This paper proposes a framework that links the marketing strategy with performance of SME considering the internal and external forces with context of 4Ps (Personnel, Personal contact network, Process management and Public relations). Marketing mix strategy of SME is explored and the role of objective and subjective measures of SME performance is also considered with the conceptualization of each attribute. For future research direction, it is suggested to find how the internal and external forces influence the determination of marketing mix strategies of SME which will reap superior performance. Key Words: Marketing strategy, Marketing mix strategy, and SME performance.
Now a day’s business environment is exemplified with fierce competition which causes deregulations in markets, severe competition for existence in the markets and changes in the expectations of customer for firms’ products and services. Therefore, firms have to go through their business operations, search for the improvements in every aspect of their operations, changes in their products and services in order to survive and compete in the transition environment that give them competitive advantage and superior performance. Firms are changing their business operations through changing their marketing strategies. If marketing process is in line with marketing strategy adopted by the firm and practiced efficiently, growth can be seen in every aspect of business such as increase in sales volume, increase in return on investments, market share and expansion of firm in other related markets. According to Ghouri & Khan (2012, in press) if proper marketing strategy is implemented, it will add beauty in the business which results into the strengthening of competitive position of the firm and market share. Therefore, it is a challenge for marketer to show clearly the effectiveness of their marketing activities (O’sullivan, Abela & Hutchinson (2009). However, it is difficult to anticipate and track the changes happening in the firms’ marketing situation during the tenure of their marketing plans and even more difficult to predict the entire market changes (Dhanani & et al., 1997). Small & Medium enterprises development is important for economic and social growth as they are considered as one of the main contemporary economy engines (Grilo & thurik, 2006). They provide innovation through cultivating entrepreneurial culture in the economy and employment opportunities in both developed and developing economies (Hamilton, 2007, 297). SME’s are doing this by making blend of their own mix marketing with utilizing their available resources in their baskets. In the context of SMEs, many classical marketing concepts don’t work. Because of resources and capabilities limitations, managers/ owners of SMEs’ have different approach towards use of conventional marketing decision-making practices than larger firms managers (Gilmore et al., 2001).According to various studies that small firms have not been utilizing marketing as a tool for their business enhancements or supports (Berry, 2002). These businesses depend on their traditional sources (mentor, experience, friends, etc). That is why majority of SMEs faced profits downturns and are struggling for their survival in the competitive market. According to the researcher viewpoints, the main reason is the selection of improper mixed marketing strategies that effect on their firms’ performance (financial and non financial). This study tries to fill this gap which leads us to specific research objective and question as follows:
This study attempts to propose framework for elements of marketing mix strategy that affects the SME performance (objective as well as subjective). This study is based on literature review and tries to answer the following questions: To what extent are the marketing mix strategy understood and adopted by SMEs? What are the internal and external forces that affect the relation of mix marketing strategy and performance of SMEs?
According to Stasch & Ward (1989) Small firms practice marketing in such a way that limit them from entering into direct competition that’s why they were left with minimum strategic choices like working in niche spare by larger firms. Tactics and principles of marketing are universally same for large and small businesses (Reynolds, 2002) but academic research has been newly starts about the SME marketing practices (Davis et al., 1985). A small firm gives little insight into their marketing practices which are specific to them (Mackintosh and Tynan, 1994). In criticism Hills and Wright (2001) and Sui & Kirby, (1998) highlights about the lack of appropriate small business marketing theory. Dodge et al., (1994) suggest that lack of knowledge about the marketplace and marketing planning were significant factors that affect their performance. Empirically little attention has been given to find the operational planning among the small firms (Matthews and Scott, 1995). They illustrate that lack of resources limits the small and entrepreneurial firms from engaging into effective strategic planning activity. SMEs have different marketing style and unique firm characteristics (Blankson et al., 2006). Scase and Goffee (1982) demonstrate that generally small firms operates on day to day business and do marketing accordingly rather than planning well thought marketing plans for their survival in the business environment. Generally, SME’s depend on their personal networks for caring out marketing (Gilmore et al., 2001; Hill and Wright, 2001) or internet marketing (Chaffey et al., 2000) and e-commerce (Rayport and Jaworski, 2001) whose usage is becoming popular among all type of businesses even in SME’s. Churchill and Lewis (1983) and Scott and Bruce (1987) have studied growth models with description of business activities of small firms and explained the obstacles faced and subsequent marketing and business moves adopted by managers or owners of small firms. SMEs have different features like omnipresence of owner/ manager characteristics, uncertain business conditions and capital shortage (Gilmore et al., 2001; Hill and Wright, 2001). However, it is thought that SMEs were practicing marketing according to their industry needs and nature (Simpson et al., 2006).However, the questions about the relationships and use of marketing among Small businesses are still unanswered in the previous studies.
Marketing is under the focus of academia study since 1980s (Mavondo, 2000). In literature different definitions of marketing with different perceptive were found (Li et al., 2000). Marketing is thought as an art and science and managers had to utilize and plan a marketing program that fits the needs of their firms. They had to analyze the behavioral and environmental forces and then juggle and design procedures for marketing elements in their mix by keeping in their minds available resources. The small firms cannot apply the procedures of the big firms. With use of different aspects of marketing process small firms may sell the similar type of product as the big firms (Borden, 1984). However, implementation of effective marketing strategy gives benefits to firms to reach their specific market segment by utilizing available resources (Theodosis & Leonidou, 2003). Generally, marketing strategy is development of procedures followed by firms for facing competitive market situations and reacting towards internal and external forces that enables the companies to attain their set objectives and goals in the target market by utilizing all the aspects of marketing mix that is comprise of products, prices , promotion and distribution (Slater et al., 2009). Well integrated programs of marketing mix elements helps firms to get competitive advantage and superior performance (Orville & Walker, 2008). Therefore, the function of marketing strategy is to anticipate the nature, strength, direction and interaction between the marketing mix elements and performance of firms. Focus of marketing studies is the implementation of marketing paradigm on the business operations. McCarthy and et al., (2003) proposed four factor marketing mix: Product, Place, Price and Production as effective tools for the marketing of products. According to them, all marketing activities for products and services can be designed within the context of four main factors. This perspective did not acknowledge the varieties in the business activities and different needs of different businesses and consider all marketing dimensions as one (Bennett, A.R, 2000). Later on Magrath, (1986) introduced three Ps: Personnel, Physical facilities and Process management as well as Kotler, (2005) adds two Ps: Power and Public relations who affect the marketing strategy adopted by firms. Marketing processes and tactics are considered while taking decisions on number of forces that influences on their business performance. It seems easy to describe marketing process but extremely difficult how to practice (Kotler, 2005). It is considered that it is the efficiency of marketing managers to use mixed marketing for achieving the superior performance for their firms.
Previous studies on SME suggest four attributes which shape their marketing mix elements as owners/managers not use traditional 4Ps(Place, Product, Price and Promotion) like MNCs. Personnel: SMEs owners/mangers have influence on marketing activities (Leppard and McDonald, 1991) which means that for examining the marketing practices of SMEs not only the firm characteristics but entrepreneurial characteristics of owners need to be considered. Personal contact network: Hill and McGowan (1996) defined a personal contact network as “The relationships or alliances which individuals develop or, indeed, may seek to develop between them and others in their society”. Normally small firms rely on their personal contacts to carry out their marketing activities (Borden, 1986). For small firms and entrepreneurs, it is natural to develop personal contacts rather than doing through marketing planning (Dubini and Aldrich, 1991). Public relations: SMEs focus on the matching their product quality with exact requirements of their customers for building long term relation with them who will use positive words of communication for SME products to others. Process management: SMEs focus on the performance of their work rather than taking time for making strategies and try to preserve with their business and built customer equity.
Based on Resources based theory and general system theory factors are identified.
Marketing Network Process (MNPs) refers to the networks developed by owner/managers of SME for carrying out their marketing activities which creates positive effects on the firms’ performance (Carson et al., 2004). Managers were using networks to know about the changing market situations and relationships at inter-organizational levels of B2B markets (Olkonnen et al., 2000). Entrepreneurial firms with well networking systems may experience higher growth (Zhoa and Aram, 1995) and superior performance (Baum et al., 2000). In the literature, Marketing networks were considered as source of facilitation for carrying business operations in the dynamic economies and firms’ strategic choices and performance (Batjargal, 2003; Batjargal and Liu, 2004). According to Lumpkin and Dess, (1996) Entrepreneurial Orientation is described as “the processes, practices and decision making activities that lead to new entry”. It let the owner/ manager of firms in developing their strategies and running the business operations accordingly. Several studies found that firms with entrepreneurial orientations show superior performance (Covin et al., 2006; Wang, 2008) than firms without such orientations. Firms doing market search take benefit from entrepreneurial orientation (Slater and Narver, 1995). Matsuno et al., (2002) demonstrated that entrepreneurial orientation derives the owner to increase his market knowledge in order to grasp the opportunities available in the changing market demands. According to Aekar, (1989) Distinctive Capabilities were firm owned skills and assets, used for getting sustainable competitive advantage. Small firms focusing on developing their distinctive capabilities survive in the competition and have to consider them while making their marketing strategies which will leads towards their superior performance in the market (Man and Wafa, 2008). It is the duty of managers to investigate resources and capabilities that can be developed and acquired for growth and performance (Partanen et al., 2008). One of the study conducted on Malaysian SMEs revealed that distinctive capabilities reap superior performance and suggested to give support and guidance for enhancing them for their performance (Kim & Wafa, 2008). According to Kholi & Jaworski, (1993) Market Orientation is “the organization-wide generation of market intelligence pertaining to current and future customer needs, the dissemination of the intelligence across departments, and organization-wide responsiveness to that intelligence”. It is the implementation of marketing concept rather than organizational philosophy. Firms with better level of market orientation will experience innovation in their activities, betterment in firm competitiveness and profitability (traill and Grunet, 1997). Many studies suggest that market oriented firms were in better position to innovate, and respond successfully to environmental challenges that give them competitive advantage and superior performance (Atuathene-Gima, 1996; Appiah-Adu and Singh, 1998). According to Blankson and Cheng (2005) marketing is use to analyze and anticipate the expectations of customers needs and try to perform them better their competitors for getting organizational success. Practical application of marketing orientation requires firms to keep an eye on ever changing customers’ desires and line the marketing strategy thereof that leads towards superior firm performance (Day, 1990). According to Dewar and Werbel, (1979) omnipresence of owners will leads towards Centralization in authority which effects the whole organization is one of the inherent characteristic of SMEs. Two schools of thought emerged due to difference in points. Hofer and Schendel, (1978) school of thought argued that well planned strategies were the outcomes of centralization in authority and firms will utilized their resources efficiently. Contrary to this school of thought, other school argued that centralization will leads towards influence of some personnel on the organization affairs (Eisenhardt, 1989). According to Leitao and Franco, (2008) Individual Entrepreneurial Capacity comprises of collectively three dimensions of Human capital (Individual characteristics, Managerial Push and Managerial Pull) and four dimensions of organizational capital (Individual entrepreneurial behavior, Collective entrepreneurial behavior, managerial practices and Organizational culture) would be considered while developing the strategies and the performance of SMEs. Previous research supports that human capital have positive impacts on performance (Van Praag, 2003; Bosma et al., 2004) and organizational capital is most important determinant of growth and performance of firms and their level will be considered while making strategies ( Lev and Radhakrishnam, 2004). According to Narver and Slater (1990) Organizational Culture is described as culture in which employees are devoting their potentials for creating superior value for the customers. Kohli and Jaworski (1990) identified three organizational factors: Top management support, interdepartmental dynamics and organization systems. Clear signals from Top management is important for tracking the changing needs of market and customers and then grasping the opportunity by introducing innovate products (Kohli and Jaworski, 1993). Presence of formal and informal contacts between the departments and employees and sharing of market intelligence information timely will help in increasing organizational performance and firm growth. They further argued the organizational systems like low formalization and less departmentalization will create market oriented culture in small firms. Employee satisfaction with the organization systems will lead towards developing long term relation with customers which benefit the organization. According to Webster, (1988, p. 38) “the key to developing a market driven, customer – oriented business lies in how managers are evaluated and rewarded”. Firms have to consider the capital resources which will shape the marketing strategies. SMEs’ have limited resources which limit them to depend on their reliable sources (friends, family, experience, etc).
Market Competition refers to level of competition faced by firms in product market for seeking competitive advantage and growth (Walley 1998, 86). Those firms that are keeping eye on the level and intensity of market competition are in better position to take advantage of it then their competitors (Slater and Narver, 1994). Though for firm’s survival severe competition poses to be a threat but at the same time it can drive firms towards improvement in their efficiency and productivity and firm performance (Wood and Bhuian, 1993). Firms neglecting the competitive forces effects will have to face downturns in their profits, market share and market position (Day and Wensley, 1988). Kohli and jaworski, (1993) termed it market turbulence: degree of change happening in the needs and preferences of customers and suggest that firms operating in transition markets have to modify their products and services which will give them superior performance. According to MaNamara and Watson, (2005, 184-190) Technological forces defined as “The totality of means – means such as knowledge, methods, materials, and tools used to achieve practical outcome. A way for the company to establish work methods, work patterns, and information structures…It is the tools and the means, but not the primary goal or results to be pursued”. It is a tool used by firms for emerging from dust to become star in the product market. Technology is considered as one of the important factor for sustaining competitive advantage which reaps superior performance to firms (Aaby and slater, 1989) as firms working with obsolete technology will fade from customers’ minds. Environmental forces create challenges and opportunities for enhancing organization performance (Walter et al., 2008:530-540; Pearce & Robinson, 2007:83-114). Cavusgil and Zou, (1994) found that external forces have positive relation with firm strategies and performance. Researchers working on market orientation mentioned that market environment will strengthen the relation between antecedents of market resources and firm performance (Cagodan, Diamantopoulos and Siguaw, 2002; Jaworski and Kohli, 1993; Slater and Narver, 1994).
According to Investorwords (2011) performance is the outcomes of investments made over the period of time. Lumpkin and Dess (1996) mentioned that performance would be considered as multidimensional construct instead of single dimension or defining it in narrow range. In research measures like market share, sales growth and profitability would be considered for performance. Especially for privately owned businesses factors like overall satisfaction and non-financial goals of owner would be considered for performance evaluations which are consistent with Zahra (1993) view point that for organizational performance both financial (objective) and nonfinancial (subjective) measures would be considered. It is important to measure firm performance for taking necessary decisions for future (Roussel, 2005) but it is hard to measure SME performance due to its inherent characteristics and market turbulence (Simpson et al., 2006). Many researchers have used financial (Objective) and non-financial (subjective) measures. It is easy to understand and calculate financial measures (Antieno, 2009) but it is difficult to collect financial data relating to performance from SMEs because of owner/mangers reluctance to make it public to others (Garg et al., 2003). Though such data is kept secret from public; it is hard to believe on the authenticity of found data. Sometimes some business specific factors affect on the financial performance measures which create confusion and give misleading results for making comparison in different industries of SME. In contrary to financial measures, mostly subjective measures were used in SMEs for doing comparison among different industries (Haber and Reichel, 2005). Different studies reported measures like return on investment, return on assets, return on sales and growth rate for computing SME performance (Sa’ari, 2005). Framework of marketing strategy -SME Performance
Considering the sustainable contribution of SMEs in the country economic development, marketing researchers have to develop small firms marketing theory and investigate the relation between phenomena of marketing -performance in both directions. From the view point of firm owners and government, it is good to practice marketing as a tool for getting competitive advantage in the market. SMEs can get benefit from doing marketing and will not consider it worthless activity. Marketing strategy shaped with affecting forces will help the SMEs to attain their set goals and objectives which reap superior performance and increase in market share. Governments have to support the SMEs in facing the forces and have to line their policies accordingly. This study studied the direct relation of marketing strategy with its contingent forces (internal and external forces) on objective and subjective performance of SME. There is a need to empirically test this framework in the context of SME.
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