In this study, the key research questions are how can firm enhance external service quality, external customer satisfaction, external customer loyalty and business performance?; and how does internal capability influence external marketing?

The study is presented in the following manner. First, this it draws from the research literature to identify internal marketing that impact organizational competencies and external marketing. Second, it constructs a research model that explains the relationships of those factors to business performance. Third, it generates research proposition for

empirically test them. Finally, it provides suggestions for further research in this area and conclusion.



2.1 Internal Marketing

Internal Marketing has been defined variedly in the marketing and the organizational behavior literature. Gronroos (1981) defined internal marketing as "selling the firm to its employee" George and Gronross (1991) suggest that the "internal marketing of employee is best motivated for service-mindedness and customer-oriented behavior by an active, marketing like approach, where marketing like activities are used internally." In service marketing, the employee plays a central role in attracting, building and maintaining relationship with customers. The recognition of the central role of employee in service marketing has given rise to internal marketing. Thus, it is important that the firm must be strongly oriented to employee development.

In this study, internal marketing incorporates a multifaceted focus on employee development. A comprehensive internal marketing activities is concerned with employee recruitment, training, motivation, communication and retention efforts (Tansuhaj, Randall, & McCullough, 1988).

2.1.1 Recruitment and training

Employees are a key organizational resource. Qualified applicants are attracted to the firm through the use of specific job description and effective recruitment procedure. Careful selection of contact personnel in service organizations is an essential accompaniment to the recruitment process (Davidson, 1978). Once employed, employees must participate in training program witch supplies them with a view of total organization, so that they can locate themselves within, and see their importance to the organization. Training is professional and involves marketing managers, using as many senior level managers as possible.

The value of a solid recruitment and training activity in the service industry has not gone unrecognized. In previous study, over seventy percent of 323 firm surveyed reported that they carefully select personnel and emphasize training in customer interaction skill (Zeithaml, Parasuraman, & Leonard (1985). Avis requires that all personnel participate in training activity before they have any communication with customers. In addition to a more competent staff, a specific benefit realized from the mandatory training is significantly decreased turnover in service personnel (Davidson, 1978)

2.1.2 Motivation

Motivation strategies can help to increase an employee's drive to activity a higher level. Most employees in high-contact service job are self-motivated to provide what they believe is good customer service, but they feel that management often frustrates their desires to do so (Zeithaml, Parasuraman, & Leonard (1985). Managers of service firms must believe in their organizations, be able to communicate their enthusiasm and conviction to their subordinates, and facilitate employee performance (Heskett, 1981).. The motivation of employee can be increased by appropriate incentive activity, team-building techniques, staff meetings, staff retreats, task force, seminars and workshop. (Zeithaml, Parasuraman, & Leonard (1985).

2.1.3 Communication

Marketing managers applying internal marketing concepts seek to improve interpersonal, interactive communication channels by establishing a open information climate. In service firm, internal communication with employee may be more important than external communication with customers (Heskett, 1981).

2.1.4 Retention

Retain employee, marketing managers ensure that salaries are competitive and bonus systems are attractive. Some of the most successful service firms have the most liberal and comprehensive fringe benefit activity in their industries (Heskett, 1981). Such as these factors can help to retain employees.

2.2 Internal Marketing and Organizational Competencies

In the proposed model internal marketing is a strategy that aims for the creation of superior performance work systems by managing the interdependent elements of the internal marketing to create and achieve greater individual and organizational competencies and ultimately impacts service performance.

There are two major paradigms that are used to explain superior competitive advantage in the strategy filed : the competitive force view (Porter, 1980, 1985), and resource-based view (Prahalad and Hamel, 1990). The proponent of this view argued that the success of a company's competitive strategy depends on the choice of a strategy that position the organization within its industry environment, so that it can define itself against competitive forces of influence them in its favor.

In this study, following Prahalad and Hamel (1990) that they view RBV based on the idea that a firm perform well over time because it develops a "distinctive competence" or "core competences" which allows it to outperform its competitor. A core competence is defined as an organization-based capability that combines and integrates the skills of a set of practitioners working across different business units, and creates superior value for customers. In other words, a core competence is the organizational version of unique individual know-how (overmeer, 1997).

Following the resource-based approach, the internal market framework is deployed here as a means of creating competencies in organizations. That is, internal marketing is used as marketing perspective to build internal competencies for external success (Grorge, & Gronroos, 1989). Therefore, it is argued that the internal marketing is capable of linking organizational competencies and business performance. In this study, there are three indicators of organizational competencies that can improve business performance and relate to internal marketing construct identified in this conceptual model are: customer/market orientation, employee satisfaction, and specific/individual competencies. There is considerable discussion of customer/market orientation (Gronroos, 1981), and employee satisfaction (Berry and Parasaraman, 1991) in the internal marketing literature, but little discussion of individual competencies. In previous study, Woodruffe (1993) defines competencies as dimensions of behaviour, which are related to superior job performance. Green (2000) describes individual competency as a written description of measurable work habits and personal skills used to achieve a work objective. He emphasizes that individual competencies contribute to achieving work objective. Gilmore and Carson (1996) develop the idea of services marketing management competencies to reflect the fact that service marketing managers require specific competencies because of the special nature of services. In summary, the development of individual competencies leads to organizational competencies. Therefore, the proposition is posited as below:

Proposition 1: Internal marketing will be positively associated with organizational competencies.

2.3 Internal Marketing and External Marketing

External marketing activities are generally divided into external service quality, external customer satisfaction and specific/individual competencies. In service firm, it is generally believed that a marketing plan composed of external marketing activities largely determines consumer satisfaction. However, in service organization the implementation of this plan depends, to a great extent, on the activities of the employees. Bansal, H. S., Menderson, M. B. & Sharma, B. (2001) attempt to develop and sustaining an organizational culture that emphasizes internal customer well-being as a means to attract and retain external customer patronage. They propose a model that relates six key internal marketing practices to external customer satisfaction and loyalty, mediated by internal customer attitudes (i.e. loyalty to the firm, job satisfaction, trust in management) leading to extra role behaviors directed at external customers. Kotler (2000) explains that internal marketing is more important than conventional external marketing. Further, Green et al., (1994) point out that internal marketing is the key to excellence service and successful external marketing. Tansuhag, Randall, & McCullough (1998) explores the linkage between internal marketing activities (directed at employee recruitment, training, motivation, communication, and retention) and the more traditional external marketing activities (e.g., pricing, advertising, and personal selling). An examination of the relationship between the key elements of the service marketing management model (internal and external marketing, employee attitudes and behavior, and customer attitudes and behavior) demonstrates how service managers can enhance customer loyalty, satisfaction and perception of quality. They argue that the internal and external elements of the marketing program of service firms are closely interrelated. Service firms need to give greater recognition to the "employee-customer interaction" nature of services. It is clear that attitudes and behavior of employees affect the marketing performance of the firm. Ultimately, positive customer attitudes and behavior may be translated into improved firm performance through such measure as the firm's market share, sales, profitability, and other financial rations.

One work that appears most promising in exploring the link between internal marketing activities and external marketing is attributable to Morrison (1996). She argues that the five dimensions of extra role behaviors, namely: (1) conscientiousness, (2) altruism, (3) civic virtue, (4) sportsmanship, and (5) courtesy, when direct at external customer of an organization are "crucial for ensuring service excellence" Hence, the study proposes the proposition as below:

Proposition 2: Internal marketing will be positively associated with external marketing .

2.4 The Relationships Between Internal marketing, Organizational Competencies, External Marketing and Business Performance.

This study examines the relationship between the internal marketing, organizational competencies, the use of marketing-like philosophy, and marketing-like tools, and their effects on external marketing and performance. First, the studies indicate that the internal marketing variable is positively related to the organizational performance. Second, organizational competencies mediate the relationship between the internal marketing and external marketing and lead to business performance. In particular market orientation, employee satisfaction and specific/individual competencies are regarded as instrumental in mediating the relationship between internal marketing and external marketing. Market orientation mediated this relationship by ensuring that the organization is highly aware and responsive to customer need and competitors' capabilities. According to Naver and Slater (1990), strong market orientation within a business leads to grater effort being exerted to offer superior value continuously to customer, and so there will be a greater likelihood that superior value will be offered. Therefore, it creates competitive advantage in the customers' perception, which leads to superior organizational performance. Employee satisfaction facilitates superior performance as it leads to greater attraction and retention of the best employee, which enhances the ability of the organizational to deliver high quality service (Berry, 1981, Berry and Parasuraman). Similarly, Gronroos (1981) postulates that employee satisfaction leads to more highly motivated and customer-conscious employee, which leads to improved service quality and organizational performance. Development of specific/ individual competencies can lead to improved and consistent quality of work as well as enabling the customization of product and thereby meeting customer needs more accurately. It also helps to improve the self-effect of individual, and thus improves their and organizational performance (Conger and Kanugo, 1988; Rafiq and Ahmed, 2000).

In the light of the relationships between organizational competencies and external marketing, previous literature indicates market -orientation firm as external focus, responding to present, and anticipating future customer needs (Kohli & Jaworski, 1990). In concrete terms, this means that organizations must emphasize the centrality of customer by putting them first (Mohr-Jackson, 1992) as a means of attracting and more importantly retaining customer patronage. In addition, Heskett Jones. Loveman, Sasser, and Schlesinger (1994) suggest that profit and growth are simulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is largely influenced by the value of services provided to the customers. Satisfied, loyalty and productive employees crate value. Employee satisfaction , in turn, results primarily from high-quality HR practice that enables employees to deliver results to customers" It is clear then that the success of external marketing of service organization is contingent on the success of how well it markets itself internally. This paper develops a model to elaborate on this thesis by relating key internal marketing practices to external marketing mediated by organizational competencies leading to business performance. In addition Ahmed, Rafiq, & Saad (2003) propose the concept of IM mix or set of controllable instrument inside the organizational that can be used effectively to influence employees so that they are motivated and acted in customer-oriented fashion. The results show that organizational competencies mediate the relationship between IM mix and business performance, consistent with literature, this study proposes the following propositions:

Proposition 3: Internal marketing will be positively associated with business performance.

Proposition 4: Organizational competencies mediate the relationships of internal marketing with external marketing.

Proposition 5: External marketing will be positively associated with business performance.

2.5 Moderating Effect

The model also postulates that the application of external marketing philosophy and tools moderate the relationship between the internal marketing and organizational competencies. This is consistent with the internal marketing literature. George and Gronross (1989) clearly state that internal market is basically a philosophy for managing the organization's human resource based on a marketing perspective. Berry and Parasuraman (1991), consistent with this proposition, advocate that internal marketing is about the viewing employee as internal customer, viewing job as internal product, and endeavouring to offer internal products that satisfy the needs and wants of these internal customer while addressing the objective of organization. Thus, internal marketing-like philosophy in treating employee as the internal customer, the understanding of which results in the application of marketing-like tools and activities to achieve required outcomes. Gronroos (1985) mentions specifically that internal marketing is about motivating the employee by active market-like activities that he suggests that organization's internal market of employees can be influenced most effectively and hence motivated to customer-consciousness, market-orientation and sales-mindedness by a marketing-like internal approach and by applying marketing-like activities internally. Collins and Payne (1991) suggest that in order to implement internal marketing, external marketing tools, including market research, segmentation, developing a marketing mix, and controlling marketing activity, may be used within the organization. Ahmed, Rafiq, & Saad (2003) postulates that application of marketing-like philosophy and marketing-like tools internally moderated the relationships between IM mix and organizational competencies. The consideration leads to posit the following propositions:

Proposition 6: Application of marketing-like philosophy will moderate the relationships between internal marketing and organizational competencies.

Proposition 7: Application of marketing-like tools will moderate the relationships between internal marketing and organizational competencies.


This paper has proposed a new internal marketing implementation framework. The paper proposes the concept of internal marketing that can be used to influence employee effectively so that they are motivated and acted in customer-oriented fashion. An innovative feature of the model presented is that the internal marketing is employees as a means of creating and enhancing competencies in organizations to improve external marketing and business performance, namely, customer/market orientation, employee satisfaction, and specific individual competencies. Therefore, the internal marketing affects external marketing and leads to business performance through organizational competencies. Or in more formal term, organizational competencies mediate the relationship between internal marketing and external marketing and lead to business performance. In the departure from previous research, the marketing-like approach was advocated by various internal marketing authors (e.g. Berry, 1981; Berry and Parasuraman, 1991; Gronroos, 1981; George, 1990) is separated into two components, namely, the application of marketing-like philosophy and marketing-like tools. The conceptual framework that examines the relationships among these factors suggests that hotels can be successful in creating business performance if they can manage their factor that can influence well. Researchers need to help firms understand more clearly how firm can enhance external service quality, external customer satisfaction, external customer loyalty and business performance and how internal capability influences external marketing. This study proposes the conceptual model for the relationships of these variables. Much academic work remains for theory development and verification.


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Nantana Ooncharoen, Mahasarakham University, Thailand

Phapruke Ussahawanitchakit, Mahasarakham University, Thailand


Dr. Nantana Ooncharoen earned her Ph.D. at Mahasarakham University, Thailand in 2009. Currently she is a Lecturer at the Faculty of Tourism and Hotel Management, Mahasarakham University, Thailand.

Dr. Phapruke Ussahawanitchakit earned his Ph.D. at Washington State University in 2002. Currently he is an Associate Professor of Accounting and a Dean of the Faculty of Accountancy and Management, Mahasarakham University, Thailand.
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