Factors affecting marketing in MSME’s

1. The effect of size

- SMEs are small and often unstructured. It is very common for the small business owner to
be versatile and to engage with any aspect of the business, from production to
commercialization.
- Small firms present a ‘distinctive marketing style’ that observes no conformity to the formal
structures and frameworks used by bigger companies.
- The cause is found in their limited marketing activity. This lack of resources is reflected in
SMEs’ marketing activity, which becomes ‘simplistic, haphazard, often responsive and
reactive to competitor activity.
- Firm size affects the decision-making process, as most of the decisions in SMEs are made by
the owner on the basis of intuitive ideas and common sense.
- Carson and Cromie support the idea that the most significant differences between small and
big firms are business objectives, management style and marketing practice, rather than the
relative size.
2. Availability of resources
- Because of their small size, SME’s often find accessing resources difficult. They have to work
with limited resources.
- From an entrepreneurial marketing perspective, Carson and Cromie identified three broad
barriers to the marketing activity of SMEs: (1) limited resources, (2) a lack of specialized
expertise and (3) the limited impact of the company on the marketplace.
- The scarcity of resources SMEs have to deal with creates pressure in meeting opportunity
costs related to business activities, and this often reflects on the financial, economic and
marketing choices made by small firms. There are some strategic factors that have to be
developed by a small firm if they want to keep the competitive edge on the market in fact,
the use of resources is often associated with strategic factors that can enable or hamper
success.
3. Market orientation and marketing intelligence
- Marketing information plays a strategic role in small firms’ decisions: it allows new entrants
to the market to find specific niches in which to position their products, and it allows
existing actors to offer value to consumers and customers in competitive markets.
- According to Kotler, all good planning must start with market research, as this reveals
customers’ needs, perceptions and preferences and, therefore, the information can be used
to cluster customers into segments. Marketing information is important because it allows
companies to adapt better to their competitive environment.
- The theory of evolution, according to Charles Darwin, suggests that an organism can survive
if it adapts to changes in its environment. This is true for businesses, too, as they have to
adapt continuously to changing external conditions, so they need to acquire information to
better prepare and respond to changes in the environment they operate within.
- Consumer insight is helpful to understand the needs and wants of the customers so as to
create a mix that offers value through differentiation.
- Marketing goals in successful businesses are driven by the customer needs. Customers, in
fact, evaluate brands on different attributes and not just on price.
4. Marketing orientation and business life cycles
- Marketing in SMEs is affected by the business life cycle of the firm, which has an effect on
the development of the firm’s orientation to marketing.
- Marketing orientation is defined as ‘a way of thinking in doing business that is based on the
integration and co-ordination of all marketing activities which involve putting the
customers’ interest first.
- Priorities for a marketing-oriented firm are the following:
1. a priority in customers when evaluating the company and its products and the extent to
which both the company and its products satisfy specific customers’ needs;
2. a priority in elevating marketing as the prevailing culture of the company so the entire
organization will mobilize towards satisfying customers’ needs;
3. a priority in adjusting products according to the market needs and wants, rather than
according to the company’s perceptions and beliefs, so that customer satisfaction can
be delivered.
- Four stages of marketing orientation
1. The first stage is defined as ‘DIY marketing’, where a company presents little or
marketing experience, but its entrepreneurs are rich in terms of ideas and technical
expertise. They seem to rely on a network of personal relationships deriving from
contacts gained during previous working experiences or in different environments.
2. The second stage is called ‘opportunistic marketing’, where the company, moneywise,
rapidly approaches (if it has not already reached) economies of scale that increase
efficiency and grant more financial independence through a higher product credibility.
This happens thanks to greater standardization of the product lines, so more buyers find
the products more appealing.
3. Stage three is ‘responsive marketing’, in which the company expands quickly. This
implies, moneywise, that income is higher, and more money means the possibility of
hiring more people with different competencies, higher budgets for promotion and
customer service, and, most importantly, market research. This gives birth to the
marketing function.
4. In the final stage, ‘diversified marketing’, a company has a constant flow of income and
is able to fund all of its different functions. The business pursues diversification as a
main aim, and different divisions manage the objectives, operating each one on
different product lines; therefore, the company has a wider portfolio.
Entrepreneurial Cognition and Learning
Entrepreneurial cognition is concerned with the ‘knowledge structures’ that people use to
make assessments, judgements or decisions involving opportunity evaluation, creation and growth.
Current entrepreneurial cognition literature posits there is a relationship between individual’s
cognitive properties and his/her ability to identify, develop and exploit opportunities. However, the
ability to recognize opportunities is different in all people because everyone has a limited and
fragmented perception of the world we live in, and everyone relies on heuristic mechanisms to make
sense of this world.

Current entrepreneurial cognition and learning reference models such as Kolb’s

entrepreneurial learning model and Verkataramanan’s learning processes model, consistently show
us that opportunities can be identified if the entrepreneur has correct information and the right
cognitive properties. Cognition is therefore shaped by the person-environment interaction. In
environments characterized by information overload, for instance, high uncertainty or novelty,
strong emotions, time pressure and fatigue are the by-products of bad entrepreneurial cognition.
Since decision making and cognition are affected by the knowledge acquired through the learning
process, it is necessary to highlight the fact that there is virtually no perfect information in the world
we live in, making it difficult for anyone to acquire knowledge. This implies a reliance on experiential
learning, which is, according to Kolb an integrative process that combines previously gained
knowledge, perception, cognition and experience.

However, the heterogeneity of human experiences characterizes the difference amongst

people in terms of knowledge structures. In fact, the corridor principle tells us that previous
experience is a critical factor for entrepreneurship in general, and in the identification of
opportunities specifically.

Experiential learning theory shows us the existence of two different learning types: the
knowledge derived by recreation of experience and the knowledge derived by direct experience.
According to the cognitive point of view, the first one takes place in a phase of comprehension,
whereas the second one is an antecedent of comprehension and takes place during the phase of
apprehension. Likewise, the work of Kolb earlier and Corbett later, allowed us to classify learning
styles according to four fundamental learning mechanisms whose dimensions are the concrete
experience (both in terms of feeling and thinking), the observation (which is a reflective process),
and the experimentation (which is an active process). The resulting four learning styles are the
accommodator, the diverger, the converger, and the assimilator. For further details, we refer to
Kolb’s work: ‘Through their choices of experiences, people program themselves to grasp reality
through varying degrees of emphasis on apprehension or comprehension’.

By using experiential learning frames to understand the opportunity identification process

amongst entrepreneurs, we can also, by extension, understand the process of entrepreneurial action
that follows the opportunity (or threat) identification. This is achievable by gaining insight on the
interconnectedness among the attributes of the person-environment interaction, institutional
processes and entrepreneurial activity.
Entrepreneurs’ adaptation to the Environment
The entrepreneur responds cognitively to the stimuli of the institutional environment. When
the person-environment interaction takes place, different cognitive processes affect the way the
entrepreneur perceives an opportunity or a potential threat. These stimuli then generate a sort of
entrepreneurial resilience in the identification of both opportunities and threats. Depending on the
learning style of the entrepreneur and his/her gender, as well as his/her ability to manipulate or
exploit institutions in his/her favor, is a much better choice than exiting business.

Formal institutions – whether political, economic or legal – may pose threats to

entrepreneurs. In the political environment, the failure to achieve clear-cut and transparent
policymaking (or instability in the political system) generates uncertainty in the social environment.
Several authors have observed that bad governance generates high bureaucracy, posing a barrier for
lean operations and affecting negatively firms’ operational and transaction costs. As Aidis and Adachi
suggest, entrepreneurs in transition economies often deal with regulations that turn out to be
incoherent and volatile. Entrepreneurs might react to these threats by establishing adaptive
mechanisms of defense based on the exploitation and manipulation of institutions such as personal
networks, trust, and more or less legitimate actions, which mitigate the negative effects of bad
governance or the inadequacies of unstable political systems.

Also, formal economic institutions can pose threats to entrepreneurs. Access to credit is
often exclusively available to powerful, well connected, bigger firms, rather than small and medium-
sized enterprises, as the former are favored by formal institutions. Since access to credit is so
difficult to obtain (it often requires bribery), it is necessary for the entrepreneur to adopt some sort
of defense mechanism. The unclear and inconsistent application of taxation rules and the existence
of hidden administration fees when dealing with public organizations, pose a threat to firms’
liquidity and business planning [56]. Unclear regulatory systems and inaccessible licensing pose
other barriers. Entrepreneurs facing the threats posed by the economic environment might develop
defense mechanisms based more or less on legitimate actions.

Also, dysfunctional legal systems do not contribute to entrepreneurship. For example, if

property rights are not respected, then simple activities like medium- and long-term planning or the
acquisition of resources become difficult. The threats coming from the legal environment identified
in extant literature include potential private property ‘expropriation, legal decisions unenforced by
courts and police, ineffective or unguaranteed contracts, mistrust of judiciary impartiality when
dealing with legal disputes, and the competitive disadvantage in dealing for those entrepreneurs
who do not bend rules. Entrepreneurs who perceive themselves to be under threat from the legal
environment may develop defense mechanisms such as different business strategies, capitalizing on
personal networks, trust, and enacting acquired informal codes of conduct.

Informal institutions are also a major factor in determining the social environment of the
entrepreneur. Social norms, codes of conduct, values, networks and trust may be strong enablers or
barriers to entrepreneurial behavior. Values and beliefs are hard to change, and in some cases of
transitional economies, a sudden change in formal institutional assets does not correspond to as
quick a change in values and beliefs. When the modifications become widely accepted by the
majority of a population, the behavioral codes become social norms.

As mentioned above, networks can be both enablers and barriers to entrepreneurial activity,
depending on how they affect business. ‘Close’ networks can pose a threat to business when they
‘bind certain groups together in ways that are undesirable for society as a whole, e.g., by reinforcing
the practices of favoritism, nepotism, or ethnic hatred. However, networks can be used as a defense
mechanism to protect a business from formal institutional voids by decreasing opportunistic
behavior and granting access to resources that are needed to survive or to minimize uncertainty.
Networks are not only used to decrease opportunistic behavior, but also to strengthen linkages with
those individuals or organizations that retain power in order to achieve competitive advantage and
personal gain.

The last threat posed by the social environment may derive from the misuse of trust. A
generalized trust could describe a mental model of what can be expected when dealing with people
that someone does not have personalized information about, whereas the misuse of trust generates
a particular form of trust, which can be found among a closed network of people supporting each
other through nepotism and corruption. Nevertheless, trust can also be adopted as a defense
mechanism against the uncertainty caused by formal institutions, thus decreasing opportunistic
behavior and increasing potential compliance with business agreements.

We see that values, norms, codes of conducts, networks and trust are important informal
institutions that affect entrepreneurial behavior through the entrepreneurs’ cognitive processes of
apprehension, comprehension and experiential learning. The deinstitutionalization process typical of
transitional economies poses a threat to entrepreneurial activity by bringing instability into the
social environment. Hence, informal institutions can be instrumental to the development of adaptive
defensive actions that entrepreneurs in transitional economies can use to limit the negative effects
of the threats posed by the institutional environment while increasing their chances for survival.