Assessing SMEs limitations and marketing characteristics
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Published: Mon, 5 Dec 2016
It is well documented that SMEs have unique characteristics that differentiate them from conventional marketing in large organizations (e.g. Carson, 1990). These characteristics may be determined by the inherent characteristics and behaviors of the entrepreneur or owner/manager; and they may be determined by the inherent size and stage of development of the enterprise. Such limitations can be summarized as: limited resources (such as finance, time, manpower); lack of expertise (owner/managers tend to be generalists rather than specialists); and limited impact at the marketplace. In addition, SME marketing is haphazard and informal because of the way an owner/manager handles business; they make most of the decisions on their own, respond to current opportunities and circumstances and so decision making occurs in a haphazard and apparently chaotic way, according to personal and business priorities at any given point of time (Scase and Goffee, 1980). Clearly such limitations will influence, indeed determine, the marketing characteristics of an SME. SMEs do not conform to the conventional marketing characteristics of marketing textbook theories; instead their marketing is characterised by the limitations outlined above. Thus, SME marketing is likely to be haphazard, informal, loose, unstructured, spontaneous, reactive, built upon and conforming to industry norms. (Dean et al., 1997)
Our understanding of your business
The briefing provided in the case study articulates the following key points :-
Your business of baby-garments has witnessed a decline in sales as quite a few number of independent shops have closed down, which might need reconsidering the target market and marketing strategies, which can be based on the recommendations provided in the document.
Since the sales are lower than expected, the 4P’s of marketing as discussed below can be reviewed for the current product line. Alternative pricing and promotional activities might be useful for improving the sales of the products.
The briefing also mentions about usage of website for promoting sales. With internet being accessible to most consumers, it is essential that the business should have strong e-marketing practises in order to compete with the market. This document also highlights the vital elements that should be focussed on while deciding to promote products online.
Another key area is competitive advantage which gives edge to any business and helps to survive in cut-throat competition. This advantage can be in form of product design, strategies, suppliers, distribution channel and so on. Alternatively it is also essential to analyze the competitors – whether they are big retailers or small independent shop owners, the competition: if it’s local or international, their 4P’s etc. Once having an understanding of these elements, policies for the business can be reshaped and accordingly adjusted to beat the competition.
3.0 Market Orientation:
Past study indicates that high levels of market orientation has a positive impact on firms performance (Narver and Slater, 1990; Kohli and Jaworski, 1990).Market orientation is positioned under organizational processes and symbolizes to be a long term advantage to the company. It cannot be easily generated and so may be considered as a discrete form of sustainable competitive advantage. Kohli and Jaworski, 1990.Based on the study carried out by Laforet , it was clear that the SMEs are more innovative and market oriented than the large multinational companies. He also suggested that these SMEs have to be more positive towards various market opportunities, open to innovation and also have to take a lead in new product development. The SMEs that are not technologically advanced face a lot of competition globally and innovation is the only key to success for these SMEs to sustain and compete in the market. (Laforet,2008, Laforet and Tann, 2006).Internal organizational factors and external forces exert a considerable influence on the SMEs business performance. Hence Market orientation was theoretically pointed out by Hunt and Morgan (1995)
as a process to collect the information systematically on the competitors and the company’s customers ,
To develop market knowledge, the information gathered should be systematically analyzed and used appropriately in various fields.
Thus for an owner/manager of SME, market orientation is a cultural and behavioural process and the activities associated with it should be strong enough to create and satisfy the customer’s needs by continual assessments, which moves on to increase the performance of the business(Ruekert,1992). The degree to which the organization utilizes the information from the customer to develop a strategy to meet their needs and to be responsive to the customers, Ruekert described this as customer orientation. (Appiah-Adu and Singh, 1998) argued that the acceptance for customer orientation is minimal in SMEs due to influencing factors such as the internal organisation and various external forces. But Laforet and Tann (2006) proved that customer focus is one of the drivers to company’s innovativeness. Pelham and Wilson agreed to this and explaining that for SMEs, customer orientation is likely to be an essential success factor as they lack financial resources to gather other sources of business profitability, like low cost leadership and skilled staff to develop strategic plans for the company and research and development department. Hence customers are the best source of information for SMEs as it is also explained as a set of belief’s that puts the customers interest first while not keeping the stake holders and other people involved, money at stake and helps in developing a successful enterprise.(Deshpande)
As the success of Bababoo depends on the satisfaction of the customers, the company should be more customer orientated, rather than being Market oriented.
As Deshpande has precisely described customers as the main source of information for SMEs so conducting customer surveys to analyse their needs and requirements will be really helpful.
As promotion of the baby clothes is already done online, so the surveys can also be done by the same means or also in the form of online feedback forms or mail surveys. As the product passes through different channels ,gaining customer queries ,feedbacks ,complaints and grievances will be an easy task.
4.0 Segmentation, Targeting and Positioning
Smith (1956) explained that segments are developed when there is heterogeneity in the customer needs. As mentioned by various authors, SMEs are the most important in economic markets. They generate products that need a strategic marketing planning, which can be accomplished while segmenting the markets.( TektaÅŸ et al) They defined market segmentation as actionable and effective submarkets of the main market. Porter suggested that even if the SME has limited resources, the manager should pursue a niche market in which the firm will become a market leader though it does not possess a competitive advantage for the whole market. Segmentation can be at micro and macro level, where, micro level consists of segmenting within the country and macro is segmentation as choosing a country to target. The product needs to be highly differentiated and recognised by the customer if segmentation is at macro level.(Larrson et al)To be able to progress to macro level, the firm needs to establish itself and make the product known at micro level first. The micro or consumer segmentation can be used where is it hard to find the individual consumers. ( TektaÅŸ et al)
.Brassington and pettitt identified six main bases that lay the foundation of consumer segmentation (FIGURE 1) where each of these bases define their customers accordingly
Figure 1- Bases of consumer segmentation.(source :Brassington and Pettitt,2000)
A frame of reference (Figure 2)was developed by Larrson and Martinkauppi and many authors to give an idea about have to segment markets domestically and internationally.
Collection of Data as Basis for Market Segmentation
Figure 2- Frame of reference (Source : Larrson and Martinkauppi,2003)
The data is collected based on experience and lacks updating in various small companies and was concluded that ,the more the experience, the less the risk involved.( Larrson and Martinkauppi).They also showed that the 4P’s automatically segmented the market.
Positioning is also a major marketing strategy which places the company in the correct sectorial value added chain.(Garau)This process is very important for SMEs as a wrong step or a decision can eliminate the firm from the market. Proper positioning is a challenge for dynamic, advanced technology companies where the markets are characterized by tough competition and unstable demands. (Yonggui and Lo, 2002) Industries such as biotechnology, telecommunication, electronics and software industries are highly affected due to improper positioning. (March and Gunasekaran,1999; Slatter, 1992).
Targeting is also an important aspect of marketing where different consumers segments are targeted for differential promotional activity. The importance of targeting has increased widely to achieve effective and efficient strategies. There were demands from the consumers for a sharp and focused target marketing practice.(Smith and martin1997). But they even argued that along with appreciation, targeting has also been criticized where products targeted to adult consumers were considered to be vulnerable.
Brassington and Pettite (2000) have described demographic segmentation as one of the foundation of consumer segmentation .Therefore my recommendation is based on the feedback from the surveys,bababoo can segment the population on demographic and customers buing behavior.This will help the company to set target markets.
As the customer base for bababoo is not quite large, hence doing macro analysis which involves expertise advice and high cost can be avoided for the moment.
Along with focusing on demographic segmentation,the company should also try and focus on Psychographic segmentation .Brassington and Petite ,(2000),said that at any point of time ,psychographic segmentation is critical as it marks the customer’s own perception, so analyzing the same as to what makes the customer buy the product and giving them what they want will result in favorable outcome.
5.0 Marketing Mix
As described by Morris et al, 2002, many scholars have noted that both the theories of marketing and entrepreneurship benefit the concept of creating value. Many other combined the foundational concept of both the theories and named it as marketing / entrepreneurship interface, which was concerned with the marketing in SMEs (Gilmore and Coviello 1999;hoy 2008). It was concluded that traditional marketing theories ignores the core elements of entrepreneurship which are innovation, risk taking and proactiveness Morris et al, 2002. Scholars working on these have noticed that a paradigmatic shift will be useful to bring about the entrepreneurial personality in the marketing activities in SMEs. Hill and Wright (2000, p. 43)A general studies says that entrepreneurs are specialists in their fields but not in Marketing. (Carson et al., 1995; Stokes, 2000; Zontanos and Anderson, 2004).(Martin .D 2009) marked that entrepreneurs are involved in their entrepreneurial success as they have negligible or no knowledge about formal marketing theories. As mentioned by Kotler,2001, the reason behind successful corporate marketing lies in the familiar four P’s :Placement, Price, Promotion and Product. Although some argue that these four PS miss out the fundamentals of marketing i.e. adaptability ,flexibility and responsiveness. (McKenna, 1991, p. 13).Anderson and Zontanos put forward a better frame to understand the entrepreneurial firms marketing fundamentals. They offered the four P’s of marketing for entrepreneurs as person, purpose, process and practices. But Martin argued that the entrepreneurs should first have a deeper understanding about the traditional marketing mix theories and then they can move on to the entrepreneurial marketing .It has also been suggested by Martin that for further research on entrepreneurial marketing mix, scholars should consider the entrepreneurial characteristics and competencies to the marketing efforts.
Kotler (2001)describes Pricing as one of the core elements of the marketing mix which generates revenue for the company, and supports the other 3 elements of this mix. He recommended that before setting up a price first the decision should be taken as to where the product is postioned with respect to quality .He suggested that there should be a fine balance between price and quality .Both Kotler and Jobber along with theorist also added that the manager should be aware about the competitors actions at least pricing level and also about the product costs and hence its margin of profit.
Studies carried out by Carson et al reveal that there are a few differences with respect to the marketing strategy approaches followed by the SMEs and the larger firms. In the study carried out by Carson et al ,it was concluded that the SME use the cost -plus approach .They set up their prices taking into account all of their fixed and variable costs and added a mark up which allowed them a predicted and pre-determined return. So majority of the firms try to keep their costs down which will enhance their competitiveness.( Carson et al).To exemplify on this he suggested that one way to bring about a difference in the costs of their products was their willingness to change the suppliers so as to achieve better and competitive deals.
There is a continuous effort by SMEs to gain differentiation with cost reduction being predominant. For firms that were not too enthusiastic in accepting the cost -plus approach ,used the market considerations as an approach, where they set their prices according to the market’s demands.( Carson et al)Negotiation ,according to carson’s research ,always played an important role in developing business for the small firms, where negotiating with suppliers for better deals on raw materials, and to try and get the best possible deal for the company. Carson concluded by saying that with regards to pricing , SMEs are relatively susceptible to the industry or the market
Place (often referred to as the distribution channel) includes the location at which your product is available and is accessible. These include various physical and virtual stores as well. (http://www.scribd.com/doc/12864224/The-Extended-Marketing-Mix)In the age of computers, because of the creation of new electronic market channels, IT marketing has become very important. Due to this various database -driven direct marketing channels, tele-shopping, and home based shopping are emerging very quickly. various virtual stores have merged for example supermarket on wheels which supply groceries, which were ordered online by email, at your door steps.(Peattie)
The various sources through which a person sells his/her products in the market place represents promotion. A product can be promoted though various elements, advertising your product, word of mouth, various public relations and point of sales. Studies have shown that entrepreneurs prefer interactive marketing. They have strong preferences for personal contacts with customers rather than mass promotions. according to Orr, the mangers of SMEs have the ability to make meaningful dialogues with the customers ,which later on builds up to be their unique selling point. He also found that these mangers spend majority of their time interacting with customers. On other hand, mass promotion involves huge expenditure which SME’s cannot think of incurring it. Also, Mass promotion helps in covering large customer base and not the small customers base that SME’s are catering to. Another study showed that Entrepreneurs heavily rely on the word of mouth promotion marketing technique over the others. Literature has shown that word of mouth marketing sometimes makes it difficult to purchase decisions for the customers and business to business markets.(Stokes)
Lastly, a fifth “P,” for Passion, is important to our understanding of the daily commitment one makes to his or her venture Martin .D 2009. Smilor (1997, p. 342) described entrepreneurial passion as the “‘fire in the belly’ that makes the improbable possible.”
Passion sustains entrepreneurs through the uncertainties of daily decisions, the thrill of
new innovations and the challenges and setbacks that line the road to success. Martin .D 2009
Since this is most important element of marketing success for any organization, it is for the owner to decide the 4P’s . However provided with sufficient data, optimum policies can be worked out.
(you can consider writing some features mentioned in the para’s above and include them here)
6.0 Networking and Relationship Marketing
Entrepreneurial networking has become an important topic of research in recent years.(Dodd,1997).For business it can be considered as an important key to the various resource constraints and the limitations under which the SMEs work.( (Deakins, 1991;
Gilmore, Carson, & Grant, 2001; Johannisson, 1990). Audrey Gilmore , David Carson, Steve Rocks (2006) found that marketing in SMEs is informally structured, and Granovetter ,1985, agreed to this and recognized that this informality can be utilized in various networking activities. Falemo,(1989);(Welsch and young,1983,) shared the same view, that networking would be important in relation to marketing decision of SMEs where the owners/manager needs to utilise their limited resources effectively to compete with their powerful competitors. (Chetty & Holm, 2000; Gilmore et al., 2001) were also of the same view. As explained by (Gilmore et al., 2001). Network can be built with normal interactions and various activities of the SMEs owner or manager. Networking activities like communicating with people, both inside and outside the channel,( Audrey Gilmore , David Carson, Steve Rocks (2006))their own personal contacts, various business networks and also different industry and marketing networks.( (Rocks et al., 2005) are majorly carried out by the owner or the manager of the SMEs. Attending various trade fairs and exhibitions and other industry related events, interacting with various owners/managers within the distribution channel are also some of the networking activities which can be used to gather information about their competitors. As networking will not only enhance the knowledge of business activities to be carried out but also keeps you updated about the market trends that changes day-to-day.( Audrey Gilmore , David Carson, Steve Rocks (2006) .( Audrey Gilmore , David Carson, Steve Rocks (2006) also concluded that SMEs can build up on their resources and strengths by working together in a networks specially in time of dynamic crisis. Thus to make their marketing activities more effective and efficient and to secure a place in the competitive market, the SME’s should build up their networks which help them in planning, refining and implementing their activities.( Audrey Gilmore , David Carson, Steve Rocks (2006)
Figure-1 SME networking, Marketing activities and performance.( Gilmore,A.et al(2006)
Along with Networking, Relationship Marketing is also an important factor that has established itself in recent years. It has been accepted because of the growing scenarios and growth of the product parity ,increase in customer sophistication, price sensitivity, reduced cost effectiveness of traditional promotional media, ever increasing competition.(Marketing guide).Various research studies prove that entrepreneurial SME firms are most likely to use relationship marketing more appropriately and in an effective way ( Day et al,1998).Relationship marketing assists the SMEs to develop a close relation with the customers. The more the company is educated by the customers, there are less chance that the customers will approach another supplier or another firm as suggested by Clark and Payne1994, Peppers and Rodgers1994).Secondly the company can monitor the needs of the customer as it has direct knowledge about what the customers want.(Gronroos )
The company and the customers both are financial benefitted after being in a long term relationship as they now know how to interact with each other and this will result in the decrease in the relationship costs, due to which the customers will be allowed to pay a premium price for the products after a certain period of time.(cited in )(Congram,Gronroos, Clark and Payne,Fay, Gronroos,Peppers and Rodgers,Reichheld and Sasse,Desatnick,Reichheld and Kenny) Studies have shown that the SME not only have to follow the internal cultural aspects of relationship marketing but generate a creative, innovative and entrepreneurial management culture in the SME .Without these traits, success will be very limited. ( Day et al,1998).
Bababoo should try and build networks by normal interactions with other SME owners /managers in various exhibitions and trade fairs,communicating inside as well as outside the distribution channel, trade associations, chambers of commerce, women entrepreneurship associations, charitable associations such as Rotary Club.
would be an added advantage . Women’s Associations and trade association are one of the key sources for support and information.
I also recommend the owner Ms Linda also networks through your personal contacts ,and different business and marketing networks .
Clark et al (1994)have directed the SMEs towards developing a close focus on CRM (customer relationship management ) activities .Hence my recommendation is that Bababoo formulates a MIS to record contact history.It will help keep records of loyal customers and work out on policies to maintain relationship for long term profitabililty.
Relationship with key suppliers, producers, distributors also impacts the way SMEs performe, so maintaining rapport is quite essential.
Consider focus on CRM activities like keeping track of loyal customers and working out policies for maintaining relationship for long term profitability.
Emphasizing on modern trends (customer preference, taste, product acceptance level, needs of the channel partners)
Also, taking feedbacks, answering to product related queries, customer’s perception about competitive advantage from every distribution channel – where your product passes through to the final consumer.
In a single global economy, on the entry of the 21st century, exploring knowledge about various opportunities and events available in other countries has never been so deep and immediately available this knowledge sharing has favoured growth in international trade and financial flows internationally. SMEs are becoming strong pillars of the world economies, as they are better interconnected with global trade and investment plans.( Acs, et al.,2001)SME’s have gained importance as the economies have become more globally intergrated. Globalization in itself is a process of entrepreneurial discovery. .( Acs, et al.,2001. This is a little astonishing and worrying as these SMEs contribute a major role in most of the economies. They constitute the largest block in the business sector and are also a major source of employment.( Tiwari and Buse,2007). Acs et al.(1996) describes SMEs to be the most important initiators of innovation and internationalization of these firms will lead to the global diffusion of knowledge and innovation. A lot of developed and developing countries like Asia Europe and north America have shown a rise in the number of SMEs that are involved in international trade.( Economist, 1993; Luostarinen; Nakamura; Rennie and Gupta.) Johanson and weidersheim (1975) have described the stage theory as one of the theory of internationalization. According to this theory, internationalization evolves in an ascending manner i.e from a less to very complex models of international activity.(Glas, et.al 1999).It also explains internationalization of SMEs as an incremental and a very lengthy process.( Glas, et.al 1999;Boter and Holmquist,1996).The reason behind this lies mainly on the owner’s global outlook and its effect on global performance.( Glas, et.al 1999).
Research done by Bonaccorsi,(1992) revealed that the export intensity increased for SMEs than the larger firms between the period 1975-1981 in Italy. There are barriers to entry and protection rights that come into picture when internationalization of small & medium enterprise is considered (Fujita, 1995). Entering and exploring the international market is a difficult task for the SMEs, especially for those who are owned and managed by individuals. These individuals may not have export experience, may have very limited marketing support in international markets, may also have low risk appetite as going global requires lot of other factors such as customer reach, huge investment, accurate market analysis, product acceptance predictability, no sources of information regarding the international markets and other business services.( Glas, et.al 1999)
According to the research carried out for 35 Slovenian SMEs, the sources of information that the company’s used for foreign markets were :cross-border partners, worldwide trade fairs and expositions, visit to the customers and the company location, and foreign distributors. Sometimes these firms used their own market research teams, some of them developed long term cooperative agreements with those foreign firms licensed the technologies or their products and also some established joint ventures.( Glas, et.al 1999). The failure of SMEs in internationalization is due to the lack of resources whereas the multinational companies are well equipped. The combination of an innovative SME with the multinational’s market access and the ability to handle the legal matters are complimentary to each other by creating innovations and bringing them to the market. By following this, the SME can produce for the entire market without doing any direct export and by not developing any subsidiaries in the foreign markets. By doing this, the SME benefits without constructing it owns marketing operations in the foreign countries and gains profit by globalizing its innovation.( Acs, et al.,2001)
Internationalization can be achieved once your product is a well known brand in the market locally. Internationalization can be one of the future prospects to your existing business. The baby clothes are manufactured in China as of now, but later on you can position in India as your wholesale market to sell it and then for manufacturing mainly due to diversity in areas of taste, preference, behavior, perception, huge population. Retail industry is the biggest sector in India and fifth biggest globally. As this is a international brand for India, the preference and the reach will be faster among the distribution channels and hence final customers. Pricing will also not be a problem as the production will be from China as it is renowned for bulk production at a lower cost.
After the success of your brand or once the brand is well known and accepted in India with the wholesale market
Further step would be heading towards retailers where you can churn good revenue, increase sales and also earn decent margin.
Gradually, when the product reaches its peak according to the Product life cycle, to sustain the brand in the market, tie ups with multinational companies for baby clothes in India as well as China. As the theories mentioned above your innovation can then be well utilized and the strategizing, marketing, distribution can be taken care by the companies with good potentiality in the same line of business.
Mentoring can help women entrepreneurs build skills, expand networks, and find markets. Creating channels to share business know-how is critical to helping more female business owners succeed. Sharing business knowledge among women entrepreneurs contributes to the stability and growth of their businesses, and encourages innovation and resourcefulness.
NETWORKING: “the building up or maintaining of informal relationships especially with people whose friendship could bring advantages such as job or business opportunities.”
Networking has 4 main core benefits:
1. It will help increase your sales, through referrals.
2. It will help you learn things that you need to know to manage and grow your business.
3. It will help you to cater to larger spectrum of customers all together.
4. It can help stimulate your creativity about new things or approach towards your business.
5. It can bring forward the innovation or dynamism that your product wants to communicate to the users at all levels.
Networks are important because they help strengthen and support your business. Networks can be formal or informal. You should also consider joining a women’s association – where you will find a larger group of women, and resources that you should take advantage of – such as information on contracts and seminars on various subjects.
Women’s Associations and trade association are one of the key sources for support and information.
Networking requires that you have ONE piece of information – a business card. It should be a nice card, with a good logo, so that people can remember you!
There are many types / categories of networks. A few examples include: trade associations, chambers of commerce, women entrepreneurship associations, charitable associations such as Rotary Club.
Also, these days social networking sites like Facebook or business networking site such as Linkedin and many others help in building contacts with the group of people sharing common interests. Such networking sites are a modern day of trading your product, where buyers and sellers come together to put forward their product or service, you just have to connect to the right people at the right place and at the right time.
Networking Example: The Story of Business Network International (BNI)
There is another type of network that is quite interesting. It is a type of organization that was started by a management consultant in California, Mr. Ivan Misner. He invented what he called Business Network International (BNI) and there are over 4,000 such groups all over the world. Essentially, it is based on the concept that word of mouth is one of the most important marketing tools. Groups form, but only one type of business is allowed in each group. They hold weekly breakfast meetings to discuss a variety of topics and they refer business to each other. For example, when Kory hears that his neighbour needs a painter, Kory refers his BNI colleague who is a painter to his neighbour. When Kory has a question on whether she should include an expense on her Profit and Loss Statement, she can talk to Janice, who is the accountant in her group.
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