Role of marketing strategies in the success of small businesses
Role of Marketing Strategies in the Success of Small Businesses Atish Chattopadhyay*New leaders are born every day and most of them have the entrepreneurial spirit in them. But howsuccessful will they be? Well, they must first know their domains. They must identify the key areas ofinterest to the customers, time and cost to reach them and must be sure of the future prospects of thegrowth of their business. Marketing concepts when well understood and properly implemented makea successful enterprise, in turn capable entrepreneurs. E ach day, thousands of individuals ask the difficult question,"Should I start my own business? " . When queried, 85 % of the populace answered that they would like to be in business for themselves. The driving force behind this desire to start a new venture is the desire to be onesown boss and be independent. But there is no definitive measurement developed that allows thedetermination of whether a person can be a successful entrepreneur or not .The process of starting anew venture is embodied in the entrepreneurial process. The process has four distinct phases- Identification and evaluation of the opportunity Development of the business plan Determination of the resources required and Managing the resulting enterprise Opportunity identification and evaluation is the most difficult task. Most entrepreneurs do not haveformal mechanisms for identifying business opportunities- they consider various sources: consumersand business associates, members of the distribution system and technical people. Also technicallyoriented or qualified individuals often conceptualize business opportunities while working on otherprojects. The next step in establishing a new business is the formulation of the business plan. It helps theowner to crystallize and focus the ideas. It helps in setting objectives and yardstick against whichperformance is monitored. It also acts as a vehicle to attract external finance needed by the people. It isused to convince the potential investors.1
The planning process is shown diagrammatically 2 ENVIRONMENTAL ANALYSIS :THREATS AND OBJECTIVES MARKET : product position and prospects COMPETITION : traditional , new firms , new industries TECHNOLOGY : changes and development THE ECONOMY : growth , inflation , law OPERATINGNE EDS PERSONAL BUSINESS STRATEGIES products OPERATING OBJECTIVES OBJECTIVES AND TACTICS manpower BUDGETS finance FEED BACK LOOPS BUSINESS ANALYSIS : STRENGTHS AND WEAKNESSES PRODUCT : product/service, price, promotion, place PROFIT/CASH FLOW : its sources and uses PEOPLE : management and key skills FACILITIES : age and utilizationThus, a business plan should ideally Describe every aspect of a particular business Include a marketing plan Clarify and outline financial needs Identify potential obstacles and alternative solutions and Serve as a communication tool for all financial and professional sources. A business plan is a major tool which guides the formation of a venture as well as primarydocument needed to manage it. It is the process that begins when the entrepreneur gathers informationand then continues as projections are made, implemented, measured and updated.3 Thus it is anongoing process. See Annexure for a complete outline of a business plan. As can be seen from the above plan, two major parts make up the marketing section. The firstpart is research and analysis i.e. who will buy the product or in other words identification of the targetmarket. Measure of the market size, trends and estimated market share one expects to capture. Thesecond part is the marketing plan which includes the market strategy - sales and distribution, pricing,advertising, promotion and publicity . Identification of the advertising plan and cost estimates tovalidate the proposed strategy.
An entrepreneur needs to consider the following points with respect to marketing while planning abusiness: The customer of the new venture. Customer’s decision making process about buying the product or service. The degree to which the product or service compels purchase for the customer. The pricing of the product or service. The strategy to reach the identified customer segment. Cost (in time and resources) to acquire a customer. Cost to produce and deliver the product or service Cost to support a customer. Ease of retaining a customer. How entrepreneurial small firms can achieve and sustain market growth is summarized in variousmodels proposed by Coopers & Lybrand (1994),Cranfield Study (Burns 1994), and German versus UKfirms (Brickau ,1994). The entry point in the model is to identify a market niche.4Challenges to small firm growthFor those firms whose main aim is growth, there are a number of challenges that have to be faced. In1994 Churchill proposed a six-stage model for company growth. Each stage of the model is characterisedby what Churchill describes as "an index of increasing size, complexity and or dispersion". The model allows owners to assess the type of challenges facing them at current and future stages: Conception / existence Survival Profitability and stabilization Profitability and growth Take - off Maturity The model outlines expansion of customer base and increase in turnover as one of the keychallenges faced in the conception / existence stage.5
Business growth and failureMost small business starters do not make it past the entrepreneurial stage. Daft (1995) cites the work ofLand and Jarman in the US that suggests 84% of business that make it past the first year still fail withinfive years. However failure is difficult to measure with any degree of accuracy.6 Murphy suggests two definition of failure: "A business can be said to have failed when it isdisposed of or sold or liquidated with losses to avoid further losses"; failure is defined as "the conditionof the firm when it is unable to meet its financial obligations to its creditors in full. It is deemed to belegally bankrupt and is usually forced into insolvency liquidation".7 Birley and Niktari (1995) asked 486 bankers and accountants to give the reasons for clientfailure. Eighty seven individual reasons were listed as contributing to the failure of an owner - managedfirm. These were reduced to two dozen themes listed below .81. 13. Capital structure Quality2. 14. Management team Adverse publicity3. 15. The economy Ill Health4. 16. Customer diversity Partnership problems5. 17. Financial management Obsolescence6. 18. Owner attitudes Reliance on grants7. 19. Rising costs Family succession8. 20. Lack of planning Legislation9. 21. Pricing Cost of money10. 22. Suppliers Personal problems11. 23. Marketing Fire, Flood12. 24. Growth Industrial injury
The study points out that marketing and factors which are related to marketing like customerdiversity, pricing and adverse publicity are the reasons for failure. The reasons for failure in the smallfirm have attracted much attention. Hall (1993) gave three explanations - one of them is related to thestructure of markets and segments of markets they compete in. Hall also surveyed the owners of smallbusiness and their perceptions of primary cause of failure. His study pointed out those external issueslike lack of demand, reliance on a few customers, competitor behavior and poor forecasting are the keycontributors in failure.9 Peppard and Rowland identified a set of objectives a firm should set itself inorder to remain competitive. Delivery, pricing, relationship management were identified as the keyobjectives of the firm. Peppard and Rowland identified that all firms are built upon three broad pillars-people, technology and processes. When designing processes to meet customer requirements and thecustomers within it, four critical elements need to be considered-- customer requirements, pattern ofdemand, constraints, efficiency targets .10 These elements set the deliverables for a product or service delivery process, known as the servicetask (Armistead, 1990). A clear understanding is critical if processes are to be redesigned to meet theneeds of the customers. For this many organizations focus on the customer care aspect.11 As Jack Welchof General Electric remarked "The three most important things you need to measure in a business arecustomer satisfaction, employee satisfaction and cash flows", pointing the importance of marketing forany successful organization.12 Strategic marketing is a market-driven process of strategy development, taking into account aconstantly changing business environment and the need to achieve high levels of customer satisfaction.It essentially focuses on organizational performances rather than the traditional concern aboutincreasing sales and builds competitive advantage by combining the customer-influencing strategies ofthe business into an integrated array of market-focused actions. Marketing strategy is defined as theanalysis, strategy development, and the implementation activities in selecting target market strategiesfor the product-markets of interests to the organizations, setting marketing objectives and developing,implementing and managing the marketing programs, positioning strategies designed to meet the needsof customer in each target market .13A typical marketing strategy consists of: 14 Analyzing market and competition Segmenting market Market targeting and positioning strategies Relationship strategies Product/ Customer strategies Distribution strategy Pricing strategy Advertising, service and sales promotion strategies Research and development strategies Marketing research strategies
The marketing concept is a consciously articulated philosophy of business that says, in essence, "Thecustomer is king". Implicit in the marketing concept is the need to ensure the long-term continuity ofpredictable quality, sales and service, and in turn viability of the enterprise. The marketing concept is interwoven with an explicit assumption that every organization has aresponsibility to its constituent stakeholders. A stakeholder is “any individual or group who can affect oris affected by the actions, decisions, policies, practices or goals of the organization”.15 These includeowners, customers, employees, suppliers as well as private investors and lenders. Also communities arestakeholders interested in profitable business that sustain tax revenues and employment. What isneeded is a strategic approach to marketing so that sale reinforces a composite set of objectives,including customer satisfaction, profitability and long term continuity of the enterprise.16____________________________________________________________________________________ * Faculty Member, ICFAI Business School, Kolkata. th 1. Hisrich, Robert D. and Michael P. Peters : Enterpreneurship, 4 edition, Tata McgrawHill , NewDelhi ,2000, pp 30-42. rd 2. Dewhurst , Jim and Paul Burns , Small Business Management, 3 edition, Macmillan , England, pp.130, Fig 8.1 3. Kuratko ,Donald F. and Harold P. Welsch : Strategic Entrepreneural Growth, Harcourt College Publishers, USA ,2001, pp 240-253 4. Chaston,Ian : Enterpreneural Marketing : Competing by Challenging Convention, Macmillan Business 2000, pp 174- 175 5. Churchill, N.C: The Six Key Phases of Company Growth in S Birley & D F Muzyka (eds) Mastering Enterprise, London, Financial Times/Pitman Publishing,1997 th 6. Daft , R .L : Organization theory and design St Paul : West 5 edition, 1995. 7. Murphy, M: Small Business Management London; Pitman 1996 8. Birley ,S & N Niktari :The Failure of Owner-Managed Businesses; The Diagnosis of Accountants and Bankers, London: Institute of Chartered Accountants1995. 9. Hall .G: Surviving and Prospering in the Small firm Sector London;Routledge 1995. 10. Peppard J. and P Rowland: The Essence of Business Re-engineering, Hemel Hempstead: Prentice Hall, 1995. 11. Armistead, C.G : Service Operations and Strategy: Framework for Matching the Service Operations Task and the Service Delivery System, International Journal of Service industry Management (1990) Vol 1, no 2. 12. Dawer ,Frank : Small Business Management : An Overview, Black Hall Publishing, 1999, pp 3-9, pp 71-73, pp 92-100. th 13. Cravens,David W. : Strategic Marketing 5 edition, Irwin;Chicago (1997) ,pp 9-20. 14. Kotler ,Philip: Marketing Management , Millennium edition, Prentice Hall of India, New Delhi. 1999, pp 93-94. 15. Edward,Freeman R. : Strategic Management : A Stakeholders Approach, Boston, Pitman 1984. 16. Holt, David H. : Enterpreneurship : New Venture Creation, Prentice Hall of India, New Delhi 1998, pp. 237-239. Refence # 03J03-05-04.