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Markets as configurations

Markets as
configurations

Kaj Storbacka and Suvi Nenonen

Hanken School of Economics, Helsinki, Finland
Abstract

241

Purpose The purpose of this paper is to contribute to the development of a general theory of the
market, by defining markets as configurations and 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.
Design/methodology/approach The topic is approached by theoretical analysis and conceptual
development.
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 actors
introduce ideas and business model elements to the network. As a result the configurations
marketness evolves towards higher levels of configurational fit, resulting in increased value
co-creation opportunities. An actor wanting to influence the market configuration can do so by
working on its mental models and business models. The power of the actors mental and business
models is mediated by the actors network position, its clout, and the fact that a change in any element
evokes reactions from other actors. Actors need to develop new sets of market capabilities, such as
value 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 how
markets are redefined from being places where demand and supply meet and reach equilibrium, to
being spaces where actors integrate resources to co-create value. For a practitioner audience it offers
ideas on how firms can shape their markets in their favour.
Keywords Markets, Supply and demand, Pricing
Paper type Conceptual paper

Introduction
Marketing has, despite its name, not paid much attention to markets. Marketing
literature typically either neglects to define the market construct altogether, or adopts
definitions from economics (e.g. Venkatesh et al., 2006). Defining and understanding
markets has, however, become increasingly interesting, as both academics and
practitioners focus more on the opportunities for co-creation both with customers and
suppliers. The logic of value creation has changed, as we are moving, from a linear, and
goods-dominant (G-D) business logic, towards a networked, collaborative, and
service-dominant (S-D) business logic (Normann, 2001; Vargo and Lusch, 2004). In this
logic, 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 the
customer buys a product (exchange-value). S-D logic assumes that value creation
occurs 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 a
provider is not so much to make or do something of value for the customer as it is to
mobilize customers to create value for themselves (Gronroos, 2008). Korkman et al.

European Journal of Marketing

Vol. 45 No. 1/2, 2011
pp. 241-258
q Emerald Group Publishing Limited
0309-0566
DOI 10.1108/03090561111095685

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(2010) suggest that firms should be viewed as extensions of customer processes: firms
participate in customer practices, customers are not extensions of firms production
processes.
In G-D logic, markets are typically defined around products, and market size is
defined based on exchange value. Markets cannot, however, be defined similarly in S-D
logic. Marketing scholars have concluded that there is a need to redefine the
neoclassical view of markets that is built around the notion of exchange value (Lusch
and Vargo, 2006; Vargo and Lusch, 2008b). As an extension of S-D logic, Vargo and
Lusch (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 the
market:
(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 sociologys (Granovetter,
1992; Krippner et al., 2004) suggestions that economic action is embedded in
networks of social relationships, i.e. that markets are socially constructed.
(3) As market actors can be viewed as systems, effectively depending on the
resources of others to survive (Vargo et al., 2008, p. 149), a market should be
viewed as a business ecosystem (system of systems).
(4) The systemic view requires emancipation from the shackles of the dyad and
the myopia connected to this, and demands a focus on the broader context of a
network of relationships between complementary and competing actors (Vargo,
2007) in the business ecosystem.
(5) The interdependence of actors suggests that markets should be viewed as
spaces where actors in the market (later called market actors) integrate
resources to co-create value instead of being places where demand and supply
meet and reach equilibrium as neo-classical economics suggests (Arnould, 2008;
Lusch and Vargo, 2006; Vargo, 2007; Vargo and Lusch, 2008b). Market actors
are 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). Market
actors interact in a market in order to increase the(ir) density of resources.
Greater density of resources, relevant to a specific actor, time, situation and
space 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 actor
provides and integrates all the resources necessary to co-create the best possible
value in that context.
Building on these tenets, markets cannot be seen as given structures where actors
simply compete for positions. Market actors will make subjective market definitions by
identifying the relevant network(s) to participate in both in terms of exploiting
existing 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 of
strategy: i.e. the firm adapts to the opportunities present in the environment. In an
effectual view, opportunities are outcomes of deliberate efforts of the effectuators

(market actors) to co-create their environment by attaining commitments from a

network of partner, investor, and customer stakeholders (Sarasvathy, 2008).
Effectual market actors will need new sets of capabilities and management practices
to be able to co-create their market. We suggest that a way for market actors to deal
with the subjectivity of markets is to conceptualize them as configurations (Meyer et al.,
1993), a construct similar to business ecosystems. Ecosystems are assumed to
self-organize into a stable symmetry, or stasis (Gould and Eldredge, 1993). As an actor
disrupts this symmetry by introducing new ideas or new resources into the system, the
system seeks to recover by aiming at a new stasis. Similarly, configurations are
constellations of design elements that commonly occur together because their
interdependence makes them fall into patterns (Meyer et al., 1993). In this article we
define markets as configurations of interdependent elements that facilitate resource
integration, and make increased density of resources (i.e. use value) possible for the
participating actors.
Building on this, our purpose is to contribute to the development of a general theory
of 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 questions
in more detail. First, we explore the elements of market configurations, the evolution of
market configurations, and introduce marketness as a concept illustrating the
evolution. Second, we discuss how market actors can influence the market
configuration, and how the performative power of an actor is mediated by, e.g. the
actors network position. Third, we identify capabilities that can improve a market
actors ability to influence market configurations.
Market configurations: elements and evolution
Market configurations are perpetually evolving as a result of the dynamics of the
elements in the configuration and the relationship between them. Configurations aim at
creating harmony, consonance, or fit between the configurative elements (Meyer et al.,
1993; Miller, 1996; Normann, 2001). As an actor disrupts the consonance by introducing
new ideas or new resources into the market configuration, the system seeks to recover
by aiming at harmony again.
Elements of a configuration interact if the value of one element depends on the
presence of the other element; reinforce each other if the value of one element is
increased by the presence of the other element; and are independent if the value of an
element is independent of the presence of another element. The equifinality of
configurations indicates that several configurations may be equally effective (Doty
et al., 1993), as long as the elements reinforce each other in order to achieve a high
degree of configurational fit. Alignment of the configurative market elements improves
configurational fit and makes improved density of resources possible for the actors.
Drawing on the actors-resources-activities model proposed by Hakansson and
Johanson (1992), the resource integrator-resource-service model proposed by Vargo
and Lusch (2008a) and the work of Araujo et al. (2008), we identify two main
configurative 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 role
of market practices, and after this how market actors can seek to influence market
configurations.
Market practices connect market actors
The interactions between market actors in a market configuration can be defined as
market practices (Kjellberg and Helgesson, 2006; Andersson et al., 2008). The market
practice view is based on a combination of the actors-network theory (Callon, 1998), the
markets-as-networks approach (Mattsson, 1997), and practice theory (Reckwitz, 2002;
Schatzki, 2001). The concept of practice refers to a way of doing which is embedded
in a context of interlinked subjective and objective elements. It is important to note that
practice is not synonymous with action, but it enlarges the unit of analysis to the
system that fosters action (e.g. Dourish, 2001).
The extant market practice literature identifies three distinct and interconnected
market practices: normalizing practices, exchange practices, and representational
practices. Kjellberg and Helgesson (2006) define exchange practices as activities that
are involved in consummating individual economic exchanges of goods. The exchange
practices impact how the object of exchange is being defined and how the buyer-seller
interaction is configured. Andersson et al. (2008) use the terms prescribing and
subscribing to illustrate the concrete interactions between the market actors, and
propose that the sequence of prescribing and subscribing is used to define the actors
involved in the exchange and to negotiate the limits of their abilities (see Akrich and
Latour, 1992). Drawing on the existing studies on market practices and on S-D logic, we
define exchange practices as practices through which value propositions are being
communicated, refined, and agreed on leading both to the re-configuration of
resources within the network to actualize the value proposition, and the potential
financial transactions.
Efficient configuring of resources and capabilities for enhanced value co-creation
requires norms and rules. Norms and rules may take the form of, e.g. technological
standards, socially accepted codes of conduct, or formal rules and laws. Commonly
accepted norms and rules facilitate efficient exchange practices, as market actors are
much more likely to be involved in a market in which there is no ambiguity regarding
the dominant technological standards or the laws to be applied. According to Kjellberg
and Helgesson (2006), such norms and rules guiding the actions of market actors, are a
result, of normalizing practices. Similar practices are also described by Akrich and
Latour (1992) and Andersson et al. (2008) under the term inscribing. According to
Andersson et al. (2008), inscribing refers to efforts to pre-configure actors so that they
are ready to perform economic exchanges in accordance with a particular set of rules
and/or norms. Drawing on these definitions, we argue that normalizing practices are
conducted in order to define/redefine norms and rules to be applied in a particular
market. Through normalizing practices, market actors seek to stabilize their business
models, as the relative stability of the business models is a prerequisite for efficient
operations, enabling, e.g. long productions runs and learning curve effects.
Market actors need a common language and concepts to describe markets and
actions within them. Exchange practices, must be supported by a common language to
symbolize the objects of exchange, price, the market actors involved, and the activities
conducted by the market actors. Additionally, the exchange practices are further

supported by market research and media coverage of the market. According to

Kjellberg and Helgesson (2006), representational practices are activities that represent
economic exchanges as markets: representational practices portray markets and the
way they work and thus produce shared images of the market. The representational
practices 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 are
attributed to some entity ex post which is an integral part of any accurate portrait of
a market. Additionally, the representational practices perform the activities needed in
order to make goods and services calculable. According to Callon and Muniesa (2005),
in order to facilitate market transactions, goods and services have to be made
calculable via objectifying and singularizing them as well as co-elaborating their
properties. Based on these definitions, we define representational practices as practices
through which the business models of market actors and the market configuration are
represented through shared images. Such shared images could for example be firm
presentations and market analyses. Therefore, representational practices are the
means for market actors to make their business models visible, also for those market
actors with which they currently have no direct interactions.
Marketness: illustrating the evolution of market configurations
Market configurations are depending on how they have evolved more or less
markets in terms of their maturity, stability of norms, how established the product
definitions are, acceptance of price formation mechanisms, etc. We suggest that a
usable construct to depict the evolvement of market configurations is marketness a
construct originally suggested by Block (1990) and define marketness as a
continuum 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, and
resource integration is effective. Hence, there are commonly used norms for trade,
exchange objects are singularized (Callon and Muniesa, 2005), price formation
mechanisms are set, there are non-economic actors, such as associations and/or other
institutions that measure the market or create rules, there is a defined set of
competitors that usually know each others strengths and weaknesses, and definitions
of market boundaries are shared among market actors. In a low marketness situation
there is poor fit between possible core elements of the market. Density of resources is
low, little value is co-created, and market actors are engaged in market creation
activities, and influencing other actors in the market (potential customers, providers,
and competitors) so that they start to view the suggested market configuration as an
attractive source of resources for their value creation.
The market practices are likely to be very different in high marketness and low
marketness situations. Even though not explicitly stated, it can be assumed that the
existing studies on market practices (Kjellberg and Helgesson, 2006; Andersson et al.,
2008) describe the content of market practices in market configurations
characterized with a relatively high marketness. In high marketness situations
exchange practices have moulded market actors business models and value
propositions into stable formations. Similarly, the normalizing practices have
generated a set of norms and rules that are accepted by all market actors. Thus, the
normalizing practices aim merely to maintain the previously created norms and

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rules. Also, the representational practices produce widely shared symbolic images of
the market, which make the indirect communication between market actors possible
via, e.g. press releases and market analyses. In extremely high marketness cases,
the majority of social action can be removed and transactions can be reproduced
mechanically based on rules.
Market practices in low marketness market configurations are assumed to be
considerably different from the illustrations presented previously: in the most extreme
low marketness cases, market configurations might temporarily lack some market
practices altogether. First, in a state of low marketness, the exchange practices require
a long time and various iteration rounds before market actors can agree on the unit of
exchange, their value propositions and market boundaries or the exchange practices
can also stop short of actualizing the exchanges altogether. Second, normalizing
practices in low marketness market configurations are characterized with competing
viewpoints and lack of commonly accepted norms and rules. Finally, representational
practices in low marketness situations concentrate on making the market actors and
the unit of exchange visible through symbolic representations.
Low marketness situations relate to market making or market creation, where the
focal actor is involved in social interactions, and promoting the configuration of a new
market by proving to market actors that the market configuration entails opportunities
for increased density of resources and value co-creation. In high marketness situations
the focal firm aims to promote its own relevance by market shaping: by re-defining its
network and moulding its business model and, thus, influencing market practices so that
the market configuration changes towards increased density and configurational fit.
Influencing market configurations
Brennan (2006) argues that that firms are not simply passive victims of their
environment 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 its
favour elevates a central research avenue: how can a market actor influence the market
configuration.
A market actor wanting to influence a market configuration can be labelled a focal
actor, building on Prenkert and Hallens (2006) argument that market networks can be
described by starting from a focal actor and analyzing this actors relationships. A
focal actor wanting to influence the market practices in a market configuration can do
this 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 they
gain visible form as they are translated into different value-creating practices in the
business model. The market practices are the results of the interaction between
individual market actors business model elements.
Market configurations are perpetually dynamic and developing as new actors enter
the context, and as different market actors introduce new ideas and new business
model elements in the network. This leads to a perpetual oscillation effect between the
elements in the configuration: between the actor and the market practices. The power
of the actors mental models and business models to influence a market configuration is
mediated by the focal actors position in the network, its clout, and the fact that a
change in any configurational element is likely to evoke a reaction from all actors
wanting to shape the market in their favour.

Construct

Definition

Focal actor
Market practice

A market actor wanting to influence a market configuration

Interactions between market actors within a market configuration.
Market practices can be divided into three categories: exchange,
normalizing, and representational practices
A continuum describing the level of configurational fit of market
elements. In a high marketness situation the market configuration is
established and accepted, the core elements of the market reinforce
each other, there are market practices that increase fit, and resource
integration is effective. In a low marketness situation there is poor fit
between possible core elements of the market. Density of resources is
low, little value is co-created, and market actors are engaged in market
creation activities
Deeply ingrained assumptions, generalizations, or images that
influence how individuals or market actors understand the world and
how they take action
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 a market actor possesses and the ways that the actor can interact
with other market actors and their resources
A notion that assumes that the expressed views (theories, social
structures etc.) of actors influence reality. Markets are performed
when market actors introduce theories about the market and
boundary definitions
Focal actors have different levels of clout to enforce their view or
influence other actors. Clout is related to the actors relative size within
the market configuration, the longitudinal development path of the
actors network position, and the relative strength of its business
model

Marketness

Mental model
Business model

Performativity

Clout

Mental models
Drawing on Senge (1990) we define mental models as deeply ingrained assumptions,
generalizations, or images that influence how market actors understand the world and
how they take action. Actors bounded rationality (Simon, 1957) influence their ability
to comprehend and shape markets. As humans are not capable of understanding
complex situations, they focus their attention on specific aspects of a situation, and
form a model of the situation. Hence, thinking and acting in a market take place in the
context 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 and
selective interest. Markets will be results of the managers learning based on their
observation of the outcomes of their past market actions. Brooks (1995) claims that
enacted markets are outcomes of prior transactions and interactions between the
actors in the network. As markets are defined by the already established relationships,
this structure forms mental barriers against other perceptions of the market. Mental
models tend to constrict individuals from looking outside the box. Individuals (and

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Table I.
Key constructs related to
influencing market
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as a consequence, market actors) become myopic: they do not see nor accept things
outside the boundaries of their mental model.
Typically, firms act influenced by, often implicit, assumptions, labelled dominating
ideas (Normann, 1977), or dominating logic (Prahalad, 2004). These ideas may
become commonly accepted dominant designs (Baldwin and Clark, 2006), industry
recipes (Spender, 1989), or industry business logics (Storbacka, 2006). These mental
models are widely shared by managers of different actors, shape their thinking, and
influence decision-making processes. It has, for instance, been shown that markets,
where manufacturers of equipment are involved in building an installed base of
equipment, 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 calculative
motives (see Callon, 1998; calculative agencies). The calculative motives shift
according to the situation (a sudden downturn of the economy may change the motives
of a market actor overnight), and among different individuals and functions within a
firm (purchasing departments may value purchasing prices, whereas operational
departments 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 will
be important in order to improve the level of configurational fit.
Business models
In order to explain the value co-creation between various actors within the networked
market, 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 that
business models represent a broader conceptualization of value co-creation that
captures this change.
Nenonen and Storbacka (2010) have investigated the business model concept and
found that there are five common elements that appear in the majority of the business
model definitions. First, the majority of business model definitions include customer
value creation as one of the core elements. Second, earnings logic is also mentioned in
various business model definitions, which leads to the conclusion that the business
model 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 firm
has. Finally, the majority of the analyzed business model definitions discuss some
types of strategic decisions, choices or principles.
Based on the findings of Nenonen and Storbacka (2010), we define business models
as 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 the
ways that the market actor can interact with other market actors and their resources.
Therefore, all interactions between market actors are in fact interactions between
actors business models, and the market actors business models set the limits of the
overall resource density (i.e. value creation) within a particular market configuration.

This definition makes the business model a central construct in explaining the
formation and the evolution of market configurations. The key issue is to identify
actors that have compatible enough business models to enter common market
practices, and to analyze how the changes in one actors business model transfer
through market practices to other actors business models leading to an eventual
change in the entire market configuration. Thus, when market actors attempt to
design market configurations in their favour, they do so by changing their business
models.
The literature discusses different types of business model reconfigurations:
partnering (Anderson and Narus, 1991), moving from selling products to selling
solutions (Davies et al., 2008), moving downstream in the value chain (Wise and
Baumgartner, 1999), transitioning from products to services (Oliva and Kallenberg,
2003). Any of the business model changes mentioned previously will require firms to
engage in processes where they negotiate resource and capability configurations in
the firm-customer dyad and in the larger network, in order to create configurational fit.
Performativity and clout
Performativity emerges as a central concept in illustrating how socially constructed
market configurations are formed. The notion of performativity, i.e. that the expressed
views (theories, social structures, etc.) of actors influence reality, originates in speech
act 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 stable
structure and consequently it gets one.
The performativity of market actors mental models means that markets are
performed when market actors introduce theories about the market and new boundary
definitions. Focal actors need to influence other market actors in such a way that their
subjective definition of a market configuration becomes a shared definition. A shared
market definition is achieved through an oscillating process of interaction and dialogue
between individuals within and between the market actors.
Weick (1995) argues that a key skill is the authoring of meanings that become
mental models for individuals in the firm (and actors in the market configuration). The
calculative motives and cognitive myopia of the focal actors key individuals mental
models 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, which
provide information to managers about the opportunities outside the existing
boundaries (i.e. existing market definition), in order to expand their minds. This
indicates the need for collective sensemaking practices, involving as many market
actors as possible.
The performative power of any market actor is dependent on its network position,
the relative strength of the actors business model, and the actors ability to author
compelling meanings related to the market. Drawing on Burt (1992), McLoughlin and
Horan (2002), and Zaheer and Bell (2005), we propose that the network position of a
market actor can be determined by analysing the types of relationships the actor has
within the particular market configuration: how many relationships the actor has, how
many of these relationships can be classified as primary contacts, how central is the
market actors position within the market configuration, and what is the market actors
relative 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 them
access to numerous primary, non-redundant relationships and a central position in
terms of the control of strategic information or resource flows.
The strength of the scripting actor to influence the configuration relates to the
idea of habitus in social fields (Bourdieu, 1977; Fligstein, 2001). Habitus can,
according to Bourdieu (1977), be defined as durable practical skills and dispositions
necessary to navigate within different fields. Fligstein (2001) talks about skilled
actors who manage to stabilize a particular field by getting others to agree with
their definition of a market: they manage to construct markets and influence other
market actors to share their subjective view on the market definition. This indicates
that stable and shared market configurations may generate rigidity or inertia. In a
stable market firms resemble one another in strategy and structure. Sull (1999) uses
the construct active inertia to indicate that breaking established conceptions of
control is very difficult even for very successful firms. Inertia has been found to
have cultural (Fligstein, 2001), industry recipe (Spender, 1989), cognitive (Levinthal
and March, 1993; Prahalad, 2004; Sinkula, 2002; Weick, 1995), and industry
clockspeed (Fines, 1998) connotations.
The idea that market actors have different levels of habitus is similar to the
discussion on social capital (e.g. Tsai and Ghoshal, 1998; Houghton et al., 2009) and the
thoughts brought forward by MacMillan et al. (2003) who argue that focal actors have
different levels of clout to enforce their view or influence other actors. Drawing on the
previous discussion, we propose that market actors have different levels of clout, which
enables them to exercise field effects, i.e. influence its network. Thus, clout is related to
the focal actors relative size within the particular market configuration, the
longitudinal development path of its network position, and the relative strength of its
business model.
Market configuration capabilities
The market view proposed in this paper suggests that opportunities are not precursors
of strategy; rather they are outcomes of deliberate efforts to influence market
configurations (Sarasvathy, 2008). As actors engage in activities to influence the
market configuration, opportunities occur and actors need to be nimble at capturing
the 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 to
maintain a superior value proposition or competitive strategy for long periods of time.
Actors can, however, find sustainable competitive advantage from their ability to
influence and reconfigure the market configuration to fit their objectives. In order to
execute such nimble strategies, firms need to have contingency plans (see Luthans and
Stewart, 1977) an ability to deal with the up-coming prospects for an expansion of
available 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 the
reconfiguration activity as they have market sensing and customer linking capabilities
(Day, 1994), absorptive capabilities (Cohen and Levinthal, 1990) or dynamic
capabilities (Eisenhardt and Martin, 2000) that enable this. Hence, an important
research theme relates to the market configuration capabilities of focal actors: are
there specific focal actor capabilities that improve the actors ability to influence
market configurations?

We suggest that there are four capability areas that are particularly important to
investigate: value sensing, measuring market configurations, price formation, and
market scripting (see Table II). In the following we will explore these further.
Value sensing
As discussed previously, firms need an ability to generate a deeper understanding
of the value creation potential in a selected market configuration; we call this value
sensing. The value sensing capability can be seen as a representational practice: it
is performative as it can be used to influence how other actors view the market and
how they discuss the development and potential value of a particular market
configuration.
Further research is needed in order to operationalize the different elements of
value sensing. Flint et al. (2002) have investigated customers desired value
changes and argue that firms may take a reactive (respond to changes as they
occur) or proactive (influence customers by helping them to understand changes in
the market) approach. They conclude: that both positions require collection and
analysis of data on changes in desired value with each influential member of the
customer organizations (p. 115).
A promising starting-point for value sensing is to map the value creation processes
involved. Payne et al. (2008) suggest tools for this in a dyad context, which could be
expanded to a network context. Korkman et al. (2010) proposes that one way to assess
the value of a market configuration is to view the practices that are carried out in a
network as the market (from market practices to practices as markets). The practice
approach turns the attention to the processual aspects of usage and consumption
rather than the outcomes of exchange of goods. Market potential is embedded in
socio-cultural improvements of practices, in which firms can have a value-enhancing
effect. In a business-to-business context the improvements would relate to how the
business processes of customers can be re-arranged with the support of a provider. In
consumer markets the potential relates to consumers practices and a discussion about
how 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 the

value creation potential in a selected market
configuration
The ability to create measurements of the value
created both in terms of dimensions of value
(monetary vs. non-monetary, short term vs. long
term), and practical measurement applications
related to the size of a market configuration
The process by which the price for an exchange item
is determined
Conscious activities conducted by a single market
actor in order to alter the current market
configuration

Measuring market configurations

Price formation
Market scripting

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Table II.
Key market configuration
capabilities

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Measuring market configurations

The market view presented in this paper does not start from supply-side
characteristics, such as commonly agreed product definitions, but rather from a
system-wide configuration of value co-creation. The value created is not based only on
exchange value and as a consequence the size of the market cannot be measured by the
value of products exchanged in a product market, but rather by the value generated in
the customers value creating processes. This brings with it research issues related to
the measurement of the value created both in terms of dimensions of value (monetary
vs. non-monetary, short term vs. long term), and practical measurement applications
related 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 may
relate to the established representational practices that generate commonly used
statistics. Most statistics related to markets are created for product markets not for
the measurement of use value. The implication of this is that focal firms wanting to
develop market configurations need to focus particular attention on representational
market practices, in order to create a measurement infrastructure as a foundation for
dialogue 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 develop
alternative measurements. As industry boundaries are less relevant it may not be
sufficient to compare with industry actors. Instead companies may want to define
firm-specific peer groups to compare against. Creating measures for use value will
require collaboration between market actors. Managerial applications already exist for
measuring customer share or share of wallet, but these usually measure exchange
value. What is needed is a deeper understanding of how to measure value created in
the customers processes and aggregated value in a market configuration. A key
issue is to understand value creation beyond the dyad: i.e. the value created in a
relevant configuration. This has similarities to the idea of profit pools, as discussed
by Gadiesh and Gilbert (1998) firms may want to shift their focus to profit pool share
instead of market share.
Price formation
Price formation refers to the process by which the price for an exchange item is
determined. The dominant frameworks on price formation are based on exchange
value (supply-demand equilibrium yielding a market price), and not on use value.
Therefore, research on alternative price formation frameworks, taking the value
co-creation process as the starting point, is needed. Such alternative price formation
frameworks 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), how
the total co-created value is quantified, how the total value is shared between market
actors, and how certain parts of the total value receive a numerical nominator, i.e. a
price, in a potential financial transaction (see Ng et al., 2009).
Economic sociology has been interested in the impact of social structure on price
formations. It is reasonable to expect that the focal actors network position, habitus
and mental models influence price formation mechanisms. Incumbent actors may
dominate certain market configurations and may be in a position to influence market
practices. Granovetter (2005, p. 38) concludes that when people trade with others they

know, the impact of knowing each other on the price varies with their relationship, the
cost of shifting to different partners and the market situation. He goes on to describe
case evidence where prices do not equal marginal cost but exceed them. The cases
indicate for instance that continuing relations may lead to sticky prices when supply
and demand shift, that clientelization defined as dealing exclusively with known
buyers and sellers raises prices above their competitive level, that sellers may lower
their price to achieve the greater creditworthiness that comes with more complex and
subtle information resulting from continuing relations, that customers may pay to
economize 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, in
return for hoped-for guarantees of quality.
We defined market practices as interactions between market actors within a market
configuration. These market practices were divided into three categories: exchange,
normalizing, and representational practices (Kjellberg and Helgesson, 2006; Andersson
et al., 2008). We propose that the existing understanding of market practices should be
enhanced especially in relation to price formation. The existing studies seem to suggest
that price formation is conducted in exchange practices. It could, however, be argued
that all three market practices are relevant when investigating price formation.
Even though the most obvious price formation activities are likely to take place
within exchange practices, it is possible that normalizing and representational
practices affect price formation by, e.g. enforcing norms guiding generally acceptable
sales items and price carriers, typical product and price bundling strategies
(Stremersch and Tellis, 2002), or by creating symbolic representations of the market
configurations performance such as market statistics. This, would indicate, that
actors, need to develop their ability, to influence exchange practices, as well as
normalizing, and representational practices, in order to affect price formation.
Market scripting
Focal firms may need to develop capabilities for market scripting which can be defined
as conscious activities conducted by a single market actor in order to alter the current
market configuration. In practice, market actors can conduct market scripting by
consciously changing their mental models and/or business models. Andersson et al.
(2008) define scripting as processes through which a programme of action (or script) is
devised for some entity in some envisaged situation (see Akrich and Latour, 1992). The
concept of scripting bears similarities to structuration theory (Giddens, 1984), which
suggests 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 conscious
structuration.
Central to market scripting is the subjective motive of the focal actor to align the
mental models and business models of other market actors so that they support the
mental and business models of the scripting actor. Actors need to offer their view on
how the market should be configured (make market propositions), and engage actors
in collective sensemaking activities aimed at creating a shared market view. One of the
few empirical studies, illustrating market scripting in the face of conflicting calculative
motives, has been conducted by Azimont and Araujo (2007), who illustrate how
beverage companies actively seek to negotiate beverage categories, to fit their
competitive strengths.

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Market actors have different levels of clout to enforce their view or influence other
actors. In very limited market configurations, consisting only of a single dyad, an
increase level of sharedness and thus marketness can be achieved by promoting ones
own market view for a single market actor. As the market configuration increases in
scope (from limited focal network to a more comprehensive field), the number of actors
to be influenced increases and the success in increasing the marketness becomes
increasingly dependent on the clout of the market actor conducting market scripting.
Thus, highly demanding market scripting situations occurs, e.g. when a single market
actor seeks to re-orchestrate a comprehensive field (as IKEA in the field of furnishing
and decoration). In such a situation, success in market scripting is likely only when the
scripting market actor has both compelling clout, and the market proposition of the
scripting market actor is highly lucrative for the majority of the other market actors.
Concluding remarks
Defining markets as configurations influences the strategizing of actors. Strategy
cannot be defined as a description of efforts of one actor to utilize the opportunities in
its environment. Instead it should be viewed as the firms effort to influence the market
configuration (Johanson and Mattsson, 1992; Gadde et al., 2003). The aim of strategy is
not winning a zero-sum game, defined as a product market. Nor should the focus be
on 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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About the authors
Kaj Storbacka is Professor of Marketing Strategy, Hanken School of Economics, and a board
member of Centre for Relationship Marketing and Service Management (CERS) at Hanken
School of Economics, Finland. He is also a board member of the Strategic Account Management
Association, Chicago, Illinois. His main research interests include market configurations,
business models, solution business, and strategic account management. Kaj Storbacka is the
corresponding 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 asset
management, and customer portfolios.

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