Large firms are defined by the European Union (2005) as those employing over 250 people. For these firms, formal marketing strategy is widely accepted as critical (Westwood, 2005; Lancaster and Waddelow, 1999). In fact, much of the marketing and planning theory we read was developed from studies of large corporations (Carter and Jones-Evans, 2006; Brooksbank, 1996). However, there has been perpetual debate and contradictory research over the latter part of the twentieth century regarding the importance of formal planning in SMEs. Bracker and Pearson (1986) and Stoner (1983), for instance, highlight the importance of formal planning in SMEs, whereas Robinson and Pearce (1983) found formal planning to have no significance in SMEs. More precise empirical evidence though has demonstrated that detailed marketing planning can have negative effects for SMEs (e.g. Lancaster and Waddelow, 1999). This stems from the notion that the day-to-day marketing of SMEs has far different requirements from marketing in the larger firm (Siu and Kirby, 1998; Chen and Hambrick, 1967) due to the need to constantly adapt to changing consumer needs (Carter and Jones-Evans, 2006, p327), and the lack of resources (time, people and money) to devote to making detailed plans (Gilmore et al., 2001).
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Does this mean that SMEs should construct their marketing plans less formally and with less detail, to prepare for recurrent adaptation? The absence of any pattern in the literature suggests we need to think deeper than this. However, a problem in gauging this importance for SMEs is that there is no widespread definition of what a marketing plan should include (John and Martin, 1984). Some academics provide a short list of what a marketing plan should include at minimum, be it an annual plan or a new venture plan. Yet others provide whole books on what it should compromise (e.g. McDonald, 2007; Westwood, 2005). We do however know that marketing planning is rarer amongst smaller businesses (Gilmore et al., 2001). Perhaps there are specific determinants, and these affect the need for detail in the marketing plan. This essay aims to explore such ideas, and bring together a gap in research to find out when marketing planning becomes vital for SMEs.
So, how might the type of industry affect the need for a SME to produce a detailed and formal market plan? Prahalad (1995) has listed examples of the many changes that certain industries have experienced over the last decade, such as technological discontinuities, increasing global competition, and changing customer expectations. In such industries, market opportunities tend to change more frequently as a result, which could pose major challenges to SMEs in relation to their market plans. Greenley et al. (2002) points out that firms will need to adapt their plans in order to pursue these developing opportunities. This claim is supported by Smallbone et al. (1993) who examined a number of small firms in the manufacturing industry, and found that adjustment had a correlation with survival. A study by Lancaster and Waddelow's (1999) study also supports this, finding that one in four SME senior-managers who do not make formal marketing plans gave the nature of the market as the reason for not doing so. The majority blamed the market for being too dynamic, with change happening rapidly enough to make any plan redundant within seven days of it being formulated. Assuming that these accusations of SME senior managers are true, it could be deduced that the money used to make formal and detailed marketing plans in these industries is wasted; unless they can reap the financial returns within those seven days to cover the cost of making the plan, which would be extremely challenging.
Jain (1999) recognises that competition has a direct influence on the requirements of marketing strategy. He provides what he considers the fundamentals of what a marketing plan should include, and explains that it needs to not only be competent in what it offers, but needs to offer more than competitors. With this in mind, competition could have a direct effect on not only the requirements of a marketing plan for an SME, but the need for it to be detailed. If competitors have brilliant market offerings, inevitably it will take a more thorough plan to better them than it would if these offerings were weaker. Equally, if there is little competition or the competition in the area is scarce, customers have less choice and therefore exhaustive marketing planning becomes less significant. For example, guest speaker Jennifer Coatesworth (2011), owner-manager of the SME 'Yummy Cupcake Company' stated: "because the closest direct competition was so far away when I started out, the business did not need a marketing plan". She then explained that perfecting on customer service and satisfaction were far more productive and cost-effective uses of her time. Jain's (1999) philosophy would indicate that if there was local competition, the lack of any form of marketing plan would pose significant challenges for this SME. I would agree, particularly as the understanding of competitor activity is so highly regarded in the need for effective marketing planning (Hill, 2001).
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The guest speaker further explained that it was only after the business had grown over a number of years that the need for marketing planning became apparent. This supports other research that found commitment to formal planning is relative to the stage of a small firm's life cycle (Churchill and Lewis, 1983; Carson, 1985; 1990). Carson (1990) contends that there are four discernible stages in the evolution of marketing in the small firm. Notably, the integrated stage (stage 4) is the phase of 'business evolution' where the firm materialises with more sophisticated marketing planning and where the various elements of the marketing mix are coordinated into longer-term strategies. The first three stages are merely phases of marketing in practice or what Carson describes as operational marketing. Perhaps then, the need for formal marketing planning arises when a firm gets to a certain size. This would also explain why large firms experience a higher level of marketing planning than smaller firms (Liu, 1995). The point at which marketing planning becomes vital, I would add, is likely to depend on the strength of the competition, the market it operates within and the rate at which it aims to grow because as much of the research suggests, you cannot over-generalise SMEs.
Just as SMEs should not be over-generalised, neither should humans. Some owner-managers may not have the capabilities to be effective planners (Cespedes and Piercy, 1996; Greenley, 1988). Lancaster and Waddelow (1998) highlight that where there is a lack of capability or will, the marketing planning process is unable to take place effectively and indeed the attempt of doing so often compounds the problem. Characteristics of the owner-manager have also been argued to affect the need to market plan in detail. Hill (2001) claims that people with high levels of intuition can read market situations more quickly and therefore are less dependent on formal procedures to influence their decisions. As a result, these people may find their time is more effective used working on the day-to-day running of the business, as the guest speaker from The Cupcake Company experienced. Equally though, owner-managers with a more direct role in the everyday activities may also find it difficult to formulate detailed marketing plans. This can be due to time constraints (Brown, 1995; Tibbits, 1981), or more interestingly, because they feel guilty as a result of spending time away from the business (Lancaster and Waddelow, 1998). In these instances, it may be more useful to rely on previous experience and common sense, as many owner-managers of SMEs often do (Lilien, Kotler and Moorthy, 1992). However, owner-managers of SMEs that lack this intuition, or have a tendency to plan, may find that making a more formal marketing plan offers direction and guidance. In a recent interview, the owner-manager of a small double glazing business (John Hope, March 2011) said "if I didn't keep my marketing planning so detailed, how would I know if the business is on track or not? And how would my employees know where my goals of the business lie. Marketing is fundamental to the business, so having it planned out gives us all something to refer to." This illustrates how two SME owners approach marketing planning in completely different ways, yet both have successfully coordinated their business for a number of years.
The typical small business though gives marketing a low priority and often regards marketing as 'something that larger firms do' (Stokes et al., 1997). A study by Kingston University, they add, found that most small business owners associated marketing with selling and promoting only. This lack of knowledge would limit the effectiveness of a make a sophisticated marketing plan (as suggested earlier by Lancaster and Waddelow). Thus it may be wiser for these owner-managers to spend less time on the marketing plan unless they also have the time to learn more about the scope of marketing and what it encompasses. Hill (2001), points out that small firms of today are more likely to be populated with graduates who retain substantial theoretical knowledge of the tools and techniques of formal marketing. These graduates bring to SMEs new understanding and put into practice the systems of planning that they have been taught. Over time they become good at this and gradually SMEs are growing in confidence in the marketing planning process. With the necessary knowledge being ever-more common, logic would imply that many SMEs should now see greater financial benefits of writing more formal marketing plans than in the past. This proposal fills the gaps from the research, in that it assumes more knowledge of marketing would mean more effective marketing plans; thereby increasing the importance of them. Again, this cannot be generalised across all SMEs as not all have better educated employees than in previous years.
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The importance of a marketing plan is more widely accepted with regards to seeking funding. Most potential funders wish to see a formal business plan as a first step in deciding whether or not to invest (Mason and Stark, 2004), and the marketing plan is a central aspect to the business plan (Gummesson, 2004). LaBarbera and Rosenberg (1989) take a more explicit view, considering marketing plans to be produced only to secure loans. While I would argue that this may only be the case for a small number of businesses and other uses of the marketing plan are in the plentiful, we can be certain that investors want to know. They like to see such plans because it proves comprehensive understanding of the marketplace and illustrates a firm's strategy to penetrate it. Hill (2001) continues that venture capitalists and banks refuse to lend money unless there is evidence of an ongoing and realistic commitment to marketing planning. So for SMEs wishing to gain the investment of potential funders, a formal marketing plan is likely to be far more vital.
With all of these various distinctions, the premise of this paper is that we cannot over-generalise SMEs in the need to produce formal and detailed marketing plans. For some SMEs, it may have profound benefits, representing a fundamental interface between itself and a highly competitive industry. For others competing in an industry with the continuous shaping of opportunity, it may restrict change. We do, however, know that if any SME wants investment, having formal marketing planning in place will facilitate in receiving this financial backing. For many SMEs formal marketing planning will become vital only as they reach a certain size, but this point is dependent on the industry, the firm's growth, and the owner-manager. Moreover, SMEs with less intuitive owner-managers will most likely find that having formal marketing procedures has greater importance than owner-managers with high levels of intuition. The smaller firm owner-manager should perhaps adopt a prudent balance of the formal and informal in their marketing planning. The ideal balance would be shaped by factors addressed in this paper. To develop on previous research, there should be more focus on SMEs with relation to marketing and the need for marketing planning. Studies should be more specific; addressing the determinants of the need to market plan in detail, such as the ones addressed here. Research in this direction will benefit SMEs in practice, as it will give them an indication of the importance of formal marketing planning for their specific business.