Markets as configurationsKaj Storbacka and Suvi Nenonen

Hanken School of Economics, Helsinki, Finland

Abstract

Purpose – The purpose of this paper is to contribute to the development of a general theory of themarket, by defining markets as configurations and exploring: how market configurations emerge andevolve in a business-to-business context; how a market actor can influence market configurations; andwhat kinds of market configuration capabilities actors need to develop.

Design/methodology/approach – The topic is approached by theoretical analysis and conceptualdevelopment.

Findings – Markets can be viewed as configurations of market actors engaging in market practices.Market configurations are perpetually dynamic as new actors enter the context, and as actorsintroduce ideas and business model elements to the network. As a result the configuration’smarketness evolves towards higher levels of configurational fit, resulting in increased valueco-creation opportunities. An actor wanting to influence the market configuration can do so byworking on its mental models and business models. The power of the actor’s mental and businessmodels is mediated by the actor’s network position, its clout, and the fact that a change in any elementevokes reactions from other actors. Actors need to develop new sets of market capabilities, such asvalue sensing, the ability to measure markets, price formation and pricing logics, and market scripting.

Originality/value – For a scholarly audience the paper contributes to the discussion on howmarkets are redefined from being places where demand and supply meet and reach equilibrium, tobeing spaces where actors integrate resources to co-create value. For a practitioner audience it offersideas on how firms can shape their markets in their favour.

Keywords Markets, Supply and demand, Pricing

Paper type Conceptual paper

IntroductionMarketing has, despite its name, not paid much attention to markets. Marketingliterature typically either neglects to define the market construct altogether, or adoptsdefinitions from economics (e.g. Venkatesh et al., 2006). Defining and understandingmarkets has, however, become increasingly interesting, as both academics andpractitioners focus more on the opportunities for co-creation both with customers andsuppliers. The logic of value creation has changed, as we are moving, from a linear, andgoods-dominant (G-D) business logic, towards a networked, collaborative, andservice-dominant (S-D) business logic (Normann, 2001; Vargo and Lusch, 2004). In thislogic, firm, industry, and market boundaries are becoming increasing permeable,fuzzy, and fleeting.

According to G-D logic, companies add value (throughout the value chain) to the“product” that they produce. This value is then “distributed” to the customer who“destroys” the value in his or her consumption process. Value is, consequently,measured based on the exchange that happens when the provider sells and thecustomer buys a product (“exchange-value”). S-D logic assumes that value creationoccurs in various practices when the customer integrates resources (“use-value”)(Vargo and Lusch, 2008b). Hence, it is the customer who creates value and the goal of aprovider is not so much to make or do something of value for the customer as it is tomobilize customers to create value for themselves (Gronroos, 2008). Korkman et al.

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European Journal of MarketingVol. 45 No. 1/2, 2011

pp. 241-258q Emerald Group Publishing Limited

0309-0566DOI 10.1108/03090561111095685

(2010) suggest that firms should be viewed as extensions of customer processes: “firmsparticipate in customer practices, customers are not extensions of firm’s productionprocesses”.

In G-D logic, markets are typically defined around products, and market size isdefined based on exchange value. Markets cannot, however, be defined similarly in S-Dlogic. Marketing scholars have concluded that there is a need to redefine theneoclassical view of markets that is built around the notion of exchange value (Luschand Vargo, 2006; Vargo and Lusch, 2008b). As an extension of S-D logic, Vargo andLusch (2008b, p. 3) argue that “what is needed is a general theory of the market”.

Based on extant literature we propose six possible tenets of such a theory of themarket:

(1) A theory of the market should incorporate both exchange value and use value(Gronroos, 2008; Venkatesh et al., 2006).

(2) A theory of the market should acknowledge economic sociology’s (Granovetter,1992; Krippner et al., 2004) suggestions that economic action is embedded innetworks of social relationships, i.e. that markets are socially constructed.

(3) As market actors can be viewed as systems, “effectively depending on theresources of others to survive” (Vargo et al., 2008, p. 149), a market should beviewed as a business ecosystem (system of systems).

(4) The systemic view requires “emancipation from the shackles of the dyad” andthe myopia connected to this, and demands a focus on the broader context of anetwork of relationships between complementary and competing actors (Vargo,2007) in the business ecosystem.

(5) The interdependence of actors suggests that markets should be viewed asspaces where actors in the market (later called market actors) integrateresources to co-create value – instead of being places where demand and supplymeet and reach equilibrium as neo-classical economics suggests (Arnould, 2008;Lusch and Vargo, 2006; Vargo, 2007; Vargo and Lusch, 2008b). Market actorsare all the parties that are active in the market: suppliers, firms, customers,authorities, etc.

(6) The logic of markets relates to the density of resources (Normann, 2001). Marketactors interact in a market in order to increase the(ir) density of resources.Greater density of resources, relevant to a specific actor, time, situation andspace combination, corresponds to more value. According to Lusch et al. (2010,p. 23), “maximum density is reached when, at a given time and place, an actorprovides and integrates all the resources necessary to co-create the best possiblevalue in that context”.

Building on these tenets, markets cannot be seen as given structures where actorssimply compete for positions. Market actors will make subjective market definitions byidentifying the relevant network(s) to participate in – both in terms of exploitingexisting opportunities and exploring new ones. In a similar vein, Read et al. (2009)argues that in the traditional rational “text book” view opportunities are precursors ofstrategy: i.e. the firm adapts to the opportunities present in the environment. In aneffectual view, opportunities are outcomes of deliberate efforts of the effectuators

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(market actors) to co-create their environment by attaining commitments from anetwork of partner, investor, and customer stakeholders (Sarasvathy, 2008).

Effectual market actors will need new sets of capabilities and management practicesto be able to co-create their market. We suggest that a way for market actors to dealwith the subjectivity of markets is to conceptualize them as configurations (Meyer et al.,1993), a construct similar to “business ecosystems”. Ecosystems are assumed toself-organize into a stable symmetry, or stasis (Gould and Eldredge, 1993). As an actordisrupts this symmetry by introducing new ideas or new resources into the system, thesystem seeks to recover by aiming at a new stasis. Similarly, configurations areconstellations of design elements that commonly occur together because theirinterdependence makes them fall into patterns (Meyer et al., 1993). In this article wedefine markets as configurations of interdependent elements that facilitate resourceintegration, and make increased density of resources (i.e. use value) possible for theparticipating actors.

Building on this, our purpose is to contribute to the development of a general theoryof the market by exploring:

. how market configurations emerge and evolve in a business-to-business context;

. how a market actor can influence market configurations; and

. what kinds of market configuration capabilities actors need to develop.

The paper is divided into three sections, each discussing one of the research questionsin more detail. First, we explore the elements of market configurations, the evolution ofmarket configurations, and introduce “marketness” as a concept illustrating theevolution. Second, we discuss how market actors can influence the marketconfiguration, and how the performative power of an actor is mediated by, e.g. theactor’s network position. Third, we identify capabilities that can improve a marketactor’s ability to influence market configurations.

Market configurations: elements and evolutionMarket configurations are perpetually evolving as a result of the dynamics of theelements in the configuration and the relationship between them. Configurations aim atcreating harmony, consonance, or fit between the configurative elements (Meyer et al.,1993; Miller, 1996; Normann, 2001). As an actor disrupts the consonance by introducingnew ideas or new resources into the market configuration, the system seeks to recoverby aiming at harmony again.

Elements of a configuration interact if the value of one element depends on thepresence of the other element; reinforce each other if the value of one element isincreased by the presence of the other element; and are independent if the value of anelement is independent of the presence of another element. The equifinality ofconfigurations indicates that several configurations may be equally effective (Dotyet al., 1993), as long as the elements reinforce each other in order to achieve a highdegree of configurational fit. Alignment of the configurative market elements improvesconfigurational fit and makes improved density of resources possible for the actors.

Drawing on the actors-resources-activities model proposed by Hakansson andJohanson (1992), the resource integrator-resource-service model proposed by Vargoand Lusch (2008a) and the work of Araujo et al. (2008), we identify two mainconfigurative elements: the market practices that facilitate the resource integration, and

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the market actors that participate in the market practices. We will first explore the roleof market practices, and after this how market actors can seek to influence marketconfigurations.

Market practices connect market actorsThe interactions between market actors in a market configuration can be defined asmarket practices (Kjellberg and Helgesson, 2006; Andersson et al., 2008). The marketpractice view is based on a combination of the actors-network theory (Callon, 1998), themarkets-as-networks approach (Mattsson, 1997), and practice theory (Reckwitz, 2002;Schatzki, 2001). The concept of practice refers to “a way of doing” which is embeddedin a context of interlinked subjective and objective elements. It is important to note thatpractice is not synonymous with action, but it enlarges the unit of analysis to thesystem that fosters action (e.g. Dourish, 2001).

The extant market practice literature identifies three distinct and interconnectedmarket practices: normalizing practices, exchange practices, and representationalpractices. Kjellberg and Helgesson (2006) define exchange practices as activities thatare involved in consummating individual economic exchanges of goods. The exchangepractices impact how the object of exchange is being defined and how the buyer-sellerinteraction is configured. Andersson et al. (2008) use the terms prescribing andsubscribing to illustrate the concrete interactions between the market actors, andpropose that the sequence of prescribing and subscribing is used to define the actorsinvolved in the exchange and to negotiate the limits of their abilities (see Akrich andLatour, 1992). Drawing on the existing studies on market practices and on S-D logic, wedefine exchange practices as practices through which value propositions are beingcommunicated, refined, and agreed on – leading both to the re-configuration ofresources within the network to actualize the value proposition, and the potentialfinancial transactions.

Efficient configuring of resources and capabilities for enhanced value co-creationrequires norms and rules. Norms and rules may take the form of, e.g. technologicalstandards, socially accepted codes of conduct, or formal rules and laws. Commonlyaccepted norms and rules facilitate efficient exchange practices, as market actors aremuch more likely to be involved in a market in which there is no ambiguity regardingthe dominant technological standards or the laws to be applied. According to Kjellbergand Helgesson (2006), such norms and rules guiding the actions of market actors, are aresult, of normalizing practices. Similar practices are also described by Akrich andLatour (1992) and Andersson et al. (2008) under the term “inscribing”. According toAndersson et al. (2008), inscribing refers to efforts to pre-configure actors so that theyare ready to perform economic exchanges in accordance with a particular set of rulesand/or norms. Drawing on these definitions, we argue that normalizing practices areconducted in order to define/redefine norms and rules to be applied in a particularmarket. Through normalizing practices, market actors seek to stabilize their businessmodels, as the relative stability of the business models is a prerequisite for efficientoperations, enabling, e.g. long productions runs and learning curve effects.

Market actors need a common language and concepts to describe markets andactions within them. Exchange practices, must be supported by a common language tosymbolize the objects of exchange, price, the market actors involved, and the activitiesconducted by the market actors. Additionally, the exchange practices are further

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supported by market research and media coverage of the market. According toKjellberg and Helgesson (2006), representational practices are activities that representeconomic exchanges as markets: representational practices portray markets and theway they work and thus produce shared images of the market. The representationalpractices are also linked to the process of ascribing as described by Akrich and Latour(1992) and Andersson et al. (2008). Ascribing is a process through which actions areattributed to some entity ex post – which is an integral part of any accurate portrait ofa market. Additionally, the representational practices perform the activities needed inorder to make goods and services calculable. According to Callon and Muniesa (2005),in order to facilitate market transactions, goods and services have to be madecalculable via objectifying and singularizing them as well as co-elaborating theirproperties. Based on these definitions, we define representational practices as practicesthrough which the business models of market actors and the market configuration arerepresented through shared images. Such shared images could for example be firmpresentations and market analyses. Therefore, representational practices are themeans for market actors to make their business models visible, also for those marketactors with which they currently have no direct interactions.

Marketness: illustrating the evolution of market configurationsMarket configurations are – depending on how they have evolved – “more or lessmarkets” in terms of their maturity, stability of norms, how established the productdefinitions are, acceptance of price formation mechanisms, etc. We suggest that ausable construct to depict the evolvement of market configurations is marketness – aconstruct originally suggested by Block (1990) – and define marketness as acontinuum describing the level of the configurational fit of market elements.

In a high marketness situation the market configuration is established and accepted,the core elements reinforce each other, there are market practices that increase fit, andresource integration is effective. Hence, there are commonly used norms for trade,exchange objects are singularized (Callon and Muniesa, 2005), price formationmechanisms are set, there are non-economic actors, such as associations and/or otherinstitutions that measure the market or create rules, there is a defined set ofcompetitors that usually know each others’ strengths and weaknesses, and definitionsof market boundaries are shared among market actors. In a low marketness situationthere is poor fit between possible core elements of the market. Density of resources islow, little value is co-created, and market actors are engaged in market creationactivities, and influencing other actors in the market (potential customers, providers,and competitors) so that they start to view the suggested market configuration as anattractive source of resources for their value creation.

The market practices are likely to be very different in high marketness and lowmarketness situations. Even though not explicitly stated, it can be assumed that theexisting studies on market practices (Kjellberg and Helgesson, 2006; Andersson et al.,2008) describe the content of market practices in market configurationscharacterized with a relatively high marketness. In high marketness situationsexchange practices have moulded market actors’ business models and valuepropositions into stable formations. Similarly, the normalizing practices havegenerated a set of norms and rules that are accepted by all market actors. Thus, thenormalizing practices aim merely to maintain the previously created norms and

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rules. Also, the representational practices produce widely shared symbolic images ofthe market, which make the indirect communication between market actors possiblevia, e.g. press releases and market analyses. In extremely high marketness cases,the majority of social action can be removed and transactions can be reproducedmechanically based on rules.

Market practices in low marketness market configurations are assumed to beconsiderably different from the illustrations presented previously: in the most extremelow marketness cases, market configurations might temporarily lack some marketpractices altogether. First, in a state of low marketness, the exchange practices requirea long time and various iteration rounds before market actors can agree on the unit ofexchange, their value propositions and market boundaries – or the exchange practicescan also stop short of actualizing the exchanges altogether. Second, normalizingpractices in low marketness market configurations are characterized with competingviewpoints and lack of commonly accepted norms and rules. Finally, representationalpractices in low marketness situations concentrate on making the market actors andthe unit of exchange visible through symbolic representations.

Low marketness situations relate to “market making” or market creation, where thefocal actor is involved in social interactions, and promoting the configuration of a newmarket by proving to market actors that the market configuration entails opportunitiesfor increased density of resources and value co-creation. In high marketness situationsthe focal firm aims to promote its own relevance by “market shaping”: by re-defining itsnetwork and moulding its business model and, thus, influencing market practices so thatthe market configuration changes towards increased density and configurational fit.

Influencing market configurationsBrennan (2006) argues that that “firms are not simply passive victims of theirenvironment but strive to alter competitive market conditions in their favour” (p. 832).Designing conscious activities by a market actor to alter the current market in itsfavour elevates a central research avenue: how can a market actor influence the marketconfiguration.

A market actor wanting to influence a market configuration can be labelled a “focalactor”, building on Prenkert and Hallen’s (2006) argument that market networks can bedescribed by starting from a focal actor and analyzing this actor’s relationships. Afocal actor wanting to influence the market practices in a market configuration can dothis by working on its mental models and business models (see Table I for definitions).The mental models relate to how the focal actor views the relevant market, and theygain visible form as they are translated into different value-creating practices in thebusiness model. The market practices are the results of the interaction betweenindividual market actors’ business model elements.

Market configurations are perpetually dynamic and developing as new actors enterthe context, and as different market actors introduce new ideas and new businessmodel elements in the network. This leads to a perpetual oscillation effect between theelements in the configuration: between the actor and the market practices. The powerof the actor’s mental models and business models to influence a market configuration ismediated by the focal actor’s position in the network, its clout, and the fact that achange in any configurational element is likely to evoke a reaction from all actorswanting to shape the market in their favour.

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Mental modelsDrawing on Senge (1990) we define mental models as deeply ingrained assumptions,generalizations, or images that influence how market actors understand the world andhow they take action. Actors’ bounded rationality (Simon, 1957) influence their abilityto comprehend and shape markets. As humans are not capable of understandingcomplex situations, they focus their attention on specific aspects of a situation, andform a model of the situation. Hence, thinking and acting in a market take place in thecontext of their model of the market rather than in response to the whole “objective”market.

Bounded by their rationality, organizations “produce” (Weick, 1995) or “fabricate”(Sarasvathy, 2008) the environments to which they respond through their actions andselective interest. Markets will be results of the managers’ learning based on theirobservation of the outcomes of their past market actions. Brooks (1995) claims that“enacted markets” are outcomes of prior transactions and interactions between theactors in the network. As markets are defined by the already established relationships,this “structure” forms mental barriers against other perceptions of the market. Mentalmodels tend to constrict individuals from looking “outside the box”. Individuals (and

Construct Definition

Focal actor A market actor wanting to influence a market configurationMarket practice Interactions between market actors within a market configuration.

Market practices can be divided into three categories: exchange,normalizing, and representational practices

Marketness A continuum describing the level of configurational fit of marketelements. In a high marketness situation the market configuration isestablished and accepted, the core elements of the market reinforceeach other, there are market practices that increase fit, and resourceintegration is effective. In a low marketness situation there is poor fitbetween possible core elements of the market. Density of resources islow, little value is co-created, and market actors are engaged in marketcreation activities

Mental model Deeply ingrained assumptions, generalizations, or images thatinfluence how individuals or market actors understand the world andhow they take action

Business model Constellations of interrelated design elements, outlining the designprinciples, resources and capabilities related to markets, offerings,operations, and management. Business models define the resourcesthat a market actor possesses and the ways that the actor can interactwith other market actors – and their resources

Performativity A notion that assumes that the expressed views (theories, socialstructures etc.) of actors influence reality. Markets are performedwhen market actors introduce theories about the market andboundary definitions

Clout Focal actors have different levels of clout to enforce their view orinfluence other actors. Clout is related to the actor’s relative size withinthe market configuration, the longitudinal development path of theactor’s network position, and the relative strength of its businessmodel

Table I.Key constructs related to

influencing marketconfigurations

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as a consequence, market actors) become myopic: they do not see – nor accept – thingsoutside the boundaries of their mental model.

Typically, firms act influenced by, often implicit, assumptions, labelled “dominatingideas” (Normann, 1977), or “dominating logic” (Prahalad, 2004). These ideas maybecome commonly accepted “dominant designs” (Baldwin and Clark, 2006), “industryrecipes” (Spender, 1989), or “industry business logics” (Storbacka, 2006). These mentalmodels are widely shared by managers of different actors, shape their thinking, andinfluence decision-making processes. It has, for instance, been shown that markets,where manufacturers of equipment are involved in building an installed base ofequipment, are often dominated by ideas related to so-called “after-sales activities”aimed at exploiting “product lifecycles” (Knecht et al., 1993; Oliva and Kallenberg,2003).

Additionally, individuals (and, as a consequence, market actors) have calculativemotives (see Callon, 1998; “calculative agencies”). The calculative motives shiftaccording to the situation (a sudden downturn of the economy may change the motivesof a market actor overnight), and among different individuals and functions within afirm (purchasing departments may value purchasing prices, whereas operationaldepartments may value total cost of ownership). This is referred to as multiple-agency(Andersson et al., 2008; Callon, 2007; Law and Akrich, 1996; Simakova and Neyland,2008). Understanding and influencing the calculative motives of the market actors willbe important in order to improve the level of configurational fit.

Business modelsIn order to explain the value co-creation between various actors within the networkedmarket, a change is needed in the concepts used to depict and manage value creation.Some authors (Zott and Amitt, 2008; Nenonen and Storbacka, 2010) suggest thatbusiness models represent a broader conceptualization of value co-creation thatcaptures this change.

Nenonen and Storbacka (2010) have investigated the business model concept andfound that there are five common elements that appear in the majority of the businessmodel definitions. First, the majority of business model definitions include customervalue creation as one of the core elements. Second, earnings logic is also mentioned invarious business model definitions, which leads to the conclusion that the businessmodel construct should also explain how the firm yields a profit from its operations.Third, many business model definitions discuss the value network of the firm. Fourth,various business model definitions discuss the resources and capabilities that the firmhas. Finally, the majority of the analyzed business model definitions discuss sometypes of strategic decisions, choices or principles.

Based on the findings of Nenonen and Storbacka (2010), we define business modelsas constellations of interrelated design elements, outlining the design principles,resources and capabilities related to markets, offerings, operations, and management.Business models define the resources that an individual market actor possesses and theways that the market actor can interact with other market actors – and their resources.Therefore, all interactions between market actors are in fact interactions betweenactors’ business models, and the market actors’ business models set the limits of theoverall resource density (i.e. value creation) within a particular market configuration.

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This definition makes the business model a central construct in explaining theformation and the evolution of market configurations. The key issue is to identifyactors that have compatible enough business models to enter common marketpractices, and to analyze how the changes in one actor’s business model transferthrough market practices to other actors’ business models – leading to an eventualchange in the entire market configuration. Thus, when market actors attempt todesign market configurations in their favour, they do so by changing their businessmodels.

The literature discusses different types of business model reconfigurations:“partnering” (Anderson and Narus, 1991), moving “from selling products to sellingsolutions” (Davies et al., 2008), “moving downstream in the value chain” (Wise andBaumgartner, 1999), “transitioning from products to services” (Oliva and Kallenberg,2003). Any of the business model changes mentioned previously will require firms toengage in processes where they “negotiate” resource and capability configurations inthe firm-customer dyad and in the larger network, in order to create configurational fit.

Performativity and cloutPerformativity emerges as a central concept in illustrating how socially constructedmarket configurations are formed. The notion of performativity, i.e. that the expressedviews (theories, social structures, etc.) of actors influence reality, originates in speechact theory, and in the work of John L. Austin (Hall, 2000). Swedberg (1987, p. 110)provides an example of performativity: “businessmen act as if the market has a stablestructure and consequently it gets one”.

The performativity of market actors’ mental models means that markets areperformed when market actors introduce theories about the market and new boundarydefinitions. Focal actors need to influence other market actors in such a way that theirsubjective definition of a market configuration becomes a shared definition. A sharedmarket definition is achieved through an oscillating process of interaction and dialoguebetween individuals – within and between the market actors.

Weick (1995) argues that a key skill is the authoring of meanings that becomemental models for individuals in the firm (and actors in the market configuration). Thecalculative motives and cognitive myopia of the focal actor’s key individuals’ mentalmodels may form a key restraint to expand the limits of the existing market definitions.The focal actor may need to engage its key individuals in strategic experiments, whichprovide information to managers about the opportunities outside the existingboundaries (i.e. existing market definition), in order to “expand their minds”. Thisindicates the need for collective sensemaking practices, involving as many marketactors as possible.

The performative power of any market actor is dependent on its network position,the relative strength of the actor’s business model, and the actor’s ability to authorcompelling meanings related to the market. Drawing on Burt (1992), McLoughlin andHoran (2002), and Zaheer and Bell (2005), we propose that the network position of amarket actor can be determined by analysing the types of relationships the actor haswithin the particular market configuration: how many relationships the actor has, howmany of these relationships can be classified as primary contacts, how central is themarket actor’s position within the market configuration, and what is the market actor’srelative power position within the market configuration. Thus, in order to influence

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market configurations, actors may need to have network positions that give themaccess to numerous primary, non-redundant relationships and a central position interms of the control of strategic information or resource flows.

The strength of the scripting actor to influence the configuration relates to theidea of “habitus” in social fields (Bourdieu, 1977; Fligstein, 2001). Habitus can,according to Bourdieu (1977), be defined as durable practical skills and dispositionsnecessary to navigate within different fields. Fligstein (2001) talks about “skilledactors” who manage to stabilize a particular field by getting others to agree withtheir definition of a market: they manage to construct markets and influence othermarket actors to share their subjective view on the market definition. This indicatesthat stable and shared market configurations may generate rigidity or inertia. In astable market firms resemble one another in strategy and structure. Sull (1999) usesthe construct “active inertia” to indicate that breaking established conceptions ofcontrol is very difficult even for very successful firms. Inertia has been found tohave cultural (Fligstein, 2001), industry recipe (Spender, 1989), cognitive (Levinthaland March, 1993; Prahalad, 2004; Sinkula, 2002; Weick, 1995), and industryclockspeed (Fines, 1998) connotations.

The idea that market actors have different levels of habitus is similar to thediscussion on social capital (e.g. Tsai and Ghoshal, 1998; Houghton et al., 2009) and thethoughts brought forward by MacMillan et al. (2003) who argue that focal actors havedifferent levels of “clout” to enforce their view or influence other actors. Drawing on theprevious discussion, we propose that market actors have different levels of clout, whichenables them to exercise field effects, i.e. influence its network. Thus, clout is related tothe focal actor’s relative size within the particular market configuration, thelongitudinal development path of its network position, and the relative strength of itsbusiness model.

Market configuration capabilitiesThe market view proposed in this paper suggests that opportunities are not precursorsof strategy; rather they are outcomes of deliberate efforts to influence marketconfigurations (Sarasvathy, 2008). As actors engage in activities to influence themarket configuration, opportunities occur and actors need to be nimble at capturingthe value from these. This indicates that the sustainability of competitive advantage –in its most traditional sense – is not that important as it is increasingly difficult tomaintain a superior value proposition or competitive strategy for long periods of time.Actors can, however, find sustainable competitive advantage from their ability toinfluence and reconfigure the market configuration to fit their objectives. In order toexecute such nimble strategies, firms need to have contingency plans (see Luthans andStewart, 1977) – an ability to deal with the up-coming prospects for an expansion ofavailable resources or the possible constraints created by other actors in the market.

It can be argued that some market actors will be more proficient in thereconfiguration activity as they have market sensing and customer linking capabilities(Day, 1994), absorptive capabilities (Cohen and Levinthal, 1990) or dynamiccapabilities (Eisenhardt and Martin, 2000) that enable this. Hence, an importantresearch theme relates to the “market configuration capabilities” of focal actors: arethere specific focal actor capabilities that improve the actor’s ability to influencemarket configurations?

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We suggest that there are four capability areas that are particularly important toinvestigate: value sensing, measuring market configurations, price formation, andmarket scripting (see Table II). In the following we will explore these further.

Value sensingAs discussed previously, firms need an ability to generate a deeper understandingof the value creation potential in a selected market configuration; we call this valuesensing. The value sensing capability can be seen as a representational practice: itis performative as it can be used to influence how other actors view the market andhow they discuss the development and potential value of a particular marketconfiguration.

Further research is needed in order to operationalize the different elements ofvalue sensing. Flint et al. (2002) have investigated “customers” desired valuechanges’ and argue that firms may take a reactive (respond to changes as theyoccur) or proactive (influence customers by helping them to understand changes inthe market) approach. They conclude: that “both positions require collection andanalysis of data on changes in desired value with each influential member of thecustomer organizations” (p. 115).

A promising starting-point for value sensing is to map the value creation processesinvolved. Payne et al. (2008) suggest tools for this in a dyad context, which could beexpanded to a network context. Korkman et al. (2010) proposes that one way to assessthe value of a market configuration is to view the practices that are carried out in anetwork as the market (“from market practices to practices as markets”). The practiceapproach turns the attention to the processual aspects of usage and consumptionrather than the outcomes of exchange of goods. Market potential is embedded insocio-cultural improvements of practices, in which firms can have a value-enhancingeffect. In a business-to-business context the improvements would relate to how thebusiness processes of customers can be re-arranged with the support of a provider. Inconsumer markets the potential relates to consumers’ practices and a discussion abouthow value is formed currently and in the future (Holt, 1995; Warde, 2005; Korkman,2006).

Capability Definition

Value sensing The ability to generate a deeper understanding of thevalue creation potential in a selected marketconfiguration

Measuring market configurations The ability to create measurements of the valuecreated both in terms of dimensions of value(monetary vs. non-monetary, short term vs. longterm), and practical measurement applicationsrelated to the size of a market configuration

Price formation The process by which the price for an exchange itemis determined

Market scripting Conscious activities conducted by a single marketactor in order to alter the current marketconfiguration

Table II.Key market configuration

capabilities

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Measuring market configurationsThe market view presented in this paper does not start from supply-sidecharacteristics, such as commonly agreed product definitions, but rather from asystem-wide configuration of value co-creation. The value created is not based only onexchange value and as a consequence the size of the market cannot be measured by thevalue of products exchanged in a product market, but rather by the value generated inthe customers’ value creating processes. This brings with it research issues related tothe measurement of the value created both in terms of dimensions of value (monetaryvs. non-monetary, short term vs. long term), and practical measurement applicationsrelated to the size of a market, defined as a configuration focused on use value.

One of the biggest limitations to the co-creation of new market configurations mayrelate to the established representational practices that generate commonly usedstatistics. Most statistics related to markets are created for product markets – not forthe measurement of use value. The implication of this is that focal firms wanting todevelop market configurations need to focus particular attention on representationalmarket practices, in order to create a “measurement infrastructure” as a foundation fordialogue about value creation and pricing.

Most firms use (product) market share growth as a key measure of performance.Re-defining markets around use value will create a need for firms to developalternative measurements. As industry boundaries are less relevant it may not besufficient to compare with industry actors. Instead companies may want to definefirm-specific peer groups to compare against. Creating measures for use value willrequire collaboration between market actors. Managerial applications already exist formeasuring “customer share” or “share of wallet”, but these usually measure exchangevalue. What is needed is a deeper understanding of how to measure “value created” inthe customer’s processes and “aggregated value” in a market configuration. A keyissue is to understand value creation beyond the dyad: i.e. the value created in arelevant configuration. This has similarities to the idea of “profit pools”, as discussedby Gadiesh and Gilbert (1998) – firms may want to shift their focus to profit pool shareinstead of market share.

Price formationPrice formation refers to the process by which the price for an exchange item isdetermined. The dominant frameworks on price formation are based on exchangevalue (supply-demand equilibrium yielding a market price), and not on use value.Therefore, research on alternative price formation frameworks, taking the valueco-creation process as the starting point, is needed. Such alternative price formationframeworks should focus on describing how value is co-created in market practices,what the different “elements of value” are (price being only one element of value), howthe total co-created value is quantified, how the total value is shared between marketactors, and how certain parts of the total value receive a numerical nominator, i.e. aprice, in a potential financial transaction (see Ng et al., 2009).

Economic sociology has been interested in the impact of social structure on priceformations. It is reasonable to expect that the focal actor’s network position, habitusand mental models influence price formation mechanisms. Incumbent actors maydominate certain market configurations and may be in a position to influence marketpractices. Granovetter (2005, p. 38) concludes that “when people trade with others they

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know, the impact of knowing each other on the price varies with their relationship, thecost of shifting to different partners and the market situation”. He goes on to describecase evidence where prices do not equal marginal cost but exceed them. The casesindicate for instance that continuing relations may lead to “sticky prices” when supplyand demand shift, that “clientelization” – defined as dealing exclusively with knownbuyers and sellers – raises prices above their competitive level, that sellers may lowertheir price to achieve the greater creditworthiness that comes with more complex andsubtle information resulting from continuing relations, that customers may pay toeconomize on search costs (i.e. avoid shopping costs by sticking with their supplier),and that some customers pay premiums to well-known firms for their products, inreturn for hoped-for guarantees of quality.

We defined market practices as interactions between market actors within a marketconfiguration. These market practices were divided into three categories: exchange,normalizing, and representational practices (Kjellberg and Helgesson, 2006; Anderssonet al., 2008). We propose that the existing understanding of market practices should beenhanced especially in relation to price formation. The existing studies seem to suggestthat price formation is conducted in exchange practices. It could, however, be arguedthat all three market practices are relevant when investigating price formation.

Even though the most obvious price formation activities are likely to take placewithin exchange practices, it is possible that normalizing and representationalpractices affect price formation by, e.g. enforcing norms guiding “generally acceptablesales items and price carriers”, typical product and price bundling strategies(Stremersch and Tellis, 2002), or by creating symbolic representations of the marketconfiguration’s performance such as market statistics. This, would indicate, thatactors, need to develop their ability, to influence exchange practices, as well asnormalizing, and representational practices, in order to affect price formation.

Market scriptingFocal firms may need to develop capabilities for market scripting which can be definedas conscious activities conducted by a single market actor in order to alter the currentmarket configuration. In practice, market actors can conduct market scripting byconsciously changing their mental models and/or business models. Andersson et al.(2008) define scripting as processes through which a programme of action (or script) isdevised for some entity in some envisaged situation (see Akrich and Latour, 1992). Theconcept of scripting bears similarities to structuration theory (Giddens, 1984), whichsuggests that active agents have the capacity to transform their setting through action.Thus, markets can said to be the result of both unguided performativity and consciousstructuration.

Central to market scripting is the subjective motive of the focal actor to align themental models and business models of other market actors so that they support themental and business models of the scripting actor. Actors need to offer their view onhow the market should be configured (make “market propositions”), and engage actorsin collective sensemaking activities aimed at creating a shared market view. One of thefew empirical studies, illustrating market scripting in the face of conflicting calculativemotives, has been conducted by Azimont and Araujo (2007), who illustrate howbeverage companies actively seek to negotiate beverage categories, to fit theircompetitive strengths.

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Market actors have different levels of clout to enforce their view or influence otheractors. In very limited market configurations, consisting only of a single dyad, anincrease level of sharedness and thus marketness can be achieved by promoting one’sown market view for a single market actor. As the market configuration increases inscope (from limited focal network to a more comprehensive field), the number of actorsto be influenced increases – and the success in increasing the marketness becomesincreasingly dependent on the clout of the market actor conducting market scripting.Thus, highly demanding market scripting situations occurs, e.g. when a single marketactor seeks to re-orchestrate a comprehensive field (as IKEA in the field of furnishingand decoration). In such a situation, success in market scripting is likely only when thescripting market actor has both compelling clout, and the market proposition of thescripting market actor is highly lucrative for the majority of the other market actors.

Concluding remarksDefining markets as configurations influences the strategizing of actors. Strategycannot be defined as a description of efforts of one actor to utilize the opportunities inits environment. Instead it should be viewed as the firm’s effort to influence the marketconfiguration (Johanson and Mattsson, 1992; Gadde et al., 2003). The aim of strategy isnot “winning” a zero-sum game, defined as a product market. Nor should the focus beon “competing”, but rather on how the firm can engage in “co-opetition”(Brandenburger and Nalebuff, 1995) with other market actors (suppliers, customers,and partners) in order to improve the resource density of the market configuration and,hence, improve firm performance for several actors at the same time.

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Further reading

Dunn, D.T. and Thomas, C.A. (1986), “Strategy for systems sellers: a grid approach”, Journal ofPersonal Selling and Sales Management, Vol. 6 No. 2, pp. 1-10.

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About the authorsKaj Storbacka is Professor of Marketing Strategy, Hanken School of Economics, and a boardmember of Centre for Relationship Marketing and Service Management (CERS) at HankenSchool of Economics, Finland. He is also a board member of the Strategic Account ManagementAssociation, Chicago, Illinois. His main research interests include market configurations,business models, solution business, and strategic account management. Kaj Storbacka is thecorresponding author and can be contacted at: kaj.storbacka@hanken.fi

Suvi Nenonen is a post-doctoral researcher associated with Hanken School of Economics,Finland. Her research interests include market configurations, business models, customer assetmanagement, and customer portfolios.

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