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Digital Marketing as a Key Driver of Sales Improvement Among Small and Medium Scale Enterprises in Lagos State. Project material PDF document download start from the abstract to chapters 1 to 5.
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
This chapter discusses the review of related literature under the following subheadings- conceptual framework, theoretical framework, empirical review.
CONCEPTUAL FRAMEWORK
CONCEPT OF DIGITAL MARKETING
Digital marketing is an umbrella term for the marketing of products or services using digital technologies, mainly on the internet, but also including mobile phones, display advertising and any other digital medium (Agwu and Murray, 2014). The way in which digital marketing has developed since the 1990s and 2000s has changed the way brands and businesses utilize technology and digital marketing for their business operations. Digital marketing campaigns are becoming more popular as well as efficient, as digital platforms are increasingly incorporated into marketing plans as many people use digital devices instead of going to their physical shops (Barron & Copeland, 2012).
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Digital marketing techniques such as search engine optimization, search engine marketing, content marketing, influencer marketing, content automation, campaign marketing, social media marketing, social media optimization, e-mail direct marketing, display advertising, data-driven marketing and e-commerce marketing are becoming more and more common in our advancing technology (Babalola & Babalola, 2013). In fact, this extends to non-internet channels that provide digital media, such as SMS, MMS, callback and on-hold mobile ringtones.
Digital marketing is equally referred to as online marketing, internet marketing, electronic marketing and web marketing. Digital marketing has grown in popularity over time, particularly in advanced countries. For instance, in USA, online marketing is very much prevalent, in Italy, it is referred to as web marketing but in UK, it is termed electronic marketing. Digital marketing has however been the most common term especially after 2013 (Rondon, 2007; Njau and Karugu, 2014).
Digital marketing was first used in the 1990s, but it has roots in the mid-1980s when SoftAD group, now ChannelNet, developed advertising campaigns for automobile companies, wherein people would send in reader reply cards found in magazines and receive in turn floppy disks that contained multimedia content promoting various cars and offering free test drives (Baron and Copeland, 2012). Digital marketing became more sophisticated in the 2000s and 2010s. The proliferation of devices’ capabilities access has led to great growth of digital advertising; statistics produced in 2012 and 2013 showed that digital marketing is now the order of the day in contemporary business environment (Button, 2011; Mitchell and Davidson, 2014).
CONCEPT OF SMALL AND MEDIUM ENTERPRISES (SMEs)
The Wikipedia Encyclopedia (2009) defines SMEs as companies whose headcount or level turnover falls short certain limits. The term ‘SMEs” varies from country to country, for example, in South-Africa, it is often refers to as ‘Small Micro and Medium Enterprises (SMMEs), in the United States, it is refers to as ‘Small, Medium-Size Businesses (SMBs) and in other advanced countries, the term is used to denote ‘Micro, Small and Medium-Scale Enterprise (MSMEs). In USA, SMEs is defined based on the size of the workforce, which should be less than 100 employees. In most economies, SMEs are very much higher in terms of number than large corporations. For instance, in European nations, SMEs constitutes about 99% of all firms and employ about 65 million people annually. According to Okekeke (2009), SMEs are capable of speeding up innovation and competition and contributes about 40-50% to the global productivity.
There is no universally acceptable definition of SMEs, because classification of businesses in terms of number of employees, value of assets, capacity of production, level of technology, management efficiency, volume of capital employed and net worth cannot be subjectively measured as economies of countries differs and different economies sets its own standard for the definition and description of SMEs.
A comprehensive definition was given by Ude (1999), who defines SMEs as an modern business enterprise, including all manufacturing and non-manufacturing of small activities in commerce, service, maintenance, distribution, construction and production employing a limited capital outlay. The running and management of SMEs revolves on one, two or at maximum, thee persons, who make key decisions and bears the risk of the business. Okekeke (2009) views SMEs as a private or jointly owned business which is usually owned and operated by the owner(s). Capital is usually funded by the owner(s) and the equity is not publicly traded.
The Federal Ministries of Industries defines SMEs as any company with operating assets of less than N200 million and employing less than 300 personnel. Eniola, etal, (2014) sees SMEs as the one with total assets of less than N50 million, with less than 100 employees. The National Economic Reconstruction Fund defines SMEs as one whose total assets are less than N10 million, but makes no reference to level of annual turnover and size of employees. The Small and Medium Industry Equity Investment Scheme defines SMEs as any enterprise with a maximum asset base of N500 million excluding land and working capital and with the number of employees not exceeding 300. Inegbenebor (2006) ,according to the guidelines of of Bankers’ committee scheme, defines SMEs as an enterprise with an employment size between 10-300 personas and a maximum asset base of N200 million. It can be deduced that the aforementioned definitions did not differentiate small enterprise from medium enterprise.
The Central Bank of Nigeria gave differentiated definition of small and medium enterprises in terms of employment level and asset volume. The employment level of small enterprise is less than 50 and that of medium enterprise is less than 100. Also, the asset size of small enterprises is less than N1 million while medium enterprise have an asset volume of less than N150 million.
Based on the classification adopted by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN, 2007) for national policy on MSMEs gave a distinction of micro, small and medium enterprises in terms of employment level and size of asset (excluding land and buildings). A micro enterprise is the one with less than 10 employees and less than N5 million asset base. A small enterprise has a workforce between 10-49 employees and between N5-N50 million asset base and medium enterprise has a workforce between 50-199 employees and between N50-N500 million asset size.
In the Nigerian context, the definition of small business enterprise which concentrates on the level of capital, and workers employed. Today, we cannot accept such definition based on the number of workers, unless the level of technology employed is specified. This is because it is possible for computer robots and few technicians to “man” an industrial undertaking into which thousands of dollars have been invested. The number of human beings directly employed can no longer be related to the scale of operation; it is now based on the technology adopted.
In Nigeria, considering these various definitions regarding small business enterprise for official policy decision by the government, emphasis has been placed on the higher limit of capital investment and number of employees. There has been no attempt made so far to stipulate the low limit that can qualify an establishment for government recognition as small scale enterprises for the purpose of credit facilities in Nigeria. In the absence of this situation of low limit which is not necessary, it could be well assumed that all industrial establishments, no matter how small the capital investment and the number of people employed, should qualify for recognition. In the circumstances therefore, cottage and craft should qualify for the government attention and patronage. In practice, however, the majority of these small business enterprises are discriminated against. Thus no adequate consideration is given to the peculiar problem that confronts this group of industrial establishment when policies concerning small business enterprises are being formulated in the government circles.
Since there have not been consensus as regard the definition of SMEs in Nigeria as well in Diaspora, there are peculiar characteristics of SMEs based on the definitions conceptualized above.
Firstly, small and medium enterprises have a limited capital outlay. This means that there has to be a maximum amount of capital which the organization must be operating.
Secondly, small and medium enterprises are owned and managed by one or two or at maximum, three persons. Funds are usually sourced from owner(s)’ personal savings, borrowing from friends, relatives or bank. Small and medium enterprise in Nigeria experience difficulty in raising adequate capital for their businesses. External sources are difficult to obtain from banks, because the collateral and interest rate attached to the loan is outrageous, that average small enterprise owners cannot afford.
Thirdly, small and medium enterprises have a limited number of workers it can employ, most times, the maximum is 100. Also, majority of small and medium enterprises adopts labour intensive technique in their production process. Fourthly, small and medium scale enterprises are constrained in terms of annual turnover, size of assets and balance sheet. In addition to these, Adeyemi (2014) observes that majority of SMEs in Nigeria are not thriving as a result of poor financing. Small enterprises are usually found in certain areas of sector due to their financial weakness, lack of adequate manpower and opportunities presented by the economy not necessarily out of passion, interest and expertise. Adisa (2014) notes that most SMEs are involved in service-related activities, majority of them only have secondary education and lack any experience in business before embarking on their present business adventure.
Burrows (2008) pinpoints that there is no transfer of ownership or continuity of business operations upon the death of the owners. The death of the owner tantamount to demise of the business. Over and above, small and medium enterprises are faced with the challenge of insufficient financing, poor management practices and skills, lack of functional infrastructures and regulatory problems.
ADOPTION OF DIGITAL MARKETING BY SMALL AND MEDIUM ENTERPRISES (SMEs)
The adoption of digital marketing in firms can be based on two factors; Internal & External. This is due to the fact that before a firm adopts any policy at all, it must be in line with the core competence, vision, mission and the necessary man power (personnel) should be well considered. These obvious points are called internal factors that may influence the adoption of digital marketing in SMEs. However, firms cannot neglect the fact that the environment in which they operate in takes a good measure of their policies. In this case therefore, the adoption of digital marketing in SMEs may be influence by one or all the following factors; the level of competitiveness, legal actions, security of purchase and the capacity of consumers to be able to patronize online products.
INTERNAL FACTORS
The adoption of digital marketing to SMEs as portrayed by respondents shows that digital marketing tools (Internet, Email, Mobile), though easy to use maybe cumbersome for personnel within the firm. The financial resources accrue to digital tools was little as compared with the revenue generated from it uses by management in most of the industry selected. However, the capacities of personnel within the firm & customers readiness to trade are found to be adequate enough for digital marketing adoption. Hence getting the job done is faster and main objective of firms of the adoption of digital marketing are easily achieved.
Some of the key variables of internal factors include ease of use, easy interaction, importance of other digital marketing tools, management support, human capacity, financial resources, size of firm, and efficiency of digital marketing tools.
EXTERNAL FACTORS
According to Babalola & Babalola (2013), the external factors that account for the adoption of digital marketing by SMEs are competitiveness, legal actions, market shares, market trends, online purchase, preference for electronic payment, technology utilization and confidence in digital marketing tools.
EFFECTS OF IMPLEMENTING DIGITAL MARKETING ON THE PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISES
Digital marketing is quite advantageous to SMEs, this is due to the fact that it boost the number of new customers that purchase products hence increase profit for companies and firms. EM also leads to discovery of customers‟ needs because immediate feedback is received from products and services obtained, which then enhances the customer-firm relationship. Generally, EM has been a great benefit to SMEs operations due to the establishment of Brand Equity. This can even happen to new entrants in the market place, which is due to satisfaction of the needs of customers been met by the firm. The possible effects of the implementation of digital marketing on the performance of SMEs are new sales, new profits, new customers, improved customer relationship, improved service delivery, brand equity, increased customer satisfaction and better communication.
DIGITAL MARKETING PROBLEMS OF SMALL AND MEDIUM SCALE ENTERPRISES
One of the major marketing problems facing small business enterprises in Nigeria is lack of understanding and the application of marketing concept. In a study conducted by Ogwo (2007), this was conspicuously exposed. Most Nigerian small business owners equate ‘marketing’ to ‘selling’ and this is reflected in their various dysfunctional business behaviors against customer satisfaction and good business and marking orientation. They lack the knowledge and skills of basic marketing ingredients (i.e. marketing research, market segmentation and marketing planning and control). The outcome of this is poor quality products, unawareness of competition, poor promotion, poor distribution, and poor pricing methods. They are not marketing oriented and market-focused. This is because a marketer is defined as someone who understands and applies marketing in order to create, build, and maintain beneficial relationships with target markets. Boyle (2008) identified lack of marketing orientation as the major factor for business failure. Most Nigeria’s small manufacturer, to an extent in the past, has a very high dependency on imported equipments and raw materials for their operations. With the over devaluation of naira, vis-à-vis other foreign currencies, they are not finding it easier to secure these items abroad. They therefore resort to poor locally produced alternatives. The result is usually poor quality products. This may be one of the factors responsible for the Nigerian consumers‟ continual appetite for imported goods, even though many of these foreign goods are equally of poor quality especially those coming from the Asian and Far East countries. High quality raw materials are important in producing high quality product. With the increasing demand for imported goods in Nigeria, dubious local and foreign importers are dumping fake products which go further to frustrate small scale manufacturers and seriously affect the hard earned foreign exchange. Aside, small-scale producers’ lack of good quality control in their operations, they mainly rely on replacing faulty products instead of developing good quality control system Onwuchuruba (2011).
Only very few Nigerian small manufacturers are aware of the nature of competition facing them. They estimate their success only through sales revenue without considering also their market share. Even, some do not know their market segments on which to focus their operations. Ayozie (2013) has emphasized the importance of good stockholding, transport, and distribution for enhancing commercial success. Many of our small manufacturers do have properly defined criteria for appointing their product distributors. They rely mainly on trust created through relationships between the owners of the companies and the distributors. These relationships are in form of fathers and mothers, brother and sisters, friends, in-laws and other emotional but not business criteria. This mostly has negative impacts in the business.
High costs of vehicles and poor roads are also affecting the operations of small manufacturers in their efforts to move finished products down to consumers in both rural and urban areas. They have a complex channel of distribution with many layers which go to push the prices of their products higher. Besides, small manufacturers pay little attention to the promotion of their products. Advertising and other methods of promotion are not adequately used. There is no other way of creating awareness of their innovations and stimulating consumers to action than promotion. Even, many of them do not participate in trade fairs and exhibitions. This also inhibits their growth and ability to compete with larger companies.
Marketing research is seldomly used in determining what to produce make and sell and in the pricing, promotion and distribution activities. Lastly, in a developing country like ours with low income and high level of poverty, a company that wants to succeed should offer its product at the price the consumers can bear. But often, small manufacturers set prices of their products arbitrarily without regard to the peculiar consumer characteristic in our environment. Since they do not have clearly defined criteria upon which to base their prices, they always seek to maximize profits at short runs without having a long-term view of their businesses.
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