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Marketing Strategies for Micro, Small and Medium Enterprises

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 Marketing Strategies for Micro, Small and Medium Enterprises

Dr. A. Seilan,
Assistant Professor, Department of Economics, Scott Christian College (Autonomous),
Nagercoil – 629003, India

Paper published in the conference proceedings of the National Conference on

“Contemporary Issues in Global Business Management”, held at Department of
Commerce and Management, Karpagam University, Coimbatore, India in the year 2011

Micro, small and medium enterprises (MSME) sector has been recognised as an engine of
growth all over the world. The sector is characterised by low investment requirement,
operational flexibility, location wise mobility, and import substitution.
In India traditional small scale industries have been in focus since Independence. The
medium enterprises are recent entrants, and part of government’s policy focus lately. The
small scale segment is a manifestation of India’s socio-economic development model and has
met with the country’s long-term expectations in terms of contribution to GDP, industrial
base, employment and exports. This segment forms a major part of India’s industrial base.
Recognising the importance of Micro and Small Enterprises (MSEs) in the industrial
development of the country, the Government has initiated a range of programmes in diverse
areas, viz. financing, technology, innovation, market information, technical training and
developmental assistance. These initiatives are important in facilitating the growth of the
MSEs.
In India, the Micro, Small and Medium Enterprises Development (MSMED) Act,
2006 is the first single comprehensive legislation covering all the three segments. In
accordance with the Act, these enterprises are classified in two:- (i) manufacturing enterprises
engaged in the manufacture or production of goods pertaining to any industry specified in the
first schedule to the Industries (Development and regulation) Act, 1951. These are defined in
terms of investment in plant and machinery; (ii) service enterprises engaged in providing or
rendering of services and are defined in terms of investment in equipment.
According to the Micro, Small and Medium Enterprises (MSME) Development Act of
2006, (India) a micro enterprise is where the investment in plant and machinery does not
exceed twenty five lakh rupees. A medium enterprise is where the investment in plant and
machinery is more than five crore rupees but does not exceed ten crore rupees. A small
enterprise is where the investment in plant and machinery is more than twenty five lakh
rupees but does not exceed five crore rupees. In the case of the enterprises engaged in
providing or rendering of services, as
(a) a micro enterprise is where the investment in equipment does not exceed ten lakh rupees.
(b) a small enterprise is where the investment in equipment is more than ten lakh rupees but
does not exceed two crore rupees.
(c) a medium enterprise is where the investment in equipment is more than two crore rupees
but does not exceed five crore rupees.
India has a vibrant micro and small enterprise sector that plays an important role in
sustaining the economic growth, by contributing around 39 per cent to the manufacturing
output and 34 per cent to the exports in 2004-05. It is the second largest employer of human
resources after agriculture, providing employment to around 29.5 million people (2005-06) in
the rural and urban areas of the country. Their significance in terms of fostering new
entrepreneurship is well-recognized.

Marketing Problems faced by Indian Micro and Small Enterprises

Product : The business line of MSE activities in India is relatively similar. A lack of
product diversity is prevalent and as a result similar products are over-
crowding the market.
Price : MSEs are forced to sell at any lower price, due to the existence of larger
enterprises, which sell similar products with reduced prices.
Sales : MSEs which usually intend to sell in an area far from their location are
curbed in their selling activities due to the limited quality of infrastructure
and high transportation costs.
Promotion : Many MSEs plan on promoting their products; however, their budget is
mostly tight.
Competition : Competition arises from two sources; one from relatively larger companies
and the other between MSEs.

Marketing Strategies to be Adopted

A marketing strategy is about developing a good marketing mix. The key areas in
which marketing managers have to make decisions correspond to the four components of the
marketing mix: product, price, distribution and promotion. Marketing is an essential
instrument for increasing SME's effectiveness and investment growth. A skilled development
of marketing strategy allows optimization of company's activities, proper defining of target
groups of goods and services, adjusting distribution system etc.

Strategies in Relation to Competition

Almost all micro and small enterprises have competitors. Therefore, the enterprises
have to strategically stress their strengths over competitor offers. For instance, if one
enterprise has lower costs in comparison to its competitor, then its pricing strategy can be
based on selling at lower price. If the MSE has a broader selection of goods as compared to
its competitors, then he/she should emphasize this issue and take advantage of more sales. If
the competitor's store area is unattractive, a strategy can be set to make one’s own store
more attractive for potential customers. In this way competition can be beaten. Joining
chambers and trade associations is one way of interacting with competitors and learning
how successful those enterprises do business. If the enterprise suffers from different rivals, it
could use a strategy that provides it with a competitive advantage over others as part of the
sales deal.
A wiser strategy would be to try to be good in some competitive areas.
MSEs need to select a few areas, in which they can excel in the competition,
since it is difficult to be good in all areas.
The best strategy would be a strategy that separates
micro and small sized enterprises from its competitors.

The issue of getting data and information is relevant, not only to competition, but to
all other marketing mixes. Besides, information is a knowledge source of what is going on
or what competitors are doing. In relation to the shortage of data and information already
mentioned earlier, the service providers can play a role in establishing centres for data and
information that the MSEs can effectively use in their proximity. It obviously requires a
good budget, but with the assistance of some financiers the topic can be considered.
For micro and small enterprises, the more the stock
of data and information the better they can do business.

Pricing Strategies

The strategy of considering price reduction for market entry can be carefully applied
based on market study. However, under-pricing without studying the market can be a
dangerous risk. Since a small decrease in cost structure leads to high improvement in profit,
the best tactic would be to minimize costs. With due consideration to the profit margin,
temporary price reduction can be used as a strategy to increase sales or to sell products in
high stock. Reduced offer announcements encourage customers of purchasing larger
quantities. A strategy to produce good quality products and charge an appropriate price is a
practical approach to pricing.

Sales Strategies

An analysis of the marketing segment could be carried out to identify the target
customer and to get to know how best to appeal to the respective customer. Some strategic
elements are recommended below. Most MSEs may require retail stores to sell their
products. Although, location means a lot in retailing, a viable location usually costs a lot. A
small shop with an attractive set-up and front can be a good selling location. Establishing a
retail shop is a necessary activity, but it is not easy. Joining chambers and trade association
can help in doing so. If the vicinity markets are not large enough to support daily sales, then
the whole sales strategy can be an alternative. Even window shoppers can be potential
buyers. Therefore, sales forces need to cater also for them and show them that they are also
interested in them as customers.
Building clientele is the best way of keeping
customers loyal to micro and small enterprises.

Selling in collaboration with highly visible and well-respected supermarkets or

distributors is a further alternative. Assigning a sales person with good communication skills
is good selling tactics. Socializers sell by means of building friendships. Although friendship
is an integral part of selling, the product should be the right one, both in its performance and
pricing.
It is important and basic for micro and small enterprises
to attain superior performance in handling customers.
It does not cost them much.

Quick and easier sales can be reached by selling on a gross or bulk basis. However, it
has to be noted that the profit margin can be thin. In such cases, the selling strategy should
include tactics on how to introduce efficient selling systems with a minimal number of staff.
The scheme should consider:
• how to make collection control more efficient;
 • how to make credit sales system tighter;
• how to maximize sales volumes so that overhead costs can be spread reasonably.

Strategic Location of Sales Shop

As a retail shop is an essential linkage within the marketing channel, the location has
to be chosen strategically. Even if it is a micro or small enterprise the location is a deciding
factor. The premise can be chosen by making a comparative analysis between the costs and
benefits to be gained. Before choosing a location for the retail shop, carrying out simple
research concerning the potential buyers and the nature of the product could be
advantageous. The study should identify the following:
• the type of potential buyers (attitudes towards the product and habits);
• the product type (e.g. durable, perishable, for low income, for adults, for girls);
• whether the product or service is in high competition or not;
• the method with which the retailer intends to attract the purchaser;
• the period of time in which buyers prefer to do their shopping.
• Based on the result of the above research, the shop location can be selected

Packaging Strategies

Packaging is a competitive tool and an important factor in strategic marketing. The use
of appropriate packaging can improve sales and transporting aspects related to the product.
Therefore, setting packaging strategies is of importance. The packaging strategies for MSEs
have to be very much cost oriented due to the limited access to finance they have. A
strategic packaging container would be one that can communicate a message of quality,
convenience and reliability. The packaging should have a relevant graphic design on its
outside. With respect to the MSEs the design need not be expensive, but should be one that
can convey the 'Quality Message'.

Branding Aspect

As mentioned earlier some buyers are impulsive and make their shelf-choices quickly.
Hence, the brand mark has to be clearly written. Most buyers in developed countries are
brand-oriented. Manufacturers have to give much consideration to the quality of the product
and equally good consideration to the branding. In most cases it is difficult to try or taste the
quality and standard of a product at the point of sale. Therefore, buyers concentrate on
brands of packaging or label design.
Conclusion

Marketing is an essential instrument for increasing SME's effectiveness and

investment growth. A skilled development of marketing strategy allows optimization of
company's activities, proper defining of target groups of goods and services, adjusting
distribution system etc. Increasingly, it became obvious that the issues concerning marketing
had to be resolved if the small and medium industry sector was to grow and be an important
contributor to national economy. Government of India and various State Governments need to
vigorously promote these SMEs by creating awareness of these products by adopting newer
methods of marketing and brand promotion.

References

Annual Report, 2008-09. Ministry of Micro, Small and Medium Enterprises,

www.msme.gov.in

Effective Policies for Small Business: A Guide for the Policy Review Process and Strategic
Plans for Micro, Small and Medium Enterprise Development (2004), UNIDO and OECD.
Retrieved from
http://www.unido.org/fileadmin/user_media/Publications/Pub_free/Effective_policies_for_sm
all_business.pdf

Keshab Das and Jaya Prakash Pradhan (2009), Externally-oriented Small and Medium
Enterprises: Predicament and Possibilities, Gujarat Institute of Development Research, Sardar
Patel Institute of Economic & Social Research.
Final Results of Third All India Census of Small Scale Industries 2001-2002, Ministry of
Micro, Small and Medium Enterprises, Government of India.
http://www.smallindustryindia.com/publications/books/fcensus.htm

National Commission for Enterprises in the Unorganized Sector, www.nceus.gov.in

Meghana Ayyagari, Thorsten Beck and Asli Demirgüç-Kunt (2005), Small and Medium
Enterprises across the Globe, The World Bank. Retrieved from
http://siteresources.worldbank.org/DEC/Resources/84797-1114437274304/SME_globe.pdf
 Janina Gomes (2001), SMEs and Industrial Clusters: Lessons for India from Italian
Experience, Economic and Political Weekly, Vol. 36, No. 49 (Dec. 8-14, 2001), pp. 4532-
4533

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