Marketing for SMEs

University Degree Business and Administrative studies

Introduction

This essay is aim to investigate the proper way for entrepreneurs and small and medium businesses (SMEs) to approach marketing. The typical marketing is very useful but it seems to be inefficient for SMEs. The boundaries of SMEs become visible. Smaller firms have several disadvantages upon larger firms such as limited finance, limited human resources and the complexity to access marketing. In addition, business owners in SMEs have limited knowledge and experience in marketing scope. Therefore, the typical marketing model appears to have limit for them. However, the formal marketing plan is still be a good tool to think strategically for any businesses.

The marketing plan suggested is the adaptation of familiar marketing model which came from the investigation in entrepreneurs and SMEs characteristics combines with the standard marketing activities. The plan suggests 2 steps to follow. The first step is Entrepreneurial marketing competency. This step focuses at business owners or managers. The next step is Blue Ocean Strategy which is quite new strategy objects to find new markets rather than competing in the same markets as existing companies. In other words, the strategy aims to make noncustomers become customers.

The essay is included the common problems or limitations from the adjusting plan. The limitations are entrepreneurial competencies and the plan is just an assumption. In addition, it includes the recommended to overcome those problems. They are educations and consultancies and personal communication network (PCN).

The report is submitted in part fulfilment of the marketing module in MSC Entrepreneurship course

Marketing concept

“Marketing research, product development, distribution,

pricing, advertising, personal selling and others –

designed to sense, serve and satisfy customer needs

while meeting the firm’s goal are the main elements of marketing activities stated by Kotler, et al., 2005”

These key components of marketing help a firm to develop business plan and strategy. Marketing research is included information about customers, competitors and the market future (David A. Aaker, 2008). The product or service development is oriented to make it adaptable for the changing circumstances (Dr. Frances Brassington, et al, 2007). For the successful distribution Dibb, et al. (1997) suggested that products or services should be sold in the right time, right place with variable prices. Promotion can be one tool to increase public awareness in order to reach sale target of the firm.

Edward and Martin (2007) confidence that it is worth to carefully look at detailed information and do some research about customers and target markets. Kotler, et al., (2005) concluded that the actual concept of marketing is needs, wants and demands. Human needs assume the form of wants and power of wants becomes demands. People satisfy these with products and services. Understanding customers and participate their wants is a core of effective marketing (Jim Lynch, 1994). Therefore, so as to succeed and reach the firm target, entrepreneurs should focus and maintain an increasing of customer satisfaction (Edward and Martin, 2007).

There are many strategies and planning tools for marketing that help to obtain greater profit and reach target sales. Examples of these useful tools are Ansoff product-market matrix, Boston matrix, customer matrix and SWOT analysis (MAUS business marketing, 2007, please see appendix: 1).

Nevertheless, David, at al (1995, P11) debated that “Research and the ensuring literature in marketing and entrepreneurship in SMEs have rarely overlapped”. It is likely to separate marketing and entrepreneurship in two separate disciplines. Dr. M Simpson and Dr J Padmore (2005) confirmed that marketing concept for small and medium sized enterprises (SMEs) seems to have limitation and qualitative in nature.

Due to the definition of an SME used by the South West Ventures Fund, SME is a company that has less than 250 workers and either has turnover fewer than about £24 million or total balance sheet less than £16 million. Also, the firm has to have 25% or more of the capital or the voting rights are not owned by one enterprise, or jointly by several enterprises falling outside this definition of an SME. As SMEs defined in small size, they generally lack of resources in areas of marketing knowledge, administration skills, finance and teams or experts. Moreover, they have lesser employees and fewer customers (Sean, 1998). They are more likely to be generalists rather than specialists and complex marketing theories may not useful for small businesses. In addition, marketing theories might not help to understand the markets of the firms said by Dr. M Simpson and Dr J Padmore (2005). In term of entrepreneurs, they are likely to dominate all decision marking of all the enterprise which likely not to have structures and processes. They are non-sophisticated and simplistic in nature (David, at al, 1995). The strongest criticism for the marketing theory for SMEs is from Flamholtz (1990). He said that the concept is speculatively theoretical and normative. It is not from empirical base. The concept should include some common senses to access market to increase sales and develop small firms.

However, Siu and Kirby, 1998 debated that small businesses still need specific knowledge about marketing theory and knowledge of strategic marketing is needed. David, at al, (1995 p86) said that the standard and formal marketing activity is unlikely to accept. However, if marketing appear to fit any instantaneous impact on company performance, marketing would be very useful tool to drive small businesses. On the newsletter of EFMD’s Entrepreneurship, Innovation and Small Business Network (Issue 2/2005) stated: “Strategy is not a planning function but the soul of the business and it is essentially the capacity to think strategically at all times”. Therefore, even small companies should view marketing as an important scheme but the marketing used need to be specific on entrepreneurs and SMEs. Analysing entrepreneur characteristics and SMEs would help to declare the proper concept of marketing for SMEs.

Analysis of entrepreneurs and SMEs

Consider strengths of SMEs, the advantages of entrepreneurs in smaller firms upon larger firms are loyalty, customer closeness, flexibility, fast response, opportunity focused and cheaper start-up.

Loyalty: employees in small firms are normally closer to the lead entrepreneur than large firms. As the companies have lesser workers so they have more chance to meet the leads. Having said that some small company owners know family’s employees and they sometimes helpful when employee’s families have problems. This ensures in increasing worker loyalty and commitment.

Closeness: entrepreneurs in SMEs usually close to customers. This is because they have shorter lines of communication to their customers. For instance, people in Thailand seem to go to small shops around their houses which they have good relationship with the sellers. Cromie et al (1995, P7) noted that entrepreneurs normally know their clients individually and this relationships result in benefits in term of customer loyalty and higher level of customer satisfaction.

Flexibility: SMEs are usually more flexible to customer reactions. For instance, buying stuffs from small shops sometimes customers can bargain prices while goods in large stores have fix prices. Furthermore, small firms have fewer processes due to its sizes. Most decisions come from the business owners or managers.

Fast responses: as a result of closeness from entrepreneurs to customers, entrepreneurs often understand and know what customer wants. Consequently, they usually have faster reaction. Again, the size is small so decisions normally depend only on the lead entrepreneurs and the determination can be judged faster. In large firms, they ...

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Opportunity-focused: Carson et al (1995) noted that because of entrepreneurial nature, SMEs seem to have more opportunity-focused. Due to the tendency of closeness to market and clients of SMEs, they tend to search and utilize any opportunities they have.

Cheaper start-up cost: it is obvious that business owners do not have to spend a lot of money to hire many staffs due to its size and pay for franchises like chain businesses compare to big companies.

The weaknesses of entrepreneurs in SMEs are:

Limited knowledge and experience: business owners in SMEs generally are centre of the companies. They generally use their own knowledge and experience in both managerial and technical to manage the businesses. When a business grows to a certain point, further development will require the entrepreneur who has enough knowledge and experience.

High risk: any businesses are in a high risks category in nature. Owners cannot be sure that their products can be sold. They just use common senses and follow some typical business plans.

Limited human resources: companies usually want quality employees due to the fact that human talent is one of the best sources of competitive advantage (Mourdoukoutas, 1999). However, SMEs have small in size and they have limited budget to hire people so they are a team of small number of people. This probability limits the company performance.

Limited finances: Setting up any businesses is very expensive. any entrepreneurs have to pay for it. It can be debated that entrepreneurs may rich, have supported fund from family or even inherit from family’s business. Nevertheless, those are only in minority case. The majority of entrepreneurs still loan money to start businesses. They have to think wisely to manage their money

Complexity to access markets: entrepreneurs in SMEs have to pay every step to run the businesses. They are high action costs such as shop rent, market research, distributions, suppliers, etc. This results in difficulties to reach markets.

Market access for entrepreneurs and SMEs

Once the characteristics of entrepreneurs and SMEs have identified,

2 steps are identified as a base of the marketing plan.

The first step deals with the business owner’s skills or competencies. They need to have some experiences and based knowledge of their product and services. They should have some background in businesses. The study form Huck et al (1991) evidenced that the entrepreneurial competencies investigation is required for the succession in SMEs.

The second step is Blue ocean strategy. As shown in entrepreneurs and SMEs weaknesses such as limited resources including knowledge, skills, financial limited and limited team experts whereas large companies have sufficient resources. This is why small companies meet difficulties while swimming against large firms in existing market space. Blue ocean strategy is the suggested way to survive in market space for SMEs.

As illustrated in figure: 1, entrepreneurs need competencies to access every step of marketing plan. Hannon and Atherton (1998) stated that personal competence of an entrepreneur affects their level of strategic awareness.

Figure 1: Marketing plan for entrepreneurs and SMEs

Step1: Entrepreneurial marketing competency

For the entrepreneurial competency, it is considerably important skill the business owners must have. This can be discussed in term of internal competency and external competency. Internal competency can be considered as background knowledge and experience while external communication is described as marketing communication.

In the scope of internal competency, it considers only entrepreneurs themselves. Entrepreneurs need to have basic knowledge of their products, services, market trends, firm activities, competitors and even customers (McGowan, 1995). The skills bring business owners to access good decision-making process in entrepreneurial marketing. For example, entrepreneurs always use their knowledge to sell products, setting prices or even exiting the companies. This can be obtained both from institutions as well as work experience. However, it is not important that how much they are educated or how they have grown up since this skills can be built up. The suggested 10 competencies of entrepreneurs from Singh (2006) are:

Ability to understand problems which may occur in a company
Good decision-making
Capability to understand that everything is in dynamic system; it always adapt and change all the time.
Understand that the dynamic system is a core to solve any problems
Honesty and sincerely to all customers, suppliers and all the government organisations
Understand that the selection of product is important and the marketing strategy of this is marketing mix (4Ps) which are product, price, place and promotion
Capability in communication and negotiation
Have industrial experiences
Ability to handle problems; knowledge of running through the business

10.Have trading experiences

For the external competency, Carson (1995, P.188) stated that “communication is an essential competency for entrepreneurial marketing”. In this term, entrepreneurs should consider communication in both inside and outside of the firms. Inside of the companies refer to staffs of the firms. Business owners should act as professions to communicate their employees and treat them equally to take the whole team to obtain desirable targets. Winslow argued that the easiest way to manage staffs is leading by fear. This method is even better in mass populations. Nevertheless, Machiavellian Theory debated that the better way to communicate with staffs is to be loved and respected while feared and respected is the second choice. Therefore, entrepreneurs should make employees see the owner’s value and make them respect rather than afraid of them.

Outside communication refers to clients, suppliers, distributors, markets and entrepreneur’s contact network. Business owners should act as formal and informal entrepreneurial depends on cases. For example, in the case of hairdressers, they can communicate informally as they need to be very friendly to customers while talking business among investors need to formal.

Step2: Blue ocean strategy

In the market world can be divided into red oceans and blue oceans. Red oceans refer to the existing market, present competitors, industries and same customer groups. Players in red oceans know all the strategies and game rules. As a result of fast expanding of investors in this market, red oceans seem to a difficult place to earn profit. On the other hand, blue oceans seem to have non-boundaries. It is defined as an untapped market, demand creation and space for profitable growth (Chan Kim, 2005). The research from 108 companies found that there are 86% in business launches which make 39% of total profits within red oceans. In contrast, there are only 14% of the launches in blue oceans but their total profits reach 61% (Chan Kim, 2005).

As shown above, the entrepreneurs in SMEs have some limitations and some disadvantages compare large firms, the business owners have limited knowledge and experience as well as the companies have limited resources and meet complexity to access markets. Consequently, blue ocean strategy would be a solution for smaller businesses. If entrepreneurs in SMEs want to go beyond this fierce competition, they should consider blue oceans strategy. They should concern about value innovation, competitors, access to customers and check lists.

Stage1: Value Innovation

Chan Kim (2005) stated that blue ocean strategy is a result of value innovation. Value innovation highlights on both value and innovation to create a product. Value without innovation would be only value produced product. Similarity, innovation without value would be only technology knowledge. Innovation helps to increase value of products and makes them outstanding in the market place.

An example of value innovation product is Mr. P, an innovative product designed by Propaganda Company in Thailand. This creative product is produced with a sense of humour base. The company just set up in recent years but its products are well-known. They are sold in many countries such as Singapore, Malaysia, Japan and United Stated.

Figure2: Innovative product: Mr. P

Stage2: Competitor analysis

Firstly, companies need to look at the same/similar market space to see and analyse competitors. To do this Jobber (2001) suggested that the firms should seek to answer five keys questions which are:

Who are our competitors?

What are their strengths and weaknesses?

What are their strategic objectives and thrusts?

What are their strategies?

What are their response patterns?

Then, the firms should act as purchasers or users in the same customer group. Being a customer helps to deeply understand not just assumption the customer needs. Why customers consume company/competitor’s products. It is also the key to investigate the feeling of customers; the first time they see the products or services, during they use them and the feedback after use. This can use for develop the products to exact the customer requirement.

Stage3: Access to customers

From Blue ocean strategy book, Chan Kim (2005) defined customers as noncustomers in blue oceans and categorized them into 3 groups. The first group is noncustomers which is closest to the market. They are nearly to be customers but not yet to be. This group of customer group are searching for better product or service options. The second group is noncustomers who reject company’s offering. This type of customers understand objective of the companies but they choose to reject the entire company offers. The last group is noncustomers who farthest from the market. They do not realize the value of the companies or do not even know the company existence. When these noncustomers are analysed, the firms would choose possible target group. Then, the firms would try to understand them using some common senses.

Figure 3: Three customer groups in blue oceans

Stage4: check lists

The check lists use to make sure that the businesses will go successfully. It is a type of re-think process for the companies to confirm the correct products or services, price and plan are going well.

Firstly, the companies have to re-think that the products or services created are really had their own values and worth enough for people to buy it or not. If individuals act as purchasers and they say the answer is “no”, they have to go back to stage 1 and thinking of value innovation product again.

Secondly, the firms should consider about quality and price of the product. Balance those two and see how much they can make profit. If the profit is too less, Chan Kim (2005) suggested the firm should re-think about the products rather than set higher product price or reduce cost production as they normally decrease the value of the products. If the quality and price cannot be met, the firms should go back to

stage 1.

Finally, the companies should set the response patterns. Entrepreneurs should look back to analyse the companies and see the product feedbacks so that they can prepare the second plan or strategy when something turn wrong or distort from first setting plan. When something surprisingly happened, the firms could manage them without being panic-stricken.

Limitations

Limited competencies of entrepreneurs

Technologies are always changing and competing companies are always adapting their products and services. Large companies have enough resources to follow those changes. In contrast, entrepreneurs in SMEs mostly use their own competencies to run businesses. Consequently, their competencies could limit the business progress.

Baker (2003) stated that one of the major influences in marketing of SMEs is the leaders. Having said that traits, knowledge and experience of entrepreneurs define the business style. Since business owners in SMEs normally are a central of the companies, all of the entrepreneurs’ characteristics result in illogical decision making. Sometimes when they think that their decision is good and correct but actually, it might not be good as they think. They may accidentally make a wrong decision.

The strategy is all about assumption

The marketing plan is ideology. It is an abstract thought that use some common senses and example of some typical successful businesses. Actually, no one guarantee that which products or plans would really work.

In the case study of Dragons’ Den TV program, there will be a candidate pitching their own invented products or services to 5 millionaire business persons. Those business people have a lot of knowledge and experiences in many types of businesses. They will justify the products to either give some advices to improve products or determine to become shareholders of those companies. Most People think that what those successful persons judge are finalise and always correct. However, there is one company introduced “Thermaskirt” broadcasted on Episode Seven (01.09.08). It is a kind of heating system designed to resemble a skirting board to those dragons. The company asked for an investment of £150,000 in exchange for a ten per cent stake. The product had not only been rejected when pitching the product, the dragons was guaranteed that the product could not be sold and the entrepreneur could not success. The dragons suggested that the entrepreneur should not invest in the product. Nevertheless, the entrepreneur did not believe, he has become millionaire after.

Figure: 4 – Installation procedure of Thermalskirt

Recommendations

Education and consultancies

The thesis from Chinintorn Nakhata (Bangkok University) stated that entrepreneurs need to emphasize the importance of higher education as the lower level of education results in lower competencies. There is no one knows that how much knowledge and experience people need but it is better to know as it is one of the good decision making base. Even successful entrepreneurs are still endeavoring to develop their skills.

In case of young entrepreneurs that do not have experiences and do not have any business background but they want to start-up a business. They may need to find a good consultant. There are some consultant services available such as Tigerridge Consultancy Services Ltd and Consultant Services Group Ltd. In the former company the firms can consult in IT infrastructure, IT systems, computer works, software and hardware sales and installation, etc. Nevertheless, they have to beware of the consulting companies to take the firm’s secret and bring the ideas to become their own ideas. The firms may either sign the agreement form or use some legal right such as intellectual property, patents, trademarks and copyrights to protect the inventions.

Personal contact network or Personal communication network (PCN)

Due to entrepreneur’s characteristics, they tend to have exact-routine to serve customers. The owners normally are a central of the companies. They have flexibleness and tend to close to their customers. They have their own personalised differently among each company to serve products and services to satisfy customer needs. Since entrepreneurs in SMEs have high degree of informality and lack of planning (Carson, 1995) and PCNs are non-structural and no conventional plans, PCNs should be consider when the products first entry to the markets.

PCN stands for personal contact network (Carson, 1995, P200) or personal communication network (dictionary). This means individuals can communicate to their customers by face-to-face, on phones, chat on internet or any types of communication that have two or more people contact directly to each other (Kotler, 2005). Although there is no academic research to find the exact number of questions about

SMEs and their relationship with marketing, Siu and Kirby (1998) gives an experiment to proof that in an ad hoc manner as a result of a general absence of an approach to the subject. Carson (1995, P200) confirmed that PCNs are uniquely useful for entrepreneurs since the pioneering small firm is wholly dependent on the owner/manager for its direction and focus. Using of personal contacts is the way of doing business in SMEs.

Personal networks can be an experimental group. As the products are new, the entrepreneurs cannot confirm that noncustomers from the chosen target group will become customers. Entrepreneurs can give these products to their own network to see the feedbacks and some criticisms straightaway. In addition, it is the cheap way to do market research. They do research at the same time as they sell products. Moreover, it is the way to create a favourable image for the entrepreneurs and the companies. It helps to increase trusts and credits of the firms. This is also good for expanding companies in the future. Consider the case of entrepreneurs who have limited finances, they can introduce their product or services to their network and ask them to invest the product.

In addition, PCN can be use as a type of advertising. Word-of-mouth is considerable effective in many product areas (Kotlet, 2005). With this method, entrepreneurs can get messages to potential customers directly (Edward and Martin, 2007). It is sometimes the cheapest way to contact customers. Consider shopkeepers in small shops easily communicate directly to their customers and ask what products or services they want. On the other hand, sellers in large supermarkets only sale products follow their obligation, seldom ask for customer requirements. The communication with customers is also help to build the relationship between the companies and clients. This helps to understand their customers more so as to serve them exactly. The companies can check that what level customers take interest to the products. They can see the feedbacks straightaway.

Furthermore, PCN is considered as a bargain-able method. Between entrepreneurs and customers can bargain for a fair price of the products. (ภาสกรจรัส, 2008)Any trading will be ended if both sellers and customers agree at the satisfied price. When people bargain price can refer that the company set product price too high. This can be one method to balance price, quality and satisfaction.

Conclusion

The formal marketing method is very good to help companies to improve business plan and drive any businesses. It had been note that it is better to know the actual customer needs and marketing strategy would help to understand how people satisfy with products or services. It is a good to use as a plan base for businesses. However, the typical plan is only good for professional, managers and owners in large companies. In the case of small companies, marketing seem to be very limited. SMEs face with many problems such as limited knowledge and experience, risks, limited human resources, limited finance and complexity to access markets. Therefore, original marketing method seems to be a broader scope of small businesses. However, it is good to use a marketing plan as a base. The conceptual plan is a base knowledge that any businesses should know. Also, it would be very useful method to drive businesses. Accordingly, for entrepreneurs and small businesses, the suggested method to access marketing is the adapted conventional marketing plan. It is the combination between entrepreneurs and SMEs characteristics and the principle of marketing.

The characteristics of entrepreneurs and small businesses were investigated compare to large businesses in term of advantages and disadvantages upon them. The advantages are closeness to customers, flexibility, fast responses, opportunity-focused and cheaper start-up cost compare to big companies. On the other hand, small companies are limit by knowledge and experience of entrepreneurs, risks, human resources, finances and complexity to access markets.

The suggested marketing plan for entrepreneurs and SMEs divided into 2 sections. The first section is the competencies of entrepreneurs. They need to have skills to run business every step from starting to existing businesses. The second section is Blue Ocean Strategy. It focuses at new markets so that small companies do not have to fight with large companies that have enough financial and human resources. The strategy includes 4 steps to make sales. They are value innovation, competitor analysis, and access to customers and check lists.

The suggested plan has several limitations. The plan limits by competencies of entrepreneurs. Due to the difference in decision-making process of each entrepreneur, the characteristic of them define the business styles. When businesses reach to a certain point,

competencies of entrepreneurs will reach its limit. This makes the stop or slowdown in businesses. In addition, the plan is just an assumption. It is an abstract plan which no one can proof that it will work or not.

The recommended to improve the marketing plan is the educational and consultancies. The entrepreneurs should keep study all the time to get more and more knowledge and experience to expand the companies. Personal communication network (PCN) is also the way to improve the plan. This method can be done by using connection of the business owners. It allows companies to see some criticisms and feedbacks of innovative before the innovative products enter to the actual markets.

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Appendix

Appendix: 1 – Ansoff product-market matrix, Boston matrix, customer matrix and SWOT analysis

Ansoff product-market matrix

Figure: 5 – Ansoff product-market matrix

The Ansoff product –market matrix helps a firm to access marketing or business development strategy. The sections shown in the figure 5 refer to different opportunities and downsides for each organization. Market penetration refers to the development in sales of the present products to the present market. Product development means the improvement or seeking new products in the present market. Market development refers to the extended market for the present product. Finally, diversification will be occurred when a firm takes new products into new markets.

Boston matrix model

Figure: 6 – Boston matrix model

The Boston matrix model helps a company to access existing products in market potential field and also provides implied strategy in each category. The Boston matrix is a tool to analyse a portfolio of products which bases on market share and market growth. It is divided into 4 areas; stars, cash cows, question marks and dogs. Stars are high growth products in the same markets, cash cows are low-growth products in a high market share, question marks are low market share products which operate in high growth markets and dogs means low market share products drive in low-growth markets.

Customer matrix model

Figure: 7 - Customer matrix model

SWOT analysis

Figure: 8 – SWOT analysis

This analysis helps to see competitors and the firm’s strengths (S), weaknesses (W), opportunities (O) and threats (T). Also, the company can look at a chance to make weaknesses become strengths and threats become opportunities.

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