A Longitudinal Analysis of Marketing Factors Related to Small Business Success

Article excerpt

ABSTRACT

This manuscript reports on a study of marketing factors that were found frequently in a sample of profitable and unprofitable companies. The study involves a comparison of data from 1990 with other data from 1980. It indicates that profitable firms have tightly defined target markets; use specific consumer oriented goals; have clearly defined marketing policies, goals, and objectives; provide extensive services to customers; and make considerable use of word-of-mouth promotion.

INTRODUCTION

It is a well-established fact that many small businesses fail each year. Almost 65 percent of business failures each year are attributed to firms with less than $100,000 in assets (U. S. Small Business Administration, 1989). This is the case for both new entrants to the marketplace and those which have been in existence for long time periods. Conversely, numerous others are able to achieve financial success quite consistently. The evidence indicates that the main cause of failure is inadequate sales; the second largest cause is competitive weaknesses, which is closely related to inadequate sales (Dunn and Bradstreet, 1989). Each of these shortcomings reflect defects in marketing decision making in small companies (McDaniel & Parasaraman, 1986).

This paper sets forth the output of a comprehensive inquiry which considered the more salient marketing characteristics of a sample of successful and unsuccessful small businesses in 1980 and compared these to marketing characteristics of another sample taken in 1990. It is instructive to small business managers to be aware of the nature of these characteristics and how they are changing, as inputs into decision making.

THE STUDY

The objective of the inquiry was to identify marketing characteristics which differentiate successful firms from those which are not successful, and to denote the changes in them between 1980 and 1990. The author systematically examined a sample of written Small Business Institute cases selected randomly from the files of eight university Small Business Institutes by their respective SBI Directors and provided to the researcher. The sample was made up of 52% retail firms, 21% service establishments, 20% producers, 5% wholesalers, and 2% "other."

The results of this examination were compared to those of another sample of 71 cases collected in 1980 (Peterson & Lill, 1981). The distribution of firms by industry closely parallelled that for 1990. The examination procedure required subdividing the companies described in the S.B.I, reports into two categories based upon their sales and cost performance over the past three years: (1) profitable firms and (2) unprofitable firms. Profitable firms included those who earned a profit for at least two of the three years. Then a heuristic search took place, in which the author identified the more salient marketing characteristics; categorization was based upon the major components in a comprehensive marketing plan outline (Cohen, 1988). In this paper "salient marketing characteristics" refer to those which are the most effective in differentiating successful from unsuccessful companies. The data generation process followed the guidelines prescribed by Kassarjian (1977) for content analysis studies.

The results of the inquiry appear in Table 1. It sets forth the percentage of profitable and unprofitable companies which manifested a particular marketing characteristic. The last column contains the difference between the percentage of profitable and unprofitable companies for each characteristic. An examination of the two sets of "difference" scores set forth above is illuminating. The profitable companies for both years have a narrow (tightly defined) target market. Marketing theory supports this finding (Ring, Newton, Borden & Ferris, 1989). Unfortunately, numerous small businesses attempt to appeal to customers at large, rather than to specific segments. …

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