Marketing Needs And Challenges Of Small Businesses Marketing Essay

Introduction

This essay deals with the marketing needs and challenges of small businesses, with particular regard to the differences in these areas between small and big firms.

Small businesses are steadily increasing their contribution to the economies of the developed nations. Small and medium enterprises (SMEs) currently provide employment to more than 33% of the UK labour force and account for just about less than 50% of the country’s total private sector business turnover (Longenecker, et al, 2005). The small sector is for all practical purposes driven by the energy, motivation, and drive of entrepreneurial owners, rather than by the abilities and skills of appropriately educated and trained professional managers (Odaka & Sawai, 1999). Small business owners are driven to establish their organisations by reasons like entrepreneurial zeal, the desire for independence in working and decision making, craving for wealth, and the need to exploit original and innovative ideas and concepts for products and services (Odaka & Sawai, 1999). Such entrepreneurs play vital roles in the economies of their nations, assume various operational and financial risks, and face difficult business challenges in their quest for business success (Odaka & Sawai, 1999).

One of their most important challenges lies in the area of marketing. All businesses need to successfully sell their products and services to customers in order to achieve business success and competitive advantage, and small businesses are no exception to this rule (Pelham & Clayson, 1998). Whilst marketing success is imperative for the operational and financial success and growth of small and entrepreneurial firms, such organisations face numerous complex and difficult challenges in the pursuit of such objective (Pelham & Clayson, 1998). The marketing environments and challenges of small firms are significantly different from those of larger organisations. Such differences arise on account of various reasons like product range, geographical distribution, pricing considerations, customer segmentation, and availability of funds (Pelham & Clayson, 1998). Much of the success of the owners of small enterprises stems from their ability to recognise and overcome such challenges and formulate appropriate and effective marketing plans and strategies for their products and services (Pelham & Clayson, 1998).

This essay examines the important differences between the marketing challenges and options of small and big firms, the various dimensions of the marketing environments of small firms and the various challenges they are likely to encounter in the course of their business. The study also investigates the ways and means that can be used by small organisations to effectively market their products and services, and attempts to recommend the best ways and means for small entrepreneurs and business owners to improve the effectiveness of their marketing efforts and enhance their competitive advantage.

The Importance of Marketing for Small Businesses

The establishment and growth of small businesses is driven by the zeal and enthusiasm of individual entrepreneurs (Odaka & Sawai, 1999). These individuals wish to develop and build independent enterprises and often feel that they have product or service with unique and specific attributes that will appeal to customers (Odaka & Sawai, 1999). Such entrepreneurs are characterised by their optimism, enthusiasm and belief and conviction in their ideas, as also by their confidence in their ability to achieve their objectives. They however operate with numerous constraints that stem from factors like scarcity of physical and financial resources, limited workforce, absence of experienced and specialist executives, and lack of established markets (Casson, et al, 2006). Few, if any of these entrepreneurs establish new organisations with firm and ready customers. Even operating small businesses work in similarly difficult and challenged circumstances (Casson, et al, 2006).

Whilst it is undoubtedly appreciated by all small business owners that the ultimate operational and financial successes of their enterprises, as also the maintenance and enhancement of competitive advantage, is significantly dependent upon their marketing sales performance, very few of such business people are able to effectively locate, focus upon, and exploit market opportunities through the formulation and execution of appropriate marketing strategies (Sadler-Smith, et al, 2003). The intentions and plans of small entrepreneurs and business owners to enhance their marketing effectiveness and sales performance are constrained by numerous challenges and obstacles, some of which occur because of internal weaknesses and others on account of environmental circumstances (Sadler-Smith, et al, 2003).

Small and large businesses differ in numerous ways. Large businesses, even if they are recently established, are supported with strong financial resources from individual stockholders and financial institutions (Voss, et al, 2002). Other established and older large businesses furthermore have numerous organisational strengths that stem from extensive and developed production facilities, high quality organisational talent, research and development abilities and expertise, access to specialist advisers and consultants, extensive product range, established working processes for maintenance and improvement of quality, economies of scale, greater market reach, operations in different geographic locations, established market name and image, and well known brands (Voss, et al, 2002).

Whilst all large organisations may not possess all these strengths and attributes, it is difficult to conceive many of them would have achieved significant growth in size and scale and still continue to be without many of these features (Welsch, 2003). Such strengths and attributes combine to provide large organisations with exceptional marketing advantages in terms of existing customer base, strong customer relationships, greater range of products and services, good product quality, attractive pricing, geographical reach, and brand recall (Welsch, 2003).

Small businesses are comparably disadvantaged on many fronts (Weinrauch, et al, 1991). Most of them have restricted product ranges and whilst their operational costs are lower than those of larger businesses, they are unable to access economies of scale and sustain prices that are truly competitive and attractive (Weinrauch, et al, 1991). Such businesses also suffer from lack of uniform and appropriately designed working processes and quality control procedures, which often result in the generation of products and services of variable and occasionally doubtful quality (Weinrauch, et al, 1991). The absence of skilled management talent compels the owners of such businesses to personally supervise numerous and varied operations and makes it difficult for them to truly focus on marketing requirements, strategies and plans (Weinrauch, et al, 1991). This often results in ad hoc or inappropriately formulated and implemented marketing initiatives (Welsch, 2003). The lack of financial resources on the other hand constrains such businesses from engaging in expensive advertising and brand building strategies (Welsch, 2003). Such constraints, singly and jointly, make it extremely challenging for small firms to compete effectively in the market place, not just with larger competitors, but also with the many small firms that clutter most business sectors that do not ask for substantial investment of capital, technology or other resources (Welsch, 2003).

Whilst small businesses, when compared to large businesses, do suffer from numerous internal and external disadvantages, which in turn challenge their marketing and sales efforts, they also have certain attributes that can, if effectively used, help them in the market place (Casson, et al, 2006). With small businesses largely being owner driven and having short chains of command, their decision making processes are often significantly faster than those of large businesses (Casson, et al, 2006). This enables them to be much more nimble in the market place and enables them to respond swiftly to marketing and customer needs (Casson, et al, 2006). The major strength of small businesses emanate from their owner managers, the majority of whom are entrepreneurial in nature and possess a number of traits that can help their organisations in various ways in the market place. Douglas Griest, (2010), found in the course of a review of 23 studies on comparisons of large organisation managers with small company entrepreneurs that such entrepreneurs were more likely to be creative, innovative, and open to new ideas than managers of larger organisations (Griest, 2010). Griest also found that entrepreneurs were expected to be more confident, tough, demanding, driven by needs for achievement and recognition, and aggressive in the market place. Entrepreneurs are also more likely to engage in environmental scanning for location of opportunities, develop strategies for the exploitation of opportunities and adapt to change, operate with flat management structures and make use of informal networks than large company managers (Griest, 2010). Many of them also have creative minds and are able to develop truly innovative and need fulfilling products and services (Griest, 2010).

It is apparent from the preceding discussion that the marketing challenges and environments of small firms are significantly different from those of large firms. Whilst the market competitiveness of small firms is seriously affected by the lack of different types of organisational resources, skills and strengths, they have the advantages of low operational costs, swift decision making abilities and the inclinations and tendencies to move with agility in the market place in response to customer needs.

Suggestions for Marketing Strategies for Small Firms

Owner entrepreneurs, as well as managements of small companies must essentially understand the importance of marketing for the performance, growth and competitive advantage of their organisations. Small business owners, as stated earlier, are often challenged by various responsibilities and the need to oversee different operational functions like production, finance and accounts (Wolff & Pett, 2006). They also have to regularly cope with the compliance needs of various legal and regulatory authorities. These pressures thus lead to a dissipation of effort, dilution of focus from important activities and confusion over prioritisation of managerial tasks (Wolff & Pett, 2006). Emergent issues in areas of production, HR and environmental management often consume substantial chunks of available managerial time (Wolff & Pett, 2006).

It is, in these circumstances, essentially imperative for managements to realise that marketing constitutes one of the most important of organisational areas, especially so in smaller organisations that have to constantly face competition from various small and large organisations in their business sectors and are otherwise constrained by a range of internal and external issues (Voss, et al, 2002). The managements of small firms must realise that effective marketing is important for increase of consumer demand, better consumer relationship management, improved organisational image, development of organisational and product brands, enhancement of sales and growth of profits (Voss, et al, 2002). Lack of attention to the marketing function can prove to be devastated to such organisations and result in reduction of consumer base, lack of consumer awareness, reduction in sales, profits and cash flows, lessening of competitive advantage and finally even to organisational decline and demise (Voss, et al, 2002). It is thus critical for small company owners to understand the importance of marketing for organisational health and wellbeing and prioritise their activities accordingly (Voss, et al, 2002).

It is thereafter important to focus on marketing and develop appropriate marketing plans that address the immediate and midterm strategic and marketing objectives of individual organisations (Welsch, 2003). Marketing plans are complex exercises that entail critical evaluation of external environmental conditions, competitive evaluation and analysis, market analysis and customer segmentation with the use of various tools like Porters Five Forces analysis, examination of organisational strengths and weaknesses and finally the development of appropriate marketing mix and marketing budgets (Welsch, 2003). Owners of many small organisations feel such exercises to be too detailed, elaborate and essentially suited for large organisations (Welsch, 2003). Such attitudes are however fundamentally erroneous and lead to the development of organisational and marketing strategies and action plans that are often impulsive and heuristic in nature and taken without information and analysis of important environmental and organisational factors that could strongly impact the working of such organisations (Welsch, 2003).

It is important for small organisations to engage in marketing analysis and develop marketing plans, even if they are conducted with lesser detail and greater simplicity than in large organisations (Pelham & Clayson, 1998). Such an analysis will help managements to understand the different environmental variables that can affect their business, the strengths and weaknesses of their competitors, their own strengths and weaknesses and available opportunities and potential threats (Pelham & Clayson, 1998). Such analysis will enable them to ensure that their marketing strategies do not run counter to environmental forces and that they can use their strengths to exploit market opportunities (Pelham & Clayson, 1998).

The development of an appropriate marketing mix is one of the most important objectives and outcomes of a properly executed marketing plan (Longenecker, et al, 2005). The marketing mix essentially details organisational strategies in areas of product placement, pricing, distribution and promotion (Longenecker, et al, 2005). The development of a marketing plan will help small business owners to focus on these individual elements and take appropriate decisions after consideration of the actions of their competitors, environmental conditions, consumer needs and available resources (Longenecker, et al, 2005). Many small organisations again feel the development of a marketing plan to be superfluous and irrelevant and engage in decisions that are primarily based upon hunches, perceptions and attitudes (Maritz, 2008). Such attitudes are, as stated before fundamentally erroneous and can lead to the overlooking of important issues and lead to adverse operational, marketing and organisational outcomes (Maritz, 2008). Greater stress on pricing and lesser emphasis on distribution and advertising is a common mistake of most small business owners who work on the assumption that the offering of cheap prices is the most important marketing strategy (Maritz, 2008). Such an attitude could however lead to lack of awareness about the product or service and its unavailability to customers who are willing to try them out (Maritz, 2008).

The development of a marketing plan also may compels small business owners, not only to realise and understand a range of marketing issues but also builds an appreciation of the differences between small and large organisations in different operational and marketing areas.

Small entrepreneurs and business owners must realise the completely different marketing challenges that face large and small organisations and adopt appropriate marketing mixes that are customised for their individual circumstances and organisations (Pelham & Clayson, 1998). Small business owners must focus individually on each separate element of the product mix. The first element of the marketing mix concerns product positioning and placement (Pelham & Clayson, 1998). Michael Porter in his theory of generic strategies states that business firms essentially need to decide between following a strategy of low cost or of product differentiation (Porter, 1998). Whilst Porter’s theory of generic strategies has been critiqued extensively with experts showing that it is possible for organisations in certain situations to differentiate their products as well as offer attractive prices, its tenets by and large hold good for small companies (Porter, 1998). Owners of small companies often feel that they can achieve competitive advantage because of their lower overheads. Such a concept is however fundamentally fallacious because it is difficult for such companies to truly achieve the scale economies that are possessed by larger organisations (Odaka & Sawai, 1999). Increased focus on reduction of costs thus leads to corner cutting and ultimately to lower product quality. It is thus eminently advisable for small business owners to position their products differently from those of their competitors through the adoption of appropriate product differentiation strategies that could stem out of unique product features or specific quality attributes (Odaka & Sawai, 1999).

Marketing experts feel that small businesses are ideally placed for the development of small marketing niches that allow them to focus on one specific segment (Van Der Hope, 2008). Niche marketing is primarily an extension of the differentiation strategy advanced by Michael Porter. It is ideal for small companies because it allows them to concentrate their organisational, operational and marketing resources on one specific market segment and develop a product that is different from others and services the needs of a specific segment (Van Der Hope, 2008). Whilst niche marketing is particularly suitable for small companies, it does have the risks of small market size (Van Der Hope, 2008). Demand in such circumstances is sustained by loyal customers rather than growing target segments, it is also not very conducive to achievement of scale economies (Van Der Hope, 2008).

Small businesses, apart from focusing on the positioning of their products and services must also formulate strategies for distribution and promotion (Hills, et al, 2008). Both distribution and promotion are expensive operations and concern numerous external agencies like distributors, retailers and advertising agencies (Hills, et al, 2008). Small businesses must carefully look at the implications and costs of various distribution and promotional strategies to ensure optimisation of organisational spends and efforts (Hills, et al, 2008). Many small organisations refuse to face these problems squarely and end up operating within very small local areas and without any effective promotional activities (Hills, et al, 2008). Whilst such constraints were undoubtedly true to some extent in the past, the advent of the internet and its progressive proliferation across the world has changed the distribution and promotion opportunities of small firms beyond recognition (Mohan-Neill, 2006).

Online marketing provides various opportunities to small organisations to distribute and promote their products (Mohan-Neill, 2006). Numerous small organisations across the world provide a range of services in different areas of life that are delivered online across the internet to different areas of the world (Mohan-Neill, 2006). Many organisations that do not have products that can be distributed online use the internet to take orders and payments and thereafter deliver products and services through physical means like mail and courier (Mohan-Neill, 2006).

The internet has also opened up numerous promotional avenues, not only through optimisation of website traffic through use of search engines but also through the use of numerous social networking alternative like facebook, my space, twitter and YouTube (Maritz, 2008). Owners of small businesses should carefully formulate, develop and implement distribution and promotion plans in order to take maximum advantage of the various physical and online options that are available in the contemporary age (Maritz, 2008). Marketing plans should be integrated, make use of different marketing communication options like advertising, physical promotions and PR and most importantly make substantial use of online facilities (Maritz, 2008).

Conclusions

This essay deals with the marketing challenges of small businesses, the ways in which these challenges are different from those faced by large organisations and the ways in which small businesses can optimise their marketing strategies and efforts. Small businesses are challenged by a number of marketing and environmental factors and are constrained by the various limitations of size and resources. Such factors are significantly different from those influencing the options and alternatives of larger organisations and need to be comprehensively examined and analysed for formulation and development of appropriate strategies for achievement of business success, organisational growth and competitive advantage.

Whilst small businesses do face numerous constrains and difficulties in marketing their goods and services, numerous opportunities have developed in recent years in areas of niche marketing and in distribution and promotion of their products with the use of online channels. It is important for owners of small businesses to carefully assess their environmental and organisational circumstances, identify businesses opportunities and make the best possible use of modern facilities for marketing their products, reaching customers and building strong customer relationships. Recent years have witnessed the phenomenal growth of small business start ups in the online domain. Whilst small business owners do face numerous difficulties and challenges thoughtful analysis of marketing conditions, prioritisation of work and effective use of available facilities can certainly help them in growing their business and achieving organisational success.