How Successful Small Businesses Apply Marketing Concepts to Their Businesses - Essay Example

?Managing Small Business Marketing How successful small businesses apply marketing concepts to their businesses: The case of Gee’s, Oxfordshire Managing Small Business Module Code: 7BSP0074 How successful small businesses apply marketing concepts to their businesses: the case of Gee’s, Oxfordshire By Jinging Hang Submitted on 3rd May 2011 University of Hertfordshire 2011 Word count: 2930* * Word count is from Intoduction to Conclusion Abstract According to estimates, nearly fifty per cent small businesses in U.K. wind up within first three years of their start up. While there are many reasons for failure, such as lack of understanding of marketing, poor selling skills and inability to identify customers, contributes significantly towards early demise of the small business. This report explores the application of theoretical concepts of small business management in particular the issues surrounding marketing aspects of small businesses and the strategies that need to be adopted with particular reference to the restaurant industry. A primary study was conducted involving a family restaurant. The purpose of the research was to explore how successful small business entrepreneurs apply theoretical concepts of small business management such as marketing to their businesses. The findings suggest indicate that marketing is perceived as a means to build customer awareness about the enterprises and offerings. It was also found that application of marketing thoughts and practices are useful for profitability of the firm, but are constrained by lack of resources. Contents Abstract ii Contents iii Table of Figures iv Photo credit iv Managing Small Business Marketing 1 1. Introduction 1 1.1 Significance 1 1.2 Aims and objectives 2 2. Literature Review 2 2.1 Definition of small business 3 2.2 Marketing and business orientation 3 2.3 Marketing mixes and approach to marketing 4 2.4 Customer acquisition in small businesses 5 2.5 Customer relationship management in small businesses 6 2.6 Summary of critical review 8 3. Primary Research 8 3.1 Interview with owner manager 9 3.2 Findings 11 4. Discussion 11 5. Conclusion and Recommendations 12 5.1 Recommendations 12 The researcher also recommends that further studies may be undertaken to reveal the difference in the levels of success of small businesses in terms market share and profitability caused due to implementation of marketing principles and techniques. 12 References 13 Table of Figures Figure 1: EU Classification of enterprises 3 Figure 2: Small businesses usually follow the bottom-up marketing approach 5 Figure 3: Observations from literature review 8 Photo credit Cover page photo: http://www.oxfordrestaurantguide.com/gees/ Managing Small Business Marketing 1. Introduction The small business sector is a major contributor to the economy in many parts of the world. In the year 2000 the sector in the UK comprised approximately 3.7 million small firms, majority of which were micro businesses, of which 66 per cent were either run solo or self-employed people (Fraser & Thompson, 2011). Twenty-five per cent of these had less than 10 employees. These figures are growing steadily. The UK government believes that “the health of the economy requires the birth of new enterprises in substantial numbers. We cannot assume that the ordinary working of market forces will necessarily preserve a small firm sector” (Fraser & Thompson, 2011, p. 29); and considers it to appropriate to intervene in proliferation of small business. There are however other reasons for phenomenal growth of small business as, (1) free market economy; (2) control by large firms; (3) spirit of individualism; (4) growth of IT; (5) growth of niche marketing; (6) growth in service sector; and (7) unemployment. 1.1 Significance In the UK small businesses contributed a significant 25 per cent of total private sector employment. Their combined turnover represented almost 20 per cent of the total turnover of the private sector. Small business firms employing fewer than 50 people accounted for 9.5 million jobs which amount to a whopping 44 per cent total non-governmental employment, representing a turnover of 40 per cent of the total turnover in this category. SMEs with employee strength between 0-250 account for almost 50 per cent of UK turnover (Fraser & Thompson, 2011, slides. 30, 31). In spite the impressive growth, many start-ups close down their business soon due to many reasons. For instance, the Ulster University found three major causes for premature demise of small businesses as (1) inability to identify customers and to price products effectively; (2) inability to manage short term cash flow crises; and (3) inability to delegate in order to think out appropriate strategy (Fraser & Thompson, 2011, p. 9). According to an estimate half of small businesses close down within 3 years of start-up (Fraser & Thompson, 2011, p. 5). 1.2 Aims and objectives In view of the above, it becomes important to investigate how small business those who survive, do cope-up with the surmounting problems and become successful. Further since, lack of knowledge and skill of the small business owner is considered to be an important cause of failure; therefore, a question arises whether failure of small businesses can be prevented by developing management knowledge and skill and enabling the owner-mangers to apply theoretical concepts of small businesses in reality. To answer this question the present study intends to find out how successful small business entrepreneurs apply theoretical concepts of small business management such as marketing to their businesses. It is intended to achieve this objective by conducting a critical review of current literatures and critical analysis of a primary research and learn how the context company has been applying the theoretical aspects of marketing both tactically and strategically. 2. Literature Review In this section, the researcher discussed the theoretical aspects of various aspects of marketing of small businesses. To enable this, various sources such as academic journals, books and Internet were used. The focus was on reviewing books and current literatures on such aspects of small business as how small businesses approach to marketing and orient business, acquire and retain customers. It also deals with customer satisfaction, marketing planning strategy, market research, market segmentation, market share, pricing strategy, and profitability. 2.1 Definition of small business The European Union categorises small businesses into three broad categories as: Figure 1: EU Classification of enterprises Source: Fraser, P., & Thompson, N. (2011). Managing the Small Business: Introduction to Small Business. Lecture notes: University of Hertfordshire, slide.21. On the other hand, the economic definition of small firms sets three conditions for a firm to be called as a small firm. These are (1) the firm has a relatively small market share; (2) the firm is managed by owners in a personalised manner; and (3) the firm is independent (Fraser & Thompson, 2011, p. 22). 2.2 Marketing and business orientation The UK Chartered Institute of Marketing states that “Marketing is the management process which identifies, anticipates, and supplies customer requirements efficiently and profitably” (Blythe, 2001, p. 11; cited by Schaefer, 2010, p.8). It is a way of doing business that begins with a focus on needs and expectations of the customer. Traditionally, businesses can have several orientations as (1) product orientation, (2) the production orientation, (3) selling orientation and (4) the marketing orientation. Kotler et al. (2009) state that of these four types of orientations, the marketing orientation is considered to be the best option as focuses on the need of the customers and meeting it. 2.3 Marketing mixes and approach to marketing Due to the nature of the small of small businesses they are different from large business in the way the 4p marketing mixes work for them. For small businesses, Stokes proposes an iterative cycle, or process model including (1) Informal information gathering through networks; (2) innovation (incremental); (3) identification of target markets; and (4) interactive marketing methods. This stokes called it as the 4I’s of small business (Fraser & Thompson, 2011). Another important distinction of small business marketing lies in its approach to marketing. For instance, unlike the large business firms which have top-down approach comprising (1) segmentation, (2) targeting, (3) positioning and (4) on helicopter basis, the small businesses typically follow a bottom-up practice involving first identification of market opportunity, followed by attraction of initial customer base and expansion through more of the same. Their marketing is usually relationship based. Figure 2: Small businesses usually follow the bottom-up marketing approach Source: Stokes & Wilson 2006:365; cited by Fraser, P., & Thompson, N. (2011). Small business and entrepreneurial marketing: some approaches. Class notes: University of Hertfordshire, slide,6. 2.4 Customer acquisition in small businesses Donner (2007) in his study on “Customer Acquisition among Small and Informal Businesses in Urban India: Comparing Face-to-face and Medicated Channels” studied 317 sole proprietors and operators of small businesses with five or fewer employees in and around Hyderabad in Southern India. The respondents were asked to describe how they acquired their customers such as walk-in, referral, family connections, landline telephone, mobile phone, internet/e-mail, etc. Donner’s findings revealed that majority of the firms, even among those with access to ICTs, acquired their customers through face-to-face interactions (Donner, 2007). Donner’s further study on whether telephony enables more specialised, hands-off, numerous or distant relationships with customers; his study revealed a significant relationship between landline ownership and total number of customers. In another study, researchers Moriarty, Jones, Rowley, & Kupiec-Teahan (2008) in their study on “Marketing in small hotels: a qualitative study” conducted a deductive-inductive approach based on interviews with 15 small hotel owner-managers supported by web site analysis and three in-depth case study interviews. Their intention was used to gain insight into marketing activities in small hotels in North Wales. The researchers observed that a third of the responding hotels were in the non-marketing category, more than half were in the inexpert category, and two were in the implicit category, while none qualified in Carson’s sophisticated category (Moriarty, Jones, Rowley, & Kupiec-Teahan, 2008). A common observation of these two studies is that both in a developed and in a developing economy, marketing knowledge and promotion is seldom used in small businesses. 2.5 Customer relationship management in small businesses In their study on “A Review of Customer Relationship Management System Benefits and Implementation in Small and Medium Enterprises” researchers Loh, Koo, Ho, & Idrus (2011) intended to explore the benefits of CRM system to SMEs, methods to implement CRM system in SMEs and also intended to find out the reason why SMEs do not implement CRM system. Their purpose was that the findings of their research would generate more insight into successful implementation of CRM systems in SMEs. The researchers opine that customers’ satisfaction can be achieved when the customers’ requirements are clear and well-defined, which necessitates updating of customers’ requirement from time to time, so that a long-term relationship with the customers can be built up (Loh, Koo, Ho, & Idrus, 2011). The researchers add that customers’ information provides the ability for SMEs to identify their customer group that can be served both better and variously as well. In addition, it can shorten transaction process and save the customers’ valuable time. Ultimately, customers’ satisfaction can maximise SMEs’ profitability and revenue (Loh, Koo, Ho, & Idrus, 2011). The authors summarised the benefits of customer satisfaction for SMEs as follows: Enable more systematic acquisition, collection, analysis and usage of customers’ information. Gain more customer satisfaction and indirectly improving the business relationship with the customers, and increasing the customer lifetime value. Giving personalized and customized services to a specific group of customers. Gain more profits in sales through better response to customers and the ability to maintain existing customers and getting new customers (Loh, Koo, Ho, & Idrus, 2011, p. 251). Barriers to implementations include such issues as (1) lack of knowledge of information technology; and (2) insufficient resources (Loh, Koo, Ho, & Idrus, 2011). In yet another study, Rejone (2010) intended to get an insight on how the concept of marketing is seen and put into practice in SMEs, besides getting an understanding on whether the perceptions and practices differ according to size, industry and customers of the SMEs. In her study on “Do all SMEs practise same kind of marketing?” Rejone (2010) conducted a study involving three industries in eastern Finland. The researcher observed that marketing is largely perceived as a means to build customer awareness about their enterprises and offerings. Apart from this, the respondent enterprises were also interested in creating and maintaining customer relationships. However, the chief objective of marketing was perceived to be for generating sales (Reijone, 2010). Rejone’s (2010) findings indicated that marketing thought and practices were not uniform within SMEs and varied according to the firm size and customers (Reijone, 2010). 2.6 Summary of critical review From the critical reviews made above, several other observations were made: (1) small businesses in developed countries had better knowledge on marketing and its utilities for the business; (2) small businesses in developed countries applied the thoughts and concepts of marketing into their business better than their counterparts in developing countries; (3) IT enabled marketing such as e-commerce and CRM are more extensively used than those in developing countries. However, further studies can only reveal the difference in the levels of success of small businesses in terms market share and profitability caused due to implementation of marketing principles and techniques in developed and developing countries. These observations are summarised below. Figure 3: Observations from literature review 3. Primary Research A primary study was conducted involving a family restaurant “Gees”. The restaurant is located about 1.7 miles from Oxford, situated at 61a Banbury Road, Oxford, Oxfordshire. Gee's restaurant, Oxford, is housed in a former plant shop and styled in elegant Victorian style. The food is served in the restaurant is predominantly Modern British with a touch of Mediterranean influences. The owner-manager was contacted and briefed about the study and his permission was sought for conducting the interview. The firm was identified on the basis of the three qualifying criteria outlined by Fraser & Thompson (2011, p. 22): (1) small market share; (2) the firm is managed by owners in a personalised manner; and (3) the firm is independent. A semi structured interview was conducted comprising such nine marketing as (1) customer acquisition; (2) customer retention; (3) customer satisfaction; (4) market planning strategy; (5) market research; (6) market segmentation; (7) market share; (8) pricing strategy; and (9) profitability. The result of the qualitative survey is appended in the succeeding section. 3.1 Interview with owner manager The owner manager was interviewed and the results are as follows: Could you please state according to you what is objective of marketing? The objective of marketing is to let people know what your product is and how useful it will be to them in terms of convenience, comfort, or utility. Second thing marketing is to generate sales. It also to convey how different it is from others in terms of price, and contributing to the environmental or social cause. I believe, when the customer for his own utility, he also feels that in buying that product whether a part of his/her money is being used for meeting social and environmental causes. Could you please tell how you acquire customers? We do not have a specific programme for acquiring customer. The customers in and around the place see us and come on their own. What are the means you adopt to retain customers? We give special discounts to the regular customers. We also have a membership club where on special days we organise music and dance with discount rates. On special occasions like members’ birthday and anniversary, we send our specially made cakes and bouquet. Do you evaluate customer satisfaction and have a formal customer relationship management programme? If yes, how do you implement such as a programme? We do not have formal customer programme; but I frequently chat with the customers asking them how they felt about the food and ambiance and if more improvements can be made to appease their taste. Do you have a formal market planning strategy? How often do you review it? No; we don’t have. Did you ever undertake a formal market research and what is your opinion about carrying out market research for small businesses like yours? Yes, we did talk to the people living around, but haven’t carried out a formal market research. Do you carryout market segmentation? If yes, how do you carryout and how do you apply it to your business? As you know ours is a modern British restaurant with a Mediterranean touch, hence our customers are primarily of European community. We cater to this segment only. Do you have an idea about market share of your business? No; but we know we are doing well compared to the others. What pricing strategy do you adopt and why? We cater to the upper middle class and our prices are a little higher than the average. We believe in value for money. Do you believe profitability of small business can be increased by adopting marketing thoughts and implementing marketing applications? Yes, but to the extent we can afford. What would you recommend the fellow small business owner-managers in improving their marketing ability? The restaurant should be ideally located, the place should be clean and ambiance very welcoming. The food should be tasty, and healthy. It should provide for customer’s taste and it should come with varieties. The prices should not be exorbitant. The bottom line is that it should be value for money and prompt the customer to come again and again. 3.2 Findings From the above, the following findings are made: 1. The owner-manager of the small business understands the marketing concepts and is familiar about the marketing tools. 2. The restaurant does not have a formal customer acquisition programme 3. The restaurant does not implement a formal strategy to retain customers, however, is implementing several of customer retention strategies in informal ways. 4. The restaurant has a customer relationship programme in the form of a club and the owner-manager involves himself in gauging customer satisfaction by informally chatting with the customers. 5. The restaurant does not have a formal annual market planning strategy. 6. The restaurant has not undertaken a formal market research ever. 7. The owner-manager is aware of market segmentation and has accordingly planned its offerings. 8. The firm is unaware of its market share; 9. The restaurant is adopting a partially differentiated pricing strategy by keeping the prices above the average prices in the restaurant in the vicinity. 10. The owner-manager believes that profitability of the restaurant can be increased by implementing marketing principles and applications 4. Discussion The findings of the primary study are consistent with that of the literature review. For instance, Rejone’s (2010) findings indicated that marketing thought and practices were not uniform within SMEs and varied according to the firm size and customers. Further, marketing is largely perceived as a means to build customer awareness about their enterprises and offerings. Similarly, it is also consistent with the findings of Loh, Koo, Ho, & Idrus, (2011), which says application of marketing thoughts and practices is constrained by insufficient resources. 5. Conclusion and Recommendations A small business even though small is not limited to one transaction of a buyer. It takes a lot obtain the first customer into the premises and retain it; and repeating the affair day after day for years. To be able to achieve the small business firm must be able to manage experience of every customer and on every occasion without an exception. This can be done only if the firm has sufficient knowledge, skill and ability, motivation and imagination. The objective is to an effective relationship marketing based on concern, trust, commitment and service. 5.1 Recommendations From the forgoing, the following can be suggested: 1. Develop the right marketing orientation 2. Use marketing information systems extensively 3. Segment the market with care 4. Use appropriate targeting strategy 5. Adjust the marketing mix to position the products or services 6. Develop relationship marketing The researcher also recommends that further studies may be undertaken to reveal the difference in the levels of success of small businesses in terms market share and profitability caused due to implementation of marketing principles and techniques. References Birley, S. and Muzyka, D. F. 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