“Research
amongst small business shows that the loss of market and lack of sales are two
of the main problems they face. Barclays
believes that marketing is one of the key business tools that could help to
address these problems, yet is often overlooked by busy entrepreneurs”.
From
research and planning to price and promotion, marketing is an important
discipline that can aid business development and growth.
Yet many of the half a million small businesses which close each year may
do so because entrepreneurs have neither identified their markets properly nor
researched the competition, especially at the crucial early stage prior to
starting up. Once established,
inadequate marketing can result in businesses having problems in attracting the
numbers of customers they require in order to remain profitable.
This
review looks at entrepreneurs’ views on marketing and the types of marketing
activities they undertake. We are
pleased to have commentary from The Chartered Institute of Marketing and we hope
that the review will help providers of business support supply guidance and
advice as well as increase awareness amongst small businesses of the potential
benefits of marketing.”
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·
Small businesses spend on average £ 1,500 a year on
marketing, yet fewer than four in ten measure the effectiveness of
activities undertaken. ·
Eight out of ten small businesses spend less than five
hours a week promoting their business, whilst nearly two thirds rely
principally on word of mouth reputation. ·
Seven out of ten entrepreneurs do not carry out market
research prior to starting up and, over time, even less planning activity
is done. ·
Only a quarter of small businesses properly calculate what
they should charge to cover their costs; the majority work out pricing in
an unsystematic and informal way. ·
Seven out of ten small businesses keep a database of
existing customers, but only one in ten use it to secure future business. ·
Over two thirds of small businesses do not see the need to
change their approach to marketing in the future. Mike
Davis, Small business Service Director, Barclays Plc
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“Providing
good customer service, meeting customer needs, setting the right price,
safeguarding company reputation and offering a quality product are all key
elements which influence sales. However, few small businesses appear to use marketing
techniques to help these elements right, potentially leaving their sales
capacity unexploited”.
Three-quarters of entrepreneurs start up without doing any market testing to establish whether there is demand for their product or service. In addition, only three in ten carry out market research to determine whether a market exists for their business in the first place. Fewer still–one-fifth – draw up a detailed customer profile to build up knowledge about their prospective customers and their buying habits. Knowing who your customers are and why they will be prepared to buy from you, rather than your competitors, should be a crucial part in deciding how a business will fit into the market and whether it is likely to succeed. Those that do not assess their long-term market potential and overall competitive stance may risk early closure or failure.
Once a business is successfully trading, planning activities appear to decline still further. Chart 1 shows that market testing and research tail off as businesses mature. While many entrepreneurs by this stage rely on their knowledge and experience there is a danger that, with no formal monitoring procedures in place, some businesses may be unaware of changing market conditions and miss new opportunities.
Perhaps the most likely factors to influence sales – price and value for money – appear to be the least well researched, with many businesses adopting an unsystematic and informal approach to their pricing policies. Nearly half base their prices on what their competitors are charging, while others rely on past experience or ‘gut instinct’. Only one in four actually calculate what they will have to charge to break even.
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“Research
and understanding of key markets is vital to any new business.
Yet lack of time, knowledge and the tools to start and update
plans often prevents thorough market evaluation, putting pressure on
sales from an early stage. Customer
understanding is essential in evaluating the success of a business’
products or services, delivery channels and location, and helps to
ensure a cohesive marketing strategy is in place. “Developing
a pricing policy is an important element of the marketing process and
should be incorporated at the outset.
Markets are often characterised by an excess of competition which
can force downward pressure on price – however, sometimes higher value
perceptions means that a company can charge a higher price.
Small businesses need a better understanding of the mechanisms
behind pricing and the means by which they can defend and promote the
prices they charge.” Fiona Rogers, Director of Corporate Marketing,
The Chartered Institute of Marketing |
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TABLE 1 –
TYPES OF PROMOTIONAL ACTIVITY UNDERTAKEN |
|
Word of mouth/reputation |
60% |
|
Advertising in business
directories |
30% |
|
Advertising in local
press |
30% |
|
Advertising in
trade/business press |
12% |
|
Direct mail |
11% |
|
Brochures/leaflets/point
of sale material |
5% |
|
Local radio advertising |
4% |
|
Posters/vehicle
sides/branding |
4% |
|
National press/TV
advertising |
3% |
|
Telephone
contact/personal visits |
5% |
|
Sponsorship |
2% |
|
Seminars/conferences/exhibitions |
4% |
|
PR |
1% |
Promotion
need be expensive, although some of the more potentially cost-effective
activities appear to be rarely used. Public
relations, when undertaken in-house, relies on an investment of time rather than
money and a well-focused direst mail exercise can make good use of resources –
yet both techniques are used by fewer than one in ten businesses.
Added benefits of such activities include opportunities to review and
update databases of customer, supplier and competitor information, providing
further market opportunities. With
70 per cent of small businesses claiming that they keep an up-to-date database
and only one in ten using direct mail, this is perhaps a missed opportunity for
many.
For
many businesses, increasing sales from existing customers is more important than
targeting new ones and is often a better use of resources.
Nine out of ten entrepreneurs believe that the most appropriate way to
maximise business from existing customers is by giving the best possible service
and by generating strong personal relationships.
Yet few appear to use all the available techniques to make this possible. Chart 2 reveals that only a third make regular contact with
customers over the phone or by post while fewer still hold sales launches or
organise client entertainment. Many
of these activities can be carried out at low cost and can serve to strengthen
relationships significantly.
Chart
1: Activity used to target existing customers
How
much money should a business spend on promotion?
The research shows that the annual spend amongst small businesses is
around £1,500 – the equivalent of £30 a week – which can be effective and
generate a return provided that the activity is carefully targeted.
To be most effective, promotional activity should be in line with
business objectives. Yet, nearly
ten per cent of small businesses say that their promotional activity meets no
set objectives and therefore risk investing resources for an unquantifiable
return.
Evaluating whether promotional activity is a good
investment is also important for businesses with limited resources.
However, four out of ten small businesses have no way of measuring their
marketing activities, while other use ad hoc measurements such as informal
customer feedback. The main formal method of evaluation, used by a fifth of
businesses, is to monitor the level of sales and orders which is a simple,
effective method of keeping track of the impact of marketing activity.
However, only one per cent uses either questionnaires or market research.
Barclays believes that more businesses could benefit from the use of
these formal monitoring techniques, helping them to judge whether their
marketing objectives have been met and to determine future strategy.
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“Small
businesses must ensure that their promotional activity is achieving the
right goals – for example, either generating new business leads or
helping to keep them front of mind with existing customers.
Careful targeting is often more cost-effective than a ‘blanket’
approach, as resources are not wasted on the wrong audience.
A targeted approach will mean investing time to update databases
and research customers’ needs. We recommend that all businesses develop
a measurement system, even those with a small promotional spend, to
evaluate the effectiveness of their activity and to gauge the return on
their investment.” Liz Ma, Corporate
Marketing & PR Manager, The Chartered Institute of Marketing. |
For seventy per cent of small businesses, it is the owner or manager who is responsible for marketing, but with busy schedules the majority (eight out of ten) spend less than five hours a week on promotional activities. Only one in five entrepreneurs pass the responsibility to someone else while fewer still (three per cent) have a specific sales or marketing director.
Time is not the only issue – the majority of those in charge of marketing (60 per cent) have had no previous experience or training (Chart 3). However, it would appear that being the right sort of person could help considerably. Having good knowledge of the market, being good at communicating and understanding people and customers are thought to be the most important characteristics, and are skills that can be picked up over time through experience and training (Chart 4).
Chart
3:
– What experience did you have when taking on responsibility for marketing?
Chart
4:
- What skill do you need to be good at marketing
Marketing is not an area that people seek much advice on – only a quarter of small businesses claim to have sought information or help and it is surprising therefore that only four per cent claim that lack of knowledge is an obstacle to their marketing effort. However, there is a clear link; between businesses which seek advice and those with; the highest promotional spend – of the one in four which takes advice, half have a marketing spend of over £2,000, suggesting that they have already recognised the benefits of marketing and are willing to invest the necessary time and money.
The
most common sources of information and help are trade and professional
associations or specialist marketing consultants, although people are more
likely to turn to friends and family than to more formal sources of advice
available through the national networks of business support organisations.
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“Responsibility
for marketing within small organisations inevitable falls to the owner or
manager as they have the best overall understanding of what needs to be
achieved. However, some
business people find the concept of marketing daunting and have difficulty
in knowing where to start. Effective
marketing depends on a plan in which every aspect of the business
situation is logically articulated and effectively organised, yet the mass
of detail that has to be incorporated can be bewildering, especially to
those new to marketing. It is therefore important that owners and managers
take advantage of available advice, training and professional
qualifications to build their skills accordingly.
By understanding the principles of marketing and how to maximise
results, those responsible will find it easier to delegate tasks and lead
a more co-ordinated effort.”
John
Gunn, Director of Regions, The Chartered Institute of Marketing |
In an
increasingly competitive marketplace, small businesses will need to develop
competitive strategies for the future to help them survive.
By understanding a range of marketing activity, businesses can
differentiate themselves from the competition, retain existing business whilst
targeting new customers and improve the management and control of growth.
With this in mind, Barclays is concerned that over two-thirds of businesses (68 per cent) May be missing out on the opportunity to develop their business, stating that they will not change their approach to marketing in the future. Only 15 per cent are planning to devote more money: just three per cent however say that they will undertake training to improve their marketing skills.
In
terms of expenditure, those who plan to increase their marketing spend over the
next two years will do so on average by around 18 per cent (Chart 5).
While this is encouraging news, it would appear that the majority of
small business owners are unaware of the benefits that effective and properly
targeted marketing can bring to their business.
With half a million small businesses starting up each year, it is
important that more entrepreneurs start to recognise the value of improving
their marketing skills, both in the crucial early stages and throughout the
lifecycle of their business.
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“Increasing
access to information and advice means that is should be easier for small
businesses to take advantage of marketing support and training in future.
Organisations like the CIM are working to raise awareness of the
benefits that marketing can offer and develop a range of practical
services to help small businesses. However, the businesses
themselves need to develop a realistic strategy for the future,
establishing their objectives and specific marketing activities which are
costed, timed and monitored. Only
then can marketing be used as an effective business tool, helping to
differentiate them from the competition and create strategies for survival
and growth.” Steve
Culthbert, Director General, The Chartered Institute of Marketing
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Source: Barclays Bank Plc