Marketing for Small and Medium Enterprises in the UK

Introduction

Small and Medium Enterprises (SMEs) make up a diverse collection of business organisations that operate mostly in the trade, manufacturing, agri-business and services sector in the UK. The SME segment is marked by diversity and variety, incorporating village handicrafts as well as sophisticated computer software businesses. Some of these SMEs are extremely dynamic, innovative and entrepreneurial, even as others are happy to remain small and continue their established businesses (Hegge, 2002).

SMEs fulfil an extremely important function in UK business. Studies by the Department for Business Innovations and Skills (2009) reveal that SMEs constitute 99.9% of the total estimated 4.8 million private sector firms in the UK. They contribute 49% of the total turnover of the private sector and generate practically 59.8% of its total employment.

SMEs, whilst constituting a critical and practically indispensable business segment of the UK economy, are characterised by a number of inherent features that set them apart from larger private and public sector businesses and make their operations different from their larger peers.

Much of the contemporary marketing theory used in management schools, both in the UK and across the world, is essentially developed and tailored for large organisations. Whilst a substantial body of literature has developed on the management of small businesses, much of it focuses on the entrepreneurial and other characteristics of small firms and deals with the generalities of running small businesses (Glancey & McQuaid, 2000). Owners and managers of SMEs thus often face difficulties in choosing and adopting effective marketing strategies and more often than not work on an ad hoc and rule-of-thumb basis. This situation is particularly aggravated in the contemporary economic downturn, where SMEs are facing tremendous business challenges, both in operational and marketing areas (Glancey & McQuaid, 2000).

Characteristics of Small and Medium Enterprises

Small and medium business organisations, be they in the UK or in other countries, are by and large owned and managed by individuals, families or groups of individuals. Whilst their structures could vary and include sole traders, partners and even companies with joint stock, they have few employees, very lean management structures and are restricted in their volume, scale and reach of operations (Fletcher, 2002). Whilst there are small businesses that are entrepreneurial in nature and are either start-ups or run by first-generation owners and managers, many of them have been in existence for long periods of time, have established businesses and show little evidence of entrepreneurial or innovative approaches in their working and in their market activities (Fletcher, 2002).

The managements of small businesses are characterised by their homogeneity and consist either of owner-managers or small groups of people with similar approaches towards business activity (Burns, 2007). SME managements have little diversity in their ranks and are deficient in many cases in technical and managerial knowledge and skills (Bannock, 2005). This does not however obviate the fact that many of the contemporary SMEs, especially in areas associated with computer and IT, are managed by innovative and skilled entrepreneurs who are fired with vision and have very strong managerial, technical and financial skills (Burns, 2007).

The managerial and business approaches of SMEs are strongly influenced by the aims and objectives of their managers, which could vary extensively in their attitudes towards growth, marketing, production and technological advancement (Hills, 1994). Some SME managements may be focused on innovation, the generation of new products and services and business and market growth, even as others may be content to remain with their existing products, services and lines of business (Hills, 1994).

Mintzberg states that entrepreneurial organisations have simple flat structures. They consist of one large unit that has just one or some top managers. Such organisations are informal and are relatively unstructured, in comparison to other organisational types; the lack of standardisation in their systems allows them to be flexible in their approach (Mintzberg, 1994). Young companies in the SME segment, which are controlled by their owner-managers, are the most common examples of such types of organisations. Entrepreneurial organisations in the SME segment are fast, lean and flexible, often providing models for other companies to copy (Verhees & Meulenberg, 2004). Such structures can however become inadequate with organisational growth, overwhelming decision makers with workload and compelling them to make bad decisions (Verhees & Meulenberg, 2004).

Whilst the managerial, entrepreneurial and innovative approaches of SMEs could vary significantly, making it difficult to categorise and slot them within particular managerial and marketing approaches, the vast majority of SMEs are characterised by their limitations in areas of technological knowledge, managerial abilities and skills, physical infrastructure, financial resources and ability to raise funds (Smallbone, et al, 1995). Such limitations essentially arise from the nature of their ownership, which is restricted to a few individuals and thus results in limited availability of internal financial, technological and managerial resources. Such restrictions in resources result in a lack of availability of technological and managerial skills (Lechner & Leyronas, 2009). With there being l limitations in the availability of finances in such organisations, both from sources of capital and generation of income, it is difficult for them to access people with high levels of managerial and marketing skills Lechner & Leyronas, 2009).

It is similarly difficult for such organisations to spend substantially on research, development, innovation and innovation-associated activities (Welsch, 2003). The lack of financial and managerial restrictions impinges substantially upon their ability to raise funds, spend money on advertising and promotion, develop and introduce new products, establish new branch offices, showrooms and outlets and open up operations in different and new geographical areas (Welsch, 2003).

Peter Drucker argues that innovation is indeed the basic tool of entrepreneurship (Huovinen & Pasanen, 2010). Whilst SMEs are in many ways associated with entrepreneurial activity, many of the new businesses are coming into established business lines where innovation is not the most important element for business success and growth. Organisations like Apple, Microsoft and Google started small but brought in disruptive innovative forces into the economy that powered their enormous growth and success; these are few and far between. The vast majority of SMEs both established and start-ups work in established business areas in marketing, manufacturing, agri-businesses and services.

Applicability of Contemporary Marketing Theory to SMEs

Marketing theory has evolved substantially over the years, especially in the decades after the ending of World War II and has now evolved into a complex and extensive discipline that provides guidance to marketing managers in the conduct of strategic and operational marketing activities for their business firms. Such theory has been constantly enriched by the work of experts like Ansoff, Drucker, Porter and Prahlad as well as organisations like the Boston Consulting Group and Mckinsey’s.

The foundation of contemporary marketing theory is provided by the well-known 4P’s marketing mix, Ansoff’s growth theory and Porter’s theories of marketing theory and generation of competitive advantage. Ansoff provides a 4 square approach for marketing and business growth, stating that organisations start with selling of established products in known markets and thereafter progress to selling of new products in known markets and established products in new markets and finally diversify into new products in new markets (Ansoff, 1965).

The “4 P” theory, also known as the marketing mix, requires organisations to make marketing plans that account for positioning of the product, placement of products, pricing of products and promotions of products. Porter’s five forces marketing theory calls upon organisations to gauge the extent of competition in a market by assessing the strength of buyers, the strength of sellers, the threats from new entrants and substitutes and the extent of existing rivalry between competing organisations (Johnson & Scholes, 1997). Porter’s theory of competitive advantage on the other hand requires organisations to follow strategies of cost leadership or differentiation in order to generate competitive advantage. Marketing strategy is also guided by the results of various analytical exercises like competitor analysis, market segmentation, SWOT analysis and PESTEL analysis (Johnson & Scholes, 1997).

Marketing communication theory, including integrated marketing communication theory, provides modern-day organisations with ways and means to use and align various marketing communication channels like advertising, promotions, public relations, in-shop promotions, direct marketing and online communications to construct holistic and mutually reinforcing marketing communication for the achievement of maximum effect (Coetzer, et al, 2011). Relationship marketing theory guides modern-day managers on developing and strengthening relationships with customers through various tools like after-sales service and focused communication with customers (Coetzer, et al, 2011).

Whilst such theories are taught extensively in contemporary business schools and provide a strong bank of theoretical knowledge for managers to refer to, use and adapt for their marketing efforts, it is truly ironic that such theories hold little relevance and validity for small and medium organisations that provide practically 50% of the revenues of the private sector, constitute the overwhelming majority of private sector organisations and provide more than 59% of private sector employment (Bannock, 2005).

Many small businesses are started by entrepreneurs who have restricted knowledge about business and products and commence their business only because of their individuality, their independence, their disinclination to work for others or even because of their inability to get suitable employment with other organisations (Bannock, 2005). Such people do not really have a choice of various products and services and their choice of business may be restricted to their knowledge of a few business areas that appear to be easy to operate and handle. Such limitations in fact account for the continuous flow of new entrants into crowded areas like restaurants, retailing of clothes and other simple trading areas and estate agencies, which are otherwise already overcrowded, intensely competitive and offer little possibilities for growth and expansion (Bannock, 2005). It is difficult for such organisations to move even from Ansoff’s first square, i.e. selling established products in established markets to his second square, namely selling new products in established markets (Bannock, 2005).

It is also unfortunately true that many owners and managers of small businesses both established and start-ups, have little knowledge of marketing theory and practice. Their scarcity of resources limits their ability to access marketing expertise, leaving them to depend primarily upon their own common sense, socialisation and market and product knowledge to make their marketing decisions (Fletcher, 2002). Very few of the managements of such firms also have the inclination, the tendency or the resources to engage in significant market research in order to find out competitor and market details or to conduct useful situational analyses, which can help them in developing suitable marketing strategies (Fletcher, 2002).

SMEs are constrained by their lack of financial, technical and managerial resources and choose their area of business from their own limited knowledge of the market, possibly after the conduct of rudimentary and back-of-envelope SWOT analysis. Such constraints not only leave them with an inadequate understanding or market competition but also make the application of Porter’s theories of differentiation or least cost is impractical (Baker & Sinkula, 2009). It becomes obvious that the achievement of least-cost leadership is practically impossible because of the absence of scale economies. The adoption of a strategy of product differentiation is also equally difficult because of the inherent lack of technical, product and customer knowledge with such organisations (Baker & Sinkula, 2009).

Much of the practical application of contemporary marketing strategy revolves around the 4Ps, i.e. positioning, pricing, placement and promotion. Most owners of small businesses tend to economise on costs and keep their overheads low in the hope that such tactics will enable them to recover their costs, as well as keep the selling prices of their products and services low (Carson, et al, 1995). Such strategies, which again stem from their lack of financial resources and ability to generate income result in a lack of attention towards positioning, placement and promotion and often lead to ad hoc decisions that are guided by convenience and economy; this results in inadequate marketing strategy and suboptimal business results (Carson, et al, 1995). Some SMEs are able to cope with such adversity because of the technical, managerial and financial skills of their owner-managers and are able to develop profitable and competitor niche business areas on the strength of their product, technical and consumer knowledge and the efficiency and effectiveness of their management.

Contemporary Challenges for SMEs

The ongoing economic difficulties in Western countries, as well as in many developing nations, have seriously affected the working of SMEs. Lack of availability of credit, declining industrial production and reduction in consumer spending have resulted in serious drops in sales, profits and the capacity of these organisations to continue to work. Thousands of SMEs across the world have had to seriously curtail their operations, reduce their workforce, scale down their operations, and even close shop (Huovinen & Pasanen, 2010).

Whilst these conditions are creating challenges to the continued growth and even survival of these organisations, opportunities are also arising on account of globalisation, the growth of online business opportunities and service and resource reallocation by business organisations (Huovinen & Pasanen, 2010). Many SMEs and entrepreneurs have problem-solving approaches and can respond swiftly and creatively to changing market circumstances. With the economy showing signs of stabilisation, the coming years are bound to throw up various new areas that can be suitably exploited by efficient innovative and entrepreneurial small businesses (Huovinen & Pasanen, 2010).

Conclusions

SMEs are extremely diverse in nature, activity, and structure; the majority of them have common problems associated with the lack of or limitations in technical, managerial, marketing and financial resources. Such limitations make it extremely difficult for them to make effective use of contemporary marketing theory. Whilst the economic recession of 2007-2010 and the Covid-19 pandemic of 2020-2022 continues to adversely affect the operations of thousands of small businesses, the growth of globalisation, the emergence of the online world and the opening up of international markets has resulted in numerous opportunities for various types of small businesses.

It is important for SMEs to engage extensively in strategic analysis, planning and action in order to make good use of these opportunities. Whilst the limitations on resource availability are not going to be overcome today or in the future, the constructive application of strategic management thought can result in the exploitation of many new opportunities. It is important for contemporary small businesses to think analytically about various market circumstances and opportunities and adopt strategically optimal marketing choices if they are to succeed in today’s world; this, whilst being challenging, also provides numerous opportunities.

References

Ansoff, I., 1965, Corporate Strategy, NY: McGraw-Hill.

Baker, W. E., & Sinkula, J. M., 2009, “The Complementary Effects of Market Orientation and Entrepreneurial Orientation on Profitability in Small Businesses”, Journal of Small Business Management, 47(4): 443.

Bannock, G., 2005, The Economics and Management of Small Business: An International Perspective, New York: Routledge.

Burns, P., 2007, Entrepreneurship and Small Business, Palgrave: Macmillan Hampshire, England.

Carson, D., Cromie, S., McGowan, P., & Hill, J., 1995, Marketing and Entrepreneurship in SMEs: as Innovative Approach, NJ: Prentice Hall.

Coetzer, A., Battisti, M., Jurado, T., & Massey, C., 2011, “The Reality of Management Development in Smes”, Journal of Management and Organization, 17(3): 290.

Department for Business Innovation & Skills, 2009, “Small and Medium Enterprise Statistics for the UK and Regions from 1994 – 2009”, available at: http://stats.bis.gov.uk/ed/sme/ (accessed December 04, 2011).

Drucker, P., 1954, The Practice of Management, Harper and Row, New York.

Fletcher, D. E., 2002, Understanding the Small Family Business, London: Routledge.

Glancey, K., & McQuaid, R. W., 2000, Entrepreneurial Economics, Basingstoke, England: Macmillan Company.

Hamel, G., & Prahalad, C.K., 1996, Competing for the Future, Harvard Business School Press, Boston.

Harper, D. A., 2003, Foundations of Entrepreneurship and Economic Development, New York: Routledge.

Hegge, B., 2002, SMEs and European Integration: Internationalisation Strategies, London: Routledge.

Hills, G. E., 1994, Marketing and Entrepreneurship: Research Ideas and Opportunities, Westport, CT: Quorum Books.

Huovinen, S., & Pasanen, M., 2010, “Entrepreneurial and Management Teams: What Makes the Difference”, Journal of Management and Organization, 16(3): 436.

Johnson, G., & Scholes, K, 1997, Exploring Corporate Strategy, NJ: Prentice Hall.

Kirchhoff, B. A., 1994, Entrepreneurship and Dynamic Capitalism: The Economics of Business Firm Formation and Growth, Westport, CT: Praeger Publishers.

Lechner, C., & Leyronas, C., 2009, “Small-Business Group Formation as an Entrepreneurial Development Model”, Entrepreneurship: Theory and Practice, 33(3): 645.

Miles, M. P., & Darroch, J., 2008, “A Commentary on Current Research at the Marketing and Entrepreneurship Interface”, Journal of Small Business Management, 46, (1): 46-49. 

Mintzberg, H., 1994, The Rise and fall of Strategic Planning: Reconceiving the Roles for Planning, Plans, Planners, UK: Free Press: pp. 458.

Porter, M. E., 1980, How Competitive Forces Shape Strategy, The McKinsey Quarterly 34-50.

Runyan, R., Droge, C., & Swinney, J., 2008, “Entrepreneurial Orientation versus Small Business Orientation: What Are Their Relationships to Firm Performance?”, Journal of Small Business Management, 46(4): 567.

Smallbone, D., Leigh, R., & North, D., 1995, “The Characteristics and Strategies of High Growth SMEs”, International Journal of Entrepreneurial Behaviour and Research, 1, (3): 44-62.

Verhees, F. J., & Meulenberg, M. T., 2004, “Market Orientation, Innovativeness Product Innovation, and Performance in Small Firms”, Journal of Small Business Management, 42(2): 134.

Vernon, M., 2002, Business: The Key Concepts, New York: Routledge.

Welsch, H. P., 2003, Entrepreneurship: The Way Ahead, New York: Routledge.