Role of Marketing in Small Medium Enterprises
In today’s world Small Medium Enterprises (SMEs) operate in a relatively turbulent environment with greater uncertainties.1 They have their own distinct characteristics which influence the way in which they operate. These characteristics are quite different from their larger counterparts and thus influence their marketing strategies. Given this changing environment it is essential for SMEs to develop marketing strategies that fulfil all their needs and set them apart from the competition.
Although marketing is important for the survival of a firm Carson et al.2 a number of entrepreneurial characteristics are at variance with traditional marketing theory. A new field called entrepreneurial marketing has emerged, it highlights the characteristics of an entrepreneur which are ‘innovation oriented, driven by new ideas and opportunistic (intuitive market needs). Entrepreneurs are known to target markets through a ‘bottom up’ approach based on self selection, recommendations from customers and other influence groups rather than relying on ‘ top bottom’, segmentation, targeting and positioning processes.
Thus while selecting areas that an SME can focus on, the nature of the owner/entrepreneur, characteristics of an SME, and the environment the SME is operating in needs to be considered.
CONCEPT; ENTREPRENEURIAL ORIENTATION
Expert theorists Narver and Slater3 along with Kohli and Jaworski4 coined the term ‘Market Orientation”. They concurred that it has a positive influence on the performance of firms. Narver and Slater3 defined market orientation as an organizational culture encompassing customer orientation, competitor orientation and inter-functional coordination, combined with an emphasis on profit and long-term focus. Kohli and Jaworski4 identified the behavourial aspect. They described market orientation as; intelligence generation, intelligence dissemination and responsiveness. Market orientation has been a major concern particularly in the context of small firms; Characteristics of SMEs such as their small size and resource constraints Carson et al.,2 are key factors that affect the market orientation outlook of the SME. The Market orientation approach adopted by SMEs is based on a more informal, unplanned activity depending on the intuition and energy of the individual to make things happen, rather than a deliberate planned process with careful identification of customer needs through market research Stokes5 that the above mentioned definitions promote.
Thus we define the term entrepreneurial orientation, the core dimension of which are based on the risk taking proactive and innovative nature of the entrepreneur.5 They possess a higher cognitive process that enables them control over knowledge structures that are used to make assessments. Engaging in these abilities and taking on a proactive approach to marketing, discovering the underlying, un-stated needs of customers and satisfying this by innovating accordingly and creating new innovative marketing strategies gives the entrepreneurial venture a greater competitive advantage.7
Entrepreneurial orientation refers to the processes, practices and decision making activities that lead to market entry.8 The salient features of an entrepreneurially oriented firm are information acquisition and information utilization which are described below.
On account of their financial and technical constraints Verhees and Mulenberg9 accumulation of information usually takes a back seat. However informal gathering of market intelligence is a core element of the orientation process.9 It involves the process of acquiring information on customers and competitors, this is crucial to the development of the firm’s orientation.4 This enables a better understanding of their customers, the price and quality of products acceptable to them. They can gain a deeper understanding of their needs, purchasing habits and lifestyles. Pelham10 equated market orientation as being ‘close to the customer’. SMEs literature suggests that small firms can gain a competitive advantage over their larger counterparts as they are closer to customers and able to exploit their needs and wants quickly and more flexibly; transfer of customer intelligence is quick with less deterioration due to fewer organizational layers and bureaucracy.2
Simply gathering information will not confer a competitive advantage; the SME should embrace a commitment to learning, knowledge questioning along with knowledge enhancing values.11 This promotes and supports the generation of novel ideas Calantone et al.12 in a firm. SMEs need to innovate, in order to achieve a competitive advantage especially in a turbulent business environment. Keskin11 asserts that the effect of orientation on a firm’s innovativeness is mediated by their learning abilities. Farrell et al.,13 conducted a case study on 200 Australian SMEs and found that entrepreneurial orientation when accompanied with learning orientation has a stronger significant effect on a firms performance than does market orientation.
SMEs are discriminated by their lack of informal planning and processes.14 Market orientation in a SME could provide a consistent guideline for objectives, decisions and activities in this way market orientation could partially compensate for a lack of formal planning, controlling and co-ordination activities in these firms and thereby enhance performance and more sustainable growth of the SME.15 Thus market orientation as describe by Keskin11 is a multidimensional and multi-phased construct, which includes collecting and using marketing information , developing a market plan usually embedded in the operations and mind of the owner and then most important of all implementing it. 11 Acquiring and utilizing information will also benefit the risk management process of the firm, as theorists have identified that SMEs can evaluate their options, weigh profitability and reduce uncertainty to some extent. (Keh recheck)
Product enhancement: Due to limited resources, SMEs engage in incremental rather than radical innovation. Information acquisition and utilization is part of this innovation process, resulting in more customized products ensuring customer co-operation and crucial commercialization stage.16
As a SME functioning in a niche market, she could gather information more effectively by building up a customer database; as they sell directly to customers and on the website, a good opportunity exists to establish a relationship with her customers and get constant feedback from them. An inexpensive research program based on questionnaires given to current customers can often uncover dissatisfaction or possible new products.17 Constant monitoring and assessing based on customer needs and satisfaction could be carried out, along with revising business strategies to enhance customer value and achieve greater performance.
Dissemination of information is not important if you as the owner are the key decision maker; however the dissemination of market intelligence to other people in the firm might increase employee motivation and instil a customer focused culture.9 Flexible processes and short communication lines could be established to accommodate changes in products according to customer feedback and facilitate responsiveness.
Finally a SME can be market oriented provided it is complemented with an entrepreneurial spirit Javalgi et al.18 and capitalizing on issues central to it; innovation and pro-activeness Morris et al.19 and most importantly to promote a learning culture constantly iterate your ideas based on the feedback. Develop a learning-iterating platform in your organization.
STRATEGY AND METHODS: INTERACTIVE MARKETING
The corporate traditional marketing mix is based on the 4P’s (product, price, promotion and place) which for many years was taken as gospel in the marketing field, Since the introduction of entrepreneurial literature these fundamentals of marketing have been questioned.20 Entrepreneurship has been recognized as being innovative, risk-taking and proactive Morris et al.19 these core values of an entrepreneur are fundamental to the development of a customized marketing mix which is consistent with the development of an entrepreneurial orientation outlook (SECTION 2). Stokes5 stressed the importance of promotion and word-of-mouth; personal contact networks and a focus on innovation and interaction as more relevant for an entrepreneurial SME. Empirical evidence suggests that an entrepreneur should focus on a more cross functional, cross border and cross disciplinary orientation, targeting development of strategic alliances networks, relationship marketing.19 The main responsibility of an entrepreneurial marketer is to explore the various facets of the marketing mix and identify new sources and ways of creating value for the customer. A case study on SMEs carried out by Keh et al.6 investigates the relationship between the marketing mix elements and a firm’s performance, a positive relationship was seen between promotion and place elements and subsequent firm performance. SMEs should focus on marketing elements that generate the highest impact on performance. Price and Product were seen as less influential categories in the entrepreneurial mix; i) SMEs tend to be price takers in the industry, with little ability to shift price level for specific product categories (Exception beings novel products). ii) Small firms do not possess the resources to heavily invest and undertake development of radically new products, Keh et al. 6 describes a concept known as ‘entry wedge’ - a way to break into the established pattern of commercial activity. ‘Parallel competition’ is the most well known form of entry wedge; it is relevant in this situation; as the product being sold already exists in the market , thus the firm derives advantages through incremental variations in the product . An Entrepreneur constantly engages in this activity through information aqusition→ information utilisation→ iteration→ incremental product innovation.
In summary this discussion focuses in detail on the promotional and place elements of the product mix, a brief description of ‘managing price’ is considered to convey the customer perceptions of pricing.
Entrepreneurial organizations are characterized by an extensive focus on sales thus promotion becomes a crucial part of a business and integral to the marketing process. Promotional activities make potential customers aware of offers regarding products. The typical channels of a promotional mix are advertising (print; newspapers and magazines, broadcast advertising), personal selling, direct marketing, internet and online marketing and sales promotion.21 Each tool provides a unique selling point; however when it comes to SMEs not all would be perceived as equally important. SMEs should carefully channel their resources toward effective promotional and advertising activities. 6 Growing expense involved in promotional activities and the financial constraints limits the choice of channels small businesses can utilize. Thus it is important that SMEs take certain factors into consideration while choosing their promotional strategies these include media attributes, target audience reach capability, cost effectiveness, nature of the business, demographic and nationality of the retailers.22
SMEs prefer a more interactive approach; they specialize in interactions with their target markets, and developing personal contact with customers rather than impersonal marketing through mass promotion.6 Direct marketing and personal selling are very popular with SME entrepreneurs. The benefits of these two channels include direct interaction, personalized communication with customers thus building a relationship with the customer, the ability to adapt and customize products and presentations. It enables targeting specific groups of customers Jobber21 that are more likely to respond to the appeal. These approaches are also within the SMEs resource reach and capitalize on the communication abilities on the entrepreneur. This outlook also supports the market orientation strategy proposed earlier in the report. Sales promotions is another promotional tactic employed by SMEs however one should be carefull with ‘money off’ promotions or (BOGO) ‘buy one get one free’ promotions as lower price might be equated with lower quality as will be discussed later in the report under ‘Price’.
Proactive networking can also be used as a channel; it can be used to update retailers about promotions in addition to increasing level of support given by manufacturing firms within the network channels.23 Promotional creativity is vital to maintaining a business’s momentum and sustainable. 24 A Typical reaction to the current economic downturn would be to reduce ones promotional budget, however a SME could use this to its advantage by increasing its promotions especially with their competitors hunkered down, they could position themselves to take advantage of an economic rebound. 25 A number of theorists Koksal and Ozgul26, Kim27, Werner28 have shown that increasing or maintaining the level of promotional activity increases sales, income. Considering that consumers are more likely to shop rationally when experiencing decrease purchasing power during an economic crisis, offers promoting rational motives such as cost savings, quality and functionality could influence buyer behavior positively rather than image and status.29 SMEs could allocate some of their budget towards sales promotion techniques from which the consumer gains value immediately, this can affect company performance positively.26
Distribution is another aspect of the marketing mix which an SME can use to leverage its offerings. Choosing the right kind of distribution channel is an important aspect of the marketing strategy SMEs adopt. Increasing competition has motivated firms to seek innovative ways of doing business. SMEs find it difficult to develop long term strategic marketing strategies based on price and product differentiation Rosenbloom30 resource limitation ‘restricts market entry to where the business has insufficient resources to compete successfully, thus alternative channels and distribution methods have become an important strategic focus for SMEs to gain competitive advantage and cost efficiency and customer satisfaction.16 A number of factors influence the way in which organizations select their distribution channels namely; market factors such as (buyer behavior) (JOBBER) understanding what your buyers prefer, product factors; what are the expectations of your market. SMEs have an advantage of interacting with their customers and thus gaining valuable insight into choosing the most appropriate channel. Other factors that influence this decision are producer factors and competitive factors; what your competitors are offering.21 SMEs today use direct channels (straight to the customer, B2C) or multi channels approaches. Such as producer direct to consumer (B2C) as well as producer to retailer to consumer (B2B). Although theory suggest that multichannel approach provides customers multiple access points for a firms products, thus benefiting them, however this proposition may not hold up to closer scrutiny Rosenbloom30, the SME should analyze its costs appropriately before making any channel adoption decisions. They are limited in their scope of operations which are predominantly local or regional Carson et al. 2 , the SME can use this as an opportunity to establish networks with local dealers and promote the ability to serve a customer in a customized way. 30 Koskal and Ozgul26 suggest eliminating unprofitable intermediaries in the distribution channel and reallocation of scarce resources to better-performing channel members. A decision of this kind often involves long term commitments and should be approached carefully. 31
3.3 MANAGING PRICE
When it comes to price, considering the turbulent environment the SME functions in, it may not be in a position to exert much influence in this area Keh et al 6; however it is still important to the marketing strategy. An entrepreneurial owner needs to understand the price-quality relationship. 32 Strategic pricing involves managing customer’s expectations to convince them to pay for the value they receive. 33 Owners should think of pricing as a process of capturing value, then pricing strategy involves managing everything that raises willingness to pay closer to the value. 33 The pricing policy a company adopts reflects the overall image and quality of the product this is especially true for SMEs operating in niche markets. Focusing on price is not enough; Carson et al. 34 found that customer patronage is built on a firms total offering rather than just price appeal. He suggested that it is more advantageous to differentiate ones product from the immediate customers offering in order to claim a higher price.
3.4 INTERNET MARKETING
Internet marketing refers to the usage of digital interactive technologies as an extension to fulfil the traditional marketing practices of creating, communicating and delivering value to customers. 35 Schumpeter description of the process of “creative destruction” as an engine of capitalism resonates today (Tiessen, 2001). This process highlights the revolutionary effect of new combinations of technologies and how they disrupt markets, economic equilibrium and contribute to growth. Schumpeter’s tries to explain that while this process offers opportunities to innovators and adaptors, it also poses a number of threats (Tiessen, 2001). Internet retailing has become one of the most competitive modern market places (Piercy, 2009). It offers SME s a channel to access a much wider range of customers that would have been outside their limited marketing reach (Kaynak et al., 2005). E-marketing involves technologies that permit customer relationship management (CRM), enterprise resource planning and supply chain management (Gilmore 2007). Theorist have reported that SMEs could benefit from implementing e-marketing into their marketing mix , for example, by marketing products via a virtual store, providing quotes for large scale orders, advertising, creating a professional image through the presence of an efficient website, and answering questions about products. Despite these benefits research indicates that SMEs are slow to adopting E-Marketing techniques, those that are incorporating it see it as a separate entity as opposed to integrating it within the whole organization. SMEs tend to use it mainly as a promotional tool, (Gilmore 2007). Research indicates that SMEs opt for superficial implementations, with extended focus on the front-end business (website and advertising) with little and or no integration into the entire business systems Piercy, 2009). The adoption of e-marketing is said to consist of three meta-levels: infrastructure, products and structures, development of all three levels is essential for e-commerce participation.
E-marketing can be potentially harmful if the firm is not ready to take it on as it enables an SME to open up to a much wider market. Any failure in the market place such as delayed delivery is dangerous for the business due to the competitive nature of the dot.com environment. (Polatoglu 2007)
The internet can affect generic strategies that SMEs employ to achieve competitive advantage such as cost leadership, differentiation and focus, an integrated approach utilizing the generic strategies might facilitate a firm to provide distinctive value (Kulatunga 2008). An SME could synchronize its marketing orientation activity with internet marketing as the internet provides an efficient tool for the assimilation of market information. Thus it is clear that SMEs if deciding to take on E-marketing activities should incorporate it with the entire strategy of the business in order to exploit its full potential. There is a downside to engaging in this form of marketing; SMEs are characterized by an ability to serve niche markets and develop strong relationships with customers, these activities to some extent are diluted by the internet, as it enables business of any size to compete on the same platform (Gilmore, 2007). However it does capitalize on the speed and flexibility of the SME by offering open and quick lines of communication. Small business could also combine the creative use of the internet with a physical presence to better serve their local community, thus increasing their competitiveness and profitability (Lewis, 2002). The internet also offers potential for future growth into the international sector, however this would depend on the level of computer skills the venture possesses, cultural capabilities of the firm, efficient export channels. These decisions will rest on the amount of resources posses by the firm; it can choose to begin with a single international market, before going global.
3.5 RECOMMENDATION: STRATEGY AND METHODS
Direct mail and printed materials such as magazines can be utilized to target demographics (age, marital, status, gender etc) that are similar to those of your target audience.
When selling to retailers, wholesalers and stockiest, direct marketing can be used to convey product information and organization core competencies such as high quality products that are reasonably priced, quick delivery services, also by offering price incentives for large orders.
Personal contact networks can be used to promote products.
In store promotions.
The website interface is a useful way to promote products. Direct emails may also be used if you have collected relevant customer information.
There are two main channels that an SME can choose to adopt, based on which is most cost effective and provides the most competitive advantage. The SME can chose to operate in both simultaneously.
Producer→ customer (Direct sales)
Producer→ wholesales→ retailer→ customer (Reseller Sales)
Application of the first channel enables the producer to directly convey the value of the product to the customer and develop a relationship; however one requires an effective interface to interact with customers. Sales are limited per customer, and the advantage (Financial profits) lies in the ability to attract more customers. The second approach enables the producer to sell to a wider customer base. However, customer relationship takes a back seat.
The SME could adopt a value based pricing strategy rather than on their costs. The buyer’s final decision will depend on all aspects of the product including quality, innovation, and other intangible benefits in addition to the cost.
Develop an efficient customer friendly interface to interact with customers and suppliers, updated with relevant information about the firm’s offerings (Price and Product).
Proficient distribution channels need to be set up in order to fulfill the order commitments.
Promotion strategies could also be linked with the web site interface.
MARKET COMMUNICATIONS: NETWORKING
A common theme that runs through topics discussed in this report is ‘Networking’; this is one of the most important tools an entrepreneur possesses. Taking into account the limited resources SMEs posses (Carson 2000), networking capitalizes on the advantages at hand ‘small size and close customer contact’ and the capabilities of the entrepreneur. Networking can be used to in all aspects of a SMEs marketing strategy.
The ideology of networking has arisen from the recognition of informal networking (Zontanos and Anderson 2004). Networks are at the core of social relationships. A number of researches like Anderson (2004) have reported that networks enhance a firm’s chance of survival. Literature shows that networking extends the reach of the firm beyond its normal capabilities and resources (Zontanos and Anderson 2004); acquiring these resources is crucial to the firm’s innovation process. Such networking can occur through trade events, personal contacts in liaison with marketing intermediaries and as part of the SME owner’s social networks. Personal contact networks is an important channel through which marketing is carried out by SMEs, the way in which this happens is generally pre-determined by industry behaviour and norms, through regular and irregular meetings, industrial activities or in just doing business. A study conducted by Gilmore and Carson 2001 on clothing retailers in Australia highlighted the following interfaces of networking activity among SMEs;
Networking with competitors
A high level of co-operations was essential; the benefit of this collaboration was to prevent clients from taking the work outside the regional (domestic) market. If orders from stockiest are large and the SME lacks the resources to complete it could enter into joint arrangements with competitors. Even though openness was reported, certain plans that involve substantial changes to the firm are kept quite. So while competitor collaboration does take place, it must be balanced with caution. The SME could utilize this network when felt that both parties could benefit from this interaction, proportionate to their respective inputs. (Gilmore 2001)
Networking with customers
Customers may be stockists (supermarket stores, clothing retail stores) or consumers. The concept of building a relationship between these two entities is different. Building relationships with larger organizations; super markets and retail outlets is considered to be more complex then developing relationships directly with consumers (Gilmore 2001). Selling to these organizations is critical to an SME as it characterizes wholesale and bulk orders. The key here is to develop relations with a wider range of personnel throughout the organization rather than one single individual (Gilmore 2001).
Thus ‘networks can help firms expose themselves to new opportunities, obtain knowledge, learn from experiences and benefit from synergistic effect of pooled resources’ (Chetty and Holm 2000). According to Carson networks can be used by SMEs in a number of ways, managing distribution, product innovation decisions, promotional activity, pricing and to acquire marketing resources. In this way networks help plan refine and implement their marketing activities.
There are limitations to this process such as being in a network might limit the entrepreneur’s ability to identify opportunities outside the network.
Developing a good relationship seems is crucial to most of the marketing variables mentioned throughout this report, a number of case studies presented by researchers have reported that this style of marketing works best for many SMEs.
Trade shows: trade associations or institutes often provide an ideal platform for entrepreneurs to meet, they provide general information of developments within industries, which includes what other firms are doing and how buoyant their business is relative to you own (Gilmore 2001).
A number of entrepreneurial communities exist in the United kingdom such as NCGE (National council for graduate Entrepreneurship), which constantly organize exhibitions and entrepreneurial fares. Exhibitions and committee meetings ensure a certain degree of formality , they create opportunity for more social encounters (Gilmore 2001)
You could be in constant dialogue with your suppliers, customer and stockists as this might be key to your position improve their knowledge about your firm and its product, it might enable you to create value for your business and create customer loyalty which in turn has its own benefits such as word of mouth marketing.
Networking in-today’s world is facilitated by the number of channels brought up by the dawn of the technology era. However the challenge lies in developing the right kind of network. A number of platforms exist for entrepreneurs to build up their networks such a social networking sights E.g. Google Alerts and TweetDeck. Globalization extends the development of networks via the social networking sites beyond the regional and local geographical confines of an SME
FURTURE GROWTH: BRANDING
SMEs in general do not perceive branding as an activity that is of prime importance regardless of the target market. They are mostly concerned with day to day functioning, making sales and short term returns. Superficially SMEs do not seem to carry branding activities within their organization. SMEs lack resources and marketing power to have an impact, suggesting a limited role of branding for them (Knight 2000). However many misconceptions exist in this ideology of branding. Generally SMEs have a narrow interpretation of branding, as suggested by Wong and Merrilees 2005, SMEs perceive the brand concept as advertising plus the brand name and logo. However owners of SMEs should realize that regardless of implementing a brand orientation strategy their brand continues to develop whether or not they actively seek this. If a small enterprise focuses mainly on selling their product the customer will devise an opinion of that product and of firm selling it- this is a brand (Wong and Merrilees 2005). Thus by ignoring this concept SMEs are subconsciously creating a brand over which they can exert minimal control. Another misconception as pointed out by Wong and Merrilees 2005 is the idea that a large budget needs to be allocated towards brand marketing and fancy media advertising. This might be an appropriate approach for some business however it’s not the only approach especially for business-business enterprise. Communicating the brand through the sales and service activity is far more significant. (Wong and Merrilees 2005)
A comprehensive way of relating brand management towards entrepreneurship would be by using euphemisms that would appeal to an entrepreneur namely reputation, quality, image, customer attitude and customer association (Wong and Merrilees 2005). Reputation plays a key factor in selling products, customers also expect if not a high, a respectable level of quality in the products they purchase. Reputation is key to receiving legitimisation from different stakeholders (Goldberg et al., 2003).
Stokes 2000 suggests that SMEs should avoid taking on an over dependence on brand loyalty measured by return on brand investment this could inhibit innovative ideas that could arise from the brand orientation aspect and thus stifle the entrepreneurial spirit. Ambiola and Kocak 2007 propose building strategies based on an interactive process enabling SMEs to be pursuing innovative developments and extend their offerings and in turn differentiate themselves. SMEs may take on a more integrative way to build their brand in comparison to disparate teams used by larger organizations. The business world has seen a rapid shift in the last 20 years from a producer dominated market to a customer led one underpinned by symbolic consumption branding and reputation (Ambiola and Kocak 2007). Thus SMEs need to think about branding, one of the key building blocks to market communications.
The entrepreneur is generally a personification of the brand and should play a direct role in brand communications. The internal culture also plays a major role in promoting the brand, thus every one working at the SME should be able to communicate the core values of the brand. (Wong and Merrilees 2005)
Enhance word-of-mouth communications and training in customer service all interactions with custome, potential customers should , other business (retailer stockiest) should communicate the distinctive aspects of your brand. (E.g superior quality in comparison to customers, fast service, etc.) (Wong and Merrilees 2005)
Communication is key, it must be consistent – define the message and stick by it, avoid taking on pricing communication, advertising and promotional campaigns that could potentially damage the brand. (Wong and Merrilees 2005)
The above marketing report has briefly outlined theories of entrepreneurial marketing; it is aimed at providing insight into the Entrepreneurial- Marketing interface. It highlights some of the marketing strategies relevant to a new business venture in terms of culture, strategy, method, communications and future development. It emphasizes the distinctiveness on an entrepreneurial manager in being idea driven, innovative, interactive and intuitive while identifying latent market needs.
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