Dealing with Limited Financial Resources: A Marketing Challenge for Small Business
Weinrauch, J. Donald, Mann, O. Karl, Robinson, Patricia A., Pharr, Julia, Journal of Small Business Management
DEALING WITH LIMITED FINANCIAL RESOURCES: A MARKETING CHALLENGE FOR SMALL BUSINESS
A broadening topic of research is enhancement of marketing practices within small business firms. One focus of this research has been small business owners' experiences with marketing under tight financial constraints. Such research is critical because small businesses often operate on a financial razor's edge, and a minor miscalculation in revenues or expenses could be fatal. A number of previous writers have emphasized that small firms, unlike larger businesses, have limited funds for marketing (Buskirk 1987, Davis 1985, Goldstein 1984, Hills 1987, Mehra 1982, Sheth 1987, Morganosky 1988, Stasch 1987, Weinrauch 1987, and Wortman 1987). As a result, small business owners should seek creative, low-cost ways to market their products and services, to identify the problems caused by limited financial resources, and to seek help dealing with such problems.
Low-cost marketing is a relative and nebulous concept. What might be affordable for one company may not be for another. Nevertheless, two previous articles by Weinrauch (1987) provide some basis for discussion. They state that low-cost marketing may be explained as strategies that cost little in terms of actual dollars spent, consist of a very small percentage of the total budget, or cost-effectively enhance sales revenue.
Intuitively, small business researchers know that small businesses are quite innovative in adopting "shoestring" approaches. This perception is sometimes highlighted in the popular business literature. Many shoestring approaches are reported in the form of business vignettes, anecdotal stories, or occasional case studies. Moreover, some recent books dramatize marketing techniques for "bootstrapping" the small business (Davidson 1988, Weinrauch 1989). However, empirical studies that record small business owners' experiences, perceptions, and levels of success related to marketing practices are lacking in the literature.
This article highlights the results of an exploratory study to identify small business owners' attitudes and perceptions concerning dealing with a limited marketing budget. Specifically, the purpose was to:
* identify small business owners'
attitudes concerning their ability
to compete with larger businesses;
* examine the owners' attitudes
about the importance that
marketing plays within their small
* identify selected strategic
marketing areas that are posing problems
for the small business owners;
* determine the most popular sources
of marketing assistance used by
* determine if any significant
correlations exist between the owners'
attitudes, problems, marketing
assistance used, and various
traditional success measures.
All of these objectives are tied to the major issue of limited financial resources, and results should have some interesting implications for both educators and practitioners. From a theoretical perspective, the findings should also generate interest in previously overlooked research areas. For instance, how significant are limited finances in competing with large companies? Do small business owners feel that educators and government officials are paying enough attention to developing and communicating effective small business marketing strategies? What type of marketing-related problems prevail when finances are constrained? Do small business owners diligently seek assistance to overcome budgetary constraints? Such research could help the multitude of small businesses with "shallow pockets" to more effectively use their limited resources.
The survey instrument was pre-tested on a group of 25 small business owners, and ambiguous questions were deleted or reworded for clarity. Demographic items included sales volume, number of employees, years in operation, and percentage of sales spent annually on marketing. Two-hundred questionnaires were hand-delivered to a cross section of small business owners in the Middle Tennessee region. A total of 99 questionnaires were returned, netting a response rate of 49.5 percent. An attempt was made to include a variety of retailers and service organizations in the sample, and all of the returned questionnaires were usable in the final data analysis.
The sample used in the data analysis consisted of 52 retailers, 22 service firms, 2 manufacturers, and 23 respondents who did not indicate type of business. (Most of the latter were probably retail or service firms.) Since the majority of the sample was either retail or service businesses, further analysis by type of business was conducted using only those two groups. Otherwise, the entire sample was used in reporting the total results.
Overall Attitudes on Financial Constraints
Some business owners report they have difficulty finding marketing and selling strategies that are both affordable and suited to their businesses. To examine some specific attitudes of small business owners regarding this issue, we asked them to respond to the 11 attitude statements listed in table 1. The table presents the sample size, mean, standard deviation, and rank for each attitude measure.
As shown by the mean ratings, the respondents were likely to agree with each of the statements. Of these, in respective rank-order sequence, the five statements receiving the strongest agreement were:
Number 2. The key to competing against big business is finding a small niche in the marketplace where we have a competitive advantage. Number 1. It is difficult to compete with large companies since we operate with limited financial resources. Number 11. I have been quite successful in identifying and using low-cost marketing strategies. Number 9. Too many consultants, educators, business books, and government officials concentrate on finding marketing solutions for big businesses. Number 10. It seems that many marketing strategies are better suited to big businesses than to businesses my size.
In general, the small business owners seem to have some positive attitudes about their marketing efforts and are very much aware of several marketing-related factors. Included among these factors are: (1) the true cost of marketing, (2) the benefits derived from marketing, (3) the role marketing plays in their businesses, (4) low-cost marketing strategies that work, (5) sources for obtaining marketing information, and (6) that competing against big businesses requires a competitive advantage.
Counter to the positive attitudes held by the respondents, however, is a feeling of being handicapped by restraints that hinder their marketing ability. Specifically, financial resources are identified as a major obstacle that prohibits them from competing against big businesses and conducting beneficial marketing and selling activities. In addition, the respondents agreed that marketing expenditures take a back seat to the other costs of doing business (the highest mean was x=2.7) and that authors of business books, consultants, educators, and government officials concentrate on solving the marketing problems of big business.
Another aspect of this study involved deriving attitude dimensions that would reflect the overall feeling and beliefs of small businesses regarding marketing strategies and activities. Data reduction of the 11 attitude measures, by using the linear combination of those variable with loadings greater than .50, yielded the four factors in table 2. These variables, labeled Resource Limitations, Knowledge Limitations, Use of Marketing, and Marketing Orientation, explained 97 percent of the variance in the original attitude statements. The items loaded on the factors as expected and reflected the general attitudes of respondents toward previously discussed marketing strategies and activities.
Impact on Marketing Problem Areas
Given their limited budgets, respondents were asked to indicate the significance of the 19 marketing problems listed in table 3. The mean ratings show the four problems small business owners perceived as most significant were: (1) buying advertising time and space, (2) affording the services of qualified marketing people, (3) developing new markets, and (4) extending credit to customers. The problems perceived as least significant were: (1) servicing guarantees and warranties, (2) paying for warehousing/storage, and (3) meeting customer delivery schedules.
Since the types of problems experienced may vary with demographic characteristics, correlations were calculated between each problem and the following variables: years in operation, yearly sales, percentage of sales spent on marketing, and perceived success. None of the correlations were significant at the .05 level. In addition, none of the chi-square statistics from the respective cross tabulations were significant. Therefore, the relationship of financial constraints and selected marketing-related problems were apparently independent of a business's size, age, or level of perceived success.
To complete the analysis, principal components analysis was done to determine underlying problems common to small businesses. The 19 problems were reduced to five factors by using the linear combination of variables with loadings of .50 or more. The factor patterns and loading are shown in table 4. The combined factors explained 99 percent of the variance in the original measures and appeared to reflect the following five major problem areas of small business: (1) problems related to cash flow, (2) problems related to lack of marketing expertise, (3) problems related to business size, (4) customer-related problems of a tactical nature, and (5) customer-related problems of a strategic nature.
Interestingly, three problems did not factor into any of the derived dimensions--conducting marketing research, developing new markets, and generating new products. It appears that these problems are not related to the cash position, size, or marketing practices of a business. Instead, they seem to represent unusual problems beyond the scope of the small business domain.
Based on the overall results, it seems that small businesses may lack a strategic orientation toward marketing. In addition, they may experience problems with tactical marketing issues such as buying advertising space and the extension of customer credit. It also is possible that small business executives may not avail themselves of currently available marketing assistance. Marketing researchers and educators must continue to study marketing issues relevant to small business, such as limited finances, and then effectively communicate the results to practitioners.
Search for Marketing Assistance
Respondents were asked to indicate their use of the marketing materials and methods listed in table 5. The results clearly indicated that most small businesses do little or no research (except from secondary sources). Figure 1, which graphically illustrates the spatial relationships between the available methods and the frequency of use, was developed by performing a multiple correspondence analysis (MCA) on the data reported in table 5. The data were analyzed using MAPWISE. MCA is a multivariate statistical process that is similar to multidimensional scaling, but it is restricted to nominal/ordinal data. MCA provides a low-dimensional spatial configuration for data frequently reported as cross tabulations (Carroll et al. 1986; Hoffman 1986; MAPWISE 1988).
Figure 1 presents the joint display of types of assistance available to small businesses, in their spatial relation to their response categories (i.e., never, rarely, sometimes, and often). The respondents are scaled to a 100-unit coordinate system and with MAPWISE these can be reduced to three or fewer dimensions. In this case, the data can be explained by one dimension. The horizontal axis explained 92 percent of the spatial variation, with the residual explained by the remaining two axes.
Subjective interpretation of figure 1 shows that trade materials and magazines are the two "most often used" sources for small business. Also, there is a cluster of secondary sources near the "sometimes" point. These include vendor operating manuals and subscription newsletters. The "rarely used" cluster consists of sales training manuals. The "never" cluster contains the remaining sources, including library information and primary research methods such as personal interviews, focus groups, mail and phone surveys, and educational tapes.
To further investigate usage of marketing research, correlations were calculated between each of the 12 types of assistance and several demographic characteristics (i.e., years in operation, yearly sales, percentage of sales spent on marketing, and the respondents' perceptions of success). None of the correlations were significant at the .05 level. Also, the chi-square statistics for the respective contingency tables were not significant. These two statistics indicate that the 12 categories of assistance are independent of experience, size, and perception of success. This raises two interesting and perplexing questions: (1) Why are small business people not availing themselves of the assistance available to them? And, (2) are academic marketing researchers not adequately disseminating available research methods, theory and findings to smaller enterprises?
Determining possible answers to these questions may be fruitful endeavors for researchers. Entrepreneurs tend to be an independent group that has particular talents and trades, and this can result in a focus on "production" or "doing" and a lack of emphasis on marketing. Indeed, the marketing acumen of many small business people seems to be derived from informal (and convenient) verbal exchanges with suppliers, distributors, and customers (Johnson and Keuhn 1987). While such exchanges are an excellent source of information, they cannot replace a systematic approach to seeking marketing help and developing marketing plans. Furthermore, the search for marketing expertise from educators, researchers, government officials, and even marketing professional suppliers (consultants and advertising, research and public relations firms) is limited (AMA Task Force 1988, Kerin 1988, and Thompson 1987). Therefore, educators and advocates of small business development may need to better disseminate marketing theory and information to small businesses, so that they have additional sources on which to rely (Franklin and Goodwin 1983).
In general, small business owners are quite cognizant of the marketing challenges of competing with large financially secure firms. Although the respondents feel they can compete successfully by employing various strategies, such as competitive niching, they believe that additional alternative marketing strategies are needed. However, in terms of dollars allocated, marketing is secondary to other costs. Furthermore, the owners do not actively or formally acquire marketing assistance through secondary or primary research.
Interestingly, limited financial resources did create problems in conducting quality marketing, expanding new markets, extending credit, and dealing with advertising costs. Possibly, educators need to identify and research economical marketing strategies that address these problem areas. In a nutshell, the future interface between marketing cost and specific marketing problem areas must come to fruition.
In summary, a dearth of research has sought to identify, analyze, and contrast marketing strategies that might enable small businesses to effectively market themselves despite constraining financial resources. This one variable--economical marketing strategies for small business--affords excellent future research opportunities that can help to resolve several problems faced by small business owners. [Table 1 to 4 Omitted] [Figure 1 Omitted]
FREQUENCY OF USE: SOURCES OF MARKETING ASSISTANCE (N = 94)
Type of Assistance Frequency Percent Educational Tapes Often 12 12.8 Sometimes 16 17.0 Rarely 15 16.0 Never 51 54.3 Sales Training Manuals Often 13 13.8 Sometimes 23 24.5 Rarely 19 20.2 Never 39 41.5 Vendor Operating Manuals Often 16 17.4 Sometimes 34 37.0 Rarely 17 18.5 Never 25 27.2 Subscription Newsletters Often 21 22.6 Sometimes 31 33.3 Rarely 15 16.1 Never 26 28.0 Business Books Often 28 30.4 Sometimes 35 38.0 Rarely 10 10.9 Never 19 20.7 Library Materials Often 8 8.6 Sometimes 15 16.1 Rarely 18 19.4 Never 52 55.9 Customer Complaint Forms Often 15 16.0 Sometimes 13 13.8 Rarely 19 20.2 Never 47 50.0 Phone Surveys Often 3 3.2 Sometimes 6 6.4 Rarely 15 16.0 Never 70 74.5 Main Questionnaires Often 2 2.1 Sometimes 4 4.3 Rarely 14 14.9 Never 74 78.7 Personal Interview Surveys Often 6 6.5 Sometimes 12 12.9 Rarely 13 14.0 Never 62 66.7 Focus Groups Often 3 3.3 Sometimes 4 4.3 Rarely 9 9.8 Never 76 82.6 Trade Show Materials Often 26 27.7 Sometimes 26 27.7 Rarely 10 10.6 Never 32 34.0
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Dr. Weinrauch is professor of marketing at Tennessee Technological University (TTU) in Cookeville, Tennessee. His research interests include small business marketing and management. Dr. Mann is associate professor of marketing at TTU. His research interests include quantitativee marketing models, statistical methodology, and marketing management. Dr. Robinson is associate professor of marketing at Fayetteville State University in Fayetteville, Oklahoma. Her research interests include retailing, entrepreneurship, and consumer patronage. Dr. Pharr is assistant professor of marketing at TTU. Her research interests include fear in advertising.…
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Publication information: Article title: Dealing with Limited Financial Resources: A Marketing Challenge for Small Business. Contributors: Weinrauch, J. Donald - Author, Mann, O. Karl - Author, Robinson, Patricia A. - Author, Pharr, Julia - Author. Journal title: Journal of Small Business Management. Volume: 29. Issue: 4 Publication date: October 1991. Page number: 44+. © 2002 Journal of Small Business Management. COPYRIGHT 1991 Gale Group.
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